Farmers will have to work hard this winter to pencil out 2014-15 profits because it’s difficult to find anything that returns much, says a profitability expert with Manitoba Agriculture.
Dan Caron said almost no crop grown in 2014-15 will earn true profits, based on average yields and present forward prices, if fixed costs, including a return on land, are included in the equations.
“It’s something we haven’t seen in three or four years,” said Caron.
“When you add fixed costs into these equations, it isn’t looking pretty.”
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Many farmers will make profits with their 2013-14 crops because massive yields have offset falling prices. However, those huge yields can’t be expected to recur next summer, and fixed costs have been creeping up in recent years.
Manitoba Agriculture hasn’t yet published its projection of 2014-15 crop-to-crop profitability comparisons, but Caron said preliminary work shows no crop other than winter wheat having substantial profits above total costs.
“A lot of it is break-even or below break-even in terms of current (fall 2014) prices and current projections for costs,” said Caron.
Many farmers don’t include a return for land in their calculations when looking forward, but in terms of economics and business analysis, it needs to be included to find a true level of profitability.
Caron said he often discusses profits over operating costs because that’s what they focus on, but total costs are important as a way to determine how much the situation has changed.
Farmers will need to assess their options carefully now that high prices have disappeared, at least temporarily, and most production costs have risen.
Winter wheat returns in Manitoba have been outstanding in the past few years, and that doesn’t change for 2014-15, Caron said.
“Winter wheat’s the winner, by far,” he said.
“Unfortunately, you can’t go back and (seed) more winter wheat.”
Huge returns on winter wheat have been a product of both massive yields and high relative prices for Kansas City type wheat varieties.
Spring wheat usually has a healthy premium to hard red winter wheat, but the spread has disappeared because of U.S. production problems. It now looks like the lack of spread will continue into 2014-15 forward prices as well. Profit projections are still strong for winter wheat seeded this fall.
However, there won’t be a lot of happy choices for farmers who will be spending this winter analyzing their crop options with returns in mind.
“We’re seeing something we haven’t seen in a couple of years in budgeting, and that’s marginal profitability and a lot of break-evens,” said Caron.
