The USDA Crop Production, Grain Stocks and Supply/Demand reports released in January were a wake-up call for end users.
There are three reasons why these reports represent a major change in the fundamental outlook for corn and soybeans.
* First, the 1999 crop was smaller than expected and much smaller than reported last November.
* Second, corn, soybean and wheat usage increased over earlier forecasts.
* Third, there was a significant change in the ending stocks of all three crops. The report projects a large reduction in U.S. and global ending stocks.
More attention has been focused on U.S. acreage intentions after these reports of lower ending stocks.
The current new-crop cash price relationship of November soybeans to December corn shows a 2.1-to-1 price ratio. That price ratio would usually suggest a large increase in planted corn acreage over soybeans. However, the ratio of the current soybean loan rate of $5.26 to the new-crop cash corn bid is about 2.8-to-1. That ratio will once again encourage more soybean acreage in the 2000 growing season.
The number of acres planted to each crop will be an important market component. Here are three key factors to watch as spring planting approaches:
* Watch new-crop corn prices. If December Chicago Board of Trade corn rallies to $2.70 or higher, most Midwestern farmers could lock in a per-acre income that's equal to or slightly better than the $5.26 soybean loan rate. The market needs to create an incentive for U.S. farmers to plant more corn this year.
* The extremely low subsoil moisture situation in the entire Midwest will initially lead many farmers to hold old-crop inventories. And they will be reluctant sellers of new crop until more moisture is received. This will make everyone watch the National Weather Service's six- to 10-day forecasts with great interest starting at the end of March.
* The Clinton administration has indicated that it wants to place an additional 3-4 million acres into the Conservation Reserve Program this year. The early projections are that 1-1.5 million acres of this will come out of corn and about 500,000 acres out of soybeans. The market will be very sensitive to any indications that the net drop in corn and soybean plantings will be 2 million acres or more.
Looking ahead: If dryness continues and December corn futures rally to $2.70 or higher, all the forecasts for additional soybean acreage could prove wrong. This will create a volatile, weather-driven market this spring and summer. The global usage rate is such that we need another big corn and soybean crop in the U.S. this fall.
What should you do? Be cautious. Price a large percentage of your new crop ahead early in the year with forward contracts. Using hedges and puts on part of your production will give you more flexibility to change your position as market swings increase. Make sure you have a written marketing plan and the discipline to implement that plan. The markets are likely to be more volatile than at anytime in the last three years.