Soybean Rallies and 2021 Crop Planning: Advice from a Marketing Expert

With this year’s growing season now in the rearview mirror, you’re likely turning more of your attention to crop planning for the next one. Our research shows that 20-40% of most farmer’s acres are flexible for crop choice — meaning there’s still time for acres to be drafted to #teamcorn or #teambeans.

This year, marketing factors are making that debate even more interesting. Here at Granular, we’ve been watching the recent market rallies and talking to experts about how markets should factor into 2021 crop planning. Beans especially have been a Cinderella story lately, with fall soybeans continuing to hover around 52-week highs of $11.62 This swing has many farmers taking a second look at beans for their undecided acres.

However, before you ditch corn-on-corn in favor of beans, we’ve come up with a list of marketing factors you need to weigh before making a final decision.

Market Indicators

In our conversations with Cullen Wilson, grain merchandiser at Dakota Plains Ag Center, the first place to start when looking at the marketing factors for corn vs. beans are the market fundamentals. Here’s what he and other marketing experts are watching:

  • Weather and planting in South America. “Brazil is already heavily sold on their 2021 crop and doesn’t have a lot of carry over from 2020,” Wilson says. “With spring rains irregular, farmers were recently at a 10-year-low planting pace for beans — which could delay safrinha corn planting in February.” This potential domino effect will be one of the top things to watch according to Wilson.
  • Funds holding long positions in place. Technicals are indicating overbought territory. If traders start to pull positions, prices will undoubtedly fall.
  • Trade war deterioration. The election outcome will impact international relations and our ability to foster trade deals. “We’ve made progress in recent months,” said Wilson. “But early 2021 is when the rubber will meet the road on our overall trade relations.”
  • Reduced demand for ethanol with COVID-19 and talks of E15. Another political policy variable to watch.
  • Abnormally dry to drought conditions in the Midwest. Parts of the corn belt remain extremely dry. Unless they get adequate rain or snow accumulation this winter, this could become a bullish factor next spring.
  • USDA 20/21 estimated ending stocks were both down in November. Will the trend continue in the next WASDE reports?

The Price Ratio

Another marketing factor often used when crop planning is the soybean-to-corn price ratio, a tool used to measure the relative profitability of soybeans to corn. Historically, a ratio of 2.5 and above favors soybeans, while 2.3 and below typically favors corn. For soybeans specifically, if we consider the last ten years of soybean-to-corn price ratio for projected and harvest prices, we’re looking at the highest ratio since 2017.

Source: Granular Data Science

The current price ratio of 2.79 ($11.37 / $4.08) is relatively strong compared to the 20-year average of 2.51. But with crop planning for next, it’s important to take the long-view.

Forward Curves

Although nearby futures months put bean prices relatively favorable to corn, the market projects a different trend for 2021 crop.

Source: Granular Data Science

As we look out to Nov ‘21 and Dec ‘21 for soybeans and corn, both are exhibiting negative futures spreads. If we were to compute the soybean-to-corn price ratio using these 2021 harvest time futures prices, it would only be 2.57 — much less than today’s 2.79 and on par with the 20-year average of 2.51.

The Takeaway

The moral of the story? Take both short- and long-term grain outlooks into consideration when crop planning. And remember, this can all change, as history shows yields and prices are strongly correlated.

Also key? Knowing your cost of production. An accurate cost of production can you help make smarter planting decisions and take advantage of favorable pricing positions. Use the data from your own farm to better understand your profit and loss at a field level with Granular Insights. See what worked and what didn’t last season, by acre, for better rotation decisions next season.

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