BEAN ACREAGES IN ILLINOIS UNDER THE 2002 FARM BILL
Farm Bill alters loan rates such that corn production may become
more profitable relative to soybean production. As a result, some
Illinois farmers may increase corn acres while they decrease soybean
acres. This newsletter analyzes the economics of such a switch
by 1) describing features of the 2002 Farm Bill that increase
the attractiveness of corn versus soybean production, 2) analyzing
costs and returns for growing corn and soybeans under different
rotations, and 3) analyzing how corn yields relative to soybean
yields affect the decision to switch from soybean acres to corn
most farmers will not find it advantageous to switch to more corn.
However, this situation will vary across the state. Farmers in
south-central and extreme southern Illinois have higher corn yields
relative to soybean yields than in other areas of the state. These
farmers may find it advantageous to grow more corn. Scenarios
where prices are above loan rates may also favor growing more
Farm Bill includes three kinds of payments for program crops:
direct payments, counter-cyclical payments, and loan deficiency/marketing
loan payments. Payments for the direct and counter-cyclical programs
will not depend on plantings during the 2002 through 2007 crop
years. Hence, these programs will not influence planting decisions
during 2002 and 2007.
Loan and Loan Deficiency Payment (LDP) programs may impact planting
decisions. Like the 1996 Farm Bill, the 2002 Farm Bill includes
these programs which pay LDPs or Market Loan gains when market
prices are below loan rates. Market prices plus LDPs and Market
Loan gains provides farmers with "effective" prices
near loan rates.
between the 1996 and 2002 Farm Bills differ. The national loan
rate for corn under the 1996 Farm Bill equals $1.89 per bu. The
2002 Farm Bill increases the national corn loan rate to $1.98
for the 2002 and 2003 crop years ($1.95 for the 2004 through 2007
crop years). The national soybean loan rate decreases from $5.26
per bu. under the 1996 Farm Bill to $5.00 under the 2002 Farm
Bill. The increase in corn loan rate and decrease in the soybean
loan rate favors corn production relative to soybean production.
In and of
itself, these changes in loan rates will not cause acres to switch
from soybeans to corn. Market prices may be above loan rates such
that loan rates do not influence planting decisions. Moreover,
corn and soybean costs may indicate that soybean production still
is profitable than corn production. The next section details corn
and soybean production costs to examine whether additional corn
production is warranted.
of Corn and Soybean Production
Table 1 shows
budgets for corn and soybeans grown in central Illinois on high
productivity farmland. (Appendix Table 1 shows the same budgets
for northern, central Illinois (low productivity farmland), and
southern Illinois.) These budgets only include revenue, variable
costs, and machinery costs. These items will vary whether corn
or soybeans are produced. Not included are fixed costs, such as
land costs, that will not vary with production.
following soybeans" and "soybeans following corn"
budgets are based on summaries from farmers enrolled in Illinois
Farm Business Farm Management (FBFM). The 161 bu. corn yield and
50 bu. soybean yields are averages of yields from 1997 through
2001. Variable costs reflect 2001 costs updated for 2002 conditions.
These two columns reflect the predominant, average corn and soybean
returns in central Illinois since a 50-50 corn-soybean rotation
is common in this region. The net margin for "corn following
soybeans" is $134 per acre and the net margin for "soybeans
following corn" of $129 per acre. Hence, these budgets indicate
that corn production is more profitable than soybean production.
to more corn acres will require corn to be grown of farmland that
had corn as a preceding crop. To account for this fact, Table
1 includes a budget for corn following corn. The "corn following
corn" budget adjusts the "corn following soybeans"
budget by 1) reducing the corn yield by 5 percent from 161 bu.
for corn following soybeans to 145 bu. for corn following corn,
2) increasing fertilizer and lime costs by $5 per acre to reflect
additional nitrogen needed when corn follows corn, and 3) increasing
pesticides by $3 acre to reflect increased use of pesticides in
adjustments, net margin for "corn following corn" is
$111 per acre (see Table 1). The net margin for "soybeans
following corn" is $129 per acre, $18 higher than the net
margin for "corn following corn". Therefore, these budgets
do not indicate that switching to more corn is advisable.
Impacts on Net Margins
The $18 difference
in the "corn following corn" and "soybeans following
corn" budgets are calculated using a $2.05 per bu. corn price
and $5.15 per bu. soybean price. These prices equal the average
of the 2002 loan rates for each county in Illinois. These county
loan rates are based on national loan rates. Hence, these prices
represent loan rates under the 2002 Farm Bill.
the county loan rates under the 1996 Farm Bill gives prices of
$2.00 for corn and $5.40 for soybeans. At these prices, the net
margin for "corn following corn" production is $103
and the "soybean following corn" production is $141.
These prices result in a difference in net margins between the
"corn following corn" and "soybean following corn"
budgets of $38. This difference is greater than the $18 net margin
difference using 2002 Farm Bill loan rates. Hence, the 2002 Farm
Bill causes the difference in profits to narrow between corn production
and soybean production
may be above loan rates. In these cases, relative prices may change
and favor corn production. For example, 2002 new crop cash bids
in late July were $2.40 for corn and $5.40 for soybeans. At these
prices, the net margin for "corn following corn" and
"soybeans following corn" respectively are $164 and
$141. Under these prices, "corn following corn" is more
profitable than "soybeans following corn".
Impacts on Net Margins
At some point,
increasing corn yields or decreasing soybean yields will cause
the relative profitability of corn and soybeans to switch. For
the budgets in Table 1, net margins for "corn following corn"
and "soybeans following corn" equal when corn yields
162 bu. A corn yield higher than 162 bu. causes "corn following
corn" to be more profitable than "soybeans following
corn". Yields lower than 162 bu. cause "soybean following
corn" to be more profitable. In this case, the break-even
corn-to-soybean yield ratio is 3.24 (162 bu. corn yield / 50 bu.
ratios will vary with costs. Table 2 illustrates this by showing
break-even ratios for different regions of the state. At 2002
loan rate prices ($2.05 for corn and $5.15 for soybeans), break-even
ratios range from a low of 3.22 in northern Illinois to a high
of 3.43 in southern Illinois.
Yield Ratios Across Illinois
actual corn yields to soybean yields vary from farm to farm with
location in the state impacting likely corn-to-soybean yield ratios.
Figure 1 shows the ratio of average county corn yields to average
county soybean yields. In constructing these ratios, county yields
obtained through the National Agricultural Statistics Service
were averaged from 1997 through 2001. Corn yields were then divided
by soybean yields to arrive at the ratios shown in Figure 1. Average
yields, ratios, and ranks also are given in Appendix Table 2.
There is considerable range in county corn-to-soybean ratios.
Alexander county has the highest ratio of 3.89. Jo Daviess county
has the lowest ratio of 2.81.
of high and low county corn-to-soybean ratios is geographically
related (see Figure 1). An area in south-central Illinois has
high corn-to-soybean ratios (Madison, Macoupin, Montgomery, Christian,
Macon, Shelby, and Moultrie counties). Also an area in southern
Illinois near the Mississippi, Ohio, and Wabash rivers has high
ratios. Difference in net margins using county yields were calculated
for these counties (i.e., difference = "corn following corn"
net margin - "soybean following corn" net margin using
costs in Table 1). The net difference for Alexander county is
$6 per acre at loan rate prices. This is the only county were
"corn following corn" is more profitable than soybean
following corn at loan rate prices. All other counties have negative
differences at loan rate prices. In rank order, Macon county has
a -$4 per acre difference, Gallatin county a -$5, Christian county
a -$6, Montgomery county a -$7, and Pike county a -$8. At 2002
bid prices ($2.40 for corn and $5.40 for soybeans), these counties
all have positive net differences.
with low corn-to-soybean ratios tend to be located in the northwest
part of the state (see Figure 1). A stretch of counties from Jo
Daviess and Stephenson in the north down to Henderson, Warren,
and Knox counties in the south have low corn-to-soybean yield
ratios. Williamson, Saline, and Johnson counties in southern Illinois
also have low ratios. Differences in net margins are negative
at loan rate prices and at 2002 cash bid prices. Switching to
more corn in these counties is not likely to be profitable.
loan rates under the 2002 Farm Bill from those in the 1996 Farm
Bill cause the relative profits of corn and soybeans to change.
These changes favor corn. Most Illinois farmers, however, will
not find it advisable to switch to more corn production. Costs
cause "soybeans following corn" to be favored over "corn
following corn" in most areas of the state. Farmers in central
and extreme southern Illinois have higher corn yields relative
to their soybean yields. These farmers will find the decision
on whether to grow additional corn more difficult. Farmers will
have less difficulty making the decision in northern Illinois
where corn yields are lower relative to soybean yields. In this
area, the switch does not appear warranted.
Illinois farmers, corn prices must be above loan rates to justify
growing more corn. More specifically, corn prices must increase
relatively more than soybean prices to justify growing "corn
following corn". These situations may occur with some regularity
in future years. Current bid prices for 2002 crop would indicate
that growing "corn following corn" would be profitable
for many farmers.
is subject to the usual qualifications of these studies. Average
costs of production and yields are used to represent the economic
situation faced by farmers across Illinois. Costs and yields will
vary from farm to farm. Therefore, farmers should use their own
costs and yields to reach suitable conclusions for their own farm.
Gary Schnitkey and
Dale Lattz, Department of Agricultural and Consumer Economics