Corn still offers more profit potential, Illinois numbers show
The 800-pound gorilla in the room, as far as the 2008 crop year is concerned, is Monday's USDA planting intentions report. But, with a wet, cool spring so far in most of the major corn- and soybean-growing regions of the country, Mother Nature's doing her part to weigh in on the acreage dilemma.
It all makes for a tough decision. But, recent numbers released by University of Illinois agricultural economists Gary Schnitkey and Darrel Good may make the picture clearer. While there are many variable cost factors at play, the economists say soybeans may be winning the acreage battle to this point, but corn still nets the highest revenue per acre.
"Expected revenue for each crop equals expected yield times a new-crop bid price for fall delivery. Expected yields are based on historical yields from 1972 through 2007. Expected 2008 yields are found by projecting the trend-line forward into 2008," Schnitkey and Good said this week. "Given current cash bids for fall delivery, our analysis suggests that corn will be more profitable than soybeans in 2008 on many farms in Illinois."
In addition to expected yield, the economists say the conclusion is based on a price range of between $4.69 to $4.90 per bushel for corn and $10.61 to $11.06 per bushel for soybeans.
This scenario is fraught with variable costs, namely for fertilizer. Still, Schnitkey and Good say fertilizer costs, while considerably higher this spring than even last fall, have not yet jumped to the point where more profit potential lies in soybeans than in corn.
"Given the revised fertilizer prices, corn costs have increased relatively more than soybean costs. The difference in 2008 corn minus soybean costs is $149 per acre given fall prices and $162 given spring prices," they say, based on Illinois fertilizer price data. However, increases in costs do not cause soybeans to be more profitable than corn.
"The $700 anhydrous price used in the spring budgets may be below what some farmers had to pay for nitrogen. Even with higher anhydrous prices, corn will be projected to be more profitable than soybeans," Schnitkey and Good continue. "A $100 per ton increase in anhydrous ammonia price will increase nitrogen costs by $8.90 per acre, given that 170 pounds of actual nitrogen are applied per acre. An $8.90 increase in costs will reduce but not eliminate the returns advantage of corn."
All this taken into account, corn isn't the sure-fire winner when it comes to potential profit. A dramatic shift in market prices could push soybeans into greater profitability. Production practices -- namely continuous corn -- could cause a yield drag. "Any yield drag for corn-after-corn could narrow profits," the economists say.
Finally, required input costs could cause a shift in potential profitability. "Insect, disease or fungus problems could require pesticide treatments that could raise the costs of one of the crops," Schnitkey and Good write.
Ultimately, while recent numbers for the state of Illinois indicate corn can fetch a higher return under current conditions, this realization alone won't be enough to cause an acreage shift on its own.