For some time now, market analysts have been assuming that we might see a fairly large acreage shift from corn on corn back to more soybeans. This could be the case in general; however, be sure to stay focused on your individual numbers.
The idea that producers will switch from corn to soybeans assumes there must be more profit potential in soybeans compared with corn, or that the cost of growing soybeans is significantly less and could reduce overall cash flow requirements. Don’t be so sure without running a number of different scenarios. Planting more soybeans doesn’t necessarily equate to more profitability or less risk. Unless you have a compelling agronomic reason for planting more soybeans, it’s critical that you run the numbers, even up to the last minute.
Consider the following factors as you analyze your final or last-minute rotation and planting decisions: What are the realistic yield prospects between corn and soybeans; gross income differences; and current risk management/marketing tools?
Yield prospects for corn versus soybeans on an individual farm-by-farm basis can greatly vary. Assuming market prices stay at current levels, maximizing yield is the most effective way to improve profit potential. Look at your yield history and see which crop has been more consistent or provided the highest yields.
Has continuous corn or your previous crop rotation been effective in the past? If so, ask yourself the reason for changing a successful pattern. I’m not advocating planting more corn necessarily, but I am encouraging every producer to analyze every acre for maximum profitability.
Gross income is another consideration that affects producers who rent land. High cash rents can make it virtually impossible to profitably grow soybeans without achieving maximum yield potential. For example, assuming a cash rent price of $350 per acre, it would take $6.36 per bushel at 55 bu. soybeans, or the first 31 bu. of production, just to cover land cost. Higher rent prices can easily account for 50% of production costs.
Equipment should be another focal point. Analyze your current equipment costs on corn versus soybeans. If planting more soybeans requires additional equipment investment, be sure to correctly evaluate the cost. Adding more soybean acres doesn’t necessarily guarantee a reduction in equipment cost.
Lack of Revenue Guarantee.
Risk-management decisions go hand in hand as we evaluate profit opportunities between corn and soybeans. The primary challenge for many producers considering more soybean acres is the lack of revenue guarantee compared with corn.
For example, many producers can purchase as much as $350 per acre more revenue coverage on corn than with soybeans. For most producers, the revenue coverage for private insurance and the agricultural risk coverage (ARC) through the farm program provide a substantially higher coverage level by planting corn. Actual production history (APH), county yield averages and the level of crop insurance coverage all have a direct impact on the best rotation for your farm.
Marketing opportunities between corn and soybeans could be anyone’s guess during the growing season. Regardless of your acreage mix, be sure to continuously monitor your cost of production in order to have a clear understanding of exactly where your profits begin and end. Profit opportunities will likely be short-lived on rallies this year.
If you’d like a side-by-side comparison tool for corn versus soybeans, please let me know and I will email you a copy.
Chris Barron is director of operations and president of Carson and Barron Farms Inc. in Rowley, Iowa. He is also a farm business consultant and the author of the AgWeb.com blog, "Ask a Margins Expert." To submit questions and comments, email Chris at email@example.com.
- April 2014