Seeding Costs – A Risky Investment

Most Canadians living on the Prairies are familiar with the busy planting season that comes around for farmers each spring. With tractors taking up space on the roadways and seeding outfits running in fields as far as the eye can see, it’s hard to miss the excitement of seeding time. Amidst the hustle of the seeding season, have you ever stopped to think about what it costs farmers to seed their crops? Between spraying chemicals prior to seeding which kills the weeds already growing (referred to as burnoff), fertilizer applied prior to or alongside the seed, not to mention the cost of the seed itself, establishing a crop is no small investment. Add in the fact that there is no guarantee you’ll get a productive crop off the field based on factors outside of your control such as weather events and pest contaminations, and it’s clear to see that planting a crop is a risky and expensive investment.

Running the Numbers

Just as market prices for grain are volatile, so too are input costs. They vary by crop type, year, and region, typically following patterns similar to grain prices. Furthermore, there is no set formula for crop inputs used by all farmers. A plethora of pre-seed chemicals, fertilizer products and blends, and crop varieties are available for farmers to use. Chemical and fertilizer application rates also vary based on weed pressure and baseline soil nutrient levels, affecting input costs. For crops such as wheat, barley, and lentils, farmers have the option to save seed from the previous year to re-plant rather than having to purchase certified seed each year. Needless to say, the range of input costs for farmers is wide, based on individual management decisions.

The Saskatchewan Ministry of Agriculture releases an annual Crop Planning Guide with estimated input costs across the three provincial soil zones (black, dark brown, and brown); these estimates are based on the average costs required to achieve a target yield in the 80^th percentile. In the tables below, we use these approximations to estimate the average fertilizer and seed input costs required to plant three crops – hard red spring wheat, canola, and small red lentils. Pre-seed chemical costs are based on estimated market prices of commonly used pre-seed herbicide products and the range of estimates represents the costs across the three soil zones. As prices vary widely by region, year, and individual product selection, the numbers provided in the tables should be taken as approximate estimates only.

Target Yields

Seed

Chemical (Pre-Seed Burnoff)

Fertilizer

Total

Managing the Risky Investment of Seeding Costs

As illustrated by the tables above, seeding a crop is no small investment. When considering that some farmers manage upwards of 10,000 acres, the total seeding cost can easily exceed $1,000,000. With no guarantee that the crop will achieve target yields or quality, the risk of this investment likens farming to gambling. Fortunately, with risk management programs and strategies in place for farmers to take advantage of, the risk can be mitigated.

Insurance programs, such as crop insurance through the Saskatchewan Crop Insurance Corporation or hail insurance through Saskatchewan Municipal Hail Insurance and private companies, provide monetary coverage against production losses due to uncontrollable factors. These programs help protect farmers’ investments even in challenging crop years. The Agristability program provides insurance on a farmers’ net income rather than production, extending insurance coverage to include impacts of rising input costs, falling grain prices, as well as production losses.  The federal cash advance program administered by the Canadian Canola Growers Association provides farmers the opportunity to receive cash flow prior to harvesting and marketing their crops. This program also allows farmers more flexibility in their marketing decisions, as early access to interest-free or low-interest funds to cover upcoming bill payments is now available.

Making proactive and realistic grain marketing decisions is another way farmers can mitigate their risk. Forward contracting a portion of their production, setting price targets with elevators, and using the futures market to hedge production are all ways of managing risk associated with grain price fluctuations. Pre-buying inputs for the upcoming crop year when prices are favourable rather than accepting the market price when you need the input is a method of mitigating the risk of rising input costs. Revolving input loans offered by input retailers or financial institutions allow farmers to pre-buy inputs without having to make payments up-front.

The Bottom Line

The business of farming can be profitable or financially draining based on a host of factors, many of which are uncontrollable for farmers. However, breaking down the costs of seeding on a per acre basis provides further context to just how much farmers are spending in hopes of harvesting a high yielding, high quality crop in the fall. With estimates of $151 – 213 per acre for a wheat crop, $233 – 275 for canola, and $59 – 82 for lentils, a relatively small farm of 1,000 acres could be spending upwards of $190,000 at seeding time, while a larger, 10,000 acre farm could be spending just under $2 million.

There’s no question that farming is a much different way to make a living compared to the consistent monthly paycheques and monthly expenses the majority of Canadians experience throughout the year. Just another reason to thank a farmer for making the risky spring investment required to produce the safe, healthy food we continue to enjoy here in Saskatchewan and across Canada.