Net returns of Arkansas wheat systems
Oct 7, 2005 12:00 PM, By Scott Stiles, Rob Hogan and Kelly Bryant
A difficult aspect of wheat production is estimating net returns. Careful consideration has to be given to a variety of factors from historic average yields to commodity and input prices.
Table 1 itemizes seven typical Arkansas wheat production systems from the 2004-05 Wheat Research Verification Program1. Returns per acre are highly dependent on yield per acre. It is obvious from the data presented that yields are rather variable from farm to farm, even within the same production cycle.
| Preplant Tillage | Pest Control | Other Costs | Total Operating | Total Operating and Ownership Costs | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Yield |
No. of Trips | Operating Cost |
Fertilization Cost | Seed Cost | Insecticide Cost | Fungicide Cost |
Herbicide Cost2 | ||||
| (bu/ac) | ($/ac) | ($/ac) | ($/ac) | ($/ac) | ($/ac) | ($/ac) | ($/ac) | ($/ac) | ($/ac) | ||
| Low Yield Average |
34.5 | 0 | $0.00 | $64.00 | $17.94 | $0.00 | $0.00 | $0.00 | $34.98 | $116.92 | $133.21 |
| 58.7 | 4 | $20.60 | $49.00 | $19.50 | $0.00 | $9.32 | $6.11 | $34.95 | $139.48 | $163.95 | |
| 46.6 | $20.60 | $56.50 | $18.72 | $0.00 | $9.32 | $6.11 | $34.97 | $128.20 | $150.23 | ||
| Medium Yield Average |
65.0 | 1 | $2.58 | $81.51 | $12.00 | $0.00 | $0.00 | $14.25 | $38.39 | $148.73 | $163.44 |
| 69.5 | 1 | $8.71 | $52.60 | $13.00 | $0.00 | $12.32 | $0.00 | $29.57 | $116.20 | $138.45 | |
| 67.3 | $5.65 | $67.06 | $12.50 | $0.00 | $12.32 | $14.25 | $33.98 | $132.47 | $154.49 | ||
| High Yield Average |
83.0 | 2 | $10.52 | $32.25 | $15.60 | $0.00 | $12.32 | $0.00 | $33.50 | $104.19 | $137.13 |
| 91.7 | 0 | $0.00 | $45.90 | $19.50 | $0.00 | $12.32 | $5.56 | $52.13 | $135.41 | $156.35 | |
| 92.0 | 1 | $3.84 | $48.15 | $23.40 | $0.00 | $0.00 | $0.00 | $39.66 | $115.05 | $137.64 | |
| 88.9 | $7.18 | $42.10 | $19.50 | $0.00 | $12.32 | $5.56 | $41.76 | $118.22 | $140.24 | ||
| Overall Average | 70.6 | $9.25 | $51.57 | $17.17 | $0.00 | $11.57 | $8.64 | $37.60 | $125.14 | $147.17 | |
In addition to yield, the level of input costs will vary across production systems, changing with each operator's cultural management. Referring again to Table 1, field preparation is a cost of production with considerable variation. Based on agronomic conditions and producer preferences, zero trips to as many as four trips may be needed prior to planting. Thus, costs in this area ranged from $0 to over $20 per acre. Costs will vary for fertilizer, seed, fungicides, and herbicides, too.
Equally as variable are custom hire, machinery, and operating interest expenses, which are included in the “other costs” category. Custom hire expenses include those for seeding and application of chemicals and fertilizers. Machinery operating expenses include labor, fuel, repairs and maintenance. Operating interest expense is an estimate of the interest that would accrue on an operating line of credit for input purchases.
“Total operating and ownership costs” include total operating expenses (i.e. variable inputs) plus the estimated fixed or “ownership” costs for all machinery and equipment. This total does not include rent or returns to management. Total operating and ownership costs ranged from $133.21 to $163.95 per acre.
The 2005 average Arkansas wheat yield was 55 bushels per acre. Table 2 shows breakeven wheat prices, not considering any payment to land at various yields — in other words, no cash or crop rent charges. That would also include land charges on owned land.
| Category/yield | 45 bu/ac | 55 bu/ac | 65 bu/ac |
|---|---|---|---|
| BE over variable costs ($/bu) | $2.78 | $2.28 | $1.93 |
| BE over total costs ($/bu) | $3.27 | $2.68 | $2.26 |
Table 3 expands the analysis to include a 75-25 percent crop share rent payment.
| Category/yield | 45 bu/ac | 65 bu/ac | 95 bu/ac |
|---|---|---|---|
| BE over variable costs ($/bu) | $3.71 | $3.03 | $2.57 |
| BE over total costs ($/bu) | $4.36 | $3.57 | $3.02 |
Farmers planning to grow wheat should carefully consider all costs relevant to their operations and review anticipated wheat price at sales time. On the day of this writing, wheat futures for July delivery on the Chicago Board of Trade are trading at $3.54° per bushel.
The Wheat Research Verification Program is conducted by the University of Arkansas, Cooperative Extension Service with checkoff funding from Arkansas wheat producers. Funding for research is administered by the Arkansas Wheat Promotion Board.
Scott Stiles, Rob Hogan and Kelly Bryant are University of Arkansas Extension economists. Comments or questions? Call 870-460-1091 or e-mail bryantk@uamont.edu.
