Although the latest planting intentions report indicated that soybean acres
would be down slightly in 2012, a move in the soybean-to-corn price ratio
now solidly favors soybeans.
By Kurt M. Guidry
There has been a tremendous amount of fundamental supply and demand information provided to the markets in the first weeks of April. From planting intentions to quarterly stocks to monthly supply and demand estimates, all of this information has helped to create a little clearer picture for the market environment heading into the 2012 growing season.
In reaction to the reports, trade was fairly volatile over the first couple of weeks of April but now begins to settle more into a trading pattern influenced by outside markets and technical signals.
The planting intentions report showed 73.9 million soybean acres for 2012, down slightly from 2011. While soybean acres did not expect to experience large increases in 2012, the reduction was somewhat surprising. Through the first two months of 2012, market prices clearly signaled corn as the better choice over soybeans. However, stronger export demand based on reduced production for Brazil and Argentina helped to slowly improve the outlook for the soybean market. Then, with the expectations for smaller acres in 2012, the outlook for this market suddenly looked substantially better.
All of this has helped push new crop futures contract prices to the mid $13.00-perbushel range and has helped move the soybean- to-corn price ratio from 2.06 at the beginning of January 2012 to a current ratio of 2.56. This has essentially switched the ratio from favoring corn to now solidly favoring soybeans. This is particularly true considering the recent sharp increase in fertilizer prices.
Whether this switch occurred in time to affect planted acres this year remains to be seen. Relatively tight domestic and world ending stocks should prove to support prices and limit downside risk until the market is more comfortable about the potential size of the 2012 crop. Any concerns over reduced production levels, either due to lower acres or weather-related yield losses, could create significant price reaction in this market.