A U.S. Department of Agriculture news release from yesterday stated that, “Driven by growing ethanol demand, U.S. farmers intend to plant 15 percent more corn acres in 2007, according to the Prospective Plantings report released today by the U.S. Department of Agriculture’s National Agricultural Statistics Service (NASS). Producers plan to plant 90.5 million acres of corn, the largest area since 1944 and 12.1 million acres more than in 2006.

I. Prospective Plantings
II. Farm Bill Related Reports

I. Prospective Plantings

A U.S. Department of Agriculture news release from yesterday stated that, “Driven by growing ethanol demand, U.S. farmers intend to plant 15 percent more corn acres in 2007, according to the Prospective Plantings report released today [full report] by the U.S. Department of Agriculture’s National Agricultural Statistics Service (NASS). Producers plan to plant 90.5 million acres of corn, the largest area since 1944 and 12.1 million acres more than in 2006.

“Expected corn acreage is up in nearly all states, due to favorable prices fueled by increased demand from ethanol producers as well as strong export sales. Illinois farmers intend to plant a record 12.9 million corn acres this spring, up 1.6 million acres – or 14.2 percent – from 2006. Record-high acreage is also expected in Minnesota, North Dakota, California and Idaho. Iowa continues to be the largest corn acreage state with 13.9 million acres, up 1.3 million acres – or 10.3 percent – from 2006.

“The increase in intended corn acres is partially offset by a decrease in soybean acres in the Corn Belt and Great Plains, as well as fewer expected acres of cotton and rice in the Delta and Southeast. U.S. farmers plan to plant 67.1 million acres of soybeans, the lowest total since 1996 and a decrease of 8.4 million acres – or 11 percent – from 2006. Area planted to cotton is expected to total 12.1 million acres, down 20 percent from 2006.”

For a complete analysis of the Prospective Plantings report, including implications, listen to this University of Illinois Extension interview (MP3) with University of Illinois Agricultural Economist Darrel Good, which was posted yesterday morning.

Reuters writer Charles Abbott reported yesterday that, “U.S. farmers plan to cash in on the ethanol fuel boom by planting the largest area to corn in 63 years, potentially yielding a record crop and calming fears that renewable fuels will steal grain needed for food and feed, the federal government said on Friday.

“Even with record output, this year’s corn crop could sell for a record $3.50-$3.60 a bushel at the farm gate, market watchers said. Corn prices have doubled since last fall due to explosive growth of the ethanol industry, driving up costs for cattle, dairy, hog and poultry producers.

“Based on a survey of 86,000 farmers earlier this month, the Agriculture Department projected corn(maize) plantings of 90.454 million acres, which would be the largest acreage since 1944.”

Mr. Abbott indicated that, “Growers told USDA they will cut back on soybeans in the Midwest and on cotton and rice in the South to sow more corn.”

New York Times writer, Andrew Martin reported in today’s paper that, “But intentions do not always translate into reality. Many analysts were cautioning yesterday that it was too soon to assume there would be a bumper crop.

“Some farmers may change their minds about planting corn, especially after corn futures dropped on news of the planting report, though prices remain strong. The analysts, however, were worried about the weather.”

The Times indicated that, “But news of a record corn planting did not please everyone. Ken Cook, president of the Environmental Working Group, an environmental advocacy group, said the report should serve as a warning to Congress on the consequences of an ethanol boom, which include increased water pollution from fertilizer. Corn requires heavier applications of nitrogen fertilizer than any other crop.

“‘Up until now, ethanol policy has been little more than a political bidding war,’ Mr. Cook said in a statement. ‘Policy makers are outdoing one another to propose the biggest, fastest expansion of subsidies, and the most aggressive federal mandate to produce more ethanol and put more of it in our gas-guzzling automobile fleet.’”

Associated Press writers Nafeesa Syeed and David Pitt reported yesterday that, “Bob Ray, a senior vice president at the Chicago Board of Trade, said predictions that corn prices will continue to decline because of plentiful supply from a huge harvest must be balanced with increasing demand from the export market.

“Both China and India have sent signals recently that they’ll import significant amounts of U.S. corn. The Chinese can’t raise enough corn to feed their rapidly growing livestock market and India has recently lowered tariffs, indicating plans to import grains from the United States.

“A wild card also could be the European Union, which also has to meet required renewable fuel mandates and doesn’t have enough land available to set aside for grains to make into ethanol.”

Kevin Morrison, writing in today’s Financial Times, reported that, “Cotton planting in the US is expected to fall to its lowest level since 1989.

“The move also brings the food-versus-fuel debate further into focus, as more arable land in the US is used for fuel crops than for food at a time when global food demand is growing due to increased wealth and rising populations.

“Grain analysts said the reduction in soybean growing could lead to falling stockpiles, which could push up prices and result in livestock farmers paying more for animal feed made from soybeans.

“It also puts more pressure on Brazilian and Argentine soy farmers to increase production to fill the void in export markets likely to be left by the US.”

Nancy Cole reported in today’s Arkansas Democrat Gazette that, “Arkansas farmers plan to increase the number of acres they plant this spring in corn and grain sorghum by 195 percent and 217 percent, respectively, according to a report issued Friday by the U. S. Department of Agriculture’s National Agricultural Statistics Service.

“Meanwhile, acreage for all three of the state’s major row crops is expected to decline: cotton, down 29 percent; rice, down 13 percent; and soybeans, down 7 percent.”

The article also noted that, “Rice acreage also is expected to decline, dropping nationwide by 7 percent to 2. 64 million acres, and — in Arkansas — by 13 percent to 1. 22 million acres. If realized, such a drop in Arkansas would mean the smallest acreage since 1996, when 1. 18 million acres were sown.”

Bill Hord reported in today’s Omaha World-Herald that, “In Nebraska, the projected 9 million acres of corn would be the most planted since 1936. In Iowa, the 13.9 million acres of corn projected by the USDA annual planting intentions survey would be the most since 1985.

“‘At this level of production, corn producers can satisfy all the needs when you look at food, feed and fuel,’ said Don Hutchens, executive director of the Nebraska Corn Board.”

Jim Downing noted in today’s Sacramento Bee that, “Matching a national trend, California farmers plan to sow nearly 20 percent more corn this year than last, an increase of 100,000 acres and a state record. But unlike in the rest of the country, most of the new plantings here are driven by the need to feed cattle, not ethanol refineries.”

The article explained that, “Though a powerhouse in many crops, California is a minor corn producer, accounting for about 0.7 percent — 620,000 acres — of the national acreage this year.

“But the price of corn still matters to the state’s farm industry, because it is used to feed millions of cattle and chickens here. California’s nation-leading dairy industry sold $5.3 billion in milk in 2005. Dairy producers who depend on rail cars of corn from the Midwest have complained for months about the impact of the ethanol boom on their industry.”

Lauren Etter and Bill Tomson reported in today’s Wall Street Journal that, “Outside the U.S., countries are also responding to market signals by planting more corn. In Brazil and Argentina, corn acreage is expected to expand, which could put downward pressure on prices.

“Meanwhile companies that produce agricultural products, like fertilizer and other chemicals, could see their stocks soar over the season as demand for these products increases. Also for seed companies, a big corn crop is good news. Already DuPont Co.’s Pioneer Hi-Bred International unit — one of the nation’s largest suppliers of corn seed — is sold out of its best corn hybrid seeds.”

Debbie Carlson, writing at Barron’s Online, indicated that, “The grain industry was expecting a hike in corn acreage this spring, but this was about 2 million acres more than expected. Chicago Board of Trade corn prices swooned Friday, falling to their daily exchange-imposed price limit of 20 cents. The May contract ended the session at $3.7450 a bushel, a drop of 28.75 cents on the week.

“The sharp fall in prices doesn’t mean the bull market for corn is over, however. Prices could decline for several sessions, but they already are off their February highs — by 16.6% for the May contract and 10.8% for the December contract (which represents the fall harvest).

“Just because farmers tell Uncle Sam they intend to plant wall-to-wall corn doesn’t mean it’s going to happen. By June 30, when the USDA will ask what they actually planted, that carpet could more closely resemble an area rug.”

Chris Clayton reported yesterday at DTNAg.com that, “With USDA’s greater-than-expected corn acreage estimate Friday, Secretary of Agriculture Mike Johanns felt comfortable that there would be less pressure to find more crop acres through early opt-out of the Conservation Reserve Program.

“The secretary waited Friday until the grain markets closed to announce there would be no penalty-free early release for landowners with CRP contracts.

“Johanns said in an interview with DTN Friday afternoon that the Prospective Plantings report was one of the ‘last pieces of information’ he was waiting to review before deciding on whether to make the ‘very, very unusual move’ of a CRP opt-out. With corn acres ballooning to a projected 90.5 million, that made it easier to not make the offer.

“‘I really was waiting for this intentions report and feel like I was handed a very valuable piece of information this morning,’ Johanns said.”

II. Farm Bill Related Reports

USDA’s Economic Research Service (ERS) has provided a new webpage resource, “Farm Bill Issues: ERS Research and Analysis.”

According to the page, “Agricultural policy affects not only the economic well-being of farm households, but also our food supply, the environment, and the future of rural communities. The current farm law (the Farm Security and Rural Investment Act of 2002) remains in force only through 2007. The agriculture committees in Congress have begun to debate ideas and, in the upcoming months, will be crafting legislation that will become the next farm law. ERS analysts examine the economic effects of current farm legislation on producers, consumers, taxpayers, and rural communities, and evaluate potential effects of alternative policies and programs. Included in this feature is a selection of recent ERS research and analysis on issues that the farm bill debate will address.”

The page features sections on commodity programs, conservation, trade, nutrition programs, rural development, agricultural research, energy, as well as helpful links regarding specific Farm Bill provisions.

At the page, readers can also sign up for e-mail notices of new farm bill-related research and analysis.

Meanwhile, ERS has published two important reports, the “Feed Grains Backgrounder,” by Linwood Hoffman, Allen Baker, Linda Foreman, and C. Edwin Young; and the “Cotton Backgrounder,” by Leslie Meyer, Stephen MacDonald, and Linda Foreman, which provide excellent background and perspective regarding the feed grain and cotton sectors of the agricultural economy.

A summary of the “Feed Grains Backgrounder” noted that, “The U.S. feed grain sector, largest of the major U.S. field crops, faces unprecedented demand conditions. The size and speed of the expanding use of corn by the ethanol industry is raising widespread issues throughout U.S. agriculture. Debate is ongoing over the use of grain for fuel instead of for food or feed and the adequacy of future grain supplies. Increased productivity (yield) and additional area from land planted to competing crops, land enrolled in conservation programs, or idled land is expected to provide an increased supply of feed grains. The outlook is for higher feed grain prices, in part, as a result of renewable energy policies and high energy prices, with feed grain prices rising above farm program support levels. During the ongoing farm policy debate, the U.S. feed grain sector faces uncertainty about the future level and type of government support.”

A summary of the “Cotton Backgrounder” indicated that, “U.S. cotton growers, like producers of other agricultural commodities in recent years, have confronted pressures from market forces and the impacts of policy developments, both domestic and international. Most notably, the ending of the Multifiber Arrangement (MFA) sent a ripple effect throughout the global cotton industry. While adjustments in the textile and apparel sectors of many countries, including the United States, continue to evolve, dramatic changes have already been seen for some. World cotton mill use has accelerated along with economic growth since 1999, particularly in China, and U.S. cotton producers have benefited as foreign import demand has reached new heights. Government payments contribute a considerable portion of total revenue to the cotton sector, and adjustments to this program or any other commodity program in the 2007 farm legislation will be driven by factors such as domestic market conditions, multilateral trade negotiations, and the Federal budget deficit.”

In addition to ERS research, the Center for Agricultural and Rural Development at Iowa State University has also published important research relating to the 2007 Farm Bill.

“Adoption Subsidies and Environmental Impacts of Alternative Energy Crops,” which was written by Bruce A. Babcock, Philip W. Gassman, Manoj Jha, Catherine L. Kling, provides “estimates of the costs associated with inducing substantial conversion of land from production of traditional crops to switchgrass. Higher traditional crop prices due to increased demand for corn from the ethanol industry has increased the relative advantage that row crops have over switchgrass. Results indicate that farmers will convert to switchgrass production only with significant conversion subsidies. To examine potential environmental consequences of conversion, we investigate three stylized landscape usage scenarios, one with an entire conversion of a watershed to switchgrass production, a second with the entire watershed planted to continuous corn under a 50% removal rate of the biomass, and a third scenario that places switchgrass on the most erodible land in the watershed and places continuous corn on the least erodible. For each of these illustrative scenarios, the watershed-scale Soil and Water Assessment Tool (SWAT) hydrological model (Arnold et al., 1998; Arnold and Forher, 2005) is used to evaluate the effect of these landscape uses on sediment and nutrient loadings in the Maquoketa Watershedin eastern Iowa.”

The full report is available here.

-Keith Good