Soy price premium to corn points to record soy acres in S.America

CHICAGO, Sept 11 Wed Sep 11, 2013 6:13pm EDT

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CHICAGO, Sept 11 (Reuters) - Worry that a late-summer heat wave in the U.S. Midwest is shrinking the soybean crop, boosting the premium of soybean prices over corn, which should encourage South American farmers to plant a bumper soy crop there, traders said.

The Chicago Board of Trade soy/corn ratio, or the price of soy divided by corn, is a keystone annual reference point used by farmers in the United States and South America to determine profitability and allocate acres for planting each crop. To a great extent, both hemisphere crops are also hedged at the CBOT.

This autumn, the message is clear for South American farmers now ready to plant their 2013 crops. CBOT soybeans are trading nearly three times the price of corn.

"The job of that spread is to remain inflated. We have enough corn in the U.S., globally," said Rich Feltes, vice president of commodity research for brokerage RJ O'Brien. "We have a shortage of beans in the U.S. and we need to insure we have ample production in South America.

"The job of the market is to shrink corn acres, buy more soybean acres - not only in South America where it is already doing the job but in the U.S. next year," Feltes said.

For decades, the United States was the No. 1 exporter and producer of soybeans. This year Brazil exported more soybeans than the United States, where the 2012 drought slashed supplies, and in recent years Brazil and Argentina combined have produced more soybeans than the United States.

Analysts differ on what point the ratio favors soybean planting over corn, with opinions ranging from 2.2-2.5 to 1. Above that level favors bean plantings while below that point triggers corn seedings. Either way, the current ratio encourages planting of soybeans.

On Thursday, the Nov/Dec 2013 soybean corn ratio closed at was 2.87 to 1. The ratio is even more favorable in Brazil where cash prices reflect a soy/corn ratio of 3 to 1 in Parana and up to 4 to 1 in Mato Grosso, according to Michael Cordonnier, a closely followed crop advisor who tracks South American production and markets.

CBOT Nov soy/Dec corn price ratio soars:

"The record large safrinha corn crop in Brazil has pushed down prices so much that not even a weaker currency or government purchases of corn at the guaranteed minimum price of R$13 per sack has been able to pull up prices. In Mato Grosso there is still corn being sold for R$10 per sack, which is a little less than US$2 per bushel depending on the currency exchange rate," Cordonnier said in a letter to customers.

Soy planting in Mato Grosso, the largest Brazilian soy state, officially starts on Sept. 15 and later in southern areas, while corn planting began about a month ago. Planting continues through December, with most occurring from October to November. Argentina has a similar planting season.

While the 2013 CBOT Nov/Dec soy-corn price ratio soared to new high of 2.97 this week, the 2014 May soy/corn is at 2.66 and the 2014 Nov/Dec ratio is closer to 2.36.

"That is really screaming that the deferred November beans really need to come up," said Feltes. "Even with lower corn acres we're going to build corn stocks in 2015 with big corn yields. We just need to continue shifting acres out of corn production."

Traders are bracing for another jolt in the spread on Thursday when the U.S. Department of Agriculture will update its 2013 U.S. corn and soybean crop estimates. Private forecasters expect the agency to cut its corn production estimate 1 percent whereas the soy outlook could fall 3 percent, as the late summer heat wave was seen hurting soy yields more than corn.

"You get the kind of yield reductions we're talking all of the sudden you're at pipeline minimums for beans. You'll be far from pipeline minimums for corn," said Tim Emslie, grains research manager for CHS Inc CHSCP.O, the largest U.S. farm cooperative and a major corn hedger.

Feltes said: "That's a ratio that's going to stay very firm on breaks."

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