Somewhere a farmer, or maybe several, has taken a big washer and written “corn” on one side and “beans” on the other. He has flipped it a time or two to help decide whether to plant corn or soybeans this year. While that would be a low cost decision aid, it may not give the best answer. There are other ways to think through the process, and we’ll do that today.

Every farmer this spring has been trying to work out the best revenue per acre, and because of fertilizer costs, unknown crop insurance costs and guarantees, and the uncertainty in the commodity market, the exercise has been a real challenge. Some farmers who regularly rotate corn and soybeans, or those who applied nitrogen in the fall, may already have had their decision made for them. But for those with a decision to make, ag economists Bruce Babcock and Lihong Lu McPhail at Iowa State University say a simple calculation can be used to aid your decision.

Writing in the Winter edition of the Iowa Ag Review they say the jump to 93.5 million acres of corn in 2007 came at the expense of soybeans, with all Cornbelt states except South Dakota planting more corn than beans. But the tide turned in 2008 with a near reversal of the trend and an increase of 11 million acres of beans and 7.5 million fewer acres of corn.

The economists say farmers must be induced to plant adequate corn acreage in 2009 to meet ethanol demand; and corn prices must rise relative to the price of beans. If it does not, then less 2009 corn will be planted following 2008 corn. Babcock says your decision is, “simply the difference in expected return this year from planting corn after corn versus corn after soybeans minus the forgone benefits of planting corn after soybeans the following year. Because these forgone benefits exist in the future, they need to be discounted to today’s dollars.” His calculation is graphed in the article, but he says most farmers don’t worry about the following year crop until harvest, and stop their analysis about May 20 when it becomes too late to plant corn.

The Iowa State economists say from 2001 to 2006 there was no incentive to plant corn after corn because the revenue from a corn-soybean rotation would always exceed that of a corn-corn rotation. However, they acknowledged that access to abundant hog manure might be an incentive. In January of 2007, the market switched to give a preference to a corn-corn rotation, but disappeared three months later. In early 2008, the incentives favored a corn-soybean rotation until early March, but the market feared an inadequate supply of corn and created the incentive to plant corn after corn.

For 2009, the economists say the incentives for a corn-soybean rotation began stronger than either 2007 or 2008, but following the January 12 USDA report the incentives for a corn-soybean rotation have strengthened, compared to a corn-corn rotation. They currently calculate a $100 per acre advantage for a corn-soybean rotation.

Based on those economics, Babcock and McPhail question whether corn acreage will exceed 80 million acres in 2009, which is what the current demand estimates require. They believe the corn market will begin strengthening relative to soybean prices before planting. They do not estimate whether corn prices will rise or soybean prices will weaken.

Summary:
Your 2009 cropping decision should be made on whether there are more revenue opportunities from a corn-soybean rotation or a corn-corn rotation. Based on daily market changes, those values can and have changed about this time of year, when the market senses that farmers will not plant enough of one crop to supply the demand. Currently, the preference is for a corn-soybean rotation to provide more revenue, but that may not provide enough corn to meet expected demand. While a shift could be spurred by rising corn prices, it could also be spurred by falling soybean prices.