The Bean/Corn Ratio & What It Means

Kelby Vandenberg

Kelby Vandenberg

As issues with Argentine soybean production have surfaced due to wet weather, we have seen a rise in soybean prices. Funds have been buyers in uncertainty over just how much production was lost due to persistent rains in Argentina. Ideas circulated around the trade that we’d see the Chinese turn back towards the U.S. for beans sometime this summer. When these concerns and ideas were circulating, the July/November bean spread went screaming higher to as high as 29 ¾ cent inverse. Currently, the spread rests at 16 ½ cent inverse. Crush margins have been better than expected and allowed processors to run harder.

Beans have gone on a tear higher but haven’t necessarily pulled other commodities along with it. Corn made a little run higher as dry weather has the trade concerned about production issues in Brazil. There was some talk that surfaced about a Brazilian shortage leading to them buying corn from the U.S. We haven’t really seen any follow through with that. We have seen a handful of corn export sales announced over the past few weeks due in large part to a lower U.S. dollar making the U.S. one of the cheapest origins in the world. Even though we’ve seen some bullish news surface over the past few weeks, it hasn’t been enough to keep feeding the bull. The bears have trumped the bulls of late as planting pace is well ahead of average and the corn carryout still looks to be north of 1.8 billion bushels.

Beans

Over the past few weeks, both commodities have seen their fair share of bullish news. Beans have been able to continue working higher while corn has lost steam and gains have been limited. We’ve fielded a few questions over the last few weeks about the bean/corn ratio. Some in the trade feel like the market is trying to buy back some bean acres. On Monday, the market closed with the ratio sitting at 2.69:1. The bean/corn ratio gives farmers an indication of the most profitable crop choice. Most would say that the ratio needs to be at least 2.5:1 to consider making the switch from corn to beans. It’s fairly easy to figure this ratio. Take Nov 16 bean futures and divide by Dec 16 corn futures.

There is no easy, or general, answer to determine which way one should choose to go with planting acres. It all depends on your individual operation and what makes the most sense for you.  The ratio is a simple tool that provides a glimpse of the economic relationship between the two commodities. There are other things to take into consideration when determining what to plant as well, such as yield history and basis values. Locking a price in on some of your beans if you do decide to switch from corn to beans because of the ratio is something to consider. Our ProEdge group is available to answer any questions and help you look at the numbers if it’s something you’re wanting to learn more about.