When all costs are considered, this will be a money losing year for the Sask-atchewan grain sector.
The situation is likely similar in the neighbouring provinces. Prices just aren’t at profitable levels on the major commodities.
The average spring wheat yield as estimated in the last crop report by the Saskatchewan agriculture ministry is 38 bushels an acre, and the average grade is between a No. 2 and a No. 3. Assuming a farmgate price of $5.50 a bushel, the average gross return per acre is just $209.
No airtight statistics exist on the average expenses per acre, but the ministry’s Crop Planning Guide from this spring estimates a total rotational expense for wheat in the dark brown soil zone at $210 an acre. This doesn’t include any provision for a return to labour and management.
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The average yield in Saskatchewan has been pegged at 31 bu. an acre. Assuming an average farmgate price of $9.20 a bu., the gross return is $285 an acre, only marginally above total rotational expenses of $277.
Field peas with an average yield of 34 bu. an acre and a price assumption of $6.50 per bu. just barely cover expenses.
Feed barley yielding 58 bu. an acre with a $3 price assumption falls well short of paying expenses.
Spring wheat, canola, peas and barley account for a majority of the acreage and therefore set the tone for overall profitability.
Average yields with sagging prices have cut returns.
Durum and lentils have bucked the price trend. Anyone with half decent quality and yields will see good returns, but this won’t counterbalance the overall profitability picture.
Of course, this sort of broad analysis comes with caveats. Yields, quality and crop mix vary widely from one farm to the next and one region to the next, so there are producers who will be extremely profitable and others who will suffer much larger losses than the average.
As well, total rotational expenses include a provision for land investment.
Farmers with land that is paid for won’t see this expense, but expenses per acre will be higher than the average for producers who are paying on land loans or rent a lot of land at healthy cash rental rates.
There may be producers who look at their cash income as what is reported for income tax, but that’s misleading.
Lining up the expected income from this year’s crop with the expenses associated with the crop is the real measure of profitability.
The carryover of grain from the 2013 crop is much larger than normal and will help buffer lower prices. As well, we’ve had a run of extremely profitable years for the grain sector. In most cases, balance sheets are extremely healthy.
Perhaps prices will improve in the year ahead and we’ll look back on 2014-15 as a short-term blip. Or perhaps this is the first of multiple years where profitability will be elusive.
Grain prices can change quickly, but this doesn’t feel like a market that will suddenly surge higher. There may not be much joy involved as we start developing cropping budgets for next year.
Producer spending next spring is likely to be more cautious than in the past couple years.
Big ticket purchases may slow somewhat. The escalation in land rental rates may subside. Bidding on farmland may not be quite as aggressive.
