Has Price Behavior of Major Farm Programs Changed Since FAIR?

Background discussion has begun on the next farm bill. A key issue is the behavior of prices. In general average annual prices of the eight major farm program crops are lower during the period since the Federal Agriculture Improvement and Reform Act of 1996 (FAIR) was enacted than during the pre-FAIR period containing the 1974/75 – 1995/96 crop years. In contrast, price variability does not differ statistically between the two periods. However, caution is in order as the variability of yield has been smaller for seven of the eight crops in the post-FAIR period. The decline in yield variability exceeds 50% for corn, cotton, and oats.

Click Below for pdf version

PriceBehaviorBeforeandAfter1996FarmBill

One Year Anniversary Edition of the Ohio Ag Manager

This issue serves as the one year anniversary of the Ohio Ag Manager electronic newsletter.  Our team has been very pleased with the response we have received to this newsletter. The resources of the Department of Agricultural, Environmental, and Developmental Economics and The Ohio State University Extension are being made available to you through this newsletter.

We are working on a formal evaluation to gather your thoughts of this newsletter which will be sent to each of you in the upcoming months.  If you have comments, suggestions or ideas for issues you would like addressed, please send them to ohioagmanagerinfo@osu.edu. Our goal is to deliver the information you need to manage your agribusiness.

We hope you continue to find this newsletter a useful source of management information!

Understanding USDA Corn and Soybean Production Forecasts : Methods, Performance and Market Impacts over 1970 – 2004

There appears to be continuing misunderstanding of US Department of Agriculture (USDA) motives, methods and procedures used to arrive at production forecasts for US corn and soybean crops. This was vividly illustrated by comments from producers, commodity analysts and farm market advisory services following the release of the August 2003 forecasts. For example, we received the following e-mail inquiry from a farmer after the release of these forecasts:

“I have a question concerning the August and the September crop production reports. A friend told me that the numbers that came out in the August report, which were lower than many predicted, were utilizing a weather forecast for a hotter and drier 30 day outlook, as of August 1 (the forecast would have been for the month of August). He said that the USDA was trying to use a new system, which would take into account the weather forecast, along with the usual crop conditions and yield checks. I was under the assumption that the August crop report took field surveys as of August 1, and then assumed average weather for the rest of the growing season. If my friend was correct, then this could potentially mean that the dropping crop conditions have already been factored in, and that the September report may only have a slight revision downward.”

Market analysts, as represented below, also echoed these concerns:

“There has been considerable dismay in the industry as to USDA’s August corn and soybean estimates. Most do not see them as real objective analysis…We think that NASS just missed it by being too conservative with an immature corn and soy crop.”

These comments nicely illustrate the importance placed on USDA crop forecasts by market participants and the potential for misunderstanding of the methods used to produce the forecasts. Some in the agricultural community apparently even believe that the USDA manipulates crop forecasts to fulfill some mystical objectives that are contrary to the best interest of farmers . There is clearly a need for a better understanding of all aspects of the USDA crop production forecasting process.

The objectives of this report are to 1) provide an overview of the forecasting process for corn and soybean production used by the USDA , 2) present monthly production forecasts for the 1970 through 200 4 corn and soybean crops, 3) examine relationships in the monthly changes in production forecasts, 4) examine errors in the USDA forecasts, 5) compare USDA forecasts to private market forecasts and 6) examine the price response to USDA forecasts and the relationship of the responses to report “surprises . ” This information should improve understanding of USDA crop forecasting methods, performance and market impact.

Please refer to the complete article at:

http://www.farmdoc.uiuc.edu/agmas/reports/05_03/AgMAS05_03.html

Farm Management, Marketing and Economics Events at the Farm Science Review

Even though new equipment and machinery dominate the Farm Science Review each year, economics and the bottom line always play the major role in your decision making.

The Department of Agricultural, Environmental and Development Economics together with Ohio State University Extension will offer several new activities, exhibits, presentations and opportunities to interact with Agricultural Economists, Farm Management Specialists and Extension Educators.

“Cost Saving Ideas and Innovations in Crop Production – Save $$$$$’s per Corn and Soybean Acre !” Exhibit

“Cost Saving Ideas and Innovations in Crop Production – Save $$$$$’s per Corn and Soybean Acre!” focuses on the latest research and innovations in crop production and lays out ways to cut input costs. This exhibit which will located in the Francine Firebaugh Building will give producers ideas on how they can save $$$$$’s per acre in their production systems. This manned exhibit will also give producers the opprotunity to interact with Farm Management Specialists, Agricultural Economists and Extension educators to discuss further options to improve the bottom line.

One example of a “cost saving idea” included in the exhibit is to “Consider Anhydrous Ammonia as Nitrogen Source versus UAN (28%), Nitrogen Savings of $16 per acre.” Many more ideas and innovations will be featured as a part of this brand new exhibit.

The exhibit will also feature the new Ohio Ag Manager Newsletter that is a free monthly electronic newsletter available to everyone. The goal of the Ohio Ag Manager Team is to provide agricultural businesses with timely management information dedicated to improving efficiency and profitability. Focal issue areas discussed in the monthly electronic newsletter include financial, labor, legal, marketing and human resource development. Current and past newsletters along with subscription information can be found at the Ohio Ag Manager website at: http://ohioagmanager.osu.edu/

One last part of the exhibit is the interactive computer quiz “How Well Do You Know Ohio Agriculture?” This fun and informative game will allow you to test your knowledge of the various aspects of Ohio Agriculture. (And possibly win a prize!)

Complimentary copies of the Ohio Ag Manger Newsletter, updated 2005 Crop Enterprise Budgets and a list of the “Cost Saving Ideas and Innovations in Crop Production” will be available.

Farm Business Office in the Firebaugh Building

The Farm Business Office at the Farm Science Review is located in the Francine Firebaugh Building and will give Review goers the opportunity to interact one-on-one with Ohio State University Farm Management Specialists, Agricultural Economists, and Extension Educators. Review goers can seek advice on various farm business and management topics including farm record keeping and analysis, tax management, risk Management, human resources management, budgeting, estate planning, farm transferal planning, retirement planning, farmland rental and/or purchase issues and more.

Special Events and Programs

Ohio State ‘s Department of Agricultural, Environmental and Development Economics coordinates a number of special programs at Farm Science Review.

Economic & Policy Issues Defining Agriculture: “Politics, Policy & Money” is an annual panel discussion and open forum to give farmers, policymakers, and industry leaders tools for understanding and analyzing the future of agriculture in Ohio. This year’s discussion is on what federal budgets have in store for food, agriculture and rural economies. The program takes place in the Tobin Building at the west end of the central exhibit area on Tuesday, Sept. 20 at 10 a.m.

“Question the Authorities” is a series of short presentations and discussions that run throughout the Review on the small stage across Friday Ave. from the Utzinger Garden . Topics relate to business, policy and economics and include experts from OSU, Purdue and various government agencies. Stan Ernst from OSU’s Ag Economics department hosts the sessions. Topics are posted daily on Friday Avenue by the presentation area. Speakers are also available for individual consultations after their sessions. This year’s planned schedule is:

Tuesday, September 20
11:15 Energy Market Impacts on Ohio/agriculture – Matt Roberts
11:40 Farming together as a family – Bernie Erven
12:00 QUESTION THE AUTHORITIES: THE GAME (audience competes for prizes)
12:15 Crop Conditions & Current Farm Economy – Jim Ramey
12:40 Grain Markets – Matt Roberts
1:00 Livestock Markets – Brian Roe
1:15 E-commerce in Agriculture – Marv Batte, Stan Ernst
1:30 Landlord – tenant relationships – Bernie Erven
1:45 Market Opportunities from Seafood Demand – Laura Tiu
2:15 Berry Markets – Marv Batte, Sandy Kuhn, Stan Ernst
2:45 TBA
3:00 Farm Input Costs – Barry Ward

Wednesday, September 21
10:00 BioFuels: Economic Power from “waste” – Fred Hitzhusen
10:20 Energy Market Impacts on Ohio/agriculture – Matt Roberts
10:45 When WalMart Comes to Town – Elena Irwin
11:15 Finding & Keeping Good Employees – Bernie Erven
11:45 Grain Markets – Matt Roberts
12:00 QUESTION THE AUTHORITIES: THE GAME (audience competes for prizes)
12:10 Crop Conditions & Current Farm Economy – Jim Ramey
12:20 Farming together as a family – Bernie Erven
12:45 Timber Tax – Bill Hoover
1:00 Weighing the Costs of Obesity – Eugene Jones
1:15 Eat for Health…Functional Food Economics – Neal Hooker
1:30 “Eat Local” …Ohioans’ views on food source – Jeff Sharp
2:00 Direct Market Opportunities – Ag & Natural Resources – Julie Fox
2:30 Water Rights – Peggy Hall
2:45 Farm Input Costs – Barry Ward
3:00 TBA

Thursday, September 22
10:00 TBA
10:15 Figuring Farm Rents – Barry Ward
10:45 TBA
11:00 Farm Input Costs – Barry Ward
11:30 Grain Markets – Matt Roberts
12:00 QUESTION THE AUTHORITIES: THE GAME (audience competes for prizes)
12:15 Crop Conditions & Current Farm Economy – Jim Ramey
12:45 Energy Market Impacts on Ohio/agriculture – Matt Roberts
1:00 Grain Markets – Matt Roberts
1:30 TBA
1:45 Calculating “ripples”? – Greg Davis
2:00 TBA
2:20 TBA

Midwest Plans Service Offers Farm Management Publications

Midwest Plans Services (MWPS) publishes practical, low cost and free materials on agricultural engineering; farm business management; livestock; construction; ventilation; grain and postharvest; soil, air and water management; manure management; farm safety; green houses; home design and maintenance; and more.

Farm business management publications include: Fixed and Flexible Cash Rental Arrangements for Your Farm, NCR-75; Rental Agreements for Farm Buildings and Livestock Facilities, NCR-214; Developing a Longer Range Farm Business Plan: Part 1, NCR-610A; Tax Planning When Buying and Selling a Farm, NCR-43; sample lease forms; and many more. You can view the complete list of farm business management publications at: https://www.mwpshq.org/catalog.html under the “Farm Business Mgmt.” link.

Members of the North Central Farm Management Extension Committee (NCFMEC) have prepared and reviewed these farm business management publications. The authors, specialists in farm management, are from major land-grant universities and Extension services.

A New and Permanet Chapter 12 Bankruptcy Law Becomes Effective

Since its inception in 1986, Chapter 12 – the federal bankruptcy law pertaining to farm bankruptcies – has been a temporary section of the U.S. Bankruptcy Code. The original law contained a sunset provision that automatically repealed Chapter 12 on October 1, 1993 unless Congress allowed for an extension. However, because Chapter 12 extension was tied to the larger and more controversial issue of overall bankruptcy reform, it has often lapsed while Congress wrangled over revision of the bankruptcy code. Temporary extensions of Chapter 12 eventually passed Congress several times, but often after long gaps during which Chapter 12 was not available to farmers.

Chapter 12’s turbulent history finally changed with the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The new law made Chapter 12 a permanent part of the Bankruptcy Code as of July 1, 2005.


Generally, Chapter 12 gives family farmers in financial distress a chance to reorganize debts while keeping the farm operation. The debtor must have a “plan” approved by the Bankruptcy Court that lists all debts and proposes an equitable payment schedule that proportions payments based upon a debt’s “priority”, i.e., the type of debt and whether and when the debt was secured. Upon successful completion of the payments approved under a Chapter 12 plan, the debtor will receive a “discharge” that extinguishes the debtor’s obligation to pay further on debts included in the plan, even those debts that were not paid in full.


In addition to making Chapter 12 permanently available to farmers, the recent legislation made other changes to Chapter 12. With a few exceptions, most of those revisions will become effective in October of 2005. Changes to the general bankruptcy code might also impact Chapter 12 filings. The following is a brief summary of the major provisions of the new law that will affect farm bankruptcies:

• Expanded eligibility for Chapter 12. New eligibility requirements will make Chapter 12 applicable to more farm bankruptcy situations. The old debt maximum for Chapter 12 filings has been increased from $1.5 million to $3.237 million and will be tied to the Consumer Price Index. The allowance for total debt attributable to the farm operation has been lowered from 80% to 50%, and the look back for the 50% income from farming requirement has been extended beyond the first year to the second and third year preceding the bankruptcy filing. The new law also makes a “family fisherman” eligible for Chapter 12, but with the previous rather than new income and debt limitations. Collectively, these changes will allow more farmers to meet the eligibility requirements for utilizing Chapter 12.


• Changes to priority for tax obligations. The new law makes a significant change in the treatment of tax debts. Under the new law, taxes owed to a governmental unit as a result of the sale, transfer, exchange or other disposition of a farm asset will be treated as unsecured debt that does not have priority over other claims, provided the debtor receives a discharge in the bankruptcy plan. The old law gave priority to such tax claims, even if a gain was inadvertently triggered by a sale of farm assets that was necessary to make the farm more economically viable for the purposes of the bankruptcy plan.


• Disposable income assessment changed. The old law required payment of secured debts on the basis of the farmer’s “projected disposable income” for the bankruptcy plan period; secured debts could be discharged if the disposable income was not sufficient to pay the debts. However, creditors often successfully objected to such discharges of debt by arguing that the farmer’s actual disposable income was more than projected, thereby requiring the farmer to pay based upon a retroactive assessment of his or her disposable income rather than the projected amount of disposable income as approved in the bankruptcy plan. Changes to the law prohibit this type of retroactive assessment of disposable income, requiring instead that the plan be confirmed and debts paid or discharged only on the basis of projected disposable income. Certain modifications of the disposable income provisions are permitted, but safeguards will prevent a creditor from leaving the debtor with “insufficient funds to carry on the farming operation after the plan is completed.”

As with any new law, additional analysis and case law interpretations are necessary to fully comprehend the impact of the revisions to the bankruptcy code. The agricultural community should watch for emerging information on the revisions and how other provisions in the Act, such as mandated credit counseling and caps on the homestead exemption for recent home purchases, will affect agricultural bankruptcies.

For more detailed information on the new law and changes to Chapter 12 specifically, see the American Bankruptcy Institute’s website at http://abiworld.net/bankbill/ , “Cracking the Code—Major Developments in Chapter 12 Bankruptcy” at http://abiworld.net/crackingthecode/index.php?p=25 and “New Chapter 12 Bankruptcy Rules at http://www.agprofessional.com/show_story.php?id=33341. Additional explanations might soon be available on the National Agricultural Law Center’s website at http://www.nationalaglawcenter.org/.

How Good is Your Crop Insurance?

An insurance payment calculator has been developed and is available under the 2005 iFarm Insurance Payment Calculator link in the crop insurance section of farmdoc (http://www.farmdoc.uiuc.edu/cropins). A user of this program enters the crop, county, and Actual Production History (APH) yield for the situation of interest. Then, insurance payments are generated for user-specified yields and harvest prices. The calculator was developed to help farmers determine likely payments because of drought conditions on some Illinois farms.

This tool can be found in the Crop Insurance section of farmdoc at:

http://www.farmdoc.uiuc.edu/cropins

Anticipating Cash Flow Shortfalls: Make Plans Now

Some areas of Ohio are suffering from a lack of rainfall and may experience less than average yields, thus lowering income. Operating debt will increase and plastic use (credit cards) may become a far too easy short-term solution. These options have lingering effects on cash flows, causes financial stress for years to come, and limits flexibility for future management decisions. According to David M. Kohl , Virginia Tech, “if the total balances on your credit cards exceed 15 percent of your gross income, you are in the danger zone. Five to 15 percent represents caution, and less than 5 percent would place you in the safe category.”

Most people would rather not discuss family budgets, much less to put a budget in writing. However, it may become an essential exercise to prevent substantial deterioration to a families financial health. Some folks in Texas have a useful fact sheet about farm family budgeting and establishing a sound financial plan:

http://www.agrisk.umn.edu/Library/Display.asp?Id=55&F=1&P=Table&CMD=Count&LIB=Main.

How much debt can a farm carry? A Kansas State University, two page fact sheet is easy to read and may be found at: http://www.agrisk.umn.edu/Library/Display.asp?Id=2181&F=1&P=Table&CMD=Count&LIB=Main .

If you find yourself, “In Over Your Head,” check out this OSU fact sheet: http://ohioline.osu.edu/b891/index .html.

Illinois has a check list for a farmer obtaining a loan and may be found at: http://www.farmdoc.uiuc.edu/finance/FarmersGuidetoCreditCheckList.htm . A point to remember, lenders do not like surprises. Communicate with your lenders about any anticipated repayment problems or additional credit requirements.

Income tax management strategies include net operating loss carry back to get a refund of federal income tax (but not self-employment tax). Also, file amended state and local returns. Do an income tax estimate this fall so there will be time to make adjustments to income or expenses before the first of the year. If the estimate looks to be at break-even or at a loss, be sure to generate sales for enough taxable income to use personal exemptions and the standard or itemized deductions.

The past couple of years have been generally profitable and income tax law changes have encouraged machinery and other asset purchases (Section 179 Expensing/Bonus Depreciation). However, if these assets were financed to take advantage of low interest rates and cash reserves were not maintained, this years payments may be hard to handle. For farmers needing assistance in developing cash flow alternatives, there is a team of OSU Extension Educators available to use the computer program FINPACK to evaluate options. Contact any county Extension office for information.

Valuing Standing Forages: The Late Summer Challenge

Valuing standing crops to sell/purchase and ensile for livestock feed is a perennially challenging question. Sellers want to maximize net income from their crops while buyers strive to minimize their feed expenses. In spite of the apparent challenges, it is possible to determine a price that is fair to both.

The most reasonable pricing strategy is to determine the fair market feed value of the crop and adjust that value by harvest costs. An adjustment should then be made for whichever party is assuming the risk of getting a quality feed harvested and into storage.

Feed value of a good crop that could be harvested as a grain crop or a forage crop will be considerably different than the feed value of a crop that will not make a harvestable grain crop. This could be a crop that was planted late and will not mature before expected frost or a drought-stressed crop that may make little or no grain but will have some value as a forage crop. “Valuing Corn for Silage…How much is it worth?” walks you through the process of valuing both “normal” and stressed crops for silage (web address below).

Two additional articles, “Pricing Standing Corn…” and “Pricing Standing Soybeans for Silage” were developed in 2002 to guide farmers through the process of pricing silage crops based on nutrient (feed) values. Market values of feed nutrients have changed over time, and these resources will be updated with 2005 prices in August.

Resources available at dairy.osu.edu:

Valuing Corn for Silage…How much is it worth?
http://dairy.osu.edu/resource/feed/Valuing%20Corn%20for%20Silage%202003.pdf

Pricing Standing Corn for Silage
http://dairy.osu.edu/resource/feed/Pricing%20silage%202002%20Final.pdf

Pricing Standing Soybeans for Silage
http://dairy.osu.edu/resource/feed/Pricing%20Standing%20Soybeans%20for%20Silage-Revised.pdf

OHFOOD: An Ohio Food Industries Input-Output Model (Version 8.0, May 2005)

OHFOOD, an acronym for Ohio food, is a sophisticated input-output model. The model is designed specifically to capture the inter-dependencies and linkages among various sectors and industries composing the complex economy of Ohio. The input-output model of Ohio’s economy also maintains substantial detail on the food and agricultural sectors. The interindustry model describes the linkages among various sectors of the economy and is specifically designed to provide estimates of the economic importance of the food and agriculture-related cluster, along with the general manufacturing and service sectors, of the economy. Also, OHFOOD provides several types of economic multipliers for detailed food and agriculture-related sectors of the economy.

This is the first OHFOOD model that is based solely on the North American Industrial Classification System (NAICS). The results provided in this report are not comparable to any previous OHFOOD results because of this change in the classification system.

This documentation provides a succinct analysis of the importance of food and agriculture to the state’s economy, based on the interindustry model. The analysis indicates that for 2002 the food and agricultural cluster of Ohio’s economy contributed 11 percent of the output, added 9 percent to Ohio’s gross state product, accounted for 15 percent of the total employment, and contributed 9 percent of total income.

In 2002, the Ohio economy generated a gross state product (GSP) of $388.2 billion. The food and agricultural cluster’s share of this GSP was $36.0 billion, or $9.27 of each $100 of Ohio GSP. For 2002 the contribution to GSP for the five components of the cluster are $1.6 billion for farm inputs, machinery, and professional services; another $2.3 billion from agricultural production; about $11.6 billion from processing; an additional $13.3 billion from food wholesaling and retailing; and another $6.9 billion in food services.

Of these 5 major components comprising the food and agricultural-related cluster, the food wholesaling and retailing sectors are the largest in terms of contribution to GSP, contributing 37 percent of the total contribution to GSP of $36.0 billion by the entire food and agriculture cluster. The food and forestry-related products are the next largest in terms of GSP, contributing nearly 33 percent of the total GSP of $36.0 billion by the entire food and agriculture cluster. The food service sector is notable for its contribution to employment. This sector accounts for nearly 449,000 jobs, or nearly 45 of every 100 jobs accounted for by the food and agriculture cluster. The entire food and agriculture complex accounted for over one million jobs in Ohio in 2002, or about one of every seven jobs (15 percent) in Ohio.

Keeping the OHFOOD model updated with the latest data available is an on-going task of the Farm Income Enhancement Program and the Agribusiness Research Group within the Department of Agricultural, Environmental, and Development Economics of The Ohio State University. The complete study may be printed from a downloadable pdf file available from the AED Economics Department of The Ohio State University at: http://aede.osu.edu/resources/docs/display.php?cat=21 .