Ohio Corn, Soybean and Wheat Enterprise Budgets – Projected Returns for 2021

by: Barry Ward, Leader, Production Business Management, College of Food, Agricultural and Environmental Sciences, Ohio State University Extension

Production costs for Ohio field crops are forecast to be slightly lower than last year with lower expenses for fertilizer, fuel and interest. Variable costs for corn in Ohio for 2021 are projected to range from $359 to $433 per acre depending on land productivity. Variable costs for 2021 Ohio soybeans are projected to range from $199 to $220 per acre. Wheat variable expenses for 2021 are projected to range from $162 to $191 per acre.

Grain prices currently used as assumptions in the 2021 crop enterprise budgets are $3.70/bushel for corn, $9.40/bushel for soybeans and $5.70/bushel for wheat. Projected returns above variable costs (contribution margin) range from $172 to $357 per acre for corn and $222 to $404 per acre for soybeans. Projected returns above variable costs for wheat range from $179 to $314 per acre.

Return to Land is a measure calculated to sometime assist in land rental and purchase decision making. The measure is calculated by starting with total receipts or revenue from the crop and subtracting all expenses except the land expense. Returns to Land for Ohio corn (Total receipts minus total costs except land cost) are projected to range from $11 to $184 per acre in 2021 depending on land production capabilities. Returns to land for Ohio soybeans are expected to range from $109 to $282 per acre depending on land production capabilities. Returns to land for wheat (not including straw or double-crop returns) are projected to range from $95 per acre to $222 per acre.

Total costs projected for trend line corn production in Ohio are estimated to be $761 per acre. This includes all variable costs as well as fixed costs (or overhead if you prefer) including machinery, labor, management and land costs. Fixed machinery costs of $75 per acre include depreciation, interest, insurance and housing. A land charge of $195 per acre is based on data from the Western Ohio Cropland Values and Cash Rents Survey Summary. Labor and management costs combined are calculated at $71 per acre. Details of budget assumptions and numbers can be found in footnotes included in each budget.

Total costs projected for trend line soybean production in Ohio are estimated to be $522 per acre. (Fixed machinery costs: $59 per acre, land charge: $195 per acre, labor and management costs combined: $45 per acre.)

Total costs projected for trend line wheat production in Ohio are estimated to be $459 per acre. (Fixed machinery costs: $34 per acre, land charge: $195 per acre, labor and management costs combined: $43 per acre.)

Budget projections for commodity crops for 2021 have been completed and posted to the Farm Office website: https://farmoffice.osu.edu/farm-mgt-tools/farm-budgets

 

 

 

 

 

Ohio Farm Custom Rates 2020 Released

by: Barry Ward, Leader, Production Business Management, OSU Extension, Agriculture and Natural Resources, John Barker, Extension Educator Agriculture/Amos Program, Ohio State University Extension Knox County and Eric Richer, Extension Educator Agriculture & Natural Resources, Ohio State University Extension Fulton County

Farming is a complex business and many Ohio farmers utilize outside assistance for specific farm-related work. This option is appealing for tasks requiring specialized equipment or technical expertise. Often, having someone else with specialized tools perform a task is more cost effective and saves time. Farm work completed by others is often referred to as “custom farm work” or more simply, “custom work”. A “custom rate” is the amount agreed upon by both parties to be paid by the custom work customer to the custom work provider.

Ohio Farm Custom Rates

This publication reports custom rates based on a statewide survey of 377 farmers, custom operators, farm managers, and landowners conducted in 2020. These rates, except where noted, include the implement and tractor if required, all variable machinery costs such as fuel, oil, lube, twine, etc., and the labor for the operation.

Some custom rates published in this study vary widely, possibly influenced by:

  • Type or size of equipment used (e.g. 20-shank chisel plow versus a 9-shank)
  • Size and shape of fields,
  • Condition of the crop (for harvesting operations)
  • Skill level of labor
  • Amount of labor needed in relation to the equipment capabilities
  • Cost margin differences for full-time custom operators compared to farmers supplementing current income

Some custom rates reflect discounted rates as the parties involved have family relationships or are strengthening a relationship to help secure the custom farmed land in a cash or other rental agreement. Some providers charge differently because they are simply attempting to spread their fixed costs over more acreage to decrease fixed costs per acre and are willing to forgo complete cost recovery.

The complete “Ohio Farm Custom Rates 2020” is available online at the Farm Office website:

https://farmoffice.osu.edu/farm-management-tools/custom-rates-and-machinery-costs

Farm Office Live Scheduled for October 7, 2020

Join the OSU Extension Farm Office team for discussions on the latest agricultural law and farm management news.  The next session will be held on October 7, 2020 8:00 – 9:30 a.m.

Farm Office Live will be back for a review of the latest on round two of the Coronavirus Food Assistance Program (CFAP), 2020 crop enterprise budgets, new custom rates and Western Ohio Cropland Values and Cash Rents survey summary, Ohio’s COVID-19 immunity legislation, and other current issues in farm management.

Join our experts for quick presentations and Q & A.   Go to https://farmoffice.osu.edu/farmofficelive  to register or view past webinars and PowerPoint slides.

 

Western Ohio Cropland Values and Cash Rents 2019-20

by: Barry Ward, Leader, Production Business Management, Director, OSU Income Tax Schools, College of Food, Agricultural and Environmental Sciences, OSU Extension

Ohio cropland varies significantly in its production capabilities and, consequently, cropland values and cash rents vary widely throughout the state. Generally speaking, western Ohio cropland values and cash rents differ from much of eastern Ohio and parts of southern Ohio cropland values and cash rents. The primary factors affecting these values and rates are land productivity and potential crop return, and the variability of those crop returns. Soils and drainage capabilities are the two factors that heavily influence land productivity, crop return and variability of those crop returns.

Other factors impacting land values and cash rents may include buildings and grain storage, field size and shape, field accessibility, market access, local market prices, field perimeter characteristics and potential for wildlife damage, previous tillage system and crops, tolerant/resistant weed populations, population density, USDA Program Yields, and competition for the cropland in a region. Ultimately, supply and demand of cropland will determine the value or rental rate for each parcel.

The Western Ohio Cropland Values and Cash Rents study was conducted from February through April in 2020. The opinion-based study surveyed professionals with a knowledge of Ohio’s cropland values and rental rates. Professionals surveyed were rural appraisers, agricultural lenders, professional farm managers, ag business professionals, OSU Extension educators, farmers, landowners, and Farm Service Agency personnel.

The study results are based on 167 surveys. Respondents were asked to group their estimates based on three land quality classes: average, top, and poor. Within each land-quality class, respondents were asked to estimate average corn and soybean yields for a five-year period based on typical farming practices. Survey respondents were also asked to estimate current bare cropland values and cash rents negotiated in the current or recent year for each land-quality class.

According to the Western Ohio Cropland Values and Cash Rents Survey, cropland values in western Ohio are expected to decline slightly in 2020 by 1.5 to 2.6 percent depending on the region and land class. Cash rents are expected to be flat to slightly lower decreasing from 0.7 to 2.0 percent depending on the region and land class.

For the complete survey research summary go to the OSU Extension FarmOffice website at:

https://farmoffice.osu.edu/farm-management-tools/farm-management-publications/cash-rents

 

Planning to Open Agritourism for Fall and Christmas Seasons

by: Eric Barrett, Rob Leeds, Peggy Hall, Dee Jepsen, Lisa Pfeifer & Brad Bergefurd

In big or small ways, COVID-19 has impacted aspects of farming and agribusiness. Safety, health, and wellness have become necessary concerns for all farm operations. Inviting the public to an agricultural operation for activities requires farm businesses to take additional safety measures for employees and customers. Agritourism is unique in that the activities offered by farms are enjoyed by the greater community in a managed, mostly outdoor environment.

Beyond agriculture, the pandemic has been especially difficult for businesses that focus on entertainment and related activities where large groups of people congregate. To the public, agritourism may seem similar to fairs and festivals. But agritourism is quite different. Agritourism farms are operated over a series of weeks and even months. Many have been operating pick-your-own activities and farm market/produce stands throughout the pandemic. Agritourism farms engage in emergency planning (i.e. – u.osu.edu/agritourismready). These farms are well staffed and have adopted effective tools over the years to manage all types of customer situations. Their livelihood depends on their ability to manage crowds and keep customers safe.

Agritourism operations need to go above and beyond to plan for safe operations of their farms during the pandemic. This is not only important for public safety; it is important for the future of the farm business. Additionally, customers may see well-planned safety measures as a reason to visit the farm during these challenging times.

As operations begin putting together COVID-19 safety plans for their fall and Christmas seasons it is important that the farm communicates and develops a working relationship with the local health department. The local health department is the entity that is charged with protecting the health of the community and ensuring that the standards outlined in the Responsible RestartOhio orders are met. When making the first call to the local health department, farms should have an outline prepared for the preliminary discussion. For Example, be able to explain What activities will happen, and the plan for disinfecting high touch areas of the farm. Some preliminary guidance is available that relates to agritourism farms. This includes:

Consumer, Retail, Services and Entertainment

https://coronavirus.ohio.gov/static/responsible/Consumer-Retail-Services.pdf

Restaurants, Bars, and Banquet & Catering Facilities/Services

https://coronavirus.ohio.gov/static/responsible/Restaurants-and-Bars.pdf

Ohio K-12 Schools (As it relates to operating school tours)

https://coronavirus.ohio.gov/static/responsible/schools/K-12-Schools-Guidance.pdf

Child Care (As it relates to operating school tours)

https://coronavirus.ohio.gov/static/responsible/Sector-fact-sheet-8-Child-Care.pdf

Local departments may also have additional resources and insights that will help put together a plan to allow farms to keep their guests safe and address situations that may arise during the season. The earlier you can meet with them the more help they can provide. Help them get familiar with your operation and how its operated. Talk to them about keeping your guests safe while sustaining the farm. This year our guests will be looking for fun and safe activities, working with our local partners will be one way we can show our commitment to safety.

OSU Extension Bulletin Forthcoming

OSU Extension has prepared a guidance bulletin to help farms develop their plans. The guide is based on publications from the state of Ohio, the CDC and others. The guide is in the final stage of the approval process and will be available in the coming days. This guide can be used to develop opening plans or update existing plans for agritourism operations.

The guidance bulletin will be posted here on the Ohio Ag Manager website. To watch for updates on the guide, we encourage farms to subscribe to our Ohio Ag Manager Blog at http://ohioagmanager.osu.edu/

 

 

 

Evaluating Ohio Yield Possibilities for 2019 Agricultural Risk Coverage County Level Payment Rates

By Ben Brown, Department of Agricultural, Environmental and Development Economics, The Ohio State University- August 10, 2020

Click here to read PDF version of article

The Agricultural Adjustment Act of 2018 (2018 Farm Bill) made minor structural changes to both the Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC) programs in relation to the Agricultural Adjustment Act of 2014 (2014 Farm Bill). However, one of the nonstructural changes made in the 2018 Farm Bill adjusts the primary yield sources in creating Farm Service Agency (FSA) yields for the ARC-County program. Starting with the 2019 program year, which runs from September 1, 2019- August 31, 2020 for corn and soybeans and June 1, 2019- May 31, 2020 for wheat, Risk Management Agency (RMA) yield data is the preferred data source in a cascading formula for FSA county yields, whereas National Agricultural Statistics Service (NASS) data previously severed as the primary source. Realizing FSA reserves the right to adjust county yields, area-based RMA yields can only estimate, not predict, final FSA county yields. This article reviews RMA area-based reported yields for the 2019 crop year in Ohio and compares them to county-based NASS survey yields released February 21, 2020.

Cascading Yield Preference

Considerable debate during the passage of the 2018 Farm Bill related to accuracy of county-based yields and yield differences between county yields for the ARC-County commodity program. FSA is authorized to make commodity program payments, but uses external agency yield data to create ARC-County yields. While both RMA and NASS report county-based yields, NASS yields are based on voluntary farmer-reported survey results, whereas, RMA county yields are based on farmer certified yields as completion of crop insurance contracts. Fraudulent crop insurance reporting is subject to criminal liability. Legislators perceive RMA data to be more accurate even though there is no statistical difference between the two data sets. After years of using NASS yields as a primary data source for FSA yields, Congress mandated FSA to use RMA yields. FSA holds the right to adjust RMA yields before setting 2019 ARC-County yields.

Two scenarios where FSA may adjust RMA yields before certifying county yields:

  • there is a low number of insured acres in a county for the respective crop overweighting county yields on few acres and
  • counties where RMA insured yields are significantly different than NASS reported survey yields.

Table 1. Cascading Method for Certified FSA Yields.

2014 Farm Bill 2018 Farm Bill
1.     National Agricultural Statistics Service 1.     Risk Management Agency
2.     Risk Management Agency 2.     National Agricultural Statistics Service
3.     State Farm Service Agency Committee 3.     State Farm Service Agency Committee

RMA and NASS yield data comprises approximately 90% of the historical base acres enrolled in ARC-County. The State FSA Committee uses any available data for the remaining 10%.

Area RMA Yields and Blended Irrigated and Non-irrigated Yields

Not all insured acres in a county for a specific crop are used to calculate county yields, as not all individual policies trigger an insurance claim. Yields are captured for area-based insurance policies to calculate potential revenue or yield policy indemnities. Area policies are not as popular as individual policies across the country, but policy participation varies. This study uses Supplemental Coverage Option yield data as the assumed RMA data source. Area-based RMA policies are also released by practice (organic, irrigated, following another crop, and others). The 2018 Farm Bill adjusted the ARC program by authorizing specific counties to have both irrigated and non- irrigated ARC-County eligible payments. For counties with one combined ARC payment rate a blended yield is used by weighting the share of acres in each practice. Figures 1, 3, and 5 illustrate the blended yield per county for Ohio. Figures 2, 4, 6 illustrate the percent change between RMA SCO yields and NASS survey yields. Shaded counties have NASS yields larger than one standard deviation either positive or negative.

 

According to RMA, Clinton County had the highest area yield at 193 bushels per acre, whereas Carroll County had the lowest area yield at 95 bushels per acre. NASS estimated the state corn yield to be 164 bushels per acre. Corn irrigation is a relatively minimal practice in Ohio compared to other corn producing states. Four Ohio counties do have both an irrigated and non-irrigated ARC- County payment: Champaign, Pickaway, Ross, and Williams. For 2019, there was no reported difference between irrigated and non-irrigated yields in any of the four counties.

 

Figure 2. illustrates percent change of NASS survey yields from RMA reported yields. Thirteen out of sixty-eight counties were greater than one standard deviation. Red and purple shadded counties are where RMA and NASS were noticably different in yield reports. These thirteen counties have the greatest likelihood of being adjusted before FSA certifies the county yield.

For soybeans, there were three counties where RMA did not have either insured soybean acres or enough data points to protect producer identification: Belmont, Monroe, and Noble. Clinton County had the highest soybean yield at 59 bushels/acre, where Coshocton had the lowest at 31 bushel/acre. Eleven Ohio counties receive sepearte ARC-County payment rates by practice- Allen, Auglaize, Champaign, Hardin, Putnam, Seneca, Shelby, Union, Van Wert, Williams, and Wyandott. Only four had different irrigated and non-irrigated yields as represented by Table 2.

Table 2. Irrigated and Non-irrigated Soybean Yields (bushels per acre).

Practice Champaign Union Williams Wyandot
     Irrigated 53 49 56 49
     Non-irrigated 44 43 50 47
         
         

 

Figure 4. illustrates percent change of NASS survey yields from RMA reported yields. Grey shaded counties are counties were either NASS or RMA data was missing. Since, NASS yields are derived from a voluntary producer survey, a certain number of responses are required to generate an appropriate sample size. Frequent rains during the spring of 2019 delayed planting in parts of Ohio and some counties that normally have NASS soybean yields did not have enough observations to calculate a NASS yield, represented in Figure 4 by grey shading. Eleven Ohio counties had a NASS value that was greater than one standard deviation from the corresponding RMA yield. Most notable were Lawrence where the reported SCO RMA yield was 50 bu./acre and a NASS survey yield of 35 bu./acre for a deviation of almost 45%. Conversely, Coshocton County had an RMA yield of 31 bu./acre, but a NASS yield of 45 bu./acre and a nearly a 31% deviation.

Seventy-six Ohio counties had a reported RMA wheat yield in comparison to fifty-eight with NASS survey yields. Wheat yields were highest in Southwest and South Central Ohio and weakest in Northeast Ohio. Although, Fulton County in Northwest Ohio had the stronger wheat yield at nearly 70 bu./acre. Medina County had the smaller wheat yield at almost 28 bu./acre.  Ohio does not have any counties with both an irrigated and non-irrigated wehat ARC-County payment.

 

In comparison to corn and soybeans, wheat had the largest amount of Ohio counties where the NASS survey yield was outside one standard deviation at twenty-six counties and the largest percent deviations (Figure 6). It is likely the largest number of county adjustments to certified FSA yields will be for wheat. The majority of counties indicate NASS wheat yields are higher compared to RMA reported yields, foreshadowing a greater change of triggering ARC-county payments.

Conclusion

Final FSA yields and corresponding ARC-County payment rates will not be released to the public for several more weeks. However, the cascading yield discovery method established in the 2018 Farm Bill identifies RMA reported area yields as the first source for FSA county data. Using SCO area yields and weighting by share of irrigated and non-irrigated acres should be a good indication of FSA certified yields expected to be released in October. FSA does hold the right to adjust yields using other available data. Counties with a deviation greater than one standard deviation in NASS survey yields and RMA reported yields will be the most likely candidates for adjustments. County wheat yields are more likely to be adjusted than corn and soybeans.

References

United States Department of Agriculture- Farm Service Agency. “Agriculture Risk Coverage and Price Loss Coverage Program Handbook.” Page 5-131. October 28, 2019. https://www.fsa.usda.gov/Internet/FSA_File/1-arcplc_r01_a03.pdf

United States Department of Agriculture- National Agricultural Statistics Service. “Ohio Corn County Estimates 2019.” February 21, 2020. https://www.nass.usda.gov/Statistics_by_State/Ohio/Publications/County_Estimates/2019/2019_OH_corn_CE.pdf

United States Department of Agriculture- National Agricultural Statistics Service. “Ohio Soybean County Estimates 2019.” February 21, 2020. https://www.nass.usda.gov/Statistics_by_State/Ohio/Publications/County_Estimates/2019/2019_OH_soy_CE.pdf

United States Department of Agriculture- National Agricultural Statistics Service. “Ohio Wheat County Estimates 2019.” December 12, 2020. https://www.nass.usda.gov/Statistics_by_State/Ohio/Publications/County_Estimates/2019/2019_CE_Wheat_Ohio.pdf

United States Department of Agriculture- Risk Management Agency. “2019 County Supplemental Coverage Option Yields.” July 15, 2020. https://webapp.rma.usda.gov/apps/RIRS/SCOYieldsRevenuesPaymentIndicators.aspx

U.S. Farm Liquidity Measures Projected to Decline in 2020

by: Chris Zoller, Extension Educator, ANR

Click here for Article (access the figures)

Liquidity is a measure of the ability of a farm to use cash or ability to convert assets to cash quickly to meet short-term (less than 12 months) liabilities when due.  Data from the United States Department of Agriculture Economic Research Service (USDA-ERS) forecast a continued decline in 2020 of liquidity on U.S. farms.  This article discusses two metrics, the current ratio and working capital, to evaluate liquidity.

Working Capital

USDA-ERS projects farm working capital to decline from the 2012 level of more than $160 billion to $52 billion in 2020 (see Chart 1).  Working capital is the value of cash and short-term assets that can easily be converted to cash minus amounts due to creditors within 12 months.  These are considered “short-term” assets and liabilities.  Having adequate working capital is important for a farm to meet obligations as they come due, take advantage of pre-pay discounts, and manage through price declines or unexpected expenses.

Like many things in agriculture, knowing how much working capital a farm needs varies based on several factors.  These include farm size, farm type, and market volatility.  The working capital to gross revenue ratio is a measurement of the working capital divided by the gross sales of the business. This ratio measures the amount of working capital compared to the size of the business.  Lenders prefer a working capital to gross revenues ratio of 40 percent or better. This means that if the business has $1 million in gross sales, working capital would need to be $400,000 or 40 percent of $1M.  When the working capital ratio falls below .20, a farm may have difficulty meeting cash obligations .in a timely manner.

Chart 1. (Source: USDA-ERS, February 5, 2020) (see PDF version to access charts)

Current Ratio

The current ratio is calculated as total current assets divided by total current debt (or liabilities).  Current is defined as less than 12 months.  Current assets include: cash, accounts receivable, fertilizer and supplies, investment in growing crops, crops held for storage and feed, and market livestock.  Current liabilities include: accounts payable/accrued expenses, income and social security taxes payable, current portion of deferred taxes, current loans due within one year, current portion of term debt, and accrued interest.

USDA-ERS expects the value of current assets to decline 3.5% and current liabilities to increase 2.3% in 2020.  The current ratio of U.S. agriculture was 2.87 in 2012 and is projected by USDA-ERS to fall to 1.42 in 2020 (see Chart 2).  If a farm has $100,000 in current assets and $70,000 in current liabilities, the current ratio equals 1.42.  A current ratio of 2:1 or greater is desirable and indicates a farm has $2 in short-term assets for every $1 in short-term debt.

Chart 2.  (Source: USDA-ERS, February 5, 2020)  (see PDF version to access charts)

Management Tips

Farm financial management is critical in today’s volatile environment.  Consider the following management tips:

  • Complete an annual balance sheet. Using your numbers, calculate trends.
  • Compare your numbers with recommended benchmark values.
  • Discuss your numbers with your lender.
  • Contact your local Extension educator or enroll in the Ohio State University Extension Farm Business Analysis and Benchmarking Program (https://farmprofitability.osu.edu/).

References

Assets, Debt, and Wealth, United States Department of Agriculture Economic Research Service, https://www.ers.usda.gov/topics/farm-economy/farm-sector-income-finances/assets-debt-and-wealth/

Deterioration of Working Capital, University of Illinois Farmdoc, https://farmdocdaily.illinois.edu/2020/03/deterioration-of-working-capital.html

Improve Understanding of Your Farm’s Working Capital, Michigan State University Extension, https://www.canr.msu.edu/news/improving_understanding_of_your_farms_working_capital

Minding Your Balance Sheet and Working Your Working Capital, University of Illinois Farmdoc, https://farmdocdaily.illinois.edu/2019/01/minding-your-balance-sheet-working-your-working-capital.html

The Basics of a Farm Balance Sheet, Ohio State University Extension, https://ohioline.osu.edu/factsheet/anr-64#:~:text=The%20farm%20balance%20sheet%20is,information%20about%20a%20farm%20business.&text=The%20balance%20sheet%20is%20also,solvency%2C%20and%20risk%20bearing%20capacity.

 

 

Farm Office Live Webinar Slated for Thursday, June 11 at 9:00 a.m.

OSU Extension is pleased to be offering the a “Farm Office Live” session on Thursday morning, June 11 from 9:00 to 10:30 a.m.  Farmers, educators, and ag industry professionals are invited to log-on for the latest updates on the issues impact our farm economy.

The session will begin with the Farm Office Team answering questions asked over the two weeks.  Topics to be highlighted include:

  • Updates on the CARES Act Payroll Protection Program
  • Prevent Plant Update
  • Business & Industry CARES Act Program
  • EIDL Update
  • CFAP- update on beef classifications and commodity contract eligibility
  • Dicamba Court Decision Update
  • Other legal and economic issues

Plenty of time has been allotted for questions and answers from attendees. Each office session is limited to 500 people and if you miss the on-line office hours, the session recording can be accessed at farmoffice.osu.edu the following day.  Participants can pre-register or join in on Thursday morning at  https://go.osu.edu/farmofficelive 

 

Sign up for USDA-CFAP Direct Support to Begin May 26, 2020

Ben Brown, Peggy Kirk Hall, David Marrison, Dianne Shoemaker and Barry Ward
The Ohio State University

Since the enactment of the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020 and the announcement of the Coronavirus Food Assistance Program (CFAP) on April 17, 2020, producers in Ohio and across the country have been anxiously awaiting additional details on how the Coronavirus Food Assistance Program (CFAP) will provide financial assistance for losses experienced as a result of lost demand, short-term oversupply and shipping pattern disruptions caused by COVID-19.

The additional details on CFAP eligibility, payment limitations, payment rates, and enrollment timeline arrived on May 19, 2020, when the USDA issued its Final Rule for CFAP.  In this article, we explain the Final Rule in this issue of News from the Farm Office.

Click here to read the complete article

Starting Tuesday, May 26, 2020, producers can contact their local FSA office and begin to sign up for CFAP.  This bulletin serves as the authors’ interpretations of the Final Rule released by USDA, and FSA interpretation may be different.

OSU Extension and Ohio FSA will conduct a webinar in the upcoming days to outline program materials and answer questions. For information about the webinar and additional information on CFAP, please visit farmoffice.osu.edu.

Information provided on the program by USDA along with a webinar for new FSA program participants is available at farmers.gov/CFAP.

Being and Maintaining an Economically Resilient Farm

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

The word “resilience” is used often in the agricultural press.  What does this mean?  Merriam-Webster defines resilience as:

  1. The capability of a strained body to recover its size and shape after deformation caused especially by compressive stress.
  2. An ability to recover from or adjust to misfortune or change.

We often see resilience used in agriculture when discussing climate and weather.  There is documented evidence of weather changes that have impacted agriculture, and farmers have done their best to adapt to these changes.  Examples include building soil health, managed grazing, the use of cover crops, water management strategies, technology adoption, and more.

Resilience can also be used when discussing the economics of agriculture and the resulting effects.  It is no surprise to anyone in agriculture that people are strained, are experiencing stress, and are trying to adjust to new and different ways of operating.

Strategies to Be Economically Resilient

  • Mission statement

A mission statement is a short description of the fundamental reasons your business exists – its critical purpose.  The statement aligns what the business says it does, what it actually does, and what others believe it is about.  The statement reflects the underlying values, goals, and purposes of the business.

Example mission statement:

“The mission of Brown Family Farms is to produce high-quality crops in sufficient quantity and quality to provide a good standard of living for our family and employees.  We believe a farm is the perfect environment to raise a family and strive to have the farm remain a viable business for future generations.”

  • Set Goals

An acronym commonly used to describe goals is SMART.  Goals must be Specific, Measurable, Action-oriented, Realistic, and Timed to be useful management tools.  As you develop goals, it may be helpful to divide them into personal, production, and operational categories.

Goals should be:

Specific – and focus on a specific problem or need

Measurable – to have some means of tracking achievement

Action-oriented – action is the pathway to achieving goals

Realistic – aim high, but keep goals within the realm of possibility

Timed – to include a realistic completion date

  • Know Your Cost of Production

Do you know the true costs to produce every acre of a crop, every pound of milk, every ton of hay, and each pound of meat?   Are there some crops or livestock that make more money than others?  Are there some acres that could be converted to a use that provides a higher net return?  How does your farm compare with the established farm financial ratios?  An in-depth financial analysis can help answer these and other questions.

Visit the Ohio State University Extension Farm Profitability Program (https://farmprofitability.osu.edu/) for additional information or to enroll in the Benchmarking Program.

  • Postpone Major Capital Investments

Most everyone is already doing this, but it is a good idea to assess what investments are necessary, how urgent these needs are for your farm, and the cost of these investments.  Do you really need to buy a new piece of equipment?  Could you accomplish what is needed by hiring someone or renting the equipment?  If you need to make a major capital investment, consider not only the initial cost, but the associated “DIRTI 5” – Depreciation, Interest, Repairs, Taxes, and Insurance that must be accounted for after the purchase.

  • Restructure Debt

Discuss with your lender opportunities to refinance or restructure debt.  Do you have short-term liabilities that could be moved to intermediate notes to improve cash flow?

  • Evaluate Expenditures

Analyze your expenses to see where you might be able to trim costs without sacrificing production.  For example, can you reduce your seeding rates to reduce costs?  Ohio State University Extension has been conducting on-farm research to evaluate corn and soybean seeding rates.  Contact your Extension educator or review the trials reports here https://digitalag.osu.edu/efields/efields-reports.  Dairy farms will find helpful information and cost-control considerations here https://dairy.osu.edu/.

Talk with your nutritionist, agronomist, Extension educator, and other experts to evaluate inputs and expenditures.  Do you need every ingredient in your ration?  Do you need a seed variety with every available trait?

  • Reduce Family Living Expenses

The Bureau of Labor Statistics data from 2018 indicate average family living expenses equaled $61,224 annually.   A February 2019 article published by the Center for Farm Financial Management at the University of Minnesota show a family of three averages almost $64,000 annually in family living expenses before paying income taxes or making other non-farm capital purchases and investments.  Are there “extras” that are costing too much?  Evaluate what you want versus what you need as a family.

  • Consider Non-Farm Income

The current pandemic may make finding off-farm employment more difficult, but there are opportunities.  Look in the local newspaper, conduct online searches, let family and friends know you or a family member could use help finding employment.  Calculate how much you need to earn at an off-farm job.

  • Seek Opportunities to Be Entrepreneurial

 Challenging times might not seem like the opportunity to get creative and extend the current workload further, but there likely are tangential opportunities to your existing business that meet the needs of the community. Maybe that is offering storage facilities, tree trimming, bookkeeping, or other enterprises. This can reenergize someone in a time when it is easy to feel down and creates a productive diversion. Some of the best creative work in this country came from a less than opportune economic environment.

  • Don’t Be Afraid to Ask for Help

To say that operating a farm business in today’s environment is a challenge is an understatement!  There are plenty of people who want and are available to help you sort through the complexities, answer questions, and provide guidance to help you succeed.

References

Bureau of Labor Statistics, Consumer Expenditures – 2018,  https://www.bls.gov/news.release/cesan.nr0.htm

Characteristics of Financially Resilient Farms, University of Nebraska, https://cropwatch.unl.edu/2018/characteristics-financially-resilient-farms

Developing Goals for the Agricultural Business, Ohio State University Extension, https://ohioline.osu.edu/factsheet/anr-45

Family Living Expenses Add Up, Center for Farm Financial Management, University of Minnesota, https://finpack.umn.edu/family-living-expenses-add-up/

Whole Farm Planning Model, Ohio State University Extension, https://ohioline.osu.edu/factsheet/anr-52