Expected Corn versus Soybean Returns in 2019

Attention is beginning to focus on planting decisions of farmers in 2019, with some speculation that acres will shift from soybeans to corn (farmdoc daily, February 18, 2019).  Even given declines in expected soybean prices, central Illinois budgets do not suggest that switching to more corn will result in higher profitability.  If central Illinois budgets do not suggest a switch, budgets from other areas of the country are not likely to suggest switches to more corn either.  Projected returns call into question assumptions of large switches of acres from soybeans to corn.

Changes between 2018 and 2019

Two factors have changed between the planning periods in 2018 and 2019.  First, expected soybeans prices are lower in 2019 as compared to 2018.  A reasonable way of forming expectations of cash prices at harvest is to use current bid prices for fall delivery of grain.  In 2018, fall delivery prices for soybeans in the month of February averaged about $9.80 in East-Central Illinois.  In 2019, fall delivery prices are roughly $.75 per bushel less at $9.05 (see Table 1).  At the same time, fall delivery prices for corn are roughly the same at $3.70 per bushel.  An $.75 decline in soybean price reduces expected soybean returns by $45 per acre given a soybean yield of 60 bushels per acre ($45 = .75 lower price x 60 bushels yield).

Second, costs have increased, with a primary contributor being increases in nitrogen fertilizer prices.  Throughout much of 2018, anhydrous ammonia prices were in the low $500 per ton range (see Table 2).  So far in 2019, anhydrous ammonia prices have averaged $607 per ton in January and $613 in February (see Table 2).  Fall applications of nitrogen were limited in 2018 due to wet soil conditions, leading many farmers to have to price nitrogen in 2019.  These farmers likely will pay around $100 per ton more for anhydrous ammonia in 2019 as compared to 2018.  If 220 pounds of anhydrous ammonia are applied per acre, leading to an application of 180 pounds of elemental N (180 = 220 pounds x .82 N analysis of anhydrous ammonia), nitrogen fertilizer costs would increase in 2019 over 2018 levels by $11 per acre ($100 price increase per ton x 220 pounds of anhydrous ammonia per acre / 2000 pounds per ton).

The decrease in soybean price increases the relative profitability of corn.  The increase in nitrogen fertilizer price decreases the relative profitability of corn, partially offsetting the impacts if the soybean price increase.

2019 Corn and Soybean Budgets

Table 3 shows 2019 corn and soybean budgets for high-productivity farmland in central Illinois (see farmdoc for 2019 Crop Budgets).  These budgets incorporate price and cost changes between 2018 and 2019. Two notes about these budgets:

• Yields are 213 bushels per acre for corn-after-corn and 63 bushels per acre for soybeans-after-corn.  These are trend yields.  In recent years, yields in Illinois have been above trend.  Corn yields averaged 20 bushels above trend from 2014 to 2018 (farmdoc daily, January 3, 2018) while soybean yields have averaged 6.5 bushels above trend (farmdoc daily, December 11, 2018).
• Prices used in budgets are $3.60 per bushel for corn and $8.50 per bushel for soybeans.  The corn price is near fall delivery bids while the budgeted soybean price is about $.55 per bushel below the fall delivery bid.  The lower budgeted soybean price reflects a general pessimism about soybean prices resulting from expected large supplies relative to demand (see farmdoc daily, January 28, 2019).  This lower soybean price will decrease soybean profitability relative to corn, suggesting more of a shift to corn than a higher soybean price.

Operator and land returns are $188 per acre for corn and $180 per acre for soybeans, suggesting that corn will be more profitable than soybeans.  However, this difference in profitability does not suggest a large shift in acres to corn.  Most farms in central Illinois have a corn-soybean rotation, necessitating a move to corn-after-corn to grow more corn.  Corn-after-corn returns are projected at $137 per acre, which are less than the $180 per acre soybean-after-corn return.  These lower corn-after-corn returns suggest maintaining a corn-soybean rotation.

Other Budget Values

Operator and land returns shown in Table 3 were recalculated for two different scenarios.  First, a $9.00 soybean price was used to calculate soybean returns. The $9.00 price is close to fall bids. Given that corn prices do not change, operator and land returns for corn remain the same as those shown in Table 3:

• Corn-after-soybeans:  $188 per acre, and
• Corn-after-corn:  $137 per acre,

while soybean returns increase to:

• soybeans-after-corn: $211 per acre, and
• Soybeans-after-two-years-corn: $229 per acre.

As would be expected, this price scenario increases soybean profitability relative to corn.  Current forward bids do not suggest a shift to corn from a profitability standpoint.

The second scenario maintains the corn and soybean prices at $3.60 and $8.50, respectively, but increases corn yields by 20 bushels per acre and soybean yields by 6 bushels per acre. This scenario reflects a situation where budgets are more optimistic than trend yields due to high yields in recent years.  In this case, operator and land returns are:

• Corn-after-soybeans (233 bushels per acre):  $260 per acre
• Corn-after-corn (223 bushels per acre): $209 per acre
• Soybeans-after-corn (69 bushels per acre): $231 per acre
• Soybeans-after-two-years-corn (71 bushels per acre):$248 per acre

Higher yields increase returns and also increase the relative profitability of corn.  However, corn-after-scorn is less profitable than soybeans-after-corn. These projections do not suggest that growing more corn would be more profitable than maintaining soybean acres given that both crops have above trend yields at 2013-2018 levels.

Summary and Conclusions

Current fall delivery prices do not suggest that switching to more corn away from soybeans will result in higher profitability on high-productivity farmland in central Illinois.  Due to high relatively corn yields, central Illinois is one of the most profitable areas to grow corn relative to soybeans, If central Illinois budgets do not suggest a switch to corn, budgets in less productive areas likely will not suggest a shift from soybeans to corn.

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