Last year the market was crying out for more bean acreage and gave farmers what has turned out to be a good chance to lock in attractive prices well before planting. This year, prices aren’t quite as high as at this time last year, but it’s never too early to think about what acreage mix might offer your operation the best profit potential. Also, remember that while the market may look one way now, it might look very different several months down the road. Here’s more insight into why there are relatively strong bean prices vs. corn as of today.
Heading into corn and soybean harvest last year, everyone was worried about overproduction of corn and a lack of beans. After all, corn ending stocks were expected to exceed 2 billion bushels, but while bean stocks were expected around 350 million bushels, there was 10 years of history that seemed to suggest that no matter how many soybeans we could grow, China was there waiting to buy all of it!
So the market spent last fall trying to price in a large switch of corn acres into bean acres by strengthening November 2017 bean futures relative to December 2017 corn. Since 1995, between September and December new-crop November beans have on average traded at about 2.25 times December corn futures. Last year November beans traded between 2.5 and 2.68 times Dec. corn during that time, which was the strongest that ratio has been in favor of beans since well before 1995.
That ratio did its job, as corn acreage this spring fell by 3.1 million acres vs. 2016 plantings, and bean acreage rose by 6 million acres.
So one might expect that corn/bean acreage mix to reverse itself next year and for normal crop rotation to add corn acres. But 2018 futures aren’t exactly behaving that way.
Right now, November 2018 bean futures are trading at 2.47 bushels per bushel of Dec. 2018 corn, a shade behind last years’ ratio, but still one heavily in favor of beans. What conclusions can be derived from this?
- The market seems to be more worried about yield downside for beans than for corn right now, as a 5 bu/acre drop in corn yield would still keep ending stocks forecasts above 1.5 billion bushels but a 2 bu/acre drop in bean yields could take bean stocks back below 300 million bushels. Risk premium surrounding the upcoming South American bean crop also needs to be priced into futures prices.
- Considering the strongest the corn/bean ratio has been pre-planting in over 25 years was when it touched 2.68:1 last year, that assuming December 18 corn stays around $4.00 the highest we would be likely to see November beans during that time would be about $10.70, if the ratio goes to as bean-favorable a level as last year.
- Should there be a relatively poor corn crop but a solid bean crop this year, coupled with larger bean acreage forecasts, the ratio could start pricing in a need for added corn acreage and send the ratio heavily in favor of corn as this fall moves on.
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