June 27, 2002

Assess Value and Added Costs in Decision to Harvest Poor Crops, Economist Says

Some areas of North Dakota are experiencing extreme drought conditions while other areas of the state have had too much rain. Producers with drought-stressed crops are questioning whether it makes economic sense to harvest some of the poorest wheat fields.

"While there may be some fields with so little yield potential that harvest is economically infeasible, in most situations there will be enough revenue generated to more than cover the cost of harvesting," says Dwight Aakre, a farm management specialist with the North Dakota State University Extension Service. "Deciding whether or not to harvest a field hinges on the value of the crop that can be recovered versus the additional costs that will be necessary to recover the crop."

Assuming an accurate yield estimate can be made, the appropriate value to place on the estimated yield is the market price plus any expected loan deficiency payment or the marketing loan rate for that class of wheat, whichever is greater, Aakre says.

"Appropriate costs to consider include any cost that will be incurred if harvest takes place and will not be incurred if the crop is not harvested," he says. "If all inputs have already been applied, then the only remaining costs to consider would be harvesting and handling costs."

Handling costs run about 10 cents per bushel and may be most easily accounted for by reducing the value of the harvested crop by that amount, Aakre says. If combining is hired, the rate charged per acre for custom hire is the cost that must be recovered by the value of the harvested crop. The average custom rate shown in the latest survey in North Dakota runs about $15 per acre. If the expected market value at harvest is $2.80 per bushel less 10 cents per bushel for trucking and handling, it would take a net yield of 5.5 bushels to recover the cost of harvesting.

"Producers using their own combines would have a slightly lower break-even as the appropriate charge for combining would be the use-related costs of the combine and header," he says. That’s about $10.50 per acre based on the Minnesota Farm Machinery Economic Cost Estimates publication.

"In this situation, the break-even yield would be about 4 bushels per acre," he says. Use-related costs include fuel, lubricants, repairs and maintenance, labor, and power and implement depreciation.

Another option for some producers to consider would be to harvest the crop for hay or graze it, Aakre says. "Once again, the question is whether the potential hay yield will be sufficient to offset the cost of haying."

The latest custom rate survey shows the most frequently reported rates for mowing and conditioning to be $7 per acre, swathing $7 per acre and baling at $5 to $6 per bale depending on size. "With hay in short supply across the Dakotas and Montana, the market value of this hay may run in excess of $50 per ton. At $50 per ton, it would only take one-fourth of a ton to recover harvesting costs," Aakre notes..

"Once a field has been adjusted by federal crop insurance, the producer may destroy it, hay or graze it or take the field to harvest. If it is harvested for grain the actual yield will be deducted from the guaranteed yield to determine the insurance indemnity payment," he says. "If it is hayed, grazed or destroyed, the appraised yield will be used to determine the indemnity payment."

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Source: Dwight Aakre, (701) 231-7378, daakre@ndsuext.nodak.edu
Editor: Tom Jirik, (701) 231-9629, tjirik@ndsuext.nodak.edu