Last week was the deadline to complete 2023 acreage selection for 2023 crop insurance products. Spring crop insurance prices are widely regarded as a guide to planting decisions and were among the highest on record this year.
Brent Gloy and David Widmar of Ag Economist Insights (AEI) recently published a great article on the spring crop insurance election. They conclude that this year’s prices are only slightly behind the record 2011 prices for corn and soybeans. The all-important corn-to-soybean price ratio stands at 2.33 — the lowest since 2016 and a slight preference for cornfields in 2023.
This price ratio represents the value of soybean new crop futures versus corn new crop futures (Nov23 soybean contract price ÷ Dec23 corn contract price). The commonly accepted market logic is that a value of 2.4 is the tipping point where growers respond to market stimuli (prices) and switch between crops.
A ratio value of 2.5 and above indicates a strong market preference for soybean fields, while 2.3 and below indicates a strong preference for corn fields. The current reading of 2.33 on March 15 suggests the market wants corn, but from a yield perspective there isn’t a strong preference for corn over soybeans.
But “although the price ratio is popular, it doesn’t tell us anything about overall profitability and doesn’t take production costs into account,” explain Gloy and Widmar. “These are both important considerations, especially given fertilizer spending.”
When showing the contribution margins, corn loses some of its advantage over soybeans as the high cost continues to weigh on corn producers. Of course, corn yields are still high, but soybean yields are increasingly competitive with corn.
Conversion – the ratio is less reliable to predict acreage than in the past as high input costs distort market price incentives for farmers.
“Soybeans have a strong budget advantage given the high cost structure,” conclude Gloy and Widmar, adding that historically high prices largely offset high production costs. That should make for some interesting price dynamics in the market leading up to and following the release of the USDA’s March 31st Expected Planting report next week.
Interested in learning more about market considerations for Plant 2023? Market analyst Jacqueline Holland examines the factors behind the battle for acreage ahead of forecast planting reports on March 31:
The surface battle 2023 is heating up
Mother Nature is said to have the final say on the 2023 corn expansion
