Corn Vs. Soybeans: The Farmer's Choice
The United States is the number one producer of both corn and soybeans in the world. The U.S. is also the world's largest exporter of corn and the second-largest exporter of soybeans, after Brazil. Corn and soybeans can grow in the same climate, so farmers often have a choice of which crop to plant.
In U.S. states with the greatest acreage of corn production, seeding typically happens in April or May. For soybeans, seeding takes place in May or June. Farmers then tend to the growing crops—fertilizing, applying pesticides, and irrigating—and harvest the grains in the fall: generally October or November for corn and September or October for soybeans.
The crop cycle repeats itself each year. Of course, Mother Nature plays a role; the weather may ultimately dictate the success or failure of each crop.
In late February or early March of each year, farmers in the U.S. make up their minds as to which crop they will plant on their acreage—corn or soybeans. In order to make a wise decision, farmers look at new crop prices for both crops.
New Crop Futures Prices and the Soybean-Corn Ratio
Old crops refers to crops that sit in inventory or those that are still growing in the field. In the futures market, the nearby delivery months of March, May, June, July, August, and September are old crop months. The new crop month for soybeans—right after the harvest—is November, and for corn, it is December. Farmers compare the new crop November soybean futures price versus the new crop December corn futures price to help determine which crop would yield the most profit from their acreage.
The price of a bushel of soybeans based on the November futures contract price divided by the price of a bushel of corn based on the December futures contract is called the soybean-corn ratio. A bushel used to be a measure of volume, but in today's world of commodities, a bushel represents a certain mass or weight of a crop. There are 56 pounds of shelled corn in a bushel, while there are 60 pounds of soybeans.
Productivity varies in different parts of the U.S. based on many factors, including how well-suited a piece of land is for growing the particular crop. However, on average, an acre of land in a large-scale U.S. farming operation produces in the neighborhood of 175 bushels of shelled corn versus a little more than 50 bushels of soybeans.
The higher the soybean-corn ratio, the more attractive soybeans are to grow. The lower the ratio, the more attractive corn is to grown. The dividing point between soybeans and corn is a ratio value of around 2.35 or 2.4. (The ratio is sometimes expressed as the figure followed by a colon and 1, as in 2.35:1.)
Farmers take other factors into consideration when determining which of the two crops to grow. The crop they grew the previous year is one such factor: Corn productivity increases in the year after soybeans have been grown in the field, partially because of the nitrogen that soybean plants fix and make available as a nutrient in the soil. Soybean productivity increases after corn has been grown for a year and increases even more after corn has been grown for two years.
The costs of growing either crop differ too, although the types of costs are basically the same: seeds, fertilizer, pesticides, machinery, crop insurance, labor, fuel, and possibly land rental. Costs for producing corn tend to be higher than those for producing soybeans, particularly for seeds, fertilizer (in the form of anhydrous ammonia), and pesticides.