Big U.S. corn area a reprieve for meat, ethanol companies

By Sam Nelson - Analysis

CHICAGO (Reuters) - A shockingly large area planted with corn this spring in the United States should bring relief to loss-making hog and cattle producers, ailing ethanol companies and consumers as grain prices come under pressure.

For starters, prices for corn futures fell on Tuesday by the daily allowed trading limit that amounted to an 8 percent slump as government data showed farmers plant the second largest crop ever and the most since 1946.

It was a far cry from about a year ago when grain prices shot to record highs on a combination of floods threatening the U.S. crop and speculative-investment buying that hurt many meat companies, ethanol makers and consumers.

The largest U.S. chicken company, Pilgrim's Pride, went into bankruptcy due in part to the rise in grain prices in 2008, as did top ethanol maker VeraSun Energy Corp.

"I think they can quit worrying about $8 corn and I think they can quit worrying about $5 corn too," Doug Harper, analyst at Brock Associates, said of livestock and poultry producers.

"That will allow more livestock producers to stay in business," he said.

There have been growing expectations for U.S. livestock producers to cull their herds due to high grain prices and a drop in demand amid the sluggish global economy.

The U.S. Agriculture Department shocked traders on Tuesday by estimating 2009 U.S. corn plantings at just over 87 million acres -- sharply above an average of analysts' estimates for nearly 84 million and above its own forecast in March for about 85 million.

"The acreage number is front and center. The corn number confirms that there was ideal planting weather west of the Mississippi and it's also a function of USDA underestimating the corn acreage in March," said Brian Basting, analyst for Advance Trading speaking on a Chicago Mercantile Exchange Group panel after release of the USDA report.

Basting said that farmers in the western U.S. Midwest enjoyed exceptional corn planting weather while those in the eastern portion struggled to plant the corn crop because of a wet sowing season.

But it is now obvious that the farmers managed to sow the corn crop.

The plantings imply corn production of 12.3 billion bushels, based on yield projections the USDA made earlier this month. That would be the second largest U.S. corn crop on record, after 2007's 13.038 billion bushels.

The bigger corn crop is good news for livestock and poultry producers, who rely on corn for feed, because Tuesday's data indicates there will be ample supplies of lower-cost feed.

The corn-based U.S. ethanol industry also saw an immediate improvement in their bottom line after battling high corn prices and wild swings in crude oil markets for over a year.

CBOT corn prices surged to a record high $7.65 per bushel a year ago then plunged 62 percent to a 2008 low of $2.90 per bushel by early December.