Each winter brings one of the most important functions of futures markets: Optimally allocating available cropland among crops competing for that land in the “ultimate land rent auction,” you might say.
The burden is on the world’s commodity buyers to 1) know just how much acreage will be needed to meet their collective needs for a particular crop, 2) have at least a rough idea of current comparative costs and returns farmers are looking at, and 3) bid more aggressively for the crop they need if it’s badly losing the auction bidding!
The table to the left (click to view large version) addresses item 2. It shows comparative costs and returns using current new crop futures quotes for the eight major crops, USDA’s latest estimates of 2013 operating (variable) costs of production. If you jot down the bottom line figures in the 2013 columns from top to bottom, you’ll see corn leads the pack by more than $100 per acre over the number two “bidder,” the world’s rice buyers.
Soybeans lagged corn by $272 per acre in profit potential at this writing. That should be giving world soybean buyers pause! If you rank the implied profitability for 2012 crops using drought-reduced yields, corn, beans and rice are still the top three, only rice leads the pack.
The trend yield assumptions and costs for 2013 won’t change much until spring. It’s the futures prices that will change. We recommend you create this table in an EXCEL spreadsheet yourself if you want to keep track of likely acreage mix into planting time.