Costs, prices and returns Wheat production costs should be down

As the 2009 crop year moves toward the end of harvest, it also moves toward planting — wheat planting.

While the number of harvested wheat acres in Arkansas declined in 2009, many producers will evaluate wheat's prospects for profitability over the coming weeks. With lower input prices today, wheat production costs could be considerably lower for the 2010 crop compared to this year's. Most of the projected cost reduction is associated with fertilizer.

Fertilizer costs:University of Arkansas wheat budgets indicate that fertilizer accounts for 45 percent of variable costs in wheat. 2010 total variable costs are estimated to be $178 per acre (on average) for wheat production on silt loam soils. Of this total, fertilizer costs are projected to be $80 per acre, a drop of $148 per acre from 2009.

Fertilizer costs will vary across farms depending on the timing of fertilizer purchases. For example, when producers were making planting decisions in the fall of 2008, fertilizer prices were substantially higher than those in March 2009.

Wheat producers that purchased DAP (18-46-0) at planting were faced with prices near $1,200 per ton. Similarly, urea prices were near $1,000 per ton at that time. By spring 2009, urea prices had fallen to the mid $300 to low $400 per ton level.

Arkansas supplier surveys taken in recent weeks (early August) show the average cost per ton of urea and DAP to be $375 and $388 respectively.

Seed costs:Wheat seed costs appear to be stable relative to a year ago. Average seed costs per 50-pound bag currently range from $12.50 to $12.95. However, seed cost depends on the variety (whether public or private) and the quantity of seed being purchased.

The University of Arkansas budgets estimate per acre seed costs to range from $25.90 to $31.08. 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 60 percent of wheat variable costs.

Breakeven prices:A weak basis continues to plague Mid-South wheat producers. Basis (the difference between cash and futures price) represents the cost of handling grain, transportation and demand for a commodity, along with other factors (interest, profit, etc.).

At the time of this writing, the July 2010 Chicago wheat futures contract was trading at $5.40 per bushel. Per bushel new crop wheat bids around eastern Arkansas currently range from $4.22 to $4.45 depending on location, which implies a basis of 95 cents to $1.18 under July 2010 futures.

If a producer owns a farm and sells his wheat for a net price of $4.40 per bushel, his yield can drop as low as 38 bushels per acre and still cover his variable costs. Conversely, if the same producer believes his average yield will be 38 bushels, then his net selling price will need to be $4.40 per bushel to break even.

Including a land charge will either increase a producer's breakeven price or yield. With a 25 percent share rent — assuming a net selling price of $4.40 per bushel can be obtained — a producer would need an average yield of 51 bushels per acre to cover variable costs and rent.

As mentioned earlier, new crop wheat bids in eastern Arkansas currently range from $4.22 to $4.45. For many tenant operators, today's price levels will not generate profits without above average yields.

Over the past 18 months, both commodity and input prices have been extremely volatile. Completing a new set of crop budgets is essential. The 2010 University of Arkansas wheat budgets are available on-line at: [1]

For more information on farm business decisions, contact your local county Extension office or me at (870) 972-2481 or [email protected] [2].