The weak Canadian dollar and a drop in prices are going to make it tough for crop producers to make a profit this year.
Tough, but not impossible, says a provincial farm business management specialist.
“You can make a profit this year,” said Dean Dyck. “I took a look at the four major crops in Alberta — wheat, canola, barley, and peas — and if canola stays at a cash price of where it is now, which is around $10 a bushel, you can make a little bit of a profit.”
It’s the same story with wheat.
“If prices stay where they are at right now, around $6.50 a bushel, and you get a good yield, you can make a profit.”
And there’s “definitely some profit to be made” on pulse crops.
“If your land and machinery can handle pulses and you can forecast some decent yields, you may want to look at pulses,” said Dyck.
But in order to make the most of tight crop margins, producers will need to have a plan heading into the growing season — a job made tougher by the low loonie, which pushes up prices for imported inputs and American-made machinery.
“They really need to get a good understanding of their costs, both variable and fixed,” said Dyck. “Most of them have a really good idea on their variable costs — seed, fertilizer, chemicals, fuel, repairs, operating interest — but they really need to get a good hold of their fixed costs, such as depreciation and taxes.”
From there, producers need to determine their break-even prices, which go “hand in hand” with developing a marketing plan.
“If you know what your break-even prices are, you can set your marketing targets,” said Dyck. “Do some research and once you hit your break-even prices, do some forward selling or sell a certain percentage of your crop when you hit your trigger point.”
Timing is also important when purchasing inputs.
“If you don’t get a handle on your budget, you’ll probably be buying inputs at a time when they’re more expensive,” he said. “It’s rare that input costs go down. The question is how much are they going to go up?”
Right now, fertilizer prices are “kind of stagnant,” so Dyck recommends buying fertilizer as soon as possible.
“It will probably be lower this time of year rather than waiting until spring.”
The same goes for seed and fuel purchases.
“Take a look at that and maybe pre-purchase some inputs, which is a standard thing we talk about at this time of year. Come springtime, they have a tendency to increase.”
Where to cut back
Another thing to cut back on is cash rent, if possible.
“If you’re renting land, that really shrinks the margin. If you need to go back and renegotiate cash rent with your landowner, that might not be a bad idea.”
But now is not the right time to buy machinery.
“I know a few years ago when prices were good and yields were up, a lot of guys made some machinery purchases, and some are thinking about that now,” said Dyck.
“But take a second look at that. The Canadian dollar is really having an effect on where the price of machinery is going. That’s a long-term investment and quite expensive. It’s going to impact your cash flow if you don’t have the money to put down.”
Producers need to be thinking about conserving cash when margins are tight, not expanding their debt load.
“You don’t want to go into debt too much when margins are thin and crop prices soften a little bit,” he said. “These days, you want to minimize your debt. Cash is king, and you don’t want to get caught with too much debt.”
If prices continue to sink, crop margins could go into the negative, especially if yields are poor.
“If you don’t get the yield and you don’t get the price, your margins start to go into the negative fairly fast — not so much for things like canola, but for things like wheat or barley where you’re probably on the fine line of going into the negative if you don’t get your average yield or the prices start to sink a little bit further,” said Dyck.
“If you’re not paying attention to your costs and you’re not paying attention to your break-even prices, then you could sink into negative territory and then it could get into a little bit of a cycle.”
Producers can use tools like the Alberta government’s CropChoice$ software to help determine their break-even points, but ultimately, it comes down to having a budget — and sticking to it, said Dyck.
“Do some planning. That’s the key.”