 
November 22, 2004
DOES SOYBEAN RUST POINT TO REDUCED PRODUCTION?
The discovery of Asian soybean rust in
some southern states has triggered a flood of commentary about
U.S. soybean acreage and yield prospects in 2005 and beyond.
Many believe that acreage will be reduced in 2005 and that
average yields will also be negatively impacted.
There are clearly more questions about the impact of soybean
rust than answers at this time. The discovery of rust at the
end of the 2004 harvest season means that the industry has
some time to analyze alternatives and make decisions based
on the best information and recommendations of experts. The
first reactions may not reflect final decisions. One is reminded
of the example of soybean aphids in 2003. The early response
of many producers was to plan to sharply reduce soybean acreage
in 2004, but that did not happen.
Initially, the acreage response to soybean rust is anticipated
to be most significant in southern growing areas where rust
could be most problematic. Soybean area in the 12 southern
states totaled about 11 million acres in 2004. Reduced acreage
in those states in 2005 might be anticipated as a way for
producers to avoid the cost and potential yield impact of
the disease. However, sound economic alternatives for soybeans
may be limited due to low prices and increased cost of production
of other crops. In addition, some acreage in those states
is already routinely treated with fungicides for the control
of other foliar diseases. Treating for soybean rust might
involve only a marginal increase in production costs for those
areas.
Soybean planting decisions in the midwest should be impacted
by expectations of the probability of soybean rust in the
area in 2005; the cost of treating; the potential yield impact;
and the economics of alternative crops, primarily corn. Producers
will likely spend the winter months evaluating these factors
and making planting decisions. It is possible for adjustments
to be made in some acreage decisions late in the planning
process. One of the factors that may influence the decision
is the rapid increase in the cost of corn production. Crop
production budgets for central Illinois, for example, indicate
that variable costs of corn production increased about $21
per acre from 2000 to 2004 and might be another $9 higher
in 2005. During the same time period, the variable cost of
soybean production increased by only $4 per acre and is projected
to increase another $4 in 2005, not including any fungicide
applications. Another important factor could be the recent
experience of high corn yields relative to soybeans. If producers
anticipate that relationship to continue, corn would still
be an attractive alternative to soybeans even with higher
production costs. Finally, planting decisions will be influenced
by the relative price of corn and soybeans at planting time,
as well as planting time weather.
Planting decisions in the upper midwest could be positively
influenced by the discovery of soybean rust in the south.
On an annual basis, there may be a lower probability of the
occurrence of soybean rust in those northern states. Producers
there might see expected acreage reductions in other regions
as an opportunity to expand acreage in 2005.
At this juncture, it is difficult to anticipate the direction
and magnitude of soybean acreage change in 2005. Producers
will have to carefully evaluate all of the decision factors,
including production costs and relative yields and prices
of alternative crops. Given the 960,000 acre increase in soybean
area in southern states in 2004, it would not be surprising
to see a reduction in 2005. Some of that decline could be
offset by the trend increase in soybean area in the upper
midwest. The USDA's Winter Wheat Seedings report to be released
on January 12 may provide some insight on the potential changes
in acreage of spring planted crops, but will not be very helpful
in assessing the potential mix of those crops.
The potential yield impact of soybean rust in 2005 is nearly
impossible to anticipate. The impact will presumably be influenced
by the geographic extent of the incidence of the disease,
the timing of its occurrence, and the effectiveness of control
measures. It is known that the potential impact is severe
if not effectively treated. The market will have to work through
the production and price implications of soybean rust in the
U.S. In the meantime, rust will again be an issue in Brazil.
The planting season has generally been favorable in Brazil,
but the presence of rust in commercial production has been
confirmed.
While an important issue, the impact of soybean rust is not
the only factor that will influence price. If current USDA
projections are correct, the 2004-05 U.S. soybean marketing
year will end with stocks of 460 million bushels. That is
at least 260 million more than generally considered adequate.
Allowing for an increase in use to 2.9 billion bushels in
the 2005-06 marketing year, the 2005 U.S. crop could be as
small as 2.65 billion bushels without creating a shortage.
With a U.S. average yield of 40 bushels, a crop of 2.65 billion
bushels could be generated with harvested acreage of 66.25
million, 7.74 million fewer than harvested in 2004. Without
some reduction in U.S. production or a substantial increase
in use, soybeans could remain in surplus for another year.
Issued by Darrel Good
Extension Economist
University of Illinois
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