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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 2015

• Canola – $10.25

• RS Wheat – $6.53

• Oats - $2.95

• Flax - $12.08

• Soybeans - $10.02

• W Wheat - $5.45

• Barley - $4.00

• Corn - $4.55

• Peas - $8.82

• December 2016

• Canola – $10.75

• RS Wheat – $6.25

• Oats - $3.20

• Flax - $12.50

• Soybeans - $11.50

• W Wheat - $5.00

• Barley - $3.50

• Corn – $4.25

• Peas - $7.00

40.0

57.0

75.0

38.0

110.0

125.0

$10.75

$6.25

$5.00

$11.50

$3.20

$4.25

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

Canola Wheat Winter Wheat

Soybeans Oats Corn

$ P

er

Un

it

Yie

ld P

er

Acr

eRA#12 Yield per Acre - 2017

Yield $/unit Manitoba Agriculture

$257.87

$194.14 $181.58$197.51

$151.58

$313.74

$120.16

$122.17$124.83

$119.63

$128.17

$130.84$30.00

$30.00$30.00

$30.00

$30.00

$30.00

$0.00

$50.00

$100.00

$150.00

$200.00

$250.00

$300.00

$350.00

$400.00

$450.00

$500.00

Canola Wheat Winter Wheat Soybeans Oats Corn

$/A

cre

RA#12 Crop Production Costs ($/Acre) - 2017

A. Operating Costs B. Fixed Costs C. Labour

$0

$20

$40

$60

$80

$100

$120

$140

$160

$/A

cre

HRS Wheat Costs (1990-2017)

Seed & treatment Fertilizer Chemicals

$0

$50

$100

$150

$200

$/A

cre

Canola Costs (1990-2017)

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.

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

Pri

ce ($

/MT)

Urea Nitrogen Fall vs. Spring Prices (2001-2017)

Previous Fall Spring Previous Fall Trend Spring Trend

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,6002

00

1

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

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20

14

20

15

20

16

20

17

Pri

ce ($

/MT)

11-52-0 Fall vs. Spring Prices (2001-2017)

Previous Fall Spring Previous Fall Trend Spring Trend

13.3%

17.5% 17.3%16.6%

20.7%

13.1%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Average Increase 2001-2017

Average without 2009

Average without 2008 and 2009

% P

rice

Ch

ange

Fertilizer Spring vs. Fall Price Change

46-0-0 11-52-0

$144,160

$21,596 $32,000

$90,564

$41,600

$8,985$10,000

$22,615

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

$180,000

$200,000

Savings Interest Cost Storage Cost @

$20/MT

Net Savings

10 year Total Benefit of Fall Buying Fertilizer Average MB Farm that buys - 160 MT 46-0-0 & 50 MT 11-52-0

46-0-0 (160 MT) 11-52-0 (50 MT)

$0

$10

$20

$30

$40

$50

$60

$70

$/A

cre

Canola Seed Cost (1990-2017)

$0.00

$100.00

$200.00

$300.00

$400.00

$500.00

$600.00

Canola Wheat Winter Wheat Soybeans Oats Corn

$/A

cre

RA#12 Crop Marginal Returns ($/Acre) - 2017

Gross Revenue Margin Over Operating Margin Over Operating & Fixed

24.0

31.1

36.3

17.2

47.4

73.8

35.2

50.6

61.3

27.6

87.4

104.6

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

110.0

Canola Wheat Winter Wheat Soybeans Oats Corn

Yie

ld P

er

Acr

eRA#12 Breakeven Yields (per Acre) - 2017

Breakeven Yield Over Operating Costs

Breakeven Yield Over Op & Fixed Costs

$6.45

$3.41

$2.42

$5.20

$1.38

$2.51

$9.45

$5.55

$4.09

$8.35

$2.54

$3.56

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

$10.00

Canola Wheat Winter Wheat Soybeans Oats Corn

$/U

nit

RA#12 Breakeven Price ($/unit) - 2017

Operating Costs Operating & Fixed Costs

105.3%102.9%

111.4%

125.8%

113.6% 111.9%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

Canola Wheat Winter Wheat Soybeans Oats Corn

RA#12 Breakeven Yields (per Acre) - 2017

Target or Average Yield as % of B/E Yield

$113.60

$101.61

$138.04

$155.24

$122.13 $124.33

$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

$160.00

$180.00

Canola Wheat Winter Wheat Soybeans Oats Corn

$/A

cre

RA#12 Crop Marginal Returns 'Stress Test' - Price Down 10% & Yield Down 5% ($/Acre) - 2017

Margin Over Operating Costs

($6.56)

($20.55)

$13.20

$35.61

($6.04) ($6.51)

($30.00)

($20.00)

($10.00)

$0.00

$10.00

$20.00

$30.00

$40.00

Canola Wheat Winter Wheat Soybeans Oats Corn

$/A

cre

RA#12 Crop Marginal Returns 'Stress Test' - Price Down 10% & Yield Down 5% ($/Acre) - 2017

Margin Over Op & Fixed Costs

$11.85$9.11

$6.45

$12.61

$8.40

$28.92

3.51%3.28%

2.13%

4.73%

3.40%

6.40%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

Canola Wheat Winter Wheat

Soybeans Oats Corn

$ P

er

Acr

eRA#12 - 80% Insured Value AgriInsurance Risk

Analysis - 2017

80% Insured Value Premium $/Acre Premium % of Insured Value

$0.00 $0.00 $0.00 $0.00 $0.00 $0.00

$40.01 $38.86

$3.66

$50.58

$32.60

$0.00

$30.00 $30.00

$30.00

$30.00

$30.00

$22.49

$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

$80.00

$90.00

Canola Wheat Winter Wheat Soybeans Oats Corn

$/A

cre

RA#12 Costs Not Covered By 80% Insured Value AgriInsurance - 2017

Operating Costs Fixed Costs Labour

$338.03

$277.44$302.76

$266.56$247.15

$452.09

131%

143%

167%

135%

163%

144%

83% 80%

90%

77%80%

95%

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

$0.00

$50.00

$100.00

$150.00

$200.00

$250.00

$300.00

$350.00

$400.00

$450.00

$500.00

Canola Wheat Winter Wheat

Soybeans Oats Corn

$ P

er

Acr

eRA#12 - 80% Insured Value AgriInsurance Risk

Analysis - 2017

80% Insured Value Coverage of Operating Costs Coverage of Total Costs

$295.77

$242.76$264.91

$233.24$216.26

$395.58

116%

127%

148%

120%

145%

129%

73% 71%

79%

68% 70%

85%

0%

20%

40%

60%

80%

100%

120%

140%

160%

$0.00

$50.00

$100.00

$150.00

$200.00

$250.00

$300.00

$350.00

$400.00

$450.00

Canola Wheat Winter Wheat

Soybeans Oats Corn

$ P

er

Acr

eRA#12 - 70% Insured Value AgriInsurance Risk

Analysis - 2017

70% Insured Value Coverage of Operating Costs Coverage of Total Costs

$211.27

$173.40$189.22

$166.60$154.47

$282.56

85%

93%

107%

88%

106%

95%

53% 51%

57%

49% 51%

62%

0%

20%

40%

60%

80%

100%

120%

$0.00

$50.00

$100.00

$150.00

$200.00

$250.00

$300.00

Canola Wheat Winter Wheat

Soybeans Oats Corn

$ P

er

Acr

eRA#12 - 50% Insured Value AgriInsurance Risk

Analysis - 2017

50% Insured Value Coverage of Operating Costs Coverage of Total Costs

Fixed Cost Management

Operating Costs 65%

Margin Over Operating

35%

• Gross Revenue = Price x Yield Per Acre

• Margin Over Operating Cost = Gross Revenue – Operating Costs

Fixed Cost Management

Operating Costs 65%

Land Cost 18%

Equipment Cost 12%

Owner Withdrawl

5%

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)

Gross Revenue x 5 = $1,750 to $2,500/ac x 6 = $2,100 to $3,000/ac x 8 = $2,800 to $4,000/ac x10 = $3,500 to $5,000/ac

Too Cheap Reality? Insanity

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”

Cash Rent Based on Investment Return on Land Value (cont.)

(Landowner check & balance)

Land market value $4,000 per acre x Long Term Investment Rate (5yr) 2.5 % + Property taxes $12.00 per acre Total Cash Land Rental $112.00 per acre

Based on “Reality”

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

Land Planning – Based on Gross Revenue or Margin Over Operating?

• What if we have: Flat or falling commodity prices?

Increasing interest rates?

Increasing production costs?

• How long can we make decisions on land and equipment based only on gross revenue??

• Shrinking ‘Margin Over Operating’ is going to be a real challenge down the road.

Machinery Investment – What is Acceptable? (12 to 15% of Gross Revenue/acre)

Machinery Investment range for most farms is 50% to 200% of gross revenue ($175 to $700) per acre.

Generally, lower investment costs should be accompanied by higher

repair costs in your budget.

4WD Tractor,

$100

Combine &

Swather, $175

Drill & Planter,

$75

Sprayer, $75

Trucks, Grain Cart,

Augers, Harrow, etc., $75

Based on the Crop COP (simple & easy to use)

Cash costs on annual basis (bushel, ac & total)

Use it for: pre season planning; growing season management; & crop marketing before and after the crop is in the bin.

NEW !!

MYFARM Crop Management Calculator

2017 Crop Year

Cost of Production / Marketing / Management

MYFARM Crop Mgmt Calculator

• Cost of Production:

Costs per bushel, per acre, & total farm.

Gross revenue estimates.

• Marketing:

Breakeven prices & yields

Avg. price sold to date.

B/E price on remaining unsold production.

• Management:

Fertilizer, seed and grain storage required.

Op. Expense ratio.

AgriInsurance values and coverage estimates.

Avg. & B/E land and machinery payment per ac

What If? Analyzer

What If? Printed: 2015-12-16

Crop Price (Change %, +/-) 0%

Crop Yield (Change %, +/-) 0%

Fuel Cost (Change %, +/-) 0%

Fertilizer Cost (Change %, +/-) 0%

Added Machinery Lease Annual Payment ($) $0

Added Machinery Purchase Annual Payment ($) $0

Acreage Change - Land Purchase (Additional Annual Payment) $0 0 Acres Purchased

Acreage Change - Land Sale (Reduced Annual Payment) $0 0 Acres Sold

Acreage Change - Land Rental Payments Per Acre (+/-) $0 0 Acres (+/-)

Land Rental Rate (Change $/acre, +/-) $0

Hired Labour Cost (Change +/- $) $0

Owner Withdrawl (Change +/- $) $0

Canadian Dollar Exchange Rate - USD (Change $, +/-) $0.00 (0 cent change from current value, affects fertilizer cost and grain market values)

Reset Initial

Default Values

MYFARM – What If? Analyzer

Calculates the impact of the ‘what if’ changes on costs, revenues and marginal returns.

Reseeding Decision Tool - Canola*** Enter/select changes to items in BLUE only ***

Farm Information:

MASC - Risk Area RA #2

MASC - Soil Zone E

MASC - Individual Productivity Index (IPI) 1.00

MASC AgriInsurance Coverage level 80%

Calculated MASC Probable Yield (bu/ac) 34.6

Original Crop Canola

Reseeded Crop Canola

Estimated Market Price ($/bu) $10.89

Damaged Canola Plant Stand Evaluation: Plants/m2

Field Sample Plant Counts/m2

15

* enter up to (5) plant counts in the boxes to the right

* leave entries blank if less than (5) counts were taken

* 10.8 plants/m 2 = approx. 1 plant/ft 2

Average Plant Count/m2 15.0

Plant Count - Yield Factor 0.75

Estimated Yield (bu/ac) 26.0

Estimated Gross Revenue ($/ac) $282.60

Reseeding Decision Tool - Canola

Canola Reseeding Evaluation:

Reseed Date 1st week June

Date - Yield Factor 0.8953

Estimated Reseed Yield (bu/ac) 31.0

Estimated AgriInsurance Reseeding Indemnity ($/ac) $75.36

Estimated Seed Company Reimbursement ($/ac) $0.00

Reseed Seed Costs ($/ac) $60.00

Reseed Machinery Costs ($/ac) $15.00

Estimated Gross Revenue ($/ac) $337.95

(net reseeding indemnity, reimbursements & expenses)

Estimated Benefit (Cost) of Reseed Decision ($/ac) $55.35

*** Enter/select changes to items in BLUE only ***

Risk Factor Possible Answers Risk Points

One to two years 10

Low (1% to 10%) 5

Normal 5

Less than 10 mm (0.4") 0

Variable 10

Low Numbers 10

Estimated Canola Yield 40 bu/ac

Estimated Price $10.75 $/bu

Estimated Fungicide Cost $21.88 $/acre

Estimated Application Cost $8.00 $/acre

Number of Years Since last

Canola Crop

Disease Incidence in Last Host

Crop Density

Rain in the Last Two Weeks

Weather Forecast

Regional Risk for Apothecia

Development

Sclerotinia Treatment Decision Tool

Sclerotinia Treatment Decision Tool

Low High

Potential Infection Range 15% 25%

Potential $ Return/acre $2.37 $23.87

Potential Return on Investment 8% 80%

Profit Probability

Spray Decision -

Sclerotinia Treatment Profitability Analysis

Likely Beneficial to Spray

100%

Created and maintained by Manitoba Agriculture Farm Management December, 2017

Darren Bond Roy Arnott

Farm Management Specialist Farm Management Specialist

Farm Software & Worksheets (Crops)

• http://www.gov.mb.ca/agriculture/business-and-economics/financial-management/farm-software-and-worksheets.html

• Farm Machinery Custom & Rental Rate Guide Calculator - 2016/17

• Crop Land Purchase Values – 2016

• Crop Land Rental Rate - 2016

• Crop Share Lease – 2017

• FertPlan - 2017

• Grain Bin and Farm Building Rental Cost Planner

• Grain Drying Cost Calculator

• Sclerotinia Treatment Decision Tool (Canola and Sunflower versions)

Questions ?

For more information Visit our website:

www.manitoba.ca/agriculture

Follow us on Twitter: @MBGovAg

View our videos on YouTube: www.youtube.com/ManitobaAgriculture

Contact me:

Roy Arnott, P.Ag. roy.arnott@gov.mb.ca Killarney GO Office - 204.523.6424