Wheat production no longer cheap

The July 2010 wheat contract peaked this summer around June 1, at $7.50 per bushel and has fallen pretty consistently since.

In early September, July 2010 wheat was just over $5 per bushel on the board. The wheat price outlook is thus several dollars lower than at planting times in recent years, and while the basis may have improved over what we saw two years ago, it appears likely to remain above historic levels.

Given that the cost of wheat production has not fallen, in general, the wheat profit outlook is reduced for 2010.

The Alabama Cooperative Extension Ag Econ team publishes typical budgets for wheat production in Alabama. However, because the state is so diverse, with many different agricultural production zones, a single example budget cannot be accurate for the entire state.

We encourage farmers to use our budget as a guide, and adjust the input levels and costs to reflect local conditions and requirements. Expected yield and price must also be applied in each individual situation. This budget can be found on the ACES Web site at http://www.ag.auburn.edu/agec/pubs/budgets.

The “typical” budget cited above shows an $8 return over variable costs and a $35 loss over total costs on a 64-bushel per acre crop at $5 per bushel. These profit levels imply variable expenses in excess of $300 per acre, a level unheard of just a few short years ago.

The days when farmers could turn a profit on 30 bushel-per-acre wheat, even at $5 to $6 per bushel, are over.

Farmers planning to plant wheat for grain should expect to shoot for high yields and should supply the crop with adequate fertility to support those expectations.

Crop protection chemicals should include the herbicides, fungicides and insecticides to provide a top quality crop as well as good yields. Growing wheat today requires a high level of management that goes with high input cost.

Finally, based on last year’s experience, farmers should consider the revenue-based insurance products for wheat. Last year many farmers in Alabama experienced severe crop damage with commensurate price reductions. Farmers with yield-based insurance were faced with good yields, but low revenue due to dockage. Farmers with revenue-based coverage often received an indemnity which at least partially offset their losses.

While fall is a busy time, it’s not too early to think about plans for 2010 and how a potential wheat crop is going to fit into next year’s cropping plans.

TAGS: Corn
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