Soybean returns relative to corn suggest a substantial acreage shift.
Could a corn acreage surprise be in the works from the March 31 Prospective Plantings report? Don’t rule one out. While many analysts—along with the futures market—have dialed in about 92 million corn acres, some aren’t so sure. Darrel Good, ag economist at the University of Illinois, looks for only a "marginal" shift in corn acres for 2014, possibly no change at all. If he’s correct combined with trend yields, it hardly adds up to buoyant prices. Still, he looks for some continuous corn to shift back to a rotation with soybeans.
"I don’t see the math that gets you there (to 92 million acres)," Good says. Corn acreage was 95 million acres in 2013 and Good admits to being about the only market analyst around who sees about the same for this year. Buttressing his view, however, is one key fact: prevent plant totaled 8.3 million acres in 2013. In total, the potential is there for 9 million to 10 million of crop acres planted in 2014 that was not in 2013. "Will that all go to soybeans? I don’t think so," Good says. For the last three years, corn acreage was 91.9 million acres in 2011; 97.1 million in 2012; and 95.4 million last year.
Unlike corn, with a large price decline in recent months, soybean prices have held stronger. As a result, soybean returns relative to corn suggest a substantial acreage shift. But that’s only what’s on paper today. The price spread between corn and soybeans is likely to narrow between now and planting, Good says. "The trend is lower for soybeans." Already, new crop beans (the November 2014 contract) are discounted to nearby contracts, at $11.20. With basis of 40 cents that pushes a farm price down to just $10.80. For corn, Good thinks the most likely scenario not only for 2014 but the next several years is low- to mid-$4 corn prices.
Dan O’Brien, ag economist at Kansas State University, notes that while USDA pegs Brazil’s soybean crop at a record 89 million tons, "Brazil’s own people are predicting 95 MT. A lot could change (on relative U.S. returns of corn versus soybeans) by March, April, May," O’Brien says. The battle for acreage between corn and soybeans will likely go back and forth between now and then, he believes. At the moment, relative profits of soybeans beat corn, so he thinks an increase in bean acreage and a cutback for corn is likely. Even so, he acknowledges that there is still 90 to 120 days before planting and economics over that period could change. Come planting time, farmers will compare returns versus cost of production, which may look somewhat different than they do today, O’Brien says.
Frayne Olson, ag economist at North Dakota State University, thinks 91 million to 92 million acres of corn for 2014 is most likely. "That’s only a 4% reduction." In Olson’s view, soybeans, wheat, cotton and other crops could easily boost acreage by 4 million collectively. While he does not look for major acreage shifts in the heart of the Corn Belt, on the fringes, north, west and south, producers are likely—not to eliminate corn—but to reduce it relative to more traditional crops.
Splitting the difference between low and high corn acreage projections is Rabobank, which in its 2014 Agri Commodity Markets Outlook predicts a 3% cutback in U.S. acreage to just over 93 million acres. Rabobank looks for a 2.6% increase in U.S. soybean acreage. "Soybean prices are poised for a substantial adjustment downward from current levels," the report says. Rabobank predicts that corn futures will be $4.30 in first quarter 2014 but decline to $4.10 by the fourth quarter (average price of the active contract throughout each quarter). Soybeans will decline from $12.50 in the first quarter to $10.70 by the fourth quarter. Rabobank also predicts a 1 million acre increase in wheat acres due to stronger returns relative to corn. Wheat prices are forecast to be stable through the year, from $6.40 to $6.45, a significant premium to corn.