The profit prospects for 2009 wheat and canola are much worse now than they were for the same crops last spring.
The market isn’t making it easy for farmers to decide which crop to give extra acreage to by making it obviously more profitable.
“The prices went up together, and they’ve come down together,” said Derwyn Hammond of the Canola Council of Canada.
“The spread between canola and wheat hasn’t changed much.”
If falling prices cause farmers to switch out of canola, which is an expensive crop to grow, there are many other crop options. But generally, across the Prairies, farmers will flop into wheat if they are flipping out of canola, Hammond said.
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Both crops now look much less promising than they did a few months ago, when profits seemed almost certain barring production problems.
Hammond said Manitoba Agriculture numbers last spring, using current grain and input prices at that time, showed that an average wheat field needed 25.1 bushels per acre to break even, while an average canola field needed 20 bu. This month, with high fertilizer and other input prices, and with $8.75 canola and $5.75 wheat, wheat farmers would need a yield of 34.3 bu. per acre and canola would need 28.6 bu.
That’s a much tougher job for a farmer with either crop, Hammond said. But it won’t necessarily push farmers toward wheat and away from canola.
“Canola still looks competitive compared to other crops,” said Hammond.
With the assumptions he plugged in, canola on an average field will net about $10 per acre more than wheat.
But in years when farmers think they’re likely to lose money on most crops, they often shy away from expensive canola and favour cheap-to-grow crops like wheat.
When it looks like prices are going to be high, they often favour high value, high cost crops like canola.
Given the extreme volatility of agricultural markets in recent months, it’s hard for farmers to know what to expect in 2009-10.
Hammond said he expects to see farmers delay final seeding decisions until early spring.
“With the volatility we’ve seen and the price differences, there’s no impetus to make decisions right away,” said Hammond.
Already there are many reports from seed dealers that farmers aren’t buying much canola seed. Many are assessing how much risk they will be taking when seeding a heavy-investment crop like canola.
“What’s the price of inputs going to do between now and seeding?” said Hammond of the farmers’ key consideration.
Canola uses more fertilizer than wheat, so if fertilizer prices keep falling, canola could become more attractive.
“The softer the fertility price gets, the better the picture looks on the input side for canola relative to wheat,” said Hammond.
Crop profit calculators are a dime a dozen, Hammond said, but the best ones on agricultural company websites tend to be those where you can play with the variables.
For instance, the default setting on one calculator he has used does not include fungicide spraying for wheat crops, but includes it for canola. For many farmers, fungicide treatments for cereals are necessary, so that default needs to be changed to provide a true cost picture.
