First, as this article points out, they are a signal to producers to get producing.
Second, if the first effect is insufficient to balance supply and demand, higher prices will ration what goes where.
In the case of corn the two biggest users are animal feeds and ethanol production.
It's going to be interesting to see who is willing to pay more to secure current and future supplies.
From AgWeb, May 28:
Corn Market Begs Farmers To Get Crops Planted
When USDA released the Crop Progress Report for the week ending May 26, on Tuesday, May 28, there was a collective feeling of disbelief. Not only did the trade underestimate Mother Nature’s ability to keep planters parked, but at just 58% planted this is the slowest corn planting in history.
Markets responded with limit up movement, with some contracts even setting new contract highs.
The market is begging farmers to take their time and get their crops planted, according to Chip Flory, host of AgriTalk and Farm Journal economist,
“The market is trying to convince farmers that prevent plant is a bad idea,” says Flory, who called Tuesday’s report “shocking.” “I’ll admit, I saw that 58% number and I was sick to my stomach. Good God.”
Farmers in Illinois are just 35% planted, in Indiana and Ohio just 22% of the crop is planted and in South Dakota and Michigan, 25% and 30% of the corn is planted, respectively. With soil moisture conditions at or above 50% surplus for much of the Corn Belt and more rain on the way, it will be tough for farmers to make much progress this week.
“The weather pattern has shifted where the heavier amounts [of rain] are further to the West now than what they were,” Flory says. “But the soils in the east are so saturated that even if they get an inch of rain a week, it will keep them out of the field.”
While prevent plant insurance final planting dates have arrived for some farmers, others are nearing. Farmers in Illinois have until June 5 to keep full crop insurance coverage. But, Illinois farmers are just 35% planted compared to the five-year average of 95%. And if the market continues to move higher, some farmers may lose the itch to file a prevent plant claim and give their ground time to dry out.
“You add another 25-35 cents to this corn price this week it just widens the window of an acceptable planting date,” Flory says....MORE
