May 3, 1999
WILL ACREAGE BE SHIFTED
FROM CORN TO SOYBEANS?
Forecasts of additional precipitation
in the first half of May threatened to delay corn planting again
this spring. A delay in corn planting always raises the question
of whether or not producers will abandon plans for some corn acres
and plant those acres to soybeans. The decision for individual
producers is based on a wide array of factors, including expected
yield impact from delayed corn planting, fertilizer and herbicide
applications already made, availability of seed, and expected
price relationship for corn and soybeans.
For the past three years, corn planting
has been a little on the slow side (particularly in comparison
to the rapid planting progress in the mid to late 1980s). Additionally,
corn plantings have not been influenced by annual set-aside programs
since 1995. Comparison of final planted acreage to March intentions
is made a little difficult due to recent acreage estimate revisions
based on the 1997 Census. Based on figures available, corn plantings
have fallen below March intentions in each of the past three years.
The shortfall was 691,000 acres in 1996, 1.879 million in 1997,
and 594,000 acres in 1998. Only in 1997 was the decline revealed
in the June Acreage report.
Soybean acreage exceeded March intentions
in 1996, 1997, and 1998. The increase totaled 1.717 million acres
in 1996, 1.205 million in 1997, and 375,000 acres in 1998. In
each of those years, the June Acreage report revealed that
acreage was larger than March intentions. In both 1997 and 1998,
however, actual acreage was less than June intentions.
What about this year? On one hand,
it could be argued that it is still too early to worry about the
impact of corn planting delays on potential yield. Those concerns
will be more legitimate after mid-month. A couple of factors,
however, suggest that producers may be a little quicker to shift
acreage to soybeans this year. First, intended switching from
corn to soybeans reported in March is concentrated in the western
corn belt. That is also where planting delays will likely be most
significant. It may be an easier decision to extend the already
planned increase in soybean acreage. Second, the relatively low
price of corn in relation to the soybean loan rate may make the
switch more attractive. In many Iowa locations, for example, the
ratio of the soybean loan rate to the harvest bid price for corn
exceeds 2.7 to 1. The ratio of the soybean loan rate to the corn
loan rate in those locations is 2.8 or 2.9 to 1. In general, a
ratio over 2.5 to 1 is thought to favor soybean
production, although the breakeven
ratio varies widely from region to region and farm to farm.
Increased acreage of soybeans would
add to the fundamental problems for soybean prices, assuming a
1999 yield near trend value. The other problems include a declining
rate of domestic soybean crush and lagging export sales. A seasonal
decline in domestic crush typically begins in early April and
persists to mid or late October. The decline reflects the availability
of South American soybeans. The decline started right on cue this
year, but initially appears to be sharper than last years
Export sales typically start a seasonal
decline in January, as the market anticipates South American supplies.
That pattern is being followed this year, with total export sales
through April 22 lagging last years pace by 111 million
bushels. The USDA projects that exports this year will be 100
million bushels below last years shipments.
Both domestic crush and exports
for the year may fall just a little short of the current USDA
projection. There is also some risk that the September 1, 1999
Grain Stocks report may "find" some of the soybeans
that appeared to be missing in the March report. That pattern
has been followed a couple of times in recent history. In any
event, year ending stocks will be quite large.
Even under the burden of increasingly
poor fundamentals, soybean prices have been reluctant to trade
lower, partly because prices are already so low and the entire
growing season is yet to come. The stability in prices is also
partly technical in nature, similar to the pattern of last spring.
If the 1999 U.S. soybean yield is near trend value, further declines
can be expected. The best chance for a rally will likely be during
the latter part of the growing season, when yields are most vulnerable
to adverse weather conditions. Only a rally above the loan rate,
however, would require a pricing decision.
Issued by Darrel
University of Illinois