The Risks of Good (and Bad) Intentions
By this time of the year, most of you have moved from crop planning to execution. In all likelihood, you have adjusted your crop mix, have purchased your seed, and have begun or are close to beginning planting. Unless you have a field here or there that you haven’t fully planned around, it’s increasingly unlikely that you want to spend the capital to change your crop mix in any meaningful way.
If you’re like most farmers, you’re also starting to look at ways to manage the price you’ve begun setting with your crop mix decision. And because farmers are in the thick of planting, the first opportunity farmers often look to is the March Planting Intentions report and anticipated market movement when the June Planted Acres report drops. Of course, this all begs the question: how much opportunity is really there?
Acres Generally Do Not Change that Much
As you and every other farmer move from planting intentions to planting, you make adjustments to your crop mix. You may decide to pull back on corn and put more of your mix in soybeans, and a farmer the town over might make the opposite decision. Bear in mind that if you (along with your friends and relatives) are going heavier in one direction, you may think your sentiment will be reflected in June actuals. The data, however, shows that the actuals in aggregate don’t really move that much from intentions. Data over the past 20 years (2003-2023) bears out that acreage changes by less than 2%, on average, for both corn and soybeans.
Corn acreage tends to increase more than decrease.
- • Corn acres have deviated from March intentions to June actuals by an average 1.4% or about 1.2 million acres.
- • For fifteen of those twenty years, acres planted outpaced planting intentions by an average 1.1 million.
- • Acres planted underperformed planting intentions by an average 1.5 million for the other five years.
Soybean acreage change is slightly more meaningful, and it’s a 50/50 shot which way it will move.
- • Soybean acres have deviated from March intentions to June actuals by an average 1.8% or about 1.5 million acres.
- • For ten of those twenty years, acres planted outpaced planting intentions by an average 1.1 million.
- • Acres planted underperformed planting intentions by an average 1.9 million for the remaining ten years.
This makes sense. By March, you need to have a plan in action to buy seed and other inputs, and a major change in direction can mean real money. The market and the math need to be compelling to make up for the dollars already spent. Bottom line, on its own, don’t expect changes from the March to June report to have a significant impact absent other market shifts.
Expect Bigger Acreage Changes When the Market Demands a Change
As mentioned, the math needs to be compelling to make a crop mix change, in terms of a significant increase in demand or price or a significant protection in the costs of production. The chart below outlines the difference in actual June acres vs. March planting intentions over the past 20 years. Note that many of the biggest changes in acreage correspond to a major market shock in terms of demand, supply, price, or weather.
Let’s look at a few of the years with the biggest changes between intentions in March and actuals in June:
2023: Corn prices rose high enough for farmers to move away from soybeans to corn.
2020: COVID caused a collapse in prices. Soybeans, with their lower production cost, became relatively less unprofitable.
2019: Markets rallied in May on wet weather. Corn became more attractive in an oversupplied soybean market, spurred by the trade war in China.
2007: The price ratio of soybeans to corn collapsed upon the arrival of ethanol mandates and the subsequent increased demand for corn.
2004: Corn rallied 15% from the period of data collection for the March Planting Intentions report.
Bottom line, acreage changes were driven primarily by market conditions, and not a bet on the direction of a report.
Takeaways for Your Marketing Strategy
When it comes to data over the past twenty years, the years where a change in acreage made an impact were also years when the market already offered farmers compelling financial reasons to anticipate an acreage change. A bet on acreage numbers alone without other fundamental shifts, on balance, do not seem to be advantageous to marketing decisions.
Instead of trying to guess where the market is going, it’s better to plan for wherever the market might go. That means making a plan that is flexible and adjusts as the market changes. Build a plan that helps you protect your price in the event the market goes up – or down. And be prepared to capture market opportunity as it comes to you rather than hoping to hit the top of the market.
Grain Market Insider can help, as we’ve helped farmers for almost 40 years.
Have questions about how you can build a plan to help you in any market environment, or questions about your plan?