Crop Production Costs for 2017 St. Jean Ag Days January 4, 2017 . . - PowerPoint PPT Presentation

Crop Production Costs for 2017 St. Jean Ag Days – January 4, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Roy Arnott , P.Ag. Farm Management Specialist

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#12 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 $6.25 125.0 60.0 $6.00 110.0 $5.00 $4.25 40.0 $4.00 75.0 $3.20 57.0 20.0 $2.00 40.0 38.0 0.0 $0.00 Canola Wheat Winter Soybeans Oats Corn Wheat Yield $/unit Manitoba Agriculture

RA#12 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 $119.63 $122.17 $250.00 $124.83 $128.17 $200.00 $313.74 $150.00 $257.87 $100.00 $197.51 $194.14 $181.58 $151.58 $50.00 $0.00 Canola Wheat Winter Wheat Soybeans 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#12 Crop Marginal Returns ($/Acre) - 2017 $600.00 $500.00 $400.00 $/Acre $300.00 $200.00 $100.00 $0.00 Canola Wheat Winter Wheat Soybeans Oats Corn Gross Revenue Margin Over Operating Margin Over Operating & Fixed

RA#12 Breakeven Yields (per Acre) - 2017 110.0 104.6 100.0 87.4 90.0 80.0 73.8 70.0 Yield Per Acre 61.3 60.0 50.6 47.4 50.0 40.0 36.3 35.2 31.1 27.6 30.0 24.0 17.2 20.0 10.0 0.0 Canola Wheat Winter Wheat Soybeans Oats Corn Breakeven Yield Over Operating Costs Breakeven Yield Over Op & Fixed Costs

RA#12 Breakeven Price ($/unit) - 2017 $10.00 $9.45 $9.00 $8.35 $8.00 $7.00 $6.45 $6.00 $5.55 $5.20 $/Unit $5.00 $4.09 $4.00 $3.56 $3.41 $3.00 $2.54 $2.51 $2.42 $2.00 $1.38 $1.00 $0.00 Canola Wheat Winter Wheat Soybeans Oats Corn Operating Costs Operating & Fixed Costs

RA#12 Breakeven Yields (per Acre) - 2017 140.0% 125.8% 120.0% 113.6% 111.9% 111.4% 105.3% 102.9% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% Canola Wheat Winter Wheat Soybeans Oats Corn Target or Average Yield as % of B/E Yield

RA#12 Crop Marginal Returns 'Stress Test' - Price Down 10% & Yield Down 5% ($/Acre) - 2017 $180.00 $155.24 $160.00 $138.04 $140.00 $124.33 $122.13 $120.00 $113.60 $101.61 $100.00 $/Acre $80.00 $60.00 $40.00 $20.00 $0.00 Canola Wheat Winter Wheat Soybeans Oats Corn Margin Over Operating Costs

RA#12 Crop Marginal Returns 'Stress Test' - Price Down 10% & Yield Down 5% ($/Acre) - 2017 $40.00 $35.61 $30.00 $20.00 $13.20 $10.00 $/Acre $0.00 ($6.04) ($6.56) ($6.51) ($10.00) ($20.00) ($20.55) ($30.00) Canola Wheat Winter Wheat Soybeans Oats Corn Margin Over Op & Fixed Costs

RA#12 - 80% Insured Value AgriInsurance Risk Analysis - 2017 $35.00 7.00% 6.40% $30.00 6.00% $25.00 5.00% 4.73% $ Per Acre $20.00 4.00% 3.51% 3.40% 3.28% $15.00 3.00% $28.92 2.13% $10.00 2.00% $12.61 $11.85 $5.00 1.00% $9.11 $8.40 $6.45 $0.00 0.00% Canola Wheat Winter Soybeans Oats Corn Wheat 80% Insured Value Premium $/Acre Premium % of Insured Value

RA#12 Costs Not Covered By 80% Insured Value AgriInsurance - 2017 $90.00 $80.00 $70.00 $30.00 $60.00 $30.00 $30.00 $50.00 $/Acre $30.00 $40.00 $30.00 $50.58 $20.00 $40.01 $38.86 $30.00 $32.60 $22.49 $10.00 $3.66 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Canola Wheat Winter Wheat Soybeans Oats Corn Operating Costs Fixed Costs Labour

RA#12 - 80% Insured Value AgriInsurance Risk Analysis - 2017 $500.00 180% 167% 163% $450.00 160% $400.00 144% 143% 140% 135% 131% $350.00 120% $300.00 $ Per Acre 100% 95% $250.00 90% 83% $452.09 80% 80% 80% 77% $200.00 $338.03 60% $150.00 $302.76 $277.44 $266.56 $247.15 40% $100.00 20% $50.00 $0.00 0% Canola Wheat Winter Soybeans Oats Corn Wheat 80% Insured Value Coverage of Operating Costs Coverage of Total Costs

RA#12 - 70% Insured Value AgriInsurance Risk Analysis - 2017 $450.00 160% 148% 145% $400.00 140% 129% 127% $350.00 120% 120% 116% $300.00 100% $ Per Acre $250.00 85% 80% 79% 73% $200.00 71% 70% $395.58 68% 60% $150.00 $295.77 $264.91 $242.76 $233.24 40% $216.26 $100.00 20% $50.00 $0.00 0% Canola Wheat Winter Soybeans Oats Corn Wheat 70% Insured Value Coverage of Operating Costs Coverage of Total Costs

RA#12 - 50% Insured Value AgriInsurance Risk Analysis - 2017 $300.00 120% 107% 106% $250.00 100% 95% 93% 88% 85% $200.00 80% $ Per Acre 62% $150.00 60% 57% $282.56 53% 51% 51% 49% $211.27 $100.00 40% $189.22 $173.40 $166.60 $154.47 $50.00 20% $0.00 0% Canola Wheat Winter Soybeans Oats Corn Wheat 50% Insured Value Coverage of Operating Costs Coverage of Total Costs

Fixed Cost Management • Gross Revenue = Price x Yield Per Acre Margin Over Operating • Margin Over Operating Cost = 35% 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 $500 per acre gross revenues. • $63 to $110 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 $2,500/ac x 6 = $2,100 to $3,000/ac Reality? x 8 = $2,800 to $4,000/ac Insanity x10 = $3,500 to $5,000/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”