A Narrowing of the Gap on Corn and Soybean Crop Revenue

On average in Illinois, soybeans have been more profitable than corn since 2014 (farmdoc daily, July 25, 2017), an unusual situation given that Illinois is in the heart of the Corn Belt. Both costs and revenue from the two crops contribute to this situation. Costs increased more for corn than for soybeans from 2006 to 2013 (farmdoc daily, February 16, 2016), causing the need for corn to have more revenue than soybeans for corn to remain as profitable as soybeans. As discussed in this article, the difference between soybean and corn revenue have narrowed in recent years. While yields have played a role in this narrowing, relative prices changes between soybeans and corn explain much of the increase in relative soybean revenues since 2013.

Data and Approach

Corn and soybean crop revenues for the state of Illinois are compared over time using data from the National Agricultural Statistical Service (NASS). Two sets of data were obtained from the QuickStat database:

• State yields for Illinois from the years from 1972 through 2017. The 2017 yield may change as NASS revises its yield estimates.
• Market year average prices for Illinois for the years from 1972 to 2016. Estimate of 2017 prices were made based on the midpoints of the national market year average price contained in the October edition of the World Agricultural Supply and Demand Estimate (WASDE) report. Midpoints for national prices were $3.20 per bushel for corn and $9.20 per bushel for soybeans. Over the past five-years, prices in Illinois have averaged higher than U.S. prices. As a result, $.05 per bushel was added to the U.S. corn price and $.20 per bushel was added to the U.S. soybean price. The Illinois market year average price estimates then are $3.25 per bushel for corn and $9.40 per bushel for soybeans. As always this time of year, there is considerable uncertainty about market year average prices. In the end, actual 2017 prices could be substantially different than projections used here.

Yield and price data are shown in Appendix Table 1. For each crop, crop revenue was calculated by multiplying yield times price. Resulting corn and soybean revenue series are shown in Figure 1.

Relative Crop Revenue for Corn and Soybeans

As can be seen in Figure 1, both corn and soybean revenues exhibit slight increasing trends from 1972 to 2005. Revenue averaged $300 per acre for corn and $233 per acre for soybeans from 1972 to 2005. Then corn and soybean revenue increased due to commodity price increases in the mid-2000s. From 2006 to 2013, revenue averaged $735 per acre for corn and $526 per acre for soybeans. Since 2013, commodity prices have declined from 2006-2013 levels, resulting in less crop revenue. From 2014 to 2017, revenue averaged $673 per acre for corn and $550 per acre for soybeans

While corn and soybean prices have followed the same trends, the relationship between soybean and corn revenues have changed over time. Relative changes are illustrated in Figure 2, which shows soybean revenue divided by corn revenue, hereafter referred to as soybean-to-corn revenue. Variability exists in soybean-to-corn revenue, particularly from 1972 to 1999 (see Figure 2). While variable, soybean-to-corn revenue did not exhibit any trends from 1972 up to 1999, averaging .8. Then soybean revenue decreased relative to corn revenue. From 2000 to 2005, soybean-to-corn revenue was .75. During the high price period from 2006 to 2013, soybean-to-corn ratio averaged .72, almost .08 below the .80 average from 1972 to 1999. Since 2013, soybean revenues increased relative to corn revenues. Between 2014 and 2017, soybean-to-corn revenue averaged .82, much higher than then .72 average for the 2006 to 2013 period. The 2014-2017 ratio of .82 is roughly the same as from 1972 to 1990.

Reasons for Higher Relative Soybean Revenue Relative to Corn Revenue

Either changed in relative yields or prices could have caused the higher soybean revenues relative to corn:

• Soybean-to-corn yield ratios equaling soybean yield to corn yield have averaged .30 from 2014 to 2017 (see Table 1). Over time this ratio came down, indicating that corn yields have increased relative to soybean yields. The soybean-to-corn yield ratio averaged .31 from 1972 to 2979, .32 from 1980 to 1990, .32 from 1990 to 1999, .29 from 2000 to 2005, and .30 from 2006 to 2012. The .3 ratio for the 2014-2017 period is lower than those averaged before 1999, but the same as that from 2006 to 2012.
• Soybean-to-corn price ratios equaling soybean price divided by corn price has averaged 2.74 from 2014 to 2017 (see Table 1). Previous soybean-to-corn prices ratios averaged 2.60 from 1972 to 2979, 2.56 from 1980 to 1989, 2.48 from 1990 to 1999, 2.61 from 2000 to 2005, and 2.42 from 2006 to 2012. Of all the sub-periods since 1972, the higher ratio has occurred in the most recent years from 2014 to 2017. A higher ratio indicates that soybean prices are relatively higher than corn prices.

Overall, changes in relative prices have been more of a factor in higher soybean revenues since 2013.

Summary

In recent years, soybean revenues have been relatively higher than corn revenues. Relatively high soybean prices have contributed to this situation. Since soybean revenues increased relative to corn revenue, soybeans have been more profitable than corn. Soybeans likely will be more profitable to corn until soybean prices decline relative to corn prices.