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Author Topic: Time to stock up. . .  (Read 1264 times)
kingwolf
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« on: April 18, 2009, 08:54:18 PM »


A really interesting situation exists in the grain markets today. A rule of thumb says that the price of soybeans should be roughly two and a half times that of corn. If the ratio goes lower than that it is perceived to favor the planting of corn. If it is higher than that it is said to favor the planting of soybeans.

Conventional wisdom this year has been that farmers would plant soybeans in preference to corn because of the high price of inputs, especially nitrogen fertilizer. As planting time approaches, it appears that farmers are going to plant what fits their rotation, not withstanding the expensive fertilizer. This is one of the factors that is causing soybean prices to be stronger than corn.

I calculated the price ratio at my local elevator, using both the bids for current delivery and for new crop. The ratio of soybean to corn price for current delivery today stands at 2.81:1. Instinct says that this favors planting of soybeans. However for new crop bids the ratio is now 2.34:1. This favors planting more corn.

From the ratio calculations it appears that the market still believes that farmers are going to plant more soybeans. My observation over the years is that farmers will plant what fits their rotation and leave the market to sort out the price issue. If there is a shift based on price, most farmers will put more weight on the current price rather than new crop bid. The first of these factors would indicate more corn. The second favors more soybeans.

My guess is that the numbers released by the government will end up being accurate unless the government finds the total planted acres that it lost in the most recent report. It is difficult to imagine many acres not being planted with soybean price approaching $10 per bushel as the seeds go into the ground.

Personally, I am considering planting a few more acres of soybeans. I need to get my rotation back in balance after shifting some acres a few years back because of flooding. To accomplish that I will have to plant soybeans back on land that raised soybeans last year. I have been reluctant to do that because the field in question has a history of nematodes. However, the last sampling showed a very low level of cysts and I have had success with the resistant varieties.

It will be interesting to see how farmers in other areas handle this puzzling price situation. I have new crop corn hedged at $4.30 December futures. That sale looks really good today. I have new crop soybeans hedged at $8.80 and $9.32. Those sales do not look so good today. However, I can be very profitable at those prices with yields we have had the past five years.

I plan to start planting corn on Monday. Conditions appear to be ideal unless there is a lot of rain over the weekend. It should give me a leg up on getting good yields again this year.
 
 
If anybody like me buys their food we might see a high spike in the price in food with there being less corn on the market. . . times might be though here in the next year
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