Competitiveness of U.S. Wheat: the Role of Productivity

Transcription

1 Competitiveness of U.S. Wheat: the Role of Productivity A report to the National Association of Wheat Growers 415 Second Street NE, Suite 300 Washington, DC August 31, 2015 Dr. J. Mark Welch, Associate Professor and Extension Economist-Grain Marketing College Station, TX Dr. Gary W. Williams, Professor of Agricultural Economics, Texas A&M University College Station, TX

2 Executive Summary Crop acreage trends in the United States show increasing acres of corn and soybeans and a decline in wheat. Specifically, wheat is losing acres in the Central Plains states, areas long considered much better suited for wheat production rather than corn or soybeans. This study examines the net returns of wheat versus corn and wheat versus soybeans in sample areas of Kansas, Nebraska, North Dakota, and South Dakota where the acreage shift away from wheat to corn and soybeans has occurred. A comparison of net returns over the last several years shows that in South Central Kansas, Southeast Nebraska, Southeast North Dakota, and North Central South Dakota average returns from corn and soybeans are higher than wheat. Also in each case, the variability of net returns is higher for corn and soybeans compared to wheat production. The impact of corn and soybean yield on the net revenue advantage corn and soybeans have over wheat shows that in each case, current average corn and soybean yields are high enough such that likely returns exceed those of wheat. However, if wheat yields were 20% higher over the period of this analysis, 1) wheat would be competitive with corn and soybeans in Kansas, 2) corn and soybean production would still hold advantages in Nebraska, 3) corn would still be at a competitive advantage in North Dakota and South Dakota, but expected revenue between soybeans and wheat in these states would be about the same. Also considered is the role crop insurance plays as a safety net for those farmers planting higher risk crops in non-traditional areas. Relative revenue guarantees between crops are influenced by both base price relationships and relative average yield history. In the case of a 100% crop loss, a 75% revenue protection crop insurance policy does not cover all the additional variable costs associated with corn production over wheat in Kansas. The same policy does cover the additional production costs of corn over wheat in Nebraska, North Dakota, and South Dakota. 1

3 Wheat losing ground to corn and soybeans The June 30 th Acreage report from USDA showed that U.S. farmers in 2015 planted 88.9 million acres of corn, 85.1 million acres of soybeans, and 56.1 million acres of wheat (USDA, NASS 2015). Compared to planted acres in 2000, corn is up 9.3 million acres (+12%), soybeans up 10.9 million acres (+11%), and wheat is down 6.5 million acres (-10%). Reflecting recent trends in U.S. farm cropping patterns, enrollment data from the Farm Service Agency on commodity program choice in the 2014 farm bill show that corn had an increase in base acreage reallocation of 12.8 million acres, soybeans +4.7 million, while wheat had a decline of 9.9 million acres (Zulauf, Schnitkey, Coppess, and Paulson, 2015). The corn increase and the wheat decline were the largest of all covered commodities. About half of the loss in wheat and half of the gains in corn and soybeans occurred in 4 states that are in the top ten in wheat acres and on the western fringe of the Corn Belt: North Dakota, South Dakota, Nebraska, and Kansas. Figure 1. Change in Base Acres, 2014 vs Crop Year Source: (Zulauf, Schnitkey, Coppess, and Paulson, 2015) This study compares the net returns from corn, soybeans, and wheat production in areas of North Dakota, South Dakota, Nebraska, and Kansas where the acreage shift away from wheat has occurred in order to determine how much of an increase in wheat yields would be required for wheat to be competitive with soybeans and corn in these areas. The crop production districts identified for analysis are hard red winter wheat in South Central Kansas, hard red winter wheat in Southeast Nebraska, spring wheat in Southeast North Dakota, and spring wheat in North Central South Dakota. Acreage changes in these areas over the last fifteen years are shown in Table 1. 2

4 Table 1. Planted acres, 2000, 2014 and change. Wheat Acres Corn Acres Soybean Acres Year change change change South 2,210,000 2,100, , , , , , , ,000 Central Kansas Southeast 160, ,000-57, ,000 1,495, ,000 1,034,000 1,198, ,000 Nebraska Southeast 715, , , , , , ,000 1,394, ,000 North Dakota North Central South Dakota 562, , , ,000 1,146, , ,000 1,265, ,000 Previous Research Grain sorghum has been losing acreage to corn as corn varieties are being developed with increased tolerance to drought and heat stress. Staggenborg, Dhuyvetter and Gordon (2008) compared the net returns from dryland grain sorghum and corn in Kansas and Nebraska. In their study they regressed grain sorghum net returns minus corn net returns against corn yields. This calculation revealed the average break even corn yield a farmer would need in order for the returns from corn and the returns from grain sorghum to be equal. Using the historical price relationship between grain sorghum and corn in the region (grain sorghum 87% the price of corn), the corn yield at which returns from grain sorghum and the returns from corn equate is 105 bushels per acre. When a corn yield less than 105 bushels is expected, grain sorghum is likely to produce higher net returns. Research Methods Following Staggenborg, Dhuyvetter and Gordon, this study regressed the net returns of corn over wheat against corn yields and the net returns of soybeans over wheat against soybean yields. This analysis was applied to the crop districts identified above to determine the breakeven yield of corn and soybeans for each district. The analysis was re-run using a wheat yield increase of 20% each year to see the impact increased wheat yields would have on the relative break even corn and soybean yields in these areas. Data Net crop revenue was collected for South Central Kansas, Southeast Nebraska, Southeast North Dakota, and North Central South Dakota. For Kansas, yield, price, and variable cost information from 1995 to 2014 for hard red winter wheat, corn, and soybeans was available from the Kansas Farm Management Association Profit Center Analysis, in partnership with the AgManager program at Kansas State University. 3

5 For Nebraska, extension crop budgets for hard red winter wheat, corn, and soybeans were available for 2001, 2004, 2006, and Yield information was from USDA, NASS and price information from USDA, AMS Rural Nebraska grain bids in late July for wheat and mid-october for corn and soybeans. For North Dakota, extension crop budgets for spring wheat, corn, and soybeans were available from Yield information was from USDA, NASS. Due to the lack of publicly available price information for this district, price information used was from the South Dakota Wheat Growers, grain price history for Bristol, South Dakota in mid-october. For South Dakota, extension crop budgets for spring wheat, corn, and soybeans were available from Yield information was from USDA, NASS. Price information was the same as for North Dakota, South Dakota Wheat Growers, grain price history for Bristol, South Dakota in mid-october. Analysis Comparison of net returns for wheat, corn, and soybeans in each of the regions of this study supports the decision farmers are making in their crop enterprise selection. Kansas For South Central Kansas, wheat, corn, and soybean yields since 1995 have been flat to slightly negative. Wheat yields were lower in 2007 due to late season flooding and crop damage while corn and soybeans were hit hard by drought in 2011 and Changes in trend yields for all three crops in this area are flat, no trend yield growth patterns. Table 2. South Central Kansas, yields, prices, costs, and revenue Hard Red Winter Wheat Corn Soybeans Yield Price Var. Cost Net Rev. Yield Price Var. Cost Net Rev. yield price Var. Cost Net Rev $ 4.44 $ $ $ 3.22 $ $ $ 6.58 $ $ $ 4.77 $ $ $ 2.58 $ $ $ 6.65 $ $ $ 3.27 $ $ $ 2.63 $ $ $ 6.33 $ $ $ 2.68 $ $ $ 2.13 $ $ $ 5.29 $ $ $ 2.32 $ $ $ 1.66 $ $ $ 4.61 $ $ $ 2.66 $ $ $ 2.03 $ $ $ 4.86 $ $ $ 2.67 $ $ $ 2.07 $ $ (14.75) 19.6 $ 4.33 $ $ (25.10) $ 3.55 $ $ $ 2.46 $ $ $ 5.42 $ $ $ 3.32 $ $ $ 2.34 $ $ (4.55) 22.0 $ 6.54 $ $ (1.51) $ 3.32 $ $ $ 1.97 $ $ $ 6.24 $ $ $ 3.35 $ $ $ 2.01 $ $ $ 5.51 $ $ $ 4.38 $ $ $ 3.22 $ $ $ 6.24 $ $ $ 5.88 $ $ (43.20) $ 4.19 $ $ $ 9.48 $ $ $ 6.93 $ $ $ 3.78 $ $ $ 8.83 $ $ $ 5.13 $ $ $ 3.44 $ $ $ 9.48 $ $ $ 5.12 $ $ $ 4.44 $ $ $ $ $ $ 6.88 $ $ $ 5.66 $ $ (167.56) 8.8 $ $ $ (51.57) $ 7.50 $ $ $ 6.98 $ $ $ $ $ $ 6.88 $ $ $ 4.14 $ $ $ $ $ $ 6.37 $ $ (6.12) $ 3.71 $ $ $ 9.79 $ $ Average 40.0 $ 4.57 $ $ $ 3.23 $ $ $ 7.73 $ $

6 Figure 2. South Central Kansas Crop Yields, bushels per acre Corn Wheat Soybeans Average: The average net revenue (grain revenue minus variable costs) from 1995 to 2014 for wheat was $68.68 per acre in a range from -$43.20 in 2007 to +$ in Corn in the same period averaged $99.77 per acre in a range from -$ to +$ Soybean net revenue average $ per acre and ranged from -$51.57 to Since 2004, the net returns from corn and soybeans are higher than wheat, 2011 and 2012 excepted. Figure 3. South Central Kansas Returns over Variable Costs, dollars per acre Corn Soybeans Wheat Average: $100 $117 $69 5

7 The probability distribution function of net returns shows that average wheat returns are less than corn and soybeans but the returns from corn and soybeans are much more variable. Figure 4. South Central Kansas Net Variability of Crop Returns Nebraska In the Southeast Nebraska district, yield trends for wheat, corn, and soybeans are positive, highest for corn and very similar for corn and beans. Corn yields were hit hard in 2002 and 2012 while soybean and wheat yields have been relatively consistent. Table 3. Southeast Nebraska yields, prices, costs, and revenue Hard Red Winter Wheat Corn Soybeans Yield trice Var. Cost bet Rev. Yield trice Var. Cost bet Rev. Yield trice Var. Cost bet Rev $ 2.93 $ $ $ 1.76 $ $ $ 3.86 $ $ $ 3.32 $ $ $ 1.96 $ $ $ 4.68 $ $ $ 4.73 $ $ $ 2.82 $ $ $ 5.31 $ $ $ 4.95 $ $ $ 3.42 $ $ $ 9.37 $ $ $ 4.60 $ $ $ 4.95 $ $ $ $ $ $ 7.03 $ $ $ 6.22 $ $ $ $ $ $ 8.28 $ $ $ 7.33 $ $ $ $ $ $ 6.98 $ $ $ 4.25 $ $ $ $ $ $ 5.88 $ $ $ 3.02 $ $ $ 8.62 $ $ Average 43.0 $ 5.41 $ $ $ 3.97 $ $ $ 9.01 $ $

8 Figure 5. Southeast Nebraska Crop Yields, bushels per acre Corn Wheat Soybeans Average: The average net revenue from the budgets available shows an average for wheat of $ per acre in a range from $42.49 to +$ Corn averaged $ per acre in a range from $73.32 to +$ Soybean net revenue averaged $ per acre and ranged from $77.75 to In every budget available, the net returns from corn and soybeans exceeded those of wheat. Figure 6. Southeast Nebraska Returns over Variable Costs, dollars per acre Corn Soybeans Wheat Average: $250 $301 $100 7

9 The probability distribution function of net returns again shows a lower average but less variability for wheat relative to corn and soybeans. The lower bound of corn and soybean returns was near the average return for wheat. Figure 7. Southeast Nebraska Net Variability of Crop Returns North Dakota In the Southeast North Dakota district, yield trends for wheat, corn, and soybeans are all positive, highest for corn, second spring wheat, and then soybeans. Table 4. Southeast North Dakota yields, prices, costs, and revenue Hard Red Spring Wheat Corn Soybeans Yield trice Var. Cost Net Rev. Yield trice Var. Cost Net Rev. Yield trice Var. Cost Net Rev $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 3.61 $ $ $ 1.59 $ $ $ 4.50 $ $ $ 3.93 $ $ $ 1.34 $ $ $ 5.11 $ $ $ 4.74 $ $ $ 2.65 $ $ $ 5.03 $ $ $ 7.99 $ $ $ 3.05 $ $ $ 8.52 $ $ $ 5.95 $ $ $ 3.38 $ $ $ 7.52 $ $ $ 5.28 $ $ $ 3.13 $ $ $ 9.28 $ $ $ 6.86 $ $ $ 4.62 $ $ $ $ $ $ 8.50 $ $ $ 5.82 $ $ $ $ $ $ 8.48 $ $ $ 6.71 $ $ $ $ $ $ 7.05 $ $ $ 3.79 $ $ $ $ $ $ 5.15 $ $ $ 2.55 $ $ $ 8.46 $ $ Average 39.9 $ 5.15 $ $ $ 2.82 $ $ $ 7.33 $ $

10 Figure 8. Southeast North Dakota Crop Yields, bushels per acre Corn Wheat Soybeans Average: The average net revenue, again from limited budget information, shows an average for spring wheat of $ per acre in a range from $59.13 to +$ Corn averaged $ per acre in a range from $14.73 to +$ Soybean net revenue averaged $ per acre and ranged from $62.92 to Net returns in this district were very similar for all three crops until 2010 when corn and soybeans rose significantly higher relative to wheat. However, in 2013 and 2014, corn had lower returns than soybeans or wheat. Figure 9. Southeast North Dakota Returns over Variable Costs Corn Soybeans Wheat Average: $192 $180 $129 9

11 The probability distribution function of net returns shows the average of corn and soybeans near the upper bound of net wheat returns. Again, wheat shows the least variability of net returns but the lowest average. Figure 10. Southeast North Dakota Net Variability of Crop Returns South Dakota Not unexpectedly, yield trends in the North Central South Dakota district are similar to those of Southeast North Dakota, positive for all crops, highest for corn, second spring wheat, and then soybeans. Table 5. North Central South Dakota yields, prices, costs, and revenue Hard Red Spring Wheat Corn Soybeans Yield trice Var. Cost Net Rev. Yield trice Var. Cost Net Rev. Yield trice Var. Cost Net Rev $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 5.95 $ $ $ 3.38 $ $ $ 7.52 $ $ $ 5.28 $ $ $ 3.13 $ $ $ 9.28 $ $ $ 6.86 $ $ $ 4.62 $ $ $ $ $ $ 8.50 $ $ $ 5.82 $ $ $ $ $ $ 8.48 $ $ $ 6.71 $ $ $ $ $ $ 7.05 $ $ $ 3.79 $ $ $ $ $ $ $ $ 8.46 Average 41.9 $ 5.15 $ $ $ 2.82 $ $ $ 7.33 $ $

12 Figure 11. North Central South Dakota Crop Yields Corn Wheat Soybeans Average: Average net revenue, from only six years of available data, shows an average for spring wheat of $ per acre in a range from $ to +$ Corn averaged $ per acre in a range from $ to +$ Soybean net revenue averaged $ per acre and ranged from $ to Corn returns rose significantly above the other crops in 2010 but fell below in Figure 12. North Central South Dakota Returns over Variable Costs Corn Soybeans Wheat Average: $307 $253 $212 11

13 As in the other cases, wheat again shows the least variability of net returns among the three crops and the lowest average. Average soybean returns are near the upper bound of wheat returns while average corn returns are above the upper bound of wheat. Figure 13. North Central South Dakota Net Variability of Crop Returns The regression of corn returns minus wheat returns against corn yield and soybean returns minus wheat returns against soybean yields shows the yield of corn and soybeans at which the returns from these crops is expected to be the same as for wheat. For South Central Kansas, the breakeven yield for corn is 74 bushels per acre compared to a current average of 84 bushels per acre. This information supports the shift in acres in this area from wheat to corn. If wheat yields were 20% higher, the breakeven corn yield needed to equal returns from wheat rises to 85 bushels, just above the current average. For soybeans, the yield at which returns from soybeans equal returns from wheat is 25 bushels per acre. This is 6 bushels lower than the current average yield of 31 bushels. With a 20% increase in wheat yields, the breakeven soybean yield becomes 29 bushels per acre, just below the current average. The availability of more budgets makes the analysis of net revenue relative to crop yields more reliable in Kansas than the other areas of this study. In the Kansas analysis, a greater proportion of the variation in returns is explained by corn and soybean yields (higher R 2 values) than in Nebraska, North Dakota, or South Dakota. In Nebraska, North Dakota, and South Dakota, corn yields are higher proportionally compared to wheat (Kansas average corn yield is 2.2 times average wheat yields, Nebraska, 2.8, North Dakota, 3.0, and South Dakota, 2.7) and show a high rate of trend yield growth. As such, corn returns in these regions never drop below wheat returns regardless of corn yield and exceed that of wheat by a wide margin. The regression of corn minus wheat returns against corn yields shows expected net returns from corn over wheat increasing with corn yield, but the breakeven point calculation results in a very low or negative corn yield. If the average wheat yield were to increase 20%, the breakeven corn yield increases but is still below current averages. 12

14 For soybeans, yield growth trends in Nebraska and the Dakotas are similar, even slightly higher for spring wheat, but soybean prices are much higher per bushel and variable costs very similar. Each case shows a higher expected difference in the net return from soybeans over wheat as soybean yields increase. In Nebraska, the calculation of the breakeven soybean yield returns a negative number. In North and South Dakota, the breakeven calculations show the advantage in expected net returns for soybeans over wheat at current yield levels, but the equalizing of expected returns if wheat yields were 20% higher. Table 6. Regression results for corn Kansas Nebraska North Dakota South Dakota Current Corn Yield BE Corn Yield 74 negative BE Corn Yield with 20% increase in Wheat Yield R 2 :current yield model/model showing increase in wheat yields 0.67/ / / /0.01 Table 7. Regression results for soybeans Kansas Nebraska North Dakota South Dakota Current Soybean Yield BE Soybean Yield 25 negative BE Soybean Yield with 20% increase in 29 negative Wheat Yield R 2 :current yield model/model showing increase in wheat yields 0.69/ / / /0.30 Figure 14. South Central Kansas Difference in Net Returns as a Function of Corn Yield Current Situation Break Even Corn Yield = 74 bushels per acre Current Average = 84 bushels per acre 20% increase in wheat yield Break Even Corn Yield = 85 bushels per acre Current Average = 84 bushels per acre 13

15 Figure 15. South Central Kansas Difference in Net Returns as a Function of Soybean Yield y y Current Situation 20% increase in wheat yield Break Even Soybean Yield = 25 bu per acre Current Average = 31 bushels per acre Break Even Soybean Yield = 29 bu per acre Current Average = 31 bushels per acre Figure 16. Southeast Nebraska Difference in Net Returns as a Function of Corn Yield y Current Situation 20% increase in wheat yield Break Even Corn Yield = NR bushels per acre Current Average = 111 bushels per acre Break Even Corn Yield = 46 bushels per acre Current Average = 111 bushels per acre 14

16 The same is true for soybeans in Nebraska as corn, the wide margin of returns above wheat regardless of soybean yield results in negative breakeven yields, even with a 20% increase in wheat yield. Figure 17. Southeast Nebraska Difference in Net Returns as a Function of Soybean Yield y y Current Situation 20% increase in wheat yield Break Even Soybean Yield = NR bu per acre Current Average = 43 bushels per acre Break Even Soybean Yield = NR bu per acre Current Average = 43 bushels per acre Figure 18. Southeast North Dakota Difference in Net Returns as a Function of Corn Yield Current Situation 20% increase in wheat yield y Break Even Corn Yield = 75 bushels per acre Current Average = 121 bushels per acre Break Even Corn Yield = 118 bushels per acre Current Average = 121 bushels per acre 15

17 Figure 19. Southeast North Dakota Difference in Net Returns as a Function of Soybean Yield y y Current Situation 20% increase in wheat yield Break Even Soybean Yield = 26 bu per acre Current Average = 33 bushels per acre Break Even Soybean Yield = 34 bu per acre Current Average = 33 bushels per acre Figure 20. North Central South Dakota Difference in Net Returns as a Function of Corn Yield Current Situation Break Even Corn Yield = 29 bushels per acre Current Average = 115 bushels per acre 20% increase in wheat yield Break Even Corn Yield = 101 bushels per acre Current Average = 115 bushels per acre 16

18 Figure 21. North Central South Dakota Difference in Net Returns as a Function of Soybean Yield Current Situation Break Even Soybean Yield = 30 bu per acre Current Average = 34 bushels per acre 20% increase in wheat yield Break Even Soybean Yield = 35 bu per acre Current Average = 34 bushels per acre Crop Insurance This analysis shows the increased average returns for corn and soybeans compared to wheat in each crop district. But along with the likelihood of increased returns is an increase in risk. Comparing crop insurance indemnity at various levels of production loss show the safety net farmers can secure in order to pursue riskier crop enterprises. Each example will be of a farmer purchasing a 75% Revenue Protection crop insurance policy, an APH equal to the most recent 10-year average yield, and 2015 base prices. Comparisons will be between corn and wheat. In South Central Kansas, a 100% loss of a corn crop results in an indemnity payment of $261 while 100% losses in wheat pays $189, a difference of $72. This is less than the difference needed to compensate a farmer for the increased production costs of corn compared to wheat and soybeans. The 2015 corn and wheat budgets from Kansas State University estimate corn variable costs over wheat by $120. In 2015 the base crop insurance price was favorable for winter wheat relative to corn in that the base price ratio was 1.52 (630 wheat/415 corn) instead of a more typical That combined with a relatively lower corn to wheat APH (corn yield 2.2 times that of wheat) means the decision to plant corn is not overly influenced by potential crop insurance indemnities. In Southeast Nebraska, the same base price ratio applies (favoring wheat) but the corn APH is 2.8 times that of wheat. In this case a 100% loss results in a corn payment of $352 per acre compared to $208 for wheat, a $144 difference. The 2015 crop budgets from the University of Nebraska show corn variable costs $91 over that of wheat, a favorable crop insurance situation for the risk associated with planting corn. 17

19 In North Dakota and South Dakota, the base price ratio for 2015 favored corn over spring wheat. The corn base price is the same as Kansas and Nebraska at $4.15 but the spring wheat base price was $5.85 (lower than the winter wheat base price). The crop insurance wheat to corn price ratio was 1.40 when the average price relationship between spring wheat and corn is Again with higher corn to wheat yields, corn APH levels 3.0 and 2.7 times that of wheat, the corn indemnity in the case of a 100% loss favors planting corn. The indemnity payment in Southeast North Dakota is $392 compared to $180 for wheat, a difference of $212. In North Central South Dakota the indemnity payment with a 100% loss is $374 compared to $193 for wheat, a $181 difference. Crop budgets for North Dakota estimate corn variable costs $181 higher than wheat in Current budgets for South Dakota project corn variable costs $90 higher than wheat. In Nebraska, North Dakota, and South Dakota crop insurance indemnity in the case of a 100% loss more than compensates for the additional cost of production. Crop insurance premiums for corn are higher than those of wheat, ranging from +$3 to +$20 in 2015 budgets. But production costs will mostly likely be less in the case of catastrophic loss, if nothing else from savings in harvest costs (more for corn over wheat), even more so the earlier in the season the loss occurs. Conclusion The Corn Belt continues to shift west as corn and soybean acres increase at the expense of wheat. A comparison of net returns over the last several years shows that in South Central Kansas, Southeast Nebraska, Southeast North Dakota, and North Central South Dakota average returns from corn and soybeans are higher than wheat. Also in each case, the variability of net returns is higher for corn and soybeans compared to wheat production. This analysis shows that current average corn and soybean yields in each of these areas are high enough above break even to support the likelihood of higher net farm revenue from corn over wheat or soybeans over wheat. If wheat yields over the period of time of this analysis had been 20% higher in each region: the breakeven yields for corn and soybeans in Kansas rise to current averages (corn and soybeans lose their expected net return advantages over wheat); results from Nebraska show higher net returns from corn and soybeans as yields increase but the specific calculation of the breakeven yields is not meaningful; North Dakota and South Dakota wheat becomes more competitive with corn with a yield increase but the average corn yield is still above breakeven. Soybean returns lose their advantage over wheat with a wheat yield increase. A comparison of the farm revenue safety net provided by revenue protection crop insurance for wheat and corn is impacted by the relative base price of corn to wheat and the proportion by which one crop s APH compares to the other. In 2015, the corn base price relative to hard red winter wheat was below average (advantage winter wheat) while the corn to spring wheat base price ratio was above average (advantage corn). For 2015 in Kansas, the combination of these factors resulted in a lack of coverage of the variable cost difference between corn and wheat in the case of a catastrophic loss. In Nebraska, 18

20 North Dakota, and South Dakota, the additional variable cost of corn over wheat is covered if the crop is a total loss. Not considered as part of this analysis is the agronomic benefit of crop rotation. Crop rotation can boost yields, improve soil characteristics (organic matter, control erosion and runoff) and help in the management of diseases, insects, and weeds, especially in the face of herbicide resistance. Revenue calculations in this analysis are for grain only, price times yield. Not considered are other sources of crop income such as grazing or baling straw. Both can be significant sources of additional revenue, especially in the case of wheat, and a means to reduce risk. This analysis shows the degree to which a 20% increase in wheat yield would equate the likely net returns between corn, soybeans, and wheat in major wheat production areas. That increase does not take into account the continued yield growth of corn and soybeans as well. In most cases, the bar is moving higher for wheat yields to be competitive with other crops. References 19

21 Davis, Jack. South Dakota Crop Budgets, South Dakota State University. Available at Kansas Farm Management Association. Enterprise Summaries, Ag Manager, Kansas State University. Available at Klein, Robert N., Roger K. Wilson, and Jessica Johnson. Nebraska Crop Production Budgets, University of Nebraska, Lincoln. Available at South Dakota Wheat Growers. Grain Price History. Available at Staggenborg, S.A., K.C. Dhuyvetter, and W.B. Gordon. Grain Sorghum and Corn Comparisons: Yield, Economic, and Environmental Responses, Agronomy Journal, 100, (2008): Swenson, Andrew and Ron Haugen. Projected Crop Budgets, South East North Dakota, North Dakota State University. Available at USDA, Agricultural Marketing Service, Rural Nebraska Grain bids. Available at USDA, NASS. Acreage, June 30, USDA, NASS. Data and Statistics. Available at Zulauf, C., G. Schnitkey, J. Coppess, and N. Paulson. "2014 Farm Bill Crop Program Election, Part II." farmdoc daily (5):113, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, June 18,