Posted by: usset001 | December 12, 2013

The 2014 outlook for more soybean acres (and lower soybean prices)

Nov soy Dec corn ratio 2000 2013Earlier this week I was invited to speak with Darren Hefty on Ag PhD Radio. The topic was soybean plantings in 2014. I like to be prepared, so before we talked I explored the new crop soybean/corn price ratio to search for some meaningful insights. What I found was alarming.

Nov’14 soybeans are currently trading at levels 2.5 times higher than Dec’14 corn ($11.60 Nov’14 soy vs. $4.62 Dec’14 corn). This ratio is as high and favorable to soybeans as we have seen since year 2000 (see chart). When the new crop price of soybeans is high relative to new crop corn, farmers naturally increase acres planted to soybeans. Take, for example, two similar years – 2004 and 2006. In these years, farmers increased soybean plantings by 1.8-3.5 million acres, respectively.

What happens to new crop soybean prices when farmers plant more soybeans? This was the alarming part. I looked at November soybean futures in every year when farmers increased soybean plantings by at least 2% (for perspective, a 2% increase in soybean plantings in 2014 means an additional 1.6 million acres of soybeans – not a particularly large increase). I found 14 years that met the criteria. In 12 of the 14 years, November soybean futures prices were substantially lower at harvest, vs. price levels  the prior winter.

One additional thought. The soybean/corn price ratio only tells part of the story. How about soybean prices relative to spring wheat prices? With wheat prices in a crash and burn mode, soybean prices are just as favorable relative to wheat. Farmers in the Northern Plains (think North and South Dakota) have an equally strong incentive to plant more soybeans.

If you believe as I do, that soybean plantings will increase by 2 million acres or more in 2014, then we have reason to be nervous about new crop soybean prices in the months ahead.

November Soybean Futures, 1980-2013 (years when plantings increased by 2% or more from the previous year)

 

plantings

 

 

Feb-Oct

year

% change

1-Feb

1-Oct

change

1982

4.9%

7.04

5.29

(1.76)

1984

6.2%

7.18

5.90

(1.28)

1989

3.4%

7.38

5.77

(1.61)

1991

2.4%

6.06

5.89

(0.18)

1994

2.6%

6.43

5.38

(1.05)

1996

2.6%

7.13

7.49

0.36

1997

9.0%

6.82

6.21

(0.61)

1998

2.9%

6.67

5.15

(1.52)

1999

2.4%

5.25

4.81

(0.44)

2004

2.5%

6.43

5.35

(1.09)

2006

4.8%

6.17

5.45

(0.72)

2008

17.0%

12.54

10.53

(2.01)

2009

2.3%

9.25

9.18

(0.07)

2012

2.9%

12.18

15.60

3.42

average

 

7.61

7.00

(0.61)


Responses

  1. […] In my last post, I noted that new crop soybean prices (Nov’14 futures) were at a very favorable level relative to new crop corn prices (Dec’14 futures). So favorable, in fact, that I think it is reasonable to assume a large increase in soybean acres next year. More acres leads to greater supplies, which could lead (again, see my last post here) to much lower soybean prices by harvest in 2014. Despite this outlook, Nov’14 futures prices are currently at a profitable level, relative to production costs. […]

  2. Not quite so good now, in mid Jan.


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