Domestic soybean stocks are historically low and crushing remains strong, U.S. soybean exports are projected by the U.S. Department of Agriculture to be record high in the 2013-14 (marketing year ending Aug. 31) and the soybean crop from the United States’ major competitor — Brazil — which is around 70% or more harvested, appears to be coming in below earlier expectations due to dry weather.
An early indication that soybeans may be the focus of the market this year came when the U.S.D.A. forecast record large soybean plantings of 79.5 million acres, up 4% from 2013, at its Feb. 20-21 Agricultural Outlook Forum. Since then a number of analysts have come out with even higher forecasts for 2014 U.S. soybean plantings with some topping 83 million acres, up 9% from last year.
“Although new-crop soybean futures prices and current forward pricing opportunities are lower than last year at this time, pricing opportunities relative to corn are better,” the U.S.D.A. said. “With a sharper decline in expected net returns for corn compared with soybeans, producers are expected to favor rotations that include less corn-on-corn planting, thus expanding the area that will be planted to soybeans in 2014.”
Farmers for the most part already have made their planting decisions for 2014, even with snow still covering their fields in northern areas. The need to secure seed, fertilizer and other inputs, as well as crop rotation schedules, require planning well in advance, although those plans can be altered by weather (good weather allows earlier corn planting, wet weather may force switching to later-planted soybeans). The first broad insight into those decisions will come March 31 when the U.S. Department of Agriculture releases its highly anticipated Prospective Plantings report — the first “big” report of the new crop season.
The key factor determining soybean planted area is expected profitability compared with other crops. That of course varies for each farmer, but the general trend may be determined in part by projected prices, which to some extent may be locked in by growers hedging their prospective production on the futures market, or cash forward contracting. At the same time, there are plenty of variables, the key typically being weather.
Last fall the University of Illinois projected negative net returns for that state’s farmers for both corn and soybeans in 2014 when all costs (fixed and variable) were considered. Corn growers were seen losing $14 to $53 an acre based on an average corn price of $4.60 a bu in 2014. Soybean farmers were seen losing $36 to $91 an acre based on an average soybean price of $11 a bu. But the price relationship of corn and soybeans has changed considerably since last fall. In its latest World Agricultural Supply and Demand Estimates, the U.S.D.A. forecast the average price paid to farmers in 2013-14 for corn at $4.25 to $4.75 a bu ($4.50 midpoint) and for soybeans at $12.20 to $13.70 a bu ($12.95 midpoint).
Nearby May soybean futures traded between $12.50 and $12.75 a bu at the end of January and were trading over $14 a bu last week, up about 10%. The key new crop November contract was trading around $11.90 a bu last week, up about 7% from late February but down about 6% from a year earlier. Nearby May corn futures prices traded last week around $4.85 a bu, up about 9% from late January and nearly flat with the key new crop December contract, with the latter down about 15% from a year earlier.
A key number some analysts use to predict soybean versus corn planting is the value of soybeans relative to corn, with a factor of 2.5 seen as pivotal. For nearby May, soybean futures prices were about 2.9 times the price of corn last week, but for new crop (November soybeans and December corn) that factor was borderline at about 2.4 times, making the decision a bit more difficult.
The U.S.D.A. in February forecast 2014 corn planted area at 92 million acres, down about 4% from 2013. Some analysts since have come out with even lower forecasts for corn at around 90 million acres, down 5% from last year.
While less corn planting should provide plenty of acres for more soybeans, there is expected to be some competition from cotton in the South. At the same time, farmers may be willing to switch from other crops as well, including sugar beets in the Upper Midwest and West. While sugar beet growers are committed to specific acreage as members of regional cooperatives, low sugar prices already has led one western cooperative to trim sugar beet acres from last year. Spring wheat growers in the Upper Midwest also are dealing with lower prices for their crops, although significant rail shipment delays have kept cash wheat basis levels historically high. Should rail performance improve and those basis levels drop, cash wheat prices would be even lower.
Another key report, the U.S.D.A.’s quarterly Grain Stocks report with estimated stocks on March 1, also will be released on March 31.
“The March 1 soybean stocks estimate this year may be more important than is normally the case due to the rapid pace of U.S. exports, concerns about the size of the South American harvest and prospects for generally tight stocks at the end of the marketing year,” Darrel Good, University of Illinois agricultural economist, said in his March 17 Weekly Outlook.
