US Corn Is King Now, but Production Costs Threaten Its Reign

Soybean’s Edge

Corn’s net loss per acre in 2017, compared with a net profit for soybeans, included accounting items like overhead, depreciation, and land expenses. On an operating profit basis, corn earned $285 per acre, which was still below the $297 generated by soybeans. That difference reflects growth in production costs for corn, which are up 24 percent on average over the past 10 years. Fertilizer and seed expenses represent the biggest increases, rising 24 percent and 102 percent, respectively, over the decade. Driving the inflation were higher nitrogen application rates and investment in new seed technologies.

Such rising costs more than offset gains in production revenue, which for corn increased 11 percent to $620 per acre in the past 10 years, compared with soybean revenue growth of just 4 percent, to $455 per acre.

In making planting decisions, farmers have many variables to take into account. This year, changes in relative price movements between the crops is a big factor driving the expected shift to corn and away from soybeans. But other considerations can come into play including expectations of crop yield, which can vary from field to field based on weather, timing of planting, and soil quality. Farmers also must weigh the benefits of new input technologies like more effective seeds, relative to the additional costs associated with those inputs. Other expenses, such as labor and chemicals, can vary significantly from region to region depending on local climates and economies.

The right-hand chart above shows operating profit per acre from growing corn generally exceeded that of soybeans through 2012. But rising production expenses have eaten into corn’s profitability in recent years. Net profit, at left above, includes accounting items like overhead, depreciation, and land expenses.

In the Heartland

Major crop production in the US is most highly concentrated in the Heartland region, which accounted for 61 percent of corn production and 56 percent of soybean production in 2017. Soybeans held an even greater edge in profit differential in the region than in the US as a whole. Operating profit from soybeans in 2017 was $342 per acre in the Heartland (versus $297 nationally), while corn generated operating profit of $315 per acre in the region (versus $285 nationally).

Mirroring the national trend, Heartland farmers moved more acres into soybean production and away from corn. From 2011 to 2017, area planted to soybeans increased 10.7 percent, while corn area fell 5.7 percent. Corn remained slightly ahead in total Heartland acreage in 2017, but by a much smaller margin than in 2011.

Gro was able to calculate regional crop-planted areas by aggregating county-level data, which currently is updated through 2017, contained in Gro’s database. This allows users to easily compare acreage and production with cost and revenue data, which is provided by the USDA’s Economic Research Service at the farm resource region level, such as the Heartland.

Heartland producers benefit from higher yields than in other regions, and revenue from corn production was $652 per acre in 2017, compared with the national average of $620 per acre. Soybean production in the region had revenue of $492 per acre, versus a national average of $455 per acre.

But Heartland farmers require additional expenditures to support production. Total corn production expenses in 2017 were $706 per acre (versus $682 nationally), and soybean expenses were $461 per acre (versus $443 nationally). Differences among regions in per-acre costs are driven by contrasting input use and production practices.

Seed expenditures are greater in the Heartland because of higher seed prices, due in part to increased use of genetically modified and herbicide-tolerant seed, and the number of seeds planted per acre. In all, corn seed expenses averaged $103 per acre in the Heartland in 2017, compared with $99 per acre nationally.

Fertilizer expenses were also higher in the Heartland, at $119 per acre versus a national average of $115. This is due in part to higher application rates of potassium and nitrogen.

Seed and fertilizer expenses have grown much more quickly for corn than for soybeans. This differential, shown in the chart above for the Heartland farming region, is a big factor driving corn’s increasing production costs.

Conclusion

While market participants are rightly focused on this year’s acreage shift to corn and away from soybeans, the bigger picture trends should not be ignored. Soybeans have developed a significant cost advantage to corn in recent years, mostly led by more advantageous operating expenses, such as seed and fertilizer costs. Assuming soybean prices are able to stabilize once the US/China trade war is resolved, the profit differential between the two largest crops in the US should shift back in favor of soybeans.