(Reuters) – Despite the recent rally in Chicago soybean futures, U.S. farmers may not be switching from corn to soybeans as much as the corn bulls may have hoped.
The U.S. Department of Agriculture shocked analysts on March 31 when it reported 3.6 million more corn acres than the market had expected in its annual Prospective Plantings report. The report gives the agency’s first official estimates of spring crop area in the United States, the world’s No. 1 and No. 2 supplier of corn and soybeans, respectively.
The bearish news sent new crop corn futures to a contract low, while soybean futures generally continued on their upward trend that began in early March, assisted by reported soybean acreage slightly below market expectations.
The ratio of November soybean futures to December corn futures, which generally represents economic incentives to plant either crop, has climbed steeply since March 31 and now hovers near 2.5, well into the territory that would be considered favorable for soybeans (reut.rs/1VqlxAJ).
From an economic standpoint, corn had generally been the more profitable crop for farmers in the corn- and soybean-heavy Midwest prior to Prospective Plantings, although the difference was relatively slim. But due to the price shifts in the two weeks since, soybeans now appear to have the edge over corn in terms of profit. (reut.rs/1VqmJnJ).
In the weather arena, soybeans likely had the early advantage. At the time of Prospective Plantings’ release, the high corn acreage from USDA seemed extra implausible because of the weather outlook. Southern corn regions were getting too wet, and cold, snowy weather reigned over the Midwest, making field work nearly impossible.
Since corn is planted first, significantly delayed corn planting often means that many acres intended for corn get rolled over to soybeans, and a couple of weeks ago this seemed to be the likely course.
But the weather forecast has now flipped, complicating the argument against corn acres. Warm and dry weather will overtake much of the central United States at the perfect time for corn planting to begin. Wet weather may continue to bring headaches to the far south, but the affected states account for a nearly negligible amount of national corn production.
Mid-April is when the key Midwestern states start to ramp up corn planting, and there is good reason to believe that many farmers will plant those intended corn acres. National corn acreage could rise well above the 90 million acres the market expected at the end of March, closer to USDA’s projection.
WHAT’S A FARMER TO DO?
The shift in new-crop corn and soybean futures since Prospective Plantings has led to wide market speculation that many farmers will reconsider their initial planting intentions and favor soybeans. At this point, it is not too late to change the plan, but the decision window is quickly closing.
The crop insurance “go date,” or the first calendar day in which farmers can plant a specific crop and be eligible for full insurance coverage, is moving northward for corn. That date falls this week in major producers like Iowa and Minnesota, and it has already occurred for states farther south and east.
This means that a large amount of farmers can and will start planting within the week given good conditions, so acreage decisions have likely been locked in already. However, for areas farther north where it is favorable to push corn planting to the end of April, farmers still have time to change their minds with minimal stress.
“There are probably more swing acres in play this year than any other year,” said Chip Flory, editorial director for farm advisory service ProFarmer. Although this argument is brought up year after year, it does ring true, as changes in field management now allow the farmer to be more flexible and increasingly make “game time decisions” when it comes to planting.
One of the most important flexibilities has to do with the application of nitrogen to the field, which is essential for corn yield to reach full potential. Post-emergence application is becoming more common, which allows the farmer to plant first and apply nitrogen afterward as opposed to the traditional practice of laying down nitrogen first. The inherent problem with the latter is that once the nitrogen goes down, soybeans cannot be planted.
While the flexible nitrogen practice supports the theory that many farmers might still switch to soybeans, the recent uptick in local nitrogen prices in key Midwestern states implies that many farmers have likely committed to corn already, supporting the higher corn acreage (reut.rs/1VqnKw5).
Further, some farmers do not have much of a choice when it comes to acreage as yield potential is maximized only with certain crop rotations, for example, planting the same field with corn the year after planting soybeans. The high corn acreage in Prospective Plantings may have reflected this.
“We can’t ignore rotations and the benefit of rotating crops. There are a high percentage of farmers that are already locked in to their rotations, and this year, rotations tend to favor corn,” Flory said.
WEATHER: FRIEND OR FOE?
Weather has seemingly sided with soybeans over the past few weeks, as the perpetual resurgence of winter has kept Midwestern farmers out of their fields and wondering if the chance to plant corn would pass them by. But now the forecast suggests that Mother Nature may have switched teams.
Temperatures are expected to soar well above normal for the next two weeks across the Midwestern corn belt. High temperatures will exceed 70 degrees F, which can quickly raise low soil temperatures to suitable levels for planting (reut.rs/1VqpUvA).
Rain will be scarce across the majority of corn-producing areas for at least the next few days. Next week, some of the far western corn areas, such as the Dakotas and Nebraska, will get some rain but the core areas should remain favorably dry (reut.rs/1VqpOEs).
At this time of year, weather is typically the biggest factor in corn and soybean acreage swings, but long warm and dry stretches in mid and late April highly facilitate rapid corn planting. Last year provides an excellent example.
Early spring 2015 was plagued by wet weather, prompting many to assume that planting could be severely delayed. However, due to a two-week stretch of warm, dry weather, national corn planting progress jumped from 19 percent complete on April 26 to 55 percent on May 3, and to 75 percent by May 10.
This year’s corn planting progress could move just as quickly if the warm and dry pattern is realized and extends into May. Flory thinks this would certainly support higher corn area. “I don’t see how we can lose many corn acres if we are 55 to 65 percent planted by May 1,” he said.
But ultimately, farmers tend to favor the practice they are most comfortable with, regardless of prices or the summer weather outlook. For farmers who tend to obtain better results from planting corn, that is what they will likely stick with, as long as the weather over the next month is cooperative. And at this point, it seems to be just that.
