I'm getting a number of questions about planting wheat this fall. Wheat futures prices have helped many growers forget about this year's late freeze.
Based on conversations with our university specialists and local seed dealers, I think wheat acreage in Arkansas could increase 25 percent in the fall of 2007. This would put Arkansas wheat acreage back around 1 million.
Growers are spending more time this fall analyzing wheat production — especially in the area of variety selection. An equally important part of planning is budgeting. Following are some of my thoughts on estimating the profitability of wheat production in 2008.
As of this writing, producers could forward contract wheat for June/July '08 delivery to Memphis for $5.17 per bushel. That's not a bad price considering the basis is 75 cents under July '08 futures. Actually, the basis is worse in some areas. Many bids along the White and Arkansas rivers are $1 under July futures.
It's also worth considering that 2009 wheat contracts are being offered at very close to the same level as the 2008 bids. Many marketing advisors are encouraging producers to sell some portion of both 2008 and 2009 productions.
Given the wide basis levels, hedge-to-arrive recommendations have been common.
One explanation for the negative basis is barge freight rates which recently have been at the highest levels of the year. Key factors behind the freight increases include: high fuel prices, lock repairs and resulting delays, strong export demand for all grains/oilseeds, and a bumper corn crop. Barge freight is higher today than it was right after Hurricane Katrina. As long as these factors persist, freight rates in general will pressure basis levels.
Even though historically high futures prices will likely lead to an increase in winter wheat acreage, growers find themselves in a unique situation with above average corn and soybean prices to consider. Wheat has relatively lower input costs than corn, but wheat yield gains have not matched those of corn.
In making crop mix decisions, growers have to consider that wheat, corn, grain sorghum, cotton and rice budgets have all been impacted by high nitrogen prices. The 2008 University of Arkansas wheat budgets indicate that fertility makes up roughly half of all variable costs in wheat. These budgets include approximately 290 pounds of urea (46 percent) and 150 pounds of DAP (18-46-0).
Arkansas supplier surveys taken in mid-August show the average costs per ton for urea and DAP were $394 and $471 per ton respectively. Given those prices, fertilizer alone accounts for $92 per acre in wheat production costs.
Wheat seed costs will also be higher this fall — perhaps as much as 33 percent higher. We are seeing average seed costs per 50-pound bag rise from $10 in 2006 to an average of $13.50 this year. Seed cost depends a lot on the variety (whether public or private) and also on the quantity of seed being purchased.
The University of Arkansas budgets estimate per acre seed costs to range from $27 to $32.40. The variance in cost is related to different seeding rates for clay (120 pounds of seed) and silt loam soils (100 pounds of seed). When combined, seed and fertilizer account for an estimated 63 percent of wheat variable costs.
Compared to one year ago, July Chicago wheat futures have climbed from $4.35 to $5.92 or 36 percent. We've also seen wheat input costs climb 26 percent over the same time period.
Completing a new set of crop budgets is essential. The 2008 University of Arkansas wheat budgets are available through local county Eextension offices or at: http://www.aragriculture.org/crops/wheat/budgets/2008/default.htm.
For more information on production decisions, contact your local county Extension office or call me at (870) 972-2481.