Grain farmers all across the country are planning to profit from planting more corn acreage in 2007 than they did in 2006, and Trav Bratland expects to be one of them.
“Last year we grew wheat on about 15% of our acres and split our corn and soybean acres about equally on the rest,” says Bratland, who farms in east-central South Dakota, near Willow Lake. “In 2007, we'll be growing about 70% corn, 15% wheat and 15% soybeans, or about 32% more corn in '07 than in '06. We want to go towards 80% corn in the future to take advantage of all the ethanol plants coming online.”
According to a November online survey of The Corn And Soybean Digest (CSD) readers, nearly half (49%) of those who responded indicate they will plant more corn in 2007 than they did in 2006. Of those planning to increase their corn acreage this spring, nearly 80% also plan to decrease their soybean acreage.
Both economics and an increased demand for ethanol are driving the change. “It all comes down to profit margin,” explains Bratland. “At $3.25/bu. for corn, we'd be making about twice the profit we'd expect from soybeans. We think a $7/bu. cash price is about as much as we can expect for soybeans, unless there is a big disaster and South America doesn't raise many beans.”
Cash corn prices are more than double what they were a year ago, notes David Bau, a University of Minnesota (U of M) Extension educator in agricultural business management. “The cash price for corn at Worthington, MN, on Nov. 1, 2005, was $1.41/bu.,” he says. “The cash price for corn as of Dec. 5, 2006, was $3.32/bu., or $1.91 more. That's great news for grain farmers, but not for livestock farmers who need to purchase corn.”
The motivation to grow more corn will increase if prices continue to stay above $3/bu. or if soybean prices fail to increase, says Bau. “For soybeans in rotation with corn, a 48 bu./acre average yield at a $5.50/bu. price would result in a $15/acre net loss,” he says. “It's numbers like those that are going to motivate farmers to plant more corn than soybeans in 2007.”
Data from the CSD survey indicate that grain farmers like Bratland will also benefit from an increased demand in corn from local ethanol production plants. For example, 37% of survey respondents indicate they will sell corn to an ethanol plant in 2007, a 14% increase from 2006.
Bratland says that he sold corn on contract in 2006 to three different ethanol plants, but as of early December he hadn't contracted with any for 2007. “We're hoping to start marketing the new crop at $3.25, but the price isn't there yet,” he explains. “We're also working with a couple of elevators to potentially pick up and deliver our grain to an ethanol plant. That would help us save on our trucking and labor demands, plus they can get a better cash bid from the ethanol plants than I could as a producer. We're also considering selling corn for silage to a local dairy operator.”
Competition from ethanol plants is escalating corn prices in east-central Nebraska as well, according to Zach Suddarth, an accredited farm manager whose employer, Cornerstone Bank, headquartered in York, NE, works with about 90 different farm operators each year. “The local co-op is paying $3.15 for October/November delivery, and we could also forward contract to a new ethanol plant for July delivery,” he says. “Advanced BioEnergy, LLC, in Fairmont is paying about $3.80 (as of early December) for July 2007 delivery.”
Corn prices like that are hard to ignore, says Suddarth, whose bank clients raised about 14,000 acres of corn and 6,000 acres of soybeans in 2006. “Our corn acres are going to be increased about 25% over last year, but we won't be jumping out of rotations in all situations,” he says. “Where we have adequate water from irrigation, we'll grow all corn. Depending on water availability, we may be increasing corn acreage as much as 4,000 acres. This acreage will come out of soybeans.”
In addition to an ethanol plant set to open in Fairmont in July and one currently operating in York, “three more ethanol plants are rumored to be on their way,” says Suddarth. “These would be within a 20-mile radius of York. Currently there are large ethanol plants operating in Aurora and another in Columbus. So if demand from ethanol keeps prices up, we'll re-evaluate our corn rotations after this year.”
Long-term, it's not the bank's intent to increase continuous corn acreage, he adds. “The main goal is to place more money into our clients' pockets and still keep the land in good shape,” says Suddarth. “However, I've been working as a farmland manager since 1988 and we've only sold corn for $3-plus in the summer of 1995, so this kind of profit opportunity doesn't occur very often.”
Prices this year aren't likely to be typical, agrees Gary Schnitkey, a University of Illinois Extension farm financial specialist. In a normal year, he says, growing corn after corn is less profitable than growing soybeans after corn, except on the state's most productive farmland.
Yet, budgets developed with a $2.75/bu. corn price and a $6.25/bu. soybean price indicate that growing corn after corn will likely be more profitable than growing soybeans in 2007 for most farmers in central and northern Illinois, even on some low-productivity farmland, Schnitkey says. “With the prices we're seeing now, it just makes growing corn on corn even more attractive,” he adds. “We could reasonably be looking at $3.30-3.50/bu. corn price in 2007.”
In comparison, soybeans prices may reach as high as $6.50-6.75 in 2007, notes Schnitkey. “At $3 corn, soybeans on low-productivity soils in central Illinois have to exceed $7.32 to be more profitable than growing corn after corn,” he adds, “but current soybean prices (as of early December) are still far from that mark.”
The probability that corn prices will again drop below $3/bu. is fairly high based on the historical data, points out Bau. “For example, the cash prices in Worthington, MN, over the last five and 10 crop years have been $3/bu. or higher only 4% of the time,” he says, “and only 7% of the time over the last 25 years.”
Even with higher-than-average prices, few Corn Belt farmers will switch all their acreage to corn, but many will switch more acres to corn, predicts Schnitkey. Since corn and soybean production already represent about 90% of the total acreage used for agricultural production in Illinois, very few acres can be moved into corn except from soybeans, he says.
“Farmers will probably select their more productive fields to grow corn on corn, which makes economic sense, because you'll be giving up less soybean yield and gaining more corn yield from those fields,” says Schnitkey. “A 10% yield drop for corn grown after corn compared to corn grown after soybeans is consistent throughout the Corn Belt.”
Yield penalties associated with growing second-year corn range from 6-11% over nine locations, with a 9% average yield loss compared to growing corn after soybeans in land-grant university research conducted across the Corn Belt over the last three decades, says Roger Elmore, Iowa State University Extension corn specialist.
“A lot of people think there is no yield penalty associated with corn on corn, but that's just not the case,” he says. “Another misconception is that eventually the yield penalties will go away, but our studies show that to be untrue as well.”
For continuous corn, 24 sites across the Corn Belt show fewer yields compared to corn grown after soybeans, with an average 9% yield penalty and a range between 2-23%, adds Elmore. Only two sites had greater yield with continuous corn than with corn after soybeans.
A 10% yield drop would reduce yields 17 bu./acre on a field that normally yields 170 bu./acre when growing corn after soybeans, says Bau. “This represents a $42.50/acre loss in gross revenue due to yield loss, or a $17.50 loss in net profit for a corn on corn budget, if the corn price is $2.50/bu.,” he adds. “However, at a $3.25/bu. price, even corn after corn is projected to be profitable (at Worthington, MN) with an average yield of 150 bu./acre.”
However, farmers in some areas will still find it difficult to produce corn on corn profitably, points out Schnitkey. In fact, “the most profitable rotation for southern Illinois farmers remains corn, soybeans, wheat and double-crop soybeans,” he says. “In 2007, we'll also see more wheat acres grown in parts of Illinois due to the attractive prices being offered for that crop right now.”
Southern Illinois farmer Gene Luthy says he may grow more corn if prices stay high, but he agrees that local agronomic conditions favor growing more wheat than corn in his area. “I raised 40 acres of corn on corn in 2006, and it yielded less than first-year corn,” says Luthy, who farms southeast of St. Louis, near Marissa. “We don't grow that much corn here because the soil types don't favor it; they're too droughty. We're in more of a double-crop area.”
With no ethanol plants close by, local market conditions also favor growing wheat over corn in 2007, he adds. “There is a ConAgra wheat processing plant 25 miles away that gives us 40-60¢ more per bu. than the river terminals will,” he says. “So, we're expecting about a $4/bu. wheat price in 2007.”
By practicing intensive wheat management, Luthy says he's hoping for at least 70 bu./acre wheat yield in 2007. “If we hit 80 bu./acre, we might make $175/acre net profit, but you can't do that with corn or beans around here. With wheat and double-crop soybeans combined, we could gross about $500/acre.”
According to November's CSD survey, a little more than half (51%) of those who responded planned to keep corn acres the same or reduce them. Of those planning to maintain or reduce corn acreage in 2007, the most common reasons given (more than one reason could be given) were: crop rotations were needed to optimize production (66%), input costs were too high for corn (22%) and worries over disease/weed and insect control (11%). Other common reasons were: weather too dry, a loss in farm acreage, already have more acreage in corn than beans and a need for bean acres to spread out harvest.
Despite these misgivings, even farmers from traditionally non-Corn Belt areas also plan to grow more corn in 2007. One such person is Mississippi farmer James Newman. “If the corn stays over $3/bu., then yes, I'll grow more corn, but $3 is the cutoff point,” he says. “About 600 acres is the most corn I'll ever plant or it will conflict with getting my soybeans harvested on time.”
Any increased corn acreage will come from his soybean acres. “Corn on corn doesn't yield well here, so we don't plan on doing much of that,” says Newman, who farms at the southern end of the Mississippi Delta, near Rolling Fork. “I used to raise cotton, and some of that ground is well suited for corn.”
Although corn prices are well over $3/bu. (as of early December), Newman says he's concerned about the basis price. “Usually we start booking corn at a plus-6¢ basis, but right now the basis is at a minus 37¢,” he says. “We expect the basis to go higher at times, but not to start out that high.”
High input prices are also a concern with switching more acreage to corn. “If you get good yields, you can make a lot of money with cotton, but if you get bad yields, you can go broke a lot quicker with cotton than with soybeans,” says Newman. “It's the same way with corn.”
Yet, both fuel and nitrogen (N) costs could be lower in 2007 than 2006, says Schnitkey. “Lower N costs in particular can make corn production more profitable,” he says. “Overall, input costs will be lower this year than in 2006, but above 2003-2005 levels. However, there will be a big increase in hybrid costs — and interest costs aren't coming down any either.”
Last January, Indiana farmers paid about $550/ton for anhydrous ammonia, but “right now, it's closer to $450/ton” says Bob Nielsen, Purdue University Extension agronomist. “So, if you intend to grow more corn in 2007, it might be wise to lock in your N price now before an increase in demand raises the price if more farmers shift acres to corn.”
Locking in both prices and input costs for at least a portion of your acreage is probably a good idea, agrees U of M's Bau. “Those farmers who already locked in input costs in November and forward priced corn at over $3/acre are projected to do quite well in 2007,” he says. “My advice to every farmer is to look carefully at the budgets for the crops that you intend to grow in 2007 and make your acreage choices on what will provide the most profits.”
A recent online poll of subscribers to The Corn And Soybean Digest reveals that nearly half plan to plant more corn in 2007 than they did in 2006. Of those planning to increase their corn acres this spring, nearly 80% also plan to decrease their soybean acreage.
The survey results were compiled from 676 subscribers who responded to an online survey that The Corn And Soybean Digest sent out to a statistically significant number of subscribers in November of 2006. Survey responses came from subscribers in 40 states, with the majority responding from the top four corn-growing states of Iowa, Illinois, Nebraska and Minnesota.
However, the greatest interest in growing more corn in 2007 came from subscribers in two states that would rarely rank among the top 10 in U.S. corn production: North Dakota and Mississippi. Among respondents from North Dakota, 76% plan to grow more corn in 2007; among those from Mississippi, 71% plan to grow more corn. In comparison, less than half the respondents from Minnesota, Nebraska and Iowa plan to grow more corn in 2007 than they did in 2006.
The reason most often cited by survey respondents for planning to increase their corn acreage in 2007 is the expectation for increased profits from corn (78%). Other common reasons for growing more corn (respondents could provide multiple reasons) include higher expected corn yields (23%), hybrids available that are more drought-resistant (23%), better expected insect/weed control (11%), the result of normal crop rotations (10%) and contracting for corn ethanol (10%).
More than half of all survey respondents (52%) indicate that they farm within 50 miles of an ethanol plant, and almost one-fourth (23%) have previously sold corn to an ethanol plant. For 2007, 37% indicate that they will sell corn to an ethanol plant, and 43% indicate that two or more ethanol plants will be operational where they can market their corn.
Of the survey respondents who will be increasing their corn acres in 2007, more than three-quarters (77%) indicate that they will be planting at least some of their corn acres following corn. However, less than half (48%) of the producers who plan to grow more corn in 2007 also plan to grow more than 20% of their acreage to corn after corn.