Wheat Comes at a Cost

Sunday, October 9, 2022

While wheat prices may be higher, Prairie producers have other concerns this growing season.

by Becky Dumais

Wheat prices are reportedly their highest in 14 years, and they could get higher – but other issues are keeping producers up at night: input costs, the impending carbon tax, and last year's drought.

"Definitely the price is up because of the war, but it was on a trend upwards before that anyhow because of tight supplies in North America and increased transportation costs," says Brett Halstead, board chair of Saskatchewan Wheat Development Commission (Sask Wheat).

"This has added to it and has added uncertainty as to what's going to happen in the next number of months (or longer)."

Halstead farms 4,000 acres with his son, 130 km north of Regina, Sask. Approximately 1,500 acres is wheat.

Naturally, he says farmers always want higher prices for their products. "When you get better prices, it gives you a better opportunity to make a profit."

Are the high prices good only on paper? "It's a good thing, minus the total input costs," says Derek Horvath, a producer near Regina, Sask. "If yields are on par this year for my historical average it could be a huge year.

"The problem is ... the farmer is going to pay the large input bill. The farmer has the highest fuel bill ever. The farmer might not get moisture. The farmer might not get his high price to break even."

Put out by inputs

If everything falls into place resulting in a great year with high yields, Horvath says "come fall, the grain prices will reflect the supply and the prices will drop in the fall and the farmer will be stuck with the bill." He's got his wheat crop's input calculation costs at NH3 per actual nitrogen per pound at $1.32 and phosphorus at $1,300 per ton. To grow his wheat crop he'll be spending $191 for just fertilizer.

Also, his field requires a pre-burn before seeding. More money spent. "This is $12.50 per acre pass of glyphosate and a broadleaf residual at $13.50. This needs to be followed up by an in-crop herbicide application of $20.

"We do a fall desiccation and that will run an additional $12.50 per acre totalling $58.50 for herbicides, bringing the total fertilizer and chemical bill to $249.50."

The costs don't end there. He also pays rent on land, at an average of $60 per acre. His machinery costs are $25 per acre and fuel at $30 an acre. "This does not include any breakdowns," he says. Overall, his cost to grow a crop is $364.50 per acre.

Last year his wheat yield was 33 bushels to the acre. "If the price is $11 per bushel that puts me at $363 gross per acre, a $1.50 loss per acre," he explains. "If the price per bushel goes to $8.75 that's a gross of $288.75 and a loss of $75.75 per acre, on my 635-acre farm that's a loss of $48,101. The farmer buys fertilizer and chemicals at retail and sells to a consumer that dictates the price."

Chris Allam, who owns and operates a farm northeast of Edmonton, Alta. says he'll be seeding 4,100 acres of wheat this spring, but adds that he's growing more oats and barley as the return on investment is better. "With wheat prices increasing as of late, we can net about the same as barley. Oats still make more," he says.

"We also pre-bought fertilizer early, spending $104 per acre. If we didn't pre-buy, we would be spending closer to $152 per acre."

Carbon tax

The federal government's imposition of the carbon tax, in effect as of April 1, will increase to $170 per ton by 2030, according to the Agricultural Producers Association of Saskatchewan (APAS), which has also released updated estimates on its website to show the impact on farmers.

"Our updated numbers show that the cost of producing wheat could go up to over $12.50 per acre in 2030 due to the carbon tax," says APAS past President Todd Lewis in an online statement.

"This cost increase is carried entirely by farmers and can't be passed along to our customers. We're looking at a reduction of net farm income by hundreds of millions of dollars in Saskatchewan alone, and the modest rebates provided by the federal government won't make up for these losses. It's unsustainable for our members."

Halstead agrees that along with the price increases in transportation costs – much of which is fuel – the new tax is "just going to add to it. That's going to be on top of what's already the instability in the world energy market right now."

Jim Wickett is also concerned about the tax's financial implications. He's the Saskatchewan treasurer of Western Canadian Wheat Growers. "When you start looking at the processor of the wheat to make flour, transportation ... each step is a tax on the tax and by the time it gets to the baker who's got expenses – that's a big tax bill," he says.

Wickett farms in the Rosetown, Sask. area and grows a mix of crops including wheat, lentils, barley and flax.

Growing season struggles

Prairie producers are rightly concerned about recovering and moving forward from last year's drought. "We're still a long way from (it)," says Wickett. "We've still got some snow cover and it's starting to melt but there's not a lot of moisture in it."

He says areas including the west central region of Alberta will have next to no runoff to contribute moisture. "We'll be having to rely on timely rains to get any kind of crop. And, right in that area, we're a long way from seeing any kind of good growing or even good seeding conditions right now." However, he adds that things can change with a few warm, windy days.

Some farmers may be concerned about how their 2022 crops will make out, something that Wickett says, unfortunately, happens every year. "If you had the proper crop insurance you've got your expenses covered. Maybe you're not looking to buy anything new but you certainly live to fight another day. There's always every year there's tightness and that's just part of the game."

With the carbon tax now a fixture for farmers to factor in, other potential issues may crop up, Wickett says. The near Canadian Pacific Railway (CP) strike would have also had a huge impact. "There's no feed in Western Canada anywhere," he says.

"Corn is being brought up on CP and the cattle feeders have nothing to feed. You want to talk about flipping the page to the flavour of the day when you see some starving cows there, that will make the front page of the news."

Halstead, just like many other farmers across the Prairies, has done what he can to get supplies in ahead of time – fertilizer and some other farm supplies.

"We'll go about business as usual. It's going to be a more expensive crop to plant – prices are higher so our risk has increased. We're optimistic."

After factoring in the cost of inputs and recovering from last year's drought, farmers are hoping for better growing conditions and timely rain.

"We're going to need some spring rains here too. The snow is melting here, there's a little bit of moisture to get us going, but generally the dry conditions from last year until we get significant rainfall, are still part of reality," he says.

"And as you go into the southwest part of the province it's even drier down there; they had little to no snow, so that area is probably even worse off." BF