Wheat Alternatives: Maximizing Profitability in a Tough Market
With wheat prices in Texas steadily declining, farmers are once again facing tough decisions about how to maximize returns on their crops. As cash wheat prices dip below the breakeven point, alternative uses for wheat—such as grazing or baling—may offer better profitability. This year, with drier conditions than last and future wheat prices still below breakeven, it’s more important than ever to carefully evaluate your options. By comparing wheat for grain, grazing, and hay, we can determine which strategy is most financially viable given the current market.
Evaluating your options
Today, we will analyze which option may be more convenient: harvesting grain, grazing, or baling our wheat. It’s essential to consider the relative prices of grazing, wheat hay, and grain, along with our expected yield, production costs, crop rotation, available harvesting or baling equipment, and insurance. For this analysis, we will refer to the district’s three Enterprise Budgets. Keep in mind that there may be differences in costs between our budgets and your actual expenses. Input costs can vary due to the recent volatility in prices. Your costs will primarily depend on the technology and agronomic practices used in each field.
We assume that we will hire harvesting and baling equipment for these scenarios. However, from a cash cost perspective, owning your harvesting or baling equipment can significantly affect the comparison between these two alternatives.
We recommend using our Excel-based decision aid to adjust for your actual costs, expected yields, and local market prices. This tool can assist you in comparing various scenarios.
Wheat Alternatives
We should always consider analyzing these three options, given that the best alternative mostly depends on the relative prices of the wheat grain, grazing prices, and the ton of hay when harvesting is an option. Moreover, finishing the wheat earlier might allow us to plant cotton if the crop rotation and soil moisture allow it and if it is profitable.
This year, the hay option appears to yield higher profits under similar production conditions compared to the previous year (see Table 1). To estimate potential hay production, we assume that grain yield constitutes 40% of the total biomass production. For instance, a wheat yield of 45 bushels per acre would equate to a total biomass of approximately 3.1 tons per hectare. We estimate that we harvest and bale 76% of the total potential biomass, resulting in a yield of about 2.3 tons per acre (see Table 2) (Wheat Hay vs. Grain: A Comparison of Economic Opportunities, Reagan Noland, Bill Thompson, and Clark Neely). Accurately estimating your potential grain and hay yields is crucial for comparing these options.
In the example provided, bailing hay is the more favorable option due to lower wheat grain prices, assuming wheat hay prices of $180 per ton or around $100 per bale. These results heavily depend on the price of your wheat bales (see Table 1). It’s important to note that results may differ for farms that own their harvesting or baling equipment.
The grain harvesting option has a more favorable economic outlook compared to the grazing option. This assumes you have adequate water, fencing, forage production, and the necessary number of animals to maximize beef production. The breakeven price for wheat harvesting is $5.10 per bushel to cover all direct and indirect expenses (like depreciation and interest) (see Table 1). This breakeven price is roughly equivalent to the estimated future harvest price for this area, which is also $5.10 per bushel. The breakeven grazing price to cover all costs stands at $0.75 per pound, which is slightly above the assumed price of $0.70 per pound in our example.
Table 1. Wheat Alternatives
The decision aid can be used to compare various alternatives from both economic (see Table 1) and financial perspectives. By analyzing cash flow, we can determine which option may be more advantageous, particularly if you own your combine or hay bale equipment.
Another way to utilize this information is to identify the price at which we need to sell our hay to achieve a profit margin similar to that of wheat grain, or to determine the appropriate grazing price for wheat. The Decision Aid will use your specific data and costs to calculate the breakeven prices for hay and grazing (see Graphs 1 and 2).
Graph 1. Breakeven Hay Prices.
We might consider baling our wheat if we can sell our hay production for a price above the breakeven price for hay, given the current wheat price and expected grain yield. For instance, with an estimated yield of 45 bushels per acre and a price of $5 per bushel, we would want to bale our wheat only if the net price per ton of hay exceeds $121, assuming we achieve 76% of the estimated total biomass, which is equivalent to 1.04 tons per acre.
Graph 2. Breakeven Grazing Prices.
Similarly, if the estimated yield is 45 bushels per acre and the price is $5 per bushel, we should only graze out our wheat if the grazing price is greater than $0.73 per pound of gain.
Making the Best Decision for Your Farm
With Texas wheat prices currently low, exploring alternatives such as grazing or hay production may yield better financial outcomes. The Wheat and Small Grain Decision Aids is an economic tool designed to assist farmers in evaluating these options. Utilizing your data, including yields, prices, and costs, is crucial for analyzing these alternatives effectively. The examples provided assumes current conditions and expectations for wheat. If you need assistance in using this decision aid to improve your decision-making, please let us know.