If the so-called “battle for acres” in US farmers’ spring sowings was a spectator event, tickets would be a tough sell.
At least they would for the headline, corn versus soybean bouts, in which neither crop has managed to land any notable punches.
The ratio of key new crop November soybean futures prices to their December corn equivalent – a much-watched measure of which crop looks more attractive to farmers to plant - has remained at 2.60, or thereabouts, all year.
While a ratio that high suggests that the soybeans will prove relatively strong, its stability signals that none of 2021’s developments - such as the planting forecasts revealed by the US Department of Agriculture’s Outlook Forum in February, or in last week’s surprise Prospective Plantings report – have altered the market’s mind.
However, the same cannot be said for spring wheat, which saw its ratio against corn, December contracts, erode from 1.39 before last week’s plantings briefing to 1.30 afterwards.
While the sowings data for spring wheat itself were in line with expectations, the USDA revealed a far bigger than forecast figure for winter wheat seedings – implying less pressure on farmers to grow spring crop, and so allowing an easing in its financial appeal.
That said, the ratio recovered to 1.36 as of early deals on Thursday, which looks a sign of another influence entering the frame, that of spreading dryness in the northern US Plains and Canada’s Prairies, key spring wheat-growing regions.
This moisture shortfall, combined with hardly-large spring wheat sowings expectations, “argue that Minneapolis spring wheat futures are significantly undervalued” - at least against Chicago soft red winter wheat, the world benchmark, at which they are “at close to level money”, Mercantile Consulting Venture said.
Typically, spring wheat, with its high protein and bread-making potential, holds a premium over soft winter wheat.
Cotton’s relative pricing has shown a similar pattern to that of spring wheat – falling against soybeans initially after the plantings report, which showed US sowings prospects for the fibre in line with expectations, before recovering afterwards.
The new crop cotton-to-soybean ratio tumbled from a pre-report 3.99 to a low of 3.68 afterwards, before rebounding to 3.82 as of Thursday.
Again dryness may be a factor in this, with a lack of moisture in parts of Texas, which is responsible for roughly one-half of US cotton output, causing concern as plantings begin.
Practical vs theory
In short, with US farmers’ crop sowings programmes now in progress, rather than existing just in spreadsheets, it looks like investors are taking more notice of actual conditions affecting planting potential.
Will that manage to inject some excitement into the corn versus soybean fight too? Hiccups to early sowings would favour prices of corn, which has a relatively early planting window, with strong early progress likely a further boost to values of soybeans, to make sure it does not get overlooked.
|New crop futures price ratios|
|Soybeans vs corn
||Cotton vs soybeans
||Spring wheat vs corn|
|April 8 (mid session)||2.61||3.82||1.36|
|February 19 (second day of USDA Outlook Forum)||2.60||4.29||1.44|
|February 18 (first day of USDA Outlook Forum)||2.58||4.30||1.45|
|January 12 (day of USDA Wasde, grain stocks, winter wheat sowings reports)||2.57||3.94||1.40|
|December 31 2020||2.56||4.04||1.43|
|November 30 2020||2.55||4.07||1.44|