May 14, 2009

In June 2008, the rains started to fall in the Corn Belt and the commodity markets began to take off - a combination of the weather market influence, record oil prices and free-flowing money moving into the markets. Analysts were saying the corn/soy relationship had been permanently altered by the new market influence of biofuel demand.

But a year thereafter, high grain prices have settled back down, crude oil prices backed off, the booming biofuels business is struggling with poor or negative margins, and the free-flowing money that added market volatility has dried up. As a result, daily market moves have been in a more normal range in recent months, even as this season's market dynamics have played out.

The softening of both soy and corn markets, plus increased fertiliser costs for the nutrient hungry corn crop have balanced the two crops. According to Darrel Good, extension economist at the University of Illinois, the "pendulum doesn't favour one crop over the other right now when you look at costs and what the market is offering."

The USDA's Prospective Plantings report issued March 31 indicated US producers were planning to plant less acreage in 2009 compared to 2008, presumably because there will be less double cropping. Good said producers cut soft red winter wheat acres quite a bit, which limits double cropping opportunities. However, while intentions for overall acres planted to all crops dropped from the previous year, producers were planning 206,000 more acres of soy for 2009 than 2008. The largest increase of 200,000 acres was planned in Kansas, with increases of 100,000 acres planned in Iowa, Mississippi, Nebraska, North Carolina, North Dakota and Ohio. Offsetting those increases were reductions in planned soy acres of 150,000 in Missouri and South Dakota, 100,000 acres in Illinois and 50,000 acres in Indiana, Louisiana and Minnesota.