March 31, 2011, 12:07 p.m. EDT
Agriculture Futures Surge On Crop Reports
By Tom Polansek
CHICAGO—Agriculture futures surged after U.S. officials said grain and soybean inventories declined more than expected this winter.
Corn futures climbed 4.5% to $6.9325 a bushel at the Chicago Board of Trade, the largest allowed one-day increase under exchange rules. Soybean, wheat and cotton futures jumped as well.
The price gains came even as the U.S. Department of Agriculture in a separate report said that growers will increase their plantings of most crops to take advantage of multi-year-high prices in farm commodities. Worries remain over the spring weather, with traders and analysts fearing wet weather in the Midwest and dry weather in southern states like Texas will prevent farmers from being able to replenish low supplies.
"Our margin of error has gotten even tighter," said Don Roose, president of U.S. Commodities, a brokerage firm in Iowa, of the upcoming crop.
Prices for agriculture commodities have soared since last summer as poor weather curbed harvests around the world and global demand continued to grow. High prices for corn and other crops have contributed to rising food prices around the globe. A United Nations world food-price index stands at record highs.
The USDA in a separate, closely watched report signaled U.S. farmers are responding to the high prices and plan to sow more overall acres this year.
The agency said farmers intend to plant the second-largest number of corn acres since 1944. Wheat and cotton acreage are expected to jump as well. Growers will reduce soybean plantings due to competition for acreage from corn and cotton, yet still are forecast to sow the third-largest crop on record, according the USDA forecast.
Farm-equipment stocks rose in the wake of the higher total acreage and the expected boost to corn planting, a crop that requires heavier-gauge equipment as well as more fertilizer. Sector leader Deere (NYSE:DE) & Co. was up 1.8% at $96.16 after trading around all-time highs in recent sessions, with Agco (NYSE:AGCO) Corp. 2.5% higher at $55.49. CF Industries (NYSE:CF) Holdings was the best performer among nutrient suppliers, up 4.4% at $5.80, and Monsanto (NYSE:MON) Co. shares were 2.2% higher at $72.33.
Tighter-than-expected crop supplies increase the importance for favorable growing weather this spring. Yet, meteorologists warn wet weather could prevent early planting and potentially reduce output if farmers aren't able to get in their fields in a timely manner.
"It's dangerous to have corn stocks that low. Basically you're relying on perfection in the growing season," said Sal Gilbertie, lead portfolio manager of The Teucrium Corn Fund, an exchange-traded fund.
The decline in corn inventories raised concerns season-ending U.S. supplies would hit an all-time low. The USDA last month estimated corn supplies at the end of August would hit a 15-year low, with inventories equaling only 18 days of U.S. demand including exports, according to Allendale, an agricultural research and brokerage firm in Illinois. Soybeans stocks are expected to equal a 15.5-day cushion by the end of August, the firm said. The U.S. is the largest exporter of both crops.
Cotton acreage is forecast to expand 15% to 12.566 million acres, but the increase may not mean strong growth in production for the U.S.—the world's largest exporter of the fiber—since bad weather, particularly in dry West Texas, could clip output.
Cotton for May delivery rose 2.5% to $1.9857 a pound in midday trading on IntercontinentalExchange. A combination of high demand and tight supply drove cotton futures prices to an all-time high of $2.2700 earlier this month, and the USDA's estimate supported the market's belief that the situation will continue.
As for plantings this spring, the USDA forecast farmers will sow 76.6 million acres of soybeans, down about 1% from last year. Analysts on average had expected 77 million acres.
U.S. corn plantings are expected to be 92.2 million acres this year, a 5% jump from last year. Analysts on average expected farmers would sow 91.7 million acres.
Plantings of wheat are projected at 58 million acres, up 8.2% from last year, when wet weather prevented planting in the Plains and Midwest. That topped traders' expectations for plantings of 57.3 million acres.