Farm Management Specialist
University of Missouri Extension
|April 30, 1999Too Wet for Corn, Plant Beans?
Corn planting is lagging behind average in major corn states due to wet weather. While the market is expecting increased planting with dry weather over the weekend, many areas cant begin until next week and more rain is in the forecast! If planting is delayed past mid May, should corn acres be switched to soybeans? This is not just a production question. The decision is also influenced by the markets. "If you produce it, you have to sell it!"
One of the functions of the market is to help answer the question of which crop to plant. Market observers use the soybean/corn price ratio as a signal for which crop the market wants more of. Generally a soybean to corn price ratio of 2.4 or 2.5 to one has been considered the break-even ratio (for Missouri, the break-even may be closer to 2.3/1). A higher ratio favors soybeans. A lower ratio favors corn. On Thursday, November soybean futures closed at $4.99 and December corn was $2.31. This is a soybean/corn price ratio of 2.16/1 which favors corn. The market seems to be saying, "Stay with corn!"
This makes sense. While corn supplies appear to be more than adequate, historically they arent that large. Any weather problems could tighten up corn supplies quickly. In contrast, soybean carry over supplies will be very large and could reach record levels next year. If more acres are shifted to beans, it just increases burdensome bean supplies and tightens up corn. It appears that corn prices are much more likely to react to weather scares and the market will continue to favor corn.
The USDA market loan is interfering with these market signals. The large supply of soybeans causes most analysts to believe that soybean prices will stay below loan price, regardless of weather. Good weather, with good corn yields, could also push corn prices below loan price at harvest. The CCC loan prices (nationally) are $5.26 for soybeans and $1.89 for corn. This is a soybean/corn price ratio of 2.78/1. Considering that soybeans cost less per acre to produce and represent less risk for many producers, this loan price ratio heavily favors soybeans! This price ratio suggests a shift to more soybeans is likely if planting delays continue. This could reduce corn production and end up keeping corn prices above loan price.
This creates an unusual situation. If soybean prices are likely to stay below loan price and corn prices remain above loan price, how do these compare? Thursdays new crop cash corn bids at a few Central Missouri locations ranged from $2.05 to $2.11. Using the soybean loan price and these new crop corn bids produces a soybean/corn price ratio of about 2.5/1. This is closer to the break-even ratio. If the market gets worried about delayed corn planting and decides it needs corn, increased corn prices in relation to the soybean loan price is the ratio to watch.
From a price perspective, the decision to shift from corn
to beans isnt clear -- yet! The market appears to favor corn. The government loan is
supporting soybeans. Corn and soybean prices seldom move in opposite directions and there
may not be any dramatic price moves either way, but the next few weeks could get
interesting! -- Melvin
Decisive Marketing - April 30, 1999