Tighter crop margins are expected in Canada in 2024

“The cost of putting in this year’s crop has only gone down a bit,” he mentioned. “It’s going to be our second most expensive crop [ever] to put in.”

Analysts anticipate a return to tighter margins for grain producers in 2024.

The profitability of the prairies is on the wane. credit Getty/ madlyinlovewithlife

Bond referred to data from the Manitoba Agriculture 2024 Cost of Production guide for crops. The guide includes detailed estimates for target prices, target yields, fixed costs (land, machinery), and operating costs like seed, pesticides, and labour.

Costs have been reduced, especially for fertiliser, but the drop in commodity prices over the last 12 months for wheat, oilseed rape, and other crops is expected to impact per-acre revenue in 2024.

For example, oilseed rape prices were above $19 (£15) per bushel last January and are now less than $15 (£11). Urea was at $1,150 (£909) per tonne in fall 2022 and $810 (£640) per tonne this fall.

For a 45-bushel/acre oilseed rape crop (0.9t/acre), the decline in revenue is about $184 (£145) per acre. For 120lb (54kg) of urea and 40lb (18kg) of phosphorus per acre, the savings are only $50 (£39) per acre.

In this scenario, oilseed rape growers are expected to lose $134 (£106) per acre in revenue compared to 2023.

“The gross revenue got mowed down, where the fertiliser pricing is only shaved down,” Bond said.

Almost every crop was profitable in 2023, according to US cost of production guide numbers. This year, with average yields, most cereal crops are projected to have negative returns, including small losses for spring wheat and corn.

Oilseed rape and soybeans are in the black, but not by much. The guide projects a return on investment of 5.1% for oilseed rape and 7.27% for soybeans.

Crop production estimates are based on fixed costs of $190-$200 (£150-£160) per acre. If a farmer owns most of their land and doesn’t have massive payments on equipment, the math is more hopeful. Plus, the target yields are averages for the province. If a grower has a history of exceeding the average for a particular crop, positive returns are more likely.

“I think it’s important to reach maximum yield in years like this,” Bond said.

He emphasised that growers must adjust management practices to achieve net positive returns this year.

“Equipment and fertiliser are the two areas we need to focus on in our management, to wring some profit out of 2024.”

However, some producers are more worried about price and risk management.

Tighter margins for oilseed rape in Canada are expected

Rick Rutherford, who farms north of Winnipeg near Gross Isle, has been watching the decline in crop prices this winter. “Our markets are in a bit of a freefall. Commodity prices since [autumn] have dropped by over 20%. It’s got more to do with how [prices] play out in the next three to four months,” he said.

“The cost [of production] isn’t what we’re worried about. It seems to be fairly stable or even softening a little bit for fertiliser.”

Rutherford tries to stick with a crop rotation. He doesn’t want to shift acres because one crop looks slightly more profitable than another.

Instead, he’s mulling when and how to price the 2024 crop.

“This is where my mind is going. What are we going to get paid for this?” he said, adding that contracting production has been fairly slow this winter, at least in his region.

Shopping around for the best price is critical, and it’s another way to manage risk.

What’s clear is that crop prices are at early 2021 levels, but input costs are much higher than in 2021. The risk to growers is going “through the roof”, Bond said.

He added: “Last year, we were talking about an expensive crop, but there was margin there. Now we’re into a slightly less expensive crop, and the margins are shrinking.”

He urged growers to be cautious.

“Don’t party like it’s 2022. We’re returning to what looks like historically tighter margins.”