January 11, 2005
CORN RETURNS VERSUS SOYBEAN RETURNS: DO FARMS DIFFER?
Farmers enrolled in Illinois Farm Business Farm
Management (FBFM) have the option of receiving detailed enterprise
reports by allocating whole-farm revenues and expenses to their
various crop and livestock enterprises. This Facts and Opinions
article summarizes results for farmers who produce corn and soybean
enterprise reports. The goal of this summarization is to identify
whether relative profits of corn and soybeans vary across farms.
Also, factors that cause return differences are identified.
Data Used in the Report
Data are for the years from 1997 through 2003. For each year, farm
numbers in the summaries vary, ranging from a low of 125 farms in
1997 up to a high of 173 farms in 2000 (see Table 1). These farm
numbers are low and, as a result, caution should be used in extrapolating
results to a larger population of farms. However, the analysis sheds
light on profitability differences across farms in this study.
Enterprise results are reported in Table 1. Panel A shows results
for corn and Panel B shows results for soybeans. In both panels,
the respective crop's yield per acre and value per bushel are shown.
Value per bushel includes all crop sales and loan deficiency payments
(LDPs). Crop sales figures are summarized from enterprise reports.
FBFM, however, does not divide LDPs between corn and soybean enterprises.
LDPs in Table 1 are estimated based on average per bushel LDPs received
In Table 1, value per acre equals yield per acre times value per
bushel. The goal in constructing value per acre is to include all
revenue that varies with crop planted. Not included are revenues
that do not vary with crop planted such as Agricultural Marketing
Transition Act payments, direct payments, counter-cyclical payments,
and patronage dividends.
Table 1 includes categories for crop costs (fertilizer, seed, pesticides,
drying & storage), power costs (utilities, machine repair, machine
hire, fuel & oil, light vehicle), and overhead costs (interest,
hired labor, building repair, insurance, taxes, and miscellaneous
costs). These costs are accrued expenses and do not include opportunity
costs (e.g., unpaid labor, equity capital, or management fees).
The interest charge in overhead is for interest on debt capital.
Return above non-land costs, the final line in each Panel, equals
total value minus total non-land costs. This return provides a measure
of the profits from each crop. Land costs are not included in the
return because land costs do not vary whether corn or soybeans are
"Return differences" are reported at the bottom of Table
1. Return differences equals return above non-land costs for corn
minus return above non-land costs for soybeans. Positive values
indicate that the corn enterprise is more profitable than the soybean
enterprise while negative values indicate that the soybean enterprise
is more profitable.
Over time, corn's profitability has increased
relative to soybeans (see Table 1). Return differences are negative
during the first three years of the time period: -$53 in 1997, -$21
in 1998, and -$12 in 1999. The difference is positive in the last
two years: $3 in 2002 and $40 in 2003. This trend is partially responsible
for the discussion concerning whether farmers will switch to more
corn in the future. More corn may be planted because corn is becoming
more profitable than soybeans.
Variability in Return Differences
Considerable variability exists in the return differences across
farms. In 1997, return differences averaged -$53 per acre for the
125 farms in the summary. Of the 125 farms, 20% had return difference
-$100 per acre, indicating that the soybean enterprises were $100
per acre more profitable than corn enterprises on these farms (see
Table 2). At the same time, 18% of the farms had positive return
differences indicating that corn enterprises on these farms were
more profitable than soybean enterprises.
As can be seen from Table 2, there is considerable
variability in all years. In each year there are a significant number
of farms whose corn enterprises are more profitable than soybean
enterprises and vice versa. For example, return differences were
positive for 18% of the farms in 1997, 32% in 1998, 39% in 1999,
54% in 2000, 36% in 2001, 54% in 2002, and 73% in 2003.
Dispersion of returns across farms points out the danger of only
relying on averages to describe profitability differences between
corn and soybeans. In any given year, some farms have more profitable
soybean enterprises than corn enterprises and vice versa.
Consistency of Return Differences over Time
We examined whether farm's consistently have above or below average
return differences over time. Consistency may indicate that some
management or farm factor explains return differences. It could
be that some farms are better soybean producers than corn producers,
for example. On the other hand, if relative return differences are
not consistent across farms, returns differences are likely due
to random chance.
Contingency tables were constructed to examine this issue. In each
year, farms were divided into two groups: one group with above average
return differences and the other group with below average return
differences. In each year, 50% of the farms were in the above average
group and 50% were in the below average group. Percent of farms
moving between groups were then calculated.
Results averaged over all years are shown in Table 3. The top row
of the Table 3 shows transitions for the above-average return group.
Of the farms in the above-average group, 59% ended in the above-average
group in the next year while 41% transitioned to the below-average
group. Of the farms in the below-average group, 59% ended in the
below-average group and 41% in the above-average group.
In interpreting Table 3, a high-degree of consistency in return
differences across farms would be indicated by having no transitions
between groups. In other words, the above-average to above-average
group transition and the below-average to below-average group transition
would equal 100%. In Table 3, the upper-left and lower-right boxes
would equal 100% and the upper-right and lower-left boxes would
equal 0%. If there is no consistency, being in one group in the
current year indicates nothing about the group in the following
year. In this case, all boxes in Table 3 will contain 50%.
Percentages in Table 3 indicate mild consistency across years. Percentages
in same group movements are closer to 50% than 100%. This indicates
that management factors play some role in relative return differences.
However random factors, such as relative yield and price changes,
have more influence.
Characteristics of Return Difference Groups
We next evaluated whether farm, yields, and cost characteristics
vary with returns difference. This is accomplished by dividing farms
into three groups. Each year, all farms are placed into one of three
groups. The "High Corn Returns" group contains the one-third
farms that have the highest return differences. The "High Soybean
Returns" group contains the one-third farms with the lowest
return differences. The "Mid" group is in the middle.
Averages of soil productivity ratings, size, yields, and costs were
calculated for each group and statistical tests were conducted to
see if averages varied across groups. Results were calculated for
each year separately, for all years as a group, and for a select
group that was in the sample at least 4 years. Results were qualitatively
the same for all different analysis; therefore, only results for
the average of all years are presented in Table 4.
In Table 4, the "statistical different" column indicates
whether averages across groups were different from a statistical
standpoint. In the following discussion, values are not treated
as different unless indicated by the statistical test.
Soil productivity ratings are significantly different across groups
(see Table 3). Farms in the "High Corn Profits" group
had higher average soil ratings, indicating that their farmland
had higher yield potential. Differences, however, are not large.
The high corn profits group has a soil productivity index of 84
compared to 81 for the high soybean profits group.
Tillable acres are not significantly different across groups, indicating
that size does not play a role in return groups. Livestock returns
also do not vary with return group. Livestock returns equals livestock
revenue minus feed costs divided by operator acres. Livestock returns
were included to see if the inclusion of livestock on farms changes
relative profitability of corn and soybeans. Insignificance indicates
that livestock did not change relative profits.
Corn and soybean yields are significantly different across returns
group. The "High Soybeans Profits" group had higher soybean
yields (49 bushels) then the "High Corn Profits" group
(46 bushels). Moreover, the "High Soybean Profits" group
had lower corn yields (146 bushels) then the "High Corn Profits"
group (162 bushels).
Also crop costs are significantly different across groups. Corn
crop costs were higher for the "High Soybeans Profits"
group ($151 per acre) compared to the "High Corn Profits"
group ($130 per acre). Soybean crop costs were significantly lower
for the "High Soybeans Profits" group ($57) compared to
the "High Corn Profits" group ($81 per acre).
Power cost and overhead costs are not significantly
different across return difference groups. This indicates that returns
differences are not due to power or variable costs.
Two implications are drawn from Table 1. First, farms with higher
relative corn returns tended to have higher productivity farmland.
Second, return differences are more influenced by yields and crop
costs than by power and overhead costs. Power and overhead costs
are more related to overall cost control, suggesting that cost control
is not important in determining relative crop return differences.
Yields and variable costs are influenced by production management.
Hence, production management may play in relative crop enterprise
profitability. However, yields and variable costs are also influenced
by factors such as pest and weed pressures that may not persist
over time. Thus, not all of the return differences between corn
and soybeans can be attributed to management.
Summary and Implications
Variability and consistency of differences in corn and soybean
returns are examined in this report. In addition, factors that cause
farmers to have more profitable corn or soybean enterprises are
examined. From this study, the following four implications are drawn:
1. Between 1997 and 2003, corn returns have increased relative
to soybean returns. Whether or not this trend continues is an open
question. The trend explains why some farmers are considering planting
more corn. If the trend continues, more farmers should examine a
switch to more corn.
2. Farms with farmland with higher productivity tend to have higher
corn returns relative to soybean returns. This soil productivity
and profitability link, however, is weak and does not apply to all
3. Some farmers may be better corn producers than soybean producers
and vice versa. One year of return results, however, should not
be used to judge whether a producer is a better manager. Considerable
variability exists in return differences across years.
4. We strongly suggest that farmers track yields and costs by corn
and soybean enterprise. Sufficient evidence suggests that relative
returns from corn and soybean enterprises may differ across farms.
One year of enterprise reports, however, may not be sufficient to
determine long-run returns because of the variability that exists
in return differences.
The authors would like to acknowledge that data used in this study
comes from the local Farm Business Farm Management (FBFM) Associations
across the State of Illinois. Without their cooperation, information
as comprehensive and accurate as this would not be available for
educational purposes. FBFM, which consists of 6,000 plus farmers
and 62 professional field staff, is a not-for-profit organization
available to all farm operators in Illinois. FBFM field staff provides
on-farm counsel with computerized recordkeeping, farm financial
management, business entity planning and income tax management.
For more information, please contact the State FBFM Office located
at the University of Illinois Department of Agricultural and Consumer
Economics at 217-333-5511 or visit the FBFM website at www.fbfm.org.
Issued by: Gary Schnitkey and Dale Lattz, Department of Agricultural
and Consumer Economics