The nation’s farmers are expected to boost corn plantings next spring to about 93.5 million acres, the fourth-highest total in the past 73 years, as tight stockpiles keep grain prices near the record levels reached earlier this year, fertilizer maker CF Industries Holdings, Inc., said.
Farmers are “flush with cash” as the fall harvest nears completion and corn above $6 a bushel fuels a record agriculture income boom, said Stephen Wilson, CF Industries’ chief executive. That’s resulted in strong orders for ammonia and other nitrogen-based fertilizers that will be used to grow next year’s crop, Wilson said during a Nov. 2 conference call with analysts.
“Corn economics are very attractive for farmers,” Wilson said. On Nov. 1, Deerfield, Ill.-based CF Industries said net income for the third quarter soared nearly seven-fold, to $331 million, as rising demand lifted fertilizer prices. Wilson expects strong results to continue into 2012.
Wilson said he’s “bullish” on the fall fertilizer season because of favorable weather, tight crop input supplies and the outlook for higher plantings. “Longer-term, we believe agriculture fundamentals will continue to support strong crop nutrient demand for the foreseeable future,” he said.
CF Industries’ corn acreage estimate is based partly on internal analysis, including fertilizer orders placed by its wholesale distributor and crop nutrient retailer customers. Seedings at 93.5 million acres would be up 1.7 percent from 2011 and would be the highest planted acreage since the end of World War II, according to the U.S. Department of Agriculture.
With the 2011 harvest winding down, grain traders and analysts are shifting focus toward next year’s crops. This year’s corn harvest fell short of expectations following an unusually wet spring and hot summer, meaning farmers must produce a bigger crop next year to ease strain on shrinking global grain supplies, analysts say.
Higher corn acres in 2012 suggest some is relief ahead for beef, dairy and pork producers who’ve been squeezed by elevated feed costs. But Wilson said he expects corn prices to remain high, noting stockpiles as a percentage of use, a closely-followed gauge of the supply cushion, are projected to drop near the lowest level in 40 years.
During the call, Wilson does not “see much risk” for an extended slide in corn prices. “If prices were to fall further, more feed and export demand would develop,” Wilson said. “This would drive stocks to an even more unsustainably low level.”
Corn prices have doubled since mid-2010, reaching a record high at $7.99 ¾ a bushel in June, based on the closest-to-expiration Chicago futures contract. In trading Nov. 2, corn for December delivery fell 9 ¼ cents to $6.45. Corn is expected to trade above $6 through summer 2013, based on current futures prices.
“We expect strong agricultural markets to continue to drive a tight supply-demand balance for all products over the next two quarters, supporting attractive prices and margins,” Wilson added. “Our solid forward book of business reflects this strength.”
Corn acreage at an estimated 93.5 million acres in next year would trail only 1944, 1943 and 2007 as the highest amount planted since 1939, according to USDA records. In 1932, corn farmers planted 113 million acres, the all-time high, although that crop generated just 2.6 billion bushels at an average yield of 26.5 bushels an acre. The 2011 harvest is estimated at 12.43 billion bushels, down 0.2 percent from 2010, with yields averaging 148.1 bushels an acre nationwide, the USDA said last month.
Many farmers in the Midwest apply nitrogen fertilizers soon after harvest to prepare soils for corn planting the following spring.
The ammonia fertilizer CF Industries sold to customers averaged $552 per ton during the third quarter, up 40 percent from $394 during the same period a year earlier, the company said. CF Industries’ total rose 53 percent, to $1.4 billion.
CF Industries third-quarter earnings surpassed analysts’ expectations, sending the company’s shares up $10.68, or 6.7 percent, to $169.31 in trading Nov. 2. The shares are up 25 percent this year, compared with a decline of 1.6 percent for the Standard & Poor’s 500 index.