With wheat planting near, farmers are trying to determine what profit they can expect from the crop this year. In this article, we'll examine the breakeven price of wheat.
Most, if not all, wheat in the Delta is double-cropped with soybeans. Soybeans following wheat, commonly called wheat-beans, normally yield less than full-season soybeans. They also cost less to produce.
Wheat has to cover its own costs and the cost of a smaller soybean crop, but saves money on the following bean crop.
Breakeven price of wheat is the wheat price needed to cover wheat production costs and income lost due to lower soybean yields while recognizing the cost savings on the soybean crop following wheat. It can be calculated as:
To calculate the breakeven price of wheat, you must know the cost of producing a wheat crop, the price of soybeans, the yield reduction due to double-cropping soybeans, the production cost difference between full-season soybeans and wheat-beans, and the wheat yield. Look at some examples.
We estimate the cost of producing a wheat crop to be $107.59 per acre in direct expenses and another $28.48 per acre in machinery ownership costs for a total cost of $136.07 per acre.
The $28.48 in machinery ownership costs is not a cash expense. It is a real cost of wear and tear on machinery. Most of it is associated with the combine.
We will use a soybean price for next November of $5.75 per bushel.
This projected price is based on the November 2005 soybean futures contract and a conversation with a local grain elevator.
The Arkansas Soybean Research Verification Program has typically shown a 5-bushel per acre difference between wheat-beans and full-season soybeans. Obtaining yields on wheat-beans similar to full-season soybeans requires a higher level of management on the wheat-beans.
We recognize this yield difference could be greater if constraints prevent timely management of double-cropped soybeans.
Using the University of Arkansas soybean budgets, we estimate the production cost difference between full-season soybeans and wheat-beans to be $15 per acre. This may be different for your farm.
We consider 60 bushels per acre to be a reasonable expected wheat yield.
Land rent, if present, must be included in our calculation of the breakeven wheat price.
For a cash rent situation, rent can be added to the cost of the wheat crop.
For a straight share lease, wheat yield and the reduction in soybean yield should be adjusted down to reflect only the tenant's share of these yields.
Under a cost share arrangement, cost of the wheat crop, wheat yield, reduction in soybean yield and increased cost of full-season soybeans should all be adjusted to reflect only the tenant's portion of all four.
Let's look at some examples.
In this example, soybean yield loss due to double-cropping soybeans is 5 bushels, and wheat yield is 60 bushels. Breakeven price for wheat is $2.50 per bushel.
In this example, the tenant's share of the soybean yield loss due to double cropping soybeans is 3.75 bushels, and wheat yield after a share rent is 45 bushels. In this case breakeven price for wheat is $3.17 per bushel.
In this example, soybean yield loss due to double-cropping soybeans is 10 bushels per acre and wheat yield is 60 bushels.
Breakeven price for wheat is $2.98 per bushel.
In this example, the tenant's share of yield loss due to double-cropping soybeans is 7.5 bushels per acre, and wheat yield after a share rent is 45 bushels. In this case breakeven price for wheat is $3.65 per bushel.
Here in Arkansas wheat prices vary across locations, but many are offering about $3.20 (or less) for a booking price. Growers really need to analyze how much soybean yield they are going to give up by double-cropping and how much they can realistically expect in terms of wheat yield.
For more information on farm level economic decisions, contact your local county Extension office.
Kelly Bryant, James Marshall, Rob Hogan and Scott Stiles are University of Arkansas Extension economists. Comments or questions? Call 870-460-1091 or e-mail firstname.lastname@example.org.