August 23, 2006
Corn is more profitable but carries more risk, US researchers say
Illinois farmers may find switching to more corn profitable in 2007, but the move may also carry hidden risks, according to a recent University of Illinois Extension study.
Current 2007 price projections are in the US$2.70 to US$2.80 per bushel range for corn so farmers may find switching to more corn profitable for the 2007 production year, said Gary Schnitkey, U of I Extension farm financial management specialist.
Researchers looked at factors affecting the corn and soybean markets in the coming production year and calculated a breakeven corn price with data from local Illinois Farm Business Farm Management Associations.
The emergence of ethanol plants would definitely create more demand for corn, said Schnitkey.
For corn production to increase, farmers must plant more corn at the expense of other crops. In the Midwest, it meant a choice between corn and soybeans, depending on which is more profitable, he said.
Many Midwestern farmers traditionally plant a 50-50 corn-soybean rotation in which corn is planted one year and soybeans the next.
If farmers were to plant more corn next year, it would mean planting them on acres that had grown corn the year before, and the decision would weigh on whether returns would be favourable in that case.
Research indicates that corn-after-corn yields are 10 percent below that of corn-after-soybean production, even though many farmers do not believe that corn-after-corn has a yield drag.
Farmers should factor in yields when calculating breakeven corn prices, as lower expected corn yields would increase breakeven corn prices, Schnitkey said,
Schnitkey also noted that corn production traditionally has been more risky than soybeans.
Yields from corn-after-corn production are less predictable than yields from corn-after-soybean production, he said. Switching to corn increases revenue risks whereas calculation of breakeven prices does not take risks into account, he added.
