NEWS for North Dakotans
Agriculture Communication, North Dakota State University
7 Morrill Hall, Fargo, ND 58105-5665

April 23, 1998

One Farming Strategy:
Shoot for $10 Per Acre Return on Wheat

Farmers can't control weather, prices or government policy.

What they can do is watch costs and shoot for a $10 return per acre on wheat this year—and count themselves lucky if they get it—according to Andrew Swenson, farm management specialist for the North Dakota State University Extension Service.

What caused farm problems last year were wheat and barley yields of poor size and quality, lower prices and high costs of production. The effects of this last factor, especially, says Swenson, have been underestimated by many.

"Direct cost of wheat production in North Dakota, outside of the Red River Valley, increased from $39 in 1991 to $64 per in 1996," he says. "This is according to records of farms enrolled in North Dakota Farm Business Management Education programs, and it includes costs such as seed, fertilizer, chemicals, fuel, repairs, custom work and operating interest. During that same period, fertilizer and chemical costs per acre doubled. Costs leveled out in 1997 at these historically high levels. Surprisingly, even where average yields were attained in 1997, profit was difficult to achieve on cash-rented ground."

Contrary to popular thought, says Swenson, the new Freedom to Farm program was not responsible for 1997 woes. In fact, the market transition payments it provided were greater than what would have been provided in deficiency payments under the old farm program.

He points out that the recent USDA planting intentions report indicated that for 1998 North Dakota producers are scrambling to reduce wheat acreage and accept the production and financial risks and returns of other crops. But wheat will remain the predominant crop of most farms. Currently, new crop prices for wheat are less than $3.50.

"No one knows if prices will go up or down in the years ahead," says Swenson, "but periods of sustained high prices seem unlikely due to the ability of the Southern Hemisphere producers to react to good prices, and to the production potential of former communist countries in Eastern Europe and Russia. Of course, unforseen weather events and political instability may push prices higher, but we cannot count on this."

Recent lows and highs in the average North Dakota wheat price were $4.71 in the 1995 marketing year and $2.44 in 1990. The Freedom to Farm program provides a fixed market transition payment, and the safety net for wheat is a $2.58 per bushel national market loan.

"It is difficult to avoid blaming this whole situation on the weather, the government, and prices," says Swenson. "But it is more productive to be realistic and analyze things that can be controlled internally in the business. I think we should be planning on how we can make a $10 profit with $3.50 wheat for the next few years—a very difficult proposition that may not be achievable."

Even if a $10 per acre return on wheat is achieved, he says, it may not be enough to sustain a family farm without solid profit in other enterprises. One helpful thing is that in 1998 that $10 would be supplemented by about $8 to $10 per crop acre in government market transition payments.

Swenson offers the following equation as one that many farmers in central and east central North Dakota will be facing: 30 bushels of wheat at $3.50 per bushel bringing in $105 of gross income, from which must be subtracted $55 of direct costs, $30 of land rent and $20 costs of machinery ownership and miscellaneous costs of overhead, leaving nothing at all for labor and management.

"Currently I see no return to labor and management on cash-rented land even with these direct costs, which are below what they were 1997," says Swenson. "The challenge to the producer is how to cut costs even more, or to increase yield in an costeffective manner. Of course, the more invested to increase yield, the more the financial risk.

"In any case, every direct cost, as well as land rent and machinery ownership costs, should be scrutinized carefully to see if $10 can be squeezed out of every wheat acre."

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Source: Andrew Swenson (701) 231-7379

Editor: Barry Brissman (701) 231-7866