By Archie Flanders, Agricultural Economist
Marketing opportunities for soybeans and corn should be evaluated with relative crop prices in conjunction with the prevailing supply and demand situation. Soybeans and corn are complementary ingredients for poultry and hog feed, but are competing crops in other consumptive uses. The ratio of soybean price to corn price is an important indicator to consider when making pricing decisions. Short-term volatility exists in crop prices, but relative prices trend to long-term averages. When relative prices reach extremes from an average, market forces lead to corrections.
Figure 1 presents the soybean/corn price ratio for 2000-2015 with an average of 2.5 for the period. An upper bound is slightly above 3.0 in 2003 and a lower bound is 2.0 in 2011. Figure 2 presents the price ratio for average Memphis new crop bids on the 22 trading days in June 2016. The ratio increased from approximately 2.7 in the first part of June to a level greater than 3.1 by the end of the month. The end of month increase is attributable to increasing soybean prices and decreasing corn prices.
Potential future movements in relative prices should be considered with the prevailing supply and demand situation for both crops. Figure 3 presents the stocks-to-use for corn as slightly greater than 14.0 for the 2016-2017 marketing year which compares to a long-term average of 11.0. This indicates excess supply is projected for the crop to be harvested in 2016. Figure 3 presents the projected soybean stocks-to-use as approximately equal to the long-term average of 5.9. This indicates a projected supply and demand equilibrium for the crop to be harvested in 2016. Relative prices observed in recent weeks are supported by the projected supply and demand for each crop. Indications are that soybean prices have greater potential for short-term increase than do corn prices. Further movements in the soybean/corn price ratio could result from changes in either crop price, but current conditions are more supportive of moving back to a long-term average due to weakening soybean prices. Adverse weather for corn, especially at the critical time for pollination, could decrease national yield. This would reduce supply and be a factor in returning the soybean/corn price ratio to a long-term average due to increasing corn price.
United States Department of Agriculture (USDA, AMS). 2016. National Grain Report, USDA-Agricultural Marketing Service, Washington, DC. Available online at http: https://marketnews.usda.gov/mnp/ls-report-config (Accessed July 2016).
United States Department of Agriculture (USDA, FAS). 2016. Production, Supply and Distribution, USDA-Foreign Agricultural Service, Washington, DC. Available online at http: http://apps.fas.usda.gov/psdonline/psdQuery.aspx (Accessed June 2016).
United States Department of Agriculture (USDA, NASS). 2016. U.S. & All States Data-Crops, USDA-National Agricultural Statistics Service, Washington, DC. Available online at http://www.nass.usda.gov/ (Accessed June 2016).
United States Department of Agriculture (USDA, WASDE). 2016. World Agricultural Supply and Demand Estimates, WASDE-554 Washington, D.C., June 10, 2016. Internet Site: http://www.usda.gov/oce/commodity/wasde/ (Accessed June 2016).