Fall 2017 Wheat Planting Decision
By Greg Halich, Associate Extension Professor, Ag Economics
UK Economic and Policy Update
Kentucky grain farmers are harvesting corn and are getting to the point where they will decide if and how much wheat they will plant this fall. The main changes this year are a modest increase in wheat prices, a small increase in soybean prices, and a slight decrease in nitrogen prices. These changes will make planting wheat more attractive relative to last year. The following analysis attempts to quantify the extent of the relative change in profitability for 2017. The analysis includes estimated returns comparing double-cropped wheat/soybeans with full-season soybeans for the 2018 crop, and the likely implications for Kentucky grain farmers.
Additional costs associated with the double-cropping are accounted for, including fuel, fertilizer, herbicides, machinery repairs and depreciation[1], labor, hauling, etc. New crop CME/Chicago Mercantile Exchange future’s prices from mid-September 2017 are used as the base, and are adjusted for a basis of -$.10 for soybeans and -$.10 for wheat. This results in new crop prices of $9.75/bu. for soybeans and $4.75/bu. for wheat.
Two regions with different agronomic characteristics are evaluated. The first region is along the southwest tier of counties roughly between I-24 and I-65, which traditionally does a lot of double-cropping. The second region is along the northwest tier of counties (Ohio Valley region) that has some of the best yields for corn and soybeans, but traditionally plants less wheat. Cash rent is assumed to be $175/acre for both these regions for the average ground and $250/acre on the best ground (note: this will vary substantially, but is done here for illustrative purposes only). Other major assumptions are: $2.25/gallon fuel, 25-mile one-way grain hauling, $.30/unit N, $.35/unit P, and $.25/unit K.
Southwest Tier Assumptions (Average Ground):
72 bu. wheat
40 bu. double-cropped soybeans
50 bu. full-season soybeans
Resulting net profits:
-$17 double-crop
+$28 full-season soybeans
This results in a $45 difference in favor of the full season soybeans. The double-cropped soybean yield would have to increase to 45 bu. before wheat/double-crop soybeans were as profitable. This would equate to only a 10% yield loss of double-cropped soybeans compared to full-season soybeans.
Southwest Tier Assumptions (Best Ground):
90 bu. wheat
48 bu. double-cropped soybeans
60 bu. full-season soybeans
Resulting net profits:
+$64 double-crop
+$46 full-season soybeans
This results in a $18 difference in favor of the wheat-soybean double-crop. The double-cropped soybean yield could drop down to 46 bu. before full-season soybeans were as profitable.
Northwest Tier Assumptions (Average Ground):
65 bu. wheat
40 bu. double-cropped soybeans
50 bu. full-season soybeans
Resulting net profits:
-$48 double-crop
+$28 full-season soybeans
This results in a $76 difference in favor of the full season soybeans. The double-cropped soybean yield would have to increase to 48 bu. in this case before the wheat/double-crop soybeans were as profitable. This would equate to only a 4% yield loss of double-cropped soybeans compared to full-season soybeans.
Northwest Tier Assumptions (Best Ground):
75 bu. wheat
50 bu. double-cropped soybeans
60 bu. full-season soybeans
Resulting net profits:
+$16 double-crop
+$46 full-season soybeans
This results in a $30 difference in favor of the full season soybeans. The double-cropped soybean yield would have to increase to 53 bu. in this case before the wheat/double-crop soybeans were as profitable. This would equate to only a 12% yield loss of double-cropped soybeans compared to full-season soybeans.
Given the current market conditions, double-cropping only looks attractive this year on the best wheat ground, typically found along the southern-tier of the state. In other regions where relative wheat yields are not as high, this decision needs to be evaluated on a field-by-field basis. Only those fields with extremely good wheat yields relative to soybeans will likely be more profitable for wheat planting compared to full-season soybeans in 2017 given current expected grain prices.
This analysis doesn’t account for potential payments from the ARC and PLC Farm Bill programs. However, these programs would pay on base acre crop allocation and not planted acres, so there would be no effect on the planting decision.
To change the assumptions above to your specific conditions and evaluate your expected profitability, go to the grain budget site at: http://www.uky.edu/Ag/AgEcon/halich_greg_rowcropbudgets.php.
The Corn-Soybean Budgets and Wheat Budgets can be downloaded or opened directly from this page.
[1] $20/acre was deducted from the double-crop scenario to account for fixed depreciation on the wheat enterprise that should not factor into the wheat planting decision.