Due to continued increases in demand for certified organic grains, crop farmers that have transitioned from conventional to certified organic grains report higher net returns per acre (McBride et al., 2015; Greene et al., 2017; Greene and Vilorio, 2018; Center for Farm Financial Management, 2020). Despite this, certified organic land accounts for less than 2 percent of U.S. farmland (U.S. Agricultural Census, 2017).
For those interested in exploring the potential associated with transitioning to an organic system, information pertaining to the relative profitability of conventional and organic production is often lacking. A previous article (farmdoc daily, June 5, 2020) examined the relatively profitability of conventional corn/soybean and corn/soybean/wheat crop rotations with an organic corn/soybean/wheat crop rotation.
This article compares the long-run net returns to land of a conventional corn/soybean crop rotation to an organic forage-based crop rotation that includes corn, soybeans, oats, and alfalfa. This crop rotation consists of three years of alfalfa production.
Oats are planted with alfalfa in the first year, so essentially the organic crop rotation is a 5-year rotation. Organic practices tend to involve more complication crop rotations and often include cover crops (Greene et al., 2019). Ten-year enterprise budgets for each crop rotation were developed so that we could capture the net returns of both the transition years and organic production years for the organic crop rotation.
Price, Yield, and Cost Comparisons
Certified organic grains tend to receive higher crop prices and have lower crop yields (McBride et al., 2015 and Center for Farm Financial Management, 2020). Using FINBIN data for the 2014 to 2018 period, organic corn, soybean, and oat prices were more than double the corresponding prices for their conventional counterparts. Organic alfalfa prices were approximately 20 percent higher than average alfalfa prices for conventional production.
The crop yield drags for organic corn, organic soybeans, and organic oats were approximately 32 percent, 33 percent, and 23 percent, respectively. The yield drag for organic alfalfa was approximately 9 percent. Combining crop prices, crop yields, government payments, crop insurance indemnity payments, and miscellaneous revenue for both conventional and organic crops, gross revenue for the organic crops was higher, with the most significant difference associated with corn.
Organic crop production often involves higher manure, machinery, and labor costs, and lower fertilizer, herbicide, and insecticide costs. Using FINBIN data for the 2014 to 2018 period, total expenses for organic production in comparison to conventional production were slightly higher for corn and alfalfa, and from 40 to 50 percent higher for soybeans and oats.
Enterprise Budget Summary
Enterprise budgets were developed for conventional and organic corn and soybeans, and for conventional, transition, and organic oats and alfalfa. Conventional corn and soybean enterprise budgets were used to estimate net returns per acre for a corn/soybean rotation.
Transition oats and alfalfa were used along with organic corn, soybeans, oats, and alfalfa to estimate net returns per acre for an organic corn/soybean/oats/alfalfa rotation. Oats and alfalfa were used as transition crops, and the transition was assumed to take place over time rather than just the first two years of the ten-year period.
The organic crop rotation was set-up to ensure that the first organic crops would be alfalfa and corn, which have historically been the most profitable organic crops. More detail pertaining to the enterprise budgets can be found here.
Table 1 illustrates the crop prices that were used for year 1 and years 2 through 10. After being lower in the first year (i.e., 2020), corn and soybean prices were assumed to stabilize and reach a long-run equilibrium. The historical difference between conventional and organic prices was used to estimate the organic prices. Sensitivity analysis related to organic crop price assumptions can be found below.