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Isn't it too early to talk 2008 acres?

It's October. We all know that. But to hear some Chicago-based market-watchers talk, you'd think we were a week or two away from the March 31, 2008, Prospective Plantings Report! We've had the discussion many times about the "2008 acreage battle"--wheat needs more acres to relieve an exceptionally tight global stocks situation and soybeans "can't afford" to plant just the 64.1 million acres planted in 2007.

What about corn? Heck... the consensus among market watchers is corn could lose a few million acres from the 92.9 million planted in 2007 and 2008-09 supplies will be more than adequate to keep up with demand.

First, let s talk wheat-

Globally, wheat seedings for the 2008-09 marketing year will be up sharply from year-earlier. In the European Union (EU), ag ministers voted to temporarily suspend the 10% acreage set-aside program, bringing an estimated 4 million to 7 million acres back into production for the 2008-09 marketing year. That's one step to relieve some global supply pressure.

Also, global wheat prices may not have followed the surge in U.S. wheat prices tick-for-tick, but prices are high enough to encourage more production in traditional and non-traditional wheat-producing countries. How much more? That's anybody's guess at this point... but it's a safe assumption even countries like Yemen will be planting more wheat in 2008.

And then there's you--early plantings and crop insurance incentives suggest winter wheat acres will be up sharply in 2008. And if winter wheat acres aren't up, growers in the Northern Plains appear ready to make a switch back to spring wheat for 2008 to capture excellent pricing opportunities (especially with corn input costs climbing).

And don't forget about maturing CRP contracts that were not extended or re-enrolled. That will bring 1.5 million to 2 million wheat-country acres back for 2008.

No matter where we grow wheat in the U.S., talk is acres are moving over to wheat for 2008. That's why we find it surprising that many market-watchers see "just" a 3-million-acre rise over year-ago for all-wheat acres. Market conditions alone suggest a 5-million-acre increase. We figure up to 2 million acres from expiring CRP contracts, roughly 2 million acres in southern soft red winter wheat country will move from corn and/or cotton and another 1 million acres in the Northern Plains will move back to wheat from corn and soybeans.

Soybeans already bought some acres

Admittedly, it's still too early to make that prediction with a high level of confidence. But, based on grower comments, attractive 2008-crop soybean prices and a "fear" of climbing input costs on corn will send some acres from corn or cotton back to soybean production for the 2008 growing season.

But... if you are planning to increase soybean acres for 2008, make sure you lock in a price on at least a portion of those acres now! There is no guarantee today's 2008-crop prices will be available in the fall of 2008.

And--in reality--final Midwest planting decisions won't be made until early March 2008. That's when we'll know the spring average price for Crop Revenue Coverage (CRC). (In 2007, it was the $4.02 CRC spring corn price that "locked in" the jump to 92.9 million planted acres. It may take a "high" CRC spring price on soybeans to "lock in" a big increase for soybeans in 2008.)

And the increase in SRW wheat plantings will provide some acres for double-crop soybeans. While double-crop soybean acres (normally) don't yield like full-season beans, the increased potential for double-crop bean acres may be enough to convince the bean market it has done its job of buying acres for 2008.

Then there's the wildcard... Brazil. Brazilian consulting firm Celeres estimated an 8.2% increase in bean plantings for the 2007-08 growing season. That's a "tick" above market expectations, but a slow start to the corn planting season, and the move to $10 May bean futures, could move more acres to soybeans this year.

Corn can't lose too many acres

We'll let the table speak for itself, but the assumptions deserve some explanation:

* On 2006-07, we plugged Sept. 1 corn stocks of 1.304 billion bu. into the carryover. To push carry up to that level, we took all the use out of the feed & residual category and matched USDA's September estimates on FSI and exports. USDA could eventually add some yield to the 2006 corn crop to increase supply to "hold up" Feed & Residual use.

* On 2007-08, we used USDA's September supply and usage estimates, but factor in the higher beginning stocks of 1.304 billion bushels.

* On 2008-09, the three scenarios represent steady-with-2007 corn plantings; a 3-million-acre cut; and a 6-million-acre cut in corn acres. All other supply and usage assumptions are stagnant and conservative to show the impact of changes in corn plantings.
Corn 2006-07 2007-08 2008-09 PF projections

 PF PF Steady - 3 Mil. - 6 Mil.

Planted (mil. ac.) 78.3 92.9 92.9 89.9 86.9

Harvested (mil. ac.) 70.6 85.4 85.4 82.6 79.9

Yield (bu./ac.) 149.1 155.8 155.5 155.5 155.5

 (million bushels)

Beginning stocks 1,967 1,304 1,837 1,837 1,837

Production 10,535 13,308 13,274 12,845 12,417

Imports 10 15 15 15 15

Total supply 12,512 14,627 15,126 14,697 14,269

Feed/Residual 5,588 5,850 5,800 5,800 5,800

Food/Seed/Industrial 3,500 4,690 5,700 5,700 5,700

Ethanol for fuel/1 2,125 3,300 4,100 4,100 4,100

Total domestic use 9,088 10,540 11,500 11,500 11,500

Exports 2,120 2,250 2,200 2,200 2,200

Total use 11,208 12,790 13,700 13,700 13,700

Carryover 1,304 1,837 1,426 997 569

Carryover, days' 42.5 52.4 38.0 26.6 15.1

Stocks-to-use ratio 11.6% 14.4% 10.4% 7.3% 4.2%

BOTTOM LINE: Corn can't lose too many acres from 2007!
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Author:Flory, Chip
Publication:Pro Farmer
Date:Oct 6, 2007
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