A bit like the swallows of Capistrano, USDA's Ag Forum in Arlington, Virginia, signals the coming of spring and warmer weather ahead. As Senior Analyst Darin Newsom likes to point out, USDA released its third first estimate of the upcoming 2018-19 season on Friday. Ready or not, a new season of guessing has begun.
The first order of business for any new-crop season has to be the planting estimates, and on that count, USDA sees room for 90.0 million acres each of corn and soybeans and 46.5 million acres of wheat. The three-crop total of 226.5 million acres is nearly identical to last season and seems like a fair estimate since spot prices haven't moved much from where they were a year ago.
Even the new-crop soybean/corn ratio (the shortcut method for planting estimates) is virtually the same as a year ago. Sitting at 2.58, the popular ratio is modestly above its 10-year average of 2.42 and suggests soybeans should have a slight edge in the competition for acres.
After taking a closer look at the numbers, USDA's new corn yield estimate of 174.0 bushels an acre for 2018, and Monday's closing price of $3.99 for December corn, puts estimated revenue at $694.26 an acre. Compared to USDA's estimated cost of $645.26 an acre in 2018, gives corn an early positive expected return of $49.00 an acre or 7.6% of cost (USDA's production cost estimates are found at: http://bit.ly/…).
USDA's new soybean yield estimate of 48.5 bushels an acre times Monday's closing price of $10.30 1/2 for November soybeans produces estimated revenue of $499.79 an acre for 2018. When compared to USDA's 2018 cost estimate of $461.28, the expected return is $38.51 an acre or 8.3% of total cost.
Although the soybean estimate offers a slightly higher percentage return on investment, I suspect most producers would either opt for corn's higher dollar return per acre or find the numbers close enough to stick to a 50/50 crop rotation. In other words, new-crop futures prices currently support USDA's notion of an even split of corn and soybean acres.
Before walking away satisfied, however, I wanted to spot check some new-crop cash bids to see how that looked. Of course, I had to look at Iowa, the top corn producer in 2017, and Illinois, the top soybean producer in 2017.
Using DTN's ProphetX software, I found a co-op in Elkhart, Iowa, (near Des Moines) bidding $3.47 for new-crop corn, and $9.50 for new-crop soybeans on Friday afternoon. In Decatur, Illinois, an ADM facility was bidding $3.89 for new-crop corn, and $10.13 for new crop soybeans.
Using USDA's new yield and cost estimates again, the Iowa example favored soybean acres as corn lost $41.48 an acre while soybeans lost just 53 cents per acre. The Illinois example was a virtual tie as corn generated a theoretical profit of $31.60 an acre and soybeans penciled a gain of $30.02 an acre.
Overall, it seems likely that corn and soybean acres will stay close in size in 2018, and I'm reminded that many producers I meet say they stick to a rotation schedule, regardless of price differences. The examples above also help remind us that as much as we try to generalize, much about the planting decisions will come down to local factors, such as local bids and expected yields for a given area.
2018 has a long way to go and I'm concerned that USDA's corn yield estimate may be too low, but that topic will wait for another day. Until we get more information, USDA's early planting estimates of 90.0 million acres each for corn and soybeans seem reasonable.
Todd Hultman can be reached at Todd.Hultman@dtn.com
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