Fundamentally Speaking

Joel Karlin
DTN Contributing Analyst

Talk has already started about U.S. corn and soybean production prospects for next year especially with substantial soil moisture deficits likely to be present come spring.

The accompanying graphic looks at the new crop soybean-corn ratio going back over a number of years on the day before Thanksgiving and the day before the March prospective plantings reports.

These ratios are contrasted vs. the percent change in corn acreage from the final figure the year prior to that year’s prospective plantings report that is usually released the final business day of March.

This year the new crop soybean–corn ratio is coming in at 2.05, which other than the 2.04 seen the day before Thanksgiving in 2006 and the 1.87 ratio back in 2002 is the lowest new crop soybean/corn ratio we have in our database going back to 1985 and well below the ten-year average of 2.32.

A general rule of thumb is a ratio at 2.35 or higher will result in a rise in soybean acreage relative to corn and vice-versa.

The current rate would imply a rise in corn acreage next year compared to soybeans and a cursory look at the net return per acre figures would also support that assumption.

Last year, the ratio before Thanksgiving was 2.13 and that may have contributed to the 4.3% rise in the prospective 2012 corn acreage over the 2011 final number.

Over the past 29 years, the ratio has moved in favor of soybeans 15 times from the day before Thanksgiving to the day prior to the prospective plantings report and 14 times in favor or corn.

Last year, the ratio moved strongly in favor of soybeans as the 2012 prospective plantings figure for soybeans was much lower than trade expectations while the market was also incorporating the huge drought in South American last year that did greater harm to soybean production than corn.

This year even with a low soybean-corn ratio that would normally augur for a rise in corn acreage we do not think 2013 U.S. corn acreage will approach the 96.9 million seeded last year, the highest since 1936.

First off, many Eastern Corn Belt producers are tiring of the low yields seen in their continuous corn over the past few years and are set to return to their regular soybean-corn rotation.

Meanwhile, though Western Corn Belt producers are more likely to maintain corn acreage at or above this year’s levels, this is the same area where drought has intensified over the past few months.

Unless severe soil moisture deficiencies are reversed, planting corn in some of these regions could be an iffy proposition at best.

(KA)

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