All corn in 2007?
"Planting all corn in 2007 likely will be more profitable than planting soybeans on farms with high-productivity farmland," says University of Illinois Extension farm financial management specialist Gary Schnitkey. "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?"
"Differences in corn and soybean yields across farms will impact the advisability of planting all corn," he adds, according to a University of Illinois Extension release.
Schnitkey's study used Chicago Board of Trade (CBOT) futures contracts, adjusted by basis. These indicate that reasonable 2007 projected prices are $3.80 per bushel for corn and $8 per bushel for soybeans. These prices were used to project corn-after-corn and soybeans 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 bushels per acre, a soybean yield of 55 bushels per acre, and $25 per acre of direct payments," he says. "Total non-land costs are $338 per acre for corn and $249 per 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 per acre for corn and $249 per acre for soybeans.
"These returns are above average," Schnitkey says. "From 1995 through 2005, operator and farmland return averaged $182 per 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 per acre. Between 2001 and 2005, the difference in profitability between corn and soybeans averaged $20 per acre. Hence, the $89 per acre estimate is $66 above average."
Schnitkey says 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," Schnitkey says. "Holding all other factors constant, situations where soybean returns exceeded corn returns include: Soybean prices exceed $9.61 per bushel; soybean yields are above 66 bushels per acre; corn yields are below 146 bushes per acre; and corn prices are below $3.27 per bushel."
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.