Crop-Soybean Rotations Consistent, But 2019 May Bring Sharp Changes

Crop-Soybean Rotations Consistent, But 2019 May Bring Sharp Changes

Kevin McNew

Aug 17, 2018

Farmers rotate their cash crop acres between corn and soybeans from year to year for a number of reasons — sometimes due to better commodity prices for one versus the other from, other times due to conservation practices that keep soils productive, yields high, and pest pressures low.

What Our FBN Network Data Shows

This indicates a degree of stability during the past three years but, as always, we’re looking at the data to analyze trends.

As we look out to 2019, there are some sharp changes in relative prices of these crops that could cause big changes in planted acreage.

2 Key Points to Note

According to millions of acres of aggregated, real-world production data contributed by FBN network members, crop rotations for corn and soybeans have remained fairly consistent year over year since 2016, as you can see in the graphic above.

1. The trade war has significantly impacted U.S. soy prices.

2. World wheat crop problems have caused wheat prices to skyrocket and reach multi-year highs.

Given those factors, relative prices of soy-to-corn and soy-to-wheat for 2019 planning purposes are expected to be significantly different than what they have been in 2016-2018*.

The table below shows Nov. soy futures relative to Dec. corn futures in August a year prior (e.g., Soy-to-Corn Ratio). So for example, the 2019 row is a reading of November 19 soy futures versus December 19 corn futures as observed in August 2018. Likewise, the soy-to-wheat ratio uses the same soy futures reference but divides by the July 19 Chicago wheat futures price.

*CME data

What Can Farmers Do?

This year, more so than previous years, will be critical to look to the market to determine profitability and lock in forward prices. A quick resolution to the trade war seems unlikely between now and harvest, so a quick turnaround for the dismal price outlook also seems unlikely at this point.

Here are some tips to consider in marketing 2018 soybeans:

  • Use the tools available to you to keep upside open after harvest, including storage. The carry on the board and the cash market is exceptionally wide so there are sizable returns to storing beans. This can help you add important cents to your bottomline, and using the FBN network iHTA gives you the ability to lock in the futures spread while maintaining your flexibility to shop your beans to the best buyer later in the season.

  • If you don’t have storage, the FBN network DFPC (Deferred Futures Pricing Contract) can be a key tool to help capture upside without storing the bushels. This contract is a simple way to deliver soybeans at harvest to any buyer through the FBN network and get paid 70 percent of the cash value of the bushels at delivery, but keep the upside open on the futures market. That way, if the futures market turns higher, you may still have the potential to get higher prices. However, you should note that it also means you could lose money if the futures market were to fall after you deliver your soybeans.

Copyright © 2018 FBN BR LLC. All rights Reserved. FBN Market Intelligence is distributed by FBN BR LLC. Contact 877-472-4607 for more information. For the purposes of quality assurance and compliance, phone calls to and from FBN BR LLC may be recorded.

We do not guarantee customers will receive specific benefits or value from participating in FBN BR LLC; results will vary. The data in this article is being supplied as a courtesy by FBN BR LLC. The risk of trading futures and options can be substantial and may not be suitable for all investors. All information, publications, and reports, including this specific material, used and distributed by FBN BR LLC shall be construed as a solicitation. FBN BR LLC does not distribute research reports, employ research analysts, or maintain a research department as defined in CFTC Regulation 1.71. This article contains information obtained from sources believed to be reliable, but its accuracy is not guaranteed by FBN BR LLC. Past performance is not necessarily indicative of future results.

Disclaimer: Futures and Option trading involves substantial risk, and may not be suitable for everyone. Trading should only be done with true risk capital. Past performance, either actual or hypothetical, is not necessarily indicative of future results.

Kevin McNew

Aug 17, 2018