By Jonathan LaPorte
The corn-soybean price ratio is a common phrase talked about in the early months of the year, especially as winter begins to transition into spring. Like warmer weather and soil temperatures, it often gets brought up when discussing planting intentions. But what is the corn-soybean ratio and how much influence should it have toward your planting decisions?
The corn-soybean ratio is a concept that has been around for decades. It’s a simple equation of dividing the price of soybeans by the price of corn. The ratio describes the difference in the price of soybeans in relation to the price of corn. It is often used to measure whether corn or soybeans are the more profitable crop based on market values.
A common benchmark is a value of 2.5. If the ratio is above 2.5, it suggests you would be better off planting more soybeans. Conversely, a ratio below 2.5 suggests planting more corn. The benchmark is often based on an average of historical corn and soybean prices over a multi-year period, often 10-20 years.
While the corn-soybean ratio may be useful information in assisting with planting decisions, a ratio is only as good as the numbers used in its calculation. There may also be missing pieces of information that a ratio doesn’t address. Let’s start with the challenge of identifying which set of prices to calculate from.
Source : msu.edu