High costs associated with fuel and nitrogen fertilizer and reduced soybean rust fears are driving U.S. growers to plant less corn and more soybeans this season.

“Everybody expected to see some acreage shift, in the range of about 2 million acres,” notes says Matt Roberts, with The Ohio State University's Department of Agricultural, Environmental, and Development Economics. “But what makes this so surprising is its size, roughly 4 million acres being switched from corn to soybeans.”

According to USDA's late-March prospective plantings report, U.S. growers intend to plant 78 million acres of corn. If realized, it will be the lowest corn acreage since 2001. Soybean producers intend to plant nearly 77 million acres, which will be the largest on record.

“What appears to be happening is a lot of farmers are very worried about high fuel costs and high fertilizer costs; and not just with nitrogen but with phosphorus and potassium as well, making corn less desirable,” says Roberts. “At the same time, concerns over soybean rust appear to be decreasing."

Overall, many farmers who switched to corn and away from soybeans last year see less of a soybean-rust threat and are moving back to soybeans.

The planting acreage shift is raising concerns in both corn and soybean markets. Despite the large corn inventories projected this summer-- more than 2 billion bushels– an additional 400 million to 500 million bushels of corn will be used for ethanol production than in the previous year. For the first time, ethanol production will pass exports as the second largest corn user. The feed industry is still the largest user.

“The question is what will increased ethanol demand do to overall corn prices and the production costs for livestock producers," asks Roberts. Fewer acres will mean fewer bushels and that will drive up corn prices. The market is already seeing corn prices move higher, some might say to entice more corn seed into the ground. Historically, corn prices for a new crop trade somewhere around $2.05 to $2.10 a bushel. But current prices are closer to $2.25 to $2.30.

Meanwhile, soybean prices appear to be overstated, says Roberts, and the switch from corn to soybean acreage could significantly weaken those prices in the coming months.

Ohio State University