By John DePutter & Dave Milne – February 13, 2019
“The WASDE report put the US corn stocks-to-use ratio at only 11.7%. If realized, that would be the tightest since 2013-14, when it was 9.16%.”
– DTN, Feb. 11, 2019
What it means:
Corn is further ahead in its recovery compared to wheat, and especially soybeans.
As all farmers will remember, corn futures hit their zenith back in summer, 2012, trading above US$8/bu in the midst of a Midwest drought that slashed production by nearly 13% to just 10.78 billion bu. In that marketing year, (2012-13), the corn stocks to use ratio dwindled to just 7.3%.
By the following fall, however, after a much better crop in 2013, corn futures were back down to around $4. And after a brief spurt above $5 in spring 2014, futures have mostly just traded at $4.50 or below, at times falling as low as $3. Indeed, by 2014-15, the corn stocks to use ratio had recovered to just over 30%.
With supplies building and prices declining, there hasn’t been as much incentive for American farmers to plant corn versus soybeans over the past number of years. Although US corn planted area jumped to just over 94 million acres in 2016, this past year’s seeded area of 89.1 million acres was the lowest since 2010 and more than 6 million below what was seeded in 2013, coming out of the big drought year.
Soybean profitability attracts acres versus corn
In comparison, soybeans have been a more profitable option for farmers. In the drought year of 2013, the soybean stock to use ratio tightened even more so than it did for corn, getting down to a squeaky tight 4.5%. Predictably, futures soared during the summer, hitting nearly US$18/bu. In 2013-14, the soybean stocks to use ratio declined even more, dipping to 2.6%.
With stocks tight and prices relatively stronger, US farmers have leaned more heavily on soybeans in recent years versus corn. American soybean planted area jumped more than 8% from a year earlier to a record 90.16 million acres in 2017, and then came in at the second highest ever in 2018 at 89.1 million – matching what was planted to corn for the very first time.
Corn stocks poised to turn lower; soybeans still heavy
What all of this means of course, is the supply situation for corn and soybeans has gradually moved in opposite directions. Whereas the 2018-19 stocks to use ratio for corn is now estimated at 11.7%, the soybean stocks to use ratio is pegged at 22.2% in the wake of years of rising production, both in the US and around the world. As can be seen on the chart below, US corn stocks as of Dec. 1 were already starting to show some decline.
Looking ahead to the 2019 growing season, it is basically assured that soybean planted area will decline compared to a year earlier while corn will increase. However, the fall soybean area isn’t likely to be extreme enough to effect any sharp change in the current heavy supply scenario, ensuring the prices remain under pressure. Meanwhile, corn planted area is not likely to be great enough to cause any serious glut, meaning the market will be more sensitive to any potential weather issues compared to soybeans.
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