The new crop planning guides published by Saskatchewan Agriculture should perhaps carry a warning label.
CAUTION: Not to be read at bedtime. May cause serious nightmares and-or insomnia.
The guides paint a sobering, if not scary, picture of the economics of grain farming.
“I’ve been doing this for three years, and every year it’s getting worse,” said Mike Scott, farm management agrologist with the department.
The guides tell farmers how to figure out their costs of production and estimate net returns for the coming year.
Read Also
Agriculture ministers agree to AgriStability changes
federal government proposed several months ago to increase the compensation rate from 80 to 90 per cent and double the maximum payment from $3 million to $6 million
The guides’ examples aren’t an official projection of average costs or revenues, say provincial officials, and don’t necessarily reflect the situation on any individual’s farm.
Here’s what the department’s numbers show:
A farmer seeding spring wheat into stubble in the dark brown soil zone will suffer a net loss of $38.37 per acre.
Canola direct seeded into stubble in the black soil zone will produce a net loss of $51.99 per acre.
Barley conventionally seeded into stubble in the brown soil zone will generate a net loss of $40.78 per acre.
There is the odd bright spot.
Durum seeded into fallow in the dark brown soil zone will at least put some money back in the farmer’s pocket, producing a net return of $3.32 per acre.
Lentils seeded into stubble in the black soil zone will provide a profit of $14.95 per acre.
All those numbers are based on assumptions about prices, yields and production practices and costs of production, any or all of which may turn out to be wrong.
In other words, farmers shouldn’t base their planting decisions on those “average” numbers.
What they should do, Scott said, is use the guides’ worksheets to figure out how they can earn the most – or lose the least – amount of money this year.
In these days of low commodity prices, it’s more important than ever for farmers to know exactly what their costs are and how different crops stack up against each other from year to year.
“The margins just aren’t there any more to cover mistakes,” he said.
“If you make a few mistakes on your farm, that’s a make or break right there for you because margins are so thin.”
Many farmers have a pretty good rough idea of what their costs are, but at least once in their career they should do a thorough analysis, taking all their variable and fixed costs into account. Scott said the results may be surprising.
“You might think you’re making a lot of money growing durum, but when you look at the actual numbers, you may be better off growing canaryseed,” once the different costs of seed or chemicals or machinery are taken into account, he said.
He added that the net returns arrived at through the worksheet calculations are extremely sensitive to the estimated prices and yields. Farmers who go through the exercise should update their calculations with the latest prices.
Here’s how the calculations work, using as an example spring wheat conventionally seeded into stubble in the brown soil zone:
- Gross revenue: Yields are estimated to be 21.7 bushels per acre and the farmgate price is estimated to be $3 per bushel, producing an estimated gross revenue of $65.10 per acre.
- Costs of production: Variable expenses such as seed, fertilizer, chemicals, machinery, hired labor, crop insurance, utilities, and interest total $60.33 per acre. Fixed expenses like buildings, taxes, depreciation and land total $43.14 per acre. Total expenses are $103.47 per acre.
- Returns: Revenue less costs produces a loss of $38.37 per acre relative to total expenses. There is a profit of $4.77 per acre relative to variable expenses.
- Break even: If the yield estimate of 21.7 bushels is correct, then a farmgate price of $4.77 per bushel would be needed to cover total expenses. If the price estimate of $3 per bushel is correct, then a yield of 34.5 bushels per acre is needed to cover costs.
Farmers looking at those numbers should note that the guide’s price projections are based on information available in December.
The projections are conservative, he said, because there is so much uncertainty at that time of year.
“That’s probably a good thing, because then if the prices increase, all the better.”
The guides are available at all rural service centers and on the department’s website at www.agr.gov.sk.ca.
Similar guides are available from Manitoba Agriculture at www.gov.mb.ca/agriculture and Alberta Agriculture at www.agric,gov.ab.ca.
