Minding Ag's Business
Marcia Zarley Taylor DTN Executive Editor

Wednesday 09/12/12

Corn Margins Gain Over Soybeans

Past performance is no predictor of future returns, brokers like to caution. But corn could continue its decade-long profit streak over soybeans in both 2012 and 2013, two new studies show.

Soy returns have lagged corn every year except 2009 and the gap is widening.

Between 2003 and 2011, corn's profit trend line grew $19/acre vs. $14/acre annual growth for soybeans, a study of accrual farming records by the financial consulting firm AgriSolutions found. Only in 2009 did soybeans outperform corn after all costs, including rent. By 2011, corn's advantage had ballooned to about $150/acre over beans for the farmers in this study. The Brighton, Ill., firm analyzed returns for more than 300 real farm operations from more than a dozen states.

A recent crop budget forecast by University of Illinois economist Gary Schnitkey seems to support that trend. He constructed budgets for highly productive farms in central Illinois, using actual farm records from the Illinois Farm Business Association in 2011 and projections for 2012 and 2013.

Schnitkey is the first to admit the perils in predicting prices a year or 18 months in advance, let alone yields. A year ago, he was forecasting season-average 2012 cash prices of $5, not the $8 the market shows today. Nor could he have foreseen an average $115/acre crop insurance payment for a typical central Illinois corn grower. At the moment, he's using $6 corn and $12.50/bu. soybeans for the 2013 season, which can be derived from current futures prices, but it is no guarantee of results.

From 2005 to 2011, corn minus soybean returns averaged $75/acre in the University of Illinois database. That large gap could balloon to nearly $250/acre in corn's favor for 2013, based on futures prices, Schnitkey points out. It could also influence plantings next spring.

Here's how Schnitkey pegged returns:

Corn Soybeans
2011 2012P 2013P 2011 2012P 2013P
Yield/Acre 147 135 196 56 46 57
Price Per Bu. $5.95 $8.00 $6.00 $12.27 $16.00 $12.50
Gross Revenue $1,082 $1,219 $1,170 $722 $790 $713
Total Nonland Cost 509 520 516 303 306 308
Pre-Rent/Op.Profit $573 $699 $654 $419 $484 $405
Source: University of Illinois, Gary Schnitkey

Such scores help explain the proliferation of corn-on-corn rotations and the temptation to use corn to pay extreme market rents, says AgriSolutions financial consultant Sam Bachman.

However, a soybean grower who fit the University of Illinois model could not have broken even paying $500 rent in 2011 or 2012 -- or the forecasted 2013 for example -- but could potentially afford it by raising corn at Schnitkey's average prices.

Read and comment on all DTN Ag Business Benchmarks on the Minding Ag's Business blog.

To see projected budgets for 2013 Illinois farms go to

http://www.farmdoc.illinois.edu/…




Posted at 11:04AM CDT 09/12/12 by Marcia Zarley Taylor
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