For the last several years, U.S. corn yields have risen almost steadily while the trend in soybean yields appears to have flattened out. Widespread problems with soybean aphids in 2003, along with nematodes and various diseases have increased farmer concerns about the cost and yield potential from growing soybeans.
As farmers finalize their cropping plans for the 2004 crop season, many are wondering "Which crop is likely to be most profitable?"
Bob Wisner, Iowa State University Extension economist, says there are important agronomic and labor-management reasons behind the long-standing corn-soybean crop rotation in the Midwest. However, with recent yield problems, some farmers are indicating they may shift part of their soybean land to a rotation with two years of corn and one year of soybeans.
"The new-crop soybean market has been attempting to partially compensate farmers for yield problems through higher prices, in an effort to maintain U.S. soybean acreage," says Wisner. "But for those farmers with serious bean yield problems, the market has begun to favor some switching of soybeans to corn."
Shift acres from beans to two years of corn?
For those farmers who are considering shifting from beans to two-year corn, the first question to ask is whether two-year corn will yield as well as corn in a corn/soybean rotation. Limited data suggest the two-year corn rotation will have a lower corn yield.
In his analysis, Wisner used the average corn yield difference between continuous corn and a corn/soybean rotation for ISU research farms located across the state. The average difference for the past two years placed continuous corn yields at 15% less than those of a corn/soybean rotation. The economist notes that the yield ratio varied considerably from one location to another and varied slightly from one year to the next. Some farms showed less than a 10% yield difference.
To compare potential corn and soybean returns, Wisner used the average corn yield difference between the two rotations, along with variable costs of crop production estimated by Mike Duffy, ISU Extension economist, and Darnell Smith, ISU Extension farm management specialist. Wisner also factored in the closing new-crop futures on Feb. 23. He adjusted the futures quotations to local north central Iowa equivalent harvest-time prices.
"My calculations showed that with normal soybean yields and no extra cost of spraying for aphids, estimated soybean returns over variable cost would be about 56% higher than those of second-year corn," says Wisner. "If a $15 per acre charge is added for spraying soybeans for aphids, the estimated soybean returns were 45% higher than those for two-year corn."
However, he said that with a continuation of soybean yields near the relatively low average of the last two years (38 bushels per acre instead of 50 bushels per acre), the economics shifted in favor of corn. Estimated returns from the two-year corn were about 36% higher than those of soybeans. He notes that limited research data hint of a possible soybean yield benefit after two years of corn.
"New-crop futures should not be viewed as a forecast, but as a pricing opportunity that is available at a point in time," Wisner emphasizes. "With concern about very tight world feed grain supplies, new-crop corn prices have the potential to increase into the planting season."
New-crop soybean prices have been strengthened this year by reports of weather and Asian rust problems reducing Brazilian yields. Both markets will be highly volatile for the next several months.