USDA’s projected 2021 corn and soybean acreage report will be highly scrutinized. Let’s hope it’s not a repeat of last year, where the agency well overstated corn by 5-plus million acres, sending prices on a slow, steady trajectory lower.
This year’s decision of what to plant is unusual. For what seems like the first time in a long time, we have several profitable options to choose from.
In the last couple of years corn was the default choice. Corn prices lagged, similar to beans; however, if yield targets were not hit, we still had what felt like better support from crop insurance and government programs.
Soybeans less risky?
In discussions with brokers in our office, it was mentioned that the cost of planting soybeans was cheaper and therefore less risky financially. And if that is true, farmers (and bankers) will lean more towards planting soybeans. Is it better to invest $500 per acre for soybeans compared to $750 per acre for corn? At least that is how an ag lender might look at it.
I am not sure I buy that. I do believe conversations with ag lenders went a lot better this year than last year in general. I know mine was completely different. Last year’s conversation was about whether or not I was even worthy of a full line of credit. This year I was not only worthy, but was also pushed to utilize lines of credit for additional items, like equipment. “Are you sure you don’t need a new auger?” he asked. What a turnaround!
For a couple of reasons, I don’t see the actual cost between planting these crops having much of an impact on the decision of which crop we should plant. Many producers have benefited from strengthening balance sheets due to rising land values. In the case that a farmer had low operating capital, his or her rising equity was probably enough to appease said lender and satisfy the need for collateral. In Iowa, it might cost an additional $250 to plant corn. The average land value in Iowa will likely increase by that much or more in 2021 alone. Therefore, the equity will be there to pull from if necessary.
We learned the hard way this year, at least in Western Iowa, that corn-on-corn did not handle drought nearly as well as corn-on-beans. Farmers have been overly predisposed to planting more corn for some of the reasons I mentioned above. This led to farmers sacrificing rotation for more corn-on-corn.
You see this especially in areas with higher concentrations of livestock.
A proper crop rotation
With soybean prices back within the scope of profitability, there is strong incentive to get back to a proper rotation which will buy more soybean acres. This is very regional.
Many farmers have stuck with their rotation no matter what prices do. They have an agronomic long-term plan and they don’t want to change it to chase prices. You won’t see an acreage shift in these areas. You will see it in areas where there has been a gradual shift away from proper rotation, and it finally makes financial sense to go back.
In those regions where corn-on-corn will spring back to more rotation, they should also get a boost agronomically from all the corn-on-corn. Yield potential will have an impact between raising soybeans following one season of corn versus four seasons of corn as is the case on my farm.
If rainfall cooperates, this could provide an additional 10 bpa yield boost from that fact alone.
Profit margin quick look
I don’t see a huge difference in profit margins between the crops either. Consider that 200 bpa x $5 corn is $1,000. With a cost of production getting closer to $750 the potential net is $250. With rental rates expected to go up, it is probably more like $200. In the case of beans, 60 bpa x $12 = $720. With an expected cost of production at around $540, the potential income is $180. If I get a yield boost from planting soybeans after several years of corn, I could add another $100 in income.
I also look to the ending stocks for direction. While China’s corn consumption should send corn stocks lower, soybean stocks are already much lower by comparison. A large Brazilian crop and 90 million acres of beans in the U.S. don’t change that. However, we will eventually add enough acres some place in the world to bring ending stocks back up to benchmark levels.
It makes sense that it will take soybeans longer to do so as they are starting at historically low levels.