A first look at projected operator and farmland returns favor corn over soybeans, says University Illinois ag economist Gary Schnitkey. "In northern Illinois, corn has an $84 advantage; on central Illinois, high-productivity farmland, a $64 advantage."
He uses return to operator and farmland to compare crops. In northern Illinois, for example, corn’s return is $296; soybeans are $212. "That means if cash rent is $200/acre, the farmer’s return would be $96."
Schnitkey used prices of $3.75 for corn, $9.50 for soybeans and $5 for wheat. "These prices are slightly below cash prices suggested by futures contracts with delivery dates during the 2011 harvest," he says. "However, they are significantly better than historical averages. This suggests you may want to hedge some 2011 crop, particularly in the case of wheat."
He assumed on a continued soft U.S. economy leading to fuel and fertilizer prices near summer 2010 levels, and modest increases in seed prices. In 2010, corn–soybean fertilizer cost averaged $105 versus $185/acre in 2009, he reports.
"These numbers imply that cash rents, on average, should not increase from 2010 levels," he says. "Take a northern Illinois farmer with a 50% corn 50% soybean rotation. The average projected return is $254," he says. "A $70 return to the farmer is in line with the average for the past 10 years, which results in a $179 possible cash rent—below the $185 estimate for 2010 cash rents, which implies no increase in 2011."
Schnitkey reminds that all of these assumptions can change between now and planting.
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