On March 31 we will get a view of farmers’ planting intentions for this year when the USDA releases the Prospective Plantings report.
Expectations are that higher commodity prices and conducive weather will bring more acres into production. Prevent plant acres from last year will likely return to production, as a mostly dry pattern throughout the Midwest currently suggests little reason to expect planting delays. A late spring and excess moisture, particularly in the Dakotas, had significant planting implications in 2020.
The ratio of November soybean futures divided by December corn futures has been hovering near 2.6. Historically, anywhere above 2.45 would suggest farmers may swing some corn acres to soybeans. While this may occur, we are not necessarily convinced that will be the case this year.
Corn plantings last year were 90.8 million. Estimates prior to the report suggest farmers will increase this to near 93 million. Soybean planted acres in 2020 were 82.3 million, with most expecting an increase to near 90 million for the upcoming season. Significant prevent acres last season, in what may be termed geographically as outside the center of the Midwest, are expected to favor more soybeans.
Yet, despite the soybean-to-corn price ratio, the most likely reason for more corn acres (beyond those returning to production) will come from two areas: First, planting progress, which is essentially weather-related, and second, marginal revenue increases, which likely favor corn over soybeans.
The first, planting progress (in a drier weather pattern such as this year): If December corn prices are able to hold near current price levels (near $4.65), producers are likely to keep planting extra corn acres. Worded another way, if planting is going well, many keep going!
The second, marginal revenue increase: This is really just another way of saying that if there is a yield increase above expectations, the dollars returned are more attractive. As an example, if you averaged a 200-bushel yield for corn and 60 bushels for soybeans, and both yielded 5% higher, this would equate to an increase for corn of 10 bushels. At $4.65 per bushel, that’s $46.50 per acre.
If soybean yield increased 5%, this equates to 3 bushels. At $12.25 per bushel, this equals $36.75 per acre. Most producers would probably agree they are more confident in yield expectations for corn than soybeans. There are, of course, many other variables that need to be considered. Still, on the surface, the potential for marginal revenue increase may favor corn.
Being armed with a bias for more corn acres may help you better prepare if prices decline. Consider using puts to provide a price floor, as this leaves the topside open if prices rally. It is important that you prepare for future market moves. We refer to this as scenario planning or rehearsing the future. Though you are probably preparing for all the challenges that spring planting brings, now is also the time to prepare for future market moves.
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If you have comments, questions, or suggestions, contact Bryan Doherty at Total Farm Marketing. You can reach him at 1-800-334-9779, extension 300.
Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.
The Link LonkMarch 26, 2021 at 09:51PM
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USDA to print higher corn acres next week, analyst says - Successful Farming
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