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Costs and Grain Prices Explode in 2008 Crop Budgets

Projected returns for 2008 are the best that I have seen in 17 years of preparing crop budgets.

By Andrew Swenson, Farm Management Specialist

NDSU Extension Service

Farming in 2008 is shaping up to be one for the history books. Never have both costs and grain prices been this high. Costs and grain prices are competing forces when it comes to profit. Fortunately, grain prices should prevail.

Recent history provides a perspective. Prior to 2007, it was difficult to project a positive return to labor and management for most crops. It was not uncommon to project a loss for spring wheat, North Dakota’s largest crop, in nearly every region of the state. Despite higher costs, this changed in 2007 because of better crop prices and most crops projected positive returns across the state.

It looks even better for 2008. Projected returns are the best that I have seen in 17 years of preparing crop budgets. All crops should be profitable, except for oats and rye.

There is a negative. Costs have increased at a strong pace each year since 2002. Record high per-acre costs have been set every year since 2003. For 2008, the increase in costs is stunning. Total direct cash costs per acre will increase, on average, by about 30 percent. The increase in total direct and fixed costs will average about 20 percent per acre.

Soybeans and dry edible beans will have the smallest increase in total costs, about 10 percent, while durum will have the largest at more than 30 percent. For example, total costs, excluding any labor and management, of spring wheat production in the east- central region (Foster and adjacent counties) was projected at about $190 per acre for 2008, compared with $150 per acre in 2007.

Fertilizer, seed, crop insurance and fuel lead the cost hit parade. Fertilizer prices are about 50 percent higher. To make things worse, soil tests are lower, so more of the expensive fertilizer is needed to meet similar yield goals. Seed costs, particularly for small grains, are higher. The price of barley and spring wheat seed is 50 percent to 75 percent higher, flax is double and durum has nearly tripled in cost. Corn seed is about 15 percent higher. Sunflower and soybean seed costs increased 5 percent to 10 percent. Increases in crop insurance premiums typically will range from 20 percent to 50 percent because crops are insured at a higher price.

Very strong crop prices are the cause of positive projected returns in an environment of increasing costs. For example, in the five years prior to 2007, the oil sunflower and canola price averaged about 11 cents per pound. The price increased in 2007 and for 2008, the projected price is about 20 cents per pound.

Crops that have higher production risk and require more management and labor can project the greatest returns to labor and management. Dry edible beans, confectionery sunflowers, yellow mustard and lentils project the highest returns to labor and management at more than $100 per acre for 2008. Malting barley returns per acre are projected to be between $80 and $100, depending on the region. However, projected returns drop significantly, to between $0 and $20, if feed-quality barley is produced.

Soybeans, oil sunflowers and canola also show strong returns to labor and management, at between $50 and $100 per acre, depending on the region. The best canola returns are in the north-central and northeastern regions (west of the Red River Valley) and the highest returns for soybeans occur in the southeastern and southern valley regions.

Spring wheat, durum and winter wheat all show positive returns. Winter wheat projected a greater return in all regions compared with spring wheat or durum, except for durum in the southwestern part of the state. Although it varies significantly by region, winter wheat returns to labor and management averaged about $55 per acre, compared with about $35 for spring wheat. Flax, buckwheat and field peas also projected solid returns to labor and management, ranging from $30 to $60 per acre.

High costs hurt corn relative to soybeans. In the eastern half of the state, the per-acre return to labor and management ranged from $0 to $50 for corn, compared with $50 to $100 for soybeans.

In summary, 2008 provides an opportunity for producers to generate strong returns to make up for lean years they may have experienced in the past. The downside is that more dollars will be invested in a crop than ever before and the financial risk is greater if projected prices and yields do not materialize.

The budget projections are intended to be used only as a guide. Producers are encouraged to develop their own budgets. Commodity prices and yields are extremely difficult to predict. It is critical to evaluate crop insurance and consider the financial downside risk, as well as the upside potential, of the crop rotation. The budgets are available on the Web at http://www.ext.nodak.edu/extpubs/ecguides.htm and your local county Extension office.


NDSU Agriculture Communication

Source:Andrew Swenson, (701) 231-7379, andrew.swenson@ndsu.edu
Editor:Rich Mattern, (701) 231-6136, richard.mattern@ndsu.edu
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