Kub's Den

Mysterious Motives of Wheat Acres

Elaine Kub
By  Elaine Kub , Contributing Analyst
There is no clear relationship between the pre-planting price ratio of spring wheat over corn and the ultimate year-over-year change in spring wheat acreage. (Chart by Elaine Kub)

As the February trading sessions pile up and spring reference prices are being set for 2024 crop insurance policies, much attention is paid to the all-important soybean-to-corn price ratio, which has averaged 2.4-to-1 over the past 40 years. That is to say, the price of soybeans is generally 2.4 times the price of corn. The difference accounts for both the relative usefulness of the calories contained in a bushel of either crop and also for the relative profit opportunities for a farmer to devote an acre of cropland to growing either 177 bushels of corn or 50 bushels of soybeans.

As DTN Contributing Analyst Joel Karlin pointed out in a post last month https://www.dtnpf.com/…, the old-crop soybean-to-corn price ratio has been running very hot indeed (currently 2.8-to-1) and even the new-crop ratio at 2.5-to-1 is historically strong and potentially strong enough to pull some acres away from corn and into soybeans once planting season gets started in the Corn Belt this spring.

But what about other crops that could step in and compete for acres? December cotton futures are back above 80 cents per pound. Northern growers who could plant canola in the spring might realistically be looking for $20 per hundredweight at harvest, and there is, of course, always the option of planting that neglected, forgotten, disfavored third crop of the "Big Three" -- wheat.

The maximum acreage scenario for winter wheat has already been set -- 34.4 million acres seeded last fall (down 6% year-over-year, according to USDA's latest figures). It's too late to plant more winter wheat, so the harvested acreage projection could only go down from here if acres are grazed or abandoned.

But it's not too late for spring wheat prices to influence farmers' planting decisions. Why don't we obsess over the spring-wheat-to-corn price ratio in February and March the same way we analyze the soybean-to-corn price ratio? The December Minneapolis spring wheat futures contract is trading around $6.90 per bushel. Is that good or bad in relation to December Chicago corn futures at $4.63?

The full answer, of course, would require a full analysis of each field's relative yield prospects and the input costs (fertilizer, herbicide, diesel, freight, labor, etc.) that might tip the scale in favor of one crop versus the other. But there is a shortcut for considering the overall nationwide acreage prospects for spring wheat versus corn -- the historical MW-to-C (Minneapolis wheat to corn) price ratio, which over the past 40 years has averaged 1.5-to-1. Therefore, the present new-crop prices available ($6.90 for spring wheat or $4.63 for corn, or 1.49-to-1) favor planting corn over spring wheat, but just barely.

Should we expect the actual number of acres that farmers plant to spring wheat to be influenced by this price relationship? Do market participants -- farmers buying seed and making their spring planting plans -- actually pay attention to that price ratio and respond to it in any noticeable way?

According to a chart showing the year-over-year change in spring wheat acreage compared to the February MW-to-C price ratio, it would be difficult to draw any clear conclusion about that. Some years, if the spring-wheat-to-corn price ratio is low in February, then yes, the ultimate spring wheat planted acreage drops. But in some years (like 2023), the price ratio may be lower than the historical average, yet spring wheat acreage actually increases, year-over-year. And in most recent years, the price ratio could have been anything it wanted to be, and spring wheat acreage would have dropped anyway, as farmers in the Western Corn Belt retired their small grains drills and pursued the high yields of sexier row-crop hybrids.

As the USDA put it in the Feb. 15, 2024 Grains and Oilseeds Outlook https://www.usda.gov/…, "Combined spring and durum wheat plantings for 2024/25 are projected slightly lower than last year with area constrained by relatively higher expected net returns for soybeans, minor oilseeds and other crops in the Northern Plains."

Even if a chart of the spring-wheat-to-corn price ratio shows no clear findings related to ultimate acreage planted, it's important to share these non-results, too, and remind ourselves of the limits of what data analysis can predict. Wheat is just, generally, a frustrating market. While the corn and soybean markets often "behave" according to seasonal patterns (highs in the North American spring or summer, lows at the North American harvest timeframe), the wheat market doesn't behave.

It's a crop that's grown in virtually every country on earth and probably being harvested somewhere during every season of the year. Its global prices don't respond much to North American weather. Its long-term charts aren't even sensitive to ending inventory projections or stocks-to-use ratios! Last summer, in a room full of knowledgeable, thoughtful, savvy commercial wheat traders representing some very large companies that trade very large quantities of wheat, no one could agree on what a 33% stocks-to-use ratio for U.S. wheat meant for the market. Was it pathetically bearish? Was it just the normal condition of the domestic supply chain? Or was it actually quite tight and bullish, all things considered, and in relation to historical expectations?

Furthermore, the market prices for wheat apparently have little influence over farmers' behavior. We might say it's a market that's just ping-ponging around from day to day and month to month without anything controlling its direction or responding to its signals.

And yet, somebody still plants it! The wheat market's very lack of predictability and its independent path means it's a good source of diversification for farmers who don't want their whole operation to rely on the correlated boom-or-bust fortunes of corn and soybeans alone. It diversifies a farm's workload, too, with planting and harvesting logistics that get spread out over different times of year.

This spring as we watch the annual "battle for acres" play out in the grain markets, we might conclude that soybeans are "bidding" for acres because they must. And maybe spring wheat isn't bidding aggressively because it doesn't have to. The decision to plant this crop, either here in the U.S. or around the world, might be made regardless of price.

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Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of grain or grain futures or options involve substantial risk and are not suitable for everyone.

Elaine Kub, CFA, is the author of "Mastering the Grain Markets: How Profits Are Really Made" and can be reached at analysis@elainekub.com.

Elaine Kub