It is almost certain that U.S. farmers will plant more soybeans in 2017 than ever before, but profitability indicators in the futures market give good reason to believe that this acreage could push much higher than what we have been prepared for.
In its annual long-term projections published late last month, the U.S. Department of Agriculture placed next spring’s soybean planted area at 85.5 million acres – 1.8 million more acres than 2016.
This year-on-year bump of two per cent is the largest such increase predicted by the agency at this early stage in nine years. Compared with the final yearly changes in soybean acres, the long-term projections have tended to be more conservative.
But from a profitability standpoint, this notable boost in acres may still be too modest.
The new-crop soybean-to-corn futures price ratio has spent the last two months at levels not seen at this time of year in at least 20 years. The ratio, which in this case compares the November 2017 soybean contract with December 2017 corn, is a key indicator of the producer’s profit potential.
Farmers tend to favour planting soybeans when the soybean-to-corn ratio is above 2.5. As of Thursday, it was 2.6, slightly down from its peak of 2.7 on Dec. 1. Typically, the ratio will not reach these values until at least May of the expiration year.
Historically, there have been dramatic leaps in soybean acreage in the spring when the soybean-to-corn ratio was elevated in the previous December – to a much larger degree than USDA has suggested for next year.
And a look at some of these past scenarios suggests that breaking the 90-million-acre mark in 2017 should be on the table.
Aside from 2017, there are only three other crop years during which the December disparity between soybean and corn futures was similarly large: 1997, 2006, and 2014.
The year-on-year soybean acreage increase in these three seasons – nine per cent in 1997, five per cent in 2006, and eight per cent in 2014 – makes USDA’s two per cent rise for this year seem underdone, especially considering how much higher the 2017 soybean-to-corn ratio has been than the others.
It is also interesting to note that in these years, the ratio did not necessarily sustain at or above 2.5 from December through the planting season.
USDA did not necessarily catch on early to the drastically higher acreage in these previous years, as the agency’s long-term planted area projections indicated a yearly gain of only 1.5 per cent in 2014 and two per cent in 2006.
And initially underestimating soybean acres has not been confined to the years when soybeans were the clear-cut winner over corn from a profit standpoint, as USDA’s long-term projections have fallen short of final planted area in 10 of the last 15 years.
Corn should be freeing up some extra acres for soybeans next year, as futures prices for the yellow grain linger near the lowest levels of the Renewable Fuel Standard era. USDA predicts next year’s planted area to fall 4.5 million acres to 90 million.
Unlike the same comparison for soybeans, this five per cent year-on-year decline in corn acres is exactly in line with the actual area decrease in 2014 and 2006, despite the initial projections being too conservative. Planted area in 1997 increased by less than half a per cent.
It could prove true that USDA has simply set the floor for 2017 at 85.5 million acres of soybeans. But where exactly is the ceiling?
Taking the percentage gains from 1997, 2006, and 2014 and applying them to last year’s 83.7 million acres would result in a planted acreage range of 87.9 million to 91.2 million acres.
Some analysts are already narrowing in on this range. On Thursday, private analytics firm Informa Economics increased its forecast of 2017 U.S. soybean plantings to 88.86 million acres.
Just for fun, if the United States plants 91.2 million acres of soybeans in 2017 and yields can once again reach this year’s estimated 52.5 bushels per acre, the haul would amount to 4.74 billion bushels, topping this year’s record 4.36 billion.
And although that reflects the most optimistic view one could have at this time, today’s “just for fun” scenario could turn into reality in a few short months.