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Todd's Take
Monday, March 30, 2020 9:45AM CDT
By Todd Hultman
DTN Lead Analyst

While we're all hunkered down in forced social isolation -- keeping a safe distance away from neighbors and strangers at the store -- I couldn't help but notice the morning chorus of birds were still doing their thing, as blissful as ever. As far as I could tell, the robins were not worried one whit about all our hand wringing over coronavirus.

Lest we forget, it is spring and time again for USDA's annual survey of prospective planting intentions on Tuesday, March 31. In my book, this is not a report to be taken seriously, as good intentions aren't much of a match for weather's obstacles. Last year, USDA said farmers intended to plant 84.6 million acres (ma) of soybeans, but by the time the rain finally stopped, only 76.1 ma were able to receive seeds in the ground.

In late February, USDA said it expected farmers to plant 94.0 ma of corn and 85.0 ma of soybeans in 2020 -- a strong preference leaning to corn. Just Thursday, Dow Jones' survey of analysts said it expects Tuesday's report to show farmers wanting to plant 94.3 ma of corn and 84.7 ma of soybeans -- numbers eerily similar to USDA's February estimates.

Personally, I have no reason to doubt this popular assessment, as my own conversations with farmers over the winter also found more interest for planting more corn acres. Behind the decisions seemed to be a hope that better weather would reward corn yields more fully than it might enhance soybean yields.

Weather permitting, I agree there is a good chance farmers will plant more corn in 2020, and USDA's Prospective Plantings report may even be accurate this year. It's just that I think the popular decision to plant corn is wrong this time. Soybeans have the better odds for higher returns in 2020.

It was just two years ago that farmers planted close to a 50-50 split: 88.9 ma of corn and 89.2 ma of soybeans as the trade dispute with China was brewing.

Last year, when perpetual waves of rain kept planters out of fields and ending stocks of soybeans were being estimated near a billion bushels (bb), farmers gave up on soybeans and stuck with corn. USDA said there were 89.7 ma of corn planted versus 76.1 ma of soybeans. Given the big soybean carry and uncertainty of trade with China, the corn preference was not difficult to understand.

As we get closer to planting in 2020, the landscape looks much different than it did a year ago. Who are we kidding? It even looks a lot different than it did a month ago.

The work for USDA's survey is conducted in the first two weeks of March, and that is not normally an issue. But this year, the events of early March were game changers for corn.

On March 7, Saudi Arabia announced it was lowering the price of crude oil for its customers and said it was preparing to increase oil production. The decision was made at a time when economic growth estimates were being cut around the globe due to the spread of the coronavirus as social distancing became the new popular term, translated in many languages.

May crude oil fell over $10 a barrel the following Monday, March 16, and the rout of energy prices was on. May RBOB gasoline closed below 60 cents a gallon Thursday, March 26, and May ethanol was just under $1.00 a gallon, near all-time lows.

The Saudi decision was impulsive and ill-timed. It is difficult to say how long they will stick to it, but so far, they are. Not surprisingly, ethanol plants are scrambling to reduce production as making the fuel became deeply unprofitable overnight. To clarify, an industry that represents 39% of corn demand is in serious financial trouble.

At USDA's annual Ag Forum Outlook in late February, USDA not only estimated 94.0 ma of corn plantings, it also estimated 2.64 bb of U.S. ending corn stocks in 2020-21, and that did not include an assessment for collapsed ethanol demand. Such a scenario carries with it a risk of cash corn prices averaging less than $3.00 a bushel in the fall of 2020.

USDA's ending stocks estimate for soybeans, on the other hand, was potentially bullish at 320 million bushels (mb) or 7% of annual use. Frankly, the estimate now looks too bullish in the age of the coronavirus, but ending soybean stocks will not be as heavy as those expected in corn. Also, soybean demand does not have the same exposure to energy prices that corn does and is positioned to trade better in this new environment.

Let's say you get 200 bushels of corn at $3 a bushel for a $600 check per acre. That doesn't cover USDA's estimated cost of $680 an acre for corn in 2020 (USDA's Commodity Costs and Returns at https://www.ers.usda.gov/…).

Fifty bushels of soybeans at $9 a bushel pays $450 an acre, close to the $460 an acre soybean cost USDA estimates for 2020. Go ahead and finagle the numbers in different scenarios, but I think you'll see the edge goes to soybeans.

I know old habits die hard, and I don't know how many will change their preferences from corn to soybeans or even just settle on a 50-50 rotation. Guessing fall prices is never a sure thing, but as I see it, the odds favor planting soybeans in 2020.

Todd Hultman can be reached at Todd.Hultman@dtn.com

Follow him on Twitter @ToddHultman


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