Long-run return impacts for corn-soybean planting
Second-year: During the second year, 1/3 of the acres will be continuous corn, 1/3 will be corn-after-soybeans, and 1/3 will be in soybeans-after-two-years of corn. This combination will have a return of $490 per acre, $23 higher than continuous corn.
Third-year: In this year, 1/3 of the acres will be corn-after-soybeans, 1/3 will be corn-after-corn, and 1/3 will be in soybeans-after-two-years-corn. This rotation will have a return of $504 per acre, $37 per acre higher than continuous corn.
The yearly sequence of difference in returns is:
Year 1: -$14 lower return ($453 per acre - $467 per acre for continuous corn),
Year 2: $23 higher return ($490 per acre - $467 per acre for continuous corn), and
Year 3 and beyond: $37 per acre higher return ($504 per acre - $467 per acre).
Again this is a present value problem, with most discount factors indicating that the switch to corn-corn-soybeans has the higher return.
Caveats and Implications
Key to the above calculations are the assumptions concerning yield drags for corn-after-corn and continuous corn. Lower yield drags will cause the profitability of more intense rotations to increase.
The above budgets assume that there are no additional tillage passes for more corn-after-corn and continuous corn rotations. If one additional tillage pass with a cost of $15 per acre is included for corn-after-corn and continuous corn, rotation returns become:
$484 per acre for corn-soybeans,
$499 per acre for corn-corn-soybeans, and
$452 per acre for continuous corn.
Reliance on more tillage to continue with corn heavy rotations will reduce the return advantages or more intensive corn rotations.
Budget above use projected 2012 commodity prices ($5.35 per bushel for corn and $11.85 for soybean). These prices likely are higher than what prices will average over the next five-years. Estimates of these long-run prices are $4.50 for corn $10.50 for soybeans. At these prices, rotation returns become:
$362 per acre for corn-soybeans,
$364 per acre for corn-corn-soybeans, and
$299 per acre for continuous corn.
Actual costs vary across farms. Hence, each farm should use their own projected costs in rotation considerations.
It has been noted that cash rent arrangements that are short-term may encourage more corn production. If a farmer believes that they will only be able to rent a farm for one year, there is an incentive to plant all corn so as to maximize profits in one year.
There are longer run return implications from cropping decisions made in the current year. Soybean production, while currently having return estimates below corn, has the benefit of leading to corn-after-soybean plantings in future years. If significant yield reductions exist for corn-after-corn, the benefits of corn-after-soybeans in future years should not be overlooked.