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

 

Should I Continue Farming?

by: Chris Zoller, Extension Educator, ANR  Tuscarawas County

 Introduction

Given the low prices of many farm commodities and a price outlook that may not be positive in the near term, you may be considering exiting agriculture.  Making a decision to sell part or your entire farm is not easy and brings with it a great deal of emotions.  Farmers have told me they worry about being seen as a failure, the impact a sale will have on family and employees, or what they will do with their life after the sale.  These are realistic concerns.  It’s important that you don’t let emotions drive the decision-making process.  Sometimes difficult business decisions must be made to preserve what is still left and plan for the future.

Finding someone you trust, who has good listening skills, and with whom you are comfortable discussing the details of your business, finances, goals, and options can be very helpful.  That person may not have the answers to all of your questions, but if they are willing to listen, they can offer advice and suggest people who can help.

Think of the following pages as a framework from which to begin the process of selling some or your whole farm.

Evaluate

Financial situation – What is the total amount of all debt obligations, to whom do you owe money, and how much is owed to each creditor?  What is your net worth?  Knowing the answers to these basic questions is important, regardless of your business or performance, and necessary to evaluate what and how many assets will need to sell.

Goals/Needs – Do you need to sell all or part of your assets?  Can you retain assets to farm part-time?  Is there another enterprise worth investigating?  Does it make sense to relocate and start a new business?  Are you at a stage in life where it’s best to retire and enjoy time with family, travel, or enjoy a hobby?

Life after farming – What skills do you possess?  You are more than ‘just a farmer’ – you probably have skills and/or education as a mechanic, electrician, carpenter, mason, nutritionist, agronomist, etc.  You have worked with livestock and machinery.  You may have an advanced degree that you can put to use.  You certainly have a great deal of practical, hands-on experience.

Your experiences, training, education, and skills will help you focus on finding your next career.  Maybe now is a time to take classes to increase your skills to enter a new career.  Talk to neighbors, family, and friends to let them know you are looking for a job.  State and county governments, as well as private companies, can assist you with identifying skills and job openings.

Decisions:

You and your business partners have agreed that a sale of assets is the best available option, but you don’t know where to begin.  The following can help you get the process started, answer questions, and/or raise issues you might not have considered.

Begin with a current balance sheet.  A balance sheet will provide you with a snapshot of your assets and liabilities at the time the inventories were recorded and values placed on them.  The balance sheet will also show your current and non-current debt obligations.

Determine whether you will sell all of your assets or a portion.  If only a portion, which ones?  If you are going to focus on crop production, you may want to retain a tractor(s), tillage equipment, planter or drill, harvest equipment, etc.

If assets are listed as collateral for loans, start talking to lenders immediately about how to handle the sale, discharging the lien, and the use of sale proceeds.

Meet with a farm appraisal real-estate professional to determine a reasonable value for the acres and any real estate assets you plan to sell.  Evaluate the advantages and disadvantages of a private sale, going through a realtor, or having a public auction.  If you use a realtor or auctioneer, determine the cost, services provided, and what is expected of you. Talk to more than one real-estate professional, request references, and ask that terms discussed be in writing.

Will the projected sale income be enough to cover debt obligations?  If not, what is the next plan of action?  If the sale of livestock isn’t enough to pay your debts, what else needs to be included?  Maybe it’s milking equipment, stalls, feed mixer.  While it provides a one-time cash infusion, the sale of timber or minerals may provide extra income.  The sale of real estate is an option.  You may not want to sell all of your acreage, but maybe there are a few acres you could sell.

Involve an attorney.  Contact one early and make them aware of your plans.  There may be issues related to the sale you hadn’t considered (for example, say you plan to divide a parcel into building lots, there may be zoning or other regulations to follow and associated court filings).

Meet with your tax advisor/accountant.  There are going to be tax implications from the sale of assets.  How many dollars must be set aside to meet tax obligations or liabilities?  A tax professional can help you implement strategies to minimize the tax bill.  As a financial advisor once told me, the difference between tax avoidance and tax evasion is about seven years!

Help is available

Coming to and making a decision to exit farming is not easy and is filled with a great deal of emotions.  There are people and agencies/organizations that can help, including:

Summary

Arriving at the decision to sell will not be easy.  Find someone with whom you can share your feelings and don’t see yourself as a failure.  Talk to professionals, get answers to your questions, and make the best possible decisions.  There are many people who can help you through this process!

 

Reviewed by:

David Marrison, Associate Professor and Extension Educator, ANR, Ashtabula County

Peggy Hall, Legal Educator, Ohio State University Extension

Dianne Shoemaker, Extension Specialist, Dairy, Ohio State University Extension

Susan Crowell, Editor, Farm and Dairy Newspaper

Farm Business Analysis and Benchmarking

by: Clint Schroeder, OSU Extension

As we turn the page from winter to spring we welcome the longer days and the warmth the sunshine brings us.  In farm country this is the time of year that hope is supposed to spring eternal.  As farmers head to the fields, they may not be as optimistic as previous years.  Although we’ve seen a nice winter rally in the grain markets, USDA forecasts are still predicting net farm incomes to decrease to the lowest levels since 2006.  Much of the talk on the winter meeting circuit focused on the importance of knowing your cost of production.  OSU Extension’s Barry Ward is forecasting higher energy prices with most other input costs staying flat to slightly higher.  Rising interest rates, high health care costs, a strong dollar, and the potential for uncertainty with our trading partners are doing little to brighten the mood.  The dim outlook coupled with already razor thin profit margins are starting to remind some of the more seasoned producers of the 1980’s farm crisis.

The farm crisis of the 1980’s saw land values plummet as many operations were unable to pay high interest rates and saw their farms foreclosed on.   It is estimated that nationwide around 300,000 farms were put out of business during the decade.  The fallout led to the creation of the Farm Financial Standards Task Force in 1989.  Their job was to develop standardized guidelines for agricultural producers.  Today, the name has changed to the Farm Financial Standards Council (FFSC), which currently uses 21 financial guidelines to evaluate farm data.  These guidelines are used by banks and lenders to help make decisions on extending credit to farms.  While the backstory might be a little bit of the unknown to producers, the terms liquidity, working capital, solvency, and several others are not.

While farmers have been relying on OSU Extension for help with developing nutrient management plans, herbicide plans, and analyzing data from on farm research, they have not yet realized the full potential of farm financial planning.  A grant was awarded from the USDA National Institute of Food and Agriculture (NIFA) to expand access to farm business analysis and benchmarking resources with the goal of helping Ohio farmers gain a better understanding of their financial health.  The program gives producers a farm finance scorecard that shows how they stack up in each of the FFSC’s 21 categories.  These numbers are then shown on graphs showing the trend from previous years for that specific operation, as well as their standings compared to the national average of all farms that submit their records.  Benchmark reports are used to identify successes and opportunities to improve.   Each farm that participates in the analysis program will receive personalized benchmark reports that include their farm’s numbers.  These individual values are then highlighted to show where their farm falls in the benchmark report for each item compared to participating Ohio farms.

Farm Business Analysis isn’t just for farms focusing on grain production.  There is a large network of dairy farms, primarily in Eastern Ohio, already participating. When multiple enterprises are present, the analysis can help producers allocate expenses between different areas in their operation.  Whether the farm wants to compare their crops on owned versus rented land, their crop operation compared to their livestock, or the profitability of an individual crop or custom farming operation there are tools available to analyze the data provided.  It has been estimated that the value of the benchmarking data, financial scorecard, and enterprise analysis is well over $1000.  Thanks to the grant from USDA National Institute of Food and Agriculture, OSU Extension is able to provide this service at a cost of only $100.  Several lenders have also stepped up and agreed to reimburse operations that successfully complete an analysis.

If you would like more information on the program, visit our website at https://farmprofitability.osu.edu  There you will find the completed business summaries for previous years and other resources that can help farm businesses.  The Farm Business Analysis team has also grown from the original location in Mahoning County with the addition of four new regional technicians.  To learn more about Farm Business Analysis, contact the technician closest to you:

  • Defiance County:  Clint Schroeder, 419.782.4771, schroeder.307@osu.edu
  • Licking County: David Grum, 740.670.5315, grum.1@osu.edu
  • Miami County: Sharon Harris, 937.440.3945, harris.2835@osu.edu
  • Pickaway County: Trish Levering, 740.474.7534, levering.43@osu.edu
  • Mahoning County (Headquarters): Christina Benton, 330.533.5538, benton.132@osu.edu
    • Program Coordinator: Haley Shoemaker, 330.533.5538, shoemaker.306@osu.edu
    • Field Specialist: Dianne Shoemaker, 330.533.5538, shoemaker.3@osu.edu

Market Reacts to Proposed Tariffs

Source: Ben Brown, Program Manager- Farm Management Program, College of Food, Agricultural, & Environmental Sciences, Department of Agricultural, Environmental, and Development Economics

Here is an update on where we stand today on corn and soybean exports and how the markets are responding to the tariff announcements between the US and China. Several of you have probably followed the story in the news and are already aware of what’s going on.

Quick recap of the timeline- The Administration imposed a 25 percent tariff on steel and 10 percent tariff on steel and aluminum imports for all trading partners and then started to provide exemptions for countries that were willingly working on a free trade agreement. The United States is a net importer of steel with most of our imports coming from Canada and the European Union. China is the world’s largest producers of steel but only 2% of their product is exported to the United States. President Trump removed the steel tariffs on Mexico, Canada, Kora, EU and some of the other trading partners but left the tariff on China. This accounts for about a 3-billion-dollar loss to the Chinese. On Monday the Chinese announce tariff on U.S. pork imports at 25%. This is a huge blow to an industry that was already seeing breakeven to negative per head returns. Our estimate given current budgets was a loss of about 10 dollars per head.

Yesterday the Administration announced proposed tariffs on intellectual property rights and other Chinese products to the tune of about 50 billion dollars. That was met with response today with China announcing tariffs on 100 plus agricultural good at a rate of 25% to be enacted the day the U.S. enacts their tariffs. Important to note that the tariffs are not in place, but the market is reacting to uncertainty.

That brings us to where we are today. Half of the U.S. soybean crop is exported and 62% of the exports go to China, meaning that one third of the U.S. production of soybeans goes to China. Given tariffs at 25%, my estimate from the model shows that we could lose 60-70 percent of our export market to China. That means that if these tariffs go into effect only a fifth of our soybean production would go to China or 1 in 5 soybean rows. Those soybeans will need a buyer. Some will be kept in the United State and fed for feed grain and some will be exported to other world markets because of the lower price.

Argentina has mostly harvested their crop and while it was down in total production due to a drought, they will pick up some soybean market share in China. The big winner is Brazil. They had a relatively strong soybean crop and will be ready to export soybeans. Their second growing season this year is in large percentages corn, but they will also have some soybeans harvested in a couple of months. Like the U.S. drought of 2012, the U.S. will lose market share of soybean exports and it is not certain when we could gain that back. The lower soybean price will lower cost for hog producers and my estimate is now a 7 dollar per head loss.

The United States exports very little corn to start with, only 15% of production not taking into account ethanol exports, and of that the bulk goes to Mexico and Japan. The 25% Chinese tariff won’t affect the corn price as much as the soybean price. However, with a lower world soybean price an incentive to grow corn presents itself. More corn acres would pull down the price of corn. Right now the corn market is down about 7 cents but has been down 12 cents. The perspective planting report that came out Thursday showed an intention by U.S. producers to plant 88 million acres of corn or roughly 2% less than last year. Weather will be the big player between now and June when the next planting report comes out as a wet spring will push some corn acres into soybeans. Even with the tariffs on corn today, I’m still optimistic for a rally in corn prices this summer into harvest. I think we will see an increase in the marketing year average price for corn next week in the WASDE based on the assumption that our feed usage of corn stays between 35 and 40% for the second half of the marketing year.

To the average U.S. consumer these tariffs could cheapen food products at the expense of higher manufactured goods like technology imported from China. Food consumption makes up a relatively small portion of our expenditures meaning that the higher manufactured goods could be higher than the gain from cheaper food.

From a farm management stand point, this could mean higher equipment and input costs along with lower output prices. A double whammy for farmers.

In Ohio we saw a decrease in the amount of corn held in storage which likely means a weakening of basis while soybean on hand was larger signaling a strengthen in basis.

All in all, the markets are reacting to uncertainty. However, if the Administration does move forward with the tariffs we could continue to see decreases in soybean prices and possibly modest decreases in corn prices. The futures market for soybeans is down 38 cents right now but was 60 cents down when I woke up this morning. I look for a little bit of a rebound later today and tomorrow as I think the markets over reacted to some extent, but will not return to the level they were prior to today.

This will also complicate the farm bill adding another hurdle to the already narrow window that existed of getting it done this year.

SU Extension to Host 5th Annual East Ohio Women in Agriculture Conference

Ohio State University (OSU) Extension will host the 5th Annual East Ohio Women in Agriculture Conference.  The conference is planned for Friday, April 6 from 9:00 a.m. – 3:45 p.m. at the RG Drage Career Technical Center, 2800 Richville Drive SE in Massillon.  All women and young women (high school age) who are interested, involved in, or want to become involved with food, agricultural, or natural resources production or small business are encouraged to attend.

The conference program features a networking fair, sixteen breakout sessions, and two extended breakout sessions presented by OSU Extension educators, producers and partner agencies.  Sessions are focused around five themes: Business & Finance, Plants & Animals, Communication, Home & Family and Special Interest (branding and online marketing).  The keynote speaker will be Rose Hartschuh – farm wife, mother, Agvocate, and recent winner of the American Farm Bureau Excellence in Agriculture Award.

Registered participants, community organizations or businesses interested in sponsorship information, and/or securing an information/vendor table, should contact the OSU Extension Coshocton County office at 740-622-2265.

Interested individuals can register for the conference on-line at go.osu.edu/eowia2018 .Cost of the conference is $55 for adult participants and $30 for students.  Conference fee includes conference participation, continental breakfast, lunch and conference handouts.   A special discount is available for those women and students who also plant to attend the Northeast Ohio Small Farm Conference on Saturday, April 7. Deadline for registration is Friday, March 23. For more information contact the OSU Extension Holmes County Office at 330-674-3015.

 

 

Estimates for Agricultural Risk Coverage and Price Loss Coverage Payments for Program Year 2017

by: Ben Brown, Department of Agricultural, Environmental, and Development Economics- The Ohio State University

Click Here to Access the Entire Article With Figures/Tables

The Agricultural Adjustment Act of 2014 ushered in two programs to the safety net for producers in Ohio and across the country: Agricultural Risk Coverage (ARC0-CO) and Price Loss Coverage (PLC). Both programs serve as shallow loss programs protecting against large variations in revenue and price respectively. The two programs operate differently and should not be compared as substitute programs. However, producers were allowed a one time choice at the beginning of the farm bill to enroll each commodity in either ARC-CO or PLC. Participation rates in Ohio largely followed the national participation rates for corn and soybeans but differed for wheat. The national participation rate for wheat favored PLC, whereas in Ohio, producers favored heavily toward ARC-CO. Nonetheless there are producers in Ohio that are enrolled in ARC-CO and PLC for corn, soybeans, and wheat. This report looks toward the end of the marketing year to estimate county level payments for ARC-CO and PLC in Ohio. As a reminder, payments finalized in October 2018 will be for program year 2017. This information will be important for producers and lenders wishing to estimate their autumn cash flow.

In October of 2017, the majority of producers in Ohio received some form of commodity program payment for the program year 2016. In fact, every county across Ohio triggered a corn ARC-CO payment except Ashtabula county. Soybean ARC-CO payments for Ohio in program year 2016 were smaller and sparce compared to corn.  The majority of Ohio counties triggered a wheat ARC-CO payment, but smaller base acres of wheat exist. In program year 2017, it is estimated fourteen counties triggered corn payments while nearly half triggered soybean payments and two thirds triggered wheat payments.

Data Source and Calculation:

ARC-CO payments are based on a formula separated into two parts: historical revenue benchmark and actual year revenue. The historical revenue benchmark is the Olympic average of yields and prices for the five previous cropping years at 86% of the total. The actual year revenue is the current year yields multiplied by the Marketing Year Average (MYA) price for each commodity. In the case where the current year revenue falls below the historical revenue benchmark, a payment is triggered up to a 10% cap. If the current year revenue is higher than historical revenue then no payment is triggered.

As a reminder both ARC-CO and PLC payments are calculated from a formula using Farm Service Agency (FSA) yields and marketing year average prices. The estimations for this report use National Agricultural Statistic Service (NASS) yields for 2017. It should be noted that FSA yields are historically lower than NASS yields and should be treated as a lower bound for possible payments. NASS does not provide county yields for all counties, particially due to a low survey response rate. Counties with a NASS yield are included.

The corn and soybean marketing year is September 1st to August 31st meaning that final prices won’t be known for several more months. Using World Agricultural Supply and Demand Estimates (WASDE) average prices from February, MYA prices of $3.30 for corn, $9.30 for soybeans, and $4.60 for wheat are applied. As the marketing year progresses, it is likely that these estimates will flucuate with price. Higher price results in a smaller payment, similarily, a lower price results a larger payment.

MYA prices used in the historical calculation are as followed:

MYA 2012/13 MYA 2013/14 MYA 2014/15 MYA 2015/16 MYA 2016/17
Corn $6.89 $4.46 $3.70 $3.70 $3.70
Soybeans $14.40 $13.00 $10.10 $8.95 $9.50
Wheat $7.77 $6.87 $5.99 $5.50 $5.50

Years where the MYA price finished below the fixed reference price are replaced with the respective value and represented in bold above. Payments would be lower if the actual MYA price was used in the calculation. Soybeans have never finished below the reference price. Crossed out prices represent the highest and lowest values; these are thrown out in the Olympic average.

Established in the program payment calculations is a limit for payments on 85% of base acres. For simplicity purposes, these figures are adjusted to rates that represent the payment on 100% of enrolled acres. Because of the Budget Control Act of 2011, a 6.8% government sequester has been applied similar to payments made in program years 2014, 2015 and 2016. There is uncertainty as to how the Tax Cuts and Jobs Act of 2017 will impact the sequestration level.

Corn Estimates

Expectations for program year 2017 corn ARC-CO payments will be smaller and rare across much of Ohio. This is largely because of the formula benchmark lowering each year as a result of lower prices. In previous years the historical five year revenue included high prices from MYA 2011/12 and 2012/13. Those have been worked out of the formula and the probability of triggering a payment has lowered. The 5 year olympic average price in 2016 was $4.79 compared to a price of $3.95 in 2017. Payment variations across counties happen due to variations in yields. Highland County triggers the largest estimated payment at $37 per acre as a result of a 2017 yield of 167 bu/acre compared to a 2016 yield of 176. The average payment in 2016 was $57 whereas in 2017 it is estimated at $12. Fewer counties are expected to receive a payment with a smaller average payment in comparison from 2016.

Soybean Estimates

In a complete reverse of 2016, the majority of counties in Ohio are expected to trigger a soybean ARC-CO payment due to smaller county soybean yields and a lower historical revenue benchmark. County yields across Ohio were closer to historical trend than previous years and the five year MYA prce was $10.86 in 2017 compared to $11.86 in 2016. Payments are projected larger in the northern part of the state where soybean acres are more prevalent. In 2016, 29 Ohio counties triggered an ARC-CO payment whereas in 2017, 49 counties are expected to trigger a payment.  The average payment in 2016 was $23, whereas in 2017 the average payment is projected at $19. In difference to corn more counties are expected to trigger a payment, but similar to corn the payments are expected to be smaller in 2017.

Wheat Estimates

Corn and soybeans represent the majority of commodity base acres in Ohio with over 4 million base acres of corn and over 3 million base acres of soybeans. Wheat has just over 800 thousand base acres enrolled in ARC-CO or PLC.  However, 82% of wheat base acres have ARC-CO enrollment. In 2016, all but four Ohio counties triggered an ARC-CO payment with an average payment rate of $32. In 2017, the estimated average payment rate is $24 in roughly two-thirds of Ohio’s counties. The lower rate is a product of a higher expected MYA price for the current year of 2017/18. The largest payments are located along the Indiana/Ohio boarder.

PLC Payments

PLC county payments estimates can be made at this time, but with less certainty. Largely because the PLC program has a higher focus on the current MYA price, which is being replaced with the WASDE estimated average price. In Ohio, 3% of soybean base acres, 7% of corn acres and 18% of wheat acres are enrolled in the PLC program. PLC calculation includes taking the positive difference of the fixed reference price minus the current MYA price. Fixed reference prices are as followed: corn- $3.70, soybeans- $8.40, and wheat- $5.50. Given current WASDE projections for a high, low and average MYA price, a PLC payment is triggered at all three levels for corn and wheat with differing levels of size while soybeans do not trigger a payment at any level. PLC payments are expected to be larger for corn than last year while smaller for wheat. Soybeans have never triggered a PLC payment since the creation of the farm bill.

Summary

Payments for ARC-CO and PLC will not be made until later in the calendar year, but for cash flow, planning an estimate can be seen as important. Estimates for program year 2017 include fewer counties in Ohio triggering a corn ARC-CO payment in 2017 compared to 2016 with a smaller average payment of $12. This is due to a lower historical benchmark after high prices were removed from the five year Olympic average. In relation to 2016, more Ohio counties are expected to trigger a soybean ARC-CO payment with a smaller per acre average payment rate. Yields closer to a historical trend line have created a higher probability of a soybean payment for half of Ohio’s 88 counties. Like corn, a similar story exists for wheat where fewer counties are expected to receive a payment with a lower average per acre payment rate compared to 2016. A higher expected current year marketing year average brings the current year revenue above the historical benchmark for a third of Ohio’s counties. PLC payment rates are expected to be higher for corn and lower for wheat in 2017 than 2016, but applies to a small percentage of Ohio base acres. Soybeans are not expected to trigger a PLC payment. Estimates for ARC-CO and PLC for each county are included in the appendix.

These are estimates of what payment rates could look like in the majority of Ohio’s 88 counties. Yields and prices will be finalized by the Farm Service Agency later in the calendar year.

Data Sources:

United State Department of Agriculture- Farm Service Agency. ARC/PLC Program. Washington, D.C.: United States Department of Agriculture, 2018.

United States Department of Agriculture- National Agricultural Statistics Service. County Yields. Washington, D.C.: United States Department of Agriculture, 2018

United States Department of Agriculture- World Agricultural Outlook Board. World Agricultural Supply and Demand Estimates, WASDE-574, February 8, 2018.