|
"Given a $6-per-bushel soybean price and soybean yields above 45
bushels per acre, break-even corn prices range from slightly
above $3 for relatively low corn yields to about $2.50 for
relatively high corn yields," said Gary Schnitkey, U of I
Extension farm financial management specialist who co-authored
the study with Darrel Good, U of I Extension marketing
specialist. "Current 2007 price projections are in the
$2.70-to-$2.80-per-bushel range for corn. Hence, some farmers
may find switching to more corn profitable for the 2007
production year."
Schnitkey and Good examined a number of factors affecting the
corn and soybean markets in the coming production year and
calculation of a break-even corn price. Data used in the report
came from local Illinois Farm Business Farm Management
associations across the state.
"Recent and planned construction of ethanol plants suggests
the need for substantially more corn to meet the needs of those
plants, livestock producers, other manufacturers and foreign
buyers," said Schnitkey. "For corn production to increase,
farmers must plant more corn at the expense of other crops. In
much of the Midwest, the trade-off will come down to a choice
between corn and soybeans.
"As a result, the profitability of corn must exceed that of
soybeans to entice farmers to plant more corn. This enticement
generally comes in the form of higher corn prices relative to
soybean prices."
Schnitkey and Good calculated corn prices that make corn
production more profitable than soybean production.
Many Midwestern farmers traditionally plant a 50-50
corn-soybean rotation in which corn is planted one year and
soybeans the following year. For these farmers, planting more
corn requires planting additional corn acres on farmland that
was planted in corn the previous year. Hence, the additional
corn decision often comes down to a comparison of
corn-after-corn returns to soybean returns.
[to top of second column] |
 In their paper, "Corn and Soybean Prices for More Corn in 2007,"
Schnitkey and Good review the formulas they used to prepare the
price projections. That report is available online at
http://www.farmdoc.uiuc.edu/manage/
newsletters/fefo06_14/fefo06_14.html.
Schnitkey noted a few qualifying points to the report's
conclusion.
"Break-even corn prices will vary as the cost changes," he said.
"Each $5 increase in the cost difference causes the break-even
prices to increase by 2 to 3 cents per bushel. Break-even corn
prices are based on an expected corn yield that should -- in most
cases -- reflect corn-after-corn production.
"Agronomic research indicates that corn-after-corn yields are 10
percent below that of corn-after-soybean production. Many farmers do
not believe that corn-after-corn has a yield drag. Consideration
should be given to yields used in calculating break-even corn
prices. Lower expected corn yields will increase break-even corn
prices."
Schnitkey also noted that corn production traditionally has been
more risky than soybeans.
"Yields from corn-after-corn production are more variable than
yields from corn-after-soybean production," he said. "Switching to
more corn increases revenue risks. Calculation of break-even prices
does not consider risks."
[University
of Illinois Extension news release]
 |
