March 16, 2007

UNL Spreadsheet Helps you Decide

Figure 1. Income in excess of cash and labor costs comparisons for corn versus soybeans.

With changing market prices, some producers may be rethinking their cropping options for this planting season. To aid this decision-making, UNL agricultural economists have developed a spreadsheet to compare costs for continuous corn and a corn-soybean rotation.

This tool can be accessed free on the Internet at westcentral.unl.edu/agecon/. The Excel® worksheet displays cost information from UNL's 2006 crop budgets and current harvest contract prices, and allows users to enter their own cost and price data. Designed for ease of use, it includes cash costs and labor, but does not include information which differs by farm, such as land, management, interest, machinery depreciation, overhead, insurance and tax costs. Producers should also consider these factors. The tool includes separate worksheets for irrigated and dry land operations.

The following data and harvest contract prices for corn and soybeans, recorded Feb. 26, 2007 in Gothenburg, were used for a sample analysis presented here:

• $3.81 per bushel for corn
• $7.61 per bushel for soybeans
• 171 bu/ac yield for irrigated corn (represents a 10% yield reduct from the normal 190 bu/ac to reflect the yield loss for corn following corn)
• 60 bu/ac yield for irrigated soybeans
• 90 bu/ac yield for dryland corn (10% less than the100 bu/ac yields expected when corn follows soybean)
• 40 bu/ac yield for dryland soybean

Results of Irrigated Corn/Soybean Analysis

The analysis showed the cash and labor cost per acre of irrigated corn was $309.97. This included applying nine acre-inches of irrigation water at $7.19 per inch. This compares to $105.32 per acre for soybean cash and labor costs when six acre-inches of water were applied. The cost per acre for soybeans includes a credit of $13.17 for the 45 pounds of nitrogen fixed by the growing soybeans. The returns using the 171-bushel-per-acre yield, the $3.81 per bushel price, and per acre cost of $309.97 resulted in a return to corn of $341.54 per acre. This compares to $351.28 for the 60 bushels per acre, $7.61 per bushel, $105.32 cash and labor cost of soybeans.

Growing soybeans has a $9.74 advantage over growing corn; however, if corn yield increased more than 2.8 bushels per acre, or if soybean yields decreased more than 1.3 bushels per acre, the returns to corn and soybeans would be equal, given the stated prices and costs. Corn price would need to increase approximately 6 cents or soybean price decrease approximately 17 cents to have equal returns.

The results of this analysis, as well as a table of varying prices and yields of the two crops, is at the bottom of the worksheet. Both prices and yields vary from our stated base in increments of 10%, providing a sensitivity analysis. When yields of both corn and soybeans decrease by an equal percentage, the advantage of growing soybeans compared to corn increases. When yields of both crops increase by the same percentage, the advantage of growing soybeans first decreases and eventually disappears. At a 10% yield increase for both crops, returns to corn are more than $4greater than for soybeans.

Results of Dryland Corn/Soybean Analysis

While this analysis indicates irrigated corn and soybean returns in excess of cash costs and labor are nearly comparable at current prices, dryland soybeans have a substantially higher return when compared to dryland corn. The higher return is the direct result of soybean yields being less sensitive to dryland conditions -- corn yields drop by almost 50% whie soybean yields decrease by only about 33%. Using a 40 bu/ac yield for soybeans and a 90 bu/ac yield for corn, the income in excess of cash costs and labor is $112.71 higher for soybeans than for corn. This includes an $18.90 credit for the nitrogen fixation associated with soybean production.

A higher nitrogen credit for dryland soybeans compared to irrigated soybeans is a direct result of different farming practices and nitrogen sources. The dryland corn used a liquid formulation which is more expensive than the gas or anhydrous ammonia more commonly used on irrigated crops in Nebraska.

To equalize returns for the two crops requires an additional 32.67 bu/ac of corn or a reduction of 15 bu/ac of soybeans. Assuming yields noted, the corn price would have to increase to $5.06 per bushel or the soybean price would need to drop below $4.79 per bushel for returns of the two enterprises to be equal. Figure 1 shows how various corn prices compare to $7.61 soybeans where returns are $261.40 on dryland and $351.28 under irrigation.

When yields are changed for dryland production, results are similar to those found in the irrigated production case. Equally reducing the percentage yield of both crops gives soybeans a greater advantage while increasing the yields of both crops reduces the advantage of producing soybeans; however, the total change in advantage is small, decreasing only $4.04 per acre when yields increase from 20% under the base yield to 20% over the yield.

Please note that this analysis is based on the cost of a single year change and does not consider the cost of returning to the traditional rotation in the long term.

Using only cash costs and labor simplifies the analysis but does not address all the issues. Other items to be considered include are the impact of crop insurance, share arrangements with landowners, a producer's special ability to produce a particular crop and water limitations.

Matt Stockton
Extension Agricultural Economist
Roger Wilson
Research Analyst
Faith Colburn
Communication Specialist
All at the West Central REC, North Platte