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"Some farmers are considering adding
more corn to their rotations in 2005," explained Gary Schnitkey, U
of I 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 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 and 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."
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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."
[University
of Illinois news release]
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