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2007 Crop Planning: Why beans?

Agriculture.com Staff 05/25/2006 @ 8:15am

The March 31 USDA report of 2006 intended acreage in wheat and corn has sparked a rally that has continued to this week, with new highs for wheat and near highs in corn. Not only did the 2006 crop market year rally, but also 2007 (and 2008 corn) rallied to new highs into territory that rarely is reached for most years.

As the market feels we can't produce enough corn, the 2007 corn futures contracts have traded as high as $3.15 with 2008 corn reaching $3.30. Wheat futures have hit $5 KC July07, $4.94 Mnpls Sept, and $4.80 CBOT July 07. So, these prices are starting to draw the attention of growers across the Dakotas.

It's funny how one event can trigger panic among buyers, but certainly corn/wheat buyers have panicked about the small 2006 acreage numbers USDA reported, and are really aggressively bidding for acres. The oddity is the rally in 2007 crop futures is almost saying "It's not possible to plant enough corn/wheat in 2007, either,". But clearly if enough oilseeds acres are flexed back to corn/wheat, we can get pretty strong supplies of both. Can we flex 5+ million acres of oilseeds to wheat/corn in 2007? If so, prices are out of alignment for 2007.

One of the situations Dakota growers have faced is the relatively profitable soybean/oilseed markets in past years and relatively unprofitable wheat/corn budgets. A great deal of wheat acreage has shifted to oilseeds the past 5-10 years in the Dakota's, accounting for much of the US oilseed increase. Growers constantly are asking how they can improve their rotations and still make money. In the past that wasn't possible, as wheat/corn prices were dreary compared to oilseeds.

Enter spring 2006, with the relatively low March corn/wheat planting intentions and off goes the bull market rally in corn and wheat. Add a little drought problem in HRW wheat areas and we have a fairly interesting situation in corn and wheat. Up to yesterday, the lack of 2006 acreage was encouraging.

But today, private crop estimates of acreage indicate up to a million additional wheat acres and 2 million additional corn acres were planted in 2006 than the March USDA report indicated. That probably came at the expense of 1-2 million soybean acres, with growers switching acreage in 2006 to the more profitable corn/wheat crops after the spring rally--even though this rarely occurs after March 31 (farmer usually lock in on their plans).

But what about 2007? With corn at $3, wheat at $5, and soybeans at $6 its not hard to think ahead to what you might want to plant next year. The market is screaming, "Plant wheat or corn, not beans" in many farmers' budgets, enough to bring questions about forward selling those flexed acres now.

As a farmer whose rotation might be 2 years soybeans and 1 year wheat/corn, it is awfully hard not to be tempted to drop all 2007 soybean/oilseed acreage and switch to the more profitable corn/wheat. $6 soybeans, $3 corn, and $5 wheat might make that choice easy!!! If you are a farmer who is tempted by these numbers to do so, we strongly encourage you to make some of those 2007 sales while the going is good. Once everyone looks at the ratio and concludes the same thing, usually the price offerings have changed.

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