Fundamentally Speaking

Since peaking at 2.67 on August 8th, the 2015 November soybean/2015 December corn ratio has moved steadily lower falling to 2.38 this past week, the lowest level since early April.

A lot of attention is paid to this new crop soybean-corn ratio to gain some insights as to what mix of corn and soybeans farmers will plant relative to the prior year.

The 10.9% decline in this ratio since mid-summer has been triggered by a much more burdensome soybean supplies vs. corn stockpiles, expectations of another record South American soybean crop and ideas that U.S. farmers once again will plant a record amount of soybeans next spring while cutting back on corn acreage.

This decline in the ratio suggests that corn may be making a play to garner more acreage with some fretting that too drastic a cut in U.S. corn seedings next year may result in too snug a balance sheet for the 2015/16 season.

The accompanying graphic shows the new crop November soybean-December corn ratio as of December 1 and 3 ½ months later on March 1.

These ratios are plotted with the percent change in prospective U.S. corn and soybean acreage as reported in the March planting intentions report from the prior year's final acreage.

We are operating under the assumption that a low ratio will result in more corn planted vis-à-vis soybeans and vice-versa.

Note that the 1991-2014 average ratios on Dec 1 is 2.30 falling to an average 2.27 by March 15.

On December 1, 2013 the November 2014 soybean/December 2014 corn ratio was 2.53, the highest of any year in the analyzed time period of 1991 to 2014.

Though the ratio did decline to 2.41 by March 15, 2014 it was still the highest ratio for that date since 2004 and resulted in the March intentions report showing 2014 U.S. soybean acreage up 6.5% vs. the final 2013 figure to a new all-time high and this is the third largest increase since 1991, trailing only 2006 and 1997.

Conversely, the 2014 March intentions report showed corn acreage down 3.9% vs. the final 2013 figure, the third largest decline next to 2008 and 1995.

Looking at the data and running some statistical models there really is no clear relation between the new crop ratios and the percent change in acreage from the prior year.

For instance in in March 15, 2008 a low ratio of 2.22 did not prevent corn acreage falling by 8.1% and soybean area increase by 17.5% from the prior year's final figures as indicated in the March 2008 planting intentions report.

We actually feel that using prospective net returns per acreage on a dollar basis a far superior method than using a simple ratio.

It would not surprise us to see this ratio dip even more in the coming weeks with corn making a more concerted effort to preserve much of their acreage base for next year.

(KA)

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