Have you decided whether to plant more corn or more soybeans in 2013? Many farmers will remain with a 50/50 crop rotation or other formula that works best with their fields, but if you are changing your planting plans, what are you going to do, and why?
Are you waiting for the crop insurance guarantee, and then decide whether it will pay more for corn or soybeans?
While you may say you would not do anything that simple, others might shout a resounding affirmation. But at this point, would those projected insurance guarantees really help you decide one way or the other?
As of February 20, the crop insurance guarantee would provide $5.70 for corn and $12.98 for soybeans. That nothing like the $7.50 and $15 you were hoping for. However, they are marginally better than the $5.68 and $12.55 for the 2012 guarantees.
The only problem is that there are 6 more trading days at the Chicago Mercantile Exchange left in February where the December corn and November soybean contracts can continue to fade. February started out with $5.92 for corn and $13.32 for soybeans.
Your challenge is to make a decision on whether the harvest price option will be significantly better for one or the other and plant more acres of that particular commodity. There is always a guessing game, but that is why you manage risk.
University of Illinois ag economist Gary Schnitkey suggests using price ratios to help guide your planting decision, and says, “Higher soybean-to-corn price ratios tend to indicate that soybeans are more profitable to plant than corn, and vice versa. Based on CME settlement prices during the first half of February, the soybean-to-corn price ratio is 2.27.”
But is 2.27 high or low? Schnitkey says over the past 37 years, 2.27 is slightly below the average of 2.32, which would favor corn. However, over the past five years, 2.27 is slightly above the average of 2.22, which would favor beans. In the years, 1976, 2001, 2002, and 2007, the soybean to corn ratio fell below 2.00. But in 1979 it reached 2.7 and nudged 3.0 in 1988.
The question remains, should you plant more corn or beans, based on the 2.27 soybean to corn price ratio? Schnitkey says following the long term trend, “The low correlation calls into question basing planting too much of current price relationships. Often, price relationships change between spring and fall, altering final income from crops. Longer run rotational considerations likely should play a large role in planting decisions.” Schnitkey also reminds you that large corn plantings—97 to 99 million acres—could be planted. And if soybean acres were short, a contrarian could do well. The next USDA planting intentions report is set for March 29.
With some planting decisions yet to be made, some guidance could come from the crop insurance guarantees. However, they are likely weaker than many farmers may have expected. Their ratio falls near both the long term and short term averages, with the long term average recommending corn and the short term average recommending soybeans. The recommendation is to rely more on the long term average than the short term average.
Source: FarmGate blog