Wheat and cattle prices are likely to increase, but only slightly, in 2002, making it imperative for producers who graze feeder calves on wheat to manage costs carefully this fall as they develop production and marketing strategies.
“Know what expenses you have to cover with wheat and cattle,” says Blake Bennett, Texas Extension agricultural economist.
Bennett discussed risk management strategies for small grain producers at a recent seminar in Denton, and, since most of the Texas wheat acreage ends up as forage for over-wintered cattle, he included forage production as part of the analysis.
“First, focus on wheat production costs,” Bennett says. Then producers can develop a plan for marketing the crop, either as grain or through livestock.
Long-term outlook, Bennett says, is bullish for wheat. “We are not hearing much news in wheat marketing now,” he says. “But this is not to say that things will not change in coming reports.”
Changes most likely will occur in production from other countries. “World wheat production estimates could drop as much as 8 million metric tons (more than 280 bushels),” he says.
“This can't hurt U.S. wheat exports but may not help all that much either. Pace of exports has been slow to date and we've seen no reaction in the futures market,” even with the speculation of lower worldwide production. Large carryover of both wheat and corn continues to keep markets from increasing significantly.
Bennett expects wheat prices to improve next year. “That's not to say it will be high, just better than this year. Consequently, farmers might want to put off forward pricing the 2002 crop.”
Beef prices also could continue to improve, but only about $1 per hundredweight, from $91 to $91.50, Bennett says.
“Beef demand continued to grow from January through July, a 3.5 percent increase, according to preliminary data. But retail prices fell a little in July, along with live prices,” he says.
Even with the drop, retail price in July was the second highest on record “in nominal dollars.”
Bennett says beef production so far this year is down 4.2 percent, with cattle slaughter down 3.5 percent. Slaughter weights have been lighter because of the harsh winter but are beginning to return to 2000 levels.
Recently, cow slaughter increased by 1 percent. “This is a surprise, given the good calf prices for several years,” Bennett says. “The hypothesis is that short forage supplies over much of the beef cattle area is to blame. At some point, it seems likely that producers would start to expand.”
Bennett says heifers as a percent of the slaughter mix has started to decline but is still higher than expected for expansion.
Those scenarios, Bennett says, mean farmers must watch expenses closely. He figures variable costs on wheat at $68.98 per acre. A breakdown of costs includes:
Seed — $13.50
Fertilizer — $11
Herbicide — $3
Insecticide — $4.50
Misc. — $3.25
Fuel and lube — $3.83
Insurance — $5.31
Repairs — $2.24
Interest — $3.45
Harvest — $18.90
Breakeven price to cover variable cost, assuming a 35-bushel per acre yield, is $1.97 per bushel, Bennett says.
Fixed costs add another $42.88 per acre and include a $17.88 depreciation charge and $25.00 for overhead. Breakeven to cover all costs, $111.86 per acre, would be $3.20 per bushel, again assuming a 35-bushel per acre yield.
In early September wheat was trading right at $3 per bushel on a July contract.
“Typical range is $2.75 to $4 on the Chicago Board,” Bennett says. North Texas growers would need a little more than a $3.20 price to cover costs, considering local basis runs about 20 cents less than the board.
Stocker cattle expenses, taking 480 pound stockers to 840-pound feeders, run about $676 per head, Bennett says.
At $89 per hundredweight, 840-pound feeders bring $747.60.
Bennett says cost breakdown per head includes:
Stocker calves (480 pounds @ $105 cwt)) — $504
Pre-conditioning — $15
Pasture costs — $82.45
Supplements — $6
Salt and minerals — $1.80
Working costs — -$14.40
Death loss — $7.07
Hauling/Marketing — $7.50
Fuel and lube — $4.53
Labor — $4.02
Interest — $29.23
“Start planning now,” Bennett says, to develop the best production and marketing strategy possible in what could be a tight profit opportunity in grain and beef markets.