Current Agriculture and Agri-Food Canada estimates released in January suggest a 4% decrease in acres planted to corn in 2016 in Canada, suggesting an increase in winter wheat and competition from competing crops behind the move. As well, the acres seeded to soybeans are estimated to be 4% higher, based on superior returns. A January 29 USDA attaché report, Canada -- Grain and Feed Update, reiterates this trend.
This study looks at the use of the soybean/corn ratio as an indicator of the relative mix of acres estimated in Statistics Canada March Intentions of Principal Field Crop Areas report.
Thursday's November 2016 soybean/December 2016 corn price ratio ended at 2.32, up from a low of 2.11 reached in September and slightly above the average ratio over the life of the two contracts of 2.31, ranging from a high of 2.55 to a low of 2.11. The question remains whether this ratio leads to a predictable impact on estimates in Statistics Canada's March Intentions report.
The attached chart shows the Dec. 1 and March 15 new crop soy/corn price ratios from 2001 through 2015. The 15-year average ratio on December 1 is 2.24 while the 15-year March 15 ratio is 2.25. Given the assumption that lower ratios result in a forecast for more corn acres to be planted vs. soybeans and vice versa, we see that the Dec. 1 soybean/corn ratio led to a predictable response in the March estimates in 12 out of 15 years. The March 15 soybean/corn ratio explained the March results in 10 out of 15 years.
P[L1] D[0x0] M[300x250] OOP[F] ADUNIT T
A most recent example where the soy/corn ratio failed to explain the March estimates was seen in 2015, where the Dec. 1 soy/corn ratio was 2.38 and the March 15 ratio was 2.35, high vs. the 15-year average, while Statistics Canada's March estimates suggested a 6.2% year/year increase corn acres along with a 3.4% decrease in soybean acres.
Previous work by DTN Contributing Analyst Joe Karlin suggests there is "no clear relation between the new crop ratios and the percent change in acreage from the prior year." Instead, he prefers projected returns per acre as a predictor of the shift in acres between crops. The Dec. 1 2015 new crop soybean/corn ratio was 2.29, above the long-term average which supports the notion of higher soybean areas at the expense of corn.
DTN 360 Poll
Given current market signals, how do you see the mix of corn and soybean acres changing in 2016 on your farm or in your area? You can weigh in with your thoughts on this week's poll, found on the lower right corner of the DTN Home Page. We thank you for your participation!
Cliff Jamieson can be reached at email@example.com
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