Soybeans And Corn Locked In Food Fight
T. Marc Schober | Mar 31, 2015 08:11AM ET
U.S. farmers increasingly are eschewing “King Corn” in favor of planting soybeans, a dramatic shift that is shaking up futures markets and rippling through the broader agricultural economy.
Analysts predict farmers will plant record soybean acreage this spring for a second consecutive year while cutting corn plantings for the third in a row. The move comes as growers grapple with a roughly 50% decline in the price of corn, the nation’s largest crop by volume, since 2012.
The U.S. Department of Agriculture on Tuesday will forecast corn and soybean plantings in a key report based on farmer surveys. Analysts on average expect soybean acreage to rise 3% from last year to 85.9 million acres, while corn will fall 2% to 88.7 million acres, according to a survey by The Wall Street Journal.
Indiana farmer Del Unger and his son intend to plant nearly twice as many soybean acres this spring as last year while trimming corn seeding on the 6,500 acres they farm.
“Economics rule,” the 53-year-old Mr. Unger said. “With beans, we’ll break even or make a small profit, whereas corn will likely give us some red ink.” Mr. Unger said most growers can easily switch between planting the two crops.
But sowing more soybeans—used to make everything from animal feed to salad dressing—has its own downside. Many traders and investors are betting that further production increases will trigger steep declines in soybean futures, potentially pushing the $35 billion market to lows not seen since 2009.
“The path of least resistance is down,” said Steve DeCook, president of Four Seasons Commodities Corp., a Dallas trading advisory firm that manages $125 million in agricultural assets. The firm has placed bets on continued declines in soybean futures, which already have slumped 5% this year after shedding 28% over the previous two years.
Farmers are turning to soybeans for a few reasons: Prices have fallen less sharply than for corn, demand has been strong and producing the oilseeds costs less thanks to lower seed prices and less need for fertilizer.
That shift is pinching big U.S. seed makers such as Monsanto Company (NYSE:MON) and DuPont (NYSE:DD), which generate more revenue and greater profits from selling corn. DuPont in January forecast 2015 earnings below Wall Street forecasts, blaming in part decisions by farmers in North and South America to sow less corn, its main source of seed profit.
Get The News You Want
On Friday, soybean futures for May delivery, the front-month contract, fell 7.25 cents, or 0.7%, to $9.6725 a bushel at the Chicago Board of Trade.
Some analysts say soybean futures could drop well below the $9 level later this year due to increased output in the U.S. and rising global supplies. Goldman Sachs Group Inc (NYSE:GS). earlier this month predicted prices would slip to $8.75 a bushel in six months.
Terry Reilly, an analyst with brokerage Futures International LLC in Chicago, expects prices to drop to at least $8.50 a bushel, saying with expanded acreage and favorable weather, futures “should just fall out of bed.”
A further drop in soybean prices could put additional downward pressure on global food prices, benefiting consumers. Last month, the monthly food-price index published by the United Nations Food and Agriculture Organization declined 1% to its lowest level since July 2010.
But the shift away from corn could in turn boost prices in that market, which has been buffeted by last year’s record 14.2 billion-bushel U.S. crop and concerns about a potential slowdown in demand from ethanol producers, which face depressed prices after crude oil’s plunge last year. Corn futures are down 1.5% so far this year.
Midwestern farmers ramped up corn output for years as the farm economy flourished, seeding more acres with the grain to satisfy burgeoning demand for ethanol and to supply animal feed to an expanding world population hungry for meat. But a massive increase in grain stockpiles in the U.S. and globally, as well as resulting price declines, are a big reason the USDA is projecting that U.S. farm incomes will tumble by nearly one-third this year to the lowest level since 2009. Planting soybeans, some farmers hope, will be one way to cushion the blow.
The expected increase in U.S. soybean plantings comes as Brazil and Argentina, the two largest soybean producers after the U.S., are harvesting record crops, expanding what is projected to be the largest global supply of soybeans in history. Last year, U.S. growers produced a record 3.97 billion bushels, an 18% increase from the prior year.
Mr. Reilly, the Futures International analyst, said the farmers most likely to swap corn for soybeans this spring will be those at the fringes of the Corn Belt, along the southern portion of the Mississippi River and in the northern Great Plains where corn yields typically are lower than in fertile states like Iowa and Illinois. In North Dakota, where high corn prices earlier this decade prompted many farmers to switch from wheat to corn, some agricultural experts now expect record soybean acreage for a second year in a row. Soybean acres in the South also may come at the expense of cotton.
Some market watchers think U.S. soybean plantings may not rise as much as expected and stress that adverse weather this summer could upset any expectations for a bumper crop.
Tuesday’s USDA report could even affect the choices farmers make about how many soybean acres to plant. If the government forecasts a big jump in acreage, for example, and soybean prices drop, some farmers may determine the crop is no longer their most profitable option.
Already “people have gotten gun shy on beans because of the big South American crop,” said Dale Durchholz, a senior market analyst at risk-management firm AgriVisor in Bloomington, Ill. Temperate spring weather—which typically favors corn yields—also might mean some acres penciled in for soybeans will “drift back the other way,” he said.
Still, even a modest increase in U.S. soybean plantings could spell trouble for prices, saidChip Nellinger, a principal at Morton, Ill.-based advisory firm Blue Reef Agri-Marketing, Inc.
“We’ve got record large soybean stockpiles and the crops in both hemispheres this year were just enormous,” he said. “It’s a perfect storm that’s starting to brew in the beans.”
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.