US: March 28, 2008


WHITE CLOUD, Kan. - Kansas farmer Ken McCauley wants to help keep the world from going hungry next year, so he's planting corn: lots and lots of corn.


The third-generation farmer said he'll begin seeding about 3,000 acres of corn on his north-eastern Kansas farm within the next two weeks, compared to only about 1,000 acres of soybeans he'll plant this spring, a change from his traditional 50/50 mix of the two key crops.

Indeed, with food prices racing higher around the world, and strong demand for corn from food companies, livestock producers and ethanol makers, US corn production is considered a critical component of keeping people fed.

Higher prices for corn have fattened farmer wallets even as stocks from last year's bumper crop remain sufficient for the short term.

But as spring planting season draws near, now market analysts fear that many US farmers will not follow McCauley's example but will instead plant soybeans, which are commanding historic high prices at more than $13 a bushel (compared with $5.50 a bushel for corn) and are much cheaper to produce than corn.

Market experts say all signs point to a sharp decline in overall US corn seeding this spring, which could spell a significant tightening of supplies that would resonate at home and abroad, impacting everyone from consumers to cattle feeders.

"We have tight stocks worldwide and strong demand, so when there is an acreage or production shortfall you end up with more extreme and violent moves in prices. This is the risk that we face," said agricultural economist Bill Lapp.

On Monday, the US Department of Agriculture will issue a report laying out its latest estimates for this year's seeding of key corn, soybean and wheat crops.

Analysts on average were predicting this year's corn acreage at 87.387 million acres, down 6.2 million acres from 2007's 93.6 million, which was the biggest corn area in over 60 years.

Soybean plantings are estimated by analysts on average at 71.721 million acres, up from 63.6 million last year.

Because soybeans are typically planted later than corn, which goes into the ground in early to mid-April in many areas, those numbers could shift even further in favour of beans if current unfavourable wet and cool weather in the US corn belt persists.

North America Risk Management Inc analyst Jerry Gidel said that 2008 corn plantings need to be at least in the 88 million-89 million acre range to generate even minimally adequate supplies for 2008/09. The fact that planting estimates are already below that and there is the potential for even more declines is causing anxiety across the marketplace, according to Gidel.

"People are getting nervous," he said.

A shortfall in corn this year would follow last year's short supplies of quality world wheat and soy crops, which caused prices to spike to record levels and contributed to rampant inflation in food prices domestically and abroad.

Fears are further compounded by the fact that farmers in Argentina, one of the world's leading suppliers of soy, corn, wheat and beef, have gone on strike in a protest against new taxes, essentially shutting down the country's grain export business.

"There are a number of the larger food companies that understand not only the tightness in stocks for corn, soybeans and wheat in the US but also globally, and those food companies are preparing for it," said Joe Victor vice president at Allendale, a commodity research advisory firm. He called the situation "unnerving."

"What does it mean for the consumer? More than likely higher prices yet to come," Victor said. "With higher grain costs, whether that grain is being fed for milk production, meat or egg production ... it's very likely we're getting ourselves into a bind."

For McCauley, who is chairman of the National Corn Growers Association, the market issues translate to higher profit potential. Indeed, McCauley is holding tight to about 50,000 bushels of old corn, anticipating what analysts say could be another 10 percent or greater price jump.

"Corn was too cheap before," said McCauley, taking a break from clearing winter debris from his still-barren fields. "We're making the most of this."

(Reporting by Carey Gillam; editing by Jim Marshall)


Story by Carey Gillam


REUTERS NEWS SERVICE