Outlook for 2009 wheat production in Arkansas

Arkansas wheat acreage will decline dramatically in 2009 from the 970,000 acres planted in 2008. Early estimates indicate that 2009 wheat acreage could be down as much as 50 percent to 485,000 acres — the lowest acreage since 2006 (365,000). Reduced acreage can be attributed to both weak basis levels and higher production costs.

This year’s large acreage — 18 percent more than in 2007 — was the result of higher commodity prices.

Many Arkansas wheat growers produced a profitable crop in 2008. In spite of excessively wet conditions earlier this year, Arkansas managed a state average yield of 58 bushels per acre.

Futures prices also provided favorable marketing opportunities with July ’08 futures spending much of the 2007-08 growing season between $8 and $12 per bushel.

July 2009 wheat futures are currently trading near $7.50 per bushel, a high price level by historic standards.

Growers looking to forward price 2009 wheat, however, are faced with a historically wide basis. Why? One key factor is an improvement in the global wheat supply and demand balance.

Due to increased acreage and a lack of production problems in the European Union, Russia, and Ukraine, global wheat production will be up 11 percent this year to a record high of 676 million metric tons. Global wheat demand is strong, but for now, European nations, Russia and the Ukraine are capturing the majority of global wheat sales.

New crop wheat basis in eastern Arkansas ranges from $2 to $2.40 under July ’09 futures. Thus, growers are currently offered a forward price of $5.10 to $5.50 per bushel depending on delivery location. For many growers these prices will not cover variable production costs.

Using University of Arkansas estimated production costs, break-even yields on sand/silt loam soils to cover variable costs are as follows:

• 61 to 66 bushels per acre on owned land (assumes $5.30 net price for production)

• 83 to 89 bushels per acre on 75/25 rented land (assumes $5.30 net price for production)

The 2009 University of Arkansas wheat production budgets are available on the Internet at: http://www.aragriculture.org/crops/wheat/budgets/2009/default.htm.

2009 wheat production costs will increase dramatically from the previous year.

Preliminary budgets indicate wheat variable costs will average $352 per acre. This represents a $160 per acre (83 percent) increase over 2008.

Fertilizer accounts for the majority of the variable cost increase. Combined DAP and urea costs are estimated to be $237.90 per acre, accounting for 68 percent of total variable costs. For 2009 budgets, urea was projected to be $1,050 per ton and di-ammonium phosphate (DAP) was projected to be $1,200 per ton.

Urea and DAP prices have increased substantially over the previous 12 months. Since September 2007, U.S. Gulf DAP prices have increased 168 percent — $727 per ton. U.S. Gulf urea prices have increased 119 percent — $411 per ton — over the same time period.

Increases in fertilizer prices correlate well with rising grain and energy prices. U.S. dollar weakness during much of 2008 has also contributed to higher imported fertilizer costs. With strong global interest in feed grain production and intense competition for world fertilizer supplies, nitrogen and other nutrient prices are expected to remain firm in 2009.

Growers can download an Excel crop budgeting tool that will assist in determining production costs and returns at: http://www.uaex.edu/depts/ag_economics/default.htm. The spreadsheet link is shown as “crop planning budgets (MS Excel)”.

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

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