Analysis: Price rally, farm aid whet US farmers’ appetite to extend corn plantings

A rebound in global corn prices to three-year highs and the recent announcement of a farm aid package by Washington is likely to encourage US farmers to plant corn beyond their final dates in an effort to dilute the damage from record low plantings, analysts said this week.

The final planting date for major corn growing areas passed on June 5, but market sources believe farmers will continue sowing until June 10, or even beyond that date in some growing regions.

According to the US Department of Agriculture’s crop progress report released Monday, corn planting in the country is only 67% complete — against a five-year average of 96% — making the planting pace this year the slowest on record.

The USDA has pegged corn acreage in the US at 92.8 million acres, with calculations showing that nearly 31 million acres of corn acreage was still unplanted.

Farmers had earlier received some encouragement from the Trump administration’s announcement on May 23 of $16 billion in farm aid under the Market Facilitation Program. The aid, which applies only to planted acres, is likely to incentivize farmers to plant beyond the scheduled dates, analysts said.

“It provides incentive for farmers to plant later than is reasonable, just to get a payment,” said Arlan Suderman, Chief Commodities Economist with INTL FCStone.

Scott Irwin, an agricultural economist with University of Illinois, said the market facilitation program would add 30-40 cents per bushel to a farmer’s expected returns from the crop. “If the expected amount per acre is large enough, it could provide farmers with an incentive to plant corn in early June, which they wouldn’t do ordinarily,” Irwin added.

He cautioned that extending planting poses a threat to yields. “You should expect at least 20% drop in yields if you are planting corn after June 5 in the US,” Irwin said.

Concerns over smaller acreage and a fall in output have supported the prices of corn. On the Chicago Board of Trade, the most active July futures contract for corn hit a three-year high at $4.38/bushel last week.

“The rally in the market is expected to stimulate farmers to go further than they otherwise would to plant their crops, particularly with December corn trading well above $4 per bushel,” Suderman said.

The December futures contract for corn on the CBOT closed at $4.36/bushel on Thursday.

IMPACT ON PLANTING DECISIONS

Washington recently announced the $16 billion in farm aid to assist farm producers who faced losses due to the ongoing trade tensions between the US and China. Of the total, $14.5 billion will be distributed directly among farmers.

Last year, the US had provided $12 billion to farmers affected by the trade dispute, but the aid share varied for different commodities. Of that $12 billion, $7.3 billion was provided to soybean producers and the rest distributed among other commodities.

The USDA this time has not disclosed the details of the aid payments in order to avoid distortions in planting decisions. The announcement comes at a time when unfavorable weather conditions have resulted in historic delays in corn plantings. It has also delayed the planting of soybeans.

Irwin said the aid should not influence the choice of crop for farmers. According to him, up to 10 million acres of corn could go unplanted this season.

Maxar expects the acreage under corn in the US to be 80.4 million acres, nearly 12.4 million acres below the USDA’s estimate.

According to US-based agri-business firm DTN, the Agricultural Retailers Association had requested an extension to final planting dates in the US, which the USDA rejected.

Weather forecasts for the US point to prolonged wet conditions and possible flooding in some pockets — suggesting that trouble will continue for farmers who want to extend planting.
Source: Platts