By Mike Preiner, Granular Co-Founder and VP of Data Science
With farm profitability at historically low levels, most farms are carefully scrutinizing their budgets and looking for ways to improve their bottom line. In this post we’ll take a look at a major business decision that many farmers face each year: should I plant more corn or soybeans? While many acres are typically not open for consideration due to rotational concerns or lease agreements, when we talk to our customers we find that they usually have some fraction of their acres that are open for a decision on which crop to grow. While there have been some recent posts projecting profitability of corn versus soybeans, here we’ll take a slightly different view by looking at historical differences in profitability. While past performance is not a promise of future returns, it is often a good place to start.
In this analysis, we use summarized national data on profitability (we understand that profitability of each crop ultimately varies by region) gathered by the USDA ERS, and adjust all numbers for inflation. Figure 1 shows the net profitability of corn and soybeans across the U.S. for the last 41 years. Several observations stand out:
- The average profit per acre for corn is $79/acre, while the average for soybean is $98/acre - on average, soybeans have been $19/acre more profitable
- While corn and soybean profitability are generally correlated, there are some years where one is significantly more profitable than the other
- Yield increases since the 1970’s (~2 bu/year for corn and ~0.6 bu/year for soybeans) have not translated into profitability increases for the farmer
Figure 1 Profitability (crop revenue - all cash expenses), inflation adjusted, from 1975-2015 for corn and soybeans. Government and insurance payments not included.
To better understand the relative differences in profitability from year to year, we plot the difference between the profitability of the two crops in Figure 2. From this chart we can conclude that:
- Soybeans were more profitable than corn for 26 of the 41 years measured - 63% of the time (bars below the $0 mark)
- Corn was more profitable than soybeans for 15 of the 41 years - 37% of the time
Figure 2 Difference in profitability between corn and soybeans.
The numbers that came out of this analysis were quite a surprise to us: if soybeans have been historically more profitable than corn, why does the industry focus so heavily on corn production? We will focus on the historical ROI of each of these crops in our next post and evaluate trends in input costs, yield, and price. Stay tuned, and please share your thoughts below - we love comments!