At noon today the USDA will issue its March planting intentions for the 2013 U.S. growing season. We will focus on corn, as per usual. Consensus calls for 97.465 million acres of corn to be planted this year, and we think there may be modest upside to that number. That’s a big number, not an all time high, but it is the largest acreage that anyone that didn’t vote for FDR has seen.
Obviously, the yield is the key number going forward, and we think the soil moisture condition has shown some improvement in recent weeks, though still below where it should be for this time of the year. However, the forecast is for some weather events over the next several weeks in a couple of regions where moisture is needed, so we remain encouraged.
However, one additional concern that we have beyond moisture at this point is that planting may be delayed – farmers don’t need to rush out and the ground is still too cold in many regions for planting to begin. If the weather turns cold, early planted corn can rot as the re-frozen field melts and warms.
The good news is that planting can happen very quickly in the right conditions, so we aren’t all that worried if it appears that the crop is getting in the ground too slowly.
We continue to think that ADM represents an inexpensive look at the progress of the U.S. corn crop – we see downside in the name back toward book value ($29.05 per share). Keep in mind, that as much as a disaster the U.S. corn crop was last year and the associated negative impact it had on ethanol and merchandise and handling margins at ADM, the company still managed to earn $2.25. If things break “right” with the corn crop and incremental acres produce a “reasonable” yield (anything above 145 bushels per acre), we see upside in ADM toward $38/$39 per share.
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HEDGEYE RISK MANAGEMENT, LLC