Category: Crop Marketing

In the March 13, 2023, Southern Ag Today article, Mark Welch discussed the soybean-to-corn price ratio and its implications for 2023 planting decisions. This article uses the same methods to examine the ratio and its impacts on 2024/25 new crop prices in the next few months, prior to USDA’s Ag Outlook Forum, which releases the first crop estimates for the 2024/25 marketing year and could have an impact on nearby futures prices. It additionally gives a way-too-early projection on corn/soybean acreage for next year. 

At last year’s Ag Outlook Forum on February 23, 2023, USDA projected an extra million acres of corn for 2023. This forecast resulted in a drop in the May Corn Futures price by nearly $0.37 in the four days following the report. As we progressed through the marketing year, corn acreage continued to increase, pushing the corn price lower and lower. The near-record acreage and high yields resulted in record corn production in 2023. As U.S. producers typically follow a corn/soybean rotation, this raises the question of whether the United States is primed for expanded soybean acreage in 2024. If the USDA projects expanded soybean acreage at this year’s Ag Outlook Forum, similar price declines to 2023 corn futures could occur in soybeans in 2024. 

Another indicator for soybean acreage is the soybean-to-corn price ratio, which is the November soybean futures price divided by the December corn futures price. Typically, a ratio higher than 2.5 results in soybean acreage closer to the number of corn acres. On the contrary, a ratio lower than 2.5 indicates that there will be a larger amount of corn acreage in the United States. Figure 1 shows the corn/soybean ratio on January 15 plotted against the difference in corn and soybean acres, described here as excess corn acreage. The past ten years of ratios on January 15 explain nearly 35% of the variation in excess corn acreage (corn acreage typically exceeds soybean acreage with the exception of 2018). Current ratios indicate that we will have more soybean acreage than last year; however, the simple estimation in this study does not account for other factors that affect corn and soybean prices, such as fertilizer prices and previously planted acreage. Considering both of these factors, the number of soybean acres is still likely to expand due to planted acreage, but how much expansion occurs remains a question.

This simple analysis indicates we could have 6.6 million more corn acres than soybeans in the United States compared to 11 million acres last year. Depending on how things play out, the Ag Outlook Forum reports released February 15-16 could greatly impact soybean prices, which should be kept in mind when marketing old crops in the near future. Soybean prices have been falling lately, and corn prices have yet to rebound. It remains possible that corn will try to buy some acres back in the near future, pushing corn futures slightly higher as soybean prices decline. 

Sources

Barchart.com. Historical Corn and Soybean Futures Charts. Accessed January 17, 2024.

USDA, NASS Quickstats, accessed January 17, 2024.

Welch, Mark. “The Soybean to Corn Price Ratio as a Guide to Farmers’ Planting Decisions.” Southern Ag Today 3(11.1). March 13, 2023. Permalink

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Gardner, Grant. “A Way-Too-Early Soybean-to-Corn Price Ratio Analysis: Price Implications and Planting.” Southern Ag Today 4(5.1). January 29, 2024. Permalink

Recent reports from USDA provide insight into the supply prospects for the 2024 winter wheat crop. The Winter Wheat and Canola Seedings publication on January 12, 2024, showed U.S. farmers planted 34.425 million acres of winter wheat for 2024, down about 6 percent from the 36.699 million planted for 2023. This is still the second-highest winter wheat seedings number in the last eight years. Texas planted 5.9 million acres compared to 6.4 million last year; Oklahoma planted 4.3 million compared to 4.6 million. Kansas, the top winter wheat producing state in the nation, planted 7.5 million acres for 2024, down from 8.1 million last year. 

Winter wheat crop condition ratings are well above last year, raising prospects for better winter wheat yields and a better harvested-to-planted ratio in 2024 compared to 2023.  The last USDA report available for the U.S. and specific states was November 26. Kansas updated its wheat crop condition ratings on December 31. The USDA has since suspended weekly crop condition rating reports until the first of April.

Over the last three years, the average harvested-to-planted percentage for winter wheat is about 71 percent.  With a trendline yield of about 51 bushels per acre and 34.425 million planted acres, an early estimate of 2024 winter wheat production is 1.246 billion bushels, around last year’s production and a little lower than the 10-year average production. Winter wheat production in 2023 was 1.248 billion bushels. The 10-year average production level is 1.286 billion bushels. A higher expected yield and harvested-to-plated ratio are expected to compensate for this season’s lower acreage. 

References

USDA, NASS Crop Progress, November 27, 2023 and January 2, 2024

USDA, NASS Quickstats, accessed January 17, 2024.

USDA, NASS Small Grains Summary, September 30, 2023

USDA, NASS Winter Wheat and Canola Seedings, January 12, 2024

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Welch, J. Mark. “2024 Winter Wheat Production Prospects.” Southern Ag Today 4(4.1). January 22, 2024. Permalink

Most prices over time are displayed as nominal prices, indicating the numeric value of the item. This, however, can be misleading due to the declining purchasing power of money over time leading to increases in price, or inflation. Inflation can easily be conceptualized in the housing market. In 1980, the average price of a home in the United States was $80,000, while in 2023 the average house price was estimated at $513,000. The function of the home has not changed, but the numerical value has changed dramatically. To compare values over time, economists will transform nominal values into real values. The nominal price is the value of an item in dollars that are not adjusted for the value of the dollar over time. Real prices are an item’s nominal value adjusted for inflation and thus measure that value in terms of other items, over time. In the housing price example, the $80,000 average price in 1980 would be $238,320 in 2023 dollars.  This article adjusts nominal nearby corn futures prices from 1980 to 2023 to real prices. The baseline month for real prices for this analysis is November 2023 (for November 2023, nominal price = real price = $4.83; figures 1 & 2).

Figure 1. Monthly Nominal Nearby Corn Futures Prices, 1980-2023

Figure 2. Monthly Real Nearby Corn Futures Prices, 1980-2023 (Base = November 2023)

Since 1980, the monthly average corn futures price (nominal price) has averaged $2.89/bu. The highest monthly average price was in April 2022 at $8.14/bu, and the lowest monthly average price was $1.47/bu in January 1987. So, comparing the current price of corn – $4.83/bu – would indicate that although prices are down from the recent high, prices are still nearly $2.00 above the long-term average. 

Examining real monthly nearby corn futures prices provides a very different comparison. The current price is the same $4.83/bu; however, this is $0.50/bu below the 1980 to 2023 real average price of $5.33/bu. The current price is near the price range from 2014 to 2020, a period that few corn farmers would associate with high prices. For real prices (in November 2023 dollars), the high and low occurred October 1980 at $10.73/bu and September 2005 at $3.00/bu. 

So, are corn prices high or low? Like all good economic questions, it depends. Analyzing real prices can be beneficial to provide historical context and allow for a comparison considering the same purchasing power.  Decisions can then be based on longer-term price cycles and trends.

References and Resources

Barchart.com. Monthly Nearby Corn Futures Interactive Chart.  https://www.barchart.com/futures/quotes/ZCH24/interactive-chart. 

U.S. Bureau of Labor Statistics, Producer Price Index by Commodity: All Commodities [PPIACO], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/PPIACO, January 10, 2024. 

Smith, Aaron. “Real and Nominal Corn Futures Prices.” Southern Ag Today 4(3.1). January 15, 2024. Permalink

Marketing peanuts can be challenging for producers due to the lack of a futures market and relatively concentrated first buyers. This makes it even more important for producers to evaluate their cost of production to help control input costs and make strategic risk management decisions. 

According to the USDA Commodity Cost and Returns for peanuts, the cost of production increased in 2022 and has stayed at this new higher level, much like other commodities. Figure 1 shows the 2024 forecasted operating cost of production at $336/ton. This covers such items as seed, chemicals, fuel, repairs, and interest. Meanwhile, allocated overhead includes general farm expenses that are allocated to the peanut operation, such as labor, the cost of machinery, and the opportunity cost of land. When including allocated overhead, the total cost of production is forecasted for 2024 at $598/ton, a 28% increase from 2014. These costs are slightly lower than the $648/ton total cost peak forecasted for 2023, but nowhere near the levels seen in earlier years.

In a Southern Ag Today article on December 4, 2023, it was shown that peanut prices are continuing to rise since the low in 2015. It was noted that the USDA expects prices to be about $550/ton for the 2023-2024 marketing year. This is still below the cost of production shown above. 

The farm bill provides for a safety net for peanut producers with base acres through the ARC/PLC and Marketing Loan programs. These programs have statutory price levels that have not changed since the 2014 Farm Bill. For the PLC program, the statutory reference price is $535/ton. While the 2018 Farm Bill allowed for an escalation through the Effective Reference Price, that has not triggered for peanuts. Meanwhile, the Marketing Loan has been set at a rate of $355/ton. This does not provide a safety net at these higher cost levels. 

While Congress continues to debate the next farm bill, producers need to look at alternative marketing strategies and other ways to help mitigate the rising costs of growing peanuts. Cross hedging is a popular marketing strategy used to mitigate risk, but there is little empirical evidence that it is effective for peanuts. That leaves contracting, cost control, and crop insurance as the most viable risk management tools for peanut producers.

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Rabinowitz, Adam. “Peanut Cost of Production, the Farm Bill, and Need for Risk Management.” Southern Ag Today 4(2.1). January 8, 2024. Permalink

Marketing plans are typically made up of two parts: pre-harvest marketing, in which producers market the crop prior to harvest, and post-harvest marketing, in which producers sell bushels during harvest or unmarketed bushels in storage after harvest.  In this article, we discuss how historical pre-harvest price movements can be used as a guide for producers when creating their pre-harvest marketing plans. Figures 1 and 2 contain boxplots that show the distribution of historical percent changes in the harvest-time futures prices for soybeans (November contract) and corn (December contract) from December to each subsequent month using data which spans from 2009-2023. Boxplots are helpful as they allow us to analyze the seasonality of prices and the associated price volatility across the year. In the boxplots, the X represents the average November soybean contract price percent change from December to the corresponding month. The bottom whisker represents the lowest 25% of price changes, the box represents the next 50% of price changes, and the top whisker represents the highest 25% of price changes. The line separating the box represents the median; 50% of observations lie below, and 50% lie above. The black dots represent outliers, values at the extreme end of the data. 

Figure 1 indicates that the highest average soybean price occurs in July, where the price is approximately 5% higher than in December; however, the median is approximately 0%, indicating that the price is only higher 50% of the time. On the contrary, the month of June has a slightly lower average price increase at 4%, but less downside risk. An interesting result for soybeans is the outliers in February and March, corresponding to the Brazilian soybean harvest window. We hypothesize that Brazilian crop or harvest issues can provide U.S. soybean producers with opportunities to market grain crops at abnormally high prices with respect to the December price. 

 Figure 2 indicates the summer months again provide the highest average corn price change, with June being the highest on average. We again find that with higher price potential comes more price variability. The May and June median price changes are near 0%, indicating equal upside and downside price risk. After June, the median becomes more negative, indicating that prices are likely to drop with expected new crop production. In May, the upside price potential ranges from 0% to 35%, while the downside ranges from 0% to -15%. 

Figures 1 and 2 put price risk in perspective as it pertains to pre-harvest marketing plans. On average, prices are higher in the summer than in December; however, these higher prices carry a significant amount of downside risk. For example, if a producer is trying to decide if they should market corn in May. The boxplots would indicate that if the price is 15% greater than the December price, price movements have been greater than at least 75% of price movements historically. Creating a solid signal to lock in the higher price. These charts may also indicate the usefulness of option contracts, such as establishing a futures market price floor through purchasing a put option or building an option spread strategy. The summer months have wide trading ranges, by using an option producers can lock in a price floor but leave themselves open to upside potential. 

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Maples, William E., and Grant Gardener. “Using Historical Price Movements to Inform Marketing Decisions.” Southern Ag Today 3(51.1). December 18, 2023. Permalink