It’s that time of year again. We’ve updated the District 1 AgriLife budgets to incorporate 2021 crop year projections. Take a look at some of the changes we can expect in the coming year.
Dates and Deadlines
1/4/2021 – 2/12/2021 – CRP Enrollment
1/20/2021 – Northwest Panhandle Crops Meeting
1/20/2021 – 1/21/2021 – Red River Crops Conference
1/22/2021 – Cattle on Feed
1/26/2021 – Dalhart Northwest Panhandle Crops Meeting
1/27/2021 – Dumas Beef & Range Meeting
1/28/2020 – Spearman High Plains Cotton Conference
1/27/2021 – 3/3/2021 Each Wednesday – Master Marketer Amarillo Online Program
1/30/2021 – LFP Signup
2/18/2021 – 2/19/2021 – USDA’s 97th Agricultural Outlook Forum
What I’m Reading
Soybeans: 2021 Outlook – Southwest Farm Press
Each year Texas A&M AgriLife Extension Economists update district budgets to reflect on-the-ground circumstances. These budgets are examples of a representative operation in the region. Each budget incorporates standard practices, and we provide estimates of the costs of those practices. Our budgets also incorporate harvest-time prices for each commodity. The result of the estimates is a picture of potential profits and losses for given commodities for the Texas High Plains.
Budgets and Breakevens
What are the main takeaways from this year’s budgets? Let’s take a look at some key changes we want to consider. First, breakeven price to cover variable cost, the value in economics we also call our ‘shutdown point’. Covering all of your variable cost plus some means that you are able to cover a portion of your fixed costs (which you can’t change on a year-to-year basis) and so production is ‘a go’. Variable costs for most of our crop budgets include custom applications of inputs, chemicals including herbicide, fertilizer, and insecticide, crop insurance, seed, irrigation, fuel, repairs, and interest. All of these vary with the amount produced, hence variable cost. If the price you receive nets a profit above these costs, production is warranted.
Next, we consider breakeven price to cover fixed costs. Any revenue received in excess of fixed costs are true profits, i.e. what a normal, non-economist thinks of when they think of profit. Most of our AgriLife crop budgets for District 1 include depreciation, equipment investment, and cash rent. Keep in mind, not all of these necessarily apply to you. For instance, if you own your property outright you would obviously not be charged for rent. However, if you have a mortgage on you property it would still count as a different type of fixed cost.
Break even prices to cover variable or fixed costs are an indication of how much you must make to break even, i.e. a measure of what costs are. If break even prices go up costs have gone up. The inverse is also true. Let’s use these figures to look at changes in our budgets over the last year.
While many outside of our area think of the Texas High Plains as mostly cattle, cotton, corn, wheat, and sorghum the list of crops grown in the area is long. Our budgets include estimates for irrigated and non-irrigated field and forage crops including alfalfa, corn silage, sorghum silage, sudangrass, triticale, corn, tomatoes, jalapeños, sweet corn, cotton, peanuts, sorghum, soybeans, sunflowers, wheat, and canola. There is even a set of budgets that, when paired together, provides a template for rotational growth of sorghum, fallow, wheat systems.
There is good news for breakeven prices in 2021. The bulk of breakeven prices to cover variable costs dropped, or remained roughly equal to 2020 breakeven prices. This means that, on the whole, costs of production remained roughly equal. There are plenty of reasons for this stability, not the least of which is the COVID-19 pandemic, but for now let’s just focus on what those changes are rather than their causes.
Forage crops saw the most consistent reduction in forecasted costs in 2021. In fact, we expect breakeven prices to decline 1.73% when compared to 2020.
We also forecast a decline in breakeven prices for irrigated field crops. On average, we expect input breakeven prices to decline approximately 1.12% when compared to 2020, with breakeven prices only increasing for irrigated peanuts, tomatoes, jalapeños, and sweet corn. We expect the most significant increase in input prices is expected to occur in peanuts, with expected breakeven prices increasing approximately 1.33%. Comparatively, irrigated wheat breakeven prices are expected to decline 6.31%.
Similarly, non-irrigated crop breakeven prices are expected to decline. We project breakeven prices to cover variable costs for non-irrigated cotton, sorghum, sunflowers, wheat, and canola to decline 1.97% on average.
At the same time that costs are decreasing, prices for commodities are generally increasing. The table below includes projected breakeven prices and forecasts of harvest time prices for High Plains commodities from 2021 District 1 Texas Crop and Livestock Budgets. Remember that these values are estimates, most of which were made in December and figures require updating. For instance, the price of soybeans has skyrocketed since these estimates were made. AgriLife outlooks and programs like Master Marketer are great resources to keep your projections up to date.
Projected Breakeven Prices to Cover Variable and Total Costs and Harvest Time Prices
Where there is good news for the price of producing crops in 2021 the news is less positive for livestock producers. We expect the overall decline in fuel prices and the prices of other inputs is expected to decline, but increased feed costs will likely increase the cost of production over 2021.
I recently had a call with a friend near Austin asking “what the heck is going on with cotton seed prices”. You can see from a brief glance at the price list in the table above that we expect most crop prices to increase over 2020, including byproduct used as feed. Even though we don’t list cottonseed specifically, we do forecast an increase in the cost of cottonseed from $200/ton to $225/ton.
Feed is the number one expense for raising cattle. As crop prices increase, feeding calves becomes more expensive. Expect continued drought to make feed less accessible and more expensive. These forces will likely lead to higher breakeven prices for calves, in the neighborhood of 3.5%.
As I already mentioned, the values we provided here are subject to individual circumstances and change over time. It is important to visit with your county agent, to attend one of our many of online market sessions this spring, or to reach out to us for up-to-the-day price forecasts. While we are not in the field this early, much of the work we do on paper from January to March is almost as important as the windshield time we’ll rack up in the field later in the spring.
You can more detailed versions of our budgets a 2021 District 1 Texas Crop and Livestock Budgets. There are PDFs and spreadsheets with which you can create your own field level budgets. If you have any questions please give me a shout at firstname.lastname@example.org.