Source: North Dakota State University

Does history repeat itself? There are striking parallels between changes in wheat production costs during the last decade and what has occurred this decade. There also are some lessons to be learned about marketing.

From 1992 through 1996, there was a 45 percent increase in the costs of producing wheat, according to North Dakota Farm Business Management Program reports. The average cost of production on cash-rented land in North Dakota, excluding the Red River Valley, was only $83 in 1992, but then increased about $10 each of the next four years, peaking at $120 in 1996. Wheat production costs then settled into a $110- to $120-per-acre range during the next six years.

By 2002, costs per acre actually had dropped to $110 per acre. However, this marked the start of another run-up in costs, exactly 10 years after 1992. Again, the annual increase has been about $10 each year for four years, including my 2006 projection. Will costs finally level off after 2006, as happened after 1996? Obviously, it is difficult to predict the future, but I believe that is a likely scenario after four years of sharp increases.

Interestingly, there was more profit per acre from wheat during the years 1992 through 1996, when costs were increasing, than during the 1997 through 2002 period, when costs were relatively flat. The reason was revenue: average yields and prices were higher.

History can provide some lessons. I've always thought of 1996 as "the year of lost opportunity." At planting time, producers could lock in cash-forward contract prices at about $6 per bushel. By fall, prices had dropped 25 percent and many producers were reluctant to sell in a down market. However, prices continued to move down in the next couple of years. There was a very high opportunity cost for those who did not sell. The next year, 1997, was terrible. Costs remained high and there were significant financial losses because yields and quality were poor. A spike in farm auctions followed.

Fast-forward to 2006. Things certainly have changed. Soybeans have displaced wheat as the No. 1 crop in about one-quarter of North Dakota counties. But, wheat remains our most ubiquitous crop and still is dominant in three-fourths of the state. As in 1996, costs have reached an all-time high and although prices are good, they are quite unlikely to reach the lofty levels of 1996. Therefore, finding profit will be much more of a challenge.

A positive is that during February, the futures prices for the 2006 crop will average more than $4 per bushel. This will provide a good base price for spring wheat crop insurance revenue policies. Producers definitely should opt for revenue insurance coverage.

There is some concern that producers may have forgotten the lesson of 1996 and be too tentative in making sales. The recommendations on marketing wheat depend on whether the producer will be growing wheat for sure or is flexible. Those who are growing wheat should start selling when they can lock in a profit. The revenue insurance will protect producers, up to their coverage level, if the market is higher at harvest and they have a short crop. Producers who may or may not grow wheat should stay flexible and watch the market. If the market becomes very attractive this spring to grow or increase wheat acreage, producers should sell aggressively. Wheat has a low loan rate and costs are high, so there is considerable financial risk if wheat prices drop.