High Return Potential
Tuesday, February 15, 2005
filed under: Marketing/Risk Management
Sunflower promises to be one of the most profitable crops in 2005, according to budget estimates by the North Dakota State University Extension Service.
In all regions of the state, NDSU’s ‘05 budgets for both oil and confection sunflowers are projected to show a better economic return than most other crops, including soybeans, small grains, canola, and corn.
NDSU prepares crop budgets annually to provide crop producers a baseline estimate of revenues and costs for various crops in different regions of the state. Naturally, there is considerable variation in soil type and productivity, weather and market conditions, as well as management and production practices by farm, region, and between now and the next growing season. Thus, NDSU intends its crop budgets to be used only as a guide, and strongly encourages growers to develop their own budgets.
In the 2005 budgets (online at http://www.ext.nodak.edu/extpubs/ecguides.htm), NDSU estimates that dry edible beans and confection sunflower have the best profit potential. These crops are considered to have more production risk than many, but with average yields, both hold the promise of providing excellent returns, says NDSU extension farm management specialist Andrew Swenson, who coordinates the annual budget forecasts. The budgets factor all expenses including land and return to labor and management.
Estimated returns from dry edible beans are projected to range from about $59/ac in the southern valley region to $73/ac in the north central part of the state. Estimated returns from confection sunflower are projected to range from $43/ac in the northern valley to nearly $75/ac in the north central region of the state.
NDSU points out that acreage limitations exist for dry beans under the 2002 farm bill: the general rule is dry bean acres cannot be planted on base acres. If a farm or producer has dry bean history, dry beans can be planted on base acres, but government payments on those acres will be forfeited.
Because of strong prices, oil sunflower profit is projected at $15 to $40/ac, depending on the region. Swenson says if a price is attractive, producers should contract and consider an ‘act-of-God’ clause for protection from a production shortfall.
Expected prices for sunflower are based on crop pricing opportunities now and anticipated prices at harvest. NDSU agricultural economists have estimated sunflower pricing by breaking with the long-term soybean oil futures contract relationship. They used pricing opportunities that are available now and estimated prices at harvest. The simple formula has been to use Chicago soybean oil futures to predict sunflower prices. “It is gratifying that NDSU has shifted away from this outdated formula,” says John Sandbakken, NSA marketing director.
Soybean acreage has increased for 11 consecutive years, but Swenson believes that streak could end in 2005. Soybeans will still be strong in the east-central, southeast and Red River Valley regions, although the price of genetically modified seed took a substantial jump. However, soybeans are not expected to be profitable in other regions. Corn acreage may also decline because of significantly higher costs and lower prices.
Spring wheat, durum and canola project a return to labor and management of minus $10 to minus $30 in most of the nine crop budget regions. Malting barley is close to breaking even only in the west regions and the south-central region. Oats and rye are at the bottom of the profit picture, with projected losses ranging from $30 to $70 per acre.
Budgets are based on average yield from 1997 to 2003, with the low and high yield years omitted. The budgets do not include federal aid that is de-coupled from production (direct and counter-cyclical payments). These payments are based on historic crop bases and yields, not on current crop selection or production, but can be important to the whole farm profit.
NDSU projects total direct costs of production in 2005 will increase more than 10% for most crops because of higher fertilizer and fuel expenses. Fertilizer costs will be higher because of energy costs and global demand. Fuel costs are also sharply higher for 2005 (projected at $1.90/gal for gasoline and $1.60 for diesel) and interest rates will edge up for the first time in several years.
The budgets for oil sunflower include an estimated cost of $14.52/ac for seed ($19.44 confection) $5 insecticide seed treatment ($11 confection, plus application cost) fertilizer $15.62 ($14 confection). Other direct costs include crop insurance, fuel, repairs, drying, operating interest, and other misc. NDSU also figures indirect or fixed costs in its crop budgets, which includes machinery investment and depreciation and land.
NDSU points out that its budgets can be changed to conform to the more
common definition of accounting profit (return to unpaid labor and management, and owner equity) by replacing the machinery investment and land charge cost items with your per acre interest, or rental, expense of machinery and land, and real estate tax if land is owned, respectively.
Kansas State University has Kansas State University has crop budgets including sunflower (irrigated and non-irrigated) online at http://www.agmanager.info/crops/budgets/proj_budget – Tracy Sayler