Apr 20, 2014
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EHedger Report

RSS By: Dustin Johnson

Dustin works with a wide net of large producers throughout the Midwest. His analytical market approach and objective hedge strategy development is specific to the needs of every individual.

Corn-Soybean Ratio Lower

Jan 27, 2014

Corn and old crop soybeans were higher on Monday while other CBOT markets closed lower.  December corn closed 3 cents higher at $4.52 ½, November soybeans 7 ¾ cents lower at $11.01 ½, and July wheat 1 ¾ cents lower at $5.75 ¼.  Old crop soybeans were higher from strong export inspections.  Corn was higher with soymeal and some headlines attributed this to cold weather in the US.

The week is starting out with another negative trend in the new crop corn-soybean ratio.  Argentine weather improved over the weekend and South America as a whole is looking at a record soybean crop.  The USDA is currently projecting the 2013-2014 world soybean stocks/use ratio to be over 25% which could be negative for soybean prices. Combine that with the potential for many U.S. corn acres to switch to soybeans and we could see the shift from tight stocks to abundant levels.  Given these factors we believe the November soybean contract looks overpriced to December corn at a ratio of 2.4343 (Nov Beans/Dec Corn=2.4343).  We believe the ratio could get back to 2.35 before U.S. planting begins.

Chart: November 2014 Soybeans / December 2014 Corn

November 14 Soybeans / December 2014 Corn

What does that mean for you as a corn and soybean producer?  If you are planning to switch from corn to soybeans due to the price incentive it may be a good idea to protect that price while it lasts.  December corn prices are at or below the cost of production for many producers in the Midwest.  We want to protect soybean prices before they do the same.  As always you will want determine if that is the right approach for your marketing plan given your insurance and risk tolerance.  You can use AgYield to help make that decision with your broker.

We are only a week away from February when the Spring Insurance price starts to average itself.  There is still risk of corn falling in this timeframe and the March Short Dated $4.50 puts are cheap enough in our option to provide protection during February.  Please call if you would like to learn more about this strategy.  Have a great week!

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Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. The market information contained in this message has been obtained from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness. Market information may not be consistent with current or future market positions of EHedger LLC, its affiliates, officers, directors, employees or agents.


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