Ohio Ag Manager

by: Barry Ward- Leader, Production Business Management, Ohio State University Extension

Production costs for Ohio field crops are forecast to be slightly lower to slightly higher in 2017 depending on the crop and the profit picture remains poor, much the same as in 2016. Variable costs for corn for 2017 are projected to be $328 to $407 per acre depending on land productivity. Lower fertilizer costs are offset by somewhat higher fuel, chemical and interest costs.

Variable costs for 2017 Ohio soybeans are projected to range from $194 to $210 per acre. Some minor changes in soybean weed control assumptions led to higher herbicide costs. This higher cost together with higher fuel and interest expense more than offset lower fertilizer and seed costs.

Wheat variable expenses for 2017 are projected to range from $161 to $192 per acre, down slightly from 2016. Lower fertilizer prices are the primary drivers of lower variable costs in 2017 offsetting slightly higher herbicide costs.

With continued low crop prices expected for 2017, returns will likely be low to negative for many producers. Projected returns above variable costs (contribution margin) range from $183 to $342 per acre for corn and $212 to $384 per acre for soybeans. (This is assuming fall cash prices of $3.65 per bushel for corn and $9.40 per bushel for soybeans.) Projected returns above variable costs for wheat range from $112 to $205 per acre (assuming $4.20 per bushel summer cash price).

Returns to land for Ohio corn (Gross Revenue minus all costs except land cost) are projected to range from -$40 to $107 per acre in 2017 depending on land production capabilities. Returns to land for Ohio soybeans are expected to range from $39 to $202 per acre depending on land production capabilities. Returns to land for wheat (not including straw or double-crop returns) are projected to range from -$62 to $25 per acre.

Total costs projected for trend line corn production in Ohio are estimated to be $786 per acre. This includes all variable costs as well as fixed machinery, labor, management and land costs. Fixed machinery costs of $130 per acre include depreciation, interest, insurance and housing. A land charge of $187 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 $76 per acre. Returns Above Total Costs for trend line corn production are negative at -$157 per acre.

Total costs projected for trend line soybean production in Ohio are estimated to be $566 per acre. (Fixed machinery costs – $108 per acre, land charge – $187 per acre, labor and management costs combined – $55 per acre.) Returns Above Total Costs for trend line soybean production are also negative at -$66 per acre.

Total costs projected for trend line wheat production in Ohio are estimated to be $540 per acre. (Fixed machinery costs – $126 per acre, land charge – $187 per acre, labor and management costs combined – $38 per acre.) Returns Above Total Costs for trend line wheat production are also negative at -$205 per acre.

These projections are based on OSU Extension Ohio Crop Enterprise Budgets. Newly updated Enterprise Budgets for 2017 have been completed and posted to the OSU Extension Agriculture and Natural Resources Farm Management Tools website:

https://aglaw.osu.edu/farm-management-tools/farm-budgets

Wayne County Extension is hosting a 6-evening farm financial management school on Thursday evenings in January and February.   The school will begin the evening of January 12 and run six consecutive Thursday evenings through February16.  This year’s school is going to focus on helping participants to answer 3 basic financial questions:

• Where am I (the farm) financially?
• Where do I (the farm) want to be financially?
• How do I (the farm) get there?

The school will be structured to include presentations, discussion, and hands-on activities.  Participants will learn how to put together and use financial documents to measure their current farm financial situation, track expenses and cash flow, make decisions to help improve or maintain the financial situation, and work more effectively with Ag lenders.  Topics that will be covered over the 6 week school include: mission statements, balance sheets, cost of production, family living expense, farm income statements, farm cash flow statements, enterprise budgets, bench marking, financial standards/ratios, record keeping, budgeting,  working with ag lenders,  marketing, and crop insurance.  Each participant will receive a 3-ring binder notebook with materials and handouts from each session.

The school will be held in the commissioners meeting room located in the upper level of the county administration building.  A light meal will be available each evening at 6:45 pm and class instruction will begin at 7:00 pm and conclude by 9:30 pm each evening.  The registration cost is $50/person.  Sponsorships provided by Farm Credit Mid-America, Farmers National Bank and Wayne Savings Community Bank are helping to cover presenter costs, mileage and materials.

Pre-registration is requested to the Wayne County Extension office at 330-264-8722 by Friday, January 6 or by email to Lisa Parker, Wayne County Extension office assistant at: parker.1269@osu.edu.   A farm financial management school flyer with a registration form is available on the Wayne County Extension web site at: http://go.osu.edu/agwayne.

by: Barry Ward, Leader, Production Business Management, Department of Agricultural, Environmental and Development Economics

A large number of Ohio farmers hire machinery operations and other farm related work to be completed by others. This is often due to lack of proper equipment, lack of time or lack of expertise for a particular operation. Many farm business owners do not own equipment for every possible job that they may encounter in the course of operating a farm and may, instead of purchasing the equipment needed, seek out someone with the proper tools necessary to complete the job. This 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 State University Extension collects surveys and publishes survey results from the Ohio Farm Custom Survey every other year and we need your assistance in securing up-to-date information about farm custom work rates, machinery and building rental rates and hired labor costs in Ohio.

This year we are updating our published custom farm rates for Ohio. Extension Educators in Ohio will be disseminating surveys at select educational activities throughout the winter. There is also an online survey option that anyone can access. The online survey is available at: http://aede.osu.edu/customrate2016

We would ask that you respond even if you know only a few rates. We want information on actual rates, either what you paid to hire custom work or what you charged if you perform custom work. Custom Rates should include all ownership costs of implement & tractor (if needed), operator labor, fuel and lube. If fuel is not included in your custom rate charge there is a place on the survey to indicate this.

You may access the survey at: http://aede.osu.edu/customrate2016

The deadline to complete the survey is March 31^st.

by: Barry Ward, Leader, Production Business Management, Department of Agricultural, Environmental, and Development Economics

Low crop margins and uncertain land value and cash rental markets will continue to be important themes as we look ahead to 2016 as producers grapple with high costs relative to crop prices received.

According to data from the Ohio Ag Statistics Service, bare cropland value increased 3.5% in Ohio in 2015. According to this data, bare cropland averaged $5850/acre, up from $5,650/acre the previous year. The Western Ohio Cropland Values and Cash Rents Survey (AEDE) was conducted in January 2015. The projected value for Average cropland in western Ohio was $7,315 per acre. Top cropland in western Ohio was projected to average $9,190 per acre while Poor cropland in western Ohio was expected to average $5,673 per acre. These values reflect projected decreases of 5.5 to 9.5%.

The Chicago Federal Reserve Bank October 1 survey of bankers found land values of “good” farmland were unchanged from last year however the 3rd quarter showed an increase in farmland values of 1% across the district. Purdue University conducted their annual land value survey in June 2015 and found decreases in farmland value that ranged from 3.8 to 5.1% depending on land productivity class.

Strong equity positions together with continued low interest rates continue to lend positive support to land values. Low projected profit margins in 2016 will likely restrict further land value increases and possibly cause values to decrease. These competing fundamentals create a continued uncertain picture for land values in 2016 although continued low margins together with the potential for higher interest rates suggest lower farmland values in 2016.

Enterprise budget projections for Ohio’s primary row crops for 2016 indicate the potential for low margins. Returns to Variable Costs (gross revenue minus variable costs) are projected to be $185-$345 per acre for Ohio corn in 2016 depending on land production capabilities. Budget projections for 2016 soybeans show Returns to Variable Costs to be $179-$331 per acre. Wheat budget projections for 2016 show Returns to Variable Costs to be between $125 and $218 per acre. This is assuming current prices of inputs and current December, November and September 2016 futures prices, respectively. These projections are based on OSU Extension Ohio Crop Enterprise Budgets available online at: http://aede.osu.edu/research/osu-farm-management/enterprise-budgets

Strong equity positions together with higher property taxes will continue to lend support to cash rental rates however low profit margins in 2016 will put downward pressure on rents. These competing fundamentals suggest a flat to slightly lower cash rental market outlook for 2016.

Variable costs for Ohio corn for 2016 will be 8.5% to 10.6% lower compared to 2015. Variable costs for corn for 2015 are projected to be $336 to $421 per acre. Variable costs for 2016 Ohio soybeans are projected to be 6.2% to 6.6% lower and range from $196 to $214 per acre. Wheat variable expenses for 2016 are projected to range from $169 to $211 per acre. Lower fuel and fertilizer prices will be the primary fundamental drivers of lower variable costs in 2016.

Outlook information presented here was developed with data from AEDE research, the Energy Information Administration, USDA, other Land Grant research, futures markets and retail sector surveys. While gauged to the best of this author’s capabilities, forward looking statements contained in this document may prove to be incorrect due to changes in supply and demand and other political and economic related events.