More corn in 2007?
Some Illinois farmers may find switching to more corn profitable in 2007, according to a recent University of Illinois Extension study.
"Given a $6 per bushel soybean price and soybean yields above 45 bushels per acre, breakeven corn prices range from slightly above $3 for relatively low corn yields to about $2.50 for relatively high corn yields," said Gary Schnitkey, U of I Extension farm financial management specialist who co-authored the study with Darrel Good, U of I Extension marketing specialist.
"Current 2007 price projections are in the $2.70 to $2.80 per bushel range for corn. Hence, some farmers may find switching to more corn profitable for the 2007 production year."
Schnitkey and Good examined a number of factors affecting the corn and soybean markets in the coming production year and calculating a breakeven corn price. Data used in the report came from local Illinois Farm Business Farm Management (FBFM) Associations across the state.
"Recent and planned construction of ethanol plants suggests the need for substantially more corn to meet the needs of those plants, livestock producers, other manufacturers, and foreign buyers," said Schnitkey. "For corn production to increase, farmers must plant more corn at the expense of other crops. In much of the Midwest, the tradeoff will come down to a choice between corn and soybeans.
"As a result, the profitability of corn must exceed that of soybeans to entice farmers to plant more corn. This enticement generally comes in the form of higher corn prices relative to soybean prices."
Schnitkey and Good calculated corn prices that make corn production more profitable than soybean production.
Many Midwestern farmers traditionally plant a 50-50 corn-soybean rotation in which corn is planted one year and soybeans the following year. For these farmers, planting more corn requires planting additional corn acres on farmland that was planted in corn the previous year. Hence, the additional corn decision often comes down to a comparison of corn-after-corn returns to soybean returns.
In their paper, "Corn and Soybean Prices for More Corn in 2007," Schnitkey and Good review the formulas they used to prepare the price projections. That report can be read online at U of I Extension's farmdoc web site.
Schnitkey noted a few qualifying points to the report's conclusion.
"Breakeven corn prices will vary as the cost changes," he said. "Each $5 increase in the cost difference causes the breakeven prices to increase by two to three cents per bushel. Breakeven corn prices are based on an expected corn yield that should -- in most cases -- reflect corn-after-corn production.
"Agronomic research indicates that corn-after-corn yields are 10 percent below that of corn-after-soybean production. Many farmers do not believe that corn-after-corn has a yield drag. Consideration should be given to yields used in calculating breakeven corn prices. Lower expected corn yields will increase breakeven corn prices."