"Planting all corn in 2007 likely will be more profitable than planting soybeans on farms with high-productivity farmland," says Gary Schnitkey, University of Illinois Extension farm financial management specialist. "Revenue insurance at high coverage levels can be used to lock-in profits, thereby reducing risks from planting all corn."
Schnitkey based the conclusion on his study, "Why Not All Corn?" (http://www.farmdoc.uiuc.edu/manage/newsletters/fefo07_03/fefo07_03.html) available on Extension's farmdoc website.
"Differences in corn and soybean yields across farms will impact the advisability of planting all corn."
Schnitkey's study used Chicago Board of Trade (CBOT) futures contracts, adjusted by basis. These indicate that reasonable 2007 projected prices are $3.80/bu. for corn and $8/bu. for soybeans. These prices were used to project corn-after-corn and soybean returns. Costs and yields were taken from U of I budgets for central Illinois, high-productivity farmland.
"These budgets have a corn-after-corn yield of 170 bu./acre, a soybean yield of 55 bu./acre and $25/acre of direct payments," he notes. "Total non-land costs are $338/acre for corn and $249/acre for soybeans. Costs include crop insurance premiums of $32 for corn and $18 for soybeans, representing the costs of a Crop Revenue Coverage (CRC) policy at an 85% coverage level."
Using these budgets, operator and farmland return is $338/acre for corn and $249/acre for soybeans.
"These returns are above average," Schnitkey says. "From 1995 through 2005, operator and farmland return averaged $182/acre across all crops. Hence, the corn-after-corn return is $156 above average and the soybean return is $67 above average.
"The difference between the corn and soybean returns also is very large. Corn return minus soybean return is $89/acre. Between 2001 and 2005, the difference in profitability between corn and soybeans averaged $20/acre. Hence, the $89/acre estimate is $66 above average."
Schnitkey noted that this $89 difference in profitability can have large impacts on profitability across farms planting various mixtures of corn and soybeans.
There are risks involved in opting for the all-corn strategy. "Planting all corn may result in lower returns than planting soybeans under certain price and yield scenarios," he says. "Scenarios that resulted in higher soybean prices were examined and can be reviewed in the report online.
"Holding all other factors constant, situations where soybean returns exceeded corn returns include: soybean prices exceed $9.61/bu.; soybean yields are above 66 bu./acre; corn yields are below 146 bu./acre; and corn prices are below $3.27/bu.”
Planting all corn also raises some operational concerns. "Planting will have to occur in a shorter time window and yield losses may occur if planting does not occur in this window," Schnitkey says. "Harvest may be more complicated. On many farms, harvesting corn is slower than harvesting soybeans. There is a possibility that planting more corn will complicate and lengthen the harvest season. In years with adverse weather, lengthening the harvest could result in yield losses.
"Production risks are increased. Since only one crop is planted, any production problems related to diseases or pests have a larger chance of impacting all acres."
Schnitkey adds that there also may be concerns with the all-corn strategy in future years. Planting all corn in 2007 means that there will be no possibility of rotating corn onto land that was previously planted to soybeans in 2008.
"Generally, corn after soybeans is more profitable than corn after corn," he says. "The decision to plant all corn in 2007 could lower profits in 2008."
A Microsoft Excel spreadsheet entitled "Corn-Soybean Rotation Tool" is available in the FAST section (http://www.farmdoc.uiuc.edu/pubs/FASTtool.asp?category=farm) of farmdoc, he notes.
"An individual can use this spreadsheet to evaluate the profitability of specific situations," he says.