Production Matters Column: Opinion
Prairie producers have few choices that will grow true profits for the 2015/16 crop year.
A lot of math, phone calls and a little polishing of a crystal ball can deliver a plan for some cropping choices that might put some black in the pen in the coming season.
Last week Manitoba Agriculture released its profitability analysis for the year and Saskatchewan will deliver its cropping guide this week. Producers in Alberta too can find assistance from that government’s agriculture department. 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 some real-world costing and margin analysis. From these, cash flow simulations can be created and borrowing estimates constructed. All are available online and can be found here:
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Lower fertilizer and some fuel prices and help from a soft Canadian dollar are assisting producers, but generally that is the only help grains and oilseed growers are getting from the market this year.
Like last year, the star crop in balance sheet will be winter wheat. Too bad so few acres were planted last fall. The late harvest meant that few growers were able to clear the crops in time to meet the crop insurance deadlines.
Of the crops that can be planted this spring and hold out potential for profits, yellow mustard and green peas both have a chance, based on average yields, currently available contracts, some projected prices and a few guesstimates.
Depending on how a producer views profitability, yellow mustard could deliver a margin of about a $100 per acre, provided growers don’t count labour and machinery and storage investments and depreciation in their calculations.
Peas could put $120 on the third from the bottom line.
Take into account those capital items and labour and the profit from these minor crops falls to $50 or near break even. But every farm is different. The way these calculations were made, $50 per acre for land was included in the production costs. Recommended rates of inputs were applied for each crop and average yields were used. But each farm is different and these numbers are aimed at providing a relative guide, nine months before a bushel is harvested, and likely eleven before much of it goes to the elevator.
A few bushels of added yield and many crops could join the top two and leave red ink behind. A tough growing season and some weed problems in the mustard or peas, or significant over production, and these crops could join the rest of the pack (story continued below).
View a larger version of the chart that can be printed here
During the commodities boom that came to a close last year, many producers found they could profitably shift away from multiple crops to a canola and spring wheat or barley rotation.
With so many of the prairie crops delivering similarly-low returns, but offering more potential for timely sales and shipping, many growers are returning to a pre-2008, wider mix among their fields.
What a difference a dollar makes in canola. At $10.50 for commodity canola, growers were optimistic about a profit. After delivering the crop at $9 or below, many are happy to find contracts in the low to mid $9 area and instead aim for higher yields and trimming a few costs at seeding time. A 38 bu. crop and a $9.45 price could yield about $70 before labour and equipment costs. Forty-five bushels would allow for all the nearly all the bills to be paid, no matter how the calculation was made. And canola has far fewer quality risks than most crops that can finish in under 115 days.
Soybeans looked good last year, and still might, depending on costs of production and whether a grower can get past 30 bu. per acre. So far the higher yields have been found at only a few locations outside of southern Manitoba. For most producers at $9.10 a bu. they show tight margins of about $30.
Hard red spring wheat could deliver about $43 at 45 bushels. The benefit of higher yields with some of the soft whites is mitigated with lower prices, however some producers are seeing 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 the buyers have their short-term positions covered. A good yield and great quality will be needed to keep it profitable after September. However many growers, if they can afford it, like having a bin or two around when markets grow short of the pasta crop.
Malt barley might be a spring cereal worth looking at, however its tendency to become feed barley without the big yield scares many producers off. This year’s poor crop will likely make it a better bet for successful growers.
Oats too needs a big yield to pay off in 2015, but this has often been the case for the crop.
For those able to grow lentils, the red ones are a good bet this season, potentially delivering more than $80. Green too are a decent bet. Weather can play havoc with quality though and most of these prices are dependent on high grades.
Chickpeas can do well for some growers in the south, however low prices and high input costs will keep them out of many fields this year.
Corn has a lot risk for producers this year, with high growing costs that nibble away at the margins, the big yellow cereal needs about 85 bushels at $3.85 just to cover operating costs and 125 to be profitable. Some growers in Manitoba do it regularly, but it doesn’t happen very often west of there.
For growers with little debt and a machinery lot of reliable gear some positive cash flow will come from the usual mix of crops, provided the weather, transportation systems or markets don’t interfere too much. For those with higher costs, crop choices will be critical in 2015 and the provincial guides can provide some localized insight into what the season might provide, that a shiny crystal ball.
Download a larger version of the chart that can be printed here
