Corn rally may crack livestock farmers first - CF

by Agrimoney.com

Livestock farmers may be the first to crack from high corn prices, CF Industries said, as it added its voice to observers predicting US corn sowings of 92m acres this year.

The fertilizer group forecast that a three-year run of rising US corn consumption would end in 2011-12 at a little over 13bn bushels, constrained by high prices, supported by tight supplies.

The stocks-to-use ratio of 5% for corn at the end of 2010-11 was "incredibly low, and an uncomfortable level for US agriculture and food supplies", Steve Wilson, the CF chairman and chief executive, told investors.

The stocks-to-use ratio is a key measure of the readiness of a crop's supply, and therefore of the price it is likely to command.

Historical precedent

The last time crop prices spiked, in 2007-08, the livestock sector "was the first area where some stress showed up", Mr Wilson said.

CF Industries crop forecasts, 2011-12 and (preliminary USDA estimate) Corn sowings: 92m acres, (92.0m acres) Total area under primary crops: + about 10m acres, (+10.0m acres) Corn stocks-to-use ratio, end 2011-12: 7%, (8.4%) Data for US crops only

Information he had seen suggested that livestock producers were already "not consuming as much feed as they were six months or a year ago".

Further insight into the sector will be gained later when the USDA unveils monthly data for feedlot dynamics, with analysts expecting a small increase, of 3.6%, in cattle placed on feed.

Mr Wilson added that corn ethanol output was also an area to "keep an eye on", with producers bouncing between being "modestly cash positive and modestly cash negative".

US corn exports looked set for a marginal increase in 2011-12, a CF presentation showed.

'Stars and planets aligned' 

The forecasts echo to some extent preliminary data for 2011-12 released by the US Department of Agriculture earlier this week, showing a drop in feed use, and small rises in both ethanol and exports, although factoring in updated official estimates for this season for comparison gives a less clear picture.

CF, like the USDA and Deere & Co, said that American growers would raise corn sowings by 3.8m acres to a four-year high of 92m acres.

Indeed, on CF calculations, returns over variable costs from growing corn were $200 an acre higher than those of soybeans.

And with fertilizer costs expected this year at 14% of expected corn revenues, compared with a 10-year average of 19%.

"Fertilizer is eminently affordable. In fact, it is highly desirable for the farmer to maximise his yield. We think, frankly, all the stars and planets are aligned to support corn planting," Mr Wilson said.

Corn, as a fertilizer hungry crop, is an especially important indicator of the outlook for nutrient groups.

Market outlook 

Mr Wilson added that, with a scramble by farmers to raise production, it was "a great time to be a nitrogen and phosphate producer".

CF forecast that fertilizer markets would "remain strong through the spring season, with high crop prices continuing to set the tone".

CF late on Thursday unveiled earnings of $200.3m for the October-to-December quarter, equivalent to $2.78 per share, compared with $51.4m in 2009, with profits lifted by contributions from Terra Industries, the nitrogen group acquired last year, and revived market conditions.

CF shares stood 1.9% lower at $144.97 in morning trade in New York.

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