March 24, 2008
CORN VERSUS SOYBEAN RETURNS IN 2008
How many acres of corn and soybeans will be planted this year is of great interest and could impact relative corn and soybean prices. Most projections indicate fewer corn acres and more soybean acres will be planted in 2008 as compared to 2007.
Relative profitability of corn and soybeans may impact acreage decisions. Given current cash bids for fall delivery, our analysis suggests that corn will be more profitable than soybeans in 2008 on many farms in Illinois. This analysis is conducted by calculating expected corn and soybean revenues for each Crop Reporting District in Illinois. Differences in corn and soybean revenue then are compared to differences in non-land production costs. Across all Districts, corn is projected to be more profitable than soybeans based on harvest bids as of March 20th .
Projected Corn and Soybean Revenue by Illinois Crop Reporting District
Table 1 shows projected corn revenue and soybean revenue for each Crop Reporting District in Illinois. Expected revenue for each crop equals expected yield times a new-crop bid price for fall delivery. Expected yields are based on historical yields from 1972 through 2007. Using this historical data, a trend-line is constructed for each Crop Reporting District. Expected 2008 yields are found by projecting the trend-line forward into 2008. For example, the Central District yield of 173 bushels is based on a trend-line indicating that yields increase an average of 1.9 bushels per year, resulting in a 2008 expected yield of 173 bushels per acre.
Prices are average overnight bids on March 20th for fall delivery of new crops as reported by the Illinois Department of Agriculture. These prices vary across the Districts. For corn, prices range from a low of $4.69 for the West Southwest District to a high of $4.90 per bushel for the Central District. For soybeans, prices range from $10.61 for the Southwest West District up to $11.06 for the Central District.
Expected revenues vary across the districts, primarily due to differences in expected yields. For corn, expected revenues range from a low of $631 for the Southwest District to a high of $848 per acre for the Central District. For soybeans, expected revenues range from a low of $389 per acre for the Southwest District to a high of $575 per acre for the Central District.
Corn minus soybean revenues are reported in the last column of Table 1. All corn minus soybean revenues exceed $230 per acre. The lowest difference is $230 per acre in the Southeast district. The largest difference is $277 in the West Southwest District.
Revenue Differences Compared to Cost Differences
If corn costs minus soybean costs are less than the above revenue differences, corn will be projected to be more profitable than soybeans. Table 2 shows corn and soybean budgets for Central Illinois farms with high-productivity farmland. Difference in corn and soybean costs for northern and southern Illinois are of similar magnitudes to those for central Illinois.
The first two columns show historic results for farms enrolled in Illinois Farm Business Farm Management (FBFM) averaged for the years 2001 through 2005. During this period, non-land costs averaged $257 per acre for corn and $171 for soybeans. Corn minus soybean costs equaled $86 per acre.
The middle columns show budgets for 2008 prepared in the fall of 2007 using commodity and fertilizer prices prevalent during the fall. In the fall, non-land production costs were projected at $364 for corn and $215 for soybeans, giving a $149 difference in corn and soybean costs. The $149 per acre difference in costs is higher than the $86 difference in costs between 2001 and 2005, but is less than the average differences in 2008 projected revenues across Crop Reporting Districts.
The 2008 budgets were revised to take into consideration fertilizer price increases. Revised budgets are shown in the last two columns of Table 2. The only difference in costs between the “fall” budgets and the “spring” budgets is a difference in fertilizer costs due to fertilizer price increases. All fertilizer prices were increased in the spring budgets. For example, a $580 per ton anhydrous ammonia price was used in fall budgets while a $700 per ton ammonia price was used in spring budgets. Budgets prepared in the spring have non-land costs of $389 per acre for corn and $227 per acre for soybeans, giving a difference in corn and soybean costs of $162 per acre.
Given the revised fertilizer prices, corn costs have increased relatively more than soybean costs. The difference in 2008 corn minus soybean costs is $149 per acre given fall prices and $162 given spring prices. However, increases in costs do not cause soybeans to be more profitable than corn. The smallest difference in corn and soybean revenue across Crop Reporting Districts is $230 per acre (see Table 1). Given the smallest revenue difference, corn is projected to be more profitable than soybeans by $69 per acre ($230 revenue difference - $162 cost difference).
The $700 anhydrous price used in the spring budgets may be below what some farmers had to pay for nitrogen. Even with higher anhydrous prices, corn will be projected to be more profitable than soybeans. A $100 per ton increase in anhydrous ammonia price will increase nitrogen costs by $8.90 per acre, given that 170 pounds of actual nitrogen are applied per acre. An $8.90 increase in costs will reduce but not eliminate the returns advantage of corn.
There are a number of factors that could change these calculations:
- Relative corn and soybean price change could cause profitability to switch.
- Relative yields could vary. In particular, any yield drag for corn-after-corn could narrow profits
- Insect, disease, or fungus problems could require pesticide treatments which could raise the costs of one of the crops.
Magnitude of differences in projected revenue of corn and soybeans across Crop Reporting Districts are large, suggesting that many farms will find corn production more profitable than soybean production. While Illinois farmers may shift acres from corn to soybeans in 2008, the relative profitability of the crops do not appear to be a reason for this acreage shift.
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 60 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 and Darrel Good, Department of Agricultural and Consumer Economics