Management decisions relative to high nitrogen fertilizer prices

By Gary Schnitkey, Nick Paulson, and Krista Swanson, University of Illinois, and Carl Zulauf, The Ohio State University

Nitrogen fertilizer prices continue to rise. The average anhydrous ammonia price now is over $1,100 per ton. Overall, these large price increases indicate that 2022 nitrogen application rates should be lowered, particularly for farmers who have been applying nitrogen above university recommended levels. Current corn and soybeans prices are at levels that result in the same relative profitability for both crops in northern and central Illinois.

Nitrogen fertilizer prices

The Agricultural Marketing Service (AMS) released their latest estimates of fertilizer prices in Illinois on October 21. The average price of anhydrous ammonia was $1,135 per ton, up by $278 per ton from the price reported two weeks previously. AMS began reporting fertilizer prices on a bi-weekly basis starting in September 2008. The $278 increase is the largest ever. The next largest absolute change was a $178 decline occurring in December 2008. Continue reading

Western Ohio Cropland Values and Cash Rents 2020-21

By: Barry Ward-OSU Extension

Ohio cropland varies significantly in its production capabilities and, consequently, cropland values and cash rents vary widely throughout the state. Generally, western Ohio cropland values and cash rents differ from much of southern and eastern Ohio cropland values and cash rents. The primary factors affecting these values and rents are land productivity and potential crop return, and the variability of those crop returns. Soils, fertility and drainage/irrigation capabilities are primary factors that most influence land productivity, crop return and variability of those crop returns.

Other factors impacting land values and cash rents may include field size and shape, field accessibility, market access, local market prices, field perimeter characteristics and potential for wildlife damage, buildings and grain storage, previous tillage system and crops, tolerant/resistant weed populations, USDA Program Yields, population density, and competition for the cropland in a region. Factors specific to cash rental rates may include services provided by the operator and specific conditions of the lease. Continue reading

Farm Office Live is Back!

“Farm Office Live” returns virtually this summer as an opportunity for you to get the latest outlook and updates on ag law, farm management, farm business analysis, and other related issues from faculty and educators with the College of Food, Agriculture and Environmental Sciences at The Ohio State University.  Attend “Farm Office Live” online on July 23, 2021, at 10 AM (EST).  To register, please visit https://go.osu.edu/farmofficelive 

Ohio Farm Business Analysis Program

The message is clear: farms must know their costs of production for corn, soybeans, hay, milk, meat, and any other commodities they produce.  Why?  To make informed marketing, production and financial management decisions that contribute to the overall profitability of the whole farm business.

Farm business analysis is a tool that can be applied to any farm, regardless of size, crop, or livestock enterprise. Financial management is critical to the success of every farm business, and with analysis, farms are able to better understand the numbers behind their profits or losses. Continue reading

Understanding FSA’s 2021 ARC/PLC Election and Enrollment

Producers can now make elections and enroll in the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs for the 2021 crop year. Producers can elect coverage and enroll in crop-by-crop ARC-County or PLC, or ARC-Individual for the entire farm. Although election changes for 2021 are optional, enrollment (signed contract) is required for each year of the program. The deadline to enroll and make amendments to program elections is March 15, 2021.

Join The Ohio State University Extension Service as they host a webinar to discuss the ARC/PLC decision for the 2021 program year including updates on current market outlook and decision-tool calculators available to evaluate options and deadlines.

There is no cost to attend these meetings, but registration is required. To register visit: go.osu.edu/arcplc2021

  • The webinar is scheduled for Thursday, February 25, 2021 from 9:00 am – 11:00am EDT.
  • For more information or to ensure your question is addressed during the webinar, please send questions to Mary Griffith, Griffith.483@osu.edu or 740-852-0975.

Updated Tri-State Fertilizer Recommendations

After 25 years, the Tri-State Fertilizer Recommendations for Corn, Soybeans, Wheat, and Alfalfa has been comprehensively updated and is now available. The full version can be downloaded as a free pdf, or a printed copy can be purchased through the extension office or online at https://extensionpubs.osu.edu/search.php?search_query=974&section=product

A summarized version of findings can be found here: go.osu.edu/fert-recs

Continue reading

Farm Management Needs Pulse Survey

The Ohio State University Extension Agriculture and Natural Resources program works to improve production and maximize profitability while promoting environmental stewardship.

We are reviewing our farm management resources and ask you to rank your “top 3” areas from the following list for your farm management needs and support wanted.

  1. Agricultural Finance: farm income, farm business analysis, financial management, budgeting, and investing, agricultural taxes, benchmarking, record keeping
  2. Agricultural Human Resources: farm succession planning, labor law and policy, human resource management/labor management, liability
  3. Agricultural Law: legal issues within the agriculture system and estate planning
  4. Agricultural Marketing: marketing and price analysis, commodity trading
  5. Agricultural Policy: Farm Bill/Agricultural Policy, environmental and resource policy agricultural trade
  6. Agricultural Production and Risk Management: risk evaluation and management, land use, crop and livestock production, crop and livestock insurance
  7. Agricultural Supply Chain Stability and New Market Access: stability of upstream and downstream supply chains during disruptions, identifying new markets
  8. Rural and Community Development: infrastructure – broadband access, community resources, health care, non-agricultural small business support; rural/urban interface

Please complete the survey at: https://go.osu.edu/FarmMgmtNeeds by December 18, 2020.

Thank you.

Farmer’s Tax Guides – Tax Guidance for Your Farm Business

By Barry Ward, Director, OSU Income Tax Schools

Do you need a resource to answer those tough farm tax questions? If so, you can access the Farmer’s Tax Guide (IRS Publication 225) online at: https://www.irs.gov/pub/irs-pdf/p225.pdf

The 2020 Farmer’s Tax Guide explains how federal tax laws apply to farming. This guide can be used as a guide for farmers to figure taxes and complete their farm tax return.

The explanations and examples in this publication reflect the Internal Revenue Service’s interpretation of tax laws enacted by Congress, Treasury regulations, and court decisions. However, the information given does not cover every situation and is not intended to replace the law or change its meaning.

Some of the new topics for the 2020 tax year which are included in this publication are: Tax treatment of Coronavirus Food Assistance Program (CFAP) payments, Payroll Protection Program (PPP) Loans and Forgiven Debt, Increased section 179 expense deduction dollar limits, COVID-19 related employment tax credits and other tax relief, Redesigned Form W-4 for 2020, New Form 1099-NEC, and much more.

Hardcopies of the 2020 Farmer’s Tax Guide are also available at select county OSU Extension offices.

The Rural Tax Education Site has additional resources for agriculturally related income and self-employment tax information that is both current and easy to understand: https://ruraltax.org/

Profitability vs Cash Flow

By Pauline Van Nurden University of Minnesota, Center for Farm Financial Management

Profitability and cash flow are two important business concepts that can be confused by many small business owners. Just because a business is profitable, doesn’t necessarily mean it cash flows. Alternatively, a business can have positive cash flows and not be profitable.  These are topics that are often difficult to understand, so let’s dig into how these statements are possible. First off, let’s take a deeper look at profitability and cash flow.

What is Profitability?

Profitability is the ability of a business to earn a profit, meaning business revenues exceed business expenses. The income statement is used to analyze business profitability. This seems simple and straightforward, but one needs to remember that not all checkbook debits are business expenses. One common example of this are loan payments. Specifically, principal payments on loans are not business expenses. Remember, a loan payment is comprised of two components – principal and interest. Interest paid on business loans qualifies as a business expense. Principal payments do not. Principal payments made on loans impact the balance sheet and statement of cash flows but do not impact the income statement.  What replaces principal payments on term loans as deductions on the income statement? Depreciation. Depreciation is a deductible expense on the income statement. But, depending on tax management strategies, these two items may not align. If “fast depreciation” strategies are used for tax management, like Section 179 expensing and Bonus Depreciation, and loans are taken out to finance capital purchases; principal payments may be a cash flow detriment beyond the depreciation expense. Continue reading

2020 Harvest Preview

By Clint Schroeder OSU Extension

There are certainly no shortage of challenges for those involved in production agriculture. After a soggy 2019 growing season that saw record acres unplanted in Northwest Ohio, many farmers were hoping for a more “normal” cropping year in 2020. Unfortunately, 2020 combined some familiar challenges to farmers with several new ones.

While crops are generally planted in late April through mid-May in this region the planning begins much sooner. With fewer corn acres planted in 2019, Ohio farmers reduced their grain inventories despite higher than average yields. This led to a strong basis that encouraged corn from surplus areas to the west to be shipped into Ohio. These factors coupled with weak soybean exports set the stage for increased corn plantings throughout Northwest Ohio at the beginning of 2020. The development of widespread Covid-19 in the United States begin in early March. With much of the country sheltering in place the need for ethanol production was significantly impacted. By mid-April as farmers began to make field preparations, ethanol usage was down 49% compared to the previous year. This led to a lot of uncertainty in the futures market with most commodities trading down over 10% to open the second quarter.

With so many variables in play it appears that farmers stuck pretty close to their intentions when they were able to make significant planting progress the last week of April and first week of May. Soil moisture conditions were nearly ideal in most parts of the region for this time frame, but cooler than average temperatures were a reason for concern. These cold temperatures led to a minor frost event in May and delayed emergence for many corn and soybean acres. The next major challenge would come in the form of heavy widespread rains that flooded many fields from May 15th-17th. As things slowly dried out farmers began to survey the damage and make plans on what acres had suffered enough damage to warrant replanting the crop. The next window for field work came the first week of June and saw most farmers finish first plantings and spot plant any areas with less than ideal stands.

Hindsight is always 20/20, but it appears that those farmers with reduced stands may have left them alone if they knew of the drought conditions on the horizon. By the end of June, Putnam and Van Wert counties were listed as abnormally dry on the weekly national drought monitor. Allen County would join them on the list the following week. While this was certainly concerning, the silver lining to being dry at that point of the growing season is that it allowed for timely sidedress fertilizer applications and the ability to better manage weed growth. Unfortunately, the dry conditions only worsened over the next month and most of the region was listed as being in a moderate drought. There were several pop-up showers that brought relief to small, localized areas, but this only increased the variability of the crops throughout the region. Conditions improved marginally at the beginning of August and would continue to do so throughout the month. As September began there was finally enough widespread rain that allowed Allen, Putnam, and Van Wert counties to be removed from the drought monitor.

The extreme weather cycles had several impacts on both the corn and soybeans. This year saw less foliar disease pressure in both crops due to the dry weather. The early moisture and cold temperatures did impact root health and those issues became evident later in the form of premature death and poor grain fill. Insect pressure was highly variable with the most common complaint throughout the region being spider mite migration into soybean fields. With fewer plant health and insect issues many farmers were able to forego fungicide or insecticide applications, which will lower costs during these times of tight margins. The drought conditions undoubtedly had a negative impact on corn pollination, but certainly not to the extent observed in the 2012 growing season. Harvest will also reveal the impact August rains played on grain fill. Kernel depth and bean size vary greatly throughout the region and will play a large factor in the final yield.

With the variability mentioned it is challenging to estimate regional crop yields with much certainty. While the 2020 growing season has been anything but “normal” it is very likely that final yields will come in near the 5 year trend line adjusted mark. Strong export demand in recent months have helped soybeans rally on the futures markets heading into harvest. Corn futures have also traded higher as ethanol production has returned near levels observed prior to Covid-19. This price support should allow many producers the opportunity to market their grain near break-even levels to close out the 2020 growing year.