Ohio Farm Custom Rates 2018

Part 1: Soil Preparation, Fertilizer Application, Spraying Pesticides, Mechanical Weed Control, Aerial Applications, Planting Operations, Harvest Operations, Grain Drying and Storage, Hay Harvest

by: Barry Ward, Leader, Production Business Management, Department of Agricultural, Environmental and Development Economics & John Barker, Extension Educator Agriculture/Amos Program, County Director, Ohio State University Extension Knox County

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 tasks 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

This survey summary reports custom rates based on a statewide survey of 352 farmers, custom operators, farm managers, and landowners conducted in 2018. 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 6-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 measures shown in the summary tables are the summaries of the survey respondents. The measures are the average (or mean), range, median, minimum, and maximum. Average custom rates reported in this publication are a simple average of all the survey responses. Range identified in the tables consists of two numbers. The first is the average plus the standard deviation, which is the variability of the data from the average measure. The second number of the range is the average minus the standard deviation. The median represents the middle value in the survey responses. The minimum and maximum reported in the table are the minimum and maximum amounts reported from the survey data for a given custom operation.

The complete summary of part 1 is available online at the Farmoffice website:

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

 

 

 

Western Ohio Cropland Values and Cash Rents 2017-18

by: Barry Ward, Leader, Production Business Management, Director, OSU Income Tax Schools  OSU Extension, Agriculture & Natural Resources

Ohio cropland values and cash rental rates are projected to decrease in 2018. According to the Western Ohio Cropland Values and Cash Rents Survey, bare cropland values in western Ohio are expected to decrease anywhere from 1.7 to 3.6 percent in 2018 depending on the region and land class. Cash rents are expected to decline anywhere from 1.2 percent to 3.0 percent depending on the region and land class.

Ohio Cropland Values and Cash Rent

Ohio cropland varies significantly in its production capabilities and, consequently, cropland values and cash rents vary widely throughout the state. Generally speaking, 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 rates are land productivity and potential crop return, and the variability of those crop returns. Soils and drainage capabilities are the two factors that most influence land productivity, crop return and variability of those crop returns.

Other factors impacting land values and cash rents are field size and shape, population density, ease of access, market access, local market prices, potential for wildlife damage, field perimeter characteristics, and competition for rented cropland in a region. This fact sheet summarizes data collected for western Ohio cropland values and cash rents.

2018 Study Results 

The Western Ohio Cropland Values and Cash Rents study was conducted from February through April in 2018. The opinion-based study surveyed professionals with a knowledge of Ohio’s cropland values and rental rates. Professionals surveyed were farm managers, rural appraisers, agricultural lenders, OSU Extension educators, farmers, landowners, and Farm Service Agency personnel.

The study results are based on 108 surveys returned, analyzed, and summarized. Respondents were asked to group their estimates based on three land quality classes: average, top, and poor. Within each land-quality class, respondents were asked to estimate average corn and soybean yields for a five-year period based on typical farming practices. Survey respondents were also asked to estimate current bare cropland values and cash rents negotiated in the current or recent year for each land-quality class. Survey results are summarized for western Ohio with regional summaries (subsets of western Ohio) for northwest Ohio and southwest Ohio. See the entire summary at: https://farmoffice.osu.edu/farm-management-tools/farm-management-publications/cash-rents

 

Ohio Farmland Rental Information

by: Chris Zoller, Extension Educator, ANR & David Marrison, Extension Educator, ANR

How much to charge or pay for farmland rent is a common question among landowners and farmers.  Each party wants to receive or pay a ‘fair’ rate, but questions often arise in determining a ‘fair’ rate.  There are a number of factors involved with establishing a rate with which both parties are comfortable.

What Cash Rental Rate is Fair?

Land ownership costs are summarized using the DIRTI five acronym.  The ownership costs include:

Depreciation, Interest, Repairs, Taxes, and Insurance.  Most landowners would like to at least recover the property tax.  Your annual tax statement can help determine the amount of rent needed to cover the property taxes.  For instance, assume your property tax for 20 acres is $800 annually.  This translates into $40 per acre for the landowner to recover just the property tax.

In addition to the DIRTI five, the landowner should consider the value of the extra things the tenant might do for the landowner.  It is often difficult to assign a value, but consider the value of things a tenant does such as weed control, snow removal, and other tasks.  If you are happy with your present tenant, be cautious if approached by someone offering more money.  Will they do these ‘extra’ things for you?

From the perspective of the tenant, the costs of production, productivity, marketing, transportation, capital investment, and a return to labor and management must be covered.

What Factors Determine Land Rent Value?

All land is not of equal value and there are a number of factors to consider when negotiating a rental rate.  These include: productivity, site characteristics, previous crop, and supply and demand.

Land Productivity – Topography, soil type, pH, and fertility all influence productivity.  Your local Soil and Water Conservation District (SWCD) or Natural Resources Conservation Service (NRCS) can review with you the soil survey of your county.  “Don’t Guess – Soil Test” is an important slogan to remember.  A soil test will provide a baseline number for soil pH and nutrients.

Site Characteristics – Proximity to land already rented or owned is desirable, as are large tracts of land.  A field surrounded by houses or other development may diminish the rental value.

Previous Cropping History – Land that has been fallow for years is of less value.  High yielding land will bring a greater rental rate.

Supply & Demand – The greater the interest, the greater the value.

Sources of Land Rental Values

The Ohio Agricultural Statistics Service (OASS) maintains a database of county-level land rental information.  Most Ohio counties have cropland rental values recorded, with some counties having rental estimates for pasture land as well.

The OASS divides the state into nine districts and reports values for most counties, along with an average by district.  The district averages for cropland rental range from $62.00 per acre to $190.00 per acre.  The district averages for pasture land rental range from $16.50 per acre to $50.00 per acre.

OSU Extension completes a survey of Ohio land rents and publishes a report each year.  The latest report can be accessed at:

https://farmoffice.osu.edu/farm-management-tools/farm-management-publications/cash-rents

More specific questions about local and rental prices can be directed to your local OSU Extension office.

Lease Agreements

Some general legal requirements for lease enforceability that both a tenant and landlord should be aware of based on Ohio law are based on the length of the agreement.  We recommend that a written lease always be used when renting farm ground.

Term  & Legal Requirements

Up to 1 year –  Verbal can be enforceable

1-2 years – Must be in writing and signed by both parties

2-3 years- Must be in writing, signed by both parties, notarized,  and recorded in the county where the land is located

3 years or more- Must be in writing, signed by both parties before two witnesses, notarized, and recorded in the county where the land is located

Example Leases

It is recommended once the landlord and tenant agree on a rental price a written lease should be signed by both parties. The North Central Farm Management Extension Committee has developed a website “Ag Lease 101” which helps both land owners and land operators learn about alternative lease arrangements and includes sample written lease agreements for several alternatives.

Some of the example leases available: Cash Farm Lease, Crop-Share Lease, Pasture Lease, Farm Building/Livestock Facility Lease, Farm Machinery Lease for Non-Commercial Transactions and Livestock Rental Lease. Ag Lease 101 can be accessed at:  https://aglease101.org/

Legal Questions & Answers

OSU Extension’s Agricultural & Resource Law Program helps to provide research and outreach on legal issues affecting agriculture.  A variety of Law Bulletins are available from the Farm Leasing Law Library and include the following discussions: What’s in Your Farmland Lease?, Creating an Enforceable Farm Lease, Protecting Interests in a Verbal Farm Lease Situation, Leasing Your Land for Hunting, Crop Share Leasing in Ohio, and Legal Aspects of Ohio Farmland Leases.  The Agricultural & Resource Law Program can be accessed at: https://farmoffice.osu.edu/

Resources

National Ag Statistics Service https://www.nass.usda.gov/Statistics_by_State/Ohio/Publications/County_Estimates/2017/Ohio%202017%20Cash%20Rent%20County%20Est.pdf

OSU Extension Land Rental Survey

https://farmoffice.osu.edu/farm-management-tools/farm-management-publications/cash-rents

Ag Lease 101

http://aglease101.com

Ohio State University Farm Management & Agricultural Resource Law

https://farmoffice.osu.edu/

Note

The authors are not attorneys and this publication is not intended to provide legal advice.  All legal questions should be directed to an attorney familiar with lease contracts.

Current Commodity Situation and Outlook for Ohio

By Ben Brown

Agriculture is an uncertain industry, where the only certainty is a guarantee that there will indeed be uncertainty and risk. Already in 2018, frequent rains have delayed spring planting and increased the risk of disease and pest pressure. International trade disputes have increased the volatility in grain and livestock markets and international oil supply forecasts have led to unexpected increases in farm input costs. While the drivers of risk fall outside the hands of producers, individuals responds, react, and decide based on the best information available. This report summarizes several of the commodities important to Ohio producers and provides an outlook of supply and demand given current policies and expectations. Unless otherwise specified, the volatility caused by the renegotiation of the North American Free Trade Agreement (NAFTA) and the trade dispute with China are not considered due to their highly fluid situations at the time this article went to press. Supply and demand estimates for the 2018 Marketing Year (MY 2018) are published by the World Agricultural Outlook Board while Ohio inventory estimates are compiled by the National Agricultural Statistics Service. Understanding the balance sheet for many of Ohio’s commodities is important when making short and long-term decisions affecting farming and ranching operations.

Cattle Expansion Enters Fifth Year

The U.S. cattle heard on January 1, 2018 was larger than the count a year earlier, making 2017 the fifth consecutive year of herd expansion. Expansions in beef typically last four to six years. The U.S. appears poised for the possibility of at least one more expansion year in 2018 that would push beef production increases into the early part of the next decade. With constant demand for beef products, increases in beef production put downward pressure on the price received by producers. A cow that would have brought $2,000 in January 2015 brought about $1,200 in April 2018. As beef becomes cheaper, it starts to compete with other goods like pork for market share.

The inventory for all cattle including calves in the U.S. on January 1, 2018 was at 94.4 million head, up 0.7% from the previous year. Ohio’s inventory sits at 1.2 million head, a 0.8% increase. The average lifespan for a beef cow is 8 to 12 years meaning that 9.4 million replacement heifers are needed to maintain the current herd size. At almost 11 million replacement heifers at the start of the year, it is likely that 2018 will also be an expansion year in the national herd. In Ohio, dairy replacement heifers were up 0.8%, however it is likely that these heifers will leave Ohio for larger operations in Texas and Idaho where costs of production are lower. Cattle on feed decreases in Ohio by 6.7% while the national average increased 7.2%. Lower feed costs in Oklahoma, Kansas and Nebraska pull calves off farms earlier and out of Ohio. The outlook for cattle appears slight bearish as higher expected feed costs and dry weather in the southwest will move cattle into the market early. The number of cows and replacement heifers sold for slaughter will be important in determining if a herd expansion happens again in 2018.

Low to Negative Margins Drive Hog Industry

Rallies in grain markets, especially soybean meal, have increased feed costs for hog producers that did not lock in contracts when prices were low. Higher input costs along with a decline in pork prices erased many of the margins hog producers experienced in the first quarter of 2018, but prices rebounded in May. Large increases in hog production in Missouri, Ohio, Oklahoma, and Nebraska have contributed to the low prices. The national average for fed hog prices was $52.50 in January but fell to $45.3 by April. Prices have rallied in recent weeks, but still below 2017 levels at this same period. Prices reached a peak in July of 2017 at $67.30. Markets for the nearby July futures contract signal horizontal movements in price. Current prices would suggest a per head return of $2-$5 as a national average for 2018. With higher feed costs expected in 2019, negative margins could return.

Exports to international markets will be a large factor in the hog outlook. Exports of U.S. pork were lowered 35 million pounds in the May WASDE report on concerns around Chinese demand. With the implementation of a 25% tariff on U.S. pork, exports to China have lagged. Increased exports to emerging markets like South Korea and the Dominican Republic will be important in offsetting decreases to China and increased domestic supply. Exports make up roughly 22% of U.S. pork production with the largest markets being Mexico and Japan. However, U.S. pork exports to Mexico decreased in the first quarter of 2018, substituted by large amounts of turkey imports. The USDA forecasts even higher pork production in 2018. The key question will be levels of domestic and international consumption of pork with competition from potential substitutes like beef and poultry. If China backs away from U.S. pork, negative margins could return in as early as this year.

Corn Acreage Continues to Decline

Three supply shocks have increased corn prices and brightened the outlook for corn producers. A drought in South America, reducing both the Argentina and Brazilian corn crop, gave corn prices their first positive outlook. Then in March, U.S. producers indicated that they were going to plant 2 million fewer acres in 2018 than in 2017. Even with the reduction in acres, a trend corn yield would make the 2018 crop the fourth largest crop recorded. Frequent rains throughout the central and eastern regions of the Corn Belt have delayed spring plantings and increased prices. With three supply side adjustment to annual production, the corn market has been bullish with December 2018 futures contracts trading well above $4. Dealing with large supplies will continue to be a focus for grain merchandisers. Total supply in 2018 is expected to be 4% lower in 2018 than 2017.

Demand for corn (represented by the shaded area) continues to be strong. Feed and residual is expected slightly higher throughout the remainder of the year but lower in the next marketing year on the adjustments to the national herd size. If the national herd size continues to grow, this number will also increase. Ethanol continues to show growth and is up 1% from 2017 and up 8% since 2014. Changes in Chinese ethanol policy will drive international ethanol demand in the coming years. China announced in 2017 that it would mandate that all fuel for vehicles contain 10% ethanol. Their policy was three fold in that they wanted to reduce their large supplies of domestic stock, clean up air pollution, and create jobs. Whether China imports more raw corn or ethanol, the shock is expected to increase demand for corn on the world market. Only 2% of corn production is exported to China as raw exports. It is possible that it will take China a few years to increase their imports of U.S. corn. Even with the positive signals for demand for U.S. corn, total use is reduced in 2018 mostly a result of lower exports.

The outlook for corn looks favorable to producers as both supply and demand shocks suggest upward pressure on prices moving forward. Lower ending stocks for U.S. corn will increase the magnitude of price shifts due to weather-related events in the coming months. The stocks to use ratio of 19% is lower than 25% in 2017, but above the five-year average of 16%. The U.S. corn crop is mostly planted, and weather will be the largest variable driving U.S. supply through the summer months. December futures prices are currently above cost of production for most producers and potentially a strong option for those that have on-farm storage.

US Corn Balance Sheet- May 10, 2018
Marketing Year Sep-Aug 2014 2015 2016 2017* 2018** 2018 as % of 2017
Area Planted (mil. Acres) 90.6 88 94 90.2 88 97.6%
Yield (bu./acre) 170.9 168.4 174.6 176.6 174 98.5%
Production (mil. Bu.) 14,216 13,602 15,148 14,604 14,040 96.1%
Beg. Stocks (mil. Bu.) 1,232 1,731 1,737 2,293 2,182 95.2%
Imports (mil. Bu.) 32 67 57 50 50 100.0%
Total Supply (mil. Bu.) 15,480 15,400 16,942 16,947 16,272 96.0%
Feed & Residual (mil. Bu.) 5,284 5,114 5,463 5,500 5,375 97.7%
Ethanol (mil. Bu.) 5,200 5,224 5,432 5,575 5,625 100.9%
Food, Seed, & Other (mil. Bu.) 1,401 1,422 1,450 1,465 1,490 101.7%
Exports (mil. Bu.) 1,867 1,898 2,293 2,225 2,100 94.4%
Total Use (mil. Bu.) 13,752 13,658 14,638 14,765 14,590 98.8%
Ending Stocks (mil. Bu.) 1,728 1,742 2,304 2,182 1,682 77.1%
Stocks/Domestic Use Ratio 14.5% 14.8% 18.7% 17.4% 13.5% 77.4%
Season-Average Price ($/bu.) $3.70 $3.61 $3.36 $3.35 $3.57 106.6%
*Estimate **Projection Source: World Agriculture Outlook Board

 

Soybean Price will rely on Demand

For the last few years, soybeans have provided a per acre return to producers greater than corn. Thus, acreage shifts to soybeans have ensued across the Midwest. The ratio of new crop soybean to corn prices from November 2017 to April 2018 traded at 2.5:1. Historically a ratio of 2.5:1 or greater signaled that acres would continue to move from corn to soybeans and that the expectation was for more soybean acres in 2018. However, in March producer signaled that they intended to plant 1 million fewer acres than 2017. With a trend yield of 48.5 bushels/acre, the expected soybean crop would be the third largest crop on record behind the record set in 2017 and the third straight year over 4 billion bushels. Weather will be the largest factor over the summer months to the final production value, but expectations are for another large crop. The carry-over from 2017 was also high creating an expectation that the 2018 supply will be 2.5% higher than a year ago.

Demand for soybeans and soybean products continues to be strong. Increases in livestock numbers, especially pigs, has driven demand for soybean meal. Increases in crude oil prices could encourage use of biodiesel and expand soybean crush further. Chinese per capita income is strengthening and the demand for pork continues to grow internationally. Exports of U.S. soybeans to china have tripled in the last decade, but since 2012, Brazil has been the largest supplier of soybeans to China. Nearly 60% of U.S. soybean exports head to China, and the strength of that market will continue to influence U.S. soybean demand. Exports are projected higher in 2018, but Chinese tariffs could shrink Chinese demand of U.S. soybeans. The drought in South American weakened Chinese leverage over the U.S, as production in South America finished below expectations. Overall, the growth in soybean use appears strong at a 5.5% increase next year, but international trade and weather provide large uncertainties looking forward.

US Soybean Balance Sheet- May 10, 2018
Marketing Year Sep-Aug 2014 2015 2016 2017* 2018** 2018 as % of 2017
Area Planted (mil. Acres) 83.3 82.7 83.4 90.1 89.0 98.8%
Yield (bu./acre) 47.6 48 51.9 49.1 48.5 98.8%
Production (mil. Bu.) 3,927 3,926 4,296 4,392 4,280 97.4%
Beg. Stocks (mil. Bu.) 92 191 197 302 530 175.5%
Imports (mil. Bu.) 33 24 22 25 25 100.0%
Total Supply (mil. Bu.) 4,052 4,141 4,515 4,719 4,835 102.5%
Crush (mil. Bu.) 1,873 1,886 1,901 1,990 1,995 100.3%
Seed & Residual (mil. Bu.) 146 122 139 133 135 101.5%
Exports (mil. Bu.) 1,842 1,942 2,174 2,065 2,290 110.9%
Total Use (mil. Bu.) 3,861 3,950 4,214 4,188 4,420 105.5%
Ending Stocks (mil. Bu.) 191 191 301 531 415 78.2%
Stocks to Domestic Use Ratio 9% 10% 15% 25% 19% 77.9%
Season-Average Price ($/bu.) $10.10 $8.95 $9.47 $9.35 $9.38 100.3%
*Estimate **Projection Source: World Agriculture Outlook Board

Soybean prices in 2018 are expected to be similar to 2017 with the potential for a rally in late June, which would set up an opportunity for producers to contract grain. Trade uncertainty in the Chinese market could change the outlook for soybean profitability for both old and new crop soybeans. Weekly sales numbers will be an important indicator of the ending U.S. export value.

Access to the full report with information on poultry, eggs and wheat can be found here: https://aede.osu.edu/sites/aede/files/imce/images/Current%20Commodity%20Situation%20and%20Outlook%20for%20Ohio%20Report%20.pdf

2018 Ohio Dairy Enterprise Budget for 2018

by: Barry Ward, OSU Extension, Leader, Production Business Management

The newly updated Dairy Enterprise Budget for 2018 has been completed and posted to the farmoffice website: https://farmoffice.osu.edu/farm-management-tools/farm-budgets

This dairy budget assumes a large breed herd and an 80% corn silage / 20% hay feed ration. Details are provided for feed rations and building and equipment costs. The budget includes the costs associated with a cow during the lactating and dry periods with a 13-month calving interval and is based on a 700-cow herd.

For a herd with mid-level production of 24,000 lbs. rolling herd average, feed costs per hundred weight (cwt) of milk sold is $6.80. Variable costs per cwt are estimated to be $12.45 while total costs are calculated to be $18.36 per cwt.

This dairy budget was authored by Maurice Eastridge, Extension Specialist, Dairy Production; Barry Ward, Leader, Production Business Management and Dianne Shoemaker, Extension Field Specialist, Dairy.

OSU Extension Enterprise Budgets are compiled on downloadable Excel Spreadsheets that contain macros for ease of use. Users can input their own production and price levels to calculate their own numbers. These Enterprise Budgets have color coded cells that allow users to plug in numbers to easily calculate bottoms lines for different scenarios. Detailed footnotes are included to help explain methodologies used to obtain the budget numbers.

Ohio Corn, Soybean and Wheat Enterprise Budgets Projected Returns for 2018

by: Barry Ward, Leader, Production Business Management, Ohio State University Extension

Production costs for Ohio field crops are forecast to be largely unchanged from last year with slightly higher fuel, fertilizer and interest expenses that will increase total costs for some growers. Variable costs for corn in Ohio for 2018 are projected to range from $359 to $452 per acre depending on land productivity.

Variable costs for 2018 Ohio soybeans are projected to range from $210 to $231 per acre. Wheat variable expenses for 2018 are projected to range from $179 to $219 per acre.

Returns will again be low to negative for many producers. Projected returns above variable costs (contribution margin) range from $175 to $348 per acre for corn and $192 to $371 per acre for soybeans. (This is assuming fall cash prices of $4 per bushel for corn and $10 per bushel for soybeans.) Projected returns above variable costs for wheat range from $135 to $249 per acre (assuming $5.20 per bushel summer cash price).

Returns to land for Ohio corn (Total receipts minus total costs except land cost) are projected to range from $23 to $182 per acre in 2018 depending on land production capabilities. Returns to land for Ohio soybeans are expected to range from $84 to $254 per acre depending on land production capabilities. Returns to land for wheat (not including straw or double-crop returns) are projected to range from $28 to $135 per acre.

Total costs projected for trend line corn production in Ohio are estimated to be $760 per acre. This includes all variable costs as well as fixed machinery, labor, management and land costs. Fixed machinery costs of $65 per acre include depreciation, interest, insurance and housing. A land charge of $192 per acre is based on data from the Western Ohio Cropland Values and Cash Rents Survey Summary. Labor and management costs combined are calculated at $71 per acre. Returns Above Total Costs for trend line corn production are negative at -$93 per acre.

Total costs projected for trend line soybean production in Ohio are estimated to be $525 per acre. (Fixed machinery costs – $50 per acre, land charge: $192 per acre, labor and management costs combined: $48 per acre.) Returns Above Total Costs for trend line soybean production are also negative at -$23 per acre.

Total costs projected for trend line wheat production in Ohio are estimated to be $501 per acre. (Fixed machinery costs: $55 per acre, land charge: $192 per acre, labor and management costs combined: $42 per acre.) Returns Above Total Costs for trend line wheat production are also negative at -$110 per acre.

These projections are based on OSU Extension Ohio Crop Enterprise Budgets. Newly updated Enterprise Budgets for 2018 have been completed and posted to the OSU Extension farmoffice website:

https://farmoffice.osu.edu/farm-management-tools/farm-budgets

As Chinese Trade Tensions Build, Do Ohio Producers Need to Worry?

By Ben Brown and Ian Sheldon

The attached link is a report summarizing the impact of Chinese tariffs on U.S. soybeans, corn and pork.

https://bit.ly/2GoD0DW

A short summary follows:

Chinese tariffs on U.S. soybeans have not been implemented yet, but concern throughout the U.S. agricultural industry and Ohio exists because of uncertainty in export markets and commodity prices. Ohio exports $50 billion of products worldwide and $3.9 billion of agricultural commodities. The three largest markets for Ohio agricultural exports are Canada, China and Mexico with especially strong growth in the Chinese market since 2010. The U.S. is the second largest supplier, behind Brazil, of soybeans to China at 39%, and a tariff on U.S. soybeans would likely strengthen Brazil’s position in the market. Roughly, 31% of U.S. soybeans are exported to China, which would fall to 22%, a loss to Ohio of an estimated $241 million. Ohio exports to China of raw commodities are strongest for soybeans with large corn processing and domestic use limiting raw corn exports. Through calculations made based on a representative west central Ohio farm, and assuming an average degree of Chinese substitution between U.S. and Brazilian soybean import, it is estimated that average net income per year (2018-2024) would drop from $63,577 to $26,107 under the proposed tariff, which translates to a 59% decrease in net farm income. Import tariffs by the U.S. of Chinese steel will likely increase machinery costs and the cost to produce agricultural inputs that heavily rely on steel infrastructure by raising the domestic price. Weakening financial health through debt coverage and lower land values will continue to erode the financial health of Ohio farm families. The net worth of the representative farm decreased 6% from the baseline in projection year 2024 under the proposed tariffs. Larger farm incomes in the beginning of the decade would have showed a lower percentage decrease than the current farm margins.

These data should not be seen as a concrete prediction, as an analysis of external factors such as weather and shifts in demand could alter the outcomes. Reducing trade barriers with countries that depend on U.S. agricultural commodities strengthen the U.S. ability to sell in a world economy. The U.S. is currently renegotiating several of its free trade agreements while also encouraging bilateral deals with several of the world’s largest agricultural consuming countries. The North American Free Trade Agreement already allows most commodities to flow across the border at a 0% tariff, meaning that a new negotiated agreement between the countries will not increase exports to Canada and Mexico for corn and soybeans. The large agricultural disagreement in the NAFTA negotiations is around Canada’s dairy supply management program. The Korean- U.S. trade agreement named KORUS is also being reviewed, but talks have slowed after initial excitement over a completed agreement.

 

 

Ohio Enterprise Budgets for 2018


by: Barry Ward, Leader, Production Business Management, Ohio State University Extension

Budgeting helps guide you through your decision making process as you attempt to commit resources to the most profitable enterprises on the farm. Crops or Livestock? Corn, Soybeans, Wheat, Hay? We can begin to answer these questions with well thought out budgets that include all revenue and costs. Without some form of budgeting and some method to track your enterprises’ progress you’ll have difficulty determining your most profitable enterprise(s) and if you’ve met your goals for the farm.

Budgeting is often described as “penciling it out” before committing resources to a plan. Ohio State University Extension has had a long history of developing “Enterprise Budgets” that can be used as a starting point for producers in their budgeting process.  Newly updated Enterprise Budgets for 2018 have been completed and posted to the farmoffice website:  https://farmoffice.osu.edu/farm-management-tools/farm-budgets

Enterprise Budget projections updated for 2018 include: Corn, Soybeans, Wheat, Alfalfa Hay; Alfalfa Haylage, Corn Silage, Swine – Farrow to Wean, and Swine –Wean to Finish.

Our enterprise budgets are compiled on downloadable Excel Spreadsheets that contain macros for ease of use. Users can input their own production and price levels to calculate their own numbers. These Enterprise Budgets have color coded cells that allow users to plug in numbers to easily calculate bottoms lines for different scenarios. Detailed footnotes are included to help explain methodologies used to obtain the budget numbers.

Lady Landowners Leaving a Legacy

by: Amanda Douridas

Land is an important investment. One that is often passed down through generations. Farmland needs to be monitored and cared for to maintain the value and sustainability if it is to be enjoyed and profitable for future generations. Nearly 50% of landowners in Ohio are female. If you fall into this statistic and want to learn more about your land, farming and conservation practices and how to successfully pass it on to the next generation, this program is for you!

Farming has changed dramatically over the last several decades. The thought of trying to understand it all can be overwhelming, especially if not actively farming. This series is designed to help female landowners understand critical conservation and farm management issues related to owning land. It will provide participants with the knowledge, skills and confidence to talk with tenants about farming and conservation practices used on their land. The farm management portion will provide an understanding of passing land on to the next generation and help establish fair rental rates by looking at current farm budgets.

The series runs every other Thursday, June 14 through August 23 from 9:00-11:30 in the Champaign County Community Center Auditorium in Urbana, Ohio. It is $50 for the series. If you are only able to attend a couple of session, it is $10 per session but there is a lot of value in getting to know other participants in the series and talking with them each week. The registration flyer can be found at http://go.osu.edu/agevents. For questions or more information, please contact Amanda Douridas at 937-484-1526 or Douridas.9@osu.edu. Please register by June 4. The detailed agenda is below.

June 14- Building Soil Structure

  • Introductions
  • Soil Structure Discussion and Demo
  • Tillage Methods and Compaction (includes three demonstrations)
  • Soil Coverage Discussion and Demo

June 28- Implementing Conservation

  • Conservation Activity
  • Aquifer Demonstration
  • Watershed Maps of Participants Farms
  • Explanation of Conservation Practices

July 12- Value of the Land Beyond the Dollar

  • Land Value Diagram
  • Landowner/Tenant Relationship Panel
  • Wildlife Habitat Programs

July 26- Transition and Succession Planning

  • Peggy Hall and Wright Moore Law Firm

Aug 9- Leasing and Budgets

  • Good Leasing Contracts
  • Hunting Leases
  • Overview of Commodity Budgets

Aug 23- Farm Visit

Some activities developed by Women, Food and Agriculture Network for its Women Caring for the Land program.

2018 Dairy Margin Protection Program Update

by: Dianne Shoemaker, Field Specialist, Dairy Production Economics

Largely considered a failure by dairy farmers, changes to the Dairy Margin Protection Program (MPP) included in the 2018 Bipartisan Budget Act earlier this year may be helpful for some farmers.

Dairy farmers should re-evaluate the use of the 2018 MPP before the June 1 signup deadline.  Originally initiated by 2014 Farm Bill legislation , the MPP intended to provide dairy farmers with a tool to manage risk by insuring a margin between the Statistical Uniform Milk Price and a calculated feed cost based on a set equation and monthly corn, soybean and hay prices.  This program replaced the MILC and support price programs.  Now farms can choose to participate in either the MPP, the Livestock Gross Margin Insurance Program, or neither.

Farmers that choose to participate in the MPP pay a $100 administrative fee and receive coverage for a $4 per cwt “catastrophic margin” (CAT), on 90% of their production history.  They can also choose to “buy up” coverage up to an $8 margin for 25% to 90% of their production history.

Changes Made

Administration Fee:

Farms that participate must pay a $100 administration fee.  Now this fee will be waived for limited-resource, beginning, veteran, and disadvantaged farmers.

Premiums: Tier 1 premiums now cover the first 5 million pounds of production history.  Previously, they applied to the first 4 million pounds.  Tier 1 premiums are also substantially less, offering new opportunities for farms covering up to 5 million pounds of milk.  Tier 2 premiums are unchanged.  See Table 1 for old and new premium rates.  Note that on the first 5 million pounds (Tier 1), coverage up to a $5.00 margin is now available at no cost.

Production History: No changes here.  Production history (PH) is based on the highest annual production from 2011, 2012, or 2013.  Farms that participated previously and paid their fees in a timely manner receive annual production increases with rates announced annually by Farm Service Agency (FSA).  Farms that started milking cows after 2013 should work with their FSA office to establish their farm’s production history.

Indemnity Calculations: Will be made and paid monthly in 2018.  Previously, margins were calculated and announced each month, but for program purposes, 2 months were averaged together and any indemnity payments were made on those 2-month averages.  For example, under the old rules the indemnity for January/February would have been based on an average of the January margin of $8.11705 and February’s $6.88349, or $7.50027.  If a farm had bought up coverage for an $8 margin, the indemnity payment on covered pounds would be $8 – $7.50027, or $0.49973 per cwt.

Under 2018’s revised rules, the indemnity for January is zero since the actual margin was more than $8.  February’s is ($8 – $6.88349) or $1.11651 per cwt, resulting in a higher overall indemnity payment for a farm that buys up coverage to the $8 margin.  These monthly calculations and payments can increase the dollars received by the farm, and result in faster payments to the farm.

No Play, No Pay:  Last fall, this option was initiated by the Secretary of Agriculture, and continues under the new rules.  Even if a farm had signed up for coverage prior to 2018, it may opt-out of the program for 2018.

Sign-ups reopened: The original sign up period for 2018 coverage opened and closed in 2017.  With the rollout of the new rules, a new sign-up period opened April 9th and continues through June 1.  If you signed up in 2017, even at the minimum level, you must sign up again!  If you do not, you will not be enrolled in the program for 2018.

Retroactivity: The sign up period is for January 1 through December 31, 2018, and coverage is retroactive to January 1.  This puts us in the interesting position of knowing the margins for January, February, and March before making a program decision.  By the end of May, we will also have a pretty clear idea of what the April margin will be plus or minus a few cents.

Making Decisions: The Margin Protection Program Decision Tool is updated with the new rules and Tier I Premiums.  Futures market data is updated daily by Mark Stephenson’s group at the University of Wisconsin which developed the tool.  Find it at https://dairymarkets.org/MPP/.  Plug in your production history and use the “Select Coverage” feature to see the administrative fees and premiums, expected payments and expected net returns for each margin coverage level at the percent of PH coverage that you select.

Projections:  Using futures market data available on April 30th, the MPP Decision Tool is projecting that the margin will stay below $8 per cwt through June.  If this is what actually happens, the decision tool projects an expected payment of $24,082 for a farm with a production history of 5 million pounds buying up coverage for an $8 margin on 90% of their production history (4,807,827 pounds of milk is covered).  The administrative fee and premiums for this coverage will cost $6,927 with the $100 administrative fee due at sign up, and the balance due by September.

If milk price improves, and/or feed prices decline, the expected payment could be considerably less.  The projections do not guarantee the actual performance of the program.  It projects what will happen based on yesterday’s futures market data.  Each farm has to make a final participation decision based on today’s information and your expectations of what will happen in the market place for the rest of 2018.

What we know for sure: What we do know for sure is that for a farm purchasing coverage at the $8 level, there will be indemnity payments for February ($1.11651) and March ($1.23163).  A logical next question is, “how much of the fees and premiums will that cover?”

For our example farm covering 90% of their 5 million pound beginning PH, the covered annual production is 4,807,827 pounds.  (A farm participating each year receives an annual increase to their PH, so their 2018 program PH is 5,342,030.)  To calculate monthly payments, the covered PH is divided by 12, regardless of when milk is actually produced on the farm.  Continuing with our example above, the farm’s monthly covered PH is 4,807,827 lbs/12 = 400,652 lbs or 4,006.52 cwt.

February          $1.11651 x 4,006.52 cwt =            $4,473

March              $1.23163 x 4,006.52 cwt =             $4,935

$9,408

Estimated 6.6% sequestration deduction            –    621

Feb/March Payment to the farm                     $8,787

 

Note: Farm Bill payments are subject to a sequestration deduction related to budget-balancing efforts.  Current estimates are that the deduction rate for MPP payments will be around 6.6%.

For our example farm, we know that the payments for February and March will return more than the $6,927 administrative fee and premiums.  It appears very likely that the margin forecasted for April will also be well under $7 with May and June currently forecasted above $7 but less than $8.  So, in this case, a farm can sign up knowing that the fees will be covered, and there will be some net return to assist with a few bills.

More than 5 Million Pounds: Our example farm at 5 million pounds of PH would be representative of a farm milking 200 cows selling 25,000 pounds of milk per cow per year.  How does MPP look for farms with more than 5 million pounds of milk?

Here we have to consider two important factors.

  • Tier 2 premiums for milk over 5 million pounds are considerably higher than the Tier 1 premiums for the first 5 million pounds of milk. For example, $8 coverage costs 14.2¢ per cwt for the first 5 million pounds, and $1.36 per cwt for any milk above that level.
  • Only one level of coverage can be selected for the first 5 million pounds, and any milk above 5 million pounds.

Because of this stipulation, farms with more than 5 million pounds will want to cover whatever percent of their PH that gets their covered milk as close to 5 million pounds as possible.  If your farm has more than 20 million pounds of PH, even at 25% coverage, you will be purchasing some Tier 2 protection.  Those high rates can quickly eat up any indemnity payments.  Use the MPP Tool to see what coverage optimizes net returns for your farm.

Because of the higher Tier 2 premiums on the milk over 5 million pounds, some farms will find that the February and March payments will cover less than half of the fees and premiums.  These farms will want to look carefully at the cost and probability of the program helping their farm business, factoring in their own market projections.

It is likely that farms with over 25 million pounds of production history will find that the fee and premiums will cost more than the projected indemnities.  Run the Decision Tool again shortly before the sign-up deadline as market projections will change.

Bottom Line:

  • Significant changes were made to the 2018 Dairy Margin Protection Program.
  • Farms who signed up in 2017 for the 2018 program must sign up again by June 1.
  • Sign up is retroactive to January 1, 2018 and coverage is for January through December 2018.
  • Sign up at your County Farm Service Agency office.
  • Farms should use the Margin Projection Program Decision Tool to evaluate their farm’s participation. Your County Extension Educator can assist you with the tool.
  • The MPP Decision Tool is updated with new futures markets information daily. Results and projections change because results are projections based on yesterday’s market data.
  • Combine MPP Decision Tool projections with your projections about this year’s markets and what we already know about January, February, and March margins to make the best decision for your farm.
  • Premiums must be paid in full by September 1. It makes sense to pay off the premium with indemnity payments received before using MPP payments to pay other bills.

The good news is that these changes may bring a few dollars to cash strapped farms.  Will it substantially help with pervasive cash flow issues?  No.  However, for 2018, it might help pay a bill or two.

Resources:

Program on Dairy Markets and Policy Website https://dairymarkets.org/

Margin Protection Program Decision Tool            https://dairymarkets.org/MPP/Tool/

Farm Service Agency Margin Protection Program for Dairy including announced prices and margins, you can also access the Decision Tool from this site

https://www.fsa.usda.gov/programs-and-services/Dairy-MPP/index

USDA MPP Terms and Conditions Update https://forms.sc.egov.usda.gov/efcommon/eFileServices/eForms/CCC782_APPENDIX.PDF