The impact of corn in 2013
Corn Acreage Expansion Underway
If all farmers workout the same budget, they would obviously plant more corn in 2013 and that would not only expand corn acres, but may expand total acres. Recently, Informa Economics forecast a 99 million acre corn crop in 2013, and even with fewer soybean acres, the overall corn and soybean crop footprint was going to increase by over three million acres. That is apparently the response to commodity prices, but to what degree?
Economists at the University of Florida, lead by James Seale, Jr., studied crop prices and acreage response from 1960 to 1995 when the “Freedom to Farm” Farm Bill was passed, and then from 1996 to 2010. They found that when total acreage expands, the acreage devoted to corn increases more than other commodities.
They report “if land expands (contracts) by 1%, then the land quantity for corn, cotton, soybeans, and wheat goes up (down) respectively by 1.92%, 1.67%, 0.53%, and 1.54%. As is seen, corn is the most responsive to the expansion of total land because its land elasticity is the highest.” Consequently, regarding commodity prices, they report, “The results indicate that if the price of corn, cotton, soybeans, and wheat goes up (down) by 1%, the land quantity for the different crops goes up (down) by 0.18%, 0.47%, 0.32%, and 0.23%, respectively.”
Make Way for Corn
To apply this finding to 2013, the Florida State researchers report that if corn acreage increases by 1%, then acreages for other commodities will decline. But by how much? “The results mean that if the price of corn goes up by 1%, then land dedicated to cotton, soybeans, and wheat decrease respectively by 0.23%, 0.19%, and 0.11% while the land for hay increases by 0.06%. This indicates that when it comes to land allocation, corn and cotton are substitutes. In addition, pairs like corn and soybeans as well as corn and wheat are also substitutes while corn and hay are actually compliments. Furthermore, the corn and cotton combination has the highest cross price elasticity (0.23%), thus they compete between each other for acreage more so than other combinations.”
And they report that has caused corn to be grown in regions that were recently unfamiliar to it. “Corn not only bids away acreage from wheat in the states where both wheat and corn are grown like in Illinois, Missouri, Nebraska, and Texas, but it also takes away the acreage in traditionally only wheat growing areas like a greater swath of the Midwest, Kansas, farther north and west into the Dakotas and central Minnesota. Over the past 50 years corn’s competition for land also extends to new territories like some areas in Arizona, California, Mississippi, and Texas, which are historically dedicated to cotton.”
To no surprise, corn will be the primary cash crop on high productivity Cornbelt farmland in 2013 based on its profitability over other commodities, but the greatest profitability comes from a rotation that has corn planted after soybeans. Analogous to a chicken and egg question, how will that occur in future years if all land is planted to corn in 2013? When land is planted to corn, that means that acreage is taken away from other commodities. With the expansion of corn production in the US, it is being produced in many more areas than once considered for corn.
Source: FarmGate blog
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