Home / Markets / Markets Analysis / Switching acres from corn to soybeans is no clear-cut decision

Switching acres from corn to soybeans is no clear-cut decision

Agriculture.com Staff 02/21/2006 @ 9:44am

Whether or not a switch in acreage from corn to soybeans in 2006 is the right thing to do from a broad market perspective will depend upon the yields of corn and soybeans that materialize in 2006, the magnitude of production in the rest of the world, and the world demand for corn and soybeans, said a University of Illinois Extension marketing specialist.

"Current world production and demand prospects, however, seem to be relatively more favorable for corn than for soybeans," said Darrel Good in a weekly market outlook.

Good's comments came as he reviewed U.S. soybean acreage prospects in the coming growing season. There seems to be widespread agreement that U.S. producers will reduce corn acreage and increase soybean acreage in 2006.

A shift in that direction, however, seems to be contrary to the direction suggested by current and emerging market fundamentals. "One of the primarily reasons for expecting more soybean acreage and less corn acreage in the United States this year is the large increase in the direct costs of producing corn relative to the increase for soybeans experienced over the past few years," said Good. "The larger increase in costs has been driven primarily by high costs of nitrogen fertilizer."

Good said the higher cost for corn is expected to result in some switch to soybeans in areas where soybean yield potential is generally high relative to corn yield. Concerns about a dry growing season in 2006 might also motivate a more widespread increase in soybean acreage due to the perception that soybeans are more tolerant of dry growing conditions.

"A rebound in total acreage in those areas with prevented planting in 2005 may also contribute to an increase in soybean acreage, although spring wheat should compete well for that acreage," he said.

Domestically, there is a high likelihood of continued rapid expansion in the use of corn for ethanol production. That use is projected at 1.6 billion bushels this year, 277 million more than used last year and 432 million more than used two years ago.

"The year-over-year increase totaled 13 percent last year and is projected at 21 percent this year," he said. "Assuming a trend corn yield in 2006, the increase in corn used for ethanol during the 2006-07 marketing year may be equivalent to production from more than 2.5 million acres."

Domestic feed and residual use of corn during the 2006-07 marketing year will be supported by expanding beef, pork, and poultry production.

"A modest 2 percent increase in feed use would be 120 million bushels," said Good. "The potential increase in feed use of corn might be limited by increased production of by-product feeds from the ethanol industry. "Under the simplifying assumption that one-third of the corn used for ethanol is returned to the by-product feed market, and half of that substitutes for corn feeding, a 360 million bushel increase in corn used for ethanol, for example, would produce by-product feed to substitute for 60 million bushels of corn. Even if all of that by-product is fed domestically, the net increase of 60 million bushels of corn feeding is equivalent to about 400,000 acres."

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