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Corn+Soybean Digest

Abandon Bean Acres?

Tales of bin-bulging corn crops and pint-sized soybean production were common across much of the Corn Belt this past fall.

With a dramatic difference in yield between the two crops in 2003, more than a few farmers have contemplated abandoning their traditional 50-50 corn-soybean rotations in favor of continuous corn. So says Gary Schnitkey, University of Illinois farm management specialist.

For many Midwestern farms, however, a big switch from soybeans to corn next year won't make economic sense. Schnitkey cites a report he authored, “Projected and Historical Crop Returns: Keep Soybeans in 2004,” as evidence. The complete report, which uses harvest-time futures contracts and five-year average yields to predict next year's crop returns, is on the University of Illinois' Web site at:

The study found that, for farms in northern Illinois, the most profitable crop returns for 2004 would result from splitting acreage equally between corn and soybeans. For farms in southern Illinois, soybeans would likely produce more profit than corn, and double-cropped wheat and soybeans would offer an “attractive alternative.” Swapping soybean acres for corn would pay its way only in central Illinois, and then the benefit might only be short term.

“The long-term returns for corn are more variable than they are for soybeans,” explains Schnitkey. “It would be very unusual for the same crop conditions that caused the dramatic yield differences between the two crops this year to repeat themselves again next year. That's why you should look at a five-year average.”

However, the tendency toward low soybean yields and high corn yields in 2003 might be more than a one-year phenomenon.

“The trend has been toward an increased gap between corn and soybean yields for several years, and that trend is happening all around the nation,” says Dale Hicks, University of Minnesota extension agronomist. “Soybean yields are down to about one-fourth of corn yields nationally, when normally they are about one-third. In Minnesota and Iowa, the ratio is even greater, about 4.5 to 1.”

More disease and insect pressure is likely fueling decreased soybean yields throughout the Midwest, says Hicks. White mold, soybean cyst nematodes and aphids are all taking an increased toll, while corn insects and diseases have remained fairly stable in the region.

As a result, Hicks sees no problem with more farmers moving away from their normal corn-soybean crop rotation and planting continuous corn, if price and yield considerations warrant it. However, he warns that farmers switching from soybeans to corn following corn typically experience a 15% yield reduction during the first year after the switch.

Farmers who plant more acreage to corn should also be prepared to spend more money on inputs, such as nitrogen and insecticides, and/or new seed technology that controls corn rootworms.

For farmers who want to plant biotech seed to rein in rootworm damage, costs would run between $40-50/bag more than planting conventional seed. That's between $22-25 more per acre.

Illinois' Schnitkey says farmers who decide to plant more corn this year should consider increasing their crop insurance coverage. Or they should think about using pre-harvest hedging to counter an increased risk in corn price and yield variability compared to soybeans. In fact, he adds, 2004 might not be the year to switch to more continuous corn acreage — even in central Illinois — if current soybean prices hold and corn prices drop.

USDA loan rates are also an important consideration when making decisions regarding which crops to plant in 2004, points out William Edwards, Iowa State University extension economist. As a result of the 2002 Farm Bill, the loan rate for soybeans has dropped 26¢/bu. (from $5.26 in previous years to $5). The loan rate for corn is nearly 10¢/bu. higher ($1.98 compared to $1.89) than before.

“The previous loan rate favored soybeans; this one favors corn,” says Edwards. “That in itself will likely move more acres to corn as farmers make decisions based both on production and financial risk.”

Although the national loan rate may favor corn, most soils in Iowa are more comparable to those in northern Illinois than in central Illinois, adds Edwards. Therefore, he says switching more acres to corn in Iowa probably won't result in increased profits in 2004 if Schnitkey's projections for Illinois also ring true for Iowa.

Nationally, the soybean carryover from 2002 is down considerably, and prices have stayed high due to poor U.S. production in 2003, making a switch to corn less economically appealing.

“Normally, we'd look at the soybean price compared to corn being about 2.3-2.5 times the price of soybeans,” says Edwards. “Right now, however, it's about 3-3½ times the price of corn. So, based on what the prices are at the moment, switching more acres to corn from soybeans in 2004 is probably not a good idea.”

However, if soybean prices take a dramatic downward turn during the next few cropping seasons, altering acreage from soybeans to corn might pay quite well, say Edwards and Schnitkey.

Both experts remind farmers that a large switch in acreage should be examined more from a long-term than a short-term perspective.

“Once you begin planting more corn after corn, you'll be committed to doing that for more than one year,” explains Schnitkey.

For more information on the economic considerations and various crop rotations, contact your local farm business farm management association.

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