Price of wheat makes it hard to pencil in a profit

Price of wheat makes it hard to pencil in a profit.

A preview of 2017 wheat, canola, corn, and sorghum costs and returns

Grain prices stress profit options Average yields not profitable

Crop alternatives for the 2017 calendar year may include wheat, canola, corn, and grain sorghum. Three critical numbers required for each crop are cost, yield, and price. Price is the only value that changes the least from farm to farm.

Cost may be, and is, reported in cost per acre (variable or total) and cost per unit of production (bushel). Cost per acre is relatively stable. Cost per bushel varies and is not known until the harvest is complete.

The best way to estimate costs is to have a good set of farm records. The most profitable farmers tend to keep good records and calculate costs after each harvest.

Yields, like costs, vary greatly between farms and fields. Producers should have field and farm records from which to review and use historical yields to estimate future production and yields.

For wheat, canola, corn, and sorghum, per acre cost estimates and yield estimates were made using farm records from north central Oklahoma. Price projections were for northern Oklahoma west of I-35.

Variable (out-of-pocket) costs for wheat are estimated to be $170 per acre. Using 35 bushel per acre production, the break-even price per bushel would be $4.86. If production could be increased 14 percent to 40 bushels per acre, the breakeven price would be $4.25.

MARKET PRICES

At this writing, the KC July 2017 wheat contract price is $4.60. Using a 2017 forward contract harvest basis of a minus $1.00, the expected market price is $3.60. This figure is $1.26 less than the 35 bushel wheat production. At $3.60 wheat, it would take 47 bushel per acre production to break even with the $170 per acre cost.

The last half of June through July average daily wheat price for the years June 2008 through July 2016 was $6.00.

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Canola costs of production are estimated to be $225 per acre for 30 bushel (1,500 pounds) per acre production. The break-even price is $7.50 per bushel. At this writing, the market is projecting $6.50 per bushel. The price projection is based on an ICE July 2017 futures contract price of $580 (Canadian dollars) per ton, which is near the same price level as in June 2015 and June 2016. The average Oklahoma June 2015 price was $6.39 and the average June 2016 price was $6.59.

Corn production costs for the 2017 crop are estimated to be $245 per acre for 80 bushel per acre corn. The breakeven price is $3.06. Using the CBT December 2017 corn contract price ($3.90) and a minus 70 cent basis for Oklahoma and a 40 cent basis for the Panhandle, the market is offering $3.20 (Oklahoma) and $3.50 (Panhandle). Both prices are above the variable costs of production.

The average September and October corn price for the year 2009 through 2016 was $4.24 in Northern Oklahoma and $4.80 in the Panhandle.

The sorghum costs of production are estimated to be $210 per acre for 70 bushel per acre production. The breakeven price is $3.00. Using the CBT December 2017 corn contract price ($3.90) and a minus $1.00 basis, the market is projecting a 2017 sorghum harvest price of $2.90. This figure is 10 cents per bushel below the variable costs of production.

Between harvest 2009 and mid-October 2016, the average September and October sorghum price was $4.18 per bushel.

The above analysis show that the expected return covering variable costs is a minus $44 per acre for wheat, a minus $30 per acre for canola, a minus $7 per acre for sorghum and a positive $35 per acre for corn.

These returns are for average variable costs and yields. Producers with below average costs and/or above average yields will do better than these return estimates.

TAGS: Sorghum
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