We are coming up to the end of February, and markets are gaining volatility over one unknown issue. That is, how many acres of corn will the American farmers plant?
In the last week, we have seen lead-month corn finally sneak over the magic $5 number. We have been close for more than a month, with corn up to $4.90 1/2 on Jan. 21. Helped by the January U.S. Department of Agriculture reports, but not the February reports, we had a March futures high of $5.04 1/4 on Feb. 18 and then $5.04 1/2 on Feb. 19. It felt good, but not for very long.
Prices broke 6 3/4 cents Feb. 21, which was a Friday. Call it a profit-taking day or talk about speculators’ evening positions before the weekend. Trouble was on Monday we did it again. The market movers spent the weekend thinking about how exposed they were if farmers used the $5 corn as a reason to switch some acres. We went down 8 3/4 Feb. 24, and we were trading $4.82 at 4 a.m. Feb. 25. That doesn’t feel even close to $5 right now.
The actual switch so far is not expected to be a lot, but just enough. I saw an article that predicted a little over a 4% increase in corn acres. That doesn’t seem like much, but maybe it is just enough. Or, maybe it is just a harbinger of an actual switch that is larger.
This week, we will have the USDA Outlook Forum Conference. I confess that I don’t know exactly what that is, but it seems that we will get indications of planting numbers coming out of those meetings that will warn us what the March Planting Intentions Report, out the end of March, will estimate officially. It is this report that is the real market mover because the traders will trade those estimates as fact until the crop acres are in and counted.
For that reason, your market future will be determined then. Only disastrous spring weather will affect the acres after that. Only interesting summer weather will move prices later. We will remain more committed to acres than crop conditions for pricing the rest of the year.
Corn vs. soybeans
If you are a farmer, there are many arguments to consider when you think about changing your acreage mix. We can compare the relative prices of corn and soybeans. Right now, round off the numbers and we are talking about $5 corn and $10 soybeans. If prices are the issue, farmers will plant corn. If production costs are the issue, soybeans will always be cheaper to plant than corn, although the draconian enforcement of patented varieties has increased the cost of soybean production significantly. We used to be able to plant beans out of the bin if we were being squeezed by production costs in a cheap year.
Then there is the fact that growing soybeans means fewer bushels to haul out of the field and store or send to town. Also, soybeans dry down more easily in the field and in the bin.
Ag economists always overpredict the number of acres that will be switched in a given year because they just consider the respective profit numbers that they predict. Lost in those numbers is the fact that most farmers can be very stubborn about maintaining a given crop rotation. In a corn/bean rotation, the acres will stay the same until prices are wildly out of whack.
Changing times
It seems to me, however, that there has been a significant change in this thinking in my lifetime. I remember when farmers in the Snow Belt, where I grew up, never planted soybeans. The chances of getting the tall spindly varieties harvested before the first wet snow took them down kept most people from considering soybeans. They looked great all year, and then came the day when you scraped a third of them off the ground after the snow buried them.
Genetics solved that problem. The soybeans got stiffer and shorter. I remember running combines 36 hours straight the first week of February cutting beans that had been completely buried twice. In the middle of the night, the frost thrown up onto the feeder house got a foot deep. The beans were 25% and frozen. I tore up one auger trying to get them into a bin and had to switch to a flight elevator.
Improved technology changed all that. Better chemicals gave us clean beans, and we no longer had 5% ragweed in elevator samples. Then came Roundup-ready soybeans, which gave us much better harvesting and better yields. We had to fight the Frankenfood Wars to sell to some countries, but they eventually went along.
Combines got flexible headers. Push the lever to float and just steer. Try to remember to pick the header up a little going through the waterway. I worked from 9 p.m. to 2 a.m. one night with a torch and a 4-pound hand hammer to straighten the flights in the feeder house to pound that lesson into a tired mind after filling the head with stones.
My conclusion to all this surprises even me. We have gone from loving to grow corn, to preferring to grow soybeans if all things are the same. At least, enough farmers have changed their mindset that they will not switch acres to corn for financial reasons nearly as often as economists predict. The farmer will grow what he likes to grow, and bet that soybeans are volatile enough to risk getting a good chance to price them.We will find out what USDA thinks our acres will be March 31. They may or may not be correct.
