Last week's Department of Agriculture prospective plantings report revealed that America's farmers intend to plant 90.454 million acres of corn for the 2007 growing season, a dramatic 15 percent increase from last year's plantings of 78.3 million acres.
Estimates were for a reading of approximately 88 million acres, so the actual number came in even higher than expected. Many of these additional corn acres came at the expense of soybeans and cotton, which were shown to have 11 percent and 20 percent fewer acres from a year ago, respectively.
The higher-than-expected acreage for corn proved bearish for prices, as corn futures opened the trading day Friday at the exchange-imposed maximum decline of 20 cents per bushel and never left that level.
Monday's trade was not much better, as corn futures closed down an additional 19.75 cents per bushel. In the two days, corn futures declined 10.1 percent. The report, though seemingly bullish for soybean prices because of reduced supply, resulted in a two-day decline in soybean futures of 2.3 percent.
There is some speculation that index funds, which hold a basket of several agricultural commodities, may have been forced to liquidate their soybean holdings at the same time as they liquidated their corn holdings. Whatever the reason, the decline in corn had a bullish impact on the feeder cattle market.
Feeder cattle prices rallied 3.7 percent over the same two-day period as lower feed costs were expected to entice farmers and ranchers to purchase more cattle for the year.
CROPS: The price declines in corn and soybeans quickly reversed this week as weather reports began to show a widespread cold spell that could settle over much of the Great Plains as early as Thursday night. The affected area is expected to stretch from Montana and Texas, through Arkansas and Tennessee, to Pennsylvania and New York.
The market seemed to worry that a spell of severe cold could threaten crops that had already been planted in the South while delaying plantings in northern areas. Though historically the relationship between cold spells in early April and planting progress is murky at best, the crop futures markets seemed to take the potential for a hard freeze as bullish for prices.
It may be several weeks before the true impact of this weekend's cold spell are known.
OIL: Wednesday's announcement that Iran had agreed to release the 15 captured British sailors had an immediate bearish impact on crude oil futures, pushing prices lower.
However, the price decline was short lived as the Energy Information Administration released its weekly report on oil and gasoline inventories on Wednesday morning. The report showed a much larger than expected draw on gasoline inventories, pushing gasoline futures prices higher.
As gasoline prices rally at a faster rate than crude prices, the margins earned by oil refiners increases. As this margin increases, traders expect that refiners will increase their capacity utilization and buy more crude to refine.
This expectation for higher crude demand by refiners erased almost all of the losses that crude had experienced earlier in the day. As the U.S. enters the summer driving season, gasoline inventories will be watched very closely.
Walt Breitinger is vice president of commodities at A.G. Edwards and Sons. He can be reached at (219) 738-6460.
