March 15 is the deadline for many crop insurance decisions. That means the time has come for producers of grazed wheat to make the decision; will gain or grain be the more profitable enterprise in 2021?
Dates and Deadlines
1/27/2021 – 3/3/2021 Each Wednesday – Master Marketer Amarillo Online Program
3/9/2021 – March WASDE
What I’m Reading
Winter storm offers few silver linings – AgriLife Today
There are about two weeks left until the deadline to remove calves from grazed wheat, depending on the insurance choice you plan to make. That being said, it is worth sitting down to run the numbers on the classic decision, gain vs. grain. What enterprise will yield more profit? Is silage or haying a better end-use than wheat for grain? There are a lot of moving parts to this decision, and AgriLife faculty developed the Wheat Harvest Analysis tool to help with your decision making process. You can find the spreadsheet at the Amarillo AgriLife Center homepage.
Our Wheat Harvest Analyzer is a decision making tool that incorporates user input into basic production functions in order to evaluate four wheat end-use enterprises. The final output compares the net returns from wheat harvested for grain, owned wheat that is leased for grazing, wheat baled for hay, or wheat chopped for silage, all on either irrigated or dryland wheat. Most of the basic assumptions we’ve included in the tool line up with 2021 AgriLife Extension budgets for District 1. However, there are a few exceptions, and some basic assumptions in the tool worth noting.
Wheat Harvest Analyzer Assumptions of Note
The first major assumption in the tool is the inclusion of ‘sunk cost’; total costs up to the time of decision making. For irrigated wheat we’ve included a pre-set price of $150/acre, which accounts for seven to nine months of input expenses, depending on your production model. The value carries across each production function. Note that if you are using this tool to forecast actual profits, and not to only compare the enterprise outcomes against each other, that number should be edited based on your data.
Second, you’ll find that the price for wheat silage in the Wheat Harvest Analyzer is higher than that in the District 1 budgets for triticale, an approximate equivalent for wheat silage. Why are the prices different? Commodity prices have risen substantially since the budgets were developed in the fall. The rising price of feed and forage led us to establish a starting point price of $50/ton for wheat silage rather than the $35.10/ton you’ll find in the triticale budgets. The price of $50/ton also tracks with recent quotes from around the Texas panhandle.
Third, you’ll find that the price for baled hay is $135/ton. This is roughly correct depending on your location, the availability of hay, and negotiations you may undertake with your buyer. Keep in mind that baled hay prices vary widely and may be affected by quality.
Finally, the tool’s preset options assume values for many cattle production variables. The primary one to consider is the choice of average daily gain (ADG). We’ve included a pre-set value of 2 pounds/day; this may be high for the average calf. Consider past performance when establishing the ADG used in the tool.
There are other user inputs within the Wheat Harvest Analyzer. Use your data to tailor the tool’s outcomes to your specific operation.
The 2021 Gain v Grain Decision
Though the most profitable outcome may vary between operations, there are trends in the marketplace that suggest the likely outcomes of each enterprise. To that end, I’ve evaluated the ‘general’ case for the gain v grain decision here on the Texas High Plains in 2021. The first figure below includes the assumptions made under irrigated wheat production. This was taken directly from the Wheat Harvest Analyzer and includes the pre-set assumptions you’ll see when you open the spreadsheet. The second figure includes the assumptions I’ve made for the cattle enterprises.
Irrigated Grain, Graze, Hay, or Silage Assumptions from 2021 Wheat Harvest Analyzer
Livestock Enterprise Assumptions from 2021 Wheat Harvest Analyzer
There are a few other inputs in the tool that are not shown in the figures above. First, the sunk cost value is not included, though it is set at $150/acre. Other user inputs not shown include custom harvest price per unit for grain, hay, and silage, and the conversion factors for silage yield and hay yield.
Returns over variable cost are shown in the figures below. You can see that returns for harvesting wheat for hay or silage currently provide the highest net return on average. Because the price of hay varies widely, I’ve included prices ranging from $105/ton to $135/ton in the estimate. You can see that harvesting irrigated wheat for hay yields the highest returns until the price of hay drops to about $110/ton. The assumptions I’ve provided in the figures above are for irrigated wheat, but I’ve included results for dryland wheat in the figure below as well.
Irrigated Wheat Return Over Variable Cost $/Acre
Dryland Wheat Return Over Variable Cost $/Acre
Unaccounted Considerations in the Wheat Harvest Analyzer
There are a few things to consider that are not included in our decision making tool. First, the price of silage varies depending on your geography. The closer you are to a dairy, the higher offer you are likely to receive for silage. Silage’s high water content means that at a certain distance from destination the numbers don’t pencil out. Second, there is some unpriced value in a stocker cattle enterprise especially if you own the cattle. Purchasing an un-castrated bull calf as a single and flipping him to a steer in a homogenous lot may increase his value beyond the value of weight gained. Additionally, this calculator assumes a single turn of calves on wheat over two months. Certain intensively managed operations may be able to turn two sets of calves in the same period, increasing profits.
The good news is, with grain prices as high as they are, it appears that all enterprises will yield positive returns over variable cost, but there is still plenty to consider. Many of us have probably pulled calves off already according to the appearance of hollow stem, but if you haven’t and you have questions please feel free to reach out to me at firstname.lastname@example.org.