January 7, 2013

 

Higher US soy prices may boost corn production

 

 

US soy prices rallied to a six-month high against corn after the so-called battle for acres on US farmland heated up in December, which could be a catalyst for increased soy production.

 

New-crop November Chicago Board of Trade soy gained more than US$0.55 on December corn in December, solidifying some farmers' decision to boost their soy seedings.

 

Many were already leaning in that direction because the worst drought in the Midwest in more than 50 years last summer took a heavier toll on corn than soy.

 

Mark Degler, a farmer in Mattoon, Illinois, said he was strong on corn and "just got burnt too many years in a row" so is moving back to soy because it is more expensive to put out corn.

 

New-crop corn futures dropped below US$6 a bushel for the first time in six months in late December, and Degler said it would take a rally back to US$8 a bushel to entice him to increase his corn acreage.

 

Corn yields on Degler's 1,000 acre farm averaged just 80 bushels per acre in 2012 while soy yields were in the 40s. In Coles County, Illinois, where Degler lives, the average corn yield from 2007-11 was 169.3 bushels per acre. Soy yields during that time averaged 51.8 bushels per acre.

 

During the past 30 years, soy futures, on average, have been priced at 2.2 times the prices of corn, according to Daniel O'Brien, agricultural economist at Kansas State University. Soy futures closed 2012 at 2.17 times the price of corn.

 

Since 1973, the end-of-year spread between the two commodities was the biggest in 1987, when new-crop soy was 3.1 times the price of corn. The following year, farmers boosted their soy seedings by 660,000 acres, or 1.1%.

 

In 2001, soy prices were just 1.7 times the price of corn, their smallest end-of-year advantage. Farmers raised their corn seedings by 3.19 million acres, or 4.2%, the following spring. In general, growing corn is a more expensive proposition than soy, mostly due to the amount of fertiliser needed to seed corn. But higher yields for corn typically make up for the additional input costs.

 

On high-productivity farmland in central Illinois, the net return on corn plantings averaged US$119 per acre from 2005-11, according to the University of Illinois. That compares to US$64 per acre for soy.

 

The profit expectations make it difficult for farmers to cut back on their corn seedings, even with the higher risks and a 9% drop in new-crop corn futures during the fourth quarter of 2012.

 

A survey of more than 1,550 farmers showed that growers plan to boost their corn plantings by nearly 1% to 97.75 million acres in 2013. Soy seedings were seen down 0.47% to 76.84 million acres, according to a survey.