More Money Raising Soybeans

For four years in a row farmers in Illinois, other parts of the nation too, have made more money on soybeans than corn.



The numbers are pretty clear and University of Illinois Agricultural Economist Gary Schnitkey lays them out in an online farmdocDaily article. He says, on average, soybeans have been more profitable than corn since 2013, “One of the things we’ve seen is that soybean prices, when compared to corn, have been relatively strong since 2013. The ration of soybean to corn prices has been 2.74 since 2013, and it was 2.42 before that. So, we’ve seen soybean prices increase relative to corn prices.”

Farmers have responded to the higher soybean price.

When you look at historic price ratio changes, it is relatively easy to see when demand has pushed one crop over the other. The corn-based ethanol build up, for instance, from 2006 to 2013 has a soybean-to-corn price ratio of 2.42… that means the price of soybeans is 2.42 times greater than the price of corn.



Ethanol plants were being built around the United States at this time, and there was a big need for more bushels of corn. Farmers responded and planted more corn. That need has now leveled off at the same time China has been continually increasing its need for soybeans. Today the soybean-to-corn ratio is 2.72.

This ratio continually changes says Schnitkey, “We’ve seen soybean and corn have roughly the same revenue. That happened in the late 1980’s. So, it has happened in the past, and I think we are going to see the soybeans to be at least as profitable as corn for the foreseeable future. This is driven by strong demand for soybean exports. We have this growing demand for exports of soybeans. As long as that demand is there, we will continue to try and pull acres into soybeans.”

Just as an FYI, the long-term soybean-to-corn ratio, 1972 to present, is 2.55.

How Many U.S. Soybean Acres Needed in 2018

Listen to Todd Gleason’s full interview with U of I’s Todd Hubbs

read farmdocDaily post

Farmers in the United States have been planting more and more acres to soybeans. There is a simple reason behind this increase. Soybeans have been more profitable than other crops over the last several years. The question now is how many acres will they plant next year. University of Illinois Commodity Markets Specialist Todd Hubbs has been thinking about that one and he decided to determine how many acres are needed if the stocks-to-use ratio was to stay at about 7%.

Hubbs says that number should provide a $9.50 season’s average cash price, “If we assume seven-percent stocks-to-use in 2018/2019 would give us $9.50, which would cover the cost of production in Illinois based on current projections, how many acres of soybeans national under those assumptions would we need given a trend yield? Based on a trend yield of about 46.8 bushels to the acre, and it may be higher than that in 2018, we would need about 88.4 million harvested acres to get $9.50 based on a seven-percent stocks-to-use.”

If you use USDA’s long-term trend line yield for next year, 48.4 bushels to the acre, then the harvested acreage number must drop to about 85.4 million in order to get to the $9.50 season’s average cash price. That’s 86.2 million acres planted to soybeans in the United States next spring.

Soybean Acreage in 2018 | an interview with Todd Hubbs

The market is currently sending a signal of maintaining the record high soybean acreage of 2017, but the necessity for that level of soybean acreage in 2018 could deteriorate quickly under evolving market conditions. Todd Gleason has more with University of Illinois Commodity Markets Specialist Todd Hubbs.

Exploring Corn & Soybean Stocks

Last week’s Grain Stocks report should reduce the ending stocks for both corn and soybeans this month.

USDA’s quarterly grain stocks estimate suggests there are fewer bushels of corn and soybeans leftover from last year than have been reported so far. University of Illinois Commodity Grain Markets Specialist Todd Hubbs says corn is off by 56 million bushels and soybeans are down 44 million, “I’d say one thing out of the stocks report is the idea that corn and soybean consumption is starting to get stronger as we move through the year. This is especially the case in some areas we didn’t see before like feed. For the soybean ending stocks, USDA adjusted 2016 production. This isn’t a shocker, but it did change the balance sheet.”

I’d say one thing out of the stocks report is the idea that corn and soybean consumption is starting to get stronger as we move through the year. This is especially the case in some areas we didn’t see before like feed.

Having said that, Hubbs admits the 2016/17 projected carryouts for corn and soybeans remain very large. It’s possible to roll forward the September grain stocks report to forward figure the October USDA Supply & Demand table… or at least some of the adjustment. When you do that it shows corn carry out at 2.295 billion bushels and soybean ending stocks at 301 million. It is a matter then, says, Hubbs, of laying off the heavy supply-side against growing consumption - which for the moment is hampered by low river water levels that have been causing transportation problems to the Gulf of Mexico. Hubbs says, “The strong demand, the strong consumption, that we’ve been seeing is a good sign as we move through the next marketing year if we can keep it up. Right now we are suffering under these supply and transportation issues.”

It’s not to say a bullish market is around the corner, but that demand should provide a series of marketing opportunities over the coming months.

Corn and Soybean Production Outlook in 2017-18

Given the price reaction, the market remains uncertain about the USDA’s September forecast of 2017 corn and soybean production. Todd Gleason has more with the commodity markets specialist from the University of Illinois.

USDA NASS Soybean Objective Yield Pod Weight

Tuesday’s USDA Crop Production report included a very heavy soybean pod weight. Todd Gleason talks with USDA NASS Chief of the Crops Branch about the weight, how it is calculated, and how it might change over time.

Storing Corn and Soybeans in 2017

The current price structure of corn and soybean futures markets indicate positive carry in both markets and raises the question of whether producers should make decisions about grain sales. The decision by producers to store corn or soybeans should be determined by the returns to storage.

There will be a lot of corn around this fall. USDA projects about sixteen-and-half billion bushels when you add what’s leftover from last year to this year’s harvest. It is projecting about four-point-eight billion bushels of soybeans. That’s a lot of both crops, but University of Illinois agricultural economist Todd Hubbs isn’t worried about running out of space to store it. In fact, the market is urging farmers to go ahead and store both crops at the moment by pricing futures contracts for later in the year a bit higher than the nearby months. The difference is called the carry says Hubbs. Having said that, he says the carry probably doesn’t pay out for commercial storage like you would see for on-farm storage, but there is a nice carry in the market for both crops.

The carry probably doesn’t pay out for commercial storage like you would see for on-farm storage, but there is a nice carry in the market for both crops. - Todd Hubbs, University of Illinois

Harvest bids says Hubbs for corn and soybeans possess a weak basis. This means the difference between the futures price in Chicago and the local cash prices across the nation are generally wider than normal. In central Illinois, for example, that bid is about 7 cents wider than usual. It seems there could be some room for improvement.

When we look at the fundamentals of the corn and soybean markets they’ve been poor says Hubbs, “We are looking at higher yields than expected and large crops in South America. Still, on the corn side, it looks like demand through the 2017/18 marketing year should be really good. Ethanol grind will be really strong, exports should be there especially at these price points, and I believe feed usage should be up across the board. I think there is some strength in corn demand.”

Demand for soybeans may be a slightly different story. However, the domestic crush has been strengthening and exports to China remain super strong. The ag economist explains, “when we think about storing into next year and hedging the storage, basis is a real issue. This is particularly true in Illinois. This year we should see a typical basis pattern for corn because of the supply and demand factors. There may be a lot of basis risk in soybeans. There is really no discernible pattern for spring basis in soybeans. Some years we have a positive basis. This year we had a really weak basis for soybeans. So, I think there is a lot of basis risk when you think about storing and hedging soybeans and you should take that into consideration.”

The uncertainty surrounding corn and soybean yield projections for 2017 says Todd Hubbs may encourage a patient approach to pricing crops. By storing corn and soybeans unpriced, one holds an expectation of prices increasing by more than the cost of owning and storing them. Over the short term, significantly higher prices require a large reduction in the production forecasts by the USDA on September 12 or October 12. Over a longer horizon, higher prices may occur if demand is stronger than currently forecast. Southern hemisphere crop problems could also materialize to provide a price increase.

Farm Journal Midwest Crop Tour

How USDA NASS Gathers Crop Production Report Data

USDA NASS will release the first corn and soybean Crop Production Report of the season Thursday, August 10th, 2017. Todd Gleason talks with USDA NASS State Statistician Mark Schleusener about how the information is collected and calculated.

Extrapolating Yields from USDA's Crop Conditions

It’s about this time of year that USDA’s Crop Condition reports can be used, in part, to develop corn and soybean yields.

The agricultural economists at the University of Illinois have been tweaking yields out of the USDA crop conditions reports for quite some time. They say the later in the season it gets the more accurate they become. Right about now is usually when the good to excellent ratings, along with all the rest, begin to zero in on what’s really happening across America says Darrel Good, "We do know that the initial ratings for both crops are generally a bit on the high side. That is crops always look good early in the season before weather has had its chance to take a toll on the crop. And then on average ratings decline as you go to the final report of the year. If you recognized that bias, and correct the weekly observations for that bias the in-season ratings can be very useful because there is a very high correlation between final ratings and yields."

Typically, says Good, by mid-July the ratings for corn are pretty close. This is on average. That point is later in the season for soybeans, usually sometime in early August. Here are the yields the U of I has generated from this week’s USDA Weekly Crop Progress and Conditions report (July 30, 2017).

Darrel Good - If we relied entirely on the crop conditions model, today’s ratings would point to of 167.2, with soybeans at 47.7.

"If we relied entirely on the crop conditions model", says Good, "today’s ratings would point to of 167.2, with soybeans at 47.7. Again, I’m not sure I would ever rely one-hundred-percent on crop conditions as a way to form crop expectations, but as one component it does give you a good barometer or where we are."

One other note here on making calculations. A one percent move in the good and excellent category is worth about 7/10ths of a bushel says Darrel Good. This week corn is 15 points lower in those categories than last year when the national yield was 174.6. If you add in the trend line bump and do the math, it’s in that 166–167 range.

EPA Must Make Good Lost Biofuels Gallons

The courts have ruled in favor of biofuels made from corn and soybeans.

The U.S. Circuit Court of Appeals for Washington, D.C. under took a case to define the meaning of three words in the Renewable Fuel Standard written by the United States Congress. The three words, a phrase, are “inadequate domestic supply”. Congress through them says University of Illinois Agricultural Economist Scott Irwin granted the Environmental Protection Agency, the EPA, the right to grant a waiver allowing energy producers not to follow the law, “Which commonsense would say, yes, you need that kind of escape clause in the statute that would say if a biofuel is not being produced you cannot require someone to consume it.”

The Obama Administration’s EPA interpreted the clause to also mean inadequate domestic demand, and consequently limited the mandated use of biofuels in the United States. The court ruled on how the EPA limited biofuels in 2016, however, it may be, thinks Irwin, that EPA will need to make good actions it took in 2014, 2015 and 2016. This may mean the gallons of biofuels not mandated for use in those three years will have to be produced and used says Irwin, “That’s right, and they even conveniently provided a table in the ruling with their calculations of how much mandate was waived that should not have been. In the three years this added up to 2.24 billion gallons of ethanol equivalents was at play in the cuts that have now been basically declared illegal.”

In the three years this added up to 2.24 billion gallons of ethanol equivalents at play in the cuts that have now been basically declared illegal.

It would take about 800 million bushels of corn to make that much ethanol. However, because there are two parts to the RFS relating to ethanol, it’s not likely corn based ethanol will be the big winner when it comes to making up the lost gallons thinks Scott Irwin, “Because of the E–10 blend wall I think, ultimately, the beneficiary of this will be biodiesel or more broadly speaking biomass based diesel. It has been filling the gaps in the E–10 blend wall in the ethanol mandate for a number of years and I don’t see why that would change dramatically with this rule making.”

Because of the E–10 blend wall I think, ultimately, the beneficiary of this will be biodiesel…

The back fill will require about one-point-five billion gallons of biodiesel. It would use about 11 billion pounds of feed stock. The number one feed stock is soybean oil.

Soybeans More Profitable than Corn

read blog post

Soybeans have been more profitable than corn over the last three years, and an ILLINOIS agricultural economist expects that to continue to be the case this year and next.



Gary Schnitkey has updated crop budgets for highly productive central Illinois farmland. It shows, as was the case in 2013, 2014, 2015, & 2016, that planting soybeans will make farmers more money than planting corn this year and in 2018. The cash price of corn will need to exceed $4.00 a bushel if that is to change, at least with soybeans in the high $9.00 a bushel range. Schnitkey in his farmdocDaily article, you can find that online, says there are four points to be aware of as it relates to the 2017 and 18 crop budgets.

1. first, these can change as expected yields and price evolve
2. second, repeating this, corn needs to be above four bucks if it is to really compete
3. third, total returns from highly productive central Illinois soils won’t be as much this year as in 2014, 15, or 16.
4. fourth and finally - cash flows are likely to be very tight this year and next.

Corn Belt Crop Tour 2017 | July 18-22

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If you'd like to contribute a photo and commentary please email tgleason@illinois.edu. Send the photo, nearest town, county, and state location. Also, include a couple of sentences about planting date and conditions.




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2018 EPA RFS Still a Biofuel Push

by Scott Irwin & Darrel Good, Agricultural Economists
University of Illinois
read full blog post

Implications

We analyzed the magnitude of the “push” in production and consumption of biofuels implied by the proposed rulemaking for the Renewable Fuels Standard (RFS) for 2018 released last week. We find that the proposed standard for 2018 implies a measurable push in the consumption of conventional ethanol since the mandate exceeds expected domestic consumption. The magnitude of that gap is estimated at 640 million gallons for 2018, compared to the estimate for a record large gap in 2017 of 738 million gallons. The gap ranged from 260 to 457 million gallons in 2014–2016. The advanced biofuels mandate is estimated at 684 million gallons in 2018, compared to the estimate of 900 million gallons in 2017 and the actual gap of 438 million gallons in 2016. Our analysis of the proposed rulemaking for 2018 implies:

(1) The EPA under the new Administration is “staying the course” on the implied conventional ethanol mandate with that mandate at the statutory level of 15 billion gallons. If that policy continues and the rate of increase in domestic gasoline consumption does not accelerate more rapidly, there will continue to be a notable conventional ethanol gap beyond 2018.

(2) The push in advance biofuels production and consumption remains large, but is smaller than in 2017 as both the total biofuels mandate dropped and the mandate for undifferentiated advanced biofuels declined marginally. However, the minimum undifferentiated mandate will increase by statute in 2019 to 4.5 billion gallons. So, even though the biodiesel mandate is proposed to stay constant at 2.1 billion gallons for 2019, the total advanced mandate gap could jump another 260 million gallons (4.5 –4.24 billion gallons).

(3) The relatively large conventional ethanol gap implied for 2017 and 2018 suggests that the current discount in the price of D6 (ethanol) RINs relative to D4 (biomass-based diesel) RINs will continue to narrow towards equality (e.g., farmdoc daily, December 4, 2015).

(4) Biomass-based diesel is likely to remain the “marginal gallon” for filling both the conventional and advanced mandate gaps. This means relatively large levels of biodiesel production will continue to be required which in turn will require large levels of fats and oils feedstock.

Check Dicamba Soybeans After Spraying

Farmers are turning to an old technology this year to control weeds in their fields. Here’s what they can expect from a new, old-product.

Dicamba has been around for about half-a-century. It is a corn herbicide, but soybeans have been modified to tolerate it. This was done because so many weeds have modified themselves to resist being killed by glyphosate, commonly known as Round-Up. The primary problem, says University of Illinois Extension Weed Scientist Aaron Hager, is waterhemp, “it, has never been excellent on any of the pigweed species. It can be good. It can be very good, but it is not excellent. It is not as consistent.”

This inconsistency makes the timing of dicamba applications extremely important. Without a doubt, says Hager, most post applied herbicides are going to do a better job of controlling a full suite of weeds in a field when the weeds are less than three to four inches in size, “Certainly, with something like dicamba and waterhemp, our recommendation to farmers is to treat very, very small weeds, but to go back in about 10 to 14 days and to scout those treated fields. Look to see what the efficacy has been. Sometimes we can twist up these pigweed plants, but that doesn’t mean they will necessarily be completely controlled.”

Look to see what the efficacy has been. Sometimes we can twist up these pigweed plants, but that doesn’t mean they will necessarily be completely controlled.

It is possible for the weeds to recover, flower, and produce seed. And that, says Aaron Hager, is something to avoid.

Another Rough Income Year for Grain Farmers

It looks like 2017 will be another rough year for grain farmers in the United States. Even in Illinois, where the trend line yield for corn is 200 bushels to the acre and 61 for soybeans, the average income on a 1500 acre grain for this year is just $25,000. That’s not good says University of Illinois Agricultural Economist Gary Schnitkey, “That $25,000 isn’t enough to cover all the family living withdrawals and capital purchase expenses needed for a family farm of this size. Seventy to eighty-thousand dollars is needed to be sustainable in the long run. So, we are looking, again, at some financial deterioration if these projections hold”.

That $25,000 isn’t enough to cover all the family living withdrawals and capital purchase expenses needed for a family farm of this size. Seventy to eighty-thousand dollars is needed to be sustainable in the long run.

It is a projection that wasn’t quite so low earlier in the year. Then, like today, Schnitkey was using an average cash sales price of $3.70 a bushel in the Illinois crop budget for corn. What has caused the University of Illinois forecast to come down is the decline in soybean prices. Earlier in the year it was $9.70 for price, but now it has come down and Schnitkey is using $9.00 in the 2017 soybean crop budget. Even this is above the current fall delivery price at about $8.85 in central Illinois.

University of Illinois 2017 Projected Crop Budgets

A decline in soybean prices to $9.00 likely will trigger 2017 ARC-CO payments, given county soybean yields are at trend levels. As a result, U of I’s 2017 projections build in a $15 per acre government payment. It won’t arrive until the fall of 2018, but an estimated $20 payment from last year’s crop should arrive this fall.

In 2017, revenue is projected to be $755 per acre for corn, down by $77 per acre from last year. Gross revenue for soybeans is projected at $564 per acre, $140 per acre lower than in 2016.

Crop Progress & June Acreage Could be Really Bearish

There is a rule of thumb for marketing that says “Consider the crop year normal until that is no longer the case.” Yesterday’s USDA Weekly Crop Progress report - despite the rainy weather - tells us the nation’s farmers are on pace this season. They’ve planted 84% of the corn crop and 53% of the soybeans. For University of Illinois Agricultural Economist Todd Hubbs this suggests, at a minimum, farmers need to really think about making new crop soybean sales prior to the USDA’s June 30th Acreage Report.

Hubbs writes about commodity prices each week for the University of Illinois. Those articles are posted to the farmdocDaily website each Monday.

Areas of Above & Below Trend Yields in the Corn-Belt

read farmdocDaily post

Farmers in Illinois and other parts of the eastern corn belt have had above average yields over the last several years. Gary Schnitkey wondered if this was due to the weather or some other reason. He explored the topic and came to three conclusions.



First, yield expectations in the current year likely are more heavily influenced by more recent experience. In those areas where yields have been high, it may be tempting to building financial budgets and expectations on relatively high yields. Doing so could result in higher projections of incomes than are warranted. Farmers in Illinois and other recent high yielding areas should be cautious about building in high yield expectations.

Second, the comparison of above average yields in Illinois and near average yields in Iowa is instructive in understanding whether high yields are caused by technological change. The high yields in Illinois in recent years likely are not a result of technological changes. If technological change was causing the yield differences, Iowa would have had above trend yields as well as Illinois. Rather, high Illinois’ yields likely are the result of good growing conditions. Over time, areas with good growing conditions will move around the greater Corn Belt, as has happened in the past.



Third, the above yield maps likely are indicative of relative financial performance since 2012. Overall, incomes have been lower since 2012. However, farmers in Illinois and other higher yielding areas likely have fared better than farmers in Iowa and other regions with near average yields. Again, weather variations can change from year-to-year, so areas with higher and lower yields will change over time.

Working to Create New Illini Brand Soybean Varieties

Troy Cary & Lauran Widman (wihd-man) are working to create twelve-thousand 2017 University of Illinois soybean breeding program plots. Todd Gleason caught up with them on Tuesday morning and put together this look at some of the pre-planting season work.

YouTube Link

Dicamba Soybeans | how to manage herbicide applications

read more from Aaron Hager, University of Illinois Extension

Farmers going to the field this spring will be using a brand new type of soybean. Todd Gleason has more on why dicamba-resistant varieties will require them to exercise caution when making herbicide applications.