The corn-soybean ratio and its potential impact on farm profits
Print
EmailHow the corn-soybean ratio can influence your planting intentions.
The corn-soybean 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 towards 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.
The corn-soybean ratio is often calculated using national cash prices, but this may be different than those experienced at a state or local level. Using data from USDA’s National Agricultural Statistics Service (NASS), Figure 1 illustrates corn-soybean ratios based on actual prices received at both the national and state levels. As the chart outlines, Michigan’s corn-soybean ratios have not always aligned with national prices. In three of the past four years, Michigan corn and soybean prices have been more competitive in comparison to national prices.
Figure 1 also helps illustrate the importance of the local markets in which you actually sell your grain. Evaluating different corn-soybean ratios based on futures prices, national or state cash prices, and even crop insurance values can be helpful. Unfortunately, none of these prices may align with actual dollars that you will receive for your grain. Planting decisions should be based on actual return on investment, which makes local basis an important factor in determining a corn-soybean ratio.
For example, on March 17, 2025, the corn-soybean ratio based on futures prices was 2.20. In comparison, a composite of cash prices from local grain elevators across Michigan yielded a ratio of 2.28 for the same date. Both of these ratios are currently well below the 2.5 benchmark, which easily favor planting more corn acres. However, that may not always be the case in other years where prices are more competitive, such as 2015 and 2020 in Figure 1. In competitive years, a calculation based on futures could point to planting more corn. However, a calculation using cash prices that accounts for local basis may point towards more soybeans. Unless you are marketing your grain through futures contracts, then local cash prices may be a better price to use when calculating a corn-soybean ratio.
|
Marketing Season |
Season-Average Price - Corn |
Season-Average Price - Soybeans |
Corn-Soybean Ratio |
|||
|
National |
Michigan |
National |
Michigan |
National |
Michigan |
|
|
2020/2021 |
$4.53 |
$4.72 |
$10.80 |
$11.70 |
2.384 |
2.479 |
|
2021/2022 |
$6.00 |
$5.86 |
$13.30 |
$14.00 |
2.217 |
2.389 |
|
2022/2023 |
$6.54 |
$6.16 |
$14.20 |
$14.70 |
2.171 |
2.386 |
|
2023/2024 |
$4.55 |
$4.19 |
$12.40 |
$12.80 |
2.725 |
3.055 |
Figure 2: Comparison of national and Michigan season-average prices and corn-soybean ratios from 2020 through 2022. Data from USDA Economic Research Service (ERS).
Local markets are also important during times of increased market volatility. Between 2020 and 2023, global supplies of grain and inputs saw significant shifts. Initially, input and grain prices were driven up by reductions in supply. Some of the reductions were due to Covid-related supply chain disruptions while others were related to reduced production or global trade. The net effect was a higher demand on corn acres until global supplies began to re-balance in 2023. Data from USDA’s Economic Research Service (ERS) highlights the strong demand for corn acres during this period with corn-soybean ratios that favor corn (see Figure 2). However, in that same period, Michigan’s corn-soybean ratio saw a less dramatic shift towards corn compared to the national average. Michigan experienced the same impacts of global supply shifts as the rest of the nation but has also had a historically strong demand for soybean production. Local market demand is needed to keep corn and soybean prices relatively balanced to each other.
Another challenge with the corn-soybean ratio is that it doesn’t consider cost of production. Corn historically requires a greater investment of inputs than soybeans. Fertilizer requirements for corn are often substantially higher, especially when nitrogen is a factor. Fertilizer prices are also historically higher in the spring than in the winter. It’s important to review fertilizer purchases to-date and compare against anticipated needs.
Part of your cost of production analysis should also include available cash. Does the farm have cash on-hand, access to potential cash (working capital), or financing for operating? Depending on your farm’s financial health, access to cash may be limited, which means while the markets might favor one crop, the farm’s pocketbook may decide another crop is a more friendly option.
To summarize, the corn-soybean ratio is a simple, but important calculation that can aid in the larger decision of planting intentions. Identifying the best numbers to use is an important first step in your decision-making process. Remember that local market prices where you’ll potentially sell grain often offer the best comparisons to determine crop demand. But don’t forget to consider your cost of production and available cash before deciding to shift acres between corn and soybeans. Combining these considerations with the corn-soybean ratio will lead you towards a strategy that helps maximize potential farm profits.
