Canada Markets

A recent study by Gary Schnitkey of the Department of Agricultural and Consumer Economics at the University of Illinois sheds light on the growth of both corn and soybean acres in the U.S. due to influence of the soybean/corn price ratio. The study is titled Soybean-to-Corn Price Ratios in Spring and Fall, and can be found at farmDocDAILY.illinois.edu.

In this study, Schnitkey used the average futures close in the month of February to determine the soybean to corn ratio, utilizing the November futures for soybeans and the December contract to determine the average corn price. The ratio suggests the relative attractiveness of producing one crop over the other and the higher the ratio, the more attractive soybeans are relative to corn.

The study reports two distinct periods have occurred since 1972. The first period was 1972 to 1998, where the soybean to corn ratio averaged 2.4, while in the 1999 to 2013 period, the soybean to corn ratio averaged 2.2, indicating that corn's potential returns relative to that of soybeans was increasing.

This study of the U.S. crop showed that actions of producers were as expected, given the movement of the ratio. Over the 1972 to 1998 period, the higher ratio of 2.4 favored soybeans, with the U.S. seeded acreage increasing 53% as compared to the 19% increase in corn acres.

In the 1999 to 2013 period, corn's returns relative to soybeans increased, which lead to a 23% increase in corn acres to 95 million acres in the U.S. as compared to a 4% increase in soybean acres to 77 ma.

So did this ratio have the same impact on Canadian acres? The answer is no. In the 1972 to 1998 period, Canada's soybean acres grew 498% as compared to the 106.7% increase in corn acres. This is the same trend as seen in the U.S., although Canadian soybean acreage grew at a faster pace relative to the U.S on a percentage basis. This growth took place primarily in Ontario.

It's in the 1999 to 2013 period where the trend in Canada diverges from the U.S. trend. Despite the decline in the soybean/corn ratio that made corn more attractive relative to soybeans, the growth in soybean acres in Canada continued to outpace that of corn. Here, the soybean acreage in Canada increased 82% to 4.5 ma as compared to the 28% growth in corn acres to 3.6 ma. While the Ontario soybean acres grew 17.6% from 1999 to 2013, it was a sharp jump in Manitoba that perhaps distorted the trend, with no acres of soybeans reported in 1999 and a jump to 1.05 ma in 2013.

The more mature market in Ontario, however, has followed the U.S. trend since 1999. Corn acres increased 21.9% to 2.225 ma between 1999 and 2013, as compared to the 17.6% increase in soybean acres. While the soybean acreage grew faster than the U.S. on a percentage basis, the expansion in corn acres on a percentage basis did outpace that of soybeans as would be expected given the move in the soybean/corn ratio.

So how is the current soybean/corn ratio expected to impact 2014 acreage? Schnitkey has calculated a ratio of 2.46 based on the average of the November soybean futures close and the December corn futures close in the month of February, which suggests a shift towards the production of soybeans.

Early estimates released by the USDA suggest that producers will react accordingly. On February 20, the USDA's Chief Economist Joseph Glauber released data suggesting that corn acres will fall 3.6% to 92 ma, while soybean acres were forecast to increase 3.9% to 79.5 ma. Of course, these are early forecasts and the debate goes on.

In Canada, the most recent report called Canada: Outlook for Principal Field Crops for March released by AAFC, suggests that both corn and soybean acres will fall marginally. Corn acres are forecast to fall 6.2% to 3.459 ma, while soybean acres are forecast to fall by .2% to 4.5 ma.

Cliff Jamieson can be reached at cliff.jamieson@dtn.com

(ES)

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