Posted on March, 12, 2025 at 11:50 am
We are now poised on the calendar between the U.S. Department of Agriculture Outlook Forum of Feb. 27-28, 2025, and the USDA Planting Intentions Report of March 31. Historically, the Planting Intentions Report defines much of the early spring trading, as the traders accept the planting estimates to be the best information on the direction of the crop production until we get early spring estimates based upon spring weather.
Normally, we see no big moves in the market based on fundamental information (supply and demand numbers) until the Planting Intentions Report.
This year, however, we had a shock to the market in the form of an early planting estimate from the USDA Outlook Forum. This put out the planted corn acreage estimate to be 94 million acres, 3.4 million acres above the previous crop of 2023-2024. The result was a crash of 77 1/2 cents from the high of $5.04 1/2 May futures on Feb. 19, before the forum, to the low of $4 26 1/2 on March 4. This has to be termed as more than a correction and more of a crash because it continued for several days. Usually, a correction from a government news item is made in a day or two.
Of course, sometimes “the cure for cheap prices is cheap prices.” We have now recovered 19 1/4 cents from that low March 4, as the market is trying to adjust to the shock of the new corn plantings estimate. I said last week that this break was bad enough to get farmers re-thinking their planting decisions. They certainly have enough time, and 3.4 million acres is a huge increase.
The thinking for the increase is mostly based upon the corn/bean ratio. The ratio between the price of corn and the price of soybeans is based upon the market’s best estimate of what prices will be, just as the futures prices are estimates of the future prices.
The ratio is an indication of the relative benefits of choosing corn or soybeans to plant. With $5 corn and $10 soybeans, farmers would plant more corn if it fits their plans. They must also consider work load, storage, production costs and local production realities.
For example, if a given farm in a given area such as Southern Illinois historically produces better corn yields than soybean yields, they have a local bias. If farmers in the Snow Belt have more risk with harvesting soybeans, they will have a bias towards beans.
The result is that the ag economists depend upon the raw facts of the corn/bean ratio more than the farmers do. And, this is a moving target. In the last week, both corn and soybean prices have declined badly. The May soybeans declined an awful 93 1/2 cents between Feb. 5 and March 4. We have recovered just 19 cents of that so far.
Eventually, the reality of the current soybean planting estimate of 84 million acres this year, down from 81.1 million, is that the soybean prices may improve relative to corn prices. So, the early planting estimates may end up changing the thinking of the farmers so that they plant less corn than currently thought.
There are several factors at play right now. First, the aforementioned idea that the soybeans will gain on the corn since the soybean acres are significantly less. Second, we have the size of the South American crop.
The Brazilians have long been expected to have a large increase in production this year. Even though the weather was against them early in their growing season, they are now harvesting the crop, and the latest estimates are for them to still have an increase of 1.8 billion bushels over last year. This is a negative factor for our prices and may limit the gain of soybean prices against the corn.
The biggest factor may be the current political situation in this country. Our president is using tariffs as the largest part of his economic program. He is using tariffs for foreign policy and is also determined to have our tariffs be equal to those for the same products that a given country levies on us. This has introduced a large measure of uncertainty into our economy, especially our farm economy.
As this is being written March 11, the U.S. is set to enact a 15% tariff on corn exported to China, and a 10% tariff on soybeans. The tariffs with Canada and Mexico have been deferred to start in April. It remains to be seen what the impact of these tariffs are, but in the short run, the market assumes the worst. This comes on top of the fact that China has already been trying to shift to more imports from South America. In the last crop year, they imported 6.6% less soybeans from us than in the previous year.
Twenty-five years ago, all the national grain meetings I went to held out the hope that China would start to import soybeans and that the effect on our prices would be magical. That, in fact, happened.
Then, under the first Trump administration, we negotiated over many months the so-called Phase One 5-year agreement with China to import specified dollar amounts of grain.
The surprise that came from the agreement was that the Chinese decided to import significant cargoes of corn, which was unusual for them. The result was higher prices for corn and beans here. A couple of years passed, and the Biden administration did not enforce the Phase One Agreement, and the Chinese began to switch to South American origins.
This makes sense because much of the year, if Brazil has normal production, they are cheaper. So, we wait to see how much Chinese business we have, and how we do against the Brazilian soybeans in the export business.
Remember, Brazil has not only passed us for volume of exported soybeans but also in total soybean production. We used to be overconfident about our influence in the export business, but now we are not the biggest player.
A note on wheat, which is already planted. For some reason, I am seeing a Pro Farmer estimate of a 797 million-bushel carryout for the end of this year, a three-million increase.
Since the wheat is already planted, this has to come, if it ends up correct, from a change in domestic use or a reflection of abandonment from winter kill.
Wheat has had a price break similar to corn and soybeans. We were at $6.50 3/4 on May Chicago wheat futures on Oct. 3. Currently, we are at $5.58. We did gain over 11 cents March 10.
We will know more March 11, with the release of the March WASDE from USDA.
Source: Farm and Dairy