Risk management starts with crop choice

Prairie producers have few choices that will generate profit for the upcoming crop year.

However, a lot of math and phone calls and a little polishing of the crystal ball can deliver a plan for cropping choices that might put some black back in the pen.

Manitoba Agriculture released its profitability analysis for the year last week, and Saskatchewan will deliver its cropping guide this week. Provincial help is also available for Alberta producers.

Online worksheets and calculators allow farmers to look at the provincial averages of projected production, inputs costs, business costs and crop prices. More importantly, producers can enter their own data and come up with personalized estimates that allow for real-world costing and margin analysis. Cash flow simulations can then be created and borrowing estimates constructed.

These tools are available online at provincial agriculture department websites and via a set of links in the producer.com version of this story.

Lower fertilizer and fuel prices and a soft Canadian dollar are helping producers, but generally that is the only assistance that grain and oilseed growers can expect from the market this year.

Like last year, winter wheat will be the star in 2015-16. It’s too bad that so few acres were planted last fall because of the late harvest.

Yellow mustard and green peas both have a chance at a profit, based on average yields, currently available contracts, projected prices and a few guesstimates.

Yellow mustard could deliver a margin of $100 per acre and peas $120, as long as growers don’t count labour and machinery and storage investments and depreciation in their calculations.

However, the profit from these minor crops falls to $50 per acre or breakeven when those capital items and labour are taken into account.

These calculations assumed average yields, $50 per acre for land and recommended input rates. However, each farm is different and these numbers are aimed at providing a relative guide, nine months before a bushel is harvested and likely 11 months before much of it goes to the elevator.

Increase yields by a few bushels and many crops could join the Top 2 and leave red ink behind.

Experience a tough growing season and weed problems in the mustard or pea or significant over-production and these crops could join the rest of the pack.

Many producers found during the commodity boom that ended last year that they could profitably shift away from multiple crops to a canola and spring wheat or barley rotation.

Lower profits and more potential for timely sales and shipping are now prompting many growers to return to a pre-2008, wider crop mix.

What a difference a dollar makes in canola.

Growers were optimistic about a profit when commodity canola sold for $10.50 per bushel. However, after delivering the crop at $9 or less, many are now happy to find contracts in the low to mid $9 range and instead aim for producing higher yields and trimming costs at seeding time.

A 38 bu. crop and a $9.45 price could yield $70 per acre before labour and equipment costs. Forty-five bu. would allow for nearly all the bills to be paid, no matter how the calculation is made.

As well, canola has far fewer quality risks than most crops that can finish in less than 115 days.

Soybeans looked good last year, and still might, depending on costs of production and whether a grower can exceed yields of 30 bu. per acre. The higher yields have so far been found at only a few locations outside of southern Manitoba. For most farmers, $9.10 a bu. produces tight margins of about $30.

Hard red spring wheat could deliver returns of $43 per acre at yields of 45 bu. per acre.

Lower prices are offsetting the benefit of higher yields with some of the soft white wheat varieties, but some producers are growing bigger crops and might be able to grow their way to profitability.

Durum is a good bet with early harvest deliveries, but things will likely fall fast after that and the crop will be under pressure for quality once buyers cover their short-term positions. Good yields and great quality will be needed to keep the crop profitable after September.

However, many growers like having a bin or two around, if they can afford it, for when markets grow short.

Malt barley might be a spring cereal worth looking at, but its tendency to become feed barley without the big yield scares off many producers.

Oats also need a big yield to pay off in 2015, but this has often been the case for the crop.

Red lentils are a good bet this year, potentially delivering more than $80 per acre. Greens are also a decent bet.

However, weather can play havoc with quality, and most of these prices depend on high grades.

Chickpeas can do well for growers in the south, but low prices and high input costs will keep them out of many fields this year.

Corn has a lot of risk this year because of high growing costs that nibble away at the margins. It needs about 85 bu. per acre at $3.85 per bu. just to cover operating costs and 125 bu. per acre to be profitable. Some growers in Manitoba achieve this regularly, but west of there it doesn’t happen that often.

Growers with little debt and reliable machinery will achieve positive cash flow from the usual mix of crops, as long as the weather, transportation systems and markets don’t interfere too much.

However, crop choices will be critical for those with higher costs, and the provincial guides can provide localized insight into what the season might provide. That, and a crystal ball.

Crop return for 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crop return in a larger, printable form here

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