Wheat farmers are commencing with the planting of the 2016 wheat crop across the plains, but abysmally low wheat prices are raising questions on how aggressively farmers intend to plant winter wheat this fall.
Dan O’Brien, K-State extension agricultural economist in Colby, Kan., says many farmers are dealing with the frustration of planting a wheat crop that is already deep in red ink.
With Chicago, Kansas City and Minneapolis wheat futures trading near 5-year lows, cash wheat prices that are below farmers' cost of production could cause them to shift some acres out of wheat and over to competing row crops such as corn or grain sorghum in the spring.
“We might see a marginal shift. But the question would be, what are they going to go to?” O’Brien says. “We could see a shift in wheat acreage if the profitability in wheat isn’t great. But at this point in time, however, what else would they go to that might give them hope for a lot better outcome? Right now, literally everything is looking tougher on the price side.”
K-State economists estimates the breakeven price of wheat in the key south-central growing region of Kansas at $4.96/bu., at an average yield of 52 bu./acre.
Local cash grain prices, meanwhile, are near $4.30, O’Brien points out, which puts the average wheat crop in the region at a loss.
The situation is particularly tough for farmers locked into high cash rents or who are making land payments on recently purchased land.
But for farmers who own farm ground outright and aren’t encumbered with rent or debt repayment, cash flowing the 2016 wheat crop will be a much easier endeavor, according to O'Brien. Minus land costs, the breakeven price for a 52 bu./acre wheat crop in south-central Kansas drops to $4.13, which would put the crop into profitability at current cash prices.
Survival of the Most Efficient
For farmers currently facing a losing situation on the 2016 crop, O’Brien says the key is cost management and surviving the financial downturn by focusing on comparative advantage.
Bret Oelke, marketing management coach for Innovus Agra, LLC, in St. Cloud, Minn., predicts there will be a lot of belt-tightening among wheat farmers this year.
He doesn't think the current low prices will likely cause farmers to shift a significant number of acres out of wheat this fall in the central and southern or this coming spring in the Northern Plains. After all, he notes, those growers currently lack good profit-making alternative crops to wheat. He expects farmers to pin their hopes on wheat price recoveries later in the season while focusing on trimming costs.
USDA currently figures planted wheat acreage for the 2016-2016 marketing year at 56.08 million acres, down slightly from the 56.82 million acres planted last year.
“Farmers, you and I both know, are eternal optimists, and they believe that they will have an opportunity at some point to sell that crop at a profit,” Oelke says.
For regions like the Western Plains, where wheat has traditionally been the main cropping event in the rotation, the likelihood of dropping wheat acres is especially unlikely and that cost-cutting will be even more crucial. “There are several parts of the world that are going to grow wheat during low prices. And in times of low prices, you grow to your comparative advantage,” O'Brien says. “Our long-term comparative advantage even in periods of low prices is still to produce a good amount of wheat out here.”
Will you be planting wheat in 2016? Let us know in the comments.