It is common for the debate over next year’s U.S. corn and soybean plantings to begin before harvest is complete on the current crops, though surging production costs are muddling that discussion despite 2022 prices sitting at nine-year highs for the date.

High-priced competitor crops may also increasingly enter the equation next spring, meaning industry participants may be prone to overestimating the total number of acres devoted to corn or soybeans.

Soaring fertilizer prices in particular are causing analysts to temper expectations for next year’s corn area. Costs for nitrogen-based fertilizers, predominantly used on corn, are around double the year-ago levels, and some chemicals have reached all-time highs.

Global supply-chain disruptions add more complexity since a portion of the ingredients needed to make crop chemicals come from overseas. Even worse, China, a key supplier of fertilizer and related ingredients, has recently imposed measures that may greatly curb those exports.

To combat high input costs and retain acres, corn prices must maintain or increase their relative advantage versus soybeans into the spring, though that is the case every year. If energy prices stay high, then grain, oilseed and fertilizer prices are also likely to remain elevated and vice versa.

High fertilizer prices by themselves may not necessarily mean corn is unprofitable or less profitable than soybeans as many other factors such as projected prices and expected yields must be considered.

Producers that have already locked in some of these costs may be concerned about the actual availability and ability to receive the products. These logistical issues plus competing crop profitability could loom as large as the fertilizer prices themselves.

If next year’s corn and/or soybean acres disappoint versus expectations, then analysts either overestimated the total pool of acres or underestimated the allure of alternative crops.

RETURN TO BASICS

Despite increased uncertainty ahead of next year’s growing season, some analyses have held up well during times of both high and low prices and high and low production costs. New-crop futures prices are usually the best starting point and can provide insight as early as today.

The current value of November 2022 soybean futures SX2 versus December 2022 corn CZ2 would not support soybean acres hogging a large share of the combined corn and soybean area. The ratio of beans to corn can be a profitability indicator, with values of 2.5 or above solidly favoring soybeans.

That ratio is averaging around 2.34 so far this month, which historically suggests corn acres should be dominant in next year’s corn-soy mix by about 53% for corn and 47% for soybeans. But some recent ideas suggest the split may be closer to even. (https://tmsnrt.rs/3vtu8bz)

I asked Twitter earlier this week to vote on 2022 planted acreage ranges for U.S. corn and soybeans. The results for corn suggested something around the five-year average of 90.5 million acres, down from this year’s 93.3 million.

Voters were much more favorable to soybeans and placed those acres at the top end of the offered range, implying close to 90 million. Despite corn’s current price edge, the poll reflects the fear of high input costs pushing corn acres toward beans.

Only in 2009 and 2016 did soybeans steal a larger share of the mix when the price ratio in the previous fall favored corn. Those outlier years were associated with very large year-on-year declines in total wheat plantings, both by more than 4.5 million acres.

WHEAT AND OTHER CROPS

Current market assumptions are that U.S. wheat acres will rise in 2022 given tighter global supplies and strong prices. That is a good bet considering next year’s insurance guarantees to U.S. farmers.

The projected 2022 soft wheat insurance prices were set using the average price of CBOT September 2022 wheat futures WU2 between mid-August and mid-September. That landed at $7.16 per bushel, a nine-year high.

That is up 28% on the year, the largest annual increase in 11 years. For hard red wheat, the Kansas City July 2022 wheat contract averaged $7.08 during the same period, also a nine-year high and up 44% on the year. Movements in U.S. wheat plantings correlate well to the year-on-year changes in insurance prices.

Insurance prices for corn, soybeans and other winter wheat competitors, like spring wheat and cotton, will be set in February. September 2022 Minneapolis wheat MWEU2 is currently trading at nine-year highs for the date.

December 2022 cotton futures CTZ2 are at 10-year highs, about a third stronger than the year-ago levels.

The year-on-year acreage moves in corn and soybeans have not always matched up with whether the insurance prices were up or down, and that may be partially related to the expected profitability of competitor crops.
Source: Reuters (Reporting by Karen Braun; Editing by Matthew Lewis)