Cash Market Points To More Soybean Acres Than Analysts Expect
Mar 16, 2012
Continuing our look at new crop pricing in preparation for the planting intentions report released at the end of the month, we analyze the per acre revenue potential for corn and soybeans. In our study we compared the average county yields throughout the Midwest and multiplied them by the county average new crop cash price. We compared the revenue potential for corn and soybeans observed during March 2011 to the revenue potential we are currently observing today. In other words, would a farmer today have more incentive to plant corn or soybeans than they did this same time last year?
Speaking strictly in terms of revenue potential, the results show that throughout the U.S., corn has lost an average of $31 dollars an acre this year compared to 2011, while soybeans have given up an average of $12 per acre.
The latest Informa planting acreage forecast called for 95.5 million acres going to corn and 75 million acres going to soybeans. This a sharply higher corn acreage number from last year, with Informa expecting farmers to seed 3.6 million more acres this year as compared to last year. For soybeans, they expect acreage to stay roughly the same.
However, based on current economic incentives reflected in new-crop futures and new-crop basis quotes across the country, it would seem the farmer’s economic incentive (in terms of revenue potential) don’t support the forecast for such a disproportionate increase in corn acres compared to soybeans. Though both corn and soybean revenue per acre has declined this year compared to last, soybeans have shown relative strength compared to corn. Soybean revenue has become $18 per acre more competitive to corn compared to our observations in 2011. Specifically, we see areas in IN, IL and IA showing improvements in soybean competitiveness by over $35 per acre, while the western Corn Belt continues to favor corn. While we may add corn acres in the western Corn Belt, the heart of the corn producing region may see less corn acres than the market currently anticipates due to the competitiveness of new crop soybean bids in their region.
This analysis does not factor in the overall change in corn and soybean production costs. However, fertilizer prices have shot up in recent months, which have the added impact of limiting corn plantings as compared to beans. With many farmers postponing their fertilizer purchases betting that prices will decline, the potential for fertilizer shortages may also limit the large corn acreage numbers some analysts expect.
From a revenue perspective our analysis does not support the magnitude of corn acreage forecasted for 2012 while soybean acreage remains unchanged. More importantly, the best yielding areas are currently showing the most revenue incentive to plant soybeans instead of corn. Swapping quality acres for quantity raises even more questions about the likelihood of trend line yield.
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