By Simon Constable
    A DOW JONES NEWSWIRES COLUMN


  NEW YORK (Dow Jones)--The after-effect of last year's credit crunch and the
subsequent plunge in commodity prices seems to be lingering, especially on the
farm.

  In particular, U.S. farmers say they are likely to reduce their plantings of
corn this year despite what are historically high prices for the grain.

  When combined with other factors, a lower acreage planted could result in a
significantly smaller harvest, and so provide a boost to corn prices.

  It's something that I pointed to as a potential problem back in November (See
SIMON SAYS: Get Ready For Another Food Crisis, Nov. 12, 2008), and the reality
seems to be playing out in textbook fashion. Simply speaking, the credit crunch
led to a decline in grain prices, but not a proportional drop in prices of some
of certain input costs, namely fertilizer.

  Because of that, margins have been squeezed to the point where in many cases
prices for corn are at or near production costs, says Mike Woolverton, a grains
economist at Kansas State University.

  Corn has traded between $3.50 and $4 a bushel for most of this year, and was
recently selling for $3.90 on the Chicago Board of Trade.

  Even where potential profits are to be had, the lack of credit has made it
hard for farmers to hedge positions. What it's all meant is that farmers have
decided to trim the area of corn they intend to grow.

  Farm Futures magazine says the acreage U.S. farmers will plant this coming
season is likely to be down 4% from last year, according to data derived from
its recently published annual plantings intention survey.

  A similar survey from the U.S. Department of Agriculture released this week
also points to a decline in corn acreage, only slightly more modest, down 1%.

  The truth about how much corn will actually be planted will only become clear
over the next few weeks and will depend in part on weather. Bad weather can
induce farmers to switch to soybeans from corn.

  But acreage is only part of the issue. The actual size of the harvest is also
dependent on yield, or how much corn grows per acre. That yield can be improved
through use of fertilizer.

  The problem is that although fertilizer prices have dropped at the wholesale
level, the folks who sell the stuff to the farmers stockpiled so much when
prices were higher. They are now unwilling to lower prices.

  "Fertilizer stocks are building up at the wholesale level," says Woolverton.
"We may end up with less fertilizer(used) than is optimal."

  And there's a further factor: The Weather.

  If the growing areas stay too wet, as has been the case in North Dakota, then
planting could be postponed, thus hurting seed development and hence eventual
yield.

  It's not that any one of these factors - acreage planted, fertilizer use and
weather - would have a major impact alone. It's more that the effects compound
each other.

  A smaller area planted, perhaps getting a lower yield through less use of
fertilizer and then further hurt by weather, could result in a sharply lower
harvest throughout the country.


  (Simon Constable, commodities columnist at Dow Jones Newswires, muses
regularly on the commodities sector, and can be reached at 201-938-5246 or by
email at simon.constable@dowjones.com.)


  (TALK BACK: We invite readers to send us comments on this or other financial
news topics. Please email us at TalkbackAmericas@dowjones.com. Readers should
include their full names, work or home addresses and telephone numbers for
verification purposes. We reserve the right to edit and publish your comments
along with your name; we reserve the right not to publish reader comments.)