Market Update; Monday, February 18th, 2019
Acreage Debate Intensifies
As we start to approach the spring planting season, more interest in being placed on prospective plantings. Early indications are calling for more corn plantings and less soybeans and wheat. While this is totally possible, current economics do not point towards a big shift, especially from soybeans to corn.
At the present time the new crop ratio between corn and soybeans is 2.4:1. This means it takes 2.4 bushels of corn to equal the value of 1 bushel of soybeans. This is actually a point where elevated soybean production would be expected. A ratio that would favor corn production would be closer to 2.2 or 2.1 to 1. This alone has many economists second guessing the projections for elevated corn production this coming year.
Another reason the increase to corn production is being doubted is weather and field conditions. Last fall’s weather was not favorable for field work, especially in the Western Corn Belt and Plains. As a result, many fields that would have been planted to corn this spring did not get tillage done, and even fewer had fall inputs applied to them. This means that to see elevated corn planting we need to see not only an early spring this year, but absolutely perfect weather. While this is possible, it does not appear as being likely. Some forecast models are not calling for an El Nino to develop, which tends to bring the US a wet spring.
The real concern with these numbers is what it will mean to balance sheets. Any increase to soybean production will only compound the concerns we are having with huge stocks. There are concerns that the US soybean carryout will increase to 1 billion bu by the end of this marketing year. Any increase to production will easily negate the elevated demand we have seen in recent weeks.
A greater concern is what this could mean for corn balance sheets. Corn demand has been outpacing production in recent years, and we are actually at a point where we could start to see rationing develop. If corn yield this year would be unchanged from a year ago at 178 bushels per acre, it would not be enough for the demand we have seen. Even a minimal increase in plantings of 2 million acres would barely keep our stocks steady. The only factor that is tempering corn from reacting to this scenario is the possibility of a larger crop out of South America.
Bottom line is that we could start to see this acreage debate be more of a driving factor in the market than any other fundamental factor for the next several weeks.
This commentary is the sole opinion of Karl Setzer. This is intended for informational purposes only and not to be used for specific trading recommendations. The information used to generate this commentary is used from a variety of sources believed to be accurate. If you have any questions or would like additional market information, feel free to contact Karl Setzer at 517.541.1449, extension 411, or at ksetzer@citizenselevator.com
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