Urbana, Illinois
December 6, 2004
Illinois farmers can get help in
determining how adding more corn in 2005 to their corn-soybean
crop rotations will impact their enterprises. Methods for
evaluating the economic impact of the move is contained in a
University of Illinois
Extension report, "The Economics of Adding More Corn to
Corn-Soybean Rotations," available on farmdoc in the Farm
Economics: Facts and Opinions section.
"Some farmers are considering adding more corn to their
rotations in 2005," explained Gary Schnitkey,
University of Illinois
Extension farm financial management specialist who co-authored
the study with fellow Extension specialist Dale Lattz. "They are
considering the move because corn has generally been more
profitable than soybeans in recent years. And the recent
introduction of soybean rust into the United States may also
increase interest in adding corn to the rotation."
Schnitkey's report indicates that farms with relatively high
yields and with high corn-soybean yield ratios may find adding
more corn advantageous.
The report, located at
http://www.farmdoc.uiuc.edu/manage/newsletters/fefo04_20/fefo04_20.html,
includes a number of tables that can help producers make
calculations based on their own enterprises.
"Our short-run analysis for high productivity farmland in
central Illinois indicates that corn is the most profitable
crop. Corn-after-corn has a return of $149 per acre, $5 higher
than the soybean return," said Schnitkey. "But the short-run
analysis does not consider the impacts of next year's rotations
on the following year's returns. As a result, it does not
indicate that planting more corn is profitable in the long run."
When long-run considerations are added, Schnitkey said a
one-half corn/one-half soybeans rotation is the most profitable.
"Adding more corn to a one-half corn/one-half soybeans rotation
often increases short-run returns and decreases long-run
returns," he explained. "This presents farmers with a trade-off.
This trade-off can be treated as a discounting problem in which
future returns are discounted to the present. In most cases,
long-run returns will outweigh short-run returns because
long-run returns are applicable to multiple years."
Schnitkey said the economic analysis done for the report
indicates that, in general, farms with relatively high yields
(above 165 bushels per acre for corn and above 45 bushels for
soybeans) that have corn yields divided by soybean yields above
3.4 may find adding corn more advantageous.
However, even if a producer finds that both short-run and
long-run analyses indicate adding more corn may increase
returns, there may be reasons to pause.
"These considerations include risk, machinery costs, labor and
price adjustments," he said.
"Corn returns have higher variability than soybean returns.
Moreover, corn-after-corn has more yield variability than
corn-after-soybeans. Adding corn-after-corn to a rotation will
increase risk. Adding a significant amount of corn to a rotation
may change equipment requirements which could change equipment
costs."
Moving to significantly more corn will likely increase the
producer's labor costs, particularly during harvest, thereby
increasing labor costs, Schnitkey added.
"Finally, a large switch in acres from soybeans to corn would
likely cause a price response, causing corn returns to be
lowered compared to soybean returns," he said. "Any major supply
response could change prices causing the one-half corn/one-half
soybeans rotation to be more profitable." |