Now that harvest is wrapping up, all attention is on the shift in corn acres back to soybean acres. Everyone's estimates of planted acreage are starting to appear in print — and the range is wide. At this stage, we may be on the low side of how many acres are going to shift, with corn losing 2.9 to 3.5 million acres and soybeans picking up approximately 5 million acres.
There's no doubt there will be a significant shift back to soybeans. Producers are looking at the soybean/corn price ratio right now, which is near the highest levels of the last 20 years. Combined with corn's high production costs, the conclusion for those who have traditionally used a rotation mix is to go back to it.
Last year producers planted 92.9 million acres of corn versus 78.3 million in 2006. We would estimate this year that number will be somewhere between 88 and 90 million acres. At 90 million acres and a trend line yield of 154 bu./acre, carryover supplies would still be more than ample at 1.46 billion bushels — even with ethanol plants eating 4.3 billion bushels/year. We really don't need any more than 90 million acres of corn.
On the soybean front, in 2007 producers planted 64.1 million acres versus 75.5 million in 2006. This coming spring that number should hit at least 69 million acres. We need those acres, and then some. Carryover supplies at the end of this year are estimated to be 235 million bushels. At 69 million acres and a very good yield of 43.5 bu./acre, supplies still drop to nearly 200 million bushels — just pipeline.
Decisions Not Final
Let's keep in mind that for many producers, the amount of acres they are going to shift thus far is more coffee shop talk than reality. Some of the seed has been bought, but definitely not all. We certainly wouldn't argue with producers wanting to make this shift but there is one caveat: If you make the shift based on current price ratios and assuming you're going to have $9 soybeans, then you had better be getting some of the soybeans priced. If the acreage increase occurs, by next spring this ratio is not going to be the same — it will be more favorable for corn.
Making decisions on prices is a good business approach. But making the decision on what to plant based on prices and doing nothing about the selling side will be risky in this scenario. Because of the battle for acres between corn and soybeans, futures prices will stay volatile and overall firm into late winter and we should start to see some reasonable basis gains. With the large corn crop this year, however, basis gains will be less than what some are hoping for.