Plenty has changed since the USDA released its initial 2020 acreage estimates, and the soybean-to-corn price ratio is no exception.
Based primarily on farmer surveys conducted during the first two weeks of March, the government’s annual prospective plantings report pegged nationwide corn planted area for this year at 97 million acres, up 8% from a year earlier, while soybean area was forecast at 83.5 million acres, an increase of 10% from 2019.
At first glance, the estimated corn area may have seemed overstated but the soybean-corn price ratio - which was hovering around 2.3 to 2.4 through much of the late winter when farmers were making their new-crop cropping plans - suggested corn was indeed the more profitable option compared to soybeans. Since then, however, the soybean-corn price ratio has flipped on its head. As of Wednesday’s closing futures prices for December corn and November soybeans, the ratio had increased to 2.55 and back in favour of soybeans.
“It’s amazing how much (the ratio) has changed since February, March,” said Michael Langemeier, an agricultural economist at Purdue University in Indiana. “Until about the middle of March, the ratio was about 2.4.”
To review, the soybean-to-corn ratio - found by dividing the new-crop corn price into the new-crop soybean price - is often used to aid in quantifying relative returns between soybeans and corn. Nationally, a ratio of around 2.5 tends to favour the planting of soybeans, while values at or below 2.3 favour the planting of corn.
Of course, much of the change in the ratio can be attributed to the COVID-19 pandemic. With large sectors of the North American economy sidelined to try and slow the spread of the coronavirus, crude oil prices tanked, taking biofuel values down with them. As the primary feedstock in the production of ethanol, corn prices suffered relatively worse than soybeans. For example, since early February, the December corn future has lost more than 15% of its value while November soybeans have lost about 7.3%.
It all adds to up the likelihood that final U.S. corn planted area will fall short of the originally forecast 97 million acres, while soybean area could end up higher than 83.5 million acres.
Indeed, Langemeier said he wouldn’t be surprised if corn area comes in 1 million to 2 million acres below the USDA forecast, with most of those acres likely shifted over to soybeans.
Source: DePutter Publishing Ltd.
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