South American weather will affect U.S. soy, corn seeding plans

Most analysts expect American farmers will reduce corn acres this spring and increase soybeans. The question is the magnitude of the shift.

The outcome will affect the prices of most crops, including canola and wheat. If soybean acreage turns out even bigger than expected, it could weigh down 2018-19 oilseed prices.

A key determinant to U.S. seeding plans will be the price relationship between the two crops. Traditionally, when the expected harvest- time price of soybeans is about 2.4 times the price of corn or more, American farmers increase plantings of the oilseed and cut corn.

You’ll usually see this price relationship described as a ratio of 2.4.

As of mid-February, the ratio of the futures market price for new crop December corn to new crop November soybeans is 2.57. That means there is a strong incentive to plant soybeans.

Last year, American farmers increased their soybean acreage and lowered corn, and for the first time the two major crops were almost tied with corn at 90.17 million acres and soybeans at 90.14 million.

Most believe soybeans this year will top corn for the first time ever. Analytics firm Informa Economics in January forecast 91.2 million acres of soybeans and 89.18 million acres of corn.

Economists with the U.S. Department of Agriculture will make their forecast known late next week at its annual outlook conference. The prospective planting report, based on a farmer survey, will be released March 29.

The market will continue to watch the evolving price relationship between corn and soybeans.

The price of both is supported by dry weather in Argentina. If it remains dry in the next critical four weeks, then already reduced yield estimates could fall more.

The reductions in Argentina’s soybean outlook have been mostly offset by increases in Brazil’s crop, but in corn, the South American production outlook is more negative.

Brazil’s official forecaster, Conab, expects the country’s two corn crops will total only 88 million tonnes, down from 92.34 million tonnes estimated in January and a record crop of 97.8 million last year.

Forecaster Michael Cordonnier has an even lower estimate of 86 million tonnes.

The USDA’s current forecast of 95 million tonnes will likely have to be lowered.

Acreage of Brazil’s first corn crop, seeded last fall, fell because of the better profitability of soybeans. The second crop, seeded after the current soybean harvest, is expected to be smaller, again because of the profitability issue and also because rain in many areas is delaying the harvest and therefore pushing corn out of the ideal seeding window.

Could this cause corn futures to rise more than soybean futures and cause the corn-soybean ratio to be less favourable to increased soybean plantings?

Or will corn and soybeans rise in unison, maintaining the ratio leading to a huge U.S. soybean planted- area, which would depress oilseed prices in the 2018-19 crop year?

Time and weather will tell, but it will be important to consider these factors as you plan your risk management for the 2018 crop year.

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