New-crop corn, soya mimics year ago as US price discovery begins

US farmers this month will be closely watching new-crop corn and soyabean futures on the Chicago Board of Trade as the prices might be influential in planting decisions this spring. And interestingly, new-crop corn and soyabeans are nearly identical on the board to a year ago despite some key differences in those markets this year versus last year.
February is price discovery month for US corn and soyabeans under the revenue protection program of the USDA's Risk Management Agency (RMA). This month's average price of CBOT December corn and November soyabeans sets the insurance guarantee to US farmers for the 2018 harvest.
RMA's projected price ultimately reflects a level of assumed risk by a US farmer to plant corn or soyabeans for the upcoming growing season. The potential financial impact varies based on individual production histories, but farmers' acreage plans can change based on the average prices.
New-crop corn and soyabean futures have been on the rise for the last three weeks. Both closed out above the year-ago levels on Wednesday, with November soyabeans settling at $10.11-1/4 a bushel and December corn at $3.93-1/4 a bushel.
Drought conditions that are spreading across the United States might have farmers thinking a little more about the revenue guarantees than last year, but those projected prices are just one piece of the puzzle. However, the similarities in new-crop futures with a year ago are somewhat peculiar.
Fundamentally speaking, there is more supply around today than a year ago. World soyabean inventory could break records later this year, while the US supply is set to reach 11-year highs. US corn stocks may also rise above last year's weighty levels. World corn supply is pegged to drop 10 percent from last year, but that relies almost entirely on China - and the size of its stockpile is unknown though it is likely larger than the US government figure.
Concerns loom in the marketplace over drought in key soyabean producer Argentina and too much rain hampering Brazilian soyabeans and ultimately corn. But traders and analysts were also worried over weather one year ago despite similarly swollen world stocks. One group clearly not too worried today is professional commodity funds, and their take on the corn and soyabean market is night-and-day compared with last year.
As of January 23, money managers held a net short position in CBOT corn futures and options of 219,676 futures and options contracts - the most bearish-ever for the time of year. On January 24, 2017, funds were net long 20,898 corn contracts. The difference in the managed money soyabean position is even more drastic.
Funds held a net short in CBOT soyabean futures and options of 81,538 contracts on January 23 versus a net long of 176,410 contracts a year earlier. Regardless of whether new-crop futures are fairly priced compared with a year ago, last February's levels proved very generous relative to the rest of the year.
At the end of February 2017, RMA set the projected prices for corn and soyabeans at $3.96 a bushel and $10.19 a bushel, respectively. Ironically, the average monthly futures prices were all lower through to expiry late last year. In fact, the average February 2017 soyabean price for delivery last November was the contracts' highest in any month since July 2014. For corn, last February's mean price for December 2017 delivery was the highest since May 2016.
Futures might be echoing those of 2017, but the physical prices are not as healthy across the core Midwestern states. Cash prices for corn have steadily risen over the last month as farmers have been stingy sellers since harvest, but bids are generally a few cents a bushel lower than last year. Soyabean prices are comparably worse, though, ranging from 10 to 50 cents a bushel below year-ago.
With new-crop futures nearly identical to year ago, the current November soyabeans to December corn price ratio could be a stand-in for last year's value. On Wednesday, the soyabean-corn ratio stood at 2.57 compared with 2.58 on the same day one year ago.
This ratio can be a key indicator of which crop US farmers may prefer to plant in the spring. Values at 2.5 or greater tend to favour soyabeans, especially in "fringe" areas where farmers are not as locked in to their normal corn-soyabean rotation.
In the spring of 2017, US farmers planted a record 90.2 million acres of soyabeans, up 8 percent from the prior year amid favourable soya economics and slumping profitability of both corn and wheat. Corn acres fell 4 percent on the year in 2017 with 90.4 million.
The US Department of Agriculture has slated 91 million acres of both corn and soyabeans to be planted for the 2018 harvest. But some analysts have pegged corn below 90 million, especially after it was revealed last month that US farmers had planted much more winter wheat than the market expected.