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April 1, 2003

Ag economist: Farmers' decisions planted firmly in corn

WEST LAFAYETTE, Ind. – Farmers are ready for a return to normalcy this year, and in Indiana, that means corn could be the top crop once again.

On Monday (3/31) the U.S. Department of Agriculture reported the results of its annual producer survey on spring planting intentions. As a group, farmers said they expect to plant more corn and fewer soybeans.

It makes sense, said Chris Hurt, a Purdue University agricultural economist. He said farmers are reacting to a combination of factors.

"We think we're going to see further recovery to the upside in new crop corn prices, with soybean prices probably stable to lower," Hurt said. "Secondly, as we move into early April, we've seen moderation in those extremely high prices on fuel. That makes corn production costs come down relative to what we thought they might be just three or four weeks ago. The other factor we think will give us more corn is the potential for an early planting season throughout the Midwest."

Indiana corn prices rose about 10 cents Monday, ranging from $2.40-$2.50 a bushel. Conversely, soybean prices fell 7 cents, to between $5.70 and $5.90 a bushel. Natural gas prices have come down after reaching record or near-record levels in March. Natural gas is a chief component of nitrogen fertilizers, an important input for corn.

As for weather, farmers are optimistic they won't see a repeat of 2002. Planting was delayed and crop yields hurt in Indiana and other Eastern Corn Belt states by excessive rain in April and May, followed by abnormally dry conditions. The bizarre weather forced many farmers to plant soybeans instead of corn. For the first time in history, Hoosier farmers seeded more acres to soybeans than corn.

This spring, Indiana farmers are prepared to plant 5.7 million acres of corn and 5.6 million acres of soybeans, according to the USDA report. Those numbers represent a 6 percent increase in corn acres and 3 percent decrease in soybean acres.

"I think what we see in this report is that farmers throughout the Midwest want to get into their normal crop rotations," Hurt said. "For crop producers that tends to be about 50-50 corn and soybeans, unless they have wheat in the rotation.

"In Indiana, farmers are saying that they're going to plant 300,000 more acres to corn this year. Also, we're seeing a corresponding reduction in soybean acreage – down 200,000 acres in Indiana."

Because of federal agricultural policies and foreign competition, soybean acreage might not approach 2002 levels again, Hurt said.

"We have peaked out on soybean acreage," he said. "Under the Freedom to Farm Act, which was governmental policy from 1996 to 2001, the loan levels on soybeans provided incentives to produce soybeans over corn and wheat. Under the current ag act that started in 2002 and extends through 2007, the government has rebalanced the loan. The soybean loan dropped 26 cents a bushel and the corn loan increased 9 cents a bushel, with the wheat loan up 22 cents per bushel. This will provide some additional incentive to plant corn and wheat, and less incentive to plant soybeans.

"Another factor is the large expansion in soybean acreage in Brazil and Argentina. As they rapidly expand their acreage they're gaining a larger percentage of the world trade in soybeans."

Nationally, farmers intend to plant 79 million acres of corn and 73.2 million acres of soybeans this spring, the USDA reported. Anticipated corn acres are virtually unchanged from a year ago, while soybean acres would dip 1 percent. If projections hold true, 2003 would mark the third straight year of declining U.S. soybean acreage.

Commodity analysts wouldn't be surprised if farmers plant even more corn than the USDA estimates, Hurt said.

"I think we could go up to 79.5 million to 79.6 million acres," he said. "They were expecting about 80.5 million acres."

In 2002, Indiana farmers planted 5.8 million acres of soybeans and 5.4 million acres of corn. State corn production was 631.6 million bushels, down 29 percent from 2001, while soybean production was 235.8 million bushels, a 14 percent drop from the previous year.

Writer: Steve Leer, (765) 494-8415, sleer@purdue.edu

Source: Chris Hurt, (765) 494-4273, hurtc@purdue.edu

Ag Communications: (765) 494-2722; Beth Forbes, bforbes@aes.purdue.edu; http://www.agriculture.purdue.edu/AgComm/public/agnews/

Related Web sites:
USDA Prospective Plantings Report
Purdue Department of Agricultural Economics


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