Characteristics of Beginning Farmers in Ohio and Potential Impact of the Ohio Beginning Farmer Tax Credit Program

By: PhD students Xiaoyi Fang and Zhining Sun and Professor Ani Katchova, Farm Income Enhancement Chair, in the Department of Agricultural, Environmental, and Development Economics (AEDE), and Chris Zoller, Associate Professor and Extension Educator, Agriculture & Natural Resources, Ohio State University Extension – Tuscarawas County

 

Click here to access the PDF version of this article that includes figures

 

Highlights

  • Ohio’s new and beginning farmers are individuals who intend to enter the farming industry or have less than ten years of experience as a farm owner/operator in Ohio.
  • Ohio’s new and beginning farmers compared to established farmers, tend to be younger, operate smaller farms, and less likely to state farming as their primary occupation.
  • The Ohio Beginning Farmer Tax Credit Program supports new and beginning farmers by providing income tax credits to: 1) beginning farmers who attend a financial management program, and 2) landowners that sell or rent farmland to beginning farmers.

Profile of Ohio Beginning Farmers

According to the definition provided by the Ohio Department of Agriculture, a beginning farmer in Ohio must meet several specific criteria. An individual must be a resident of Ohio who intends to enter the farming industry or has less than ten years of experience as a farm owner/operator in Ohio. In addition, the individual must not hold any partnership, membership, shareholder, or trustee positions related to the assets they intend to acquire or lease.  The individual must have net worth of less than $800,000, among other requirements.

Analysis of the 2017 Census of Agriculture offers valuable insights on Ohio’s new and beginning farmers.  About a quarter of all farm and principal farm producers in Ohio are new and beginning farmers while the rest are established farmers. Contrary to a common assumption that new and beginning farmers are young, the age distribution of new and beginning farmers in Ohio spans a wide range of age groups (Katchova and Ahearn, 2016). While 32% of new and beginning farmers are 34 years of age or younger, a significant portion of them (9%) are 65 or older.  On average, new and beginning farmers are younger than established farmers but there are also older new and beginning farmers in Ohio.

Although males still dominate both groups, the proportion of males among new and beginning farmers is smaller (61%) than among established farmers (68%). Only 24% of new and beginning farmers in Ohio report their primary occupation as farming, indicating diverse income sources. Over half of new and beginning farmers in Ohio engage in off-farm work for more than 200 days, unlike established farmers who are less involved in off-farm work. New and beginning farmers in Ohio typically operate smaller farms in terms of operated acres.  Over half of new and beginning farmers operate less than 50 acres of farmland. New and beginning farmers in Ohio have a comparable percentage of owned or leased acres as do established farmers.

According to a USDA definition, economic class of farmers is defined as the market value of agricultural products sold and government payments.  There is a higher number of established farms in every economic class especially in the largest value economic classes, compared to new and beginning farmers.

The Census of Agriculture reveals that oilseed and grain farming is the most common specialty for new and beginning and for established farmers.   Most new and beginning farmers tend to specialize in oilseeds and grain farming (25%), other crops (21%), beef cattle (18%) and other livestock (17%).  Compared to established farmers, new and beginning farmers in Ohio tend to specialize more in specialty crops, other crops, beef cattle, and other livestock farms.

Potential Impact of the Beginning Farmers Tax Credit Program

In 2022, Ohio implemented a Beginning Farmer Tax Credit Program to support new and beginning farmers in the state. This program aims to address the financial challenges faced by new entrants in the agricultural industry by offering two support mechanisms. The first mechanism provides a tax credit to new and beginning farmers who participate in a state-approved financial management program. By offering this tax credit, the program seeks to alleviate the financial stress of starting and managing a farm business. This incentive encourages beginning farmers to actively engage in financial planning and management, which can contribute to their long-term success.

Qualifying financial management programs provide information on a variety of topics including farm business planning, farm financial statements, cost of production, farm record keeping, farm taxes, farm financing, risk management, and farm business analysis. Beginning farmers who complete a qualifying financial management program pay the cost of the program but are eligible for a non-refundable tax credit upon completion of the program.

The second support mechanism focuses on providing tax credits to qualified farmland owners in Ohio. These tax credits are offered to landowners who sell or rent their farmland to beginning farmers. By incentivizing landowners to work with new and beginning farmers, the program aims to address the aging farmer population trend and promote farmland transition to the next generation. This provision helps to transition operated acres from established to beginning farmers, creating more opportunities for new farmers to start their farm businesses and grow.

The Beginning Farmer Tax Credit Program benefits new and beginning farmers in Ohio. By providing opportunities for financial management program training, the program reduces the barriers to entry. It equips farmers with the necessary skills to navigate the financial aspects of running a farm business. By offering incentives for farmland owners to collaborate with beginning farmers, the program helps to increase access to land and resources for new entrants. The program addresses financial challenges associated with starting a farm business. Continued investment and expansion of such initiatives are crucial for ensuring the future sustainability of Ohio agriculture.

The implementation of the Ohio Beginning Farmer Tax Credit Program holds promise in supporting new and beginning farmers’ entry in agriculture and addressing their specific needs. Continued support and resources are essential to foster the success of these beginning farmers and contribute to the success of Ohio’s agricultural sector.

References

  1. Ahearn, Mary. Beginning Farmers and Ranchers at a Glance. 2013. Economic Research Service (ERS), United States Department of Agriculture (USDA).
  2. Katchova, A. L., & Ahearn, M. C. (2016). Dynamics of farmland ownership and leasing: Implications for young and beginning farmers. Applied Economic Perspectives and Policy38(2), 334-350.
  3. Ohio Beginning Farmer Tax Credit Program, Ohio Department of Agriculture: https://agri.ohio.gov/programs/farmland-preservation-office/Beginning-Farmer-Tax-Credit-Program/Beginning-Farmer-Tax-Credit
  4. United States. (2007) U.S. Census of Agriculture. United States. Retrieved from the Library of Congress, https://www.loc.gov/item/lcwaN0022771/

 

What are the Implications of the Black Sea Grain Deal Breaking Down?  

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

Click Here to Access a PDF Version of Article

The Black Sea Grain Deal So Far

The Black Sea grain export deal signed by Ukraine, Turkey, Russia, and the United Nations (UN) on July 22, 2022 (USDA, Foreign Agricultural Service, Grain: World Markets and Trade, August 2022), was originally extended for four additional months in November 2022, followed by further extensions in March and May 2023 respectively, the most recent being for only two months up to July 17, 2023.  During that time-period, 32.7 million metric tons of grains and oilseeds have been shipped to 45 countries from the Ukrainian ports of Chornomorsk, Odesa and Pivdennyi (Yuzhny), the percentage breakdown of the cargo totals being corn (51%), wheat (27%), sunflower meal (6%) and sunflower oil (5%), and other (11%) (Black Sea Grain Initiative Joint Coordination Center, July 2023).

Resumption of Ukrainian sea exports over this time-period has helped in reversing the spike in global food prices that occurred after the Russian invasion of Ukraine, the FAO Food Price Index dropping by almost 39% since March 2022 (World Food Situation, FAO/UN, July 7, 2023).  However, as of July 17, 2023, Russia has ended its participation in the deal, which brings with it increased uncertainty about available global grain and oilseed supplies as well as the potential for greater price volatility and/or increased food prices (New York Times, July 17, 2023).

Even before Russia pulled out of the grain deal, the rate of exports from the three Ukrainian ports was already declining (see Figure 1), the latest export tonnage being just over 0.2 million metric tons as of July 7, 2023 (UN Black Sea Grain Initiative Joint Coordination Center).  This slowdown in exports also shows up in the average number of ships being cleared under the deal falling from a peak of 11 in October 2022 to 3 in May 2023 UN Black Sea Grain Initiative Joint Coordination Center).  At this point, the Black Sea Corridor is no longer the dominant route for exports, with more crops being shipped through ports on the Danube, as well as by rail and road (Bloomberg News, July 6, 2023).  Essentially, the deal allowed Ukraine to export the grain stockpiles that it had accumulated with the closing of its ports post-invasion, but in the view of some observers, the deal was already essentially “defunct” (Bloomberg News, July 6, 2023).

  Figure 1:

What are Russia’s Concerns with the Deal?

Russia’s unwillingness to renew the grain deal has been brewing for some time, Ukraine previously accusing it of trying to undermine the deal by dragging out and even preventing the required restrictions of Black Sea shipments before two previous renewals of the deal (Financial Times, March 19, 2023; New York Times, May 18, 2023).  Even though U.S. and European Union (EU) economic sanctions against Russia exclude trade in agricultural commodities such as grain fertilizers (Congressional Research Service, December 13, 2022), Russia has repeatedly complained about the Black Sea grain export deal since its inception (New York Times, July 17, 2023).  Even though the UN struck a deal with Russia in July 2022 to help it overcome obstacles to grain and fertilizer shipments, Moscow claims that restrictions on payments, logistics and insurance have been a major barrier to its agricultural exports (Reuters, June 16, 2023).

However, since the grain deal was last renewed in May, Russia’s concerns seem to have intensified, Moscow expressing two main demands as a pre-condition for renewing the grain deal (Reuters, June 16, 2023).  The first relates to reconnection of the Russian agricultural bank Rosselkhozbank to the SWIFT international payment network (Reuters, July 12, 2023).  Following the Russian invasion of Ukraine, the EU cut off Russia from the SWIFT network in June 2022, placing a major constraint on the processing of grain export payments to Russia (Reuters, July 13, 2023).  It has been reported that the EU has been considering allowing a subsidiary of Rosselkhozbank to connect to SWIFT, UN Secretary-General Antonio Guterres asking President Putin to extend the grain deal, thereby giving the EU time to make the connection (Reuters, July 12, 2023).

The other Russian demand relates to the ammonia pipeline from Tolyatti to the Ukrainian port of Pivdennyi (Yuzhny) (IFPRI, June 13, 2023).  The pipeline has been closed since the Russian invasion and has reportedly suffered war damage.  Given the significant impact of the closure on Russia’s exports of anhydrous ammonia, it is perhaps not surprising Russia has tied recent restrictions on the registration of grain shipping at Pivdennyi to reopening of the pipeline (IFPRI, June 13, 2023).

Breakdown of the Deal

Despite the best efforts of the UN Secretary-General Guterres and Turkey’s President Erdogan, Russia has not renewed the grain deal, its Foreign Ministry issuing a statement that, “…Only upon receipt of concrete results, and not promises and assurances, will Russia be ready to consider restoring the deal…” (New York Times, July 17, 2023).  Not surprisingly, the markets reacted to the deal not being extended, wheat futures rising 4.2% on the Chicago Board of Trade (Bloomberg News, July 17, 2023), but what are the longer-term implications of the breakdown?

Even though the grain deal has been critical to relieving pressure in the world market over the past year, Ukrainian grain and oilseed production are expected to decline in 2023/24 due to the ongoing impact of the war, with disruption of ongoing planting and harvest of multiple crops including wheat, barleycorn, rapeseed and sunflowers.  The latest estimates for Ukraine’s major crops indicate significant reductions are expected in harvested acreage in 2023 compared to 2021 – wheat (-42%), sunflower seeds (-20%), corn (-38%), and barley (-33%) (USDA, Foreign Agricultural Service, June 2023). It should be noted these data do not include those parts of Ukraine either in the war zone or occupied by Russian Forces (UC-Davis ARE Update, May/June, 2023).  In terms of the potential impact on world food prices, Ukrainian grain shipments are forecast to decline by about 36% in the 2023/24 marketing year (Bloomberg News, July 6, 2023).

With expected declines in Ukrainian grain production, and the closing of the Black Sea Corridor, two price effects can be expected: world grain prices will increase with the reduction in Ukrainian exports, but at the same time Ukrainian domestic grain prices will likely fall.  This is precisely what happened after the Russian invasion:  in the case of wheat, when Ukrainian ports were blockaded, a wedge was driven between other comparable and Ukrainian prices, the wedge declining after the grain deal was struck in July 2022 (see Figure 2).  Since then, Ukrainian wheat prices have tracked other wheat prices, although a gap was starting to open-up again recently, and it can be expected to widen, reducing Ukrainian farmers’ incentives.

Figure 2:

It is also likely grain price volatility will be exacerbated, markets already being very sensitive to regional shocks even before the deal ended.  When the Nova Kakhova dam in southern Ukraine was destroyed in early June, wheat futures prices immediately rose 2%, raising concerns of an escalation in the war between Russia and Ukraine (Reuters, June 6, 2023), which was followed by a second market shock in late-June after the armed uprising in Russia, wheat futures prices increasing by 3% (Bloomberg, June 23, 2023). (For a detailed discussion of price volatility see the companion article to this one on Ohio Ag Manager: “What factors are driving the current grain market volatility?” by Seungki Lee).

There is a sense that it may be very difficult to revive the Black Sea deal at this point, with the likelihood grain and oilseed prices will rise, which will then impact the number of undernourished people globally (The Guardian, July 17, 2023).  At the same time, even though grain continues to be exported westwards from Ukraine through Poland, Hungary, Bulgaria, Romania, and Slovakia, this has created political tensions in those countries, farmers facing lower prices and reduced revenues. (Bloomberg News, April 1, 2023).  Even though the EU suspended its tariffs and quotas on imports from Ukraine after the Russian invasion, Poland and Hungary blocked imports from Ukraine in April in a response to farmer protests (New York Times, April 20, 2023).  This was followed on May 2 by the EU introducing a temporary ban on grain imports by these countries from Ukraine until June 5, while maintaining transit routes into the rest of the EU, the restrictions being subsequently extended until September 15 of this year (Reuters, June 5, 2023).

 

What Factors are Driving the Current Grain Market Volatility?

By: Seungki Lee, Assistant Professor, Agricultural, Environmental, and Development Economics, The Ohio State University

Click here to access PDF version of the articles

During the last few weeks, grain futures markets have showed significant swings in response to several events: the expanding drought, USDA’s June Acreage Report, and the looming Black Sea Grain deal. The heightened uncertainty in the commodity market is causing concern among US growers about market prospects. Given the current influence of multiple variables on prices, relying solely on price indices may lead to a misinterpretation of the market outlook. Therefore, in this article, we will look into three primary factors individually that have the potential to impact the market in the upcoming months.

  1. Expanding Drought Conditions and USDA’s July WASDE Report

The first and very perceivable force that raises uncertainty is the domestic growing condition – the expanding drought in the Midwest. A striking example is that 98% of Minnesota’s crop land are currently experiencing drought (Brown, 2023). USDA’s July WASDE report adjusted down corn yield to 177.5 bushels per acre, 4 bushels down from last month, whereas soybean yield forecast was not changed. However, a substantial change in the acreage projection (corn up and soybean down) in the June USDA’s Acreage Report mainly determined the overall production estimates. This indicates that the market has not fully accounted for the potential yield reduction caused by the drought. Despite the undeniable impact of the drought, the exact extent of harvest reduction remains uncertain, further contributing to market unpredictability. Even though commodity prices hold steady, growers can be largely worse off (Probert et al., 2023). Table 1 provides a quick summary of July WASDE updates for new crop corn, soybean, and wheat.

Table 1. Summary of July WASDE Estimates

  Corn Soybean Wheat
Marketing Year 23/24F ∆Jun ∆22/23 23/24F ∆Jun ∆22/23 23/24F ∆Jun ∆22/23
Yield (bu/acre) 177.5 -4.0 +4.1 52.0 ** +2.5 46.1 +1.2 -0.4
Production 15,320 +55 +1,590 4,300 -210 +24 1,739 +74 89
Total Supply 16,747 +5 +1,615 4,575 -185 0 2,449 +51 -21
Feed & Residual 5,650 +225            
Ethanol 5,300 +75            
Crush       2,300 -10 +80      
Domestic Use 12,385 +305 2,426 -10 +85 1,132 +20 +1
Exports 2,100 +450 1,850 -125 -130 725 -34
Total Use 14,485 +755 4,276 -135 -45 1,857 +20 -33
Ending Stocks 2,262 +5 +860 300 -50 +44 592 +31 +12
Price ($/bu) 4.80 -1.80 12.40 +0.30 -1.80 7.50 -0.20 +1.33

Note: The default unit is a million bushels if not specified.

  1. An Official Termination of Black Sea Grain Deal

On July 17, Kremlin spokesman Dmitry Peskov announced that Russia is pulling out of the Black Sea Grain Deal agreement, yet leaving the door open for resuming the deal if Russia’s demands were fulfilled. Since the agreement was established in July last year, this is the first time that we have seen an official stop of the deal. As we have witnessed the international connectivity in the commodity market, what’s happening in Black Sea will likely fluctuate US grain markets.

Due to the war situation and Russia’s political instability, the new deal is likely to fall into a labyrinth. Even putting the recent political turmoil in Russia aside, both sides have been complaining about the deal for months. Russia claimed that its own agricultural products and fertilizers also should be allowed to be shipped to the global market through the Black Seas (i.e., lifting the sanction on Russian crops). Ukraine claimed that Russia is using the inspection for sabotage (Malsin, 2023). The current situation is a sort of “Chicken Games,” because the negotiation time will be costly to both countries. The Black Sea Grain Initiative can possibly resume in months, but, Ukraine has already been attempting to mitigate risks by exploring alternative export channels. This development has created political tensions within the European Union, resulting in a temporary ban on grain imports from Ukraine (Sheldon and Zoller, 2023). All of these factors contribute to increased market uncertainty. As illustrated in Figure 1, China and EU countries have been major recipients of Ukraine crops through the Black Sea. The partnership and friendship of these countries will potentially play a key role in reviving the Black Sea Corridor.

Figure 1. Black Sea Grain Initiative exports to Top 5 partners and ROW

Note: the numbers in brackets indicate the rank of each country based on the total crop delivered.
Source: United Nations, as of July 17, 2023

 

  1. El Niño and Uneven Impacts Worldwide

El Niño is having an increasingly pronounced influence on global crop production (Witze, 2023), and this impact is being actively reflected in commodity markets (Currie, 2023). It is noteworthy that the effects of El Niño are expected to vary significantly across different regions. For example, Australia is currently experiencing drier weather patterns attributed to El Niño, leading to anticipated reductions in wheat production (Jackson, 2023). On the other hand, Argentina is likely to benefit from El Niño as it brings increased rainfall, replenishing soil moisture during the current growing season. This divergence in the impact of El Niño on crop production among countries will further contribute to market fluctuations. Over the past three years, Latin American countries have suffered from agricultural production setbacks caused by La Niña-induced droughts. This suggests that the transition to El Niño conditions can work favorably for countries such as Brazil and Argentina, posing an additional challenge to US exports in the future.

 

 

References

Brown, K. (2023, July 13). All of Minnesota now in some stage of drought. KSTP.com 5 Eyewitness News. https://kstp.com/kstp-news/top-news/all-of-minnesota-now-in-some-stage-of-drought/

Currie, A. (2023, July 3). Breakingviews: El Nino will brew up potent new economic storm. REUTERS. https://www.reuters.com/breakingviews/el-nino-will-brew-up-potent-new-economic-storm-2023-07-04/

Jackson, L. (2023, July 5). El Nino threshold not yet passed, Australia weather bureau says. REUTERS. https://www.reuters.com/business/environment/el-nino-threshold-not-yet-passed-australia-weather-bureau-2023-07-05/

Malsin, J. (2023, July 17). Russia Says It Is Pulling Out of Ukraine Grain Deal. The Wall Street Journal. https://www.wsj.com/articles/russia-says-it-is-pulling-out-of-ukraine-grain-deal-68190d1

Probert, A., McCorvey, J.J., and Bush, E. (2023, July 13). Drought and extreme heat burn through farmers’ margin for error – and it’s only July. NBC News. https://www.nbcnews.com/business/drought-extreme-heat-burn-farmers-margin-error-only-july-rcna93862

Sheldon, I. and Zoller, C. (2023, July 18). What are the Implications of the Black Sea Grain Deal Breaking Down?. Ohio Ag Manager.

Witze, A. (2023, June 29). El Niño is here-how bad will it be?. Nature. https://www.nature.com/articles/d41586-023-02122-6

 

OSU Extension Podcast bolsters Farm Management with new Co-Hosts

By Wm. Bruce Clevenger, OSU Ext Field Specialist, Farm Management

OSU Extension has surpassed 100 Episodes on the Agronomy and Farm Management Podcast with the leadership of Amanda Douridas and Elizabeth Hawkins.  Amanda Douridas is the OSU Extension Agriculture and Natural Resources Extension Educator in Madison County and Elizabeth Hawkins is an OSU Extension Field Specialist, Agronomic Systems.

On Episode 118, two new co-hosts began to alternate episodes between Agronomy and Farm Management.  Your new farm management co-hosts are Bruce Clevenger, OSU Extension Field Specialist, Farm Management and Josh Winters, OSU Extension Agriculture and Natural Resources Extension Educator, Jackson County.

Bruce Clevenger and Josh Winters will host Farm Management and Amanda and Elizabeth will continue with Agronomy.  “Farm management is important to your farming operations and Elizabeth and I are excited to partner with Bruce and Josh to enhance the farm management piece of the podcast,” says Amanda.

Episode 118 investigates Farm Insurance Policies with guest Robert Moore, J.D., Attorney, OSU Extension Agricultural and Resource Law Program.  “I would challenge you to find a more important component of farm management, that receives less attention than the farm insurance policy,” Robert Moore.

OSU Extension has many ag law resources available at https://farmoffice.osu.edu click on Law Library and Farm Office Blog.  Robert and Peggy Hall author weekly posts and write law bulletins are a wide range of topics from Agritourism to Zoning.

Visit https://go.osu.edu/afm to listen, subscribe, and suggest a topic for future episodes.  Listeners can also search their smart device app for Agronomy and Farm Management to listen and subscribe.

Last chance to Complete the 2022 Census of Agriculture

Source: National Agricultural Statistics Service

Ag Census Last Chance FINAL NASS

WASHINGTON, May 23, 2023 – The U.S. Department of Agriculture’s (USDA) National Agricultural Statistics Service (NASS) will end data collection for the 2022 Census of Agriculture on May 31. Producers who have not yet returned their completed questionnaires have just one week left to respond. Federal law requires everyone who received the ag census to complete and return it. Recipients can respond online at agcounts.usda.gov or by mail.

“The Census of Agriculture remains the only comprehensive and impartial source of agricultural data for every state and county in the nation. It gives producers the opportunity to help shape decisions that will impact their operations, communities, and the future of the industry for several years,” said NASS Administrator Hubert Hamer. “Not being represented in these widely used data means risking being underserved. The ag census data are used by agribusinesses, educators, researchers, federal and local government, and many others when making decisions about farm programs, loans, insurance, rural development, disaster assistance, and more.”

USDA NASS is reminding ag census recipients that if they produced and sold $1,000 or more of agricultural product in 2022, or normally would have produced and sold that much, they meet USDA’s definition of a farm. However, landowners who lease land to producers, those solely involved in conservation programs, and even those who may not have farmed in 2022 are still required to respond.

“If you received the ag census but do not fit the definition of a farm, are no longer farming, never farmed, or have another update for us, please write your status on the form and mail it back. Every response matters,” said Hamer.

The ag census differs from other USDA surveys. Beyond being conducted just once every five years, it provides important demographic information and data on certain commodities, such as horses, bison, and Christmas trees, that would not otherwise be available. The Census of Agriculture collects information on nearly every aspect of American agriculture for a complete picture of the health of 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.

Federal law under Title 7 USC 2204(g) Public Law 105-113 requires that USDA NASS keep all submissions confidential, use the information for statistical purposes only, and publish aggregate data to prevent disclosing the identity of any individual producer or farm operation.

For assistance filling out the ag census, recipients can call 888-424-7828. NASS will release the ag census data 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 at @usda_nass.

###

 

NASS is the federal statistical agency responsible for producing official data about U.S. agriculture and is committed to providing timely, accurate, and useful statistics in service to U.S. agriculture.

USDA is an equal opportunity provider, employer, and lender.

 

 

Farm Office Live Webinar Slated for April 21 at 10:00 a.m.

In this month’s webinar, the Farm Office Team will present the following topics:

Legislative and Case Law Update​ (Peggy Hall)

  • Farm Insurance Issues​ (Robert Moore)
  • “What is a ‘Taxable Gross Receipt’ under Ohio’s Commercial Activity Tax?”​ (Jeff Lewis)
  • Inflation and Interest Rates: An Update Including a Closer ​Look at Agricultural Machinery and Equipment​ (Barry Ward)
  • Crop Budgets/Income Outlook for ‘23​ (Barry Ward)
  • Avoid Chance by making 2023 Record Keeping Goals (Bruce Clevenger)

There is no fee to attend this webinar.  However, registration is required at go.osu.edu/farmofficelive

Check out farmoffice.osu.edu for all your farm management and ag & resource law needs.

Will Price Volatility Continue in the World Wheat Market?  

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

Wheat Price Volatility and Global Stocks

In a recent blog from the International Food Policy Research Institute (IFPRI), former USDA Chief Economist Joseph Glauber detailed the disruption that Russia’s invasion of Ukraine has had on the world wheat market over the past year (https://www.ifpri.org/blog/assessing-tight-global-wheat-stocks-and-their-role-price-volatility).  Compared to the recorded price spikes of 2007/08, 2010/11, and 2012/13, wheat futures prices remained relatively stable until Russia invaded Ukraine in February 2022 (see figure).

 

While world food prices have retreated significantly over the past 11 months (Bloomberg News, March 19, 2023), price volatility in the wheat market is likely to continue with tight global stocks.  When global supplies are negatively affected by an armed conflict such as Russia’s invasion of Ukraine, the availability of stocks should aid in moderating any impact on prices. However, if stocks are tight, their price-smoothing effect is limited, and volatility tends to be exacerbated.

 

 

Typically, market analysts measure the tightness of global stocks through the stock-to-use ratio (SUR), defined by ending stocks as a percentage of consumption, which is then multiplied by 365 days to give stocks as days of use.  The SUR for wheat can be measured in several ways: total global stocks, total global stocks minus China, and stocks held by the major exporters (US, EU, Argentina, Australia, Canada, Kazakhstan, Russia, and Ukraine).  If China is excluded from the calculation, projected stock levels for 2022/23 range from 58 to 26 days of use, the lowest level since 2007/08 (see figure).  Not surprisingly, the combination of low stocks, continued uncertainty about the war, and the potential for future supply shocks, means that concerns about global food security have not dissipated (World Bank Food Security Update, March 23, 2023).

Uncertainty Over Continuation of The Black Sea Grain Export Deal and Russian Exports

Key to reducing price volatility is continuation of the grain export deal signed by Ukraine, Turkey, Russia, and the United Nations (UN) on July 22, 2022 (USDA, Foreign Agricultural Service, Grain: World Markets and Trade, August 2022), which was then renewed last November for 120 days (Reuters, March 14, 2023).  Despite the UN and the Ukrainian and Turkish governments stating the deal had been extended for a further 120 days on March 18, 2023, the Russian foreign ministry indicated it had only agreed to a 60-day extension, and that it wanted to see an expansion of its own grain exports to the world market (Financial Times, March 18, 2023).

Not surprisingly, conflicting signals over the timeline of the deal’s extension affected the market, wheat futures rising by 2 percent before March 18 (Bloomberg News, March 14, 2023), falling back the week after the deal was announced, although market analysts expect a risk premium (Bloomberg News, March 20, 2023).  A similar pattern of price volatility occurred prior to and after the deal was renewed in November 2022 (Bloomberg News, November 2, 2022), and no doubt will happen again when the deal next comes up for renewal.

Despite the Ukrainian focus of the grain export deal, the sticking point for the Russians is how to increase their own grain exports.  Russia is now the world’s leading wheat exporter (Bloomberg News, March 31, 2023) (see figure), its strong harvest last year helping to reduce wheat futures prices (Bloomberg News, March 29, 2023).  While Russian crops are not subject to any explicit trade sanctions, companies that trade wheat and other grains must deal with restrictions on both Russian banks and state companies (Bloomberg News, March 29, 2023).  A recent development has been the announcement by major commodity traders Cargill and Viterra that they will stop exporting Russian grain as of July 1, 2023, with Archer-Daniels-Midland also considering exiting its Russian operations (Bloomberg News, March 31, 2023).  How this affects Russian exports to the world market remains to be seen, although some observers think little will change as local traders replace global traders, the Russian government continuing to collect grain export taxes (Bloomberg News, March 30, 2023).

Outlook for Wheat Price Volatility

Low global wheat stocks along with Russia’s repeated procrastination over the Black Sea grain export deal, suggest price volatility will continue for the foreseeable future.  At the same time, grain exports by Ukraine to central European states has affected farm revenues in Poland, Romania, Slovakia, Hungary and Bulgaria, eroding political goodwill (Bloomberg News, April 2, 2023), placing pressure on the European Union (EU) for tariffs to be restored on imports from Ukraine (Reuters, March 31, 2023), which would likely push down wheat and other grain prices.

Wheat on the Chicago Mercantile Exchange (CME) is currently hovering around $7.00 per bushel, in line with the estimate used in the OSU Extension Wheat Production Budget for 2023.  As of April 5, 2023, CME prices are $6.94/bushel for July 2023, $7.25/bushel for July 2024, and $7.26/bushel for July 2025.  The OSU Extension wheat budget estimates $7.00/bushel and evaluates four yield scenarios (59 bushels/acre, 74 bushels/acre, 89 bushels/acre, and 92 bushels/acre).  Estimated returns at each yield level more than cover the variable costs, but the numbers are negative when evaluating returns above total costs.  Straw sales can improve the returns, but there is the additional concern of the value of nutrients removed.

We encourage you to keep informed of market movements and projections, and utilize OSU Extension enterprise budgets (https://farmoffice.osu.edu/farm-management/enterprise-budgets) when making farm management decisions.

 

Trends in Ohio Government Payments During the COVID-19 pandemic

By: PhD student Rabail Chandio and Professor Ani Katchova, Farm Income Enhancement Chair, in the Department of Agricultural, Environmental, and Development Economics (AEDE), OSU, Anil Giri, Research Agricultural Economist and Dipak Subedi, Agricultural Economist at the Economic Research Service, USDA, and Nick Paulson, Professor and Gardener Hinderliter Professor in Farm Management in the Department of Agricultural and Consumer Economics at the University of Illinois, Urbana-Champaign.

In 2021, net cash income for the US and Ohio farms were higher than the 21-year average. As expected, a major component of farm income was the government payments for various support programs, including the coronavirus pandemic support. This report provides details on how government payments evolved for farmers in Ohio and the US in the recent past after a record high in 2020.

USDA – Economic Research Service data released on Feb. 7, 2023, show Ohio producers had a record high net cash income of $4.65 billion in 2021 coming from a gross cash income of $13.63 billion in inflation-adjusted 2023 dollars. In inflation adjusted dollars, both the net and gross cash incomes were higher than the 21-year averages of $3.1 billion and $11.5 billion, respectively. Net cash farm income encompasses gross cash farm income (cash receipts from farming as well as farm-related income and government payments) minus cash expenses. It does not include noncash items—including changes in inventories, economic depreciation, and gross imputed rental income of operator dwellings—reflected in the net farm income measure. Therefore, a major contributor to the high net and gross cash incomes in 2020 and 2021 was not only high commodity prices leading to higher cash receipts but also the record high government payments.

At the onset of the pandemic, the supply chain disruptions and uncertainty in the market signaled lower incomes and uncertain prices, creating the need for higher PLC and ARC payments to farmers in addition to COVID-support payments. As commodity prices rallied beginning in August 2020, the PLC and ARC programs triggered lower levels of total support in 2021. Moreover, adhoc disaster assistance payments remained the largest component of government payments in 2021. As the US agricultural sector entered a period of higher income with higher commodity prices, ARC and PLC program payments are expected to be lower for 2022.

Link to the report: https://aede.osu.edu/sites/aede/files/publication_files/OhioGovernmentPayments2023.pdf

 

 

USDA to Aid Distressed Farmers Facing Financial Risk

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

Beginning in April, USDA will provide approximately $123 million in additional, automatic financial assistance for qualifying farm loan program borrowers who are facing financial risk.  Funding is through the Inflation Reduction Act (IRA) and builds on the same program announced in October 2022.

Like the program announced in October 2022, qualifying borrowers will receive an individual letter detailing the assistance as payments are made. Distressed borrowers’ eligibility for these new categories of automatic payments will be determined based on their present circumstances. More information about the new categories that make up the $123 million in assistance and the specific amount of assistance a distressed borrower receives can be found in this fact sheet, IRA Section 22006: Additional Automatic Payments, Improved Procedures, and Policy Recommendations.

USDA will provide information and training to program participants about the potential tax consequences of the funding program.  USDA will also sponsor a webinar featuring farm tax experts to review the program and answer questions.  Further information about tax implications of USDA program is available here: farmers.gov/taxes.

If you have further questions, please reach out to your local USDA Farm Service Agency office.  If you are unsure where of the location of the nearest office, please use this tool: https://offices.sc.egov.usda.gov/locator/app.

 

 

 

 

Coffee and Grain Market Conversation Slated for April 14, 2023

OSU Extension invites Ohio grain producers to grab a cup of coffee and join the next edition of a quarterly grain market conversation with Dr. Seungki Lee, Assistant Professor in the Department of Agricultural, Environmental and Development Economics (AEDE) from 7:30 to 8:00 a.m. on Friday, April 14, 2023.

During this webinar held via Zoom, Dr. Lee will provide his insights on the World Agricultural Supply and Demand Estimates (WASDE) crop report. “These early morning webinars will be a great way for Ohio farmers to learn more about the factors impacting the corn, soybean, and wheat markets” said David Marrison, Interim Director for OSU Extension’s Farm Financial Management and Policy Institute.  Producers are encouraged to bring their questions to this early morning conversation.

Click here for the program flyer 

There is no fee to attend this quarterly webinar session. Pre-registration can be made at go.osu.edu/coffeewithDrLee.

Additional sessions will be held on September 15, and November 17, 2023.

These webinars are sponsored by: OSU Extension, Farm Financial Management & Policy Institute (FFMPI), and the Department of Agricultural, Environmental and Development Economics (AEDE) all located in The Ohio State University College of Food, Agricultural, and Environmental Sciences (CFAES).