Market Matters Blog

Southeastern growers are quite pessimistic about the road ahead. That road is normally lined with cotton and peanuts, but after a couple of bad years, they're switching to corn -- and the timing could end up biting them.

The latest DTN/The Progressive Farmer Agriculture Confidence Index is now in its fourth crop year, and the decline in expectations for year ahead in the southeast region is the most pessimistic reading our index has seen to date at 79 points.

The overall index value in the southeast came in at 100.6, a neutral reading. They consider the current situation in a positive light, with a score of 132.8. Expectations for the year ahead plunged from 91.4 last fall to 79 points.

What gives? It's worth noting that there's only been one time since the index's inception that southeastern farmers felt good about the upcoming year, and that was in December 2010. Last time expectations were anywhere near this low was in September 2011, when expectations for the year ahead came in at 83 points.

"Southern farmers may be realizing that they were late to the party in the Great Corn Rally of the 21st Century," DTN Senior Analyst Darin Newsom said. "Some could be grumbling over the cost of turning old cotton ground into corn, particularly with the cotton market on a strong run and corn expected to implode by the end of the year."

Come Thursday at 11 a.m., we will have USDA's read on planting intentions, which will give us another gauge of how many corn acres farmers are expected to plant and how many come at the expense of cotton. Private analytical firm Informa Economics pegs corn plantings at 97.8 million acres, a nearly 600,000 acres increase from last year. Meanwhile, Informa puts cotton acreage at 10.4 million acres, nearly 2 million acres lower than last year.

A corn merchandiser I know in the southeast mentioned that a lot of farmers he knows are switching to corn after several disappointing years growing peanuts and cotton. While the additional acres and production might help lift the national carryout, the market these southeastern farmers sell into is facing its own set of challenges.

First, much of the demand boom in corn since 2005 has come on the back of the renewable fuel mandate. Georgia has only one 100-million gallon capacity ethanol plant in Camilla, Georgia, and it's one of the many that are shut down until new supplies arrive. Southwest Georgia Ethanol recently emerged from bankruptcy, but press reports indicate that it's now on sound financial footing.

"We know we are going to restart in July. We've been booking corn with local farmers since late fall and early winter," Southwest Georgia Ethanol president Murray Campbell told WABE radio, Atlanta's NPR affiliate, last February.

The U.S. is also importing corn in much larger quantities this year. USDA expects us to import 125 million bushels, up from a mere 29 mb in 2011-12. It's being shipped in through ports in Florida and others along the eastern seaboard, destined for the southeastern feed markets.

These southern corn growers could take advantage of the tight supply/high price situation if their harvest gets underway before combines in the Corn Belt start seriously rolling; otherwise they're looking at the same $1.50 spread between old crop and new crop prices. Even now, the futures price on the September contract is shy of $6, more than $1.30 lower than old-crop prices.