NOVEMBER 7, 2003
PROJECTED AND HISTORICAL CROP RETURNS: KEEP SOYBEANS IN 2004
Recently the wisdom of growing
soybeans in Illinois has been questioned. In 2003, many Illinois
farms experienced above average corn yields and below average soybean
yields, leading to much higher returns for corn than for soybeans.
In the long-run, soybean prices may decline relative to corn prices
because of increased soybean production in South America. In September
2002, we suggested that planning prices for 2003 harvest-time supported
planting more corn and wheat and less soybeans (see "Crop Rotations
in 2003: More Corn and Wheat". Illinois Farm Economics: Facts and
Opinions. September 23, 2002).
While long-run conditions may
favor growing more corn and fewer soybeans in Illinois, planning
prices for 2004 harvest-time do not suggest shifting more acres
to corn, particularly for northern and southern Illinois. This conclusion
is reached based on five-year average yields and prices of $2.25
per bu. for corn and $5.70 for soybeans. Moreover, a switch to more
corn may increase return variability. Hence, shifting to more corn
may increase risk.
Crop Revenue less Variable Costs
These issues are examined for
northern, central and southern Illinois by calculating crop revenue
less variable costs (CRLVC) for corn, soybeans, and wheat. CRLVCs
are used in comparisons because this returns measure includes all
major items that may vary with differences in plantings to crops.
Crop revenue equals yield times effective price, where the effective
price is the market price plus loan deficiency payments. Variable
costs include fertilizer; seed; pesticides; drying and storage;
and machinery repair, fuel, and hire.
Historical CRLVCs are reported
for 1990 through 2003. For corn and soybeans, CRLVCs are calculated
using data from Illinois Farm Business Farm Management (FBFM) records.
CRLVCs for 2003 are preliminary as not all data necessary to calculate
these figures have been processed by FBFM. Estimates for 2003 are
based on U.S.D.A. yield estimates, along with University of Illinois
price estimates of $2.25, $7.00, and $3.40 per bu for corn, soybeans,
and wheat. A more detailed breakdown of historical CRLVCs is available
in a Microsoft Excel spreadsheet that can be downloaded from farmdoc
For wheat, CRLVCs are calculated using costs in University of Illinois
budgets, yields reported by the National Agricultural Statistical
Service, and prices reported by the U.S. Department of Agriculture.
Projections for 2004 also are
given. These projections are based on five-year average yields and
commodity prices of $2.25 for corn, $5.70 for soybeans, and $3.40
for wheat. These prices are determined by subtracting basis from
prices for Chicago Board of Trade futures contracts (December 2004
contract for corn, November 2004 contract for soybeans, and July
2004 contract for wheat). Projected budgets for corn and soybeans
are available at farmdoc
CRLVCs are reported for corn, soybeans, and wheat. Given that corn
usually is preceded by soybeans on most Illinois farms, the historical
"corn" series reported in the following sections most
closely represents a "corn following soybeans" situation.
A corn following corn budget also is used to calculate returns from
different rotations by making two adjustements to the corn series:
1) corn yields are reduced by 10 bu. and 2) variable costs are increased
by $5 per acre.
Also reported are CRLVCs for two rotations in each region. For
northern and central Illinois, the rotations are ½ corn -
½ soybeans and 2/3 corn - 1/3 soybeans. CRLVCs for the ½
corn - ½ soybeans rotation are the average of corn and soybeans
CRLVCs. CRLVCs for the 2/3 corn - 1/3 soybeans rotation is the average
of "corn following soybean", "corn following corn",
and soybeans. For southern Illinois, CRLVCs are given for a ½
corn - ½ soybeans rotation and a corn - soybeans - wheat
rotation. CRLVCs for the corn - soybeans - wheat rotation equal
the average of the CRLVCs for corn, soybeans, and wheat.
Yields for 2003 are estimated
at 167 bu for corn, 37 bu for soybeans, and 72 bu for wheat (see
Table 1). In 2003, corn yields are much higher than average, soybean
yields are below average, and wheat yields are above average. The
2003 wheat yield is the highest yield of all yields between 1990
CRLVCs in 2003 are $193 per acre for corn, $147 per acre for soybeans,
and $165 per acre for wheat (see Table 1). In 2003, corn's CRLVC
is $46 per acre higher than soybean's CRLVC. Corn's CRLVC exceeded
soybeans' CRLVC by a larger amount only in one year: $136 in 1996.
In 2003, wheat's CRLVC exceeded soybean's CRLVC. Wheat's CRLVCs
exceeded corn or soybeans' CRLVCs in only two years: 1995 and 2003.
Overall, relative CRLVCs in 2003 differ from historical averages between
1990 through 2003. Between 1990 and 2003, the average corn CRLVC ($193 per acre) is only slightly higher than
the average soybean CRLVC ($186 per acre). During the same period, average wheat CRLVC ($105 per acre) is significantly
below CRLVCs for corn and soybeans.
Projections for 2004 place corn's CRLVC at $175, soybeans' at $162,
and wheat's at $141 (see Table 1). The above CRLVC for corn is based
on corn following soybeans. The CRLVC for corn following corn is
$148. These CRLVCs suggest that soybeans are more profitable than
corn following corn. As a result, the projected CRLVC for the 1/2
corn - 1/2 soybeans rotation ($169 per acre) is higher than the
CRLVC for the 2/3 corn - 1/3 soybeans rotation ($162 per acre) (see
Between 1990 and 2003, the 1/2
corn - 1/2 soybeans rotation averaged $190 CRLVC, $9 more than the
$181 per acre returns for the 2/3 corn - 1/3 soybeans rotation (see
Table 1). From a historical return context, the 1/2 corn - 1/2 soybeans
rotation has less variability in returns than the 2/3 corn - 1/3
soybean rotation. Between 1990 and 2003, the range from the lowest
to highest return is $134 per acre for the 1/2 corn - 1/2 soybeans
rotation compared to $158 per acre for the 2/3 corn - 1/3 soybeans
rotation. This suggests that adding more corn to the rotation increases
Estimated yields for 2003 are
190 bu for corn, 38 bu for soybeans, and 72 bu for wheat (see Table
2). Both the corn and wheat yields are record-setting highs. The
soybean yield is below average.
Corn's CRLVC for 2003 ($252 per
acre) is considerably higher than soybean's CRLVC ($158 per acre).
The $94 difference between the corn and soybean CRLVC is exceeded
only once between 1990 and 2003 ($121 per acre in 1996). In 2003,
wheat's CRLVC ($165 per acre) exceeded soybeans' CRLVC. This is
the only year between 1990 and 2003 when wheat's CRLVCs exceeded
CRLVCs for corn or soybeans.
Projected 2004 CRLVCs suggest that corn will
be more profitable than soybeans or wheat. Corn's projected CRLVC
for 2004 is $205 per acre compared to $162 per acre for soybeans
(see Table 2). Wheat's CRLVC is $135 per acre. The $205 CRLVC for
corn is based on the preceding crop being soybeans. The estimated
CRLVC for corn following corn is $177. This suggests that planting
more corn in central Illinois may be more profitable than planting
In the long-run, however, planting more corn after corn may not be advisable.
Planting more corn after corn means that in the following year less corn after soybeans will be planted, causing
a lower corn after corn CRLVC ($177 per acre) to be substituted for a higher corn following soybeans CRLVC ($205
per acre) on some of the acres. As a result, rotational CRLVCs depend on the percentage of plantings in the
preceding year. For example, a 2/3 corn - 1/3 soybeans split is planted in a year following a ½ corn
- ½ soybeans split, the estimated CRLVC for the split is $186 per acre ($205 corn following soybeans
CRLVC x ½ the acres + $162 soybean CRLVC x 1/3 of the acres + $177 corn following corn CRLVC x 1/6 of
the acres). A 2/3 corn - 1/3 soybeans CRLVC is lower if the preceding crop is divided 2/3 corn - 1/3 soybeans.
In this case the CRLVC is $181 per acre ($205 corn following soybeans CRLVC x 1/3 the acres + $162 soybean CRLVC
x 1/3 the acres + $177 corn following corn CRLVC x 1/3 the acres).
The CRLVCs for the rotations in the tables are based on the long-run
rotations in that the preceding year's crop is divided the same
as the current year's crop. For central Illinois, the projected
2004 CRLVC for 2/3 corn - 1/3 soybeans ($181 per acre) is below
the CRLVC for ½ corn and ½ soybeans ($183 per acre).
This occurs even though the projected CRLVC for corn following corn
is above the CRLVC for soybeans because the rotation includes less
corn following soybeans.
Between 1990 and 2003, the ½ corn - ½ soybeans rotation
has had less variability than the 2/3 corn - 1/3 soybeans rotation.
The range in CRLVC between 1990 through 2003 is $154 per acre for
the ½ corn - ½ soybeans rotation compared to $173
per acre for the 2/3 corn - 1/3 soybeans rotation. This suggests
that increasing the percentage of corn in the rotation increases
Estimated yields for 2003 are 128 bu for corn, 42 bu for soybeans,
and 62 bu. for wheat (see Table 3). In 2003, corn and soybean yields
are close to the five-year averages. Wheat yield in 2003 is the
highest of all yields between 1990 and 2003.
In 2003, CRLVCs are highest for soybeans ($180 per acre) followed
by wheat ($131 per acre) followed by corn ($113 per acre). Between
1990 and 2003, soybeans averaged the highest CRLVC ($144 per acre)
followed by corn ($140 per acre) followed by wheat ($81 per acre)
Projections for 2004 again place soybeans as the most profitable
crop in southern Illinois. The 2004 CRLVC projections have soybeans
at $117 per acre, followed by corn at $103 per acre, followed by
wheat at $96 per acre. The wheat CRLVC does not include a return
for double-crop soybeans. Inclusion of double-crop soybeans causes
wheat to look more attractive as a cropping alternative.
A comparison of a ½ corn - ½ soybeans rotation to
a corn - soybeans - wheat rotation is given in Table 3. Projections
for 2004 CRLVC indicate that the ½ corn - ½ soybeans
rotation ($110 per acre) is likely to be slightly more profitable
than the corn - soybeans - wheat rotation ($105 per acre). Again,
however, wheat does not include a return for double-crop soybeans
that may follow wheat.
Over time, the ½ corn - ½ soybeans rotation has exhibited
more variability in returns than the corn - soybeans - wheat rotation.
The range from the lowest to highest CRLVC for the ½ corn
- ½ soybeans is $129 per acre compared to $98 per acre for
the corn - soybeans - wheat rotation (see Table 3). This suggests
that adding wheat to the rotation reduces risk.
Projected returns from corn, soybeans, and wheat for northern, central,
and southern Illinois do not suggest large shifts away from soybeans
to corn. For northern Illinois, a ½ corn - ½ soybeans
rotation is projected to be the most profitable. For central Illinois,
planting corn following corn may increase profits; however, there
may be long-run reductions in returns due to increasing the percentage
of corn in the rotation. For southern Illinois, soybeans are projected
to more profitable than corn and wheat with double-crop soybeans is
an attractive alternative. The above projections are based on five-year
average yields and prices indicated by harvest-time futures contracts.
Changes in either relative yields or relative prices will change the
relative returns of the above crops.
Including higher percentages of corn in a rotation is likely to
increase the variability of returns. If more corn is included in
the rotation, it would be prudent to consider countering this increase
in risk by increasing crop insurance coverage or by increasing use
of preharvest hedging.
The author would like to acknowledge
that data used in this study comes from the local Farm Business
Farm Management (FBFM) Associations across the State of Illinois.
Without their cooperation, information as comprehensive and accurate
as this would not be available for educational purposes. FBFM, which
consists of 6,000 plus farmers and 62 professional field staff,
is a not-for-profit organization available to all farm operators
in Illinois. FBFM field staff provides on-farm counsel with computerized
recordkeeping, farm financial management, business entity planning
and income tax management. For more information, please contact
the State FBFM Office located at the University of Illinois Department
of Agricultural and Consumer Economics at 217-333-5511 or visit
the FBFM website at www.fbfm.org.
Issued by: Gary
Schnitkey, Department of Agricultural and Consumer