Farmers can get help in determining how adding more corn in 2005 to their corn-soybean crop rotations will impact their enterprises. Methods for evaluating the economic impact of the move is contained in a University of Illinois Extension report, "The Economics of Adding More Corn to Corn-Soybean Rotations," available on farmdoc in the Farm Economics: Facts and Opinions section.
"Some farmers are considering adding more corn to their rotations in 2005," explains Gary Schnitkey, U of I Extension farm financial management specialist who co-authored the study with fellow Extension specialist Dale Lattz. "They are considering the move because corn has generally been more profitable than soybeans in recent years. And the recent introduction of soybean rust into the United States may also increase interest in adding corn to the rotation."
Schnitkey's report indicates that farms with relatively high yields and with high corn-soybean yield ratios may find adding more corn advantageous.
The report, located at http://www.farmdoc.uiuc.edu/manage/newsletters/fefo04_20/fefo04_20.html, includes a number of tables that can help producers make calculations based on their own enterprises.
"Our short-run analysis for high productivity farmland in central Illinois indicates that corn is the most profitable crop. Corn-after-corn has a return of $149 per acre, $5 higher than the soybean return," says Schnitkey. "But the short-run analysis does not consider the impacts of next year's rotations on the following year's returns. As a result, it does not indicate that planting more corn is profitable in the long run."
When long-run considerations are added, Schnitkey says a one-half corn/one-half soybeans rotation is the most profitable.
"Adding more corn to a one-half corn/one-half soybeans rotation often increases short-run returns and decreases long-run returns," he explains. "This presents farmers with a trade-off. This trade-off 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."
Schnitkey says the economic analysis done for the report indicates that, in general, farms with relatively high yields (above 165 bushels per acre for corn and above 45 bushels for soybeans) that have corn yields divided by soybean yields above 3.4 may find adding corn more advantageous.
However, even if a producer finds that both short-run and long-run analyses indicate adding more corn may increase returns, there may be reasons to pause.
"These considerations include risk, machinery costs, labor and price adjustments," he says.
"Corn returns have higher variability than soybean returns. Moreover, corn-after-corn has more yield variability than corn-after-soybeans. Adding corn-after-corn to a rotation will increase risk. Adding a significant amount of corn to a rotation may change equipment requirements which could change equipment costs."
Moving to significantly more corn will likely increase the producer's labor costs, particularly during harvest, thereby increasing labor costs, Schnitkey adds.
"Finally, 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," he says. "Any major supply response could change prices causing the one-half corn/one-half soybeans rotation to be more profitable."