Agricultural Outlook from the Farm Science Review  

by: Professors Ani Katchova, Farm Income Enhancement Chair, Seungki Lee, Ian Sheldon, Andersons Chair of Agricultural Marketing, Trade, and Policy, Department of Agricultural, Environmental, and Development Economics (AEDE), and Chris Zoller, Agriculture & Natural Resources Ohio State University Extension (OSUE) – Tuscarawas County

At this year’s Farm Science Review a panel of AEDE economists chaired by OSUE’s Chris Zoller answered questions about global uncertainty and its impact on agriculture.  Their outlook for farm income, production, and global markets is summarized here.

Farm Income Outlook

Net farm income is expected to increase in 2022, up 5.2 percent from last year, mostly due to higher cash receipts which are offset by lower government payments and higher production expenses (ERS-USDA). High commodity prices are expected to more than buffer the largest-ever year-to-year increase in production expenses. However, farm income is projected to decline in 2023 and 2024 as commodity prices are expected to soften, and then hold steady through 2027 (USDA, Baselines).

The demand for farmland has surged this year due to higher farm income and high farm liquidity. With the return to normal supply of cropland for sale, farmers who have experienced several years of high grain prices have continued to strongly bid for land. Individual investors have also entered the land market as farmland is considered a safe, long-term inflation-hedging investment. This combined heightened demand propelled land prices higher in 2022. This year’s high inflation rate at 8.5 percent is another leading contributor to buoyant land values, yet high interest rates have counteracted it.

In line with high farm income, agricultural credit conditions have also remained strong in 2022, but the pace of improvement has slowed, with higher repayment rates and lower demand for agricultural loans (Federal Reserve Bank of Kansas City). In the past couple of years, the total agricultural loan volume has declined, mostly because of higher farm incomes resulting in fewer production loans. The trends for Ohio farms have followed those for US farms, although the reduction in production loans has not been as large for Ohio.  The rise in interest rates (currently about 3 percent and expected to increase more) to the levels seen in 2018 and 2019 are a major factor contributing to lower loan demand. Overall, an economy with an inflation rate at about 8.5 percent, which boosts land values but also increases farm production expenses, and a higher interest rate, will dampen the farmer’s ability to service debt.

Farm financial performance has improved in 2022 as the agricultural economy has been recovering from the pandemic. Agricultural loan delinquency rates have remained low this year, at 1.9 percent as of the end of the second quarter of 2022, compared to as much as 4 percent in 2012 (FDIC). For Ohio, the delinquency rate was even lower at 1.5 percent, with a total of two Chapter 12 bankruptcies in 2022 so far (FDIC and US Courts). Farm balance sheets are stronger this year than 2021 with an inflation-adjusted increase in assets and equity of about 4% each and a decrease in inflation-adjusted debt by 1.2 percent (ERS-USDA). The increase in farm income is associated with the first decline in total debt since 2012 and the bankruptcy rate being at its lowest level since 2004.

Negative Shifts in Supply and Demand Added to Grain Market Uncertainty

In the September WASDE report, USDA adjusted down its forecasts of both production and usage for major grains. So far, the drop in production has been somewhat overwhelming, resulting in persistently high commodity prices: corn and soybeans were anticipated to have average season prices of $6.75 and $14.35 per bushel respectively. However, prices are equilibrium outcomes, so they are limitedly instructive in a current market featured by contemporaneous shifts in both supply and demand. Consequently, it is important to explore both sides of the market.

In comparison to August, corn and soybean planted acreage and yield expectations have decreased, resulting in total corn and soybean production expected to be down by 5 and 1.5 percent respectively from 2021. Forecast corn and soybean use were reduced by 250 million and 93 million bushels from August. Exports drove the drop. Good weather in its northeast regions is boosting China’s harvest, which will reduce demand for US grain. Brazil is also expected to produce record volumes of corn and soybeans according to the latest observation of planting. Compared to last year, 21 percent more soybeans and 9 percent more corn are expected. As La Niña is expected to be less influential in 2023, the optimistic forecasts for Brazilian production should be taken seriously as it could be the coming season’s most bearish influence.

Lastly, several wildcards exist outside the market. First, the Federal Reserve has raised interest rates to 3 percent this year. Despite interest rates not being highly correlated with commodity prices, such a rate hike can have critical implications. The drastic increase in rates will certainly increase farm capital costs and reduce price competitiveness due to a strong dollar in export markets. Thus, a higher interest rate may burden farmers in terms of both supply and demand. Second, the ongoing war in Ukraine could be another game changer as it could induce further tightening of the energy market if the war continues through winter.

Volatility Will Characterize the Global Market

The global market outlook will be one characterized by continuing price volatility, due to the ongoing effects of the Russian invasion of Ukraine, the impact of drought on global grain production, slow rebuilding of stocks, along with various policy choices.  After two months of the export deal brokered by Turkey and the United Nations (UN) to get Ukrainian grain out through the Black Sea, 218 vessels have already left carrying a total of 4.85 million tonnes, only marginally denting the 20-25 million tonnes trapped in storage (Reuters, September 18).  With Ukrainian exports down 46 percent this year (Reuters, September 25), Russia finding it difficult to export its grain (Bloomberg, September 22), and persistent drought conditions in the United States, South America, and Europe affecting yields, not surprisingly futures prices for wheat, corn and soybeans have risen 17, 28, and 14 percent respectively over the past 12 months (Wall Street Journal, September 21, 2022).

At the same time, commodity prices are proving sensitive to policy pronouncements.  Threats by President Putin to stop Ukrainian grain exports in early-September pushed up wheat futures by 7 percent (Bloomberg, September 7, 2022), while his recent mobilization of Russian reservists and his suggested use of nuclear weapons in Ukraine immediately pushed up both wheat and corn futures (Wall Street Journal, September 21, 2022).  On top of this, India recently announced a 20 percent duty on two thirds of its rice exports, placing more pressure on already high levels of global food insecurity (Bloomberg, August 29, 2022).  With global grain supplies currently remaining tight, analysts are predicting two years of good harvests will be needed to rebuild global grain stocks and relieve market pressure (Wall Street Journal, September 20, 2022).

Planning for 2023

As we review the topics presented by our AEDE experts, phrases like declining farm income, inflation, the war in Ukraine, supply and demand, and global policy movements are evident.  It is becoming increasingly more important to analyze your current situation, critically analyze where and how each dollar is spent, develop a plan (along with back-up plans), execute your plan, and monitor performance.

As you wrap-up harvest, assemble a team of advisors (examples include accountant, lender, agronomist, nutritionist, and Extension Educator) to discuss your production and financial performance in 2022, plan strategies for the coming year, and schedule regular check-in times to monitor progress.

USDA Announces Details for the 2022 Census of Agriculture 

Source: Jodi Halvorson, National Agricultural Statistics Service

America’s farmers and ranchers will soon have the opportunity to be represented in the nation’s only comprehensive and impartial agriculture data for every state, county and territory. The U.S. Department of Agriculture (USDA) will mail the 2022 Census of Agriculture to millions of agriculture producers across the 50 states and Puerto Rico this fall.

The 2022 Census of Agriculture will be mailed in phases, starting with an invitation to respond online in November followed by paper questionnaires in December. Farm operations of all sizes, urban and rural, which produced and sold, or normally would have sold, $1,000 or more of agricultural product in 2022 are included in the ag census.

“Census of Agriculture data are widely used by federal and local governments, agribusinesses, trade associations, extension educators, and many others to inform decisions about policy and farm programs and services that aid producers and rural communities,” said NASS Administrator Hubert Hamer. “By responding to the Census of Agriculture – by being represented in these important data – producers are literally helping to shape their futures.”

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 tells the story and shows the value of U.S. agriculture. It highlights land use and ownership, producer characteristics, production practices, income and expenditures, among other topics. 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.

To learn more about the Census of Agriculture, visit www.nass.usda.gov/agcensus or call 800-727-9540. On the website, producers and other data users can access frequently asked questions, past ag census data, partner tools to help spread the word about the upcoming ag census, special study information, and more. For highlights of these and the latest information on the upcoming Census of Agriculture, follow USDA NASS on twitter @usda_nass.

 

What are the Market Implications of the Ukrainian Grain Export Deal?  

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 Ukrainian Grain Export Deal

A grain export deal was finally signed by Ukraine, Turkey, Russia, and the United Nations (UN) on July 22 (USDA, Foreign Agricultural Service, Grain: World Markets and Trade, August 2022).  With much media fanfare, the first shipment of Ukrainian corn left the Bosphorus strait headed for Lebanon on August 3 (Financial Times, August 3, 2022).  The agreement, set to last for 120 days with potential for renewal, provides for the safe passage and inspection of grains from three Ukrainian ports on the Black Sea – Odesa, Chornomorsk, and Pyvdenny – shipments following a route to Turkish ports approved by the Russian navy, with an agreed 10 nautical mile buffer zone (Reuters, August 8, 2022).  The movement of grain will be monitored from a center in Istanbul, and before their return to Ukraine, vessels will be jointly inspected by teams from Russia, Ukraine, Turkey, and the UN to ensure they carry no weapons (New York Times, August 1, 2022).

At the latest count, a total of 33 vessels carrying 719,549 tonnes of grain have left Ukraine, with a further 18 vessels either loading or waiting to leave port (Reuters, August 23, 2022).  While the opening of Ukrainian grain export channels is an important step, it should be placed in perspective, Ukraine’s infrastructure minister Oleksander Kubrakov warning it will take months for its grain exports to reach pre-invasion levels (Financial Times, August 2, 2022).  In August 2021, 194 grain-carrying vessels left Ukrainian ports, Odesa, Chornomorsk, and Pyvdenny handling about 60 percent of export shipments, and with 20-25 million tonnes of grain trapped in Ukraine, it will take 371 vessels averaging 67,000 deadweight tonnes just to clear the backlog (Financial Times, August 2, 2022), all in the context of grain storage space filling up with the current harvest of wheat and barley (Wall Stret Journal, August 2).

While the opening of a safe grain export passage is welcome, particularly for importers in the Middle East and Africa, as well as for the Ukrainian economy and its farmers, the rate of shipments is constrained by the continuing conflict affecting port infrastructure, the demining of both ports and shipping routes, and the high logistical costs associated with transport and insurance (USDA, Foreign Agricultural Service, Grain, World Markets and Trade, August 2022).  The latter challenge is critical, with shipowners being understandably concerned about sending their vessels through mined shipping routes, all the time facing high cargo and war insurance costs (Bloomberg, August 6, 2022).

The shipping and insurance industry has made it very clear they want assurances of a secure journey to and from the Black Sea ports, with no threat of mines or attacks on their vessels and crews (Reuters, August 8, 2022).  Even though major marine insurance brokers such as Marsh and Ascot are providing a coverage facility up to $50 million for shipments, premiums for vessels sailing into the Black Sea are currently set at 5 percent of the value of the vessel compared to 0.025 percent before the invasion (Reuters, August 23).  On top of this, problems have already arisen with exports, the first cargo from Ukraine being refused by the Lebanese-based buyer on the grounds of poor-quality grain due to war-delayed shipment (Middle East Eye, August 8, 2022), a problem likely exacerbated by Ukrainian grain silos not being equipped with aeration systems for long-term storage (USDA, Foreign Agricultural Service, Grain, World Markets and Trade, August 2022).

 Global Market Implications of the Grain Export Deal

Notwithstanding the small number of vessels departing Ukrainian ports, many analysts suggest this has already had a dampening effect on global grain and food prices.  For example, wheat prices have returned to their pre-invasion level, although they remain 25 percent higher than they were a year ago (see figure, Bloomberg, August 17), and double the price it was five years ago (Wall Street Journal, August 2, 2022).  Critically, global food prices declined by 11.5 percent in July, the largest fall since 2008, although still up 17 percent from a year earlier (Bloomberg, August 5, 2020; Wall Street Journal, August 5, 2020).

Of course, the Ukrainian grain export deal is only one of several factors leading to prices declining.  For example, in the case of wheat, both production and exports from key suppliers such as Russia, Canada and the United States are currently forecast to be higher than expected earlier in the year (USDA, Foreign Agricultural Service, Grain, World Markets and Trade, August 2022).  However, with lower grain prices US farmers face a double-edged sword here: although crop prices have roughly doubled over the past two years, there have also been substantial increases in farm input costs (Des Moines Register, August 18, 2022), with fertilizer prices increasing fourfold in the past two years (Iowa State University, June 2022).

On the other hand, falling food prices is positive news on the consumption side, especially for those facing threats to their food security, although relief for importing countries will not be immediate with 50 million people in 45 countries currently facing famine according to World Food Program Chief David Beasley (Los Angeles Times, August 8, 2020).  However, beyond the impact of the Russian invasion of Ukraine, food prices are likely to remain volatile in the face of global weather events affecting production of key staples.  For example, India, the world’s largest rice exporter has seen a significant reduction in area planted due to lack of rainfall this season (Bloomberg, August 2, 2020), while dry weather conditions are affecting food production across the Northern Hemisphere from China through the United States, to Spain, Portugal, France, and Italy, the latter countries facing their worst drought in 500 years (Wall Street Journal, August 21, 2022).  In the case of China, the impact of drought could lead them to import more corn from the United States and Brazil (Wall Street Journal, August 17, 2020), with the potential for spillover effects on the world price.  The bottom line is that the price relief due to freed up Ukrainian grain is not a silver bullet in terms of global food security, global weather conditions also being a critical factor in driving production levels and prices.

The Russian invasion of Ukraine has passed the six-month mark and there is no clear end in sight.  The war and other factors continue to impact commodity markets.  Grain prices have seen their share of price swings recently.  While the rate of increase in fertilizer prices has slowed, they remain high.  In addition to fertilizer, we can expect most other inputs will continue to see an increase in their price.

Suggestions Moving Forward

Planning and analysis are always important, but with so many unknowns, these become even more critical.  A critical analysis of business performance and enterprise analysis can help identify profit centers and those areas that are less profitable.  The OSU Extension Ohio Farm Business Analysis and Benchmarking Program provides farmers the opportunity to do in-depth analysis and evaluation.  Additional information about the program is available here:

https://farmprofitability.osu.edu/.

Developing a budget for the crops and livestock you raise is of great importance, especially with so many factors impacting agriculture.  OSU Extension Enterprise Budgets are available here: https://farmoffice.osu.edu/farm-management/enterprise-budgets#2022.  Look for 2023 crop enterprise budgets to be released at the Farm Science Review.  These Excel spreadsheets allow you to use projected income and expenses for your farm to assist in planning.

We encourage you to talk to your Extension Educator, lender, input suppliers, and other trusted advisors that can help you navigate.  If you haven’t done so, now may be an excellent time to assemble a farm advisory team.  This team meets periodically throughout the year to assist with goal setting, monitoring production and financial performance, and providing recommendations to help you succeed.

 

A Guide to Accessing Farm Service Agency Programs

By:  Dean Kreager, Extension Educator, ANR in Licking County

The Farm Service Agency (FSA) is one of the agencies of the U.S. Department of Agriculture.  Originally established in the 1930’s to provide a safety net for farmers during the great depression, their services have evolved over the years.  The benefits of services offered by FSA are often underutilized.  This may be due to fear of difficulty working with a government agency or just not knowing the extent of services that exist.  Many do not realize that FSA provides services to all types of farms and farmers and not just large conventional farms and ranches.

The FSA is trying to improve its reach of socially disadvantaged farmers and ranchers.  The USDA defines socially disadvantaged farmers and ranchers (SDFRs) as those belonging to groups that have been subject to racial or ethnic prejudice. SDFRs include farmers who are Black or African American, American Indian or Alaska Native, Hispanic or Latino, and Asian or Pacific Islander. For some but not all USDA programs, the SDFR category also includes women.

Often, FSA offices are associated with price support programs and disaster payments, but their services go way beyond that.  The agency provides a safety net for farmers of all types and sizes.  Loans, conservation practice cost shares and disaster payments are just a few of their services.  OSU Extension has been working to spread the word about several FSA programs that can help all types of farmers be successful.

If having a safety net in case of natural disasters or catastrophic events such as COVID, access to very low interest loans even for those that are unable to qualify for conventional loans, or the ability to receive financial assistance for conservation related improvements is important, now is the time to register your farm with FSA.  Registering your farm with FSA and signing up for the county FSA newsletters will keep you informed about services that can benefit you.

Getting your farm enrolled in the system is not a difficult process. Call or set up an appointment to visit your local FSA office.  Most counties have an office.  If you are unsure which FSA office services your county, please visit:  https://offices.sc.egov.usda.gov/locator/app?state=oh&agency=fsa. If you do not have a farm number, they can assign one.  You do not necessarily need to own the property to qualify.  Leasing may qualify you depending on the program.

During your first visit, be sure to bring:

  • Proof of identity (driver’s license, social security card, IRS EIN number)
  • Proof of Ownership (copy of recorded deed)
  • Leases for non-owned land
  • For partnerships, entities, or joint operations, bring entity Identification Status (articles of incorporation, trust & estate documents, or partnership agreement to determine who has authority to make decisions for the business).

When you go in for your appointment you can expect to sit down with an FSA employee that will verify your paperwork and register your farm in the system.  They will talk with you about your operation and possible ways they can be of assistance to help you succeed in meeting your goals.  You may learn of options that you did not know exist.

FSA will provide the application and help answer any questions the producer has on the programs. It takes time for the paperwork to be processed and additional information may be needed. Please start this process early in order to ensure you are eligible prior to any program sign-up cut-off dates. Some programs have cut off dates while others have open enrollment throughout the year.

Once you are registered in the system you will receive notifications about new programs and changes to existing programs.  Participating in future programs will be much easier.  Please contact your local FSA office with questions and to get the process started.

Ukraine: The Breadbasket of Europe

by: Ian Sheldon, Professor and Andersons Chair of Agricultural Marketing, Trade, and Policy, Agricultural, Environmental, and Development Economics, Ohio State University

This short essay, recently published in the Ohio State online magazine Origins: Current Events in Historical Perspective, places the impact of the war in Ukraine on global markets into a historical context.  Since the collapse of the Soviet Union, Ukrainian agriculture has returned to its pre-revolutionary position as a major agricultural exporter, largely due to land reform and restructuring of its collective farms.  Land reform has resulted in the development of large-scale, privately-operated farms with owners investing in new technology and introducing best management practices. By 2018, cereal yields had increased by almost 40%, Ukraine re-establishing itself as the “breadbasket of Europe. The full article can be accessed at: https://origins.osu.edu/read/ukraine-food-war-agriculture

Export Policies and Russia’s Invasion of Ukraine: What Might it Mean for Ohio Soybean Farmers?  

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

Use of Commodity Export Policies

With Russia and Ukraine alone accounting for 12 percent of total calories traded (IFPRI, April 13, 2022), continuation of the war has intensified the vulnerability of developing countries to food insecurity, the G7 countries recently predicting 43 million people were being pushed towards famine (The Guardian, May 14, 2022).  The impact of Russia’s invasion of Ukraine on exports from the Black Sea region of staple foods such as wheat, corn, and vegetable oils, has had a significant impact on world food prices, adding to the impact of supply chain disruption due to the pandemic, and drought-reduced yields in 2021.  The UN Food and Agriculture Organization (FAO) reports that its food price index stood at 158 points this April, 30 percent higher than in April 2021, and its highest level since 1990, (UN/FAO, April 2022).

Like past food price crises, notably the grain price spikes in 2007-2008 and 2010-2011, many countries are responding to higher food prices and shortages with restrictions on exports of key commodities.  As of April 2022, 16 countries had imposed export restrictions, including Ukraine, Russia, Indonesia, Argentina, Turkey, Kyrgyzstan, and Kazakhstan, affecting about 17 percent of total calories traded, the key commodities being wheat, palm oil, corn, sunflower oil, and soybean oil, affecting 36, 55, 17, 78, and 6 percent of their exports respectively (IFPRI, April 13, 2022).  As is already the case with the announcement of proposed ban on all Indian wheat exports (Bloomberg, May 13, 2022), more countries are likely to respond to increasing food prices in this way.  Unfortunately, this has the potential of creating a “collective action” problem, i.e., countries have a unilateral incentive to reduce domestic food prices by using export restrictions, but if enough countries implement such policies, it simply exacerbates the rise in global food prices.  At the same time, the World Trade Organization (WTO) lacks an effective means to discipline use of such “beggar thy neighbor” policies.

The Case of Vegetable Oils

Prior to Russia’s invasion of Ukraine, between them the two countries accounted for 73 percent of global exports of sunflower oil.  By late-April, there had been a 25 percent reduction in traded sunflower oil, and there is also uncertainty about how much sunflower seed has been planted in Ukraine this spring (New York Times, April 30, 2022).  Even though sunflower oil accounts for only 9 and 12 percent of global vegetable oils production and consumption respectively (USDA, April 12, 2022), the global price of vegetable oils has already risen to an all-time high this year (Financial Times, May 9, 2022), with canola, palm oil, sunflower oil, and soybean oil prices rising by 72, 61, 44, and 41 percent respectively in the past year (Wall Street Journal, April 7, 2022).  Not surprisingly, with limited stocks and rising prices, vegetable oils are even being rationed to consumers by major grocery retail chains in developed countries such as Belgium, Spain, and the United Kingdom (New York Times, April 30, 2022).

The rise in vegetable oil prices has also been exacerbated by Indonesia recently banning exports of palm oil to protect its domestic consumers (Reuters, April 22).  The expected global impact of the ban is not surprising given Indonesia accounts for 59 percent of global palm oil production, palm oil accounting for 35 and 33 percent of global vegetable oil production and consumption respectively (USDA, April 12, 2022).  Add to this the fact that substitutes such as soybean oil and canola are not readily available due to recent drought conditions in Argentina, Brazil, and Canada (Reuters, April 23, 2022), which is putting further pressure on vegetable oil prices.  For example, soybean oil prices on the Chicago Board of Trade had risen by almost 50 percent by end of April this year (Reuters, April 22, 2022).

Implications for U.S. and Ohio Soybean Farmers

The Russian invasion of Ukraine has driven home a fact we have always known – agriculture operates in a global environment.  Access to export markets is critical to U.S. agriculture, especially for soybeans, the number one export for U.S. agriculture.  According to the USDA Foreign Agriculture Service (FAS), in 2020, U.S. soybean exports to the world reached a record $25.7 billion in value.

WASDE Report

The May 2022 World Agricultural Supply and Demand Estimate (WASDE), available here: https://www.usda.gov/oce/commodity/wasde/wasde0522.pdf changed its soybean outlook, including raising the 2022/2023 average price from $13.25 per bushel to $14.40 per bushel.  A projected increase in U.S. soybean production will result in an increase of 6.1 million tons of oilseed production compared to 2021/2022.  WASDE also forecast global soybean production to increase, with Brazil representing more than one-half of the increase.  The Brazilian soybean crop is expected to be a record 149 million tons, with Argentina adding another 51 million tons.  As is the case in the U.S., weather can have a significant impact on soybean production in South America.

Double-Crop Possibility

It is difficult to think about planning the 2023 crop when we are behind schedule getting this year’s seeds in the ground, and much can and will change between now and the 2023 planting season.  However, you may want to consider an analysis conducted by the University of Illinois examining production and profitability from double-crop soybeans.  The article is available here: https://farmdocdaily.illinois.edu/wp-content/uploads/2022/05/fdd051722.pdf.  We provide a summary below.

The authors of the article evaluate a wheat-double-crop-soybean rotation for 2023 and find this production practice to be more profitable than growing either corn or soybeans, especially in southern Illinois.  The authors note that in the long-run, yield increases are necessary before there will be widespread adoption of this production practice.  Much of the projected profitability is related to higher prices because of the war in Ukraine.  In addition, more acres planted to wheat would likely drive down its price.

The authors note that these technological advances may be useful:

  • Development of wheat varieties that could be harvested earlier.
  • Higher yielding wheat varieties.
  • Double-crop soybean varieties with higher yield potential.

If interested in reading more of the specifics of this analysis, click the link above.

Moving Forward

There are several uncertainties related to soybean prices, including how long the war continues, weather, production, demand, fertilizer price, etc., that are out of your control.  We encourage you to manage what you can control and consider the following:

  • How might global events impact your business
  • Know your cost of production.
  • Develop budget scenarios. As of this writing, soybean futures for November 2023 closed at just over $14.00 per bushel.
  • Utilize OSU Extension Crop Enterprise Budgets: https://farmoffice.osu.edu/farm-management/enterprise-budgets#2022
  • Talk with your agronomist, Extension Educator, lender, and other advisors.

 

 

 

The Impact of U.S. Agricultural Exports on Jobs

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

We are aware that agriculture is a competitive business that operated in a global environment.  We understand the importance of global trade to market U.S. produced agricultural commodities.  Have you ever considered how important exports of agricultural good produced in the U.S. are to maintaining jobs?

A recent USDA Economic Research Service (ERS) recently analyzed the importance of agricultural exports as it relates to jobs in 2020.  The full report is available here: https://www.ers.usda.gov/data-products/chart-gallery/gallery/chart-detail/?chartId=103827&cpid=email.

In 2020, U.S. agricultural exports were valued at more than $150 billion and every $1 billion of exports is estimated to create 7,550 jobs.  Crop and livestock production account for the majority, supporting a total of 439,500 jobs.  Jobs in this segment included labor provided by farm owners and family members, hired employees, and contract labor.

U.S. agricultural exports also supported 423,900 off-farm jobs in service, trade, and transportation of agricultural goods.  Exports supported 162,100 food-processing jobs and 107,000 jobs in packaging, canning, and bottling.

The graphic from USDA ERS further describes the importance of U.S. agricultural exports in creating and supporting jobs.

Farm Service Agency Loans Available for Beginning Farmers

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

Building and managing a successful farm is a significant financial investment and can be especially challenging for those just beginning, especially those unable to obtain financing through commercial lenders.  The United States Department of Agriculture (USDA) Farm Service Agency (FSA) makes and guarantees loans to beginning farmers.

Each year money is allocated to FSA for farm ownership and farm operating loans for beginning farmers.  These loan programs are important as beginning farmers have historically experienced more difficulty obtaining financial assistance.

What is a Beginning Farmer?

A beginning farmer is an individual or entity who:

  • Has not operated a farm for more than 10 years
  • Substantially participates in the operation
  • For farm ownership loans, the applicant cannot own a farm greater than 30 percent of the average size farm in the county, at the time of application
  • If the applicant is an entity, all members must be related by blood or marriage, and all members must be eligible beginning farmers

Additionally, beginning farmers must meet the loan eligibility requirements for the program.

Maximum Loan Amounts

The Farm Service Agency makes available a variety of loans, each with a different maximum loan amount.  The loan types and maximum allowable amounts are provided below:

  • Direct farm ownership: $600,000
  • Direct operating loan: $400,000
  • Microloan: $50,000 each for operating and farm ownership
  • Guaranteed farm ownership or operating loan: $1,825,000
  • EZ Guarantee: $100,000 ($50,000 if the lender is a micro lender)

Down Payment Program

FSA has a special loan program to assist beginning farmers purchase a farm.  Retiring farmers may use this program to transfer their land to future generations.  Requirements are listed here:

  • Cash down payment of at least 5% of the purchase price
  • Loan amount limited to 45% of the least of:
    • Purchase price of the farm
    • Appraised value of the farm or
  • $ 667,000 ($300,150) maximum
  • 20 year loan term
  • Interest rate is 4% below the direct farm ownership rate, but no lower than 1.5%

The remaining balance may be obtained from a commercial lender or private party.  FSA can guarantee up to 95% of the loan if financing is obtained from a commercial lender.  Participating lenders do not have to pay a loan guarantee fee.

If financing is secured from participating lenders, the amortization period must be at least 30 years and cannot have a balloon payment due within the first 20 years of the loan.

Additional Options to Access Capital

Beginning farmers may be interested in participating in a joint financing arrangement.  FSA will lend up to 50% of the amount financed and another lender provides the remaining percentage.  These funds can be used for any authorized farm ownership purpose.  The interest rate is two percent less than the direct ownership rate but not lower than 2.5%.  The term of the loan will not exceed 40 years or the useful life of the security.

Land Contract Guarantees

FSA does provide financial guarantees for land sales to beginning farmers.  The seller may request either of the following:

  • Prompt Payment Guarantee: A guarantee up to the amount of three amortized annual installments plus the cost of any related real estate taxes and insurance.
  • Standard Guarantee: A guarantee of 90% of the outstanding principal balance under the land contract.

The farm purchase price cannot exceed $500,000 or the market value of the property.  The buyer is required to provide a minimum down payment of 5% of the purchase price of the farm.  The interest rate is fixed at a rate not to exceed the direct farm ownership loan interest rate in effect at the time the guarantee is issued, plus three percentage points.  The guarantee period is 10 years.  Contract payments must be amortized a minimum of 20 years.

How to Apply

Direct loans are available through your local Farm Service Agency office.  For guaranteed loans, you must apply with a commercial lender who participated in the Guaranteed Loan Program.  Your local FSA office can provide a list of participating institutions.

Locating Your FSA Office

If you are unsure which FSA office services your county, please visit: https://offices.sc.egov.usda.gov/locator/app?state=oh&agency=fsa

Expiring CRP Contracts Eligible for the Transition Incentives Program -Help a Beginning, Veteran or Socially Disadvantaged Farmer

By: David Marrison, OSU Extension Educator-Coshocton County

Are you a landowner that has land enrolled in the Conservation Reserve Program (CRP)?  Does your CRP expire in the next year? Would you like to help a beginning, veteran, or socially disadvantaged farmer get a head start in farming and in return receive an incentive to do so?  If so, you may be interested in the CRP Transition Incentives Program available through the Farm Service Agency.

What is the Conservation Reserve Program?

The Conservation Reserve Program was authorized by the Food Security Act of 1985 and was reauthorized by the Agricultural Improvement Act of 2018. The goal of CRP is to voluntarily contract with agricultural producers to not farm environmentally-sensitive land but instead utilize it for conservation benefits.

CRP participants plant long-term, resource-conserving plant species, such as approved grasses or trees (known as “covers”) to control soil erosion, improve water quality and develop wildlife habitat. In return, participants receive rental payments and cost-share assistance as well as are eligible for climate-smart practice incentives. The contract duration is between 10 and 15 years.  The CRP suite of programs include General CRP, Continuous CRP, Grassland CRP, Conservation Reserve Enhancement Program (CREP), Clean Lakes, Estuaries, and Rivers Initiative (CLEAR30) and State Acres for Wildlife Enhancement (SAFE). CRP protects more than 20 million acres of American farmland.

What is the Transition Incentives Program (TIP)?

The Transition Incentives Program (TIP) was authorized under 2018 Farm Bill to encourage the voluntary transition of land enrolled under an expiring CRP contract to a veteran, beginning, or socially disadvantaged (SDA) farmer who will return the land to sustainable grazing or crop production. The Agricultural Improvement Act of 2018 (2018 Farm Bill) authorized $50 million for TIP for the fiscal years 2019 through 2023.

TIP provides landowners and operators with an incentive to return land to production on an expiring CRP Contract in a way that preserves established conservation practices. It also provides an opportunity for beginning and socially disadvantaged farmers and ranchers to purchase their own land or rent land.

Table 1: Definitions of Farm Operator for the Transition Incentives Program

Type of Farm Operator Means a person, or for entities has at least 50 percent interest in that entity, who:
Beginning Farmer Has not been a farm or ranch operator for more than 10 years
Veteran Farmer or Rancher Has served in the Armed Forces and who has:

• Obtained status as a veteran during the most recent 10-year period, or

• Operated a farm or ranch for no more than 10 years.

Socially Disadvantaged Farmer Is a member of a socially disadvantaged group whose members have been subjected to racial or ethnic prejudice because of their identity as members of a group without regard to their individual qualities. Gender is not included.

TIP provides landowners or operators with up to two additional annual rental payments on existing CRP land which is set to expire, on the condition they sell or rent this land to a beginning farmer, veteran or to a socially disadvantaged group who is not a family member. The new landowners or renters must return the land to production using sustainable grazing or farming methods. Key provisions of TIP include:

  • Beginning, veteran, and SDA farmers and CRP participants may enroll two years before the scheduled date of CRP contract expiration, or until the $50 million limit is reached.
  • Only land enrolled in an expiring CRP contract is eligible. TIP enrollment is on a continuous basis.
  • The owner or operator must agree to sell, or have a contract to sell, or agree to lease long-term (at least 5 years) the land enrolled in an expiring CRP contract to a beginning, veteran, or SDA farmer who is not a family member.
  • Owner or operator must agree to permit the beginning, veteran, or SDA farmer to make conservation and land improvements according to an approved conservation plan.
  • Beginning, veteran, or SDA farmers participating in TIP may re-enroll eligible land under CRP.
  • Beginning, veteran, or SDA farmers must materially and substantially participate in the operation of the farm involved in CRP contract modification.

More information:

More information about the Conservation Reserve Program Transition Incentives Program can also be found at:

https://www.fsa.usda.gov/programs-and-services/conservation-programs/transition-incentives/index

If you are interested in learning more about this or other Farm Service Agency programs, contact your local FSA office.  Not sure which FSA serves your county?  Use this link: https://offices.sc.egov.usda.gov/locator/app?state=oh&agency=fsa  to locate your nearest FSA office.

Resources

Conservation Reserve Program- Transition Incentives Program.  Accessible at: https://www.fsa.usda.gov/Assets/USDA-FSA-Public/usdafiles/FactSheets/2019/crp_transition_incentive_program-fact_sheet.pdf

Conservation Reserve Program-Overview. Accessible at:

https://www.fsa.usda.gov/Assets/USDA-FSA-Public/usdafiles/FactSheets/2019/conservation-reserve_program-fact_sheet.pdf

About the Conservation Reserve Program.  Accessible at:

https://www.fsa.usda.gov/programs-and-services/conservation-programs/conservation-reserve-program/index

OSU Extension is thankful the support of USDA through the Outreach Education and Technical Assistance for Farm Service Agency Programs grant.

U.S. Agricultural Market Outlook: Soybean

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

The Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri recently released its latest U.S. Agricultural Markets Outlook.  The full report is available here: https://www.fapri.missouri.edu/wp-content/uploads/2022/03/2022-U.S.-Agricultural-Market-Outlook.pdf.  This article will provide a summary highlighting the soybean outlook section of the report.

Introduction

The latest FAPRI report establishes projections for agricultural commodities out to the marketing year 2031/2032.  The data used to make these projections was based on information available in January 2022.  FAPRI recognizes much has changed since information was gathered, especially the war in Ukraine.  The authors of the report acknowledge that several factors may potentially impact the predictions.  These factors include exports, commodity prices, input expenses, net farm income, government farm programs, and consumer food prices.

The projections in this report assume no new ad-hoc government payments (like those related to the COVID-19 pandemic) will be provided and provisions of the 2018 Farm Bill will continue.  On a macroeconomic level, the authors recognize the uncertainty of oil markets, the likelihood interest rates will rise, and observe that weather will impact the soybean yield in South America.

Soybean Outlook

Soybean shipments to China reached record levels in 2020 & 2021 when China’s port industry recovered from African Swine Fever and the U.S. and China reached a Phase 1 trade deal.  A decline in the profitability of China’s pork industry and lowered demand for soybean meal is projecting an export decline in the first half of the marketing year.  The FAPRI report does project flat to slight increases in U.S. soybean exports to China.

Soybean production in 2021 reached a record high, exceeding the record set in 2018 & 2019 by seven million bushels.  Large export numbers have resulted in lower ending stocks of U.S. soybeans, hitting a five-year low.  Some improvement in ending stocks should result this marketing year because of an expected increase in production.

Increased exports are favorable for prices.  Soybean prices paid to farmers averaged under $11 per bushel for seven years.  The 2021/2022 price exceeds $12 per bushel, and we have seen futures prices go even higher.  Increased demand for soybean oil will help raise prices for the 2022/2023 marketing year.  Some models analyzed by FAPRI indicate that higher prices could increase the soybean reference price.

FAPRI predicts ARC and PLC payments to be modest in this projection.  The crop insurance projected net indemnities are expected to be greater than in previous years.

Biodiesel accounted for approximately 90% of the increase in soybean oil use between the 2012/2013 and 2020/2021 marketing years.  FAPRI expects continued growth in renewable diesel production and only modest growth from food and other domestic uses.  Soybean oil exports from the U.S. also remain modest due to increased exports of soybean oil from Argentina and greater exports of Asian palm oil for the global vegetable oil market.

Planning

The projections made in the FAPRI report are based on current information, but the authors recognize that this is all subject to change.  Weather, political tensions, interest rates, and many other factors will influence the final production, costs, and returns.

While you don’t have much control over these factors there are some things you can do to prepare.  I encourage you to manage what you can control and consider the following recommendations:

  • Know your cost of production. The FAPRI report indicates soybeans will average between $10 and $12 per bushel over the projection period.  Can you be profitable at this price point?  If not, what changes need to occur?
  • Consider enrolling in the OSU Extension Farm Business Analysis and Benchmarking Program (https://farmprofitability.osu.edu/).
  • Use budgets and scenarios to plan. OSU Extension Enterprise Budgets are updated and available here: https://farmoffice.osu.edu/farm-management/enterprise-budgets.
  • Meet with your Extension Educator to review budgets and plans.
  • Talk with your input providers. What are they able to tell you about input price projections?
  • Keep your lender informed of your finances and plans.
  • Talk to family members about the future of your business.
  • Stay tuned to what is happening around the globe and the potential impacts to agriculture and your business.