October 6, 2016
A surefire way to make a profit is to have above average yields, below average costs, and an average or better price. That combination will not always happen — even for the highest-return producers. As they say, “Luck and chance happen to everyone.”
Take the 2016 wheat crop. Some producers had the highest yield in history, yet still had a negative profit because of historically low prices. About the only producers who made a positive profit were the ones who had record yields and sold their wheat before late June. Any wheat sold after late June was probably sold at a loss.
So the question is not, “How can a loss be avoided?” The question is, “How can the odds of a loss be minimized?
This implies that producers need to avoid low prices, relatively low yields, and/or high costs.
For the following, see Table 1. Between 2008 and 2016, the Oklahoma average variable cost per acre to produce wheat ranges between $144 in 2010 to $165 in 2012 through 2016.
Between 2008 and 2016, the average Oklahoma yield was 29 bushels per acre. The highest yields were in 2008 (37 bushels), 2012 (36 bushels), and 2016 (39 bushels). The lowest yields were in 2009 (22 bushels), 2011 (22 bushels), and 2014 (17 bushels).
The cost per bushel (breakeven price) ranged from $9.71 in 2014 (17 bu/ac) to $3.89 per bushels in 2008 (37 bu/ac).
50 PERCENT NEGATIVE
Since 2008, Oklahoma wheat prices have averaged $5.86. The highest average annual price was $7.18, and the lowest price will occur during the 2016/17 marketing year. To date, the June through September price has averaged $3.13.
Over the nine-year period 2008 through 2016, average profit was 7 cents per bushel. Profit ranged from $3.04 in 2008 to a minus $3.26 in 2014. Note that most producers who received crop insurance payment in 2014 should have been able to receive a net price that equaled or exceeded breakeven.
During the period between 2008 and 2016, without counting crop insurance payments, approximately 50 percent of wheat producers had a negative profit.
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Records show that the largest difference between farm profits is not the price received but the cost per acre and yield. Kansas farm records show that the top one-third farms averaged 15 percent higher yields than the middle one-third. Average cost of production was 8 percent less for the top one-third when compared to the middle third.
Using these percentage differences and the values in Table 1, the top one-third’s average cost would be $144 per acre, the yield 33 bushels per acre, and the cost per bushel $4.63 ($1.16 less than the average shown in Table 1).
The average profit was $1.22 per bushel ($1.16/ bu. higher). The average annual profit for the top one-third was negative four out of the nine years.
Simply said, there is no sure profit in wheat. But the odds can be drastically improved by increasing the average bushels per acre and lowering the average cost per acre.
|Table 1. Oklahoma average variable costs per acre, yield per acre, cost/acre, price, and profit|
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