Death comes to us all. Life's but a walking shadow | That wasn't my intention whatsoever when I realized that the message of the posts below provided a concrete mechanism to force a reduction in acres. Perhaps, part of our difference in thinking comes from our different perspectives. You are in the middle of the biggest corn producing region of the world and everywhere you look is corn. For a corn producer in Eastern Iowa, Illinois and Indiana you have unbelievable access to markets, the river to the south, feedlots to west and ethanol & livestock all around. That shapes your view of what is possible.
What JonSWKs has so eloquently and thoroughly pointed out, the central corn belt isn't where the increase came from nor where the decrease will occur. And Don Moffat has pointed out that the fringe has a real history of idling acres as summerfallow. And you, yourself has pointed out that there are some areas with very poor basis. It turns out that those areas are precisely where the greatest expansion of corn acres has occurred. I was frankly amazed at the basis maps Maizeing provided last winter. Cash corn there was $3 a year ago already. What will it be there now in the face of a general price collapse.
Planting corn, or any crop for that matter comes down to a question of risk/reward. The risk at the fringe is large and the reward needs to be correspondingly large as well. I have an image of corn acres as very big but shallow lake. If you start to drain the lake you don't notice it in the center because that's where it's deepest and there's water all around. Where you first see the reduction is all around the edges. It can be almost imperceptible at first but soon enough you begin to see the tops of the tree stumps appear. And interestingly enough the area fraction of a surface is always greatest around the perimeter. It is sometimes surprising how much area the first pass around a field accounts for. (Take a square 40 acre field for instance, the area is about 1.74 million sq ft and the perimeter about 5300 ft. The first pass with a twelve row planter (30 ft) is 9.4 % of the field.)
However you have raised a very important point. You outlined a perfectly plausible strategy to lock in a price for 2015. But for some reason it apparently isn't widely used. The Commitment of Traders indicates that about 95,000 corn futures contracts have been purchased or sold for the 2015, 2016 and 2017 crops. This amounts to less than 500 million bushels total for all three years. Assuming the next three crops average somewhere around 13.0 billion bushel then 0.5/ 39 billion or one percent of the next three crops have been hedged. Even if the majority of those 95,000 contracts are applied to 2015 then still less than 4% of 2015 crop is currently hedged. Now farmers aren't stupid or lazy. If the strategy you describe was so easy and effective why isn't much more of 2015 hedged?
Thanks for the "thought provoking" comments. |
$3 corn and prospective planted acres, the driver.
