Big Spring Planting Bodes Well for Food, Ethanol Companies

By LAUREN ETTER and CARRIE PORTER

U.S. farmers planted more than expected this spring, potentially giving some relief to ranchers, food companies and ethanol makers, which have endured relatively high grain prices in the past two years.
Unless there is a dramatic change in weather over the growing season or some other unexpected disruption to the crops, corn and soybean prices could stay relatively low over the coming months, analysts say.
"If there's a potential winner in this game it's going to be the end users," says Joe Victor, vice president at Allendale Inc., a commodity research advisory firm based in McHenry, Ill. Finally the industries using corn and soybeans have "got a reprieve...they can take a big breath."
The crop estimate released Tuesday by the Agriculture Department comes despite cool, wet weather early in the spring.
American farmers planted an estimated 77.5 million acres of soybeans this spring, up 2% from last year and the biggest on record, according to the Agriculture Department's crop acreage estimates. The agency estimated that the U.S. corn crop will come in at 87 million acres, up 1% from last year and the second-largest planted acreage since 1946.
The report is bearish for investors and traders who had been expecting smaller increases in planted acres this year since inclement weather was thought to have kept farmers from getting into the fields on time.
On the Chicago Board of Trade Tuesday, corn traded about 29 cents lower at $3.48 a bushel, while soybeans traded 11 cents higher at $12.26 a bushel.
John McConnell, a grain farmer in North Dakota, said the wet weather this spring caused him to plant his crops late, and he ended up leaving 10% of his ground without seeds.
"There's concern because our crops are behind," Mr. McConnell said. "Any abnormal weather would impact our yield in the future. We are a little apprehensive that we might get less than optimal weather, which would have a bad impact because we started seeding so late."
The livestock and ethanol industries have been hit hard in past months by high grain prices, pushing producers big and small into the red. Exacerbating the situation, the global recession has cut into demand for meat.
Tom Graham, a cattle and hog farmer in Frazeysburg, Ohio, said that despite the lower grain prices, he is still bracing for a tight year. "The year is just going to be marginal," he says. "Beef prices are down. We're going to be lucky to break even."
The meat industry is cautiously optimistic. "While this crop report is welcomed news for our business, there's still a lot of the growing season to come," said Gary Mickelson, a spokesman at meat giant Tyson Foods Inc., of Springdale, Ark. "We expect continued price volatility in corn and soy."
In the near term, lower corn prices could bode well for the ethanol industry. But ethanol prices will likely fall along with corn prices, meaning more challenges ahead for the industry, according to Jeff Broin, chief executive of POET, one of the nation's largest ethanol producers, based in Sioux Falls, S.D.
Currently there is a glut of ethanol in the U.S., and the industry has been pushing for the government to raise the so-called blend wall, the cap on the amount of ethanol that can be blended into the nation's gasoline supply.
Write to Lauren Etter at lauren.etter@wsj.com and Carrie Porter at carrie.porter@wsj.com