By Jon Scheve, Superior Feed Ingredients, LLC
Late last week, March corn and beans futures were trading at higher values than May contracts. Since this is happening in the March contract delivery period, it means demand for the physical commodity is extremely high. Also, basis is stronger for both commodities throughout the Midwest. This suggests the market is begging for grain now and futures may have to work higher to incentivize farmers to sell. However, if futures move too high, it could lead to increased South American export demand and U.S. export cancellations.
The acreage battle is on between corn and beans, with minimal consideration for other crops this year. A couple weeks ago the USDA Economic Outlook Forum predicted 92 million corn acres and 90 million soybean acres (182 million combined) would get planted this year. That’s 2 million more total corn and bean acres than 2018, which is the highest on record. Between 2016-2018, total corn and soybean acres averaged 178 million. Then in 2019 and 2020 outlier events allowed farmers to plant fewer corn and bean acres than normal, either due to prevent plant acres or increases in other crops due to low prices.
Expect increased corn and soybean acres in marginal and fringe areas
Recent price rallies are incentivizing U.S. farmers to plant as many marginal acres as possible. While Iowa and Illinois already plant mostly corn and beans, marginal acres and Corn Belt fringes will push hard into corn and bean production over other crops.
For instance, some spring wheat in North Dakota, South Dakota and Minnesota will likely be pushed to corn. Also, if any winter wheat was damaged by cold weather in other parts of the Great Plains, and nitrogen has already been applied, some of those acres could switch to corn too. For the winter wheat not damaged this winter, acres south of I-80 from Nebraska to Ohio I expect will be double-cropped with soybeans.
Also, reports indicate most of last year’s damaged corn acres from the derecho that spread across Iowa will likely be planted to beans to control for volunteer corn from all the dropped ears. A sizeable portion of these acres are usually corn on corn, so this could mean a few less corn acres overall.
November bean futures vs. December corn futures
The value difference between November beans and December corn values may push some farmers to one crop versus another. As of the first week of March, Dec corn was $4.82 and Nov beans were $12.48, for a ratio of 2.59 (i.e., 12.48/4.82). Generally, when futures prices are closer to $4.20 and $10, this causes a ratio around 2.4, which means that neither crop is favored over the other. However, when ratios trend higher than 2.4, it becomes more advantageous to plant beans. Conversely, the lower the ratio, farmers are incentivized to plant corn. With prices so high this spring, other factors need to be considered this year too.
Insurance revenue guarantees
This is important because with current prices, regardless of final yields or price adjustments, both crops are nearly guaranteed to be profitable. Therefore, when farmers look at their APH yields (average price history), and subtract input costs to determine ROI, corn may be more profitable even at higher ratios like 2.59.
Basis value spreads
While insurance prices don’t account for basis, the harvest delivery value could affect planting intentions. For example, bean basis values for harvest delivery to my local elevator are 40 cents less than corn. Therefore, if I average 50 bushels of beans per acre, beans have a $20 price disadvantage per acre compared to corn. However, farmers 30 miles away can take beans directly to a processor with a similar basis bid to the corn basis bid at a nearby ethanol facility. Since those farmers won’t face a bean price penalty, they may take a different approach to planting intentions. This could artificially keep corn acres larger than what the market is expecting in certain areas around the corn belt.
Farmers changing planting intentions
Generally, most farmers won’t change their planting intentions regardless of prices because once they have bought their inputs and sometimes already applied fertilizer, they don’t want the hassle of changing. Others simply will not change their rotation for any reason because they never have in the past and they probably won’t start now.
Still, it only takes a few farmers to switch acres for the market to react. If 10% of farmers switch 10% of their corn to beans (or vice versa), total planted acres will shift by 1 million acres. With yields at 175 bushel per acre on corn or 50 bushels per acre on beans, a 1 million acre shift in acres in either direction can significantly change carryout and have a big impact on prices.
The March 31 planting intentions report will provide some market direction, but I anticipate the June 30 report will be much more important as that report tells us ultimately what everyone planted. However, by then, weather variability will be significantly impacting prices. With so much uncertainty with planting intentions, export demand and weather between now and June 30 it’s impossible to know where prices will go. Corn prices could potentially range anywhere between $4 and $8 while beans could be between $10 and $16. In 2008 we saw the high end of the range in the summer and the low end of the range on both crops as harvest was underway so it’s a real possibility.
Please email email@example.com with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.
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