It looks like a race to the end of harvest to determine whether increased yields can offset the drop in prices and all costs can be covered for the 2014 crop year. If concern about how 2014 will end is not enough, planning for 2015 has already started among those producers considering wheat for 2015. Considering raising a few acres of wheat may not seem like a huge decision, it does put into play how all crops will be allocated on a farm.
Generally speaking, many producers have already made this decision as they have defined their crop rotation over the years, and barring any drastic weather changes or market fluctuations, they will stick to that rotation. However, projected profitability of a crop can influence whether a producer will follow their crop rotation or plant what is perceived to be the most profitable crop.
Typically, wheat and double-cropped soybean fall in the mix of acreage for profitability. This does, of course, depend on how yields shake out for those crops. Most years it is the double-crop soybeans which will “sink or swim” the combination, however, in 2014 in West Tennessee it was wheat. It was not so much wheat yields but price discounts that hammered the crop returns and will probably influence wheat planting this fall. Fortunately, for the last two years double-crop soybeans have yielded or look to yield in 2014 as well or better than full-season soybeans. This has boded well for this double crop combination.
It is expected that some input cost such as fertilizer will be less in 2015, although it has of yet started decreasing. Seed cost depending on the technology is expected to be stable. Fuel cost does look to be less or at least not increase. A look now at 2015 projections using mostly 2014 cost show negative margins, depending on the level of examination.
All crops show a positive return above the variable cost of production at average yields and current forward prices or derived prices. When land cost at 25 percent revenue is factored in, full-season soybeans eke out a small return. When fixed machinery and management cost are considered, then all crops are in the red.
Double take on returns
On the average, wheat and double-crop soybeans look the best when examining Returns over Variable Costs. This can be equated to own or cash rent ground and this land situation is generally where wheat shines the brightest.
If wheat ground is rented on a share as listed in Table 1, then the advantage narrows considerably and full season soybeans look to be the best. From an economic standpoint, the fixed cost of machinery and management are generally considered and that puts a higher fixed cost for wheat and double cropped soybeans due to two plantings and two harvesting expenses.
While although the returns are negative, it does give a feel that wheat and double-crop soybean profitability can fall between full season soybeans and corn and are definitely worthy of consideration for the 2015 cropping plan.
As we look to the 2015 crop year, there has to be concern on the overall profitability of all crops particularly at average-year and current price levels. Certainly, the new farm bill might be able to provide somewhat of a safety net, but that safety net will lag the crop year as much as a year and there is no surety that it will assist each and every farm situation.
What can producers do? I would imagine as we wrap up 2014 and head into 2015, a major theme in agricultural will be how to survive at lower prices. Seasoned producers have weathered this storm before and know that they will have to be on top of every aspect of their management to survive this price down turn. There is no magic bullet, but sound management practices will be the key.