Gary Schnitkey, of the University of Illinois department of agricultural and consumer economics, analyzes the potential for shifts in acreage between corn and soybeans across the Corn Belt in a new management paper.
Shifts in acres from soybeans to corn likely are needed to meet future corn demand for ethanol production. For acreage shifts to occur, corn prices must increase relative to soybean prices so that some farmers find corn production more profitable than soybean production.
Since yields impact profitability and yields vary geographically, acreage adjustments are likely to be regional in nature. Potential for shifts are examined in this paper by computing break-even soybean-corn price ratios for counties in the greater corn-belt. These breakeven ratios are compared to projected soybean-corn ratios.
Projected corn and soybean prices for 2007 and 2008 based on futures contracts result in soybean-corn price ratios below historical averages and below the price ratio implied by loan rates. As a result, corn production may be more profitable than soybean production in 2007 and 2008 over much of the Corn Belt. Therefore, there may be shifting from soybeans to corn in much of the corn-belt in the next several years.
SOURCE: University of Illinois via farmdoc 9/15/2006.