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.

Ohio Farm Custom Rates 2022

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 tasks 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

The “Ohio Farm Custom Rates 2022” publication reports custom rates based on a statewide survey of 223 farmers, custom operators, farm managers, and landowners conducted in 2022. These rates, except where noted, include the implement and tractor if required, all variable machinery costs such as fuel, oil, lube, twine, etc., and 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 or community relationships, Discounted rates may also occur when the custom work provider is attempting to strengthen a relationship to help secure the custom farmed land in a future purchase, cash rental 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.

New this year, the number of responses for each operation has been added to the data presented. In cases where there were too few responses to statistically analyze, summary statistics are not presented.

Charges may be added if the custom provider considers a job abnormal such as distance from the operator’s base location, difficulty of terrain, amount of product or labor involved with the operation, or other special requirements of the custom work customer.

The data from this survey are intended to show a representative farming industry cost for specified machines and operations in Ohio. As a custom farm work provider, the average rates reported in this publication may not cover your total costs for performing the custom service. As a customer, you may not be able to hire a custom service for the average rate published in this factsheet.

It is recommended that you calculate your own costs carefully before determining the custom rate to charge or pay. It may be helpful to compare the custom rates reported in this fact sheet with machinery costs calculated by economic engineering models available online. The following resources are available to help you calculate and consider the total costs of performing a given machinery operation.

Farm Machinery Cost Estimates, available by searching University of Minnesota.

Illinois Farm Management Handbook, available by searching University of Illinois farmdoc.

Estimating Farm Machinery Costs, available by searching Iowa State University agriculture decision maker and machinery management.

Fuel price changes may cause some uncertainty in setting a custom rate. Significant volatility in diesel price over the last several months has caused some concern for custom rate providers that seek to cover all or most of the costs associated with custom farm operations. The approximate price of diesel fuel during the survey period ranged from $4.50 – $5.25 per gallon for off-road (farm) usage. As a custom farm work provider, if you feel that your rate doesn’t capture your full costs due to fuel price increases you might consider a custom rate increase or fuel surcharge based on the increase in fuel costs.

For example, let’s assume the rate you planned to charge for a chisel plow operation was based on $4.50 per gallon diesel costs and the current on-farm diesel price is $5.50 per gallon. This is a $1 per gallon increase. The chisel plow operation uses 1.15 gallons of fuel per acre so the added fuel surcharge could be set at $1.15 per acre (1.15 gallons x $1 gallon).

The complete “Ohio Farm Custom Rates 2022” publication is available online at the Farm Office website:

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

 

 

 

Planning for the Future of Your Farm Workshop Slated for July 29 in Darke County

by: Taylor Dill, OSU Extension Extension Educator

Many farms are lost in the modern farm community because of an unsuccessful transition from one generation to the next. The farm transition is a difficult task to plan for financially and can be even more difficult to just talk about between family members. It is estimated that more than half of farmers and ranchers do not have an estate plan. Estate planning is crucial for a successful transition to the next generation, while also keeping the family together. Ohio State Extension has many farm management specialists to assist in this undertaking.

Join OSU Extension Darke County in welcoming David Marrison, Coshocton County Extension Educator and Robert Moore OSU Farm Law Attorney for a Planning for the Future of Your Farm event! David and Robert will be covering; developing goals for estate and succession, planning for the transition of control, planning for the unexpected, communication and conflict during the farm transfer, selecting an attorney, legal tools and strategies, developing your team, and getting your affairs in order. David and Robert are well renowned in extension and their mission is to save family farms from collapse because of poor transition planning.

The event will be July 29th at the Anderson’s Ethanol Plant Meeting Room, 5728 Sebring Warner Rd. #E, Greenville starting at 8:30 a.m. and ending at 4 p.m. The cost for the class is $45 covering two family members and course materials. Lunch has been generously provided by Farm Credit. Pre-registration is required as seats are limited! Please RSVP to Dill.138@osu.edu or call 937-548-5215

 

 

Evaluating the Prevent Plant Option

by: Eric Richer & Chris Bruynis, OSU Extension Educators

Planting progress goes differently every year and in each part of the state. This year is no different in Ohio. Some places got in early and are finished. Others had their ‘normal’ planting progress with ‘normal’ Mother Nature breaks, perhaps with some re-plant needed. And still others have not had ideal conditions all spring to plant.  As such, we have received some recent calls regarding the mechanics and economics of utilizing the Prevent Plant through crop insurance this year in certain parts of the state. First and foremost, we are not crop insurance agents, so speaking with your agent is of utmost importance. In this article, we will walk through an example on the economics of electing Prevent Plant.

In Ohio, once you arrive at the final plant date of June 5 for corn (already passed) and June 20 for soybeans, you basically have 3 options in a corn scenario:

Your first option is to plant the corn crop no matter what the date is on the calendar. Up until the final plant date, you are eligible for your full guarantee at the level you have selected.  This article will reference the 2022 Ohio Corn Production Enterprise Budget, the 20-year USDA-NASS Trendline Ohio corn yield of 184 bu/ac as the Actual Production History (APH) and $5.90/bu 2022 base price for corn. So for your full guarantee at 80% coverage: 184 bu/ac APH x $5.90 x 80% coverage = $868/acre. If you elect to plant corn after June 5, you will incur a 1% reduction in your guarantee up through June 25. If you plant your corn after June 25, you can choose not to insure your corn crop or you can insure at the policy’s prevent plant revenue level.  For example, if you plant corn on June 8, the guarantee formula (184 APH, 80% coverage) would be: 80% x 184 bu/ac x $5.90 x 97% = $842/acre.  Planting dates need to be recorded, as these rules apply on field-by-field and acre-by-acre basis.

Secondly, you can elect to switch your intended corn acres to soybean acres.  You will be charged for the soybean insurance premium, not the corn premium.  A key agronomy question: Did you apply chemistry that does not allow you to plant soybean? June weather (local and regional), supply/demand economics, geo-political issues, trade policy and input options increase the complexity of this decision.

Your last option is to file for Prevent Plant, assuming you did not get corn planted by June 5.  The mechanics of prevented plant deserve a review to ensure understanding.  New in 2021, is that there must have been a crop planted, harvested, and insured on the acres in question in one of the last four years to qualify for prevent plant. Consult your crop insurance agent to determine your total eligible acres for each crop, as this is a key question. Prevent plant covers Yield Protection (YP), Revenue Protection (RP) and Revenue Protection with Harvest Price Exclusion (RPHPE) policies and references the February new crop corn pricing period (aka base price) of $5.90/bu for the 2022 corn crop ($14.33/bu for soybean). To be very clear, prevent plant indemnities will not be re-adjusted to a higher harvest price; prevent plant indemnities are based on the February (base) price only. A corn policy has a standard 55% Prevent Plant guarantee (buy-up available to 60%) and soybeans a standard 60% guarantee (with buy-up available to 65%). To further be eligible for Prevent Plant, at least 20 acres or 20% of that unit must not get planted (the lesser of the two).  Prevented Plant does not affect your yield history as long as you do not plant a second crop.  Also, prevent plant claims can be denied if not common to the area.

So, to continue our example from above, the indemnity for prevented plant corn would be: 184 bu/ac x $5.90 x 80% coverage x 55% prevent plant rate = $477/acre. Please remember that this calculation can vary widely based on coverage level elected (50-85%), prevent plant buy up (55% to 60% for corn) and your farm/field’s APH. . In our example, this $477/acre would also be the amount at which you could chose to insure a corn crop planted after June 25 (versus no insurance at all).

To be sure, there are costs besides the premium that are associated with Prevent Plant. Are there ‘restocking fees’ associated with returned seed or other inputs? How much fertilizer has already been applied? What are the year-long weed control costs? Does my applied chemistry limit my options? If utilizing cover crops, what will their cost be? Will there be enough to address Fixed Costs of Land, Labor, Management? And finally, are their opportunity costs (marketing) missed because of taking Prevent Plant? While this article is not intended to address all these questions, they are questions you should raise and probably already have.

Once the “Net to Prevent Plant” is known (ie PP Indemnity minus all fixed costs plus any variable costs), the simple economic comparison to make is against your farm’s estimated Return Above Total Costs. According to the 2022 Ohio Corn Enterprise Budget, for trendline yields and costs, the Return Above Total Costs is $232/acre.  As planting date gets later and later, you will have to evaluate how much of a yield (ie revenue) reduction you will need to plug into your enterprise budget.

In the end, every farmer and situation is unique.  It is important to run the numbers for yourself to make an informed farm management decision.

 

Ohio Crop Returns Outlook for 2022: Final Crop Enterprise Budgets for 2022

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

Higher input costs and higher crop prices have been the theme for the last several months. Higher production costs in 2021 gave way to even higher costs for the 2022 production year. Factors affecting both supply and demand have continued to drive commodity crop prices higher. The result of all of this change is a positive margin outlook for 2022 commodity crops.

Production costs for Ohio field crops are forecast to be higher than last year with higher fertilizer prices leading the way. Variable costs for corn in Ohio for 2022 are projected to range from $578 to $708 per acre depending on land productivity. The trend line corn yield (183.7 bpa) scenario included in the corn enterprise budget shows an increase in variable costs of 44%.

Variable costs for 2022 Ohio soybeans are projected to range from $311 to $360 per acre. Variable costs for trend-line soybeans (56.5 bpa) are expected to increase 40% in 2022 compared to 2021.

Wheat variable expenses for 2022 are projected to range from $249 to $321 per acre. The trend line wheat yield (74 bpa) scenario included in the wheat enterprise budget shows an increase in variable costs of 50%.

Returns will likely be positive for most producers depending on crop price change throughout the rest of the year. Grain prices used as assumptions in the 2022 crop enterprise budgets are $7.00/bushel for corn, $14.25/bushel for soybeans and $7.50/bushel for wheat. Projected returns above variable costs (contribution margin) range from $450 to $835 per acre for corn and $333 to $606 per acre for soybeans. Projected returns above variable costs for wheat range from $195 to $345 per acre although significant crop price increases since last fall (when the price was set for this enterprise budget) will likely cause wheat to be more profitable than these return projections indicate.

Return to Land is a measure calculated to 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 $260 to $619 per acre in 2022 depending on land production capabilities. Returns to land for Ohio soybeans are expected to range from $205 to $462 per acre depending on land production capabilities. Returns to land for wheat (not including straw or double-crop returns) are projected to range from $100 per acre to $239 per acre assuming a planting-time price of $7.50/bushel. If a current forward harvest price for wheat of $11.50/bushel is used, the Return to Land is in a much higher range of $325 to $576 per acre depending on land production capabilities.

Total costs projected for trend line corn production in Ohio are estimated to be $1,054 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 $78 per acre include depreciation, interest, insurance and housing. A land charge of $207 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 $105 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 $678 per acre. (Fixed machinery costs: $62 per acre, land charge: $207 per acre, labor and management costs combined: $60 per acre.)

Total costs projected for trend line wheat production in Ohio are estimated to be $593 per acre. (Fixed machinery costs: $36 per acre, land charge: $207 per acre, labor and management costs combined: $52 per acre.)

Data used to compile these enterprise budgets includes research, surveys, market data, economic modeling, calculations and experience of authors.

Current budget analyses indicates very favorable returns for all three primary commodity crops but crop price change and harvest yields may change this outcome. These projections are based on OSU Extension Ohio Crop Enterprise Budgets. Newly updated Enterprise Budgets for 2022. have been completed and posted to the Farm Office website: https://farmoffice.osu.edu/farm-mgt-tools/farm-budgets

Market Outlook Report: Wheat

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

The United States Department of Agriculture Economic Research Service (USDA ERS) released its Wheat Outlook on May 16, 2022.  This report provides domestic and international estimates and projections and is available here: https://www.ers.usda.gov/webdocs/outlooks/103927/whs-22e.pdf?v=1249. The outlook is based on the World Agricultural Supply and Demand Estimate (WASDE) released May 12, 2022.  This article will provide a summary of the estimates for domestic supplies, production, and pricing.

Tight Supplies & Record Prices

The season-average price for wheat in the 2022/2023 marketing year is projected to be $10.75 per bushel.  Drought in several wheat producing regions of the U.S. resulted in lower production in the 2021/2022 marketing year leading to tight stocks.  USDA ERS projects an increase in wheat acres for the 2022/2023 marketing year but still expected to be the lowest in 20 years.

Domestic Outlook

The latest Crop Production Report from USDA National Agricultural Statistics Service indicated that, although acres planted to wheat increased, harvested acres are expected to decline by four percent.  Average yield is expected to decline more than two bushels per acre to an average of 47.9 bushels per acre.

Production of Hard Red Winter wheat is expected to be down 21 percent.  Persistent drought in major production regions (Kansas, Texas, and Oklahoma) is to blame for much of the decline.

Soft Red Winter wheat is expected to decline by approximately two percent from the previous year.  While down, the production is still the largest since the 2015/2016 marketing year.

Production of White Winter wheat, grown primarily in the Pacific Northwest, is projected to be up 38 percent from the prior marketing year.  A total of 230 million bushels is expected.

The outlook projects a total of 555 million bushels of Durum and other Spring wheats.  Arizona and California are significant producers of these classes of wheat.

Winter Wheat Yield Forecast & Conditions

Production in Central and Eastern States is expected to be down compared to last year.  See the figure below.

 

The figure below shows the percent of wheat rated good to excellent, as of May 8, 2022.  The largest reductions in yield are from the major Hard Red Winter wheat producing regions, including Kansas, Oklahoma, and Texas.

According to the May 10 Drought Monitor from USDA, 68 percent of the U.S. winter wheat is in areas experiencing drought.

 

Wheat Pricing

The graph below shows pricing for Hard Red Winter and Hard Red Spring wheat from August 2020 to April 2022.  The most recent OSU Extension Enterprise Wheat Budget for 2023 estimates wheat at $10.65 per bushel.

 

Planning for 2023

Russia and Ukraine account for approximately 30 percent of world wheat exports.  Wheat is receiving greater interest because of the uncertainties of harvest and export potential.  The University of Illinois Farmdoc program published a paper recently analyzing a wheat-double-crop-soybeans rotation and found it to be more profitable that corn or soybeans alone.  The analysis is available here: https://farmdocdaily.illinois.edu/2022/05/production-from-double-crop-soybean-rotations.html.

Planting wheat this year may be an option on your farm.  I encourage you to stay informed of the ever-changing geopolitical environment and its potential impacts on your farm management decisions.  Speak with your agronomist, Extension Educator, and other trusted advisors as you develop plans and evaluate options.

Need More Commodity Storage? Consider a USDA Farm Storage Facility Loan

by: Eric Richer, OSU Extension-Fulton County

For many farmers, on-farm storage is a key part of a comprehensive commodity marketing plan. A unique farm program administered through the Farm Service Agency (FSA) is the Farm Storage Facility Loan (FSFL) program.  FSA is part of the U.S. Department of Agriculture (USDA) which uses this program to provide low-interest financing for producers to store, handle, and/or transport eligible commodities they produce. The list of eligible commodities, facilities, equipment, and upgrades is quite impressive. Generally, they include the following:

  • Acquiring, constructing or upgrading new or used, portable or permanently affixed, on-farm storage and handling facilities.
  • Acquiring new or used storage and handling trucks; and
  • Acquiring new or used permanently affixed storage and handling equipment.

A producer may borrow up to $500,000 per loan, with a minimum down payment of 15 percent. Loan terms are 3 to 12 years, depending on the amount of the loan. The May 2022 interest rate for all term lengths of the FSFL program is 2.625%.  Producers must demonstrate storage needs based on three years of production history. FSA also provides a microloan option that, while available to all eligible farmers and ranchers, also should be of particular interest to new or small producers where there is a need for financing options for loans up to $50,000 at a lower down payment (5 percent) with reduced documentation. There is a nonrefundable $100 application fee per borrower for this program.

Who is eligible?

An eligible borrower is any person who is a landowner, landlord, leaseholder, tenant or sharecropper. Eligible borrowers must be able to show repayment ability and meet other requirements to qualify for a loan. Contact an FSA office for more details. Eligible storage structures and handling equipment, having a useful life for the entire term of the loan, may be permanently affixed or portable. Facilities built for commercial purposes and not for the sole use of the borrower(s) are not eligible for financing.

Eligible Commodities

The following commodities are eligible:

  • Corn, grain sorghum, rice, soybeans, oats, peanuts, wheat, barley, or minor oilseeds harvested as whole grain;
  • Corn, grain sorghum, wheat, oats or barley harvested as other-than-whole grain and malted small grains
  • Other grains (triticale, rye, speltz, and buckwheat) and pulse crops (lentils, chickpeas and dry peas);
  • Hay, honey, hops, hemp;
  • Renewable biomass;
  • Floriculture;
  • Fruits (includes nuts) and vegetables – cold storage facilities;
  • Maple sap and syrup;
  • Milk, cheese, butter, yogurt;
  • Eggs and meat/poultry (unprocessed);
  • Aquaculture;
  • Seed cotton;
  • Wool

 Eligible Facilities, Equipment and Upgrades

The following types of new/used facilities and upgrades are eligible and must have a useful life for at least the term of the loan:

  • Conventional cribs or bins;
  • Oxygen-limiting structures and remanufactured oxygen-limiting structures;
  • Flat-type storage structures;
  • Electrical equipment and handling equipment, excluding the installation of electrical service to the electrical meter;
  • Safety equipment, such as interior and exterior ladders and lighting;
  • Equipment to improve, maintain or monitor the quality of stored grain;
  • Concrete foundations, aprons, pits and pads, including site preparation, off-farm labor and material, essential to the proper operation of the grain storage and handling equipment;
  • Renovation of existing farm storage facilities, under certain circumstances, if the renovation is for maintaining or replacing items;
  • Concrete foundations, aprons, pits and pads, including site preparation, off-farm labor and material, essential to the proper operation of the grain storage and handling equipment;
  • Renovation of existing farm storage facilities, under certain circumstances, if the renovation is for maintaining or replacing items;
  • Grain handling and grain drying equipment determined by the Commodity Credit Corporation to be needed and essential to the proper operation of a grain storage system (with or without a loan for the storage facility);
  • Structures that are bunker-type, horizontal or open silo structures, with at least two concrete walls and a concrete floor;
  • Structures suitable for storing hay built according to acceptable design guidelines;
  • Structures suitable for storing renewable biomass;
  • Bulk tanks for storing milk or maple sap;
  • Cold storage buildings, including prefabricated buildings that are suitable for eligible commodities. May also include cooling, circulating and monitoring equipment and electrical equipment, including labor and materials for installation of lights, motors and wiring integral to the proper operation of a cold storage facility; and
  • Storage and handling trucks, including refrigerated trucks.
  • Other equipment options are eligible, please consult with your local FSA office.

 Environmental Evaluation, Financial Review and Crop Insurance

Before a FSFL is approved, the building site must have a comprehensive environmental evaluation. FSA will request a review of the applicant’s farm finances, similar to that your lending institution; if approved, FSA will hold the first lien on the property purchased.

FSA will also require the applicant/farm to carry a minimum level of crop insurance for the eligible commodity(s) in question.

Finally, these loans must be approved by the local FSA state or county committee before any site preparation and/or construction can be started.

Locating Your FSA Office

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

 

Source: United States Department of Agriculture, Farm Storage Facility Loan Fact Sheet. January 2021.

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.

 

 

 

Farm Service Agency Loans for Socially Disadvantaged Farmers

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

The Farm Service Agency (FSA) is a part of the U.S. Department of Agriculture (USDA) that makes and guarantees loans to eligible socially disadvantaged (SDA) farmers to purchase and operate family farms. Each fiscal year, FSA allocates a portion of its direct and guaranteed farm ownership and operating loan funds to SDA farmers.

A socially disadvantaged farmer is one whose members have been subject to racial, ethnic, or gender prejudice because of their identity as members of a group without regard to their individual qualities. These groups consist of American Indians or Alaskan Natives, Asians, Blacks or African Americans, Native Hawaiians or other Pacific Islanders, Hispanics, and women.

Types of Loans and Uses of Loan Funds

Direct farm ownership and operating loans are made by FSA to eligible farmers. Guaranteed farm ownership and operating loans are made by lending institutions subject to federal or state supervision (banks, savings and loans, units of the Farm Credit System) and guaranteed by FSA. Typically, FSA guarantees 90% of any loss the lender might experience if the loan fails.  Farm ownership loans may be used for several purposes, including purchasing, or enlarging a farm, purchasing easements or rights of way needed to operate the farm, erecting, or improving buildings, implementing soil and water conservation practices, and paying closing costs.  Guaranteed farm ownership loans may also be used to refinance debt.

Operating loan funds may be used to purchase a variety of items, including livestock, poultry, farm equipment, feed, seed, fuel, fertilizer, chemicals, insurance, and other operating expenses.  Funds may also be used for training costs, closing costs, and refinance or reorganize debt.

Terms and Interest Rates

Repayment terms for directing operating loans are based on the collateral securing the loan and generally run from one to seven years. For farm ownership loans, the repayment terms vary, but the repayment period never exceeds 40 years.

Direct loan interest rates are set periodically and are subject to change. Guaranteed loan terms are established by the lender, as are interest rates.

Down Payment Program

FSA has a loan program to assist SDA and beginning farmers interested in purchasing a farm.  In addition, retiring farmers may use this program to transfer their land to others. Please see below about what is necessary to qualify:

  • Cash down of at least 5% of the purchase price by the applicant.
  • Maximum loan amount cannot exceed 45% of the least of the purchase price of the farm to be acquired, appraised value of the farm, or $667,000 (the maximum loan amount is $300,150).
  • The loan term is 20 years and the interest rate is 4% below the direct farm ownership loan rate, but not lower than 1.5%.
  • The balance of the purchase price not covered by the FSA down payment loan and applicant down payment may be financed by a commercial, cooperative, or private lender, including the seller.  Financing provided by eligible commercial or cooperative lenders may be guaranteed by FSA up to 95%.
  • The non-Agency financing must have an amortization period of at least 30 years and cannot have a balloon payment due within the first 20 years of the loan.

Land Contract Guarantees

Certain financial guarantees are available to the seller if property is sold to a beginning or SDA farmer. The seller has the option to request either of the following:

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

Sale of Inventory Farmland

FSA advertises within 15 days of receipt all inventory property. Eligible SDA and beginning farmers have priority to purchase these properties at the appraised market value. If one or more eligible SDA or beginning farmer offers to purchase the same property in the first 135 days, the buyer is chosen randomly.

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: the https://offices.sc.egov.usda.gov/locator/app?state=oh&agency=fsa

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.