Method of calculation | Producers reminded that each province uses different expense assumptions
A cursory glance at provincial crop planning guides suggests farming becomes profitable this year only after crossing the border from Manitoba into Saskatchewan.
The Crop Production Costs 2014 Guidelines for Western Manitoba, which was prepared by Manitoba Agriculture, shows that farmers will experience a net loss for almost every crop they grow this year.
The only exceptions are winter wheat, Roundup Ready soybeans and confectionary sunflowers.
The outlook changes dramatically one province to the west.
Saskatchewan farmers will make money on every crop they grow in the black soil zone with the exception of large green lentils, according to Sask-atchewan Agriculture’s Crop Planning Guide 2014.
So how can farms in the same soil zone have such dramatically different outlooks?
The answer lies in the variable expense assumptions used in the planning guides.
The fertilizer cost for spring wheat in Saskatchewan is estimated to be $46.80 per acre and for canola it is $54. In Manitoba, the numbers are $70.16 and $92.21, respectively. It is a huge difference for the most expensive crop input.
Glenn Payne, provincial agribusiness specialist with Saskatchewan Agriculture, said the two provinces use different assumptions when creating those cost estimates.
Saskatchewan’s guide was put together in early December when the prevailing market price for fertilizer was much cheaper than it is today. It assumes farmers bought a lot of their fertilizer in the fall and early winter.
The Saskatchewan guide uses a urea price of $487 per tonne, while Manitoba’s price of $727 per tonne reflects current fertilizer values and is 49 percent higher.
Saskatchewan’s guide also assumes lower urea application rates of 70 pounds per acre in the black soil zone compared to 100 lb. per acre in Manitoba, which is a 43 percent difference.
“When they’re using a higher rate of fertilizer and a higher price, no doubt their total expenditure on fertilizer would be a higher value,” said Payne.
It’s a similar story for insecticides and fungicides. Saskatchewan is using $3.20 per acre for spring wheat and $1.58 for canola, while Manitoba uses $14.90 for wheat and $26.02 for canola.
Payne said it appears that Manitoba is including the cost for disease and insect control on every acre.
“That’s something we haven’t planned for in the guide,” he said.
Saskatchewan is budgeting for spot applications on the five to 10 percent of a field that might be infected, which results in a big cost difference for another major input.
Payne said the important thing for growers to remember is that the spread sheets produced by the provinces are planning guides rather than budgets. It is critical that farmers plug in their own numbers when possible.
“The conditions they’re all facing are so variable even within regions, let alone across such a large region as the soil zones and across the province. So it’s tough to be all things to everyone,” he said.
Cherilyn Nagel, a farmer from Mossbank, Sask., isn’t familiar with the provincial planning guides.
“We have a really strong network of producers that we backbench against, but we also just typically try to rely as much as we can on our own numbers,” she said.
Nagel said the guides could be useful to a point, but in the final analysis every farm needs to create its own crop budget based on its own circumstances.
“We don’t typically find that our numbers fall in line that closely with a lot of those publications that come out,” she said.
“Like most farmers, you find a way to justify your own way of doing things anyways.”
Payne said thousands of copies of Saskatchewan’s guide are distributed by hard copy or downloaded online every year, so farmers must find them useful.
“The real value to me in the guide is the cost categories, the listing of items to consider to hopefully cover the waterfront of things to consider to make sure you’re building a fairly complete budget for yourself,” he said.
Alberta’s 2014 guide hasn’t been published yet.
Ted Nibourg, business management specialist with Alberta Agriculture, has seen some of the preliminary variable cost estimates, and they don’t look promising for canola.
He picked a random place in the province near Amisk, Alta., where crop insurance data indicates that 23 bushels per acre is the base coverage level for the crop.
A recent canola price of $9.77 per bu. would result in $225 per acre of gross revenue. Total variable costs for canola are expected to be $241 per acre, resulting in a gross margin of -$16.
“If you’re going to get those kind of yields, I wouldn’t be surprised if anybody would just forgo growing canola,” said Nibourg.
Increasing the average yield to 30 bu. per acre results in $293 in gross revenue and a small positive gross margin, but that’s before fixed costs.
“That’s a $52 contribution margin. Better hope the guy is not paying $60 an acre for cash rent,” he said.
Nibourg’s gross margin calculations lead him to believe that growers will be cutting back on some of their canola inputs this year.
“I think fertilizer is going to be the big one.”