Budgeting

How Will the Invasion of Ukraine Affect U.S. Agriculture?

by: Ian Sheldon, Professor and Andersons Chair of Agricultural Marketing, Trade, and Policy, Agricultural, Environmental, and Development Economics, Ohio State University and Chris Zoller, Associate Professor and Extension Educator, Agriculture & Natural Resources, Ohio State University Extension – Tuscarawas County

 

Russia’s Invasion of Ukraine: The Global Impact

The shock to global commodity markets following Russia’s invasion of Ukraine is expected to be the largest in the post-war period, and certainly since the oil crisis of the 1970s.  Over the past 30 year, the two countries have become major agricultural exporters, accounting for a quarter of global grains trade in the 2021-22 season (International Grains Council, March 9, 2022).  Across key commodities, they account for a 34, 18, 27 and 75 percent share of volume traded of world wheat, corn, barley, and sunflower oil respectively (International Food Policy Research Institute, February 24, 2022).  With Russia blockading ports on the Black Sea, 16 million tons of grain are currently stranded in Ukraine, USDA forecasting Ukrainian-Russian wheat exports to fall by 7 million tons in 2021-22, Australian and Indian exports only partially filling the gap (USDA/WASDE Report, March 9, 2022)   Also, despite reports of some spring crops being planted in Ukraine, outgoing Agriculture Minister Roman Leshchenko expects total area sown to be reduced by 19 million acres (Reuters, March 22, 2022).

Not surprisingly a market shock of this magnitude has affected both the volatility and level of prices, wheat futures at one point moving above $14/bushel, and eventually falling back to just over $10/bushel, reflecting uncertainty among traders about the invasion.  In turn, the increase in grain prices, are having a significant effect on global food prices and hence food security.  Even before the invasion, several factors were already driving up food prices, including poor harvests in South America, strong global demand, supply chain issues, reduced global stocks of grains and oilseeds, and an input cost squeeze mostly due to rising fertilizer prices.  Adding in the effect of the invasion, global food prices are now reaching levels not seen since the so-called “Arab Spring” of the early 2010s (UN/FAO, March 2022). Continue reading →

Ohio Farm Custom Rate Survey 2022 – Responses Requested

By: Barry Ward, Leader, Production Business Management

The Ohio Farm Custom Rates Survey data collection has launched once again. The online survey for 2022 is available at: https://go.osu.edu/ohiofarmcustomratesurvey2022

A large number of Ohio farmers hire machinery operations and other farm related work to be completed by others. This is often due to lack of proper equipment, lack of time or lack of expertise for a particular operation.  Many farm business owners do not own equipment for every possible job that they may encounter in the course of operating a farm and may, instead of purchasing the equipment needed, seek out someone with the proper tools necessary to complete the job. This farm work completed by others is often referred to as “custom farm work” or more simply “custom work”. A “custom rate” is the amount agreed upon by both parties to be paid by the custom work customer to the custom work provider.

Custom farming providers and customers often negotiate an agreeable custom farming machinery rate by utilizing Extension surveys results as a starting point. Ohio State University Extension collects surveys and publishes survey results from the Ohio Farm Custom Survey every other year. This year we are updating our published custom farm rates for Ohio.

We kindly request your assistance in securing up-to-date information about farm custom work rates, machinery and building rental rates and hired labor costs in Ohio.

This year we have an online survey set up that anyone can access. We would ask that you  respond even if you know only a few rates.  We want information on actual rates, either what you paid to hire custom work or what you charged if you perform custom work. Custom Rates should include all ownership costs of implement & tractor (if needed), operator labor, fuel and lube. If fuel is not included in your custom rate charge there is a place on the survey to indicate this.

You may access the survey at: https://go.osu.edu/ohiofarmcustomratesurvey2022

If you prefer a document that you can print out and fill out by hand to return, email Barry Ward at ward.8@osu.edu

The deadline to complete the survey is March 31,2022.

The 2022 PLC and ARC Decision

By: Gary Schnitkey, Nick Paulson, and Krista Swanson, Department of Agricultural and Consumer Economics, University of Illinois and Carl Zulauf, Department of Agricultural, Environmental and Development Economics Ohio State University.

Farmers will again have until March 15 to make commodity title program selections. Given the current high prices, commodity title payments are not expected from any program option for the 2022 marketing year. If a change in conditions resulted in payments, those would be received in October 2023, after the close of the 2022 marketing year. Farmers wishing to purchase the Supplemental Coverage Option (SCO) crop insurance policy must select Price Loss Coverage (PLC) as the commodity title choice. Based on current price projections, Agriculture Risk Coverage at the county level (ARC-CO) will maximize the chance of payment for soybeans, although that chance will be small. The probability of payments is roughly the same for corn and soybeans.

Decision Overview

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Expect Farm Liquidity to Decline in 2021

 

by: Chris Zoller, Extension Educator, ANR, Tuscarawas County

Liquidity is the ability of a farm business to quickly convert current assets to cash to pay short-term (less than 12 months) cash obligations, debt, family living, and taxes. It is one of several measures used to gauge farm financial performance over time. The United States Department of Agriculture Economic Research Service (USDA-ERS) is forecasting a decline in farm sector liquidity in 2021.  This article will discuss working capital, current ratio, and times interest earned ratio financial measures.

Working Capital

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USDA Agricultural Projections to 2030

Source: Chris Zoller, Extension Educator, ANR, Tuscarawas County

Click here for PDF version–easier to view Figures

The United States Department of Agriculture (USDA) recently released the interagency report: USDA Agricultural Projections to 2030.  These long-term projections include several assumptions related to the Farm Bill, macroeconomic conditions, farm policy, and trade agreements.  While long-term projections are based on assumptions and many unknowns, they do provide a glimpse of how U.S. farm commodity prices may perform over the next several years.  Anyone interested in reading specific details is encouraged to see the report available here: https://www.ers.usda.gov/webdocs/outlooks/100526/oce-2021-1.pdf?v=3513.2.

This article briefly summarizes selected selections of the 102-page report, including U.S. crop prices, milk production, U.S. farm income, and government payments.  Figures from the report are included to accompany the text.

U.S. Crop Prices

Rising global demand for diversified diets and protein will continue to stimulate import demand for grains. Increased demand for these crops is accompanied by rising competition for market share from countries such as Brazil, Argentina, the EU, and the Black Sea region. The United States also faces challenges related to ongoing tensions with trade partners and a relatively strong U.S. dollar. Although strong trade competition continues, U.S. commodities remain generally competitive in global agricultural markets, with U.S. corn and soybean exports projected at record highs by 2030/31. Nominal prices for wheat, cotton, and rice are expected to rise modestly between 2021/22 and 2030/31.

  Continue reading →

Farm Office Live Continues!

Source: Barry Ward, David Marrison, Peggy Hall, Dianne Shoemaker – Ohio State University Extension

“Farm Office Live” continues this winter as an opportunity for you to get the latest outlook and updates on ag law, farm management, ag economics, farm business analysis and other related issues from faculty and educators with the College of Food, Agricultural and Environmental Sciences at The Ohio State University.

Each Farm Office Live begins with presentations on select ag law and farm management topics from our specialists followed by open discussions and a Q&A session. Viewers can attend “Farm Office Live” online each month on Wednesday evening or Friday morning, or can catch a recording of each program.

The full slate of offerings remaining for this winter are:

  • March 10th 7:00 – 8:30 pm
  • March 12th 10:00 – 11:30 am
  • April 7th 7:00 – 8:30 pm
  • April 9th 10:00 – 11:30 am

Topics to be addressed in March include:

  • Coronavirus Food Assistance Program (CFAP)
  • Proposed Stimulus Legislation
  • General Legislative Update
  • Ohio Farm Business Analysis – A Look at Crops
  • Crop Budget & Rental Rates

To register or view past recordings, visit https://go.osu.edu/farmofficelive

For more information or to submit a topic for discussion, email Julie Strawser at strawser.35@osu.edu or call the farm office at 614-292-2433. We look forward to you joining us!

Corn, Soybean and Wheat Enterprise Budgets – Projected Returns for 2021 Increasing Fertilizer Prices May Force Tough Decisions

Source: Barry Ward, John Barker, OSU Extension

The profit margin outlook for corn, soybeans and wheat is relatively positive as planting season approaches. Prices of all three of our main commodity crops have moved higher since last summer and forward prices for this fall are currently at levels high enough to project positive returns for 2021 crop production. Recent increases in fertilizer prices have negatively affected projected returns. Higher crop insurance costs as well as moderately higher energy costs relative to last year will also add to overall costs for 2021.

Production costs for Ohio field crops are forecast to be modestly higher compared to last year with higher fertilizer, fuel and crop insurance expenses. Variable costs for corn in Ohio for 2021 are projected to range from $386 to $470 per acre depending on land productivity. Variable costs for 2021 Ohio soybeans are projected to range from $216 to $242 per acre. Wheat variable expenses for 2021 are projected to range from $166 to $198 per acre.

Returns (excluding government payments) will likely be higher for many producers depending on price movement throughout the rest of the growing year. Grain prices currently used as assumptions in the 2021 crop enterprise budgets are $4.30/bushel for corn, $11.55/bushel for soybeans and $6.25/bushel for wheat. Projected returns above variable costs (contribution margin) range from $216 to $434 per acre for corn and $284 to $509 per acre for soybeans. Projected returns above variable costs for wheat range from $193 to $342 per acre. As a reminder, fixed costs (overhead) must be paid from these returns above variable costs. Fixed costs include machinery ownership costs, land costs including rent and payment for owner operator labor and management including other unpaid family labor.

Fertilizer prices continue to increase.  If you have not checked fertilizer prices lately, be prepared for some sticker shock. Producers with some fertilizer purchased and stored or pre-priced prior to recent price increases will likely see a healthier bottom line this upcoming crop year.

Those with little or no fertilizer pre-purchased and stored or pre-priced may want to consider using P and K buildup to furnish crop needs this year in anticipation of possibly lower prices in the future.  Now may be a good time review your fertilizer plans as you are considering how to best utilize your financial resources in 2021.

  • Use realistic yield goals.  Yield goals vary by field.  Each field has unique characteristics that can impact yield.
  • Utilize crop removal rates to determine crop nutrient needs.  Crop removal rates can be found in the new Tri-State Fertilizer Recommendations for Corn, Soybeans, Wheat, and Alfalfa (Tables 15 and 16), available at your local Extension Office.
  • Start with a recent soil test.  If your soil test levels are in the maintenance range or higher, 2021 may be a good year to “borrow” from your soil nutrient bank.

As an example, a 150-bushel corn crop will remove about 55 pounds of P2O5 per acre in the harvested grain.  This would result in a reduction in the soil test level of approximately 3 ppm.

Current budget analyses indicates favorable returns for soybeans compared to corn but crop price change and harvest yields may change this outcome. These projections are based on OSU Extension Ohio Crop Enterprise Budgets. Newly updated Enterprise Budgets for 2021 have been completed and posted to the Farm Office website: https://farmoffice.osu.edu/farm-mgt-tools/farm-budgets

 

Considerations of a Flexible Lease Arrangement

Source: Chris Zoller, Barry Ward, Mike Estadt, OSU Extension

Thousands of Ohio crop acres are rented from landowners by farmers.  While the most common is likely a cash agreement, the flexible lease may be worthy of consideration for some farmers.  This article will provide a broad overview of the flexible lease option, including advantages, disadvantages, and strucutre.

The information provided here is only a summary from the Fixed and Flexible Cash Rental Arrangements for Your Farm published by the North Central Extension Farm Management Committee.  Anyone interested in learning more about flexible leasing arrangements is encouraged to read more about this topic at this site: https://aglease101.org/wp-content/uploads/2020/10/NCFMEC-01.pdf.

What is a Flexible Lease?

Because of uncertainties with prices, yields, and input costs, some farmers and landowners are apprehensive about entering into a fixed long-term cash rental arrangement.  From the perspective of the farmer, the concerns include poor yields, commodity price declines, or sharp increases to input prices might impact cash flow if there is a long-term fixed arrangement.  In times like we are experiencing now, landowners want to capitalize on high commodity prices or high yields.

Therefore, the operator and landowner may turn to the use of a flexible cash rent of one kind or another. The idea of a flexible cash rent usually pertains only to the rent charged for cropland.

Advantage of Flexible Leases

  • Flexible cash rent enables the landowner to share in the additional income that results from unexpected increases in the prices of crops considered in the rent-adjustment clause. If the cash rent also is flexed for changes in yields, the landowner will benefit from above-normal yields regardless of the cause.
  • For the operator, risk is reduced. Cash-rent expense is lower if crop prices or yields are less than normal.
  • Calculating flexible cash rent requires more communication from both parties.

Disadvantages of Flexible Leases

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Ohio Farm Custom Rates 2020

Farming is a complex business and many Ohio farmers utilize outside assistance for specific farm-related work. This option is appealing for tasks requiring specialized equipment or technical expertise. Often, having someone else with specialized tools perform a task is more cost effective and saves time. Farm work completed by others is often referred to as “custom farm work” or more simply, “custom work”. A “custom rate” is the amount agreed upon by both parties to be paid by the custom work customer to the custom work provider.

Ohio Farm Custom Rates 2020 reports custom rates based on a statewide survey of 377 farmers, custom operators, farm managers, and landowners conducted in 2020. These rates, except where noted, include the implement and tractor if required, all variable machinery costs such as fuel, oil, lube, twine, etc., and the labor for the operation.

Some custom rates published in this study vary widely, possibly influenced by:

  • Type or size of equipment used (e.g. 20-shank chisel plow versus a 9-shank)
  • Size and shape of fields,
  • Condition of the crop (for harvesting operations)
  • Skill level of labor
  • Amount of labor needed in relation to the equipment capabilities
  • Cost margin differences for full-time custom operators compared to farmers supplementing current income

Some custom rates reflect discounted rates as the parties involved have family relationships or are strengthening a relationship to help secure the custom farmed land in a cash or other rental agreement. Some providers charge differently because they are simply attempting to spread their fixed costs over more acreage to decrease fixed costs per acre and are willing to forgo complete cost recovery.

The complete “Ohio Farm Custom Rates 2020” is available online at the Farm Office website here

 

Source: https://farmoffice.osu.edu/farm-mgt-tools/custom-rates-and-machinery-costs