Corn-after-corn production may be less profitable than soybean production in 2006, meaning the recent trend of increasing corn production may end, according to a University of Illinois (U of I) Extension study.
"Between 2000 and 2004, corn returns exceeded soybean returns in many areas of Illinois," says Gary Schnitkey, U of I Extension farm management specialist who co-authored the study with fellow Extension specialist Dale Lattz.
"Budgets suggest that recent cost increases have narrowed the gap between corn and soybean returns. Higher corn yields will be required in 2006 as compared to recent years for projected corn returns to exceed soybean returns. From a returns perspective, farmers may wish to plant soybeans on farmland that could be corn-after-corn in 2006."
However, Schnitkey adds, planting more soybeans may increase risks as soybean rust is a possibility.
The study, "Projected Returns for Corn and Soybeans in 2006," is available on farmdoc at: http://www.farmdoc.uiuc.edu/manage/newsletters/fefo05_22/fefo05_22.html.
Between 1997 and 2005, total corn and soybean acres in Illinois were relatively stable, with a low of 21 million acres in 1997 and a high of 21.6 million acres in 2005. Total acres devoted to corn and soybeans represent over 90 percent of the planted acres in the state.
"As a result, corn acre increases generally cause soybean acres decreases and vice versa," says Schnitkey.
Since 1998, corn acres have increased in Illinois. That year, the ratio of corn-to-soybean acres was 1.00, meaning that there was one acre of corn for every acre of soybeans. That ratio was 1.03 in 2002, 1.07 in 2003, 1.17 in 2004, and 1.27 in 2005.
"Given constant total corn and soybean acres in Illinois, a 1.27 ratio means that for every corn acre that followed soybeans, there was 0.27 acres of corn-after-corn," he says.
He notes that two factors can explain the shift to more corn acres from 1998 to 2005. First, corn has been more profitable than soybeans.
"The second factor likely causing a shift to more corn is an increase in the perceived risk of soybean production," he says. "Up to 2003, soybeans were often viewed as the 'safe' crop as yields didn’t exhibit as much variability as corn yields. In 2003, that perception began to change as soybean yields were considerably below trend-line yields on many farms.
"Low 2003 soybean yields were followed in the next year by the discovery of soybean rust in the southern United States, increasing the probability that rust could occur in Illinois."
Now, new factors have been added to the equation – recent cost increases have reduced corn returns more than soybean returns.
"On Illinois grain farms, variable costs for corn are projected to be $55/acre higher in 2006 than in 2002," says Schnitkey. "Variable costs for soybeans are projected to be $20/acre higher in 2006 than in 2002.
"On the other end, corn-after-soybeans has a $116 projected operator and land return per acre, soybean production has a projected $99 return, and corn-after-corn has a $75 projected return."
Schnitkey said that agronomic research has also indicated that corn-after-corn yields average about 10 percent lower than corn-after-soybean yields. "Many farmers, however, doubt that a yield drag exits," he notes.
Soybean production also carries risk. Even though an outbreak did not occur in 2005, there is a potential for soybean rust in 2006.
"Many models of rust incidence suggest that outbreaks will not occur every year in Illinois," says Schnitkey. "The fact that an outbreak did not occur in 2005 doesn’t provide a great deal of evidence concerning the probability of an outbreak."