Profit Potential in Wheat for Grain
Since it looks like wheat may be $8 per bushel at harvest in 2009, many producers are considering planting it strictly for grain. This can be profitable in some situations with good management, cost control and high yields. Unfortunately, costs have increased at a very fast pace and have diminished profit margins. The purpose of this article is to look at each line item in a wheat-for-grain budget and see how it affects the bottom line. Unfortunately, the profit potential is not as rosy as it seems at first glance.
We realize that your actual costs may not match our projections in this article. The purpose of the article is to provide an overview of the profit potential available in wheat-for-grain at today's costs and income.
This is obviously the most basic input. Wheat crop rental rates in our area are currently about $30-$70 per acre, depending on the quality of the land and the location. There is some land available for less cost and some for higher cost, but this rate probably captures most of the land in our Oklahoma and Texas service area. You may say you own your land so there is no charge for land. However, you could rent your land to someone else for the going rate, so, to be realistic, you should include this cost on your budget. For our purposes, let's use $40 per acre as our land rent expense.
If you are renting new land, it will be worth your time and trouble to take soil samples of it before signing the lease to determine if it needs lime, phosphorus or potassium. Land that does not need these items is worth more to you than land that does if the production potential is equal.
The number of tillage trips will vary by producer and tillage system. No-till will have no trips across the field except the planter (covered in another section). Conventional tillage may have three to four trips across the field. Other reduced tillage systems will fall in between.
With current fuel prices, most people consider a tillage trip to cost $10-$15 per acre. This covers fuel, labor, and wear and tear. If you use a tillage system that uses two tillage trips before planting, your tillage costs will be about $20-$30 per acre. We will use that for our purposes for this article.
If you use no-till, you will not have the tillage expense, but will have an added herbicide expense for burndown that we will cover later. Cost of running the planter will be covered in the next section.
Seed and Planting
Since wheat-for-grain is selling for more than average, it logically follows that wheat-for-seed is more than average. Many varieties of certified wheat seed are selling for $15-$20 per bushel. With wheat-for-grain only, you can do well with one bushel per acre (60 pounds per acre) IF you have a good seedbed and IF you plant on time and IF you do not plan to graze the wheat. If you no-till, you need a good burndown program and good soil conditions. Let's say you do all these things and you have a seed cost of $17.50 per acre. If you plan to graze the wheat, you need to increase the seeding rate by 50-100 percent.
It will probably cost you about $10 per acre to drill the crop in conventional tillage and about $12.50 per acre to drill the crop in no tillage. This brings the total cost of seed and planting to about $27.50-$30 per acre.
Pesticide costs are usually higher with wheat-for-grain than for grazeout wheat. Many plants considered weeds in grain systems are desirable in grazing systems (examples include ryegrass, rye and cheat). These will need to be controlled if present in quantity. Some years, fungicides will be needed to control diseases. These are not usually needed in grazing systems because cattle will consume the disease organisms.
You will probably not need to apply herbicides and fungicides (and sometimes insecticides) on all your acreage, but you probably will need it on some acres. You probably should budget about $20 an acre to cover these possibilities. If you have fields heavily infested with rye and ryegrass, you will need to increase this budget cost.
If you are growing wheat no-till, you had no expense on tillage, but you need to add a burndown herbicide treatment. Including application, you will probably need to budget about $15 per acre for this.
Everybody knows fertilizer costs have risen tremendously. The good news is that wheat-for-grain requires less fertilizer than wheat-for-grazing. The bad news is that it is still very expensive. For purposes of this article, we will assume that the land does not need lime, phosphorus or potassium. If it needs any of these things, costs will skyrocket. If soil tests show a need for these items and they are not applied, yields will suffer.
General recommendations for wheat-for-grain are 80-100 pounds of actual nitrogen per acre. At current prices, this is about $60-$70 per acre. If you add an application charge of $5 per acre, this makes the fertilizer cost $65-$75 per acre. This price is highly volatile and subject to rapid change.
Harvest and Hauling
Harvest and hauling costs vary depending on location of the farm and the quantity of the crop. For purposes of our article, we are assigning a harvest and hauling cost of $30 per acre.
Many of our cooperators who are considering planting wheat-for-grain do not have combines. There are good custom harvesters who will cut your grain, but you may not be able to get them when you want them, especially if you are new to the business or have small acreage. This is something to keep in mind.
Interest for Operating Expenses and Other Expenses
At the figures we have listed, the interest charge for the operating expenses at 7 percent will be about $7 per acre. Some producers take out crop insurance, but we are not factoring this in for our budget because of the wide variability in prices due to different plans and vendors.
As shown in table 1, our total expenses are between $224.50 and $217 per acre, depending on tillage system. Your actual expenses will vary, but will probably be close to these.
It's always more fun to talk about income than expenses. Wheat cash price is currently projected at about $8 per bushel for next summer (futures price minus basis). According to the National Agricultural Statistics Service, the 10-year state wheat yield average for Oklahoma is about 33 bushels per acre. If you make the state average yield, you will gross about $254 per acre if you sell for $8 per bushel. After expenses, this means you will net about $29.50-$37 per acre if you make the state average yield and sell for $8 per bushel. If you yield more than the state average or have lower costs than the ones in our budget, you will obviously make more money. Conversely, you may lose money if you yield less than the state average or if your expenses are higher than those in table 1.
Very high wheat prices make it tempting to plant wheat-for-grain this fall. Very high input prices may reduce expected profits unless you can produce higher yields than the state average or can reduce costs below those in our budget.