U.S. farms swapping corn for soybeans as profit margin widens

Planting decisions for U.S. corn and soybean farmers are a bit of a no-brainer this year. After confronting the prospects of losses on both crops in 2016, soybeans are now more profitable, which means the world’s largest grower may harvest a record crop for a second straight year.

While corn is still king—it’s the largest U.S. crop by value and volume—farmers from North Dakota to Texas are preparing to use more of their land on soybeans instead. That’s because cash prices have jumped 9.2 percent since the 2016 harvest, creating the widest premium over corn in 29 years, and the oilseed is cheaper to grow.

“It’s the difference between choosing to operate in the black or in the red,” said Jon Mutschler, 48, who farms 2,500 acres in Minnesota with his wife and son. “The market is telling us to plant soybeans,” he said. Mutschler will sow 55 percent of his land with corn, down from 67 percent last season, and boost soybeans to 45 percent from 33 percent.

Seed technology that combats drought, bugs and disease is helping U.S. farmers produce record amounts of corn and soybeans on every acre, but demand prospects are better for soybeans used to make animal feed, cooking oil and biofuel. Rising global consumption of meat, poultry, eggs and dairy has doubled the amount of soy-based meal in animal feed since 2000. Most of that growth occurred in China, the biggest pork producer, where soybean imports have doubled in the past eight years.

Soybean prices in 2016 posted the first annual increase in four years, and they are up in 2017. To maximize revenue and take advantage of the rally, American farmers probably will expand soybean planting 5.8 percent, to a record 88.27 million acres, the third increase in four years, according to a Bloomberg survey of 25 trading firms and analysts. Corn sowing may fall 3.6 percent, to 90.77 million acres, the biggest drop in three seasons.

Earlier this year, farmer surveys by researchers Farm Futures and AgriSource Inc. signaled the U.S. will sow more land with soybeans than corn for the first time since 1983. Most will be planted in May and June and harvested in September and October. After polling more than 2,000 growers in six Midwest states in January, AgriSource projected an 8.1 percent jump to 90.2 million, more than the 89.7 million planned for corn.

The U.S. Department of Agriculture will release updated planting estimates at its annual outlook conference that begins Thursday in Washington, D.C. In November, the USDA’s preliminary forecast was for an increase to 85.5 million acres.

Planting choices

Choosing what to plant varies depending on the region and prices for difference crops. American farmers already have cut the acreage of winter wheat to the smallest since 1909, after a global glut of the grain sent prices to the lowest in a decade, USDA data show. Soybeans have some competition across the South from cotton, after the price of the fiber rose to the highest since 2014. Growers will increase planting 9.3 percent, to 11.017 million acres, the National Cotton Council said Feb. 11.

“The drop in winter wheat acres means there are more acres that can go to both corn and soybeans,” but “farmers are nervous” that President Donald Trump’s tough talk on renegotiating trade deals could disrupt U.S. export sales of corn to Mexico, said John Newton, director of market intelligence at the American Farm Bureau Federation in Washington. “A lot of farmers are saying soybeans beat corn.”

Soybeans are gaining favor in part because futures prices for delivery after this year’s harvest indicate a widening profit margin over corn. For growers willing to sell now, nine months before the harvest, the November soybean contract has averaged 2.6 times more than December corn futures since Dec. 16. That’s the best in 29 years.

“When the market offers a better price, farmers will shift acres,” said Dan Kowalski, director of research at CoBank, an agricultural lending cooperative based in Greenwood Village, Colorado. “Farmers are looking at increasing soybean acres and locking in a small profit and that helps to take risks off the table ahead of the planting season. They have good reason to be a little more optimistic.”

Soybeans for November are trading at $10.16 a bushel in Chicago, while the December corn contract is at $3.96 a bushel.

Improved sentiment

In January, farmer sentiment surged for a third straight month to the highest since October 2015 as soybean and livestock prices rose, according to a survey released Feb. 7 by Purdue University/CME Group.

“We are seeing signs that after several years of steep declines, key agricultural markets may be stabilizing," Sam Allen, the CEO for farm-equipment maker Deere & Co., said in an earnings statement on Feb. 17. “Deere continues to perform far better than in agricultural downturns of the past.”

Soybean profits beat corn by an average of $47 an acre this year, based on budgets from the University of Illinois and Purdue University. It will cost farmers between $292 to $315 an acre to grow soybeans, compared with $521 to $531 for corn, according to Gary Schnitkey at the University of Illinois.

Pat Swanson, who runs a crop-insurance company and farms 1,800 acres with her husband near Ottumwa, Iowa, said they plan to switch 100 acres that would have been corn this year to soybeans.

“The price is very attractive and soybeans are a lot less expensive to plant,” said Swanson, 52. “Our biggest growers with financial stress and smaller farmers will plant more soybeans this year.”