Fundamentally Speaking
Joel Karlin DTN Contributing Analyst

Tuesday 11/26/13

New Crop Bean/Corn Ratio History
The accompanying graphic looks at the new crop soybean-corn ratio going back over a number of years on the day before Thanksgiving and the day before the March prospective plantings reports.[Read Full Blog Post]
Posted at 1:28PM CST 11/26/13 | Post a Comment
Comments (2)
What is the average soybean/corn ratio.
Posted by WARREN HARDY at 7:29AM CST 11/27/13
The old train of thought for a pre-harvest sale of grain is/was; determine a price that works for your situation, access the risk of that position in terms of the total operation and if needed defend your position as/if your assumptions change. A lot of folks use a cost plus profit to determine the quantity and price level to make those early sales. Others of us are naive enough to try to forecast possible pricing outcomes from historic relationship. (We should all known by now; "Past performance is not indicative of future results." That definitely applies with our model.) The September WASDE report placed a heavy foot print upon 2014-15 (to be planted this spring) corn prices with the large 2013-14 (harvested this past fall) ending stocks. Now that increased corm usage seems to be sustainable into the future crop year. It has caused a need to access the risk of our current position in terms of the total operation. There are many unknowns at this time. The largest probable risk is in World, US and farm corn production. US production is of particular concern for future pricing opportunity. As we all know, especially from the past several years, weather plays a large part in the yield side of the production equation. That risk can be managed- to some degree- with our "natural hedge" and insurance. The success of these two factors in managing that risk will be dependant on planted corn acres. It is interesting to noted, insurance will provide better downside protection with large planted acres while the "natural hedge" will provide better upside protection from smaller planted acres. (This may be a factor in how one's marketing plan is set up.) Many are now forecasting, think and/or hoping 92 million or so acres of corn will be planted this spring. A normal yield, on those acres, with an increasing demand, might keep price in more of a holding pattern than the decline of our expectations. Past acreage/price relationships were "snooped" to find what is needed for 92 million plant corn acres to be planted this spring in the US. ("Snooped" is a term used by University of Illinois's Dr. Irwin to illustrate the potential long and short term uselessness of this technique- a view that is hard to disagree with. It is a good read for those with that kind of interest.) Soybean/corn price ratios were not used in developing the model. But the results can be explained in those terms. The February insurance prices were assumed to be a reliable price trigger for corn or soybean planting decisions. The model's prices and price relationships are set for that time frame. It seems, from the model, that the price ratio of soybeans to corn would need to be greatly skewed from historic relationships. A February soybean price of $11.00 would need a February corn price of $3.81 or less with a resulting ratio of 2.89 or higher ratio for 92 million or less corn acres to occur. An example of other pricing relations that have the same result would be; $12.50 soybeans, $4.46 corn with a 2.80 price ratio and $14.00 soybeans, $5.13 corn with a 2.73 price ratio. If the corn price is below the price indicated for the corresponding soybean price, the model points less than 92 million corn acres planted. Historically, from 2004 to 2013, February's soybean/corn price ratio has ranged from 2.0 to 2.5 with an average of 2.3. It seems logical that the historic relationship would hold for the lower soybean prices. (Meaning more than 92 million corn acres would likely be planted.) A scenario can be envisioned where an ugly (big) January stocks report for corn and a very tight current crop soybean supply versus demand relationship might result in a "new crop" soybean price high enough and corn low enough to trigger the drop in corn acreage. However, it seems unlikely that current year soybean prices could pulled next year's prices that high with such a large South American crop being advertised. The model with current conditions, which are always subject to change, points to around 96 million acres of corn and around 79 million acres of beans. Freeport, IL
Posted by Freeport IL at 2:50PM CST 12/03/13
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