Based on MAFRI cost-of-production estimates, winter wheat tops the charts followed by soybeans, sunflowers, and canola
With highly variable costs and prices, choosing the most profitable crop to grow each spring is a bit like throwing darts at a moving target.
But farmers who seeded winter wheat last fall will be pleased to hear that their dart is likely to land dead centre, says Gary Smart, a farm management specialist with Manitoba Agriculture, Food and Rural Initiatives in Somerset.
“Winter wheat — it’s pretty tough to plant that now — but whoever’s got it in the ground is looking pretty good,” Smart said during a presentation at the recent Young and Beginning Farmers Conference.
On Smart’s cost-of-production spreadsheets, winter wheat should net $76.25 an acre (total returns of $393.96 per acre minus $317.71 in costs).
In a list of the top eight best-performing crops based on net returns per acre, Smart pegged soybeans as the next best, followed by sunflowers and canola at roughly $68, $63 and $57 respectively.
Using prices from a couple of weeks ago, red spring wheat at $329 an acre (versus costs of $329.96) would leave the farmer almost a dollar poorer per acre. Oats and barley were at the bottom of the list, with losses per acre of $21 and $44, respectively.
The projections are just rough estimates that vary according to yields and production requirements in different areas, and a dollar’s change in prices can alter the outcomes dramatically, Smart added.
But knowing cost of production down to the penny is critical for developing a profitable marketing strategy, especially when locking in sales for a future date.
The other key part comes on the front end — purchasing inputs.
Fertilizer, at roughly 30 per cent of total operating costs for most crops, is the biggest variable and over the past three years, timing those purchases has been as important as good marketing, said Smart.
In eight of the past 10 years, fertilizer prices were lower in the fall than in the spring.
“You could get burned, but it’s something to watch,” said Smart.
Past records show the average-size farm that bought 160 tonnes of 46-0-0 urea and 50 tonnes of phosphate 11-52 every fall for the past nine years would have saved almost $90,000, he said.
Add in the cost of interest on a line of credit — roughly $27,000 — and the farm still nets $63,000 over those nine years.
Even with an extra $10 to $20 per tonne to store it at the dealer, the strategy results in significant savings.
“Would that buy a few extra bins that you can use in the fall for grain and during the winter for storing fertilizer?” asked Smart.
Fixed costs — the value of land investment and machinery depreciation along with investment and storage costs — vary widely from farm to farm, but MAFRI’s average for the eastern part of the province is $97 an acre.
When choosing whether to buy new or used equipment, Smart urges young farmers to compare the depreciation risk with pricey, shiny iron, against production risk with the cheaper, rustier versions.
In Manitoba, machinery expense averages range from 200 per cent to as low as 50 per cent of gross revenue. For example, a 2,000-acre farm with $1 million in equipment would be in the upper range at 143 per cent on an average gross revenue per acre of $350.
“It’s whatever your farm can handle, or whatever you’re comfortable with. There’s risk and rewards on both ends,” said Smart.
Farmland prices are up 40 per cent since 2008, and where they will go from here is anybody’s guess, he said.
“Can you afford $3,000 per acre land? Pencil it out on your farm. It all depends,” said Smart.