November 22, 2004
FEFO 04-19
2005 CORN AND SOYBEAN REVENUE AND COST ESTIMATES
Forecasts of revenue less variable costs, hereafter
referred to as returns, for corn and soybeans are forecast for the
following four region and yield categories: 1) northern Illinois,
2) central Illinois with high productivity farmland, 3) central
Illinois with low productivity Illinois, and 4) southern Illinois.
Forecasts are compared to historical returns for Illinois Farm Business
Farm Management grain farms from 2000 to 2003 along with preliminary
estimates of 2004 returns. Returns are available from the Historical
Crop Costs tool available in the management section of farmdoc (http://www.farmdoc.uiuc.edu/manage/enterprise_cost/crop_revenue_less_variable_cost.html).
This Facts and Opinions article provides
a summary of the 2005 forecasts. General observations are first
made, followed by comments specific to the four region and yield
categories. Methodologies used in preparing forecasts then are outlined.
General Observations
General observations are:
1. Returns in 2005 are forecast to be considerably below 2003 and
2004 returns and are near 1998, 1999, and 2000 levels. In northern
Illinois, for example, the 2005 corn return is projected at $170
per acre, $67 lower than the 2004 return (see Table 1). Similarly,
2005 soybean return is forecast at $119 per acre, $46 less than
the 2004 return. Lower effective prices (market price plus loan
deficiency payments) and higher costs contribute to the 2005 return
decreases. In addition, five-year yields are used in the 2005 forecasts.
For corn, five-year average yields are lower than actual yields
in 2003 and 2004.
2. Costs are projected higher in 2005. Major increases occur in
fertilizer costs. For corn, variable costs are projected up by $6
and $9 per acre. For soybeans, variable costs are projected up by
$4 to $5 per acre.
3. Corn is forecasted to be more profitable than
soybeans. Corn returns are forecast to be $51 per acre higher than
soybean returns for Northern Illinois, $53 for central Illinois
with high productivity farmland, $49 per acre for central Illinois
with low productivity farmland, and $29 for southern Illinois. In
recent years, corn returns generally have been above soybean returns,
particularly in northern and central Illinois. Some farmers are
considering planting more corn and fewer soybeans as a means to
increase profits. Methods for evaluating the advisability of planting
more corn are covered in a forthcoming Illinois Farm Economics:
Facts and Opinions article entitled "The Economics of Adding
More Corn to Corn-Soybean Rotations."
Regional Estimates
Forecasts for northern Illinois are shown
in Table 1. Per acre yields are forecast at 166 bushels for corn
and 46 bushels for soybeans. Prices of $2.20 per bushel for corn
and $5.10 per bushel for soybeans are used to determine revenue.
Variable costs are forecast at $195 per acre for corn and $116 per
acre for soybeans. Revenue less variable costs equal $170 per acre
for corn and $119 per acre for soybeans. Corn has a $51 higher expected
return than soybeans.
Forecasts for central Illinois with high
productivity farmland are shown in Table 2. Per acre yields are
forecast at 173 bushels for corn and 49 bushels for soybeans. Prices
of $2.25 per bushel for corn and $5.20 per bushel for soybeans are
used to determine revenue. Variable costs are estimated at $192
per acre for corn and $111 per acre for soybeans. Revenue less variable
costs are forecast at $197 per acre for corn and $144 per acre for
soybeans. Corn has a $53 higher expected return than soybeans.
Forecasts for central Illinois with low
productivity farmland are shown in Table 3. Per acre yields are
forecast at 164 bushels for corn and 46 bushels per acre for soybeans.
Prices of $2.25 per bushel for corn and $5.20 per bushel for soybeans
are used to determine revenue. Variable costs are estimated at $193
per acre for corn and $112 per acre for soybeans. Revenue less variable
costs are forecast at $176 per acre for corn and $127 for soybeans.
Corn has a $49 higher expected return than soybeans.
Forecasts for southern Illinois are shown
in Table 4. The 2005 per acre yields are forecast at 139 bushels
for corn and 42 bushels for soybeans. Prices of $2.30 per bushel
for corn and $5.30 per bushel for soybeans are used to determine
revenue. Variable costs are estimated at $182 per acre for corn
and $114 per acre for soybeans. Revenue less variable costs are
forecast at $138 per acre for corn and $109 for soybeans. Corn has
a $29 higher expected return than soybeans.
Methodology
Forecasts of yields are based on averages of
yields for the previous five years (2000 through 2004). Per bushel
prices for corn and soybeans are projected based on futures prices
available from 2005 harvest-time Chicago Board of Trade commodity
contracts, minus usual differences between futures and cash prices.
Variable costs are projected based on estimates of production inputs
obtained during the fall of 2004. Return estimates only include
variable costs. Not included are fixed costs such as interest and
machinery depreciation.
As always, projections for next year's returns
may differ dramatically from actual results. Throughout the year,
return projections are updated and will be placed in the Historical
Crop Costs tool.
Soybean return estimates do not include additional
costs or lower yields because of the introduction of soybean rust.
As of this writing, it seems premature to include soybean rust costs
in projections because the probability and severity of soybean rust
are not known. Moreover, production estimates as a result of the
introduction of rust vary dramatically. A USDA study that compiled
research on soybean rust indicated that yields from rust-treated
acres may ranges from 9.5% lower to .9% higher than rust-free yields.
The USDA estimates used an average fungicide and application costs
of $19 per treatment, although this cost could vary dramatically.
The need for and the number of applications could vary depending
on the timing of the rust outbreak (U.S. Department of Agriculture
Economic and Policy Implications of Wind-Borne Entry of Asian
Soybean Rust into the United States. OCS-03D-02, April 2004,
available at http://www.ers.usda.gov/publications/OCS/Apr04/OCS04D02/OCS04D02.pdf.
Acknowledgments
The authors 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 Economics
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