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.