Farmers claim rising input costs are eating away at their potential profits for the coming crop year and that appears to be the case based on break- even calculations.
When Saskatchewan Agriculture put together its 2008 crop planning guide, the price needed to cover all rotational costs for conventional seeded stubble crops in the dark brown soil zone was $5.63 per bushel for spring wheat and $8.17 per bu. for canola.
The guide was created in December 2007, before a sizable run-up in input costs.
Since then, phosphorus prices have more than doubled to $1,364 per tonne, up from $608. Nitrogen costs were up 16 percent, sulfur rose 26 percent and diesel fuel increased 20 percent over that same period.
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Given those price hikes the new break-even for spring wheat and canola is $6.39 and $8.99 per bu. respectively. That is about $1.60 per bu. over last year’s break-even point for both of those crops.
“That’s a significant jump,” said Mike Pylypchuk, provincial co-ordinator of farm business management services.
A year-over-year rise of that magnitude is “very much” out of the realm of normal and something farmers need to keep in mind when selling the coming crop.
“Their margins are going to be much less than what they expected,” said Pylypchuk.
Keystone Agricultural Producers fears costs will keep rising. It noted that Maniotba Agriculture’s crop planning guide showed a wheat break-even price of $5.65 this year, up from $4.50 last year. KAP forecasts that will rise to $6.88 by next spring.
For canola, the break-evens are $7.75 per bu. last year, $9.60 this year and KAP’s forecast of $10.91 next year.
“You certainly have to pay attention to picking the right time in the marketplace to try and price things so you don’t take huge losses,” said KAP president Ian Wishart.
In the past, freight has always been the biggest cost on a per acre basis for western Canadian farmers. Not anymore. Fertilizer has pushed freight to second place.
“We’re certainly hearing from producers these higher input costs are just killing them.”
Wishart wants heightened competition in the fertilizer industry. He would like to see more offshore imports, such as last year’s shipment of 10,000 tonnes of bagged ammonium nitrate from Russia brought in through the Port of Churchill by Farmers of North America.
Canadian growers received some bad news on that front when China, a leading supplier of cheap fertilizer products, announced a few weeks ago that it was imposing a special 100 percent duty on exports of fertilizer between April 20 and Sept. 30 to keep a lid on its domestic fertilizer prices.
Developments like that make Wishart leery that any relief will be coming on the input cost side of the business.
“We keep hearing about the skyrocketing price of grains, but we need to remember that this money still isn’t real for farmers until the crop is harvested this fall,” he said.
“In the meantime, we have to chase these record prices by paying very steep and very real fertilizer prices.”
Grain prices have softened in the past few months but Wishart isn’t optimistic input costs will follow suit, particularly when it comes to fertilizer and fuel.
The U.S. Food and Agricultural Policy Research Institute forecasts that rising input costs might moderate. It sees an eight percent increase in fertilizer prices this year and no more than a 3.9 percent increase per year in the following nine years.
Pylypchuk said the good news is that grain and oilseed prices are still at levels where farmers should be more than covering their total fixed and variable costs.
He speculated that spring wheat in the new crop year might wind up averaging about $7 per bu. after freight and handling.
“You still should be making money and at $12.60 canola, you’re definitely making money,” he said.
