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Corn or beans? New report helps producers decide

Agriculture.com Staff 04/10/2006 @ 2:13pm

Intentions of farmers to plant more soybeans and less corn in 2006 means that relative prices between corn and soybeans have changed, with the change favoring corn production, according to a University of Illinois Extension report.

"However, price risk is much larger for corn than for soybeans," said Gary Schnitkey, U of I Extension farm financial management specialist and author of the report. "At prices used in budgets, there is little lower price risk for soybeans as the projected price is near the loan rate. Revenue insurance changes the risk position, particularly if high coverage levels were chosen."

The full report, "2006 Planting Decisions Given the March Planting Intentions Report," can be read online at U of I Extension's farmdoc Website at http://www.farmdoc.uiuc.edu/manage/newsletters/fefo06_06/fefo06_06.html .

In its March report, the USDA projected U.S. corn acres in 2006 are expected to be 5 percent below 2005 levels while 2006 soybean acres are expected to be 6 percent above 2005 levels.

"Reduced corn acres increase the chance of higher corn prices at harvest while increased soybean acres increase the probability of lower soybean prices at harvest," said Schnitkey. "Revised price expectations may cause some farmers to revisit 2006 planting decisions, perhaps shifting some acres from soybeans to corn.

"Before making this switch, budgeting to compare crop profitability is a useful exercise. Consideration should be given to crop insurance payments as there is a fairly high probability that revenue insurance will make payments, particularly on soybeans."

The report contains model budgets that producers can use in gathering information for their own enterprise decisions.

"As always, much can happen between spring and fall as weather and market conditions change," Schnitkey said. "Profit expectations could change relative profitability of the crops.

"Crop insurance choice impacts downside price risk. Projected prices for both corn and soybeans are near levels that result in insurance payments if crop insurance was purchased at high coverage levels. In some cases, higher per acre revenue will occur from lower prices as lowering prices cause the combination of loan deficiency payments and crop insurance payments to increase more than reductions in crop revenue."

Intentions of farmers to plant more soybeans and less corn in 2006 means that relative prices between corn and soybeans have changed, with the change favoring corn production, according to a University of Illinois Extension report.

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