Fall 2006, Vol. 12 No. 4
Agricultural Situation Spotlight: Getting More Corn Acres from the Corn Belt
Getting More Corn Acres from the Corn Belt
Bruce A. Babcock
David A. Hennessy
There is no doubt that the ethanol boom will mean a significant increase in corn acres over the next two to ten years. Chad Hart argues elsewhere in this issue that much of the increase will likely come from Corn Belt states for the simple reason that the Corn Belt is where most suitable agricultural land is located. An additional 12 million acres--representing more than 5 billion gallons of ethanol--could be grown in Iowa, Illinois, Indiana, Nebraska, Minnesota, and South Dakota if two acres of corn were planted for each acre of soybeans. But will farmers be willing to sacrifice the agronomic and economic benefits of a corn-soybean rotation? The benefits of planting an acre of corn on ground that was previously planted to soybeans include
- higher yields
- lower nitrogen fertilizer expense
- lower pest control costs
- lower tillage costs if corn after soybeans facilitates conservation tillage
- more timely planting and harvesting
Estimating the Costs of Rotation Changes
It is difficult to put a dollar amount on the change in pest control costs, tillage costs, and the timeliness of planting and harvesting because the change in these costs are quite specific to a particular farm situation. For example, farmers who have spare corn planting and harvesting capacity would find it quite easy to plant more corn acres, whereas farmers who already have difficulty planting their current corn acreage in a timely manner may need to invest in additional capacity. A move away from a corn-soybean rotation may increase tillage costs for a farmer who currently no-tills corn if the additional plant material from a previous crop of corn prevents no-till planting. And the change in pest control costs will vary dramatically across years and sites because of fluctuations in pest pressure. But typically, many farmers should expect to apply a soil insecticide to control corn rootworm. Alternatively farmers can plant a corn hybrid that expresses a toxin for rootworm control. Either action can serve to reduce the decline in corn yields when corn is planted after corn.
Of course, farmers will not move away from a corn-soybean rotation unless they can make more money. There are two financial aspects to such a move. A corn-corn-soybean rotation means that twice as many corn acres will be planted as soybean acres. If returns to corn are greater than returns to soybeans, then the direct impact of such a move will be to increase farm returns. If not, then no farmer will even consider the move away from a corn-soybean rotation. The second financial impact is that corn returns on ground that was previously planted to corn will be lower than corn returns on land that was previously planted to soybeans. It is not a simple calculation to determine if a move away from corn following soybeans will increase returns, but a recent analysis may prove helpful.
Estimating the Break-Even Corn Price
The most important factor in this calculation is the decline in average corn yield that will occur. Data from a long-running (since 1979) rotation and fertilizer experiment at Iowa State University's Northeast Iowa Research and Demonstration farm in Nashua (Floyd County) were used to estimate the average yield decline when corn is planted after corn instead of soybeans. A study using these data ("On Monoculture and the Structure of Crop Rotations," David Hennessy, forthcoming in the American Journal of Agricultural Economics) estimated that the average yield decline was 16.1 bu/ac or about 12 percent of the average yield over the study period. Combining this yield decline with the approximately 50 pounds of additional nitrogen fertilizer needed to grow a crop of corn that was planted after corn rather than soybeans and the additional costs involved in growing a corn crop relative to a soybean crop allows for the break-even price of corn to be calculated. We use a farm in Floyd County in the calculations as an example and set farm yields at 2006 county trend yields of 163 bu/ac for corn and 47 bu/ac for soybeans. The break-even corn price depends on the prices of soybeans and nitrogen fertilizer. Table 1 reports how high corn prices must rise to induce this farmer to move away from a corn-soybean rotation. These "break-even" corn prices are calculated for soybean prices ranging from $4.00 to $7.00 per bushel and nitrogen fertilizer prices of 10¢ to 50¢ per pound ($200 to $1,000 per ton).
As shown, a $1.00-per-bushel increase in the price of soybeans increases the break-even corn price by about 38¢ per bushel whereas a 20¢ increase in the price of fertilizer increases the break-even corn price by 8¢ per bushel. With $6.00 soybeans, the price of corn must be greater than about $3.40 per bushel to induce this farmer to move away from a corn-soybean rotation. Next year's corn crop is trading on the Chicago Board of Trade for $3.24/bu. The soybean crop is trading at $6.49. With an expected basis of 40¢ per bushel, it appears that current prices do not give enough inducement for corn farmers in Floyd County to plant more corn acres in 2007 than they would otherwise have planted before the recent price increase.
Agronomic problems, such as increased weed, disease, and insect pressure are greater when corn is planted after corn. But it is often possible to manage around these problems through greater crop monitoring, increased applications of pesticides, and careful selection of proper hybrids. Of course, it is also the case that more intensive management usually increases costs. To see the change in the corn price that it will take to move farmers away from a corn-soybean rotation, Table 2 presents the break-even prices for different combinations of reduced yield drag on corn and the increased cost of obtaining this reduction. The price of nitrogen fertilizer is fixed at 30¢/lb.
A comparison of the Table 1 and Table 2 results demonstrates that reducing yield drag by incurring additional costs reduces the corn price at which it begins to pay to move away from a corn-soybean rotation. But at a soybean price of $6.00/bu, the break-even corn price is still above current market prices for next year's crop.
Adding Soybean Yield Factors into the Equation
Before concluding that the price of corn must rise further before Corn Belt farmers will move to plant more corn, we should consider the impacts on soybean yields if a soybean crop is planted after two years of corn rather than after a single year. The same study by Hennessy that reports a 12 percent average yield drag on corn also reports that soybean yields increase by 18 percent when a soybean crop is planted after corn rather than after soybeans. This explains why Corn Belt farmers rarely plant soybeans after soybeans. More useful for our analysis here is that the study also reports a statistically significant soybean yield increase when a soybean crop is planted after two years of corn. The estimated yield increase is 12 percent above the yield level that would result when a soybean crop is planted after a single year of corn. Using this yield boost significantly reduces the break-even corn prices, as reported in Table 3.
A 12 percent yield boost for soybeans dramatically reduces the corn price that is needed to move more farmers away from a corn-soybean rotation. The Table 3 results indicate that at current new crop (2007) futures prices and a 40¢/bu basis, farmers have an incentive to plant more corn acres.
Not every farmer should expect a 12 percent boost to soybean yields when planting soybeans after two years of corn instead of after one year of corn. But if the study's results can be extrapolated widely throughout the Corn Belt, then we should expect a significant number of acres to move to corn at current price levels. ♦