Breaking Even at $600 an Acre
Tuesday, February 1, 2000
filed under: Marketing/Risk Management
Pete Knight needs to be able to budget a gross return of at least $700 an acre on his sunflower production. If he can’t, “it’s not worth my time” to grow this crop. No, “$700” is not a typographical error. With direct cash inputs of slightly under $400 per acre - plus a couple hundred dollars of overhead on top of that - “my breakeven cost on sunflower, if I didn’t make a dime of profit, is around $600 an acre,” Knight confirms. And that doesn’t include any allocation for the seed he plants, since he isn’t required to pay for it. Knight, who farms near Hamilton City in California’s Sacramento Valley, is part of a unique fraternity: those West Coast sunflower growers who produce the hybrid seed which is planted by their counterparts in other parts of the United States and in several foreign nations. Approximately 200 farmers in the valley produced more than 25,000 acres of hybrid seed in 1999, accounting for 90-plus percent of the total grown in the United States. Some also raise foundation seed, from which comes the female inbreds used to make hybrids. What makes hybrid seed production so expensive for growers like Pete Knight? There are several factors: the high cost of farm land in this part of California; the extensive ground preparation required prior to planting; multiple irrigations; the need to introduce bees for pollination; strict weed management; a probable field defoliation; the amount of labor needed to accomplish all these tasks - and an overall mandate for stringent seed quality. Because of the high cost of production, companies which contract with Sacramento Valley farmers to produce hybrid sunflower seed must pay accordingly if they are to attract and retain good growers. Exerting additional price pressure is the fact that numerous other high-value crops are grown in the area, so most farmers have plenty of cropping options. As an illustration, Knight quickly ticks off the long list of crops he produces in a given year on his own farm: sunflower, peas, wheat, corn, beans, clover, alfalfa for hay, vine seeds (e.g., watermelon, squash, cucumbers), rice, almonds, prunes, walnuts, okra - and, in some years, safflower and sugarbeets. With the exception of wheat and corn, most of his production consists of seed crops. Out of the entire year, there are probably only four to six weeks in the winter when one or more of his crops aren’t either being planted or harvested. How valuable are some of these crops? A producer can gross anywhere between $900 to $2,000 an acre with the vine seed crops, with the average probably running around $1,200 in a given year. “With our cost structure, we can’t make it on a ‘commercial’ (i.e., commodity-price-level) basis here,” Knight emphasizes. “We need the higher-dollar crops.” So again, given these sorts of cropping options, a sunflower production contractor like Vaccaro Seed/California of Chico must be competitive to attract sufficient acreage and the right growers. Bill Vaccaro, the company’s president, says his average contract these days is designed to return about $720 per acre to the producer. Depending upon the yield and quality of a specific field, a grower can gross upwards of $800 or $900 in a good year. But there’s also a big downside risk. Pete Knight says his 1998 sunflower crop was the lowest-yielding one he’s ever had, in large part due to poor seed pollination. Some of his fields returned only $350 an acre. That may sound outstanding to a Northern Plains or High Plains commercial sunflower producer; but for Knight, it constituted a loss of about $250 per acre. Because of their genetic background, certain inbreds are inherently poorer yielders than others - sometimes by a wide margin, Vaccaro explains. So it’s common for seed production contractors to pay a corresponding higher price per pound of seed for these lower yielders. If they didn’t, no grower would be interested in planting those particular inbreds. (Vaccaro emphasizes that the hybrid emanating from a low-yielding female inbred does not itself become a low yielder.) Vaccaro admits that growers planting a low-yielding inbred do have at least one disadvantage: “It doesn’t make for good coffee shop talk if you’re harvesting only 1,000 pounds of seed an acre and your neighbor is getting 2,000,” he quips. “But if you look at the contracts, you’ll see the guy who made 2,000 pounds received just 45 cents a pound, while the guy who made 1,000 maybe got 75 or 80 cents.” - Don Lilleboe
