Projections for 2008 by University of Illinois (U of I) Extension indicate that corn production will be more profitable than soybean production in northern and central Illinois but soybeans take the edge in southern Illinois.
Prepared by Gary Schnitkey, U of I Extension farm financial management specialist, the report, "Projected Corn and Soybean Returns in 2008" is available on Extension's farmdoc Web site. The complete report includes tables and references to sources available to aid farmers in making calculations.
"Significantly higher costs for corn production may cause some farmers to switch acres from corn to soybeans," says Schnitkey. "The purpose of the study was to project returns for 2008. Corn returns minus soybean return, hereafter referred to as corn-minus-soybean-returns, indicate that corn production may have higher returns than soybean production on high productivity farmland in 2008."
Schnitkey cautions that changes in commodity prices could change relative profitability. Returns will also vary across farms. The projected 2008 corn-minus-soybean-returns are roughly similar to averages observed from 2004 to 2007.
Corn-minus-soybean-returns were calculated for northern, central and southern Illinois. Central Illinois was further divided into high-productivity farmland and low-productivity farmland. Between 2004 and 2007, corn yields averaged 183 bu. for the central-Illinois farms with high productivity and 166 bu. for the low-productivity category farms.
Data for the study was taken from farms enrolled in the Illinois Farm Business Farm Management (FBFM) program. To be included in the study, a farm had to receive a majority of its income from grain operations.
"Returns for 2007 are not final and are based on yield, price and cost estimates," Schnitkey notes. "The 2007 results will become 'final' when FBFM records are summarized in 2008."
During the period studies, corn-minus-soybean-returns were lowest in 2005. That year, corn yields were below average while soybean yields were near average. Corn-minus-soybean-returns were highest in 2006. Both corn and soybean yields were above average in 2006 and prices increased substantially over historically average levels. In percentage terms, corn price increased more than soybean price in 2006.
Indications that corn may be more profitable in 2008 may lead some producers to plant corn after corn. Schnitkey recommends that producers consider four points in making such a decision.
"Commodity prices will determine the relative profitability of corn and soybeans," he says. "Recently, there has been a great deal of market volatility that impacts relative corn and soybean profits.
"Second, costs used to conduct this study are averages. Individual farms can vary from these averages. Farmers should use their own costs when analyzing cropping decisions. Third, costs in budgets are assumed constant as acres in respective crop changes. Planting more corn may necessitate equipment changes that could increase costs, for example."
Finally, he notes that planting decisions in 2008 can have profitability impacts in 2009.
"Due to yield drag and higher costs, corn-after-corn is projected to be less profitable than corn-after-soybeans. Planting more corn in 2008 could result in more corn-after-corn in 2009, thereby lowering yields," he says.