Study of Investment Levels and Costs of Production on Large Dryland Farms in Alberta for the 2009 Crop Year

Executive Summary

MNP has been commissioned by Alberta Agriculture and Rural Development (ARD) to survey the 2009 cost of production on large-scale (over 2,000 acres) grain farms in Alberta. In addition to surveying large scale grain farms the survey has looked closely at certain specialty irrigated crops which is the subject of a separate report. Included in the sample database are 26 Hutterite Colonies and 39 other farms distributed throughout the Province.

This report will focus on the Dryland farms with the Irrigated Crops being the subject of similar analysis in a separate report. Many (about 17) of the farms surveyed had both dryland and irrigation and so are represented, with their respective data, in both reports. As such, there are some dryland records that are less than 2,000 acres although the specific farms will exceed that acreage with the inclusion of their irrigated acres.

In order to maintain confidentiality, none of the farms have been identified but where sample size permits the data has been analyzed according to Region (North and South of the South Saskatchewan River) and by Soil Zone.

These farms have been surveyed using farm questionnaires to supplement 2009 Agristability and Financial statement data. Almost the entire sample (97%) was from Assurance clients of the Consultants. This allowed for the maximum use of accounting and farm program data prepared in a consistent fashion and subject to rigorous and consistent quality and reasonability review process. From the accounting and production data standpoint, there is good comparability. However, by its very nature, the farm-survey data is dependent upon the opinions/memories of the individual participants and is therefore less comparable.

The 2009 production year was characterized by commodity prices that were more reflective of the long-term past as commodity markets cooled-off along with the other recession-hit markets globally. Production across most of Alberta was about as “normal” as could be expected except for the Peace Region which began to feel the effects of the drought that widened and deepened in 2010. The key driver(s) of the cost of production were, as was to be expected, yield and total costs with the strongest correlation being to yield. Within the costs, the key drivers were related to total investment and in particular machinery investment which varied widely (for example on dryland farms the range was from under $100 per acre to over $550 per acre) on farms generally growing the same range of crops, getting similar performance .


“Mixed” farms are those with significant other, non-crop enterprises that are not included in the study but which may lend some benefit to the surveyed enterprises by way of additional “scale” for the whole operation. Hutterite colonies, by their very nature, are large scale mixed operations of a type not generally seen outside of the colonies.





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Introduction

Grain, oilseed and pulse producers in Alberta in the 2007 and 2008 crop years experienced a period of unprecedented commodity price increases and dramatically improved profit margins. However, in 2009 after two years of extremely volatile markets for grains, oilseeds, and input prices the commodity sector began to re-approach its long term pricing levels and profitability. Historically these trends have been the driving force in the consolidation of grain farms and have constantly forced top producers to review the financial performance of their business.

Large Farm: This study was undertaken to better understand the financial performance of grain, oilseed & pulse farms with greater than 2,000 acres of seeded land in Northern and Southern Alberta. This report specifically targeted the 2009 crop production year for dryland and irrigated farms growing traditional rotational crops. Specific individual farm financial information along with crop related data was collected from each of the participants to compile each report.

Farm observation targets in each region were approximately 35 to 40 farms (North and South which included farms with irrigation). Targeted crops in the large grain, oilseed & pulse report were barley, canola, wheat, peas and durum wheat.

A summary of the farms surveyed is shown in table 5. This table summarizes all the main grain, oilseed, pulse acres crops and all of the other acres including many minor crops like silage, camelina, green-feed etc.


The sample in table 5 was equally weighted North and South although the Southern Dryland farms were about 18% larger than their Northern Counterparts. It should be noted that in the South there were some additional dryland crop records that were collected in the database that came as part of the Irrigated Farms Study that occurred in parallel with the Dryland Study. These will create a small discrepancy between this table and the detailed analysis later on.

The key deliverables of these reports include:

• Investment levels in the operations.
  • Total investment (fair market value basis), by farm, in land, equipment and buildings.
  • A comparison of investment levels according to farm size.
  • Imputed investment levels, being defined as fair market value of total capital assets in use (land, machinery and buildings) whether owned by the producer or not (for example leased or rented).
• Production and cost of production information on an accrual basis.
• Productivity as defined by crop yields.
  • Yield and examination of whether differences are apparent between different investment levels, scale of production and/or management factors.
• Other farm management factors were also surveyed.
  • Equipment turnover (frequency of change of the major equipment items (frontline tractors, combines and sprayers).
  • Labour usage.
• Cost of production benchmarking.
  • A detailed breakdown of all variable and fixed costs for grain farms, on per acre and per unit of production basis.
  • Physical input use for seed and fertilizer is also reported.
  • Direct costs, fixed costs and total costs are compared for different scale farms.
• The information is further broken down in some reports by region, dryland, irrigated, irrigated specialty crop, soil zone, mixed farm as well as a sub-set of Hutterite colonies.

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