Farmers approach the spring planting season with the intention to plant the most profitable crops. A Gro Intelligence analysis of futures prices pegged to this year’s harvest shows how many acres in the US will be sown with corn versus soybeans.
Our analysis uses the two crops’ combined area of 179 million acres presented by the USDA at the recent Ag Outlook Forum. We then used simple statistical regression methods to assess the quantitative historical relationship between historical price ratios and acreage ratios. Then that relationship can be used to forecast what farmers will plant for the upcoming crop year. Gro’s analysis suggests 95 million acres of corn and 84 million acres of soybeans will be planted for the 2020 crop. That differs slightly from the USDA’s current projections for 94 million acres of corn and 85 million acres of soybean.
The analysis that follows can be performed using any Gro subscription to take advantage of CME and WASDE data, but data manipulation is easiest using the Gro API. To find the relationship between the February crop insurance prices and the acreage split between corn and soybeans, two ratios must be created: a price ratio and an acreage ratio.
Crop prices drive planting decisions, and the ratio (shown as purple dots) between the price of soybeans (shown as blue bars) and the price of corn (shown as green bars) is strongly associated with how much soybean and corn farmers plant. Ratios correspond to the right axis, and prices correspond to the left axis.
The price ratio uses each crop’s insurance price, with the price of soybeans divided by the price of corn. Each crop’s insurance price is derived from the harvest price of the crop’s futures contract, which is the December futures contract for corn and the November futures contract for soybeans. USDA’s Risk Management Agency has specified February as the period over which corn and soybeans’ harvest prices can be averaged. While there are many other factors to crop insurance policies, USDA’s specification makes February a key component in setting the price floors insured farmers will have for their upcoming crops.
The chart shows each year’s corn (shown as green bars) and soybean (shown as blue bars) acreage on the left axis, and the ratio of soybeans to corn acreage (shown as purple dots) on the right axis. Each year farmers decide how much soybeans and corn to plant. The planting decisions shown in this chart are reflections of each farmer’s expected per-bushel crop price, as well as expected input costs and other factors.
The acreage ratio uses the past year’s ratio between areas of soybeans and corn from each year’s January WASDE, as the January WASDE captures the vast majority of the crop year’s information on planted area.
We regressed the area ratio on the price ratio over the past 10 years, resulting in a strong statistical relationship. We found that a 1% increase in soybean acreage relative to corn acreage was associated with a 7% increase in the price of soybeans relative to corn. Using USDA’s initial 2020 combined-acreage projection of 179 million acres, February’s average $9.17-per-bushel price of soybeans and $3.88-per-bushel price of corn suggest an ultimate 2020 planted acreage of 84 million acres of soybeans and 95 million acres of corn.
Following historic abandonment last spring, including 16 million acres in prevented corn and soybean area, USDA expects 2020 to feature a strong rebound of 1.6 million acres from 2019 planting intentions. While last spring’s heavy rains caused a preference for corn that may present farmers with crop-rotation concerns, farmers ultimately tend to respond less to a potential yield loss than to a guaranteed crop price. The analysis does not take into account all influences on acreage, such as flooding, farmer expectations for one-time government subsidies, and strong changes in the price ratio between February and farmers’ final planting deadlines. The analysis shows the speed with which an analyst can make a rudimentary model that can be periodically consulted as new information on acreage becomes known.
This insight was powered by the Gro platform, which enables better and faster decisions about factors affecting the entire global agricultural ecosystem. Gro organizes over 40,000 datasets from sources around the world into a unified ontology, which allows users to derive valuable insights such as this one. You can explore the data available on Gro with a free account, or please get in touch if you would like to learn more about a specific crop, region, or business issue.