Farm Management Specialist
University of Missouri Extension
|May 21, 1999Delayed Planting -- Farm the LDP?
It's past mid-May. The weather forecasts begin to look like we might get back in the fields. Some corn needs to be replanted. But what about the corn that hasn't been planted yet? For those fields where the fertilizer and chemical inputs have already been applied, there is still time to grow a decent crop. However, later planted corn runs a greater risk of heat and/or dry weather during pollination. Generally there is less weather risk with soybeans and, unless corn inputs have already been applied, less cash outlay for production inputs. Should we still try to plant corn or forget it and plant soybeans?
The markets don't provide much help this year. New crop (November) soybean futures set a life-of-contract low earlier this week. Corn isn't much better. December corn futures are only about a nickel above the contract low set in April. Comparing Central Missouri new crop cash bids (Thursday), soybeans averaged about $4.46 and corn $2.06. This appears to favor corn (Soybean/Corn price ratio of 2.17/1). But at these price levels, neither really offers a profit opportunity and the summer weather risks are increasing for corn production.
Farm the LDP? This is what several market analysts are recommending. The above market price ratio doesn't consider the market support prices offered through the CCC marketing loan or LDP. New crop soybean prices are well below loan price, so the potential net price is really near the $5.26 national loan price. The corn loan currently doesn't support new crop corn price since new crop prices are above the national loan price of $1.89. Comparing soybean loan price (about $5.25) with new crop cash corn bids (approximately $2.06), produces a soybean/corn price ratio of nearly 2.55/1 and shifts the price balance to soybeans.
The market appears to be satisfied with USDA's corn planting progress reports and not worried about replanting or those regions too wet to plant. It isn't bidding up price to encourage more corn acres. This lack of market incentive along with the lower production risk, less cash outlay for inputs and the supported price provided by the LDP appears to be saying, "Forget market price -- plant soybeans and farm the LDP!"
The USDA is still providing one last bit of uncertainty
regarding the LDP. Apparently they haven't abandoned the idea of changing to one
national LDP calculation. This creates a lot of uncertainty about how it would be
calculated and whether there would be big winners or losers--depending upon local basis
and how LDP's are calculated. Low production risk and farming the LDP looks better all the
time, but changes in government policy could affect how that works out. With planting
delays and at these prices levels, there just aren't any easy answers! -- Melvin
Decisive Marketing - May 21, 1999