The changing numbers on production costs

Higher prices, higher cost inputs all mean the stakes have grown this season

Though high crop prices may cast a rosy glow over spring seeding plans, they may also make farmers nervous — and for good reason, say two experts. That’s why having a good handle on costs of production is more important than ever.

“High prices at the start of a season could mean two things: nearly any yield scenario can be profitable, or, prices have nowhere to go but down, if you’re a glass-half-empty sort,” said Dane Froese, oilseed specialist with Manitoba Agriculture and Resource Development.

With higher input costs, there’s more money on the table, said Darren Bond, provincial farm management specialist. There’s more risk.

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Since the province issued its annual cost-of-production guide in late 2020, both crop prices and input prices have changed radically, said Bond.

“No sooner had grain prices come up a little bit then (fertilizer) prices were escalating just as quickly or more quickly,” said Bill Nicholson, who farms in western Manitoba.

The volatility, and lack of good — or timely — predictions is frustrating, he said.

“The supply-and-demand fundamentals don’t seem to mean that much,” said Nicholson. “Last fall a lot of the market analysts, who supposedly should be in the know, were talking about surpluses of everything and a few months later we’re running out of canola and other crops as well.”

This instability highlights the need to keep cost-of-production figures up to date, Bond said. Keep this as a “living, breathing document,” — updating it throughout the growing season and using to test if decisions are profitable.

“Putting that down onto paper with the cost of production and eliminating the noise and coming up with what works in your situation,” Bond said. “That eliminates a lot of surprises, and it identifies problems as we move ahead.”

Froese also emphasized knowing the exact cost of production.

If costs of production are controlled, some risk can be managed by locking in some early grain prices. Since prices are favourable now, it’s a good idea to pre-sell a portion of the crop (in this case canola), to cover some of those costs of production, said Froese.

Farmers are seeing about $150- to $200-per-tonne increase in fertilizer costs from December prices, he said. This works out to about eight cents per pound for nitrogen and 20 cents per pound of phosphorus.

With canola, Froese calculated that at 120 pounds of nitrogen per acre and 40 pounds of P2O5 per acre, this is an increase of just under $18 per acre. This means an additional 1.3 bushels needed to cover that increased cost assuming a $13.50-per-bushel sale price.

At today’s canola and urea prices, it may make economic sense to increase fertilizer application on canola to 150 or 160 pounds per acre, said Froese. However, this doesn’t take dry conditions into account, he added.

If it stays dry, farmers will need to watch that seedbeds aren’t unnecessarily dried out — for instance, applying fertilizer in a moisture-conserving way, he said.

“If it becomes wetter, fertilizer rates could be increased somewhat to achieve max yield,” said Froese. “It may be more advantageous to know your cost-of-production principles and marketing strategy, and stick to that, rather than chase the ‘perfect-world’ scenario.

“With high commodity prices, most crop yields will be profitable, even if fertilizer application is lower than planned due to spring dryness or increased cost,” he added.

About the author

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Geralyn Wichers

Geralyn Wichers grew up on a hobby farm near Anola, Manitoba, where her family raised cattle, pigs and chickens. Geralyn graduated from Red River College’s Creative Communications program in 2019 and was previously a reporter for The Carillon in Steinbach. Geralyn is also a published author of science fiction and fantasy novels.

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