Farm Bill Decisions and Risk Mitigation in 2023

Source: Chris Bruynis, Extension Educator, Ross County

If I could accurately predict the future, I would then know which Farm Bill decision to elect for my farm. Even without knowing future yield and prices, I can determine what risks I face, and which are mitigated by the different farm bill programs. Each farm might have its own inherent risk related to yield and price, making the farm bill program election different for each FSA farm number.

Price Loss Coverage (PLC) – PLC is considered a disaster loss program and covers price risk when the market year average price falls below the reference price. The reference price can adjust over time, but even with the higher prices in recent years, they will remain the same for 2023 at Corn $3.70; Soybeans $8.40; and Wheat $5.50.  The market year average price (MYA) for the 2023 crops is from harvest to the following year’s harvest (July through June for Wheat and September through August for Corn and Soybeans).  PLC is paid on 85% of program (base) acres not planted acres as well as the program (base) yields not actual yields. If your actual planted acres vary significantly from the base acres, this may not cover your actual risk. In a November 2022 article from Chad Hart, Extension Economist from Iowa State University, prices were projected to be $5.70 for corn and $13.00 for soybeans click here .  These projections are clearly above the PLC reference prices for corn and soybeans.

Agricultural Risk Coverage County (ARC-CO) – ARC County is a revenue risk management program compared to the price loss component of PLC. It is considered a shallow loss program that works well when there is a 1- or 2-year revenue decline. Is compares actual revenue to a calculated county revenue guarantee which is different in each county.  The ARC-CO benchmark revenue is the 5-year Olympic average MYA price multiplied by the 5-year Olympic average county yield. Benchmark yields and MYA’s are calculated using the 5 years preceding the year prior to the program year. The ARC-CO guarantee is determined by multiplying the ARC-CO benchmark revenue by 86%. Payments under this program are also tied to 85% of the base acres and not actual planted acres. Calculating the eighty-six percent of the revenue guarantee, using an Ohio average yield and the estimated MYA for 2023, results in a $645.65 guarantee for corn and $466.35 guarantee for soybeans.  With the previously mention projected prices, it is unlikely that ARC-CO will make a payment for the 2023 crop year unless there are significant production issues.

Agricultural Risk Coverage Individual (ARC-IC) – ARC Individual is similar to ARC County with a few adjustments. This program still compares a benchmark revenue calculated the same way as ARC County with the 86% reduction factor. The difference is this program uses 65% of the base acres to calculate payments. Additionally, the actual revenue is based on the actual planted crops, not the base acre crops, tying this closer to actual crop income. This is a good option under certain circumstances such as high year-to-year production variability or relatively large acreage of fruits and vegetables.

2023 Program Year Decision – If crop yields and market prices were predictable, then electing the farm bill program that protects the farm business best would be easy. The question one should be asking is which component of revenue am I more concerned with, price or yield. If one believes that prices will not fall below the reference prices, then one of the ARC programs would be a better election. This is especially true if one believes that yields in 2023 may be reduced by weather conditions such as a widespread drought. However, if one uses the Supplemental Crop Insurance (SCO) product in their crop insurance portfolio, then PLC would need to be elected. The reason is that SCO insurance and ARC Farm Bill programs cover similar risk and the USDA will not permit farms to participate in both at the same time on the same acres. Either Farm Bill election, PLC or ARC, is not expected to make a payment with the current price and trend yield projections for 2023. The real question is will price and yield expectations be realized in 2023?  If you want additional information on the Farm Bill programs, go to https://www.fsa.usda.gov/programs-and-services/arcplc_program/index.

 

 

 

 

 

 

 

Thinking about selling home-based or farm-raised foods? Our webinar series offers help

By: Peggy Kirk Hall, Associate Professor, Agricultural & Resource Law

Direct food marketing in Ohio is hot. The latest USDA survey identified 7,107 Ohio farms with direct food sales–third highest in the nation.  That might be why our program receives more legal inquiries about food sales than any other area of law.  And that is also why we’re hosting a three-part webinar series on “Starting a Food Business,” providing an introduction to what a producer needs to know about selling home-based and farm-raised foods directly to consumers and retailers.

The free webinar series will be from 7—9 p.m. on January 24, February 28, and March 28 in 2023, with these different topics each night:

January 24:  Start-Up Basics.  What do you want to sell?  We’ll review initial considerations for selling your food product.  We’ll cover food safety, licensing, legal, and economic considerations for starting up a food business.

February 28:  Selling Home-Based Foods.  Learn about food product development, Ohio’s Cottage Food and Home Bakery laws, and requirements for selling canned foods.

March 28:  Selling Meat and Poultry.  A look at the economics, processing options, and labeling and licensing requirements for selling meat and poultry.

Our teaching team for the webinar series includes:

Nicole Arnold, Asst. Professor and Food Safety Field Specialist for OSU Extension.  Nicole supports food handlers, consumers, and educators with food safety education and risk communication efforts.

Peggy Kirk Hall, Assoc. Professor and Agricultural Law Field Specialist for OSU Extension.  Peggy directs OSU Extension’s Agricultural & Resource Law Program and regularly teaches and writes on food laws.

Emily Marrison, OSU Extension Educator in Family and Consumer Sciences.  Emily’s food science background provides expertise and insight on food safety, product development, and selling home-based foods.

Garth Ruff, Beef Cattle Field Specialist for OSU Extension.  Garth has a background in animal science and specializes in livestock production and marketing, farm management, and meat science.

The webinar series is free, but registration is necessary.  Find details and the registration link at go.osu.edu/foodbusiness.

USDA ERS America’s Farms and Ranches at a Glance – 2021 Financial Performance

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

The United States Department of Agriculture Economic Research Service (USDA ERS) released this report (https://www.ers.usda.gov/webdocs/publications/105388/eib-247.pdf?v=4061.7) in December 2022.  The United States Department of Agriculture Economic Research Service America’s Farms and Ranches at a Glance summarizes a number of metrics about U.S. agriculture.  This paper highlights two indicators (Operating Profit Margin and Current Ratio) of the financial performance of U.S. farms and ranches.

Two Definitions

Since the 1970’s, USDA ERS has defined a farm as any place where, each year, $1,000 of agricultural goods were produced and sold.  USDA ERS uses acres of crops and heads of livestock to determine whether the definition is met.  Farm size is measured by Gross Cash Farm Income (GCFI), a measure of revenue, including acres of crops or numbers of head of livestock produced and sold.

Types of Farms

USDA ERS classifies farms into several types.  The following definitions are taken from the report:

Small family farms (GCFI less than $350,000)

  • Retirement farms: Small farms whose principal operators report having retired from farming, though continuing to farm on a small scale.
  • Off-farm-occupation farms: Small farms whose principal operators report a primary occupation other than farming.
  • Farming-occupation farms: Small farms whose principal operators report farming as their primary occupation. Farming-occupation farms are further sorted into two classes:
  • Low-sales: Farms with a GCFI of less than $150,000.
  • Moderate-sales: Farms with a GCFI between $150,000 and $349,999.

Midsize family farms (GCFI between $350,000 and $999,999)

  • Farms with a GCFI between $350,000 and $999,999.

Large-scale family farms (GCFI of $1,000,000 or more)

  • Large farms: Farms with a GCFI between $1,000,000 and $4,999,999.
  • Very large farms: Farms with a GCFI of $5,000,000 or more.

Nonfamily farms

  • Any farm where any operator and any individuals related to them do not own a majority (50 percent) of the business.

The table below summarizes farms by type, number, acres, and value of farm production.

Financial Performance

The Operating Profit Margin (OPM) is one measure of farm financial performance.  The OPM is the share of gross income that is profit.  In 2021, between 50 and 81 percent of small family farms had an OPM in the danger zone (less than 10 percent).

Large family farms, in 2021, were more likely to have a positive OPM (of at least 25 percent).  Positive on-farm income was also more likely for this classification.

Farms in the medium-risk category had an OPM greater than 10 percent and less than 25 percent.  Between 5 percent and 32 percent of these farms were in this category in 2021.

 

The current ratio is another measure of financial performance.  This ratio is calculated by taking current assets divided by current liabilities and is a simple method to determine whether a farm has enough capital to pay current liabilities.  A ratio less than one indicates a farm is unable to pay its current liabilities if all current assets were liquidated.

In 2021, 57 percent of farms had a current ratio greater than one.

In 2021, 52 percent and 47 percent of retirement and off-farm occupation farms, respectively, had the highest percentage of farms with a current ratio of less than 1.  However, many of these farms rely on off-farm income to compensate for the lower current ratio.

Between 23 percent and 25 percent of moderate, mid-size, and large family farms were in danger of being unable to meet current obligations in 2021.

Assistance

If you are interested in learning more about your financial performance, talk to your lender or your local OSU Extension professional about the OSU Extension Farm Business Analysis and Benchmarking Program.  Additional information is available here: https://farmprofitability.osu.edu/.

Reference

America’s Farm and Ranches at a Glance, 2022, United States Department of Agriculture Economic Research Service, available at: https://www.ers.usda.gov/webdocs/publications/105388/eib-247.pdf?v=4061.7

AG-LINK PROGRAM AVAILABLE TO OHIO FARMERS PLANNING FOR 2023 GROWING SEASON

New application cycle launches on heels of a record-breaking 2022

Treasurer Sprague is reminding Ohio farmers, agribusinesses, and agricultural cooperatives (co-ops) that the Ag-LINK program is available year-round as they plan for the 2023 growing season.

“With interest rates continuing to climb, Ag-LINK plays a critical role in keeping costs down for Ohio’s agriculture industry,” said Treasurer Sprague. “Thanks to constructive feedback from ag leaders across the state, we’ve taken Ag-LINK to the next level and made it more useful than ever. After a record-setting year in 2022, we’re ready to once again put our balance sheet to work and support even more farmers across the state.”

Through Ag-LINK, farmers, agribusinesses, and co-ops can receive an interest rate reduction on new or existing operating loans. For more than 30 years, the program has helped Ohio’s agriculture community to finance the upfront costs for feed, seed, fertilizer, fuel, equipment, and other expenses.

An eligible borrower:

·       Is either organized for profit or as an agricultural cooperative;

·       Must have headquarters and 51% of operations maintained in Ohio;

·       Must use the loan exclusively for agricultural purposes; and

·       Must agree to comply with all program and financial institution regulations.

In 2022, the long-standing program underwent a significant revamp. Treasurer Sprague made the program available year-round to provide borrowers with greater flexibility and ensure they can access capital whenever they need it most. It also makes Ag-LINK more convenient for both crop and livestock farmers with diverse borrowing needs that occur throughout the year. Additionally, legislation passed in accordance with the Treasurer’s Ohio Gains initiative added co-ops as eligible borrowers and removed the outdated $150,000 statutory cap on loan size, allowing the program to keep pace with modern borrowing needs. Loan caps are now assessed and set by the Treasurer’s office on an annual basis.

The loan cap for 2023 has been set at $500,000 and the minimum loan discount for the year’s first quarter is 2.0%.

Following a series of reforms to Ag-LINK, 2022 became a record-setting year for the program. In total, the Treasurer’s office supported nearly 1,900 loans to agricultural businesses across the state totaling more than $362 million. Ag-LINK also saved Ohio’s agriculture community more than $2 million in 2022.

More information on the Ag-LINK program, including how to get started, can be found at www.tos.ohio.gov/ag-link/.

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Regional Ag Outlook and Policy Meetings Set for 2023

By: Mike Estadt, OSU Extension Educator, estadt.3@osu.edu

Ohio State University Extension will present its 2023 Regional Agricultural Outlook and Policy Meetings starting in late January and continuing into February. OSU Extension is the outreach arm of Ohio State’s College of Food, Agricultural, and Environmental Sciences, and the main sponsor of the meetings. Economists from the CFAES Department of Agricultural, Environmental, and Development Economics, Extension specialists in tax policy, ag law and meteorology,  along with other college specialists and invited guests, will serve as speakers.

Held throughout the state, the six outlook meetings will address agricultural topics of interest not only in Ohio, but across the Corn Belt as well. Programs will include presentations on grain market outlook; the dairy industry; agricultural law updates; long-term healthcare; Ohio’s changing climate; energy outlook, international economic outlook, farm real estate values and cash rent trends; farmland preservation outlook; agricultural input price projections; and federal tax updates.

The outlook meetings will be hosted jointly by Union, Madison, and Champaign counties; Pickaway and Ross counties; Clinton and Fayette and individually by Defiance County; Wayne County; and Darke County. Click here for program flyer for the entire series.

Jan 20th, Greenville, Ohio

Register at: go.osu.edu/darkeoutlook

January 26th, Wilmington, Ohio

Register at: go.osu.edu/clintonagoutlook

Jan 27th, Plain City, Ohio

Register at: go.osu.edu/TriCountyOutlook

2023 Outlook Breakfast Flyer

February 3rd, Wooster, Ohio

Register at: go.osu.edu/23wayneoutlook

February 14th, Jewell, Ohio

Register at: go.osu.edu/23defoutlook

February 23rd, Circleville, Ohio

Register at: go.osu.edu/pickawayoutlook

“Outlook meetings have useful take-aways that I have seen farm managers use directly for the upcoming season and planning for the future of the farm business.  Farmers are the CEOs of their farm and collecting unbiased information and putting it into action is essential for success”, according to Bruce Clevenger, Extension Farm Management Field specialist.

For more information regarding a program near you, visit the Ohio Ag Manager website at  https://u.osu.edu/ohioagmanager/

 

 

 

 

 

 

 

 

 

Farm Office Live Webinar Slated for December 16

The Farm Office Team of OSU Extension will be holding their December Farm Office Live Webinar on Friday, December 16 from 10:00 to 11:30 a.m. via Zoom. Farm Office Live is a monthly webinar of updates and outlooks of legal, economic, and farm management issues that affect Ohio agriculture.

In this webinar, the teaching team of Peggy Hall and Robert Moore (Attorneys from the OSU Agricultural and Resource Law Program) and Eric Richer and David Marrison (Field Specialists, Farm Management) will share the following topics:

  • Federal and State Legislative and Legal Updates
  • Time to Review Estate Plans
  • Year End Balance Sheet Strategies
  •  Federal Farm Program Updates
  • Food Safety Certification for Specialty Crops Program
  • Emergency Relief Programs
  • House Bill 95 Beginner Tax Credit Update
  • Upcoming Programs

The webinar is free.  Registration and more details can be made at go.osu.edu/farmofficelive

Where Are We Headed on Global Food Prices?  

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

The Current Forecast

Recent forecasts by the International Monetary Fund (IMF) (World Economic Outlook, October 2022) and others (Bloomberg News, November 15, 2022) suggest the rate of food price inflation will continue to decline as we head into 2023.  As already well-documented, global food commodity prices surged after Russia’s invasion of Ukraine, reaching a record high in March, prices then correcting to their pre-war levels in June and July.  This correction has been driven by improved supply conditions, partly due to the UN-Turkish brokered agreement to allow Ukrainian grain exports from the Black Sea, as well as macroeconomic factors, including rising interest rates and expectations of a global recession.

The IMF estimates food commodity prices added 5 percentage points to the average country’s food price inflation in 2021 and are forecast to add 6 percentage points in 2022, declining to 2 percentage points in 2023.  The upward trajectory in food prices between April 2020 and May 2022 was driven by a combination of supply-side factors:  the 2020-22 La Nińa weather event, food trade restrictions, grain demand by China, low interest rates, and of course the Russian invasion of Ukraine.

Despite the more positive outlook on food prices, there are still upside risks, including continued use of commodity export restrictions, weather events, higher fertilizer prices, and uncertainty due to the war in Ukraine.  Worldwide, consumers have been affected by higher food and energy prices, but the impact has been particularly acute in emerging economies.  For example, the average household in Ghana is paying two-thirds more than it did last year for diesel, flour, and other necessities, with other countries such as Sri Lanka, Pakistan, and Egypt seeing comparable increases (New York Times, October 5, 2002).  To put this in context, food prices facing US consumers are currently 11 percent higher than they were a year ago (USDA, Economic Research Service, Food Price Outlook, October 2022), although this increase has been driven more by increased food spending at home and supply chain costs than rising commodity prices (Federal Reserve Bank of Kansas City, Economic Bulletin, September 23, 2022).

These price increases have been exacerbated by appreciation of the US dollar, which is the strongest it has been for two decades, globally traded commodities such as wheat and oil being priced in dollars (New York Times, October 5, 2022).  In addition, with a large proportion of emerging economy debt being denominated in dollars, there is real concern about the possibility of a sovereign debt crisis, countries such as Egypt and Kenya being pushed closer to default, while others such as Sri Lanka have already defaulted (New York Times, September 26, 2022).

The Black Sea Grain Export Deal

Key to reducing pressure on food prices is continuation of the grain export deal signed by Ukraine, Turkey, Russia, and the United Nations (UN) on July 22 (USDA, Foreign Agricultural Service, Grain: World Markets and Trade, August 2022).  The deal, due to expire on November 19, has been extended for an additional four months, with Turkey and the UN remaining as guarantors of the initiative (Reuters, November 17, 2022) (see figure).

Announcement of the deal provoked immediate 2.75 and 1.3 percent price declines in wheat and corn futures prices respectively on the Chicago Board of Trade (Reuters, November 17, 2022).  However, Russia’s temporary withdrawal from and subsequent rejoining of the agreement in late-October/early-November led to sharp changes in wheat prices, underlying the ongoing potential for price volatility in grain markets.  Russia initially stated it was abandoning the deal on October 29 (Financial Times, October 29, 2022), but then rejoined on November 2 (Financial Times, November 2), wheat futures prices rising to $9.00 per bushel, and then reversing to $8.53 per bushel (Bloomberg, November 2, 2022).

The possibility of Russia leaving the agreement was being discussed throughout October, official statements indicating that extension of the deal was dependent on the West easing constraints on Russian exports of grain and fertilizers (Reuters, October 17, 2022).  While extension of the deal is a positive move, it is less than the one-year sought by Ukraine, plus they had also requested the deal be expanded to include additional ports in the Mykolayiv region (Financial Times, November 17, 2022).  It should be noted that, even with the deal in place, Ukrainian grain exports remain below their 2021 levels (see figure).

Looking Forward

Looking forward, the IMF argues it will be important for appropriate policies to be targeted at minimizing food price volatility, including targeted food aid to vulnerable consumers, and incentives for building up global grain stocks (World Economic Outlook, October 2022).  USDA reports global ending wheat stocks for 2022/23 will be their tightest since 2016/17 but given China accounts for more than 50 percent of these stocks, and their stocks are typically unavailable to the world market, global stocks are currently the lowest since 2007/08 (USDA/Economic Research Service, Wheat Outlook, November 14, 2022).  With stocks at such low levels, there will be continuing pressure on global supplies and prices (Bloomberg, November 15, 2022).

With the grain and oilseed harvest in the United States being close to completion, much will depend on the extent of planting and harvests in Argentina and Brazil (Bloomberg, November 15, 2022).   However, there is a growing need to solve an increasing gap between growth in global consumption and grain and oilseed yields (Zulauf, farmdocdaily, November 16, 2022).  There are two possible responses to this gap: either more land in production or increased yield growth.  Global harvested land has increased by only 0.9 percent since 2002, 22 million acres being currently needed per year, while stability of yield growth since 1980 suggests a significant increase is very unlikely (Fuglie, Applied Economic Perspectives and Policy, 2018).  Economic logic suggests only higher food prices can curb consumption growth and ration existing food supply, with obvious implications for low-income consumers.

The situations described above reinforce the fact that agriculture functions in a global market, with many factors influencing income and expenses.  Ohio farmers must remain aware of global forces impacting markets, analyze their financial position, and develop plans and alternatives to those plans to be positioned to act accordingly.

Farmers are encouraged to meet with their lender, input suppliers, Extension professional, and other trusted advisors to analyze and plan.  The following OSU Extension resources can assist in the process:

Farm Office:  https://farmoffice.osu.edu/

Ohio Farm Business Analysis & Benchmarking Program: https://farmprofitability.osu.edu/

Ohio Farm Enterprise Budgets:  https://farmoffice.osu.edu/farm-management/enterprise-budgets

Ohio Ag Manager: https://u.osu.edu/ohioagmanager/

 

USDA Invites Producers to Complete 2022 Census of Agriculture On-line

WASHINGTON, Nov. 22, 2022

Today, the U.S. Department of Agriculture (USDA) mailed survey codes to all known agriculture producers across the 50 states with an invitation to respond online to the 2022 Census of Agriculture at agcounts.usda.gov. The ag census is the nation’s only comprehensive and impartial agriculture data for every state, county, and territory. By completing the survey, producers across the nation can tell their story and help generate impactful opportunities that better serve them and future generations of producers.

The 2022 Census of Agriculture will be mailed in phases, with paper questionnaires following in December. Producers need only respond once, whether securely online or by mail. The online option offers timesaving features ideal for busy producers. All responses are due Feb. 6, 2023. Farm operations of all sizes, urban and rural, which produced and sold, or normally would have sold, $1,000 or more of agricultural products in 2022, are included in the ag census.

“The 2022 Census of Agriculture is a powerful voice for American agriculture. The information gathered through the ag census influences policy decisions that will have a tremendous impact on ag producers and their communities for years to come,” said Agriculture Secretary Tom Vilsack. “I strongly encourage all farmers, no matter how large or small their operation, to promptly complete and return their ag census. This is your opportunity to share your voice, uplift the value and showcase the uniqueness of American agriculture.”

Collected in service to American agriculture since 1840 and now conducted every five years by USDA’s National Agricultural Statistics Service (NASS), the Census of Agriculture is a complete picture of American agriculture today. It highlights land use and ownership, producer characteristics, production practices, income and expenditures, among other topics.

“Our farmers and ranchers have an incredible impact on our nation and the world. I want to thank them in advance for responding to the ag census,” said NASS Administrator Hubert Hamer. “We recognize how valuable their time is, so we have made responding more convenient and modern than ever before.”

Between ag census years, NASS considers revisions to the questionnaire to document changes and emerging trends in the industry. Changes to the 2022 questionnaire include new questions about the use of precision agriculture, hemp production, hair sheep and updates to internet access questions.

Responding to the Census of Agriculture is required by law under Title 7 USC 2204(g) Public Law 105-113. The same law requires NASS to keep all information confidential, to use the data only for statistical purposes, and only publish in aggregate form to prevent disclosing the identity of any individual producer or farm operation. NASS will release the results of the ag census in early 2024.

To learn more about the Census of Agriculture, visit nass.usda.gov/AgCensus. On the website, producers and other data users can access frequently asked questions, past ag census data, special study information, and more. For highlights of these and the latest information, follow USDA NASS on twitter @usda_nass.

AEDE Outlook and Policy Conference 2022/23 Recap

 The Department of Agricultural, Environmental, and Development Economics (AEDE), held its first in-person Outlook and Policy Conference since 2019 on November 15, 2022, at the 4-H Center on Ohio State Campus.  Below are brief summaries of what each speaker presented, along with copies of their presentations.

Energy Market Outlook (Brent Sohngen):

This presentation examined current trends in energy markets, focusing on factors affecting the supply and demand of oil, natural gas, and renewable energy. These factors include global supply considerations related to OPEC, the Russian invasion of Ukraine and resulting economic sanctions, and US energy policy.  Critical US and Ohio energy policies and their effects on market outcomes in energy markets were examined, with respect to recent legislation related to renewable energy sources. The global demand situation also plays a critical role in energy markets and were examined. Finally, the presentation also considered how widespread net zero commitments by many private companies could influence the future evolution of energy markets domestically and internationally. Energy Market Presentation

Ohio Farm Income Outlook (Ani Katchova):

 The presentation showed how the financial outlook for Ohio farms relative to the US and the Midwest region is based on three main aspects of the agricultural economy: farm income, farm assets and financial stress, and agricultural loans and delinquencies. Farm incomes are expected to increase in 2022 attributable to higher cash receipts despite lower expected government payments and higher production expenses.  The rise in inflation and interest rates makes land a rather attractive investment and farmland prices and cash rents are both anticipated to increase this year. In the long run, farm incomes are expected to experience decreases for the next 2-3 years and then remain relatively stable. Despite the current challenges farmers are facing, farm balance sheets are expected to be stronger with a potential decrease in inflation adjusted farm debt in 2022, which, if realized, would be the first decrease since 2012. Therefore, solvency for both US and Ohio farms are expected to improve this year while Ohio farmers are still struggling with profitability, whereas the US and the Midwest farms outperform Ohio farms with higher returns. Finally, agricultural loan demand was higher for the US last year, while it fell for Ohio. Rising interest rates are expected to decrease the agricultural loan volume this year. Loan delinquency rates have remained consistently lower for Ohio farms compared to the national average in the recent past, and this year is no exception.  Farm Income Presentation

 Labor Market Outlook (Margaret Jodlowski):

 The labor market has experienced significant disruption since the start of the Covid-19 pandemic. While some industries moved toward recovery, the workers in agriculture and agriculture-adjacent subsectors remain difficult to find and retain. This presentation covered the current state of the labor market, both in Ohio and nationally, with a specific focus on the agricultural value chain. Projections will also be provided for the employment situation for the next year, targeting wages as well as availability of employees for firms in various subsectors of the economy. Ohio, along with many neighboring states, has experienced a dramatic increase in the number of H-2A visa workers; the presentation also discussed these trends in terms of what they imply about the future availability of on-farm workers. There was also a short update on the status and implications of labor-related policies that are currently on the horizon.

Labor Market Presentation

International Economic Outlook (Ian Sheldon):

This presentation outlined how the international economic outlook can be characterized by four key factors:  inflation is at a multidecade high, Russia’s invasion of Ukraine, the ongoing effects of the pandemic, and weather events in Europe and elsewhere.  In this environment, the presentation laid out current forecasts for lower global growth, reduced inflation, and trade, and how key downside risks such as macroeconomic policy divergence and mistakes, appreciation of the dollar, and the ongoing war in Ukraine, might negatively influence the global economic outlook.  Global Economic Presentation

 Inflation and Macroeconomic Outlook (Mark Partridge):

 Inflation, recession, high interest rates, war, elections, the economy’s recovery from COVID-19 has been a bumpy ride. The Outlook for 2023 is unsurprisingly uncertain. Particularly the commitment of the Federal Reserve to eliminating inflation at any cost is unknown and the course of geopolitical events has been especially unpredictable. The presentation discussed what the tea leaves say about the economy and provided guidance about the risks facing the economy. Macroeconomic Presentation

Grain Market Outlook (Seungki Lee):

 The grain market outlook focused on corn and soybeans, reflecting the significance of these commodities in Ohio agriculture. The presentation covered supply updates and demand forecasts for the 2022-2023 season, based on the November WASDE report. At the beginning, price indices were presented to provide an overview of market circumstances. As harvest season is almost over, USDA’s prospects on demand shifters such as corn feed, ethanol use, exports were highlighted and discussed in detail. Additionally, several potential wild cards – e.g., fertilizer prices, crop progress in Brazil, etc. – that could shake up the market and change the forecasts were discussed.  Grain Market Presentation

 

 

 

Dairy Margin Coverage- A 2023 Risk Management Tool

by Jason Hartschuh, Field Specialist. Dairy Management and Precision Livestock

Originally written for Farm & Dairy Newsletter

The Dairy margin coverage, DMC, program through the Farm Service Agency sign up is ongoing through December 9, 2023. DMC has payouts when the margin between the all-milk price and the DMC feed cost falls below the selected protection level of $4-9.50/cwt.

Now is the time to consider if this program will improve your risk management in 2023. For the current year, 2022, 73.17 percent of Ohio dairy farms signed up for some level of coverage. While the first half of 2022 had strong margins well above $9.50/cwt, margins but fell below the $9.50/cwt level in August to $8.08/cwt and in September was $8.62/cwt. Current forecast, are for DMC to have possible payouts for the rest of 2022. These lower margins are predicted to continue into 2023.

With margin payouts currently forecast for all of 2023 reviewing the DMC program could be beneficial for your operations bottom line. Table one shows the current forecasted all milk price, feed price, and the forecasted DMC margin for each month of 2023 from the Dairy margin decision tool. The forecasted all milk price has a high of $22.13/cwt in January and bottoms out at $21.52/cwt in July with a yearly average of $21.80/cwt. At the same time forecasted average yearly feed cost is $13.68/cwt reaching its highest in January at $14.57/cwt and its lowest really depends on next year’s crop but is currently seen in December at $12.97/cwt. After reviewing these milk and feed cost forecast the margin forecast between the two ranges from $7.56-8.98/cwt. After reviewing table 1 you can start to make informed decisions about what level of margin coverage to utilize.

Table 1

MONTH ALL MILK PRICE FORECAST ($/CWT) CORN PRICE FORECAST ($/BU) PREMIUM/SUPREME ALFALFA HAY PRICE FORECAST ($/TON) SOYBEAN MEAL PRICE FORECAST ($/TON) FEED COST FORECAST ($/CWT) DMC MARGIN FORECAST ($/CWT)
Jan $22.13 $6.47 $329 $424.44 $14.57 $7.56
Feb $22.06 $6.42 $329 $417.91 $14.47 $7.59
Mar $21.98 $6.40 $306 $412.49 $14.09 $7.89
Apr $21.79 $6.38 $293 $410.08 $13.87 $7.92
May $21.58 $6.36 $293 $407.18 $13.83 $7.75
Jun $21.56 $6.32 $287 $405.77 $13.69 $7.87
Jul $21.52 $6.29 $284 $405.36 $13.62 $7.90
Aug $21.62 $6.18 $284 $404.01 $13.49 $8.13
Sep $21.69 $6.04 $282 $400.28 $13.28 $8.41
Oct $21.74 $5.93 $281 $394.60 $13.10 $8.64
Nov $21.93 $5.86 $291 $390.70 $13.14 $8.79
Dec $21.95 $5.77 $285 $391.33 $12.97 $8.98
2023 $21.80 $6.20 $295.22 $405.35 $13.68 $8.12

October 25, 2022 margin forecast from dmc.dairymarkets.org

DMC, is a two tiered program with you needing to make decision on your production history below 5 million pounds, separate from your production above 5 million pounds. The premium cost for the first 5 million pounds is much more reasonable with the $9.50/cwt coverage level costing $0.15 per cwt. With the current forecast on 5 million pounds of coverage the producer premium is about $7,481 but the net total payout is about $68,884. The premium cost is covered by the first two months’ payout.

For production over 5 million pounds the maximum coverage is $8.00/cwt but the premium is $1.813/cwt. This coverage needs thought about carefully. While there are multiple months below the $8.00 margin level, the margin does not currently appear to fall low enough to cover the cost of the premium for production over 5 million pounds. Meaning you may only want to use the $4.00 margin coverage that does not have a premium or maybe the $5.00 margin which has a premium of $0.005 per cwt in case the margin gets even worse for production history over 5 million pounds. Remember this is only a forecast hopefully milk price improves and so does income over feed cost margins so that the program doesn’t have payouts for all of 2023.

DMC, program does allow producers to participate in the other subsidized risk management program that are administered through USDA-RMA. Those programs include the Dairy Revenue Protection program which allows producers to use a Class III, Class IV or Component blend futures-based program to set a floor under their milk price by quarter. Another program more like DMC is Livestock Gross Margin-Dairy that allows producers to use class III milk, corn, and soybean meal futures to lock in a margin above feed cost. These programs are available to all producer regardless of pounds of milk shipped per month but could be a much better option for production over 5 million pounds.