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'Be Realistic' When Projecting Success of 2014

'Be Realistic' When Projecting Success of 2014

09 October 2014
Alberta Agriculture, Food and Rural Development

CANADA - When it comes to planning it’s important to base projections on realistic numbers, according to an Alberta Agriculture and Rural Development (ARD) specialist.

“The tremendous financial success of last year’s crop may have led some producers into a false sense of optimism for this year,” says Ted Nibourg, farm business management specialist, Alberta Ag-Info Centre, Stettler.

“There is no doubt that the 2013 crop year was phenomenal both in terms of price and production. It seemed that prices, production and profitability were at an all-time high. These factors have come back down to earth in 2014.”

Nibourg says that last year’s optimism carried forward well into the spring of 2014.

“When discussing production estimates with producers this spring many were basing their estimates on the yields they received last year.

The production function is an important aspect in determining things such as cash rent, break-evens, and credit requirements. This fall, the combination of more normal yields and reduced prices could result in a perfect storm of reduced profitability.”

When planning ahead, says Nibourg, it is important that a farm manager uses realistic numbers to determine break-even prices and yields.

“In a crop like canola, that typically has the highest cost of production, yield estimates are especially critical. At current direct expenses of approximately C$290/ac in the black soil zone it will take 35 bushels at a market price of C$8.25/bushel just to break even. Fixed costs of an additional C$90/ac will bump up the break-even yield to 46 bushels.”

Forward planning based on bumper crop yields and peak prices can result in disappointment and possibly jeopardize the financial integrity of the farm business, notes Nibourg.

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