Soybean-to-corn price ratios in Spring and Fall
The 2014 soybean-to-corn price ratio of 2.46 is high for the 1999-2013 period. Only the 2008 ratio of 2.47 exceeds the 2014 ratio. From 2007 to 2008, U.S. corn acres decreased by 8% while soybean acres increased by 17%. This acreage switch lends support for reductions in corn acres in 2014.
Relationship between Projected and Harvest Soybean-to-Corn Price Ratios
Relative corn and soybean profitability in 2014 will be influenced by how long price ratios persist. In particular, the relationship at harvest will be important in the final determination of relative returns. To see if high or low soybean-to-corn price ratios has historically persisted till harvest, a harvest soybean-to-price ratio was calculated using harvest prices used to determine revenue for crop insurance. Harvest prices are the average settlement prices of October CME futures prices (December contract for corn, November contract for soybeans).
click image to zoom Figure 2 shows a scatter of projected and harvest soybean-to-corn price ratios from 1972 through 2013. Each dot gives a year's pair. As can be seen in the figure, there is some correlation between projected and harvest soybean-to-corn price ratios (.28 correlation coefficient). Higher harvest price ratios tend to be associated with higher projected ratios; however, there is considerable variability. The solid line in Figure 2 located at 2.46 gives the 2014 projected soybean-to-corn price ratio. As can be seen, a wide range of harvest ratios occur near 2.46, suggests that harvest ratios can vary from projected ratios.
Acreage decisions will be impacted by relative prices being offered by the market; however, relative prices at harvest could differ from those in the spring. This suggests that farmers switching acres this spring should consider locking in some of the return difference through marketing contracts. It also suggests making acreage changes based strictly on relative prices may not result in the acreage mix that optimizes profits. Longer run rotational and yield considerations should enter into planting decisions.
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