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Corn or Soybeans?

Farm Management Update, April 1996

By Jack Dunford

As the 1996 growing season begins, many Virginia farmers who have not produced grains as cash crops for years are contemplating re-entering the cash grain business. Both corn and soybeans appear to be profitable alternatives, and I predict an increase in production this year as profit margins languish on beef and dairy farms. Even with higher input prices (especially fertilizer) there are opportunities to generate additional farm income with corn or beans. The trick will be to grow these crops without making significant equipment investments because this "hot" grain market may be short-lived. Perhaps even more important is to consider one of the forward pricing techniques for these commodities to help alleviate some of the market risk that will be incurred between this spring and the fall harvest season.

The Farm Management Agents have a spreadsheet, BCROP, which has been around for years but is still a very useful tool to evaluate the decision to grow corn or beans (or any competing crops). To utilize this decision aid, costs of production, expected yield, and predicted price for each commodity that is being evaluated must be known.

Following is the required information to compare the profitability of corn versus beans assuming forward contracts made on March 4, 1996, for grains delivered to Culpeper in November/December, 1996.

Corn Soybeans
Total Cash Costs $256.12/ac $158.98/Ac
Expected Yield 110 Bu 45 Bu
Predicted Price $3.02/Bu $7.03/Bu

When the information is entered in the BCROP program, an analysis similar in appearance to the following is automatically generated.

Corn Yield - 110 Bu
                         Price of Soybeans
                  $6.33      $7.03      $7.73
Price of Corn     Yield of Beans to give an equal return to Corn
  $2.72           31.9 Bu    28.7 Bu    26.1 Bu
  $3.02           37.2 Bu    33.4 Bu    30.4 Bu
  $3.33           42.4 Bu    38.2 Bu    34.7 Bu

Corn Price - $3.02/Bu Yield of Soybeans 40 Bu 45 Bu 50 Bu Yield of Corn Price of soybeans to give an equal return to Corn 100 Bu $4.98 $4.49 $4.08 110 Bu $5.80 $5.22 $4.75 120 Bu $6.62 $5.96 $5.42

In this example, under the given circumstances, beans look very competitive. The top table says that with $3.02 corn and $7.03 beans, one would only have to produce 33.4 bushels of beans to "break-even" with corn. The bottom table indicates that if corn is worth $3.02 per bushel, then beans would only have to sell for $5.22 per bushel to break-even with the corn. The BCROP spreadsheet generates a range of break-even prices and yields that are useful in farm-level decision making.

These figures are meant only to demonstrate the use of the BCROP program. When a grower inputs his personal estimates for his soil types, it is possible corn may compete more favorably, especially for higher producing, more drought-resistant soils. Also the projected price relationships are drastically different in the various regions of the state.

The BCROP decision aid has been a popular part of the CCW Lotus 123 Spreadsheet presentation made at some 30 locations around the state this winter. For a revised BCROP template, contact your nearest Farm Management Agent. BCROP was last updated November 29, 1995.

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