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August 3, 2012

2012 U.S. Corn Acreage Lowered 1.0 Million Acres to 83.0 Million

In addition to declining corn yields, this year's corn production is also being impacted by declining corn harvested acreage as well. Many more acres of corn than normal will be harvested this year for silage to supply feed for the nation's dairy and beef cattle. For dairy farmers, their primary source of income is the sale of milk and they need to feed their cows regardless of the price of corn. Therefore, they will cut as many acres of corn as needed to fill their silos. Since the corn crop this year is smaller in size than in a normal year, the average dairy farmer will harvest more acres of corn for silage and less acres of corn for grain.

Additionally, many more acres than normal will also be abandoned this year. The 2012 growing season is being compared to the 1988 growing season, but the farmers this year are in a very different situation than they were in 1988.

In 1988, only a small percentage of the corn crop was covered under crop insurance and as a result, farmers tried their best to salvage something from their crops because the main form of government payments was disaster payments, which were not dispersed until well after the growing season had ended. Therefore, they tried to salvage as much as they could in order to get some cash flow while they waited for the disaster payments.

The situation is very different this year with approximately 85% of the corn covered under some type of crop insurance. If a farmer today has a very poor field of corn and good insurance coverage, he is not going to go out of his way to salvage everything possible from the field. In fact, if the corn crop is bad enough, he would probably prefer that the crop gets worse in order to receive a bigger insurance payment.

The reason why he might want it to get worse is because if the corn field has been ravaged by the drought and the yields will be extremely poor (let's say less than 20 bushels per acre); the quality of the remaining corn will also be very poor. If the corn is very poor quality when it is harvested, it will be subject to increased fungal diseases and insect pressure when it is put in storage. The farmer is going to have a very difficult time keeping the corn from going out of condition while it is in storage.

If he takes the poor quality corn to the grain elevator, the elevator is going to at the minimum, dock the price or maybe even refuses to accept the corn if it is too poor quality or has more aflatoxin than what is permitted. The grain elevator would normally blend the poor quality corn with better quality corn in order to meet the standards, but some elevators may not have enough good quality corn to do the proper blending. Therefore, they might just refuse to accept the corn.

Under these circumstances, the farmer might just prefer to disk up the corn, put the P and K back into the soil collect the insurance payment and move forward. That is exactly what is already being reported in the hardest hit areas of the Corn Belt.

As a result of the increased need for silage and the increased amount of abandonment, the 2012 U.S. corn harvested acreage was lowered another 1.0 million acres this week to 83.0 million.

The question now is if the reduced harvested acreage will be accurately reflected in the August Crop Report. The USDA is already collecting field samples for the August Crop Report, but I have not heard if they will be conducting a special survey in an attempt to ascertain the final corn harvested acreage. Usually they conduct a special survey if there is flooding or excessive ponding in a specific area. Since this year's drought is afflicting nearly the entire Corn Belt, maybe the regular farmer survey will pick up the declining corn acreage.

In their farmer surveys, they ask the farmers how many acres of corn they intend to harvest for grain and what they feel the yield will be. In the hardest hit areas of the Corn Belt, the farmers already have a very good idea how many acres will not be harvested for gain, so maybe it will be reflected in the August Crop Report. If it is not completely reflected in the August report, it will certainly be reflected in the September report.