January 4, 2002

Crop Budgets Show Lower Costs for 2002, but Loan Rate Question Looms

Lower interest rates and prices for fuel and nitrogen fertilizer will help producers cope with low crop prices in 2002 but the level of government support is uncertain, according to Andrew Swenson, North Dakota State University Extension farm management specialist.

The only direct cost that was consistently higher, compared to last years’ projections, were repairs, Swenson says. Seed, chemical and crop insurance costs for most crops were similar to the previous year. Some exceptions are greater insecticide use budgeted for confectionery sunflowers and higher seed costs for dry beans, oats, mustard, safflower and buckwheat. Total indirect costs were also similar to last year, land was flat to up slightly, and higher machinery prices were offset by a lower interest rate charge.

"Another positive is that projected yields for certain crops have increased significantly," Swenson says. The yield projections in the budgets are the seven-year average yield, excluding the high and low years. Using this formula, projected corn, soybeans, sunflower and dry beans increased compared to last year’s budgets. Overall, there was a slight increase in small grain yields. However, spring wheat and durum yields declined slightly in the north central and northwest regions.

Projected prices for most crops continue to be dismal, Swenson says, with oilseeds below current marketing loan rates, feed grains near marketing loan rates and the statewide average wheat price projected at $3.20 per bushel. In calculating the budgets, Swenson assumed marketing loan rates will be the same as last year, but because of several years of low prices the rates could be lowered for 2002. As of Jan. 4, the U.S. Secretary of Agriculture has not announced a decision.

"Even with lower costs, negative returns to labor and management are projected from spring wheat production in all regions of the state," Swenson says. The smallest losses, about $9 per acre, are expected in the southwest, southeast and south central regions. Losses in other regions are projected to range from $14 to $21 per acre. Interestingly, winter wheat projects fewer losses than spring wheat in all regions, except in the Red River Valley and the northwest. Durum looks best in the southwest with a projected $3 per acre profit, followed by the northwest with a $6 loss.

Malting barley shows small profit in the central and western regions, but feed-quality barley would result in a significant loss per acre. Also, field peas show a slight positive return if food-quality peas are produced. Although the current price of oats is high, it is projected to fall and large negative returns are predicted.

Dry edible beans show the best returns to labor and management, more than $60 per acre, at a price of 18 cents per pound. Strong prices show projected profits between $20 and $40 per acre for mustard in the west and north regions, safflower in the west, and buckwheat. Confectionery sunflowers outside of the Red River Valley and lentils in the west and north central regions also show a profit. "However most of these crops have significant production and price risks. If a price is attractive it is a good policy to contract a crop that has a thin market," Swenson advises.

"For the fifth consecutive year, because of yields and loan rates, the budgets favor oilseeds that are best suited to particular growing areas over small grains," he notes. An exception is the southwest where the return to durum, malting barley, canola and sunflower all show a small profit. Soybeans project a positive return in the south central, southeast and Red River Valley regions. Canola is near breakeven in the west, north central and northeast regions. Oil sunflowers and flax range from a positive $7 per acre to negative $12 in regions outside of the Red River Valley. If loan rates for oilseeds are reduced in 2002 to the minimum allowable, profit projections for soybeans, canola, oil sunflowers and flax could be reduced by about $10 per acre.

"The south central and southwest regions have the most crop options that show a profit. Red River Valley counties, because of higher costs, primarily land rent, have the least," Swenson says. "I believe acreage of soybeans and dry edible beans will increase, subject to rotation and management limitations."

He cautions that the budget projections are just that. "Obviously, weather plays a huge role in determining profit. If yields are less than average there will be significant revenue shortfall per acre and the impact is magnified because farms are larger than in the past. It is critical to evaluate crop insurance and consider the financial downside risk, as well as the upside potential, of the crop rotation."

The budgets do not include federal aid that is de-coupled from crop selection and production. However, those payments are very important to whole farm profit, he notes. The scheduled production flexibility contract payment will average about $9 per acre statewide, higher in the east and lower in the west. A major concern is whether a market loss assistance payment similar to those legislated each year for 1998 through 2001, or some other additional aid, will be forthcoming, Swenson says.

Producers can contact their local office of the NDSU Extension Service for area-specific budget. The budgets are also available on the World Wide Web (http://www.ext.nodak.edu/extpubs/ecguides.htm).

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Source: Andrew Swenson, (701) 231-7379, aswenson@ndsuext.nodak.edu
Editor: Tom Jirik, (701) 231-9629, tjirik@ndsuext.nodak.edu