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Should You Grow More Corn?

April 24, 2014
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The competition for acres is driven by several things, including agronomic factors and profitability. But is there a revenue advantage to more corn acres?

By Brandy M. Krapf, Dwight D. Raab and Bradley L. Zwilling, University of Illinois

The Midwest is very oriented to the production of corn and soybeans. As the price of corn and soybeans vary and as the cost of inputs to produce those two crops vary, farmers construct budgets to estimate the revenue and expenses of those two crops as they compete against each other for acres in the Midwest. The competition for acres is driven by several things, including agronomic factors and profitability.

Today's post will review not the estimated revenue and expenses for those two crops but the actual 1) yields, 2) crop returns, 3) selected costs, and 4) the residual management returns as the percentage of corn acres in a crop rotation increases as compared to a control group. This post uses data from a five-year span (2009-2013) from a group of central Illinois farms operating on higher productivity soils that are members of the Illinois Farm Business Farm Management Association. All revenue is attributed to the accrual method of accounting netted against the total economic expenses associated with the production of that revenue to arrive at accrual based management returns.

For each of the five years, the farms were sorted into one of five groups based on the percentage of acres devoted to corn production. Selected factors were then aggregated on a "per operator acre" basis and compared to the unsorted average of a group of similar farms. The five groups are:

1) Over 75% Corn Acres
2) 66% to 75% Corn Acres
3) 56% to 65% Corn Acres
4) 46% to 55% Corn Acres
5) Less than 45% Corn Acres

The data in the tables illustrates the 'advantage' of each of the five percentile groups over the unsorted average. For example, in Table 1, the Over 75% group shows a two bushel per acre production advantage over the unsorted average. That same group shows a $91.67 per acre revenue advantage. This group has a negative $42.57 per acre fertility advantage...which means that the average fertility expense for this group was $42.57 more than the unsorted average.

The average percentage of acres devoted to corn production for the Over 75% group was 88% for 2013, 87% for 2012, 84.5% for 2011, 84.1% for 2010 and 86.3% for 2009. The percentage of corn acres for the unsorted group was 53.6% for 2013, 54.6% for 2012, 56.2% for 2011, 55% for 2010, and 58.1% for 2009.

table1 042314

The data in Table 1 for 2013 indicates that there was little if any yield advantage or disadvantage of a higher percentage of corn acres. Table 1 reveals that higher percentages of corn production leads to increased costs per acre for fertilizer, pesticides, and seed as represented by the increasing disadvantage of the higher corn percentages. Power and Equipment cost exhibited this same trend. For 2013, the data suggest that per acre revenue was higher at the higher percentages of corn acres but there was a greater cost to produce that revenue. The residual management return advantage was lowest for the highest percent corn acres and highest for the lowest percent corn acres.

table2 042314

Table 2 represents data from the dry spring, early planting and dry summer year of 2012. The Over 75% group shows the greatest accrual revenue advantage of the five years at $125.83. The crop insurance harvest price of $7.50 per bushel no doubt had an impact if one assumes that a revenue based crop insurance policy was in place. Even though the Total Cost for the Over 75% group showed the greatest disadvantage for the year, the management return advantage was the highest for the Over 75% group.

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COMMENTS (1 Comments)

cornman - Scott City, KS
afairmarketprice.com
9:32 PM Apr 24th
 



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