Foresight for Successful Cropping Systems:

Profitable Spring Wheat Production for 2001

By Zachary Fore, U of M Extension Cropping Systems Specialist, forex002@ umn.edu

Athough no one knows for sure what the growing season will bring, 2001 is shaping up to be another year of low prices for wheat and other commodities.  In this type of low price environment, the only way to ensure profitability is to produce the crop at a cost less than the loan rate.  This is certainly a challenge, but let’s look at strategies for dealing with this challenge head on:

Know Your Production Costs
An essential starting point is to know your production costs in detail.  Remember, you are unlikely to improve what you do not measure. Table 1 shows a 2001 spring wheat production budget with average income and expenses for Northwest Minnesota. 

Table 1. Spring Wheat Production Budget 2001* Average Income Average Yield 37.3 bu/A Estimated Price 3.20/bu Total Income 119.39/A** Average Expenses Item $/A Seed   9.50 Fertilizer 23.00 Chemicals 16.26 Crop Insurance   6.12 Custom Hire   3.32 Fuel and Oil   7.00 Repairs 11.42 Land Rent  35.70 Other Direct Expenses    5.96 Total Direct Expenses 118.28 Overhead Expenses  23.88 Total Expenses 142.16 Production Cost/Bu    3.81 Average Net Return -22.77

                * Northwest Minnesota Farm Business Management Budget
                   for Cash Rented Land.
                 ** Without Government Payments

Use this production budget (or one for your specific area) as a benchmark to compare with your production information. If your expenses are higher for any category, ask yourself, ‘Is the added expense returning more than it costs?’  If the answer is yes, the added expense is justified. If the answer is no, or you don’t know, think hard about ways to reduce this expense. If your expenses are lower for any category ask yourself, ‘Am I particularly efficient in this category, or could added spending here increase returns?’

You Cannot Afford to be Average
Notice in Table 1 that even with average yield, price, and production costs net return is a -$22.77/A. This return does not include government payments, but we don’t know how much they will be or how long they will last.  It is a good goal, though a challenging one, to strive to be profitable even without government payments.  To be profitable the message is clear:  You cannot afford to be average.

Make Every Effort to Obtain Maximum Economic Yields
I have looked at volumes of wheat production data and I have come to this conclusion:  It costs about the same to produce a poor yielding crop as it does to produce a good yielding crop.  Table 2 bears this out. Production costs were nearly identical for an average crop and a crop in the top 20%.

Table 2. 1991-1998 Spring Wheat Financial Data - Northwest Minnesota   Average of All Farms Bottom 20% of Farms* Top 20% of Farms* Direct Expenses $/A 102 111 94 Overhead Expenses $/A 46 47 51 Total Expenses $/A 148 158 145 Yield Bu/A 35 27 43 Production Cost $/Bu 4.23 5.85 3.37 * The Top 20% and Bottom 20% are based on Net Return/Acre Source: Northwest Minnesota Farm Business Management

If your wheat production expenses are more than $150/A, you may have an expense problem. However, many farms do not have an expense problem, they have a production problem.  If your yields are low, your cost/bu is going to be well above the loan rate.  In other words, the key to profitability for most farms is to increase yields, not reduce expenses.

I realize that this is easier said than done.  However the first step is to understand that yield is the key.  The next step is to formulate a plan to get as close to maximum economic yields as possible every year.  Maximum economic yield is the yield at which maximum profitability is attained, where every dollar of input produces more than a dollar of output. It will likely be at or near the highest yield you have obtained in the last 20 years.

So what was your best wheat yield in the last 20 years? Sixty bu/A?  Seventy bu/A?  Did you get a better yield that year because you spent more on inputs? I will guess that you didn’t.  Rather, you are probably thinking: “The weather was particularly favorable that year.”  You were probably able to plant early, the rains were timely but not too much, etc.  Since you can’t change the weather, you can’t duplicate the results of that year, right? Well, you can’t ‘change’ the weather, but I am a firm believer that you can ‘manage’ it. For example, in northwest Minnesota excess water is our #1 production problem in many areas, and there are ways (surface and tile drainage) that we can manage it.

Whatever your primary production problems are, the important thing is that you identify them and develop a strategy to overcome them. Expense management is important, but the best way to reduce production costs/bu is to have high yields. Effective marketing is also important, but it won’t make up for low yields. And, the more bushels you have to market, the more you can take advantage of an effective marketing strategy.