November 30, 2004
THE ECONOMICS OF ADDING MORE CORN TO CORN-SOYBEAN ROTATIONS
Some farmers are considering adding more corn
to their rotations. This consideration likely arises because corn
has generally been more profitable than soybeans in recent years.
The recent introduction of soybean rust into the United States may
also increase interest in adding more corn to rotations.
This paper shows how to evaluate the economic advisability of adding
more corn to 1/2 corn - 1/2 soybeans rotations. The 1/2 corn - 1/2
soybeans rotation is chosen as the benchmark because many Illinois
farmers use this rotation. A budgeting approach that includes short-
and long-run components is detailed. Planting more corn may increase
returns in the first year and reduce returns in future years. Hence,
there is a need to look at both short- and long-runs. Then, other
economic considerations in adding corn are discussed.
Economic evaluation of adding more corn begins with budgets for
corn-after-soybeans, corn-after-corn, and soybeans. Both corn-after-soybeans
and corn-after-corn budgets are required because corn returns depend
on the previous crop.
Table 1 shows budgets for central Illinois farms having high productivity
farmland. The corn-after-soybeans and soybeans budgets are taken
from an Illinois Farm Economics: Facts and Opinions article entitled
"2004 Corn and Soybean Revenue and Cost Estimates". Budgets
represent projections based on averages for Farm Business Farm Management
(FBFM) grain farms located in central Illinois having high productivity
farmland. Most central Illinois farms plant about 50% of their acres
in corn and 50% in soybeans, suggesting that these budgets reliably
represent corn-after-soybeans and soybeans budgets.
The corn-after-corn budget is a modification of the corn-after-soybeans
budget. The corn-after-corn yield is 10% lower than the corn-after-soybeans
yield. Some farmers may argue that a 10% yield drag is too high.
Yield drags potentially vary from farm-to-farm; however, a great
deal of agronomic research suggests that 10% is a realistic loss
number (A later sensitivity analysis varies yield drag). The corn-after-corn
fertilizer cost is increased by $10 per acre to account for the
loss of the "soybean credit" in calculating nitrogen requirements.
This credit increases nitrogen needs for corn-after-corn compared
to corn-after-soybeans (see Illinois Agronomy Handbook). Overall,
the corn-after-corn budget has a $149 per acre return (i.e., revenue
less variable costs in Table 1), $48 per acre less than corn-after-soybeans.
Two caveats should be kept in mind when using the budgets in Table
1. First, the budgets represent averages. Yields and costs vary
considerably across farms. Hence farmers should use their own budgets
in conducting their analyses.
Second, these budgets include only variable costs.
Not included are fixed costs such as machinery depreciation. Machinery
depreciation will not change with small changes in crop rotations
but could vary with large modifications in rotations. For example,
shifting from a 1/2 corn - 1/2 soybeans rotation to a continuous
corn rotation for the entire farm may necessitate equipment changes.
If dramatic shifts in rotation are planned, changes in fixed costs
should also be included in the analysis.
Short- and Long-Run Return Analysis
The return analysis considers the 1/2 corn - 1/2 soybeans rotation
as a benchmark. The economic question addressed is whether moving
to a rotation with more corn results in higher returns. The analysis
is divided into short- and long-run components, followed by a sensitivity
Short-run returns: The short-run analysis considers returns for
the upcoming year. For farmland with soybeans as the proceeding
crop, returns in Table 1 indicate that corn is the most profitable
alternative. Corn-after-soybeans has a $197 per acre return compared
to $144 for soybeans. For farmland with corn as the preceding crop,
returns in Table 1 indicate that corn is the most profitable crop.
Corn-after-corn has a return of $149 per acre, $5 higher than the
soybeans return. The short-run analysis indicates that planting
corn is more profitable on all acres. Note, however, that the return
difference between corn-after-corn and soybeans is small.
The short-run analysis does not consider the impacts of next year's
rotations on the following year's returns. Hence, the short-run
analysis does not indicate that planting more corn is profitable
in the long-run.
Long-run returns: The long-run analysis evaluates returns after
the first year, assuming that the farm reaches a stable rotation.
Rotations change the amount planted to corn-after-soybeans, the
cropping sequence that usually has the highest returns. In the long-run,
a 1/2 corn - 1/2 soybeans has one-half of its return from corn-after-soybeans
and one-half from soybeans. A 2/3 corn - 1/3 soybean rotation has
one-third of its return from corn-after-soybeans, one-third from
corn-after-corn, and one-third from soybeans. The 2/3 corn - 1/3
soybean rotation has one-sixth less acres in corn-after-soybeans.
Table 2 shows per acre returns from three long-run rotations given
budgets in Table 1. The 1/2 corn - 1/2 soybeans rotation, with an
average return of $171, has higher returns than the 2/3 corn - 1/3
soybeans rotation ($163 per acre) and continuous corn ($149). The
long-run analysis suggests that the 1/2 corn - 1/2 soybeans rotation
is the most profitable rotation.
Three points need to be made about the long-run analysis. First,
the long-run analysis is based on budgets shown in Table 1. These
budgets represent projected 2005 conditions. In some cases, 2005
conditions may not represent long-run conditions. If this is the
case, prices and yields should be modified to more accurately reflect
Second, the continuous corn return in Table 2
assumes that the corn-after-corn budget in Table 1 is applicable
to all continuous corn situations. Specifically, it is assumed that
corn after one year of corn is the same as after two years and so
on. If corn yields depend on two or more preceding crops, the long-run
analysis becomes more complicated than that shown in Table 2.
Third, results in Table 2 indicate that 1/2 corn - 1/2 soybeans
rotation is the most profitable in the long-run. If corn-after-corn
returns have higher returns such that the analysis indicates that
more corn should be added to a 1/2 corn - 1/2 soybeans rotation,
the long-run analysis in Table 2 will indicate that continuous corn
is the most profitable rotation. In essence, the above analysis
indicates all or nothing. The 1/2 corn - 1/2 soybeans rotation is
most profitable when the corn-after-corn return is less than the
average of corn-after-soybeans and soybeans returns. Otherwise,
the continuous corn rotation is the most profitable rotation.
Short-run versus long-run considerations: Adding more corn to a
1/2 corn - 1/2 soybean rotation often increases short-run returns
and decrease long-run returns, presenting farmers with a tradeoff.
This tradeoff can be treated as a discounting problem in which future
returns are discounted to the present. In most cases, long-run returns
will outweigh short-run returns because long-run returns are applicable
to multiple years.
Sensitivity analysis: Long-run results depend on many factors.
Yield drag and soybean returns are of current interest. Some individuals
believe a 10% yield drag for corn-after-corn is too high. The recent
introduction of soybean rust into the United States may indicate
that soybean returns will decrease because yields may decrease and
applications of fungicide will be required.
A sensitivity analysis is presented in Table 3. This analysis shows
decreases in per acre soybean returns to break-even for different
percent yield reductions for corn-after-corn, given that all other
parameters are the same as in Table 1. If the corn-after-corn yield
drag is 10%, soybean returns can decrease by no more than $43 per
acre for the 1/2 corn - 1/2 soybean rotation to be economical in
the long-run. If soybean costs returns decrease by more than $43,
adding corn to a 1/2 corn - 1/2 soybeans rotation increases returns.
At a 10% yield drag, the soybean return decrease
is $43. The introduction of soybean rust may decrease soybean returns.
If soybean rust decreases returns by more that $43 per acre, either
through increases in costs or decreases in yields, then moving to
more corn increases long-run returns.
Lower corn-after-corn yield reductions cause the soybean return
decrease to become smaller. With a 4% corn-after-corn yield drag,
the soybean return decrease is a -$3 per acre. This indicates that
soybean returns have to increase by at least $3 per acre, otherwise
planting more corn is the more profitable alternative.
Budgets for Other Regions
Tables 1, 2, and 3 are reproduced in appendices for northern, central
Illinois with low productivity farmland, and southern Illinois categories.
Break-even soybean return decreases for a 10% yield drag for corn-after-corn
are $43 per acre for northern Illinois, $43 for central Illinois
with low productivity farmland, and $55 per acre for southern Illinois.
In general, characteristics of farms that will find switching to
more corn can be identified. Farms with relatively high yields (above
165 bushels per acre for corn and above 45 bushels for soybean)
who have corn yields divided by soybean yields above 3.4 may find
adding more corn advantageous.
In some cases both the short- and long-run analyses may indicate
that adding more corn increases returns. If this occurs, there are
still considerations that may warrant maintaining a 1/2 corn - 1/2
soybeans rotation. These considerations include risk, machinery
costs, labor and price adjustments.
Risk: Corn returns have higher variability than soybean returns.
Moreover, corn-after-corn has more yield variability than corn-after-soybeans.
Hence, adding corn-after-corn to a rotation will increase risks.
Machinery costs: Adding a significant amount of corn to a rotation
may change equipment requirements. The size of planting equipment
may have to be increased to plant all corn within the optimal planting
window. Also, planting more corn will slow harvest and may require
additional investment in harvesting equipment. Changing equipment
requirements could change equipment costs.
Moving totally to continuous corn could reduce other machinery
costs. Specialized soybean equipment such as soybean heads for combines,
grain drills, and split-row planters could be eliminated from the
machinery complement. Whether eliminating these items outweighs
any necessary equipment size increases is an open question.
Labor: Moving to significantly more corn likely will increase labor
requirements, particularly during harvest. Hence, labor costs could
Price adjustments: A large switch in acres from soybeans to corn
would likely cause a price response, causing corn returns to be
lowered compared to soybean returns. Hence, any major supply response
could change prices causing the 1/2 corn - 1/2 soybeans rotation
to be more profitable.
This paper presents a methodology for evaluating whether adding
more corn to a rotation is advisable. Analyses include short- and
long-run components. The long-run component is more difficult to
meet than the short-run component. Farms with relatively high yields
and with high corn-soybean yield ratios may find adding more corn
Issued by: Gary Schnitkey and Dale Lattz, Department of Agricultural
and Consumer Economics
Appendix 1: Tables 1, 2, and 3 for Northern
Appendix 2: Tables 1, 2, and 3 for Central
Illinois with Low Productivity Farmland.
Appendix 3: Tables 1, 2, and 3 for Southern