Episode 9: Switching from corn to soybeans

The guys answer the first listener question to come in through grainwaves@indigoag.com: Are seed shortages possible if farmers switch from corn to soybeans en masse? And will the commodity markets be impacted if the USDA does not do its June survey? 

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TRANSCRIPT.

Rodney: The first question we got through our grainwaves@indigoag.com email address here, a listener asked, "Due to the low corn futures price, a lot of farmers want to switch to soybeans. Is this creating seed shortages? Also, the USDA is considering not doing its June survey because of COVID-19. What impact would that have on the commodity markets and trades based on that data?" So good. So two questions, really. One is around farmers switching soybeans,. So I'm not a seed dealer. Gabe, you spend any time as a seed dealer?

Gabe: I have spent zero time as a seed dealer.

Rodney: Yeah, I do have some seed dealer friends. I reached out to one of them, literally zero concerns on soybeans right now. I would say, normally there's a pretty good supply of corn and soybean seed for planting. Where it gets limited is the best varieties, or the varieties that a guy might want on his farm. Similar to prices, there is extra seed available for rotational shifts perhaps, or the other big one is just replant, in general. So this guy I know, I was on his farm the other day, and he was asking about planting progress Indigo wide, right?

Gabe: Yeah.

Rodney: So he's interested in that. And I said, "Oh man, you get much south of us, and there's a lot of progress being made. So a lot of guys finishing up. A lot of guys half done," whatever. I was giving telling him that. And he immediately, as I say, "Oh yeah man, I got a guy in McLean County, he just finished up. I got a guy here who's doing this." He's like, "Mm-hmm (affirmative), I bet they did the same thing in 2017." So in 2017, we had to go back and replant some significant amount of soybeans, a ridiculous amount of soybeans. And I guess important to say is, there was plenty of seed for that, right?

Gabe: Yeah.

Rodney: So a rotational shift, you might see a little less interest in the best seeds for a guy's farm, but it's probably not going to have that big of an impact.

Gabe: Well, and I mean, the other thing is we do see, given the, I would say overweight on corn acres that the survey pumped out, there is a stickiness to growing corn. And so even if the economics don't look right today, especially it might be rotation based, and it also just might be comfort. When in doubt, if you can plant corn, plant corn, is kind of the thing.

Rodney: Yup, betting on the corn.

Gabe: And I think it goes back to our game theory discussion, right?

Rodney: Mm-hmm, yeah.

Gabe: So if you're sitting there going, "Wow, everybody's going to switch over to beans. I'm not going to do that. I going to stay with corn," right?

Rodney: For sure, for sure.

Gabe: It's that whole game. So, yeah.

Rodney: Yeah, if you could just walk us down the end of that game theory, so I could tell my dad if he should plant his rotation this year?

Gabe: Oh, that guy you know?

Rodney: Yeah, that guy I know. Just tell me how that works out in the end, and that'd be super helpful.

Gabe: Yeah. I'll let you know once I get off the phone with my broker.

Rodney: And then the second part of the question is USDA is considered not doing its June survey because of COVID-19. So I mean, any thoughts on that? Do you watch these USDA reports very closely, Gabe?

Gabe: I think there's enough alternatives out there that whether it's Indigo or somewhere else, that I don't know how relevant it is anymore. Other than if you are a spec trader, the moments that USDA puts out information tend to be volatile. I think what'll happen is we'll just see a bunch of data start to roll out ahead of that, and it'll probably smooth it out if they really don't do it. The other thing that we've looked at, or I shouldn't say we've looked at, but I've talked to other traders, fundamental traders have looked at is kind of the question you're asking. If you knew what the production numbers would be ... in February next year, if you know what the final final is, if you knew that in June, would you be able to make money? And it is unclear that you can actually trade the fundamentals that way, because of so many other externalities, like crude oil. So the market moves on those reports, because as much as people complain about them, they're still the single most focused on piece of information fundamentally. But yeah, I don't think it changes the way people farm. I don't think it dramatically changes the way people hedge. Other than, if some of the data coming out from other places pushes the market one way or another, but it doesn't feel hugely problematic, right?

Rodney: No. And I also think that June survey, I think it was a bigger deal back in the day when corn needed to be knee-high by the 4th of July, that really mattered where we were at. But now, I think guys can plant this crop so quickly that it's just less relevant. So I think it was more relevant last year, when we had some significant planting issues and lots of questions up in there. I'm still not going to poo poo the report. We see some reactions out of that.

Thanks for listening to the GrainWaves podcast. If you'd like to learn more about how Indigo can help your farm be more profitable, you can find us here.

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