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Thursday, February 02, 2012

Are You Getting The Most Revenue From Your Crop Rotation?



 

Have you asked yourself in recent years why you have the crop rotation you have?  Are you trying to maximize revenue?  Are you trying to minimize expense?  Are you trying to manage some weeds that have been tough to control?  Do you have an insect problem that requires a special rotation?  Are you trying to please a land owner? Or is it because Dad did it that way?  Whatever your reason, have you considered comparing single year revenue with the potential for multiple year revenue based on various crop rotations? 

The question about multiple year crop rotations arises with the recent results of corn yields from continuous corn and corn after corn.  You probably have not been bragging about those to your friends lately, and declining yields for multiple year corn can be blamed on a variety of reasons.  But University of Illinois Farm Management Specialist Gary Schnitkey has penciled out multiple year crop budgets which indicate decisions one year may be hurting your revenue in future years.  He suggests looking at longer run impacts from yearly cropping decisions.

Schnitkey evaluated a trio of crop rotations:
1) Corn after soybeans, which resulted in a 198 bu. corn yield, on $505 non-land costs.
2) Corn after corn, which resulted in a 188 bu. yield, on $520 non-land costs.
3) Continuous corn, which resulted in a 180 bu. yield, on $520 non-land costs. 
When planted within the rotation with corn, soybeans yielded 56 bu. for a corn after soybean rotation, but the beans yielded 59 bu. after two years of corn. 

Based on a $5.35 corn price and a $11.85 soybean price, Schnitkey calculated crop returns to labor, management, and land at:
$578 for corn-after-soybeans,
$510 for corn-after-corn,
$467 for continuous corn,
$390 for soybeans-after-corn, and
$425 for soybeans-after-two-years-corn.

Schnitkey’s yields and revenue are likely different than yours, so plug in your yields and prices, and then use those in developing a three year revenue projection for your crop.  As revenue changes from year to year, based on a different crop mix, Schnitkey’s three rotations created average annual revenue of:
$484 for corn-soybeans
$504 for corn-corn-soybeans,
$467 for continuous corn.

He says switching from a corn-corn-soybean rotation to continuous corn will produce a $16 per acre higher return in the first year, but $23 lower return in the second year and $37 lower returns in the third year.  Consequently a switch from continuous corn to a corn-corn-soybean rotation would produce a $14 lower return in the first year, a $23 higher return in the second year and a $37 higher return in the third year.  And Schnitkey says, “Key to the above calculations are the assumptions concerning yield drags for corn-after-corn and continuous corn. Lower yield drags will cause the profitability of more intense rotations to increase.”

Consider also the prospect of different commodity prices in future years.  His calculations were based on forecast averages for 2012, but Schnitkey says in coming years prices will likely be lower, and he calculated the rotations based on $4.50 corn and $10.50 soybeans.  Those generated a $362 return for a corn-soybean rotation, a $364 return for a corn-corn-soybean rotation and a $299 return for continuous corn.

Summary:
Crop rotations generate a specific return to management and land, but they could be quite different if extended over a multiple year period.  When yield drag is considered for multiple year corn, and lower revenue is considered for soybeans, some wide variations can be generated for revenue.  Producers may want to consider multiple year revenue projections as they consider crop rotations.

 

Posted by Stu Ellis on 02/02 at 01:26 AM | Permalink

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