You are less than a week away from, what could be, a significant USDA report that will have an impact on the market for enough time to change planting decisions for the 2009 corn and soybean crop. The Prospective Plantings Report will be released by USDA next Tuesday morning and will reflect what farmers have told statisticians what their cropping patterns will be based on information into the early part of the month. What could happen and how should you react?

The past two years have seen the grain markets buy acres throughout the winter prior to the planting season, but that did not happen this year. Most farmers who have discretionary acreage have indicated that soybeans will be the choice because high costs of corn production make soybeans a greater profit opportunity. If the USDA report indicates large soybean acreage, then either soybean prices will fall or corn prices will rise to balance out the demands of the market.

Michigan State University Extension Specialist Jim Hilker says the market will react to the base that the report provides. In his latest Outlook Hilker says, “If the last two years are any sign, even many farmers will not decide on exactly how many acres they will plant of each crop until their last planter has pulled out of the field. While this has always been true to some degree, if for no other reason weather conditions, I would argue that economic incentives since 2006 have made this even more true.” Hilker says the report will allow the market to adjust prices and farmers can react to those prices when they head to the field, “Bottom line, we could have some pricing opportunities after the release of the two reports, but the time period may be short. After the report the planting conditions will likely take over the market direction to a large degree.” With the market expecting a 1-5 million acre jump upward in new crop beans, Hilker doubts the report will be bullish for soybeans, “At what price would you be ready to pull the trigger, and at what time will you begin pricing regardless if they are over some minimum price? Being prepared to make/adjust soybean planting and pricing decisions is huge.”

Melvin Brees agrees that planting and marketing decisions for the 2009 crop are not easy ones to make. From his vantage point at the University of Missouri, Brees writes in his latest Outlook that grain markets have been hurt by many outside forces which have complicated marketing and final production decisions. He says one forecasting firm is using the production cost issue to predict that soybean acreage will surpass corn acres in 2009. Brees says regardless of the acreage predicted in the USDA report, it is imperative for producers to know their production costs; and if land is cash rented, that figure needs to be reflected in the total costs per bushel. Brees calculates a nearly $130 difference in corn and bean operating costs for 2009, suggesting that farmers stay with corn on discretionary acres.

Brees says in recent days soybean prices have climbed to the point of profitability on owned land, but not yet on rented land, and he says farmers without revenue crop insurance may want to stay with soybeans to avert any financial risk.

Whether or not you have revenue insurance, the crop still needs to be sold, and 17 months remain in the market for that to happen. Despite the long window, most farmers know the market provides a “tractor seat bounce” and there will be springtime marketing opportunities. Brees says, “The fact that current new crop bids already offer some profit also should not be ignored, especially ahead of possible surprises in the USDA’s Prospective Plantings report.” He says if you have revenue insurance, the issue is not as critical, but sales can be spread with some degree of comfort. But those without crop insurance will need to be more careful in spreading their sales, “When spreading sales it is likely that some sales will turn out to be disappointing, but it reduces risk. The profit margins may be much narrower than last year and decisions are not easy, but it is still possible to have a profitable year.”

Summary:
The USDA planting intentions report next week has the potential to move the market, based on expectations for corn and soybean acres, and the market could either add a premium to one commodity or discount another based on the forecast. Farmers may have a marketing opportunity immediately following the report, but pricing decisions will be difficult unless production costs are well known. Price targets should be set, but there are usually good chances in the spring to market grain, and spreading sales can also diminish marketing risk.