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Acreage report leaves a lot of questions

USDA's acreage report was out Monday, with a surprise to some that corn was
so low (86 million acres) and soybeans so high (74.8 million).

Like it or
not, this is the information the market will trade on for the next few
months, regardless of how it might be right or wrong. Traders will point to
the fact that once intentions are out, weather is the only thing that
historically changes acreage much from that survey.

However, this survey was done as of March 1, at a time when soybean prices
were much higher ($14.26) and corn lower ($5.65). In fact, the soybean/corn
price ratio on March 1 was 2.524, much higher than the ratio is now (about
1.9) as soybean prices have dropped well over $3 while corn has rallied 35c.
So, while on March 1 there was tremendous incentive to plant soybeans instead
of corn, today that ratio clearly favors corn. Pro Ag calculates now a
$150-$250 profit advantage/acre planting corn vs. soybeans. This is a huge
turnaround in just 1 month in the price ratio - one we haven't likely ever
seen in the Nov. soybean/Dec corn price ratio prior to planting. How many
acres will switch back from soybeans to corn given the strong incentive to
do so? There is a very short time to make these changes - can farmers get
it done?

And while the price is trying to lever acres over to corn, the weather is
not cooperating at all with producers in the central/eastern Corn Belt and
southeast US. Wet/cool weather is forecast for the next 2 weeks, likely to
further delay corn planting. Since corn futures broke out to new highs this
week, its likely the corn market will continue to run higher. How much
higher is anyone's guess.

While corn is pushing new highs, both wheat and soybeans seem locked in a
cascading downward trend, with prices quickly deteriorating from recent high
levels. That means we have recoveries, but it seems like it's a couple days
of limit up, followed by more days of limit down moves recently. But can
corn continue to rally without taking wheat/soybeans with it? It seems like
the price comparison between corn and soybeans/wheat can only stretch so
far. At a ratio of soybeans/corn at 1.9 now (favoring corn more now than
all of winter 2006/07), its hard to imagine it getting much better. We
attracted 15 million acres of corn from soybean/wheat/other crops winter
06/07, so how much can we attract from March 1 forward in 2008? Farmers in
the western corn belt (the less wet area) have a unique opportunity to
increase profits by $150+/acre by simply switching soybeans to corn at the
expense of central/eastern corn belt farmers. Will they do it?

It's not often we get a period where corn prices rise 35c, and at the same
time soybean prices drop $3 or more. But if you haven't noticed, that's
exactly what happened in March 2008. These kinds of price adjustments,
where crops competing for acreage can change prices so substantially in such
a short period of time - is just fitting for 2008. After all, we rallied
HRS wheat prices to $25 in February, only to finish March at closer to $12
price levels.

These grain markets are sure full of surprises, and we wonder what spring
2008 can bring. Can corn prices rise much more than $6 Dec? Will funds
blow corn prices higher, and then bust them like HRS wheat? How much
acreage can farmers switch from soybeans to corn based on price incentives
from March 1 to planting? We are rewriting history today!
An interesting historical question might be related to the often pointed to
bust of the Dutch Poppy rally, where poppy's (a flower) found huge
speculative buying interest at one time. Is the CBOT trade making any more
sense these days than the famous Dutch Poppy rally?

With the strange goings on of mortgage banker behavior, and now the bust
caused by it, one really has to question the integrity of some age old
institutions once greed gets the best of them. Perhaps there is a lesson to
be learned here?

The information contained, while not guaranteed as to accuracy or
completeness, has been obtained from sources we believe to be
reliable. The opinions and recommendations contained are based on
our judgment and do not guarantee that profits will be achieved
or that losses will not be incurred. Recommendations should not
be construed as an offer to buy or sell commodities. There is
substantial risk of loss in trading futures and options on
futures.

If you have questions about this column, call Progressive Ag at 1-800-450-
1404, or email Ray at rlg@progressiveag.com (return receipt requested).

USDA's acreage report was out Monday, with a surprise to some that corn was so low (86 million acres) and soybeans so high (74.8 million).

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