farmgate: 2006 Cropping Decision: Follow the Money
Regardless of where you farm in the Cornbelt, you undoubtedly have given some thought to an adjustment in your typical cropping pattern for 2006. That decision may have already been locked in with fall application of nitrogen on fields destined for corn next year, but if you have some discretionary acreage, there are certainly some strong financial arguments for planting those to soybeans.
Illinois has had a rather stable acreage planted to either corn or soybeans, and for the past 9 years it has only varied 600,000 acres, or less than 3%. University of Illinois agricultural economist Dale Lattz reports his analysis of a study of Illinois farms points toward a potential reversal of the 8 year trend favoring corn acreage, “Since 1998, corn acres have increased in Illinois. In 1998, the ratio of corn-to-soybean acres was 1.00, meaning that there was one acre of corn for every acre of soybeans. The corn-to-soybean acre ratio was 1.03 in 2002, 1.07 in 2003, 1.17 in 2004, and 1.27 in 2005. Given constant total corn and soybean acres in Illinois, a 1.27 ratio means that for every corn acre that followed soybeans, there was .27 acres of corn-after-corn.”
The reason for the trend was profitability. Lattz says on the more productive soils in the northern and some parts of central Illinois, corn was much more profitable than soybeans, and farmers would load up their more productive soils with corn. On the lesser productive soils in southern and other parts of central Illinois, the profitability was much less pronounced. Lattz says, “From 2000 to 2004, the average returns difference was $33 for northern Illinois, $30 for central Illinois with high productivity farmland, $28 for central Illinois with low-productivity farmland, and $8 for southern Illinois.”
While corn yields exhibited some significant swings, soybeans had been a dependable crop with steady yields until 2002. But then 2003 soybean yields began diverging negatively from expected trends. Low 2003 yields were followed in the next year by the discovery of soybean rust in southern United States, increasing the probability that rust could occur in Illinois. Farmers throughout soybean production areas in the South and Midwest gave preferences to corn acreage in 2005, unless they were locked in by inputs applied in the fall of 2004.
In preparation for the 2006 crop, high oil prices that pushed up fertilizer prices and field preparation costs for corn, have created significant divergence in crop production prices, according to Lattz, “Recent cost increases have reduced corn returns more than soybean returns. On Illinois grain farms, variable costs for corn are projected to be $55 per acre higher in 2006 than in 2002. Variable costs for soybeans are projected to be $20 per acre higher in 2006 than in 2002.” These examples will parallel crop production costs in many Midwestern states, and not be limited to Illinois.
If production costs are going to be up, current market prices and trend line yields indicate that corn profitability will decline in 2006. And Lattz says that will impact corn more than soybeans. He says preliminary estimates show beans making $1 more than corn in on highly productive soils in northern Illinois and only $3 per acre more than beans on the better soils in Central Illinois. Soybeans will be $19 better than corn on the southern Illinois soils where fertility is lower. Lattz forecasts, “Corn-after-soybeans has a $116 projected operator and land return, soybeans has a $99 return, and corn-after-corn has a $75 return. These results indicate that corn-after-corn may not be as profitable as soybeans. Hence, some farmers may wish to shift corn-after-corn acres to soybeans.”
There are two agronomic issues that need to be considered before you make any change in your cropping plan, yield drag and soybean rust:
• Agronomic research consistently shows that corn-after-corn yields average about 10% lower than corn-after-soybean yields. Budgeting exercises should be conducted given projected cost increases. Given that the cost increases having been higher for corn, corn yields are going to have to be higher in 2006 for corn returns to exceed soybean returns.
• Planting more soybeans, however, may increase risks. Even though an outbreak did not occur in 2005, there is a potential for soybean rust in 2006. Many models of rust incidence suggest that outbreaks will not occur every year in Illinois. Hence, the fact that an outbreak did not occur in 2005 does not provide a great deal of evidence concerning the probability of an outbreak.
Summary:
If you have applied fall nitrogen or otherwise are locked into a specific corn-soybean mix, the issue may be moot. However, if you have cropping flexibility, there are some serious evaluations that Midwestern farm operators need to make to ensure profitability is as high as possible. That may include sacrificing corn acres for soybeans, based on production costs, market prices, and yield drag for corn following corn. While the furnace and computer are both warmed up, experiment with your crop budgets to create as much profitability as you can, even thinking outside of the box with your cropping mix.
Posted by Stu Ellis on December 5, 2005 10:36 PM to farmgate