This study follows the intent of the Nov. 29 Fundamentally Speaking blog by DTN Contributing Analyst Joel Karlin, which is to look at the new crop soybean/corn ratio prior to year-end along with its effect on planted acres in the following season. While Karlin includes the change from the final planted acres one year to the March planting intentions in the next, this study compares the year-over-year change in the final planted acre estimate.
As reported by Karlin, the five-year average for this ratio is 2.49, the 10-year average is 2.34, and the 30-year average is 2.37. The rule of thumb used is that a ratio above 2.37 will result in a situation that leads to soybeans viewed more favorably than corn, while below 2.37 the corn is viewed more favorably than soybeans.
As seen on the attached chart, over the past 25 years (1994 through 2019), the described rule of thumb for the new crop soybean/corn futures ratio on the first trading day of December resulted in an expected change in planted acres of one crop versus the other in 15 of the 25 years, or 60% of the time.
As seen on the attached chart, extremes were seen in the year-over-year change in corn acres in 2007, 2008 and again in 2014 (red line with markers), that coincided with a move in the ratio to the higher- or lower-end of the range of estimates. Extremes were also seen in the year-over-year change in the final soybean acres planted in 2017 and 2018 (black line with markers), where the rule of thumb held true in 2017, but not in the following year.
The SX20/CZ20 futures spread on Dec. 2 of 2019 is calculated at 2.476, which is above the 2.37 average and the rule of thumb would suggest a move favoring soybean acres.
At the same time, a lot of factors could leave this ratio as a less-relevant signal for what lies ahead:
-- current weakness in North American corn exports;
-- possible concerns surrounding too many new-crop corn and soybean acres planted in 2020;
-- uncertainty surrounding trade barriers faced with Canada's soybean exports;
-- and even the risk of a prolonged stand-off between the U.S. and China.
Cliff Jamieson can be reached at email@example.com
Follow him on Twitter @CliffJamieson
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