Crop Production Costs For 2017 (& Other Stuff) BASA AGM, Cartwright – December 12, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Roy Arnott, P.Ag. Farm Management Specialist 204-523-6424 roy.arnott@gov.mb.ca
Planning Should Start with COP’s The corner stone of your Production , Management, or Marketing plan should start with calculating Cost of Production (COP). Knowing your COP (per bushel) is the first step in deciding what is a profitable or breakeven price. Cost : Benefit needs to be evaluated for every change to your crop plan.
Outline: Grain Markets & Yields Fertilizer Costs COP Summary & Analysis AgriInsurance Analysis Fixed Costs • Land • Equipment MYFARM Calculator *NEW* &Other Tools
Grain Market Outlook For 2017?? CAUTION: Objects in the Mirror are Closer Than They Appear!
New Crop Prices (Sept. Delivery) • December 2016 • December 2015 • Canola – $10.75 • Canola – $10.25 • RS Wheat – $6.25 • RS Wheat – $6.53 • Oats - $3.20 • Oats - $2.95 • Flax - $12.50 • Flax - $12.08 • Soybeans - $11.50 • Soybeans - $10.02 • W Wheat - $5.00 • W Wheat - $5.45 • Barley - $3.50 • Barley - $4.00 • Corn – $4.25 • Corn - $4.55 • Peas - $7.00 • Peas - $8.82
RA#5 Yield per Acre - 2017 140.0 $14.00 120.0 $12.00 $11.50 $10.75 100.0 $10.00 Yield Per Acre $ Per Unit 80.0 $8.00 $6.25 60.0 $6.00 120.0 100.0 $4.25 40.0 $4.00 80.0 $3.50 $3.20 55.0 42.0 20.0 $2.00 36.0 0.0 $0.00 Canola Wheat Soybeans Barley Oats Corn Yield $/unit Manitoba Agriculture
RA#5 Crop Production Costs ($/Acre) - 2017 $500.00 $30.00 $450.00 $400.00 $30.00 $130.84 $350.00 $30.00 $30.00 $30.00 $120.16 $300.00 $30.00 $/Acre $122.17 $250.00 $119.63 $125.50 $128.17 $200.00 $310.64 $150.00 $249.17 $100.00 $191.00 $190.29 $174.71 $149.25 $50.00 $0.00 Canola Wheat Soybeans Barley Oats Corn A. Operating Costs B. Fixed Costs C. Labour
HRS Wheat Costs (1990-2017) $160 $140 $120 $100 $/Acre $80 $60 $40 $20 $0 Seed & treatment Fertilizer Chemicals
Canola Costs (1990-2017) $200 $150 $/Acre $100 $50 $0 Seed & treatment Fertilizer Chemicals
Managing Risk - Fertilizer Pricing • Timing of fertilizer purchases has been as important to overall profitability as better than average commodity marketing. • Moving forward, we have to treat fertilizer as we treat our commodities….must be strategically purchased in our farm plan.
Fall vs. Spring Purchase • True or False – Fertilizer is always priced lower in the previous fall than in the spring? • Almost True – but not always. • Based on long term data - Roughly 15% increase from fall to spring.
Urea Nitrogen Fall vs. Spring Prices (2001-2017) $900 $800 $700 $600 Price ($/MT) $500 $400 $300 $200 $100 $0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Previous Fall Spring Previous Fall Trend Spring Trend
11-52-0 Fall vs. Spring Prices (2001-2017) $1,600 $1,400 $1,200 Price ($/MT) $1,000 $800 $600 $400 $200 $0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Previous Fall Spring Previous Fall Trend Spring Trend
Fertilizer Spring vs. Fall Price Change 25.0% 20.7% % Price Change 20.0% 17.5% 17.3% 16.6% 13.3% 13.1% 15.0% 10.0% 5.0% 0.0% Average Increase Average without Average without 2001-2017 2009 2008 and 2009 46-0-0 11-52-0
10 year Total Benefit of Fall Buying Fertilizer Average MB Farm that buys - 160 MT 46-0-0 & 50 MT 11-52-0 $200,000 $180,000 $41,600 $160,000 $140,000 $120,000 $22,615 $100,000 $80,000 $144,160 $60,000 $90,564 $40,000 $10,000 $8,985 $20,000 $32,000 $21,596 $0 Savings Interest Cost Storage Cost @ Net Savings $20/MT 46-0-0 (160 MT) 11-52-0 (50 MT)
Canola Seed Cost (1990-2017) $70 $60 $50 $/Acre $40 $30 $20 $10 $0
RA#5 Crop Marginal Returns ($/Acre) -2017 $600.00 $500.00 $400.00 $300.00 $/Acre $200.00 $100.00 $0.00 -$100.00 Canola Wheat Soybeans Barley Oats Corn Gross Revenue Margin Over Operating Margin Over Operating & Fixed
RA#5 Breakeven Yields (per Acre) - 2017 110.0 103.9 100.0 86.7 90.0 85.8 80.0 73.1 70.0 Yield Per Acre 60.0 50.1 49.9 50.0 46.6 40.0 34.4 30.6 26.9 30.0 23.2 20.0 16.5 10.0 0.0 Canola Wheat Soybeans Barley Oats Corn Breakeven Yield Over Operating Costs Breakeven Yield Over Op & Fixed Costs
RA#5 Breakeven Price ($/unit) - 2017 $10.00 $9.00 $8.74 $8.53 $8.00 $7.00 $5.87 $6.00 $5.65 $5.21 $/Unit $5.00 $4.00 $3.72 $3.63 $3.43 $2.75 $3.00 $2.54 $2.15 $2.00 $1.47 $1.00 $0.00 Canola Wheat Soybeans Barley Oats Corn Operating Costs Operating & Fixed Costs
RA#5 Breakeven Yields (per Acre) - 2017 140.0% 121.6% 120.0% 113.2% 108.2% 104.1% 100.2% 100.0% 84.8% 80.0% 60.0% 40.0% 20.0% 0.0% Canola Wheat Soybeans Barley Oats Corn Target or Average Yield as % of B/E Yield
RA#5 Crop Marginal Returns 'Stress Test' - Price Down 10% & Yield Down 5% ($/Acre) - 2017 $180.00 $161.71 $160.00 $140.00 $124.33 $122.13 $115.92 $120.00 $101.61 $100.00 $/Acre $80.00 $63.02 $60.00 $40.00 $20.00 $0.00 Canola Wheat Soybeans Barley Oats Corn Margin Over Operating Costs
RA#5 Crop Marginal Returns 'Stress Test' - Price Down 10% & Yield Down 5% ($/Acre) - 2017 $60.00 $42.08 $40.00 $20.00 $0.00 $/Acre ($4.24) ($6.04) ($6.51) ($20.00) ($20.55) ($40.00) ($60.00) ($62.49) ($80.00) Canola Wheat Soybeans Barley Oats Corn Margin Over Op & Fixed Costs
RA#5 - 80% Insured Value AgriInsurance Risk Analysis - 2017 $30.00 8.00% 7.00% 6.79% $25.00 6.00% $20.00 5.00% 4.98% $ Per Acre $15.00 4.00% $25.88 3.39% 3.00% 2.77% $10.00 2.41% 2.00% 1.64% $11.88 $5.00 $7.82 1.00% $6.13 $6.04 $5.61 $0.00 0.00% Canola Wheat Soybeans Barley Oats Corn 80% Insured Value Premium $/Acre Premium % of Insured Value
RA#5 Costs Not Covered By 80% Insured Value AgriInsurance - 2017 $120.00 $100.00 $30.00 $30.00 $80.00 $30.00 $30.00 $30.00 $/Acre $60.00 $30.00 $40.00 $71.58 $69.69 $62.76 $60.49 $55.80 $20.00 $26.95 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Canola Wheat Soybeans Barley Oats Corn Operating Costs Fixed Costs Labour
RA#5 - 80% Insured Value AgriInsurance Risk Analysis - 2017 $450.00 160% 148% $400.00 140% 137% 132% 131% 125% $350.00 123% 120% $300.00 100% $ Per Acre $250.00 86% 81% 80% 73% 72% $200.00 70% 70% $380.99 $342.38 60% $150.00 $250.40 $238.34 $230.52 40% $221.62 $100.00 20% $50.00 $0.00 0% Canola Wheat Soybeans Barley Oats Corn 80% Insured Value Coverage of Operating Costs Coverage of Total Costs
RA#5 - 70% Insured Value AgriInsurance Risk Analysis - 2017 $25.00 7.00% 6.00% 5.95% $20.00 5.00% 4.34% $15.00 $ Per Acre 4.00% 3.00% $10.00 $19.85 2.54% 2.18% 2.00% 1.69% $5.00 $9.06 1.08% 1.00% $5.13 $4.23 $3.70 $3.23 $0.00 0.00% Canola Wheat Soybeans Barley Oats Corn 70% Insured Value Premium $/Acre Premium % of Insured Value
RA#5 Costs Not Covered By 70% Insured Value AgriInsurance - 2017 $140.00 $120.00 $30.00 $30.00 $30.00 $30.00 $100.00 $30.00 $30.00 $80.00 $/Acre $60.00 $101.94 $98.48 $95.76 $91.67 $81.56 $40.00 $67.32 $20.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Canola Wheat Soybeans Barley Oats Corn Operating Costs Fixed Costs Labour
RA#5 - 70% Insured Value AgriInsurance Risk Analysis - 2017 $400.00 140% 132% $350.00 121% 120% 117% 116% 111% 109% $300.00 100% $250.00 $ Per Acre 80% 75% 72% $200.00 64% 63% 62% 62% 60% $333.37 $150.00 $299.58 40% $219.10 $208.54 $100.00 $201.70 $193.91 20% $50.00 $0.00 0% Canola Wheat Soybeans Barley Oats Corn 70% Insured Value Coverage of Operating Costs Coverage of Total Costs
Fixed Cost Management • Gross Revenue = Price x Yield Per Acre Margin Over Operating 35% • Margin Over Operating Cost = Gross Revenue – Operating Costs Operating Costs 65%
Fixed Cost Management Owner Withdrawl 5% Equipment Cost 12% Land Cost 18% Operating Costs 65%
Land – Buy More, Rent More, or Neither? Land prices in MB have risen significantly over the past number of years. Cash rental rates have also increased. Can we afford to farm land at these rent prices or afford to buy land at these prices? Fast answer is…………..depends.
Cash Rent Based on Gross Revenue • Average range of cash rent across western Canada is 18 to 22% of gross revenue. • 2017 = $350 to $450 per acre gross revenues. • $63 to $100 per acre cash rent
Cash Rent Based on Investment Return on Land Value (Landowner check & balance) Too Cheap Gross Revenue x 5 = $1,750 to $2,250/ac x 6 = $2,100 to $2,700/ac Reality? x 8 = $2,800 to $3,600/ac Insanity x10 = $3,500 to $4,500/ac Do you believe that farmland values are solely based on profitability??
Cash Rent Based on Investment Return on Land Value (cont.) (Landowner check & balance) Land market value $2,100 per acre x Long Term Investment Rate (5yr) 2.5 % + Property taxes $12.00 per acre Total Cash Land Rental $64.50 per acre Based on “Reality”
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