Wheat budgets for the 2009 Oklahoma/Texas wheat crop indicate, that with average production (35 bu/ac), total operating (variable or out-of-pocket) costs are projected to be $180 per acre. Current fertilizer, fuel and other costs indicate that total operating costs for 2010 wheat production may decline to $135 per acre.
The break-even price for 2009 harvested wheat is projected to be about $5.14 per bushel ($180/35 bu). The break-even price for 2010 harvested wheat is projected to be $3.86 ($135/35 bu).
Given the high variability of input costs during the summer and fall of 2008, some wheat producers' total operating costs will be above $200 per acre. Producers that applied very little fertilizer during planting and that top-dressed in January and February may have lower costs.
Break-even price estimates for the 2009 wheat crop range from about $4.75 to nearly $6 per bushel. A caveat is that if the drought continues, yields will be below average and break-even prices will increase dramatically.
Some areas are also experiencing greenbug and/or mite infestations that require spraying. Costs may increase $8 per acre and the break-even price may increase $0.23.
2009 wheat production cost estimates are based on 63 pounds of Anhydrous Ammonia and 55 pounds of Diammonium Phosphate applied in August and 30 pounds of 28 percent UAN applied in February. Anhydrous was $980 per ton, DAP $1,150 per ton and the UAN $370 per ton.
Diesel was priced at $3.75 per gallon and custom harvest costs were estimated to be $25.50 per acre ($17 per acre + $0.17 above 20 bushels + $0.17 hauling).
The 2010 wheat budget is based on the same fertilizer application rates and current fertilizer and fuel prices plus 35 percent. Anhydrous was estimated to be $575 per ton, DAP $675, and UAN $280. Diesel was priced at $1.75 per gallon. Custom harvest costs were estimated to be $27 per acre (18-18-18).
Producers that purchased crop revenue insurance are in relatively good position. Since the insurance guarantees income, losses for either price and/or yield are covered. The guaranteed price is $8.77. With 70 percent coverage and average production (no loss from yield), the price guarantee is about $6.14 ($8.77 x 0.70).
If drought results in yields below average, both the lower price and the below-average yield will be covered.
Producers who did not purchase crop insurance are facing a bleak 2008 wheat crop situation. At this writing, the market is offering about $4.80 for harvest delivered wheat. This is about $0.34 below the break-even price.
If dry weather results in below average yields, prices will increase. The problem is that the higher price will offset the loss in yield resulting in total income remaining below total operating costs. What is needed is reduced production somewhere besides Oklahoma and Texas.
The good news is that 2010 should be a more profitable year. Total operating costs and the break-even price should be significantly lower.
With 2008-2009 marketing year U.S. ending stocks projected to be 655 million bushels and world ending stocks projected to be 5.5 billion bushels, 2009-2010 wheat marketing year prices are expected to remain in the $4.50 to $5.50 range. With average production, the average annual 2009-2010 price is expected to be around $5.25.
2010-2011 marketing year profit may not be as high as for the 2008-2009 marketing year but it is expected to be significantly better than for the 2009-2010 marketing year.