March 16, 2021
Joe Lardy, market intelligence analyst, CHS Global Research, shares how futures prices and drought conditions could change planting decisions.
Planting season is on the doorstep and recent price rallies have farmers reviewing how they plan to allocate their acres between corn, soybeans and other crop options. Joe Lardy, market intelligence analyst with CHS Global Research, is monitoring two key factors that can bring resolution to the decision: futures prices and drought conditions.
“We have multiple commodities competing for the same number of acres,” says Lardy. “For the last half-dozen years or so, U.S. farmers have been very consistent with the total number of acres they’ve planted. As a result, additional corn or soybean acres have to come at the expense of another crop. Futures prices will need to move to a level that makes it easy for farmers to decide what to plant. A rally by one commodity would make picking a winner much easier.”
In terms of weather, the drought monitor is showing some level of concern across much of the country and that adds risk to the market. “This situation will make record yields difficult to achieve,” says Lardy. “Because of that, there will be a fairly significant weather premium this spring in the markets. With drought conditions so widespread, I believe most analysts will be quick to make early yield adjustments this growing season.”
Current soybean-to-corn price ratios are about 2.6 — the highest they’ve been in the past 20 years in early March. However, once farmers get into the planning window, 2.6 becomes closer to the average. “I’ve always thought that a ratio of about 2.5 is a pivot point,” says Lardy. “You need to see that ratio get stretched. If we get up to 2.8 or 2.9, that’s going to lead to a lot of soybean acres. The soybean balance sheet is the tightest one, so soybean prices will need to rally to justify additional acres.” The acreage battle we’re currently seeing is going to make decisions much harder for farmers, Lardy notes, with wheat being the most likely victim of this competition. Join Joe Lardy and a roundtable of other CHS industry experts on March 18 for “Around the Table Live: The Final Look Before Spring Planting.” Topics will include some of what are expected to be the biggest agriculture stories of 2021, including the global supply and demand trends, the effect of tight carryouts on grain price direction and policy changes. Learn more and register here.