U.S. farmers harvested 3 million more grain-corn acres than soybeans in 2005 for the first time since 1997, according to USDA National Agricultural Statistics Service data. However, higher input costs and lower futures prices for corn in 2006, compared to previous years, could persuade some farmers to switch more acreage back to beans, says Gary Schnitkey, University of Illinois (U of I) Extension farm financial management specialist.
“Soybean prices are projected to be between $5.85 and $5.90/acre in 2006, whereas corn is projected to be near $2.25/acre,” he says. “Those futures prices could cause soybeans to be more profitable than corn.”
In recent years, however, farmers in Illinois have been planting more acreage to corn than soybeans and could therefore switch acreage back to beans next season without having to grow soybeans after soybeans, notes Schnitkey. “There were 1.27 corn acres to every one soybean acre in Illinois in 2005, or 27% more corn acres than soybeans,” he points out. “Back in 1998, it was generally one for one.”
Although projected increases in corn ethanol production next year may help keep current acres in corn production, “overall it's still the price that matters most,” he says, “whether there is an ethanol plant nearby or not.”
Higher production costs for continuous corn compared to soybeans could add another reason for farmers to switch back to beans. “Variable costs for corn production in Illinois increased by $55/acre between 2002 and what's projected for 2006,” says Schnitkey. “Soybean costs are projected to be up only $20/acre.”
Soybeans will likely prove to be a more profitable crop than corn, when both its higher futures price and its lower projected production cost increases are considered, says Schnitkey. “The economic indicators do put more of an emphasis on planting soybeans here next season rather than corn,” he says. “We would say that corn after corn probably won't be as profitable as soybeans in 2006, but corn after soybeans will likely be roughly the same in profitability as raising soybeans.”
The two main culprits for in-creasing next season's corn production costs are higher energy prices and increased nitrogen (N) fertilizer prices, points out Schnitkey, who cites a study that he and fellow Extension specialist Dale Lattz recently co-authored. Their report, “Variable Cost Increases for Corn and Soybeans in Historical Perspective,” can be found at the U of I's farmdoc Web site at www.farmdoc.uiuc.edu.
In this study, Lattz and Schnitkey used Illinois Farm Business Farm Management (FBFM) record-keeping data to track increased production costs for both corn and soybeans in Illinois. “In percentage terms, cost increases are 33% for corn and 19% for soybeans over the four-year period,” notes Schnitkey. “Increases of this magnitude have not occurred in recent history and will cause reductions in farm profitability.”
The variable costs examined in the study included fertilizer, seed, pesticides, storage, drying and machinery-related expenses. Other variable costs, such as labor, overhead, farmland rent and depreciation were left unexamined in the study, however.
Although subject to change, most variable costs will likely remain high for corn production prior to planting next season, expects Schnitkey. “If variable costs do decline in the near future, it will likely be caused by a reduction in energy prices, leading to lower fertilizer and fuel prices,” he says. “However, at this point, energy prices do not appear likely to decline.”
N is the major difference in production costs between the two crops, agrees Dale Hicks, University of Minnesota Extension agronomist. However, insecticide and seed technology costs should also be considered, he adds.
“In some geographical areas, you'll need Bt corn for corn borers as well as for rootworm protection every year,” advises Hicks, “or you'll need to use an insecticide.”
Corn growers who witnessed considerable lodging and/or had high corn rootworm counts in corn fields that are ready to return to corn production in 2006 should consider applying an insecticide treatment at planting or plant a rootworm-resistant Bt corn, recommends Hicks.
“Corn rootworm may be a factor in some areas following soybeans and is clearly a factor to consider in corn following corn,” he points out. “So, you need to anticipate that problem and be ready to treat. Also, you can expect a 10-13% yield reduction when growing corn following corn vs. growing corn following soybeans.”
While it's important to accurately predict crop input costs and potential selling prices, farmers also need to be realistic when anticipating each crop's yield potential, says Hicks. For example, in Minnesota, farmers averaged 171 bu. corn in 2005 and 42 bu. soybeans. Those record yields are unlikely to repeat next year, he points out.
On the other hand, last year's yields do help to illustrate a continuing trend in favor of corn production, he adds. “In Minnesota, corn is now yielding four times more per acre than soybeans,” says Hicks. “Back in the 60s and 70s the yield ratio between the two crops was three to one.”
In fact, during the last 38 years, corn yields in Minnesota have been going up much faster than soybean yields, Hicks points out. “The gap is increasingly in favor of corn production, if you just look at it from a yield standpoint,” he says. “From an agronomic basis, corn is a more efficient crop that utilizes sunlight better than soybeans.”
Nationwide, farmers averaged 148.4 bu./acre in 2005 vs. 42.7 bu./acre for soybeans — about a 3.5 to one ratio in favor of corn production. However, in 2004 and 2003 the national average yields were closer to a four to one ratio in favor of corn production over soybeans.
“Soybean yields aren't keeping up with corn,” both nationally and in Minnesota, says Hicks, and that's something to think about prior to planting in 2006.
The decision on what crop to plant “boils down to what farmers think their selling price will be — at their cost of production, and what yields they can reasonably expect from each crop,” he says. “On the other hand, I think corn growers are beginning to think that these super corn yields are normal, and they might not be. After several successive good years, we may be due for a poor corn-growing season next time.”
Trouble with soybean cyst nematodes and other soybean pests may yet steer most Minnesota farmers away from switching acreage from corn into soybeans next season, says Hicks. “Before soybean cyst nematodes became a threat, I would have said there was no problem with growing continuous soybeans,” he explains. “However, especially if you have high soybean cyst nematode counts, it doesn't make sense to grow soybeans back to back.”
Nematodes are also a deterrent to expanding soybean acreage in Iowa, says Mike Duffy, Iowa State University Extension economist. “In most of the research I've seen, the corn/soybean rotation is preferred over continuous corn,” he says. “However, where soybean cyst nematodes cause reduced yields, the economics favor continuous corn, or two years of corn and one year of soybeans. I don't think we'd ever recommend continuous soybeans, since the more you plant beans, the more likely cyst nematodes will reach economic injury levels.”
Rather than simply switching acreage from corn to soybeans, Duffy advises farmers to try and find more ways to conserve energy to reduce costs. “During the late '70s energy crisis, what helped farmers most was conservation,” says Duffy. “Beneficial practices included insulating homes and farm shops, using alternative heat sources such as corn-burning stoves, reducing trips across the field, applying fertilizer at reasonable rates and using the proper power units for each implement, along with the proper tire inflation and clean filters. Having a crop rotation that includes alfalfa might also prove beneficial.”
Although next season may still prove profitable for both corn and soybean production, even the most optimistic grain farmer should plan for a little belt tightening ahead, says Schnitkey. “High crop revenue in 2006 — caused by high yields, high prices or some combination thereof — could cause 2006 to be a profitable year,” he concedes. “However, even if revenues in 2006 are as good as in 2003 and 2004, two exceptional years in terms of crop revenue, 2006 will not be as good as either of those years because of cost increases.”