This week we’ll cover the AgriLife budgets for the Texas High Plains, District 1. We’ll also take a look at a unique decision aid for our area that helps with crop mix decisions and irrigation analysis.
Upcoming Dates
January 24 – Cattle on Feed
January 29 – End of Comment Period for USDA Hemp Interim Rule
January 31 – Cattle Inventory
DEADLINE APPROACHING February 6-7, 2020 – Developing this Year’s Marketing Plan for Feed Grains and Cotton, Amarillo AgriLife Research & Extension Center; Preregister at https://agriliferegister.tamu.edu/Grain
Texas A&M AgriLife Extension Budgets
Each year economists from across the state put together example enterprise budgets for the twelve Texas A&M AgriLife Extension Districts. The goal of producing this resource is to provide producers (or anyone interested in the agricultural sector) with a template to forecast their financial outcome when choosing between crops. The volatility we saw in the 2019 crop year was a perfect example of the importance of budgeting and having a marketing plan in place before putting seed in the ground.
There are several significant reasons to estimate production costs and returns specific to your enterprise. Accurate cost of production estimates are necessary to: (1) make input use decisions and arrange for operating capital requirements, (2) make enterprise or crop mix selections, (3) estimate the potential profitability of capital investment alternatives or operational changes, (4) develop new strategies of production and asses their impacts on costs and returns.
Estimates of costs and commodity prices come together to provide estimated breakevens. AgriLife faculty have prepared a series of estimates for numerous commodities on the High Plains. Keep in mind that these are district-wide estimates and you should use the PDF budgets we provide at amarillo.tamu.edu at the bottom of the home page, or the interactive Crop Profitability Analyzer we’ll discuss in the next section, to prepare budgets specific to your operation.
Table of Estimated Costs and Break-Even Prices
Crop Profitability Analyzer
You might look at these budgets and think “That’s a lot of math to do by hand”, and you would be right. Luckily, AgriLife faculty put together an interactive spreadsheet budgeting tool called the Crop Profitability Analyzer, which you can download at amarillo.tamu.edu. It is a macro-enabled excel file so you can only edit it in a PC system, no MacBooks.
Instructions are included on the first sheet when the file is opened, but we’ll walk through a couple of key points on how to use the system.
The menu page allows you to select the crops that you are interested in analyzing. Simply click the check box to select the mix of crops you are interested in. If you are ambitious and want to analyze all of your options the gray buttons allow you to select or deselect all of the crops in the irrigated and dryland sections.
Menu
Once you’ve made your crop selection, move to the Universal Input Price page. Throughout the tool, you will see numbers in blue. These numbers are all within your control; you can edit them.
If you disagree with the price outlook for corn that is preset within the tool, simply change it from the standard $4.20/bu to your estimate. If you have just joined us for an outlook presentation or at our marketing workshop on February 6-7 and we give you a different set of prices, these are great options to use in the tool as an update. You can also update input prices. This will be the easiest update for your operation. Once you know what your dealer will charge you know what to change your costs to.
Universal Input Prices
Within the individual crop spreadsheets you can edit the numbers in blue. For instance if you assume your yield will be less than 225 (this is where historic records are handy) simply change that value, and the entire spreadsheet updates.
An interesting feature you may notice on the individual crop sheets is the “Landlord Share” column. This column allows you to vary the cost-sharing percentage for different inputs and returns with your landlord if you rent land. This is a good way to sit down and begin negotiations with your landlord, or from the other side, to understand the costs and potential returns to your cost-sharing if you’re a landowner.
Individual Crop Sheet (Irrigated Corn)
Now that you’ve input your data, the analysis begins. If you switch to the Breakeven Comparison page you can see a comparison of prices needed to cover variable costs, and to cover total costs. Additionally, the breakeven analysis provides a look at prices needed to break even at different yield levels, ranging from 75% of your estimate to 125% of your estimate.
Breakeven Comparison
Finally, you can move to the “Irrigation Analysis” tab. This is one of the most valuable parts of the tool, in that it will help you determine the amount of acres you can realistically irrigate based on gallons per minute out of your well. In addition, it will highlight the highest return option for the dryland portion of your field if you do not have the water to irrigate the entire pivot.
For example, the highlighted section in yellow shows that cotton is the most profitable option on this 120 acre plot under the inputs provided. In the example, the full 120 acres can be irrigated when growing cotton, while only 83 acres can be irrigated when growing corn.
The top row that shows the results of growing corn also provides the outcome should the 83 dryland acres be planted to sorghum or wheat. Under the specified inputs, corn provides a return over variable cost of $21,018, corn+sorghum provides a return over variable cost of $20,809, and corn+wheat provides a return over variable cost of $20,908.
Irrigation Analysis
Chart Challenge
We have the answer to the previous chart challenge (admittedly a little late)! If you guessed that the previous unlabeled chart was the CME Cash Live price, give yourself a pat! You can see the price move slowly lower from 2017 – 2018 as the cow herd has expanded. Keep up to date with the blog to see where we expect the cattle market to go in the near future.
We also have a new chart! The hint for the week is that this chart also has to do with livestock and/or livestock products. Good luck! Keep an eye out for an (on time) answer next Tuesday!
