Minding Ag's Business

Soybeans have a place on Midwest farms, but they have been far less profitable than corn in many operations since 2008, studies by the financial consulting firm AgriSolutions show. Based on actual client records of more than 100 farms from 13 Corn Belt states, "corn wins in a good year, it wins in an average year, it wins in a dry year, now in 2013 we can see if it wins in a wet year," said Sam Bachman, an analyst at the Brighton, Ill. firm.

That profit pattern held true even though corn yields on the farms in question tumbled an average of 25% below 2008 levels thanks to last year's drought. By the time AgriSolutions' clients counted proceeds from hedging, crop insurance and cash grain sales on the 2012 crop, their margins jumped 22% higher than 2008 levels. In contrast, 2012-crop soybean yields fell an average of 11% vs. 2008, but profits were also 12% lower.

"The real story is that the profit margins on soybeans have been growing just $5.38/acre since 2008 while corn has been adding $28.90/acre annually," Bachman said. Cumulatively that's $198/acre advantage for corn over the five-year period.

Inflation has plagued both corn and soybean production costs in recent years. The downside for soybeans is that expenses grew faster than revenues.

"As you know, beans have a place in the rotation, but these are pretty compelling results to factor corn a little higher over beans," Bachman said.

Of course, history may not always predict future results. World markets, crop rotations and fertilizer prices all play a key role when forecasting overall profitability. At the moment, many Illinois operators with cash rents over $250/acre will barely cover all costs in 2014, based on current forecasts, University of Illinois economists now predict. http://farmdocdaily.illinois.edu/…

However, fertilizer prices could be a safety release valve should commodity prices stay as low as some forecasters claim. In the last month, national retail prices for anhydrous ammonia have tumbled nearly $100/ton or 12%, DTN's latest survey of more than 330 retailer locations found. Anhydrous averaged $716/ton on Aug. 1.

Illinois retailers also registered similar declines. "Fertilizer costs that averaged $200 per acre in 2012 could be in the $125 to $150 range for 2014," University of Illinois economist Gary Schnitkey said in a recent post on farmdocdaily.

"Fertilizer cost declines will partially offset projected 2014 revenue declines caused by lower corn and soybean prices. However, net returns for 2014 crop production are projected lower than returns in 2010 through 2012 even given fertilizer price declines," Schnitkey said.

http://farmdocdaily.illinois.edu/…

Subscribers can also see DTN's Fertilizer page under Farm Business for more retail survey information

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