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Corn+Soybean Digest

Long-Term Profits May Favor Soybeans


Despite skyrocketing land costs that steer some farmers toward more corn acres than soybeans in 2012, soybeans may be the more profitable crop for the long-term, says Chad Hart, Iowa State University agricultural economist.

"Right now, the market offers farmers a better return and a better chance to cover some very high land rental rates if they grow corn rather than soybeans," Hart says. "Lately, we've seen examples of rental rates in Iowa going from $300/acre to $400, $500 or $600/acre – I've even seen a $700/acre land rental rate."

As land costs escalate, farmers need to look closely at the potential return on investment that these acres hold, he advises. "If you take a $5.50/bu. price for corn, based on recent futures prices, and multiply that by an average Iowa yield of 170 bu./acre, you get $935/acre in possible revenue (not including expenses). For soybeans, at a $12/bu. average futures price and a 50 bu./acre average Iowa yield, you get $600/acre in possible revenue."

Based on those numbers, the short-term profitability significantly favors planting more corn than soybean acres, Hart points out. "Currently, there's about a $350/acre difference in possible revenue generated by growing corn rather than soybeans in Iowa. Of course, it costs more to grow corn than soybeans, but not $350/acre more."

Still, the market may be rewarding farmers who have more soybeans on hand to sell than corn within the next year or two. "Looking longer-term, beans might be the more profitable crop," he says.

In 2012, corn is going to see a significant increase in acreage, Hart explains. "U.S. farmers may be planting as many as 94 million corn acres this year. At trend-line yields, that could very well amount to a 14-billion-bushel corn crop. However, the highest-ever demand for a U.S. corn crop has only been 13 billion bushels. So, there's a pretty big potential for stocks to start building in corn, and when you start building stocks, it puts a cap on prices."

In comparison, soybeans acres aren't likely going to increase over last year's level, and stocks aren't likely to build. "U.S. production will probably be in the 3.3 billion-bushel range for 2012, but demand has been well within that range before," he says. "As a result, soybeans could stay in a much tighter market, with a greater potential for an increase in prices than corn."

With China recently signing sizable purchase agreements for U.S. soybeans, and an outlook for a smaller soybean crop in South America, there are some positive developments occurring for future U.S. soybean exports and prices, he notes. "Many crop planting decisions will come down to a short- versus long-term profitability question," Hart says. "With the rental market you're competing with other farmers over the short-term profitability potential. However, for farmers who own their land or have a long-term lease agreement, then it makes more sense to look at the long-term profitability of using crop rotations over several years, rather than the short-term profitability of growing corn versus soybeans for only one year."

Long-term sustainability is an important consideration as well, says Shawn Conley, University of Wisconsin Extension soybean specialist. "In the long-term, farmers really need to have more than one crop in their farming system, because Mother Nature is going to penalize you if you stick with one crop for too long," he says. "Too many years of continuous corn will cause a yield drag that could require adding tillage (in climates like Wisconsin) to mitigate. Long-term rotation studies here show a significant yield hit from continuous corn."

No matter a farm's location, crop rotations help break up nature's disease and insect cycles, Conley points out. "Continuous corn comes with continuous insect and disease pressure, which can decrease the long-term effectiveness of technology traits. Rootworm resistance is just one example. Pathogens such as Goss's wilt can also thrive in continuous corn systems."

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