U.S. farmers are leaning toward planting a lot more soybeans and a lot less corn for 2009, says Chad Hart, Iowa State University economist.
“Currently, soybeans are definitely the lower-input-cost crop compared to corn,” says Hart. “So, most farmers are looking at soybeans as the place to move their acreage this year.”
Also, due to significant corn acreage increases in the last two years, many farmers are looking to reestablish their crop rotation with soybeans for agronomic reasons. As a result, a significant switch back to beans will likely occur in 2009, he predicts.
“We went very strong into corn in 2007,” explains Hart. “At 93.6 million acres, that was the highest U.S. corn acreage since World War II.”
The U.S. stayed relatively strong in corn production during 2008, when farmers planted roughly 86 million acres, he adds. “However, in 2009, it looks like farmers are planning for a breakdown much closer to a 50-50 acreage allotment between corn and soybeans,” says Hart. “We could potentially see 80 million acres of soybeans and 80 million acres of corn in 2009. If that occurs, there is the potential for a lot of downside pressure on soybeans prices and upward pressure on corn.”
The most soybean acres ever planted in the U.S. was 75.9 million acres in 2008, notes Hart. If farmers plant 80 million acres to soybeans in 2009, it would be both another record crop and a big increase over last year.
“My advice is to continue to pencil out your return on investment for both corn and soybeans to find out which one is going to do the best for you on a per-acre basis,” says Hart. "Usually, but not always, it pencils out to be the lower-demanding input-cost crop, which would be soybeans right now."
Over the last 30 years, it’s been soybeans that have given Iowa corn and soybean growers their highest profits, points out Hart. “You will receive higher revenues for corn, but you also have higher costs, so profits have been less with corn over the years,” he explains. “People tend to get caught up looking at the revenue side, but the bottom line is your return on investment, which is your revenue minus costs. It’s that return on investment that allows you to stay in business for the next year.”
Farmers may have already locked in much of their acreage by prepaying for crop-production products. “A fair number of producers prebooked their seed and fertilizer inputs from mid-summer through October,” says Hart. “If you’ve prebooked inputs, especially fertilizer, the total cost of corn production, including labor in Iowa would be up around $4/bu. Total cost for soybean production would be close to $10/bu.”
The big deterrent to maintaining or increasing corn acreage in 2009 for many U.S. farmers is nitrogen (N) fertilizer costs, says Hart. “Prices have dropped globally for certain products, but we’re still seeing very high fertilizer prices, because the higher priced fertilizer is continuing to work its way through the system,” he says. “There is the possibility that prices might go lower prior to planting, but there is also the risk of a whiplash effect. If everyone holds off until spring to go into a fertilizer buying frenzy, we might see a short-term shortage and higher prices for N.”
There are some years (like 2006, 2007 and 2008) when input costs are relatively low and farmers can afford to swing for the home run on grain prices, says Hart. “Other years, like 2009, you just want to stay in the ballgame,” he adds. “In a year like 2009, you’ll want to grab any chance you can find to cover your costs rather than take a chance that corn or soybean prices will head higher and instead they go lower.”
Still, grain markets are just beginning their bidding war for 2009 corn and soybean acres, he points out. “There’s a lot of time before planting,” says Hart. “We’ll probably see some rebalancing of the corn-soybean price ratio that might tilt things back towards more corn. It looks like soybeans have won the initial round, but we still have several more rounds to go.”
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