The late-season drought is moving soybean prices higher relative to corn that could change crop acreages in 2014, although much can happen on prices between now and spring.
For 2012, the soybean/corn price ratio was 1.99, one of only two years since 1975 that that ratio of corn prices to soybeans has been less than 2.0, meaning that soybean prices were less than twice that of corn, according to a report by Carl Zulauf, ag economist at Ohio State University.
The current ratio based on the average of all 2013 marketing year soybean and corn futures has jumped to 2.75, higher than the average soybean/corn ratio since 1975 of 2.52. In contrast, the August 2013 World Agricultural Supply and Demand Estimates (WASDE) ratio was 2.32, using the mid-point price estimates. The other year with a ratio of less than 2.0 was 1975, with a ratio of 1.94.
"While the current focus is on U.S. production, which is reasonable and understandable, the future direction of the soybean/corn price ratio might rest more upon production outlooks in the rest of the world and the relative demand for soybeans and corn," Zulauf says. No apparent trend exists on the corn/soybean price ratio or the ratio of corn to soybean production going back to 1975, he notes.
The ratio has been above 3.0 in four years: 1986 (3.19), 1996 (3.17), 1987 (3.03) and 2003 (3.03). In these years, the price of soybeans was more than triple the price of corn. If monthly prices are used, the minimum soybean/corn price ratio was 1.72 in July 1996 while the maximum was 4.11 in May 1977. In other words, the maximum soybean/corn price ratio is more than the twice the minimum monthly ratio.
The increasing value of soybeans relative to corn is not lost on potential producer decisions for 2014. "This year we are 75% corn but next year we’re thinking about 50% all the way to 75% beans," says Karl Duncanson, a producer from Mapleton, Minn.