By Andrew Swenson, Farm Management Specialist North Dakota State University Extension Service

Thanks to strong prices, crop producers have reason to be optimistic for 2007. Some crops in certain years have projected better profit, such as for wheat in 1996. However, the overall projected profitability is the best that I have seen in 15 years of constructing crop budgets. In some years, it is difficult to find any crops that are profitable, but for 2007, nearly all crops project a profit.

One negative for 2007 is that costs, in general, remain high. A bright spot was nitrogen fertilizer, but that is fading because recently it increased in price. Those who applied nitrogen this fall will have quite a cost advantage over those who purchase it in the spring. The price of fuel is projected to remain strong.
Although long-term interest rates are flat, short-term rates are higher than a year ago. Seed prices for corn, soybeans, sunflowers and canola are flat to slightly higher. However, prices of seed for planting small grains, such as wheat and barley, reflect the increase in the commodity price. Of course, machinery and repair costs keep inching up. Another reason expenditures will be strong, even if input prices are static, is that producers will be more willing to apply larger amounts of inputs to capitalize on the strong prices offered for each additional pound or bushel of yield they can achieve.

Corn projects a profit in all nine crop regions for the first time ever. The profit is projected to be from $10 to $40 per acre. However, it is not the most profitable crop in any region.
It is either dry beans or confectionery sunflowers, except in the northwestern region, where mustard and large chickpeas project the greatest profit. However, these crops often have high labor and management requirements and production risks.

Soybeans project a profit of $12 to $47 per acre in all regions for which it was budgeted. Wheat and durum project a profit in every region. Last year neither projected a profit in any region.

Purchasers of grain are engaged in price competition to entice farmers to grow the grain that they wish to acquire. Contracts for several crops are much higher than were offered last year.
Examples are sunflowers, malting barley, canola, buckwheat, mustard and safflower. All of these crops, except canola, are profitable in every region for which they are budgeted.

A list of crops by selected regions, which typically have substantial acreage and show good profit for 2007, are soybeans and corn in the southern Red River Valley and the southeastern regions; sunflowers, malting barley and canola in the northeastern and north-central regions; sunflowers, malting barley, soybeans and corn in the east-central region; sunflowers and winter wheat in the south-central region; and malting barley, lentils and canola in the northwest. Of these crops, malting barley has the greatest risk of not meeting quality specifications.

On paper, things look good for 2007, but projections in agriculture often are wrong. Yields and prices can be much different at harvest time than what was predicted several months before the seed is put in the ground.

Last year is an example. Producers entered the 2006 crop year in a very high-risk scenario because good yields and prices were needed to cover the highest production costs in history. Prices were projected to be mediocre and, using typical yields, there was a real possibility of financial loss for most producers. This was avoided, except for areas of severe drought. Fortunately, wheat prices rallied because of production problems around the world and corn and oilseeds responded to strong demand. What could derail the 2007 projections for better or worse? Usually, it is associated with revenue, not costs. Weather-induced production problems, such as drought, may pose the biggest threat. Time will tell.

The budgets do not include federal aid that is decoupled from production (direct and counter-cyclical payments). These payments are based on historic crop bases and yields, not on current crop selection or production, but can be important to whole-farm profit. Direct payments generally increase from west to east. For example, when averaged over all crop acres, the direct payments will be approximately $6.25 per acre in the southwestern region and about $13 in the southern Red River Valley. Counter-cyclical payments occur if the national average prices of program crops are below a certain level. Payments are not expected with the price levels used in the budgets.

In summary, the budget projections are intended to be used only as a guide. Producers are encouraged to develop their own budgets. Commodity prices and yields are extremely difficult to predict from one year to the next. It is critical to evaluate crop insurance and consider the financial downside risk, as well as the upside potential, of the crop rotation. The budgets are available on the Web at www.ext.nodak.edu/extpubs/ecguides.ht