Changes in relative prices have caused corn and wheat to project higher relative returns in 2007 compared to soybeans, according to a recent University of Illinois Extension study.

"Some farms may wish to consider switching acreages away from soybeans and more into corn," said Gary Schnitkey, U of I Extension farm financial management specialist who prepared the study with Extension colleague Dale Lattz.

The study, "2007 Crop Budgets Indicate Higher Returns for Corn and Wheat," can be read online (http://www.farmdoc.uiuc.edu/manage/newsletters/fefo06_18/fefo06_18.html) on U of I Extension's farmdoc website.

Corn, soybeans, wheat, and double-crop soybean budgets for the 2007 cropping year are estimated in the study for northern, central, and southern Illinois.

"Prices used in the budget are $2.75 for corn, $6.25 for soybeans, and $3.75 for wheat," said Schnitkey. "All prices are significantly above historical averages. The projected corn price is 28 percent above the six-year average, the soybean price is 10 percent above the average, and the wheat price is 31 percent above the average."

Corn returns are projected higher than soybean returns, something that Schnitkey pointed out was not unusual, especially in northern and central Illinois.

"Summaries from Illinois Farm Business Farm Management (FBFM) indicate that per-acre corn returns exceeded per-acre soybean returns an average of $23 per year between 2005 and 2005 in northern Illinois and $16 an acre in central Illinois on high-productivity farmland," he said. "In southern Illinois, on the other hand, soybean returns averaged $10 per acre higher than corn returns.

"Unlike most years, corn-after-corn returns in 2007 are projected higher than soybean returns in northern and central Illinois while in southern Illinois, soybean returns are projected higher than corn-after-corn."

Because corn-after-corn returns exceed soybean returns, Schnitkey said, some farmers may switch acres from soybeans to corn production.

"A key factor in determining whether corn-after-corn returns exceed soybean returns are relative yields, which can vary from farm to farm," he noted.

Tables in the full report give examples of this.

"While switching to more corn may increase returns in 2007, returns in 2008 could suffer from the switch," he said. "Corn-after-soybean production generally is more profitable than corn-after-corn because corn-after-corn has higher production costs and lower yields than corn-after-soybeans.

"Hence, 2007 acreage decisions could impact 2008 returns."

Schnitkey also noted that the study's budgets have a 10-bushel yield reduction for corn-after-corn compared to corn-after-soybeans.

"Yield drags are controversial. Some farmers do not believe yield drags exist while agronomic research consistently shows that corn-after-corn has a 10 percent lower yield than corn-after-soybeans. Beliefs about yield drag impact return projections.

"In the current price environment, similar yields for corn-after-corn and corn-after-soybeans almost always result in corn being more profitable than soybeans. Moreover, having no yield drag eliminates the concern that 2007 acreage decisions will reduce 2008 returns."

The corn price used in the study's budgets is, he noted again, high.

"Projected prices can change between now and harvest, particularly if large acres shift to more corn," he said. "Hence, there are risks in making large acreage shifts."