Examining COVID-19 Financial Assistance to Farms and Farm Households

by: Chris Zoller, Extension Educator, ANR

Click here for PDF version of this article

Every individual, family, and business has been impacted by the COVID-19 pandemic.  A national emergency was declared in March 2020 because of the pandemic and the federal government responded by creating financial assistance programs to counter the economic impacts.

The United States Department of Agriculture Economic Research Service (USDA-ERS) released a working paper, Financial Assistance for Farm Operations and Farm Households in the Face of COVID-19.  The study estimates the direct assistance to farms and farm households in 2020.

The USDA-ERS researchers used data from USDA Farm Bill and the Market Facilitation Program (MFP).  Other data sources included the USDA Agricultural Resource Management Survey, U.S. and State-Level Farm Income and Wealth Statistics, Farm Service Agency (FSA), Natural Resources Conservation Service (NRCS), Risk Management Agency (RMA), Small Business Administration (SBA), and the Department of Labor (DOL).

Because of space limitations, only report highlights are presented in this article.  The complete working paper is available here:  https://www.ers.usda.gov/webdocs/publications/101712/ap-090.pdf?v=3375.

In 2020 there was a substantial increase in the amount of government payments to farm operations.  When compared to 2019, the estimated increase is $23.8 billion (see Figure 1).

A total of six economic relief and stimulus bills were passed, with farm operations receiving economic assistance from three in 2020.  These included the Coronavirus Food Assistance Program (CFAP), Paycheck Protection Program (PPP), and the Economic Injury Disaster Loan (EIDL) program.

Coronavirus Food Assistance Programs

There were two Coronavirus Food Assistance Programs (CFAP 1) and (CFAP 2) administered by USDA.  The CFAP programs made direct payments to producers who saw commodity price declines, market disruptions, additional production costs, and reduced prices because of the pandemic.

Combined, the CFAP programs paid $23.7 billion to farmers and ranchers.  The USDA-ERS analysis shows that 49 percent of the $23.7 billion was distributed to livestock and livestock product production and 51 percent to crop production enterprises.

Paycheck Protection Program

Administered by the Small Business Administration (SBA), the PPP was put in place to help farmers and small businesses retain employees and/or rehire furloughed workers.  Analysis shows that $5.9 billion was paid to farm operations.  Publicly available data from the Small Business Administration shows 64 percent ($3.8 billion) was received by crop farmers and 36 percent ($2.1 billion) by livestock producers.

 Economic Injury Disaster Loan and Loan Advance

Farm operations with 500 or less employees were eligible to apply for the Economic Injury Disaster Loan and Loan Advance (EIDL).  These operations could receive up to $150,000 in low-interest non-forgivable loans and up to $10,000 ($1,000 per employee) in forgivable loans.  These loans and advances could be used for fixed costs, payroll, and other bills.

The SBA opened the EIDL applications exclusively for agriculture in May 2020.  While the SBA did not provide industry-specific data about EIDL advances, data from PPP applications indicated farm operations claimed 736,451 agricultural employees.  If we assume all PPP applicants claimed the maximum advance of $1,000 per employee, EIDL advances could have been $736.5 million.  However, this total would not have been in addition to the $5.9 billion under the PPP loans because the amount forgiven through PPP was reduced by the EIDL amount.

Related Assistance Programs

Farm families could have received financial assistance through the Economic Impact Payments (often referred to as stimulus payments) and the Federal Pandemic Unemployment Compensation program.

USDA-ERS researchers made certain assumptions when determining payments made through the Economic Income Payment program and estimated the total disbursed to farm households through this program was $4.3 billion.

Non-COVID-19 Related Financial Assistance

Direct payments were made to some farms in 2020 through existing USDA programs established in the 2018 Farm Bill.  Programs designed to respond to market price changes include Agriculture Risk Coverage (ARC), Price Loss Coverage (PLC), and Market Assistance Loan programs.  Additional assistance programs included Environmental Quality Incentive Program (EQIP) and the Dairy Margin Coverage (DMC) program.  The USDA-ERS researchers also included MFP, Wildlife and Hurricane Indemnity Program (WHIP), and the Federal Crop Insurance Program payments in their analysis.

Total Financial Assistance

The analysis conducted by USDA-ERS estimated that in 2020 a total of $57.7 billion was distributed to farmers and farm households through standing, ad-hoc, and COVID-19 programs.  Researchers estimated that more than 50 percent of the estimated total payments made directly to farmers and farm households came from COVID-19 related programs in 2020.  The CFAP 1 and CFAP 2 programs were the largest, having paid $23.7 billion to farm businesses.

Source:

United States Department of Agriculture Economic Research Service, COVID-19 Working Paper: Financial Assistance for Farm Operations and Farm Households in the Face of COVID-19, July 2021, https://www.ers.usda.gov/webdocs/publications/101712/ap-090.pdf?v=3375

Soybean Production Costs & Returns in the U.S. and Ohio

by: Chris Zoller, Extension Educator, ANR

Click here for PDF Version

The United States Department of Agriculture Economic Research Service (USDA-ERS) recently released a report of costs and returns for U.S. soybean production between 2012 and 2020.  During the period examined, the total cost of producing one acre of soybeans increased 14 percent in the United States.  During the same time, the returns to growers decreased by 14 percent (Figure 1.).

 

Prices Received and Return to Growers

Prices paid to U.S. soybean producers between 2012 and 2020 ranged from a low of $8.61 per bushel in 2018 and 2019 to a high of $14.21 per bushel in 2012 (Table 1).  Total production costs, including operating and overhead, increased $62 per acre between 2012 and 2020.  The largest cost increases during this period were attributed to machinery/equipment and the opportunity cost of land.  The per acre returns in 2020 were greater than the cost of production for the first time in three years.

Table 1. Gross returns per acre and soybean price per bushel, U.S. soybean producers 2012-2020.

Year Gross Returns per Acre (excluding gov’t. payments) Price per Bushel at Harvest
2012 $597 $14.21
2013 $571 $13.28
2014 $522 $10.88
2015 $431 $8.97
2016 $492 $9.46
2017 $454 $9.28
2018 $458 $8.61
2019 $429 $8.61
2020 $515 $9.67
Average $496 $10.33

(Source: USDA-ERS, May 2021 and June 2021)

Soybean Returns and Costs – Ohio Farm Business Analysis & Benchmarking Program

Ohio State University Extension utilizes the FINPACK software program to complete a financial analysis of farms enrolled in the Ohio Farm Business Analysis and Benchmarking Program.

Returns

This program calculates revenue (yield x price) and adds crop insurance income and “other” crop income to calculate the gross return per acre.  Other crop income can include sale of crop byproducts such as soybean fodder or income from programs directly related to that year’s crop.  Income from government programs such as ARC or PLC are not included in other crop income.  During this analysis period, average soybean prices received by participating farms ranged from a low of $8.85 per bushel (2018) to a high of $14.09 per bushel (2012).  Revenue from crop insurance and other crop income categories ranged from a low of $.08 per acre in 2013 to a high of $80 per acre in 2019.

Expenses

The FINPACK program calculates direct and overhead expenses.  Examples of direct expenses include seed, fuel, fertilizer, chemicals, crop insurance, operating interest, and labor.  Overhead costs are incurred simply because you own equipment, buildings and land, and must be paid regardless of whether a crop is planted.  Examples include hired labor that is not crop-specific, property taxes, farm insurance, non-current interest, and depreciation.

Financial Performance of Ohio Soybean Farmers

The following table is the returns and expenses of all soybean enterprises in the OSU Extension analysis.

Table 2. Average gross returns, total expenses, net return per acre, and soybean price received for owned and rented soybean acres, Ohio Farm Business Analysis and Benchmarking Program, 2012 – 2019.

Owned Land Rented Land
Year Gross Return/Acre (Owned Land) Total Expenses/Acre (Owned Land) Net Return/Acre (Owned Land) Price/Bushel

 (Owned Land)

Gross Return/Acre (Rented Land) Total Expenses/Acre (Rented Land) Net Return/Acre (Rented Land) Avg. Price/Bushel

Received (Rented Land)

2012 $641 $422 $218 $14.09 $654 $452 $201 $13.88
2013 $599 $443 $156 $13.08 $594 $435 $158 $12.94
2014 $548 $446 $102 $10.07 $502 $423 $79 $10.29
2015 $428 $396 $32 $8.83 $426 $432 -$4.95 $9.37
2016 $510 $413 $97 $9.30 $508 $442 $66 $9.42
2017 $493 $401 $91 $9.54 $491 $462 $28 $9.55
2018 $546 $423 $123 $8.95 $554 $443 $110 $8.85
2019 $498 $445 $52 $8.87 $512 $454 $58 $8.90
Ave. $532 $423 $108 $10.34 $530 $442 $86 $10.40

The Ohio Farm Business Analysis and Benchmarking Program also separates the financial performance of the high 20 percent of soybean enterprises for the farms (sorted by net return per acre) who provided data.  Table 3 summarizes financial performance of the high 20 percent in each year for which data is available.

Table 3. Average gross returns, total expenses, net return per acre and soybean price received for owned and rented soybean acres, high 20% of farms sorted by net return per acre, Ohio Farm Business Analysis and Benchmarking Program, 2012 – 2019.

 

  Owned Land Rented Land
Year Gross Return/Acre   Total Expenses/Acre   Net Revenue/Acre   Avg Price/Bu.   Gross Return/Acre Total Expenses/Acre   Net Revenue/Acre   Price/Bu.  
2012 $875 $397 $477 $15.21 $862 $448 $414 $15.13
2013 ND1 ND1 ND1 ND1 ND1 ND1 ND1 ND1
2014 $702 $390 $311 $10.29 $654 $398 $256 $10.48
2015 $477 $292 $185 $9.89 $469 $355 $114 $10.22
2016 ND1  

ND1

 

ND1

 

ND1

$587 $377 $209 $9.76
2017  

ND1

 

ND1

 

ND1

 

ND1

$537 $408 $128 $9.81
2018 $616 $368 $247 $9.06 $615 $377 $238 $8.94
2019 $616 $411 $205 $9.15 $575 $389 $185 $8.90
Ave. $657 $371 $285 $10.72 $614 $393 $194 $10.46

(Source: Ohio Farm Business Analysis & Benchmarking Program, 2012-2019)

1 No data available for a high 20% group

Comparing the Data

The average price per bushel received for each group, 2012-2019:

  • S. soybean producers from the USDA-ERS analysis was $10.41
  • Ohio soybean growers enrolled in the Ohio Farm Business Analysis and Benchmarking Program (owned land) was $10.34
  • Ohio soybean growers enrolled in the Ohio Farm Business Analysis and Benchmarking Program (rented land) was $10.40
  • High 20% of Ohio soybean growers enrolled in the Ohio Farm Business Analysis and Benchmarking Program (owned land) was $10.72
  • High 20% of Ohio soybean growers enrolled in the Ohio Farm Business Analysis and Benchmarking Program (rented land) was $10.46

When comparing the gross returns of U.S. and Ohio soybean growers, 2012 – 2019:

  • The gross return/acre for U.S. soybean producers from the USDA-ERS analysis was $494 per acre
  • Ohio soybean growers enrolled in the Ohio Farm Business Analysis and Benchmarking Program (owned land) averaged $532 per acre
  • Ohio soybean growers enrolled in the Ohio Farm Business Analysis and Benchmarking Program (rented land) averaged $530
  • Top 20% of Ohio growers enrolled in the Ohio Farm Business Analysis and Benchmarking Program (owned land) averaged $657 per acre
  • Top 20% of Ohio growers enrolled in the Ohio Farm Business Analysis and Benchmarking Program (rented land) averaged $614 per acre

USDA-ERS did not provide the per acre soybean costs in their report.  The per acre expenses for soybean enterprises in the Ohio Farm Business Analysis and Benchmarking Program (2012 – 2019) reported:

  • All enterprises (owned land) averaged $423
  • All enterprises (rented land) $442
  • Top 20% group (owned land) $371
  • Top 20% group (rented land) $393

The USDA-ERS analysis did not report the net returns of growers.  When comparing the net returns of soybean enterprises of Ohio participants in the Ohio Farm Business Planning and Analysis Program (2012 – 2019):

  • All enterprises (owned land) averaged $108/acre
  • All enterprises (rented land) averaged $86/acre
  • The top 20% group (owned land) averaged $285/acre
  • The top 20% group (rented land) averaged $194/acre

Summary

Like all farm commodities, the revenue and expenses associated with growing soybeans is constantly moving.  However, based on the summary of farms enrolled in the OSU Extension Ohio Farm Business Analysis and Benchmarking Program, implementing management practices to achieve the high 20 percent category can improve returns and profitability.

For additional information about soybean production in Ohio, consult with your OSU Extension Educator and view the OSU Soybean and Small Grain Website at https://stepupsoy.osu.edu/soybean-production, and the Ohio Agronomy Guide at https://stepupsoy.osu.edu/soybean-production/ohio-agronomy-guide-15th-edition.

If you are interested in learning more about the OSU Extension Ohio Farm Business and Analysis Benchmarking Program, visit https://farmprofitability.osu.edu/.  Growers are also encouraged to use OSU Extension Farm Budgets available at https://farmoffice.osu.edu/farm-management/farm-budgets.

Sources:

Ohio Farm Business Analysis & Benchmarking Program, 2012 – 2019, https://farmprofitability.osu.edu/

USDA-ERS Charts of Note, June 2021,  https://www.ers.usda.gov/data-products/charts-of-note

USDA-ERS Commodity Costs and Returns, May 2021, https://www.ers.usda.gov/data-products/commodity-costs-and-returns/

Ohio New and Small Farm Colleges Set for 2021

by: Tony Nye, OSU Extension Educator

Bringing small farms in Ohio to life is the theme of the New and Small Farm College program that has been offered to farm families since 2005. The program focuses on the increasing number of new and small farm landowners that have a need for comprehensive farm ownership and management programming.

The mission of the college is to provide a greater understanding of production practices, economics of land use choices, assessment of personal and natural resources, marketing alternatives, and the identification of sources of assistance.

The New and Small Farm College has three educational objectives:

  1. To improve the economic development of small farm family-owned farms in
  2. To help small farm landowners and families diversify their opportunities into successful new enterprises and new
  3. To improve agricultural literacy among small farm landowners not actively involved in agricultural

Since the program began, the New and Small Farm College has now reached over 1175 participants from 57 Ohio Counties representing almost 900 farms.

If you are a small farm landowner wondering what to do with your acreage, ask yourself these questions:

  1. Are you interested in exploring options for land uses but not sure where to turn or how to begin?
  2. Have you considered adding an agricultural or horticultural enterprise, but you just aren’t sure of what is required, from an equipment, labor, and/or a management perspective?
  3. Are you looking for someplace to get some basic farm information?

If you or someone you know answered yes to any of these questions, then the Ohio State University New and Small Farm College program may be just what you are looking for.

The Ohio State University New and Small Farm College is a 7-session short course that will be held one night a week.  The 2021 Ohio New and Small Farm College program will be held in three locations across the state including:

Pike County area, to be held at the OSU South Centers facility, 1864 Shyville Road, Piketon, Ohio 45661, (Located off US 32 – Appalachian Hwy). Classes will be held on Wednesdays beginning September 18 and concluding September 29, 2021. For more information contact Pike County Extension Office at 740-289-4837.

Fayette county area, Fayette County Extension Office, 1415 US Route 22 SW, Washington Court House, Ohio 43160. Classes will be held on Thursday beginning August 19 and concluding on September 30, 2021. For more information contact the Fayette County Extension Office at 740-335-1150.

Wayne County area, to be held at the  OSU Wooster Campus, The Shisler Conference Center, 1680 Madison Avenue, Wooster, Ohio 44961 . Classes will be held on Tuesdays beginning August 31 and concluding October 12, 2021. For more information, contact Wayne County Extension at 330-264-8722.

All colleges will start each evening at 6:00 PM with a light dinner with the nightly presentations beginning at 6:30 Pm and concluding at 9:00PM.

 

Topics that will be covered in the Small Farm College course include:

  • Getting Started (goal setting, family matters, resource inventory, business planning)
  • Appropriate Land Use -Walking the Farm
  • Where to Get Assistance, (identifying various agencies, organizations, and groups)
  • Financial and Business Mgmt.: Strategies for decision makers
  • Farm Insurance
  • Soils
  • Legal Issues
  • Marketing Alternatives

In addition to the classroom instruction, participants will receive tickets to attend the 2021 Farm Science Review (www.fsr.osu.edu ), September 21, 22, & 23 Located at the Molly Caren Farm, London, Ohio. A soil sample analysis will also be provided to each participating farm.

The cost of the course is $125 per person, $100 for an additional family member.  Each participating family will receive a small farm college notebook full of the information presented in each class session plus additional materials.

Registrations are now being accepted. For more details about the course and/or a registration form, contact Tony Nye, Small Farm Program Coordinator 937-382-0901 or email at nye.1@osu.edu.

What is the WASDE Report and Why is It Important?

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

Click here for PDF of this article

The World Agricultural Supply and Demand Estimates (WASDE) report is prepared monthly by the Interagency Commodity Estimates Committees (ICECs) which are chaired by representatives from the Agricultural Marketing Service, Economic Research Service, Farm Service Agency, and Foreign Agricultural Service.  The National Agricultural Statistics Service provides data about U.S. production and each ICEC (one for each of nine commodities) compile and analyze data from U.S. and foreign sources to produce the report.

The WASDE report is prepared under very tight security in a “lock-up” area inside a USDA building.  On the day of the report release, doors in this room are secured, window shades are closed, and telephone and internet communication blocked!  Analysts attending the meeting must present their credentials to a guard before entering to finalize the report.  The WASDE report is released at 12:00 noon Eastern time, and not a minute sooner.

Who Provides Information?

The Interagency Commodity Estimates Committees described earlier use information from a variety of USDA sources.  The National Agricultural Statistics Service provides data related to U.S. crop and livestock production.  The USDA Foreign Agricultural Service, official data from foreign governments, satellite imagery, and weather data are also provided about foreign crop and livestock production and use.

All of this information is reviewed by ICEC members with broad expertise and perspective.  To arrive at a consensus about the forecasts, the committee considers alternate assessments of domestic and foreign supply and use.

Commodity Balance Sheets

Do you remember back to your introductory economics class?  One of the basic principles taught was supply and demand (see graph below).  Those who develop the WASDE report use information to provide the agricultural industry with a baseline for supply and demand of given commodities.  If a large supply is anticipated (think of it as a bumper yield), but domestic or foreign demand is not high, the result is lower prices. On the flip side, a poor harvest (lower quantity) combined with increased demand results in increasing commodity prices.  We have seen commodity markets move up or down within minutes of a WASDE report being released.

A balance sheet for U.S. and world wheat, rice, coarse grains, oilseeds, and cotton is provided.  Coarse grains include corn, barley, sorghum, and oats).  Oilseeds include soybeans, rapeseed, and palm).  The U.S. also reports sugar, meat, poultry, eggs, and milk on the balance sheet.   Separate estimates are provided for components of supply and demand and domestic use is divided into major categories (for example, corn for feed and corn for ethanol use).

Of interest to many is the reported season-average farm price for farm commodities.  Price forecasts are made by experts who carefully analyze the supply and demand sides of the balance sheet, along with commodity models, and in-depth research of domestic and international issues.

Why is the WASDE Important?

Agriculture operates in a global market and supply and demand are constantly changing.  A monthly balance sheet of major commodities provides farmers, industry professionals, and others a current source of information.

Not everyone agrees with every number reported in each WASDE, but everyone should feel confident that a tremendous amount of research and time are invested to provide the most accurate report possible.

Where Can I Read the WASDE Reports?

Current and historical (since 1974) WASDE reports are available here: https://www.usda.gov/oce/commodity/wasde.  These reports are approximately 40 pages in length, but an approximate five-page summary of coarse grains, oilseeds, and cotton is provided at the beginning of the report.  Detailed data tables accompany the report.

Sources:

WASDE FAQs, United States Department of Agriculture, https://www.usda.gov/oce/commodity-markets/wasde/faqs

WASDE Report, United States Department of Agriculture, https://www.usda.gov/oce/commodity/wasde

 

 

USDA ERS Dairy Forecasts for 2021 & 2022

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

On June 16, the United States Department of Agriculture Economic Research Service (USDA ERS) released its Livestock, Dairy, and Poultry Outlook.  This publication (https://www.ers.usda.gov/webdocs/outlooks/101460/ldp-m-324.pdf?v=4393.1) provides projections about inventory, use, and pricing.  The next report will be released July 16, 2021.

2021 Dairy Forecast

Recently, milk cow numbers have been trending upward.  USDA ERS projects milk cow numbers to average 9.495 million head, an increase of 25,000 from their May projection.  Because of low cow slaughter numbers and higher feed prices, USDA ERS projects that cow numbers will level off during the second half of 2021.  Extreme heat and its effects on cow comfort and grain production caused USDA ERS to lower its milk per cow slightly for the third quarter, putting annual production per cow at 24,065 pounds.

Reduced cheese prices and higher expected dry whey prices have USDA ERS projecting the following milk prices for 2021:

 

Class Price
Class III $17.45/cwt.
Class IV $15.85/cwt.
All-Milk $18.85/cwt.

 

2022 Dairy Forecast

While the number of cows is expected to average 30,000 more than the May projection, USDA ERS puts cow numbers for the year at 9.495 million head, unchanged from 2021.  High input costs and lower expected milk price in mid-2021 translates into a decline in 2022 of milk cow numbers from the levels seen in the second half of 2021.  Milk per cow is expected to increase slightly in 2022, 24,335 pounds.

A projected stronger economy in 2022 should result into positive news for domestic use.  Additionally, international demand for U.S. lactose and whey products is expected to contribute to an increase over the May projection.

USDA ERS makes these projections for milk price in 2022:

 

Class Price
Class III $17.15/cwt.
Class IV $15.95/cwt.
All-Milk $18.75/cwt.

Planning

Once again, the dairy farm economy is going to be tight for the remainder of 2021 into 2022.  Dairy farmers are encouraged to closely monitor expenses, evaluate inputs, and meet with trusted advisors.  The Ohio State University Dairy Excel 15 Measures of Dairy Farm Competitiveness  (https://dairy.osu.edu/sites/dairy/files/imce/2019%2015%20Measures%20of%20Dairy%20Farm%20Competitiveness%20Final%20%281%29.pdf) bulletin is an excellent resource that allows dairy farmers to compare performance against established benchmarks.

Champaign County Landowner Club Created

by: Amanda Douridas

Land is an expensive and important investment that is often handed down through generations. As such, it should be cared for and maintained to remain profitable for future generations. Whether it is a change in regulations or a loss of knowledge with the loss of a generation, it can be difficult for landowners to stay on top of everything.

To help, OSU Extension and Farm Bureau in Champaign County have started the Landowner Club designed to help farmland owners understand critical conservation and farm management issues. Topics will range in expertise level from beginner to advanced, so landowners of all experience levels can gain knowledge, skills and confidence to implement, or talk with tenants about, farming and conservation practices.

The Landowner Club will meet on the 4th Thursday of the month from 8-9am (with a few exceptions) in the Champaign County Community Center. The kick-off event is June 24. Peggy Kirk Hall, Ag Law Specialist, will discuss the noxious weed law and landowner liability. Future topics can be found on the registration site.

The series is free to Farm Bureau members and $5 for non-members. A light breakfast will be served. Register online at http://go.osu.edu/Landowners.

The club organizers are interested in learning what topics are important to landowners, so please send your suggestions to Amanda Douridas at Douridas.9@osu.edu or bring them with you to a meeting.

What’s going on with Lumber Prices?

by: Brent Sohngen, Professor Environmental and Natural Resource Economics.

This article was originally published at: https://u.osu.edu/aede/2021/05/08/whats-going-on-with-lumber-prices/

In case you haven’t noticed, lumber prices have increased a lot over the last year.  Based on the US Bureau of Labor Statistics Lumber Price Index, which you can find here, lumber prices have increased 180% since April, 2020.  This increase started last fall, and has continued ever since. So, why have they risen, and how high will they go?

Let’s start with the first question, why have they risen?  The economic explanation is relatively straightforward: Demand rose rapidly due to pandemic related building, and supply is really inelastic, as we say in economics.  Thus, while the demand of wood has increased dramatically, the supply of wood hasn’t been able to keep up.  Let’s break this down.

Consider the demand side first.  The construction sector, specifically building and remodeling houses, is one of the largest demanders of lumber in the US and around the world.  New home starts and construction spending cratered at the beginning of the pandemic, but they rebounded pretty quickly.  Remodeling in particular seems to have picked up a real head of steam.

While demand for new construction and remodeling is hot, it’s actually now at about the same level as before the pandemic. So something else must be going on.  One of those something else’s is the price of steel, which has also increased dramatically in the US. Steel is a substitute for wood, especially in commercial construction, and rising steel prices have also driven up demand for lumber and other things that can be made out of wood or steel.

Ok, so the demand side is going crazy.  What about supply?

The supply side in forestry is really inelastic. That is, it’s hard to make big increases in supply in short periods of time.  There are lots of reasons for this.

First, you can’t build a lumber mill overnight.  And after some mills slowed down during the depths of the pandemic, and others closed, it’s not as simple as just turning the key to start the remaining ones back up.  You need trained workers, the machines are pretty complicated and may need some maintenance work before re-starting production, and you need logs.

Second, getting logs is not easy either.  There is a whole complicated supply chain associated with delivering logs to mills that itself has been affected by the pandemic.

Third, the supply of logs is super-inelastic because of the way trees grow.  Plantation trees, which supply around 50% of our timber in the US, put on a lot of value in the 5-10 years before they are harvested. Most people who own these trees don’t want to cut them too early because they’ll miss this value growth, which could be 8-12% or more per year.

When plantation trees are cut, they actually are still growing, perhaps 6% or more per year, so if prices start rising really quickly, many landowners may actually hold them longer than they would otherwise because they get some nice volume growth plus the price growth.   So when prices rise rapidly as they are now, the supply of logs contracts a bit because landowners hold onto their trees.  Seems strange, but the value growth that occurs with the rising prices gives people who own trees a real reason to put off logging for a while.

Fourth, the supply of logs from our main source of imported lumber, Canada, is super inelastic because most supply there is from public lands, and is controlled by government allowable cut constraints. These allowable cut constraints are set administratively, not economically, and thus limit their ability to increase supply in times of high demand.

There are some other issues at play, including US tariffs on wood, but most of this dramatic increase in prices is due to short-term market phenomena related to the rebound from the pandemic, not any long-term structural issues or limitations in supply. In fact, evidence from the US South, which is our main timber growing region in the US, indicates that an enormous area of trees has been planted in the last decade, providing a reasonably large long-term supply of wood.

Further, supplies of plantation timber in other productive regions of the world, especially South America, but also China, New Zealand, Australia, and parts of Southeast Asia, are expanding. The current high prices for lumber may linger for a while as demand continues to rebound from the pandemic, and due to overall inflationary pressures, but over the next 6 months to a year, prices should stabilize.  And over the longer-run, there will be plenty of wood to go around.

The Accuracy and Informativeness of Agricultural Baselines

by: Siddhartha Bora, a Ph.D. student and Ani Katchova, Professor and Farm Income Enhancement Chair, Department of Agricultural, Environmental, and Development Economics, The Ohio State University

United States Department of Agriculture (USDA) and Food and Agricultural Policy Research Institute (FAPRI), University of Missouri are two main sources of baseline projections for US agricultural sector. Published in the beginning of each year, the baselines provide insight about factors influencing the agricultural sector for the next decade. The projections present a conditional scenario based on certain assumptions about macro-economy, weather, and trade, and serve a basis for comparison of alternative policies. In a new study, we evaluate the accuracy and informativeness of USDA and FAPRI baselines since 1997. We find that the predictive content of most variables in the projections diminish after 4-5 years from the current year, and the USDA and FAPRI models do not outperform one another when entire projection path is considered.

The report is available at: https://aede.osu.edu/sites/aede/files/publication_files/AgBaselines2021.pdf

 

 

How Will Your Farm Emerge from the Coronavirus Pandemic?

by: Chris Zoller, Extension Educator, ANR, Tuscarawas County, David Marrison, Extension Educator, ANR, Coshocton County and Mike Estadt, Extension Educator, ANR, Pickaway County

Click here for PDF version of article

It has been more than a year since Coronavirus was declared a pandemic.  Everyone has been touched by the pandemic either directly or indirectly.  As an industry, Agriculture has experienced market disruptions and slowdowns in the processing sector due to the pandemic. In response, the United States government provided billions of dollars in economic relief in 2020 to assist farmers affected by the disruptions. This assistance has continued into 2021 as just recently the United States Department of Agriculture (USDA) announced details about the “Pandemic Assistance for Producers” Initiative.This article takes a look at federal farm support, forecasts for net farm income in 2021, and challenges farm managers to examine how their  business will emerge from the coronavirus pandemic.

US Governmental Farm Support

The following figure from the University of Illinois2  (Figure 3) shares the government farm support programs for the past fifteen years with a forecast for 2021.  Farm program payments have been cyclical and have ranged from a low of approximately $10 billion in 2014 to a high of nearly $45 billion in 2020.  The forecast for government payments in 2021 is around $25 billion.

Farm Income Forecast

The USDA’s Economic Research Service (ERS) 2021 Farm Income Forecast3 projects U.S. net farm income (NFI) to decrease $9.8 billion (8.1%) to $111.4 billion in 2021.  When indexed for inflation, net farm income is anticipated to decrease by $12 billion or 9.7%.  Net farm income is a broad measure of farm sector profitability that incorporates noncash items, including changes in inventories, economic depreciation, and gross credited rental income.  Despite the decline, NFI in 2021 is still expected to be 21 percent higher than the twenty-year average.  ERS predicts U.S. net cash farm income to decrease $10.4 billion (7.5 percent) to $128.3 billion in 2021. Net cash farm income is defined as cash receipts minus cash expenses and does not include changes in inventories or depreciation.

Underlying these forecasts, cash receipts for farm commodities are projected to rise $20.4 billion (5.5%) in 2021. Total animal receipts are expected to increase by $8.6 billion (5.2%) and total crop receipts are forecasted to increase by $11.8 billion (5.8%).  Direct government payments to farmers are expected to be 45.3% lower – a $21 billion decrease from 2020.  This decline is largely caused by lower anticipated payments from supplemental and ad hoc disaster assistance for COVID-19 relief. Total production expenses are forecasted to increase $8.6 billion (2.5%).

 Implications

As the pandemic subsides, it is almost certain that U.S. government farm support payments in 2021 and future years will be significantly lower.  The financial bottom line for many farm operations was positive in 2020 due to historically high ad-hoc payments.  Looking forward to 2021 there is much optimism in the crop sector due to the recent surge in crop prices and lower stock reports.  However, much can happen between now and next fall’s harvest.  It is anticipated that livestock and dairy producers will feel the effects of high grain prices when purchasing feed.

 Post-Pandemic Planning

As we analyze the crazy pandemic year of 2020 and its lingering impacts into this new year, we have been asked how successful farm businesses should plan as the pandemic subsides and life returns to “more normal.”

First, sound business practices and structure are the foundation for business to fall back on when facing internal and external disruptions.  Take time to develop or review your farm’s written Mission Statement, a brief statement that explains why you are in business.  Involve family and employees in the discussion.  It is also recommended to develop written goals – both short-term and long-term. You are more likely to achieve goals that are WRITTEN and shared with others. Post pandemic is also a great time to conduct a SWOT Analysis – to review the Strengths, Weaknesses, Opportunities, and Threats related to your business.  OSU Extension has some great resources to help you in analyzing the foundation of your business.  Check out these resources at:

Secondly, we also offer the following suggestions for you to consider as we move forward from the rollercoaster for 2020 and the early part of 2021:

  1. Do not rely on government farm programs as income sources as you develop enterprise budgets specific to your operation. Check out OSU budgets at: https://farmoffice.osu.edu/farm-mgt-tools/farm-budgets
  2. Work toward being a low-cost producer by knowing your cost of production. Higher crop prices can be a temptation not to be detailed in tracking expenses.  Make sure to track and monitor both variable and fixed expenses.
  3. Develop contingency plans and emergency preparedness plans for overcoming disruptions which impact your business. How will work get done if employees get sick or are in quarantine?  How will you overcome future slow-downs in the processing sector or if crops cannot be shipped to market?
  4. Enroll in the Ohio Farm Business Planning and Analysis Program to fully understand your farm operations financial strengths and weaknesses. Learn more here: https://farmprofitability.osu.edu/
  5. Review leases and contracts annually.
  6. Hold family meetings – to discuss finances, review your mission statement, complete a SWOT analysis, and develop goals. See this OSU Extension Fact Sheet: https://ohioline.osu.edu/factsheet/anr-43
  7. Network with your peers. Share successes and challenges.
  8. Form and meet with a farm business advisory team that may include one or more of the following: Extension Educator, accountant, lender, nutritionist, crop advisor, insurance agent, and others important to your business. See this OSU Extension factsheet:  https://ohioline.osu.edu/factsheet/anr-43
  9. Utilize OSU Extension resources – Ohio Ag Manager (https://u.osu.edu/ohioagmanager/), Farm Office (https://farmoffice.osu.edu/), Crop Observation and Recommendation Network (https://agcrops.osu.edu/), Beef Cattle Newsletter (https://u.osu.edu/beefteam/), and Buckeye Dairy Newsletter (https://dairy.osu.edu/).

Summary

The coronavirus pandemic has revealed that agriculture is a resilient industry.  Crops were still planted and harvested;  livestock continued to be cared for.  Despite some infrastructure issues related to food processing, Americans were still able to access safe and affordable food.  The pandemic has revealed how dependent the agricultural supply chain is on timely delivery of goods and services, healthy and available agricultural workers, and a confident consumer willing to adapt and adopt new buying practices.

As Americans begin to exit the last throes of the pandemic’s lockdowns, return to work and school, and begin life anew, reflection on emergency preparedness should be re-evaluated and adjusted plans put in place.  Each farm business should continue to put contingency plans in place for the next disruption. And, make sure you keep an adequate supply of toilet paper on hand, just in case!

References

1USDA Pandemic Assistance for Producers. Accessed from: https://www.farmers.gov

2Good, Keith. USDA Announces “Pandemic Assistance for Producers”, New CFAP Aid.  March 25, 2021. https://farmpolicynews.illinois.edu/2021/03/usda-announces-pandemic-assistance-for-producers-new-cfap-aid/

32021 Farm Sector Income Forecast. Accessed from: https://www.ers.usda.gov/topics/farm-economy/farm-sector-income-finances/farm-sector-income-forecast/

 

 

 

 

Farm Bankruptcies Update: Fourth Quarter of 2020

by: Kevin Kim, a Ph.D. student and Ani Katchova, Professor and Farm Income Enhancement Chair, Department of Agricultural, Environmental, and Development Economics, The Ohio State University

The number of Chapter 12 bankruptcy filings has not increased in the fourth quarter of 2020 nor in all quarters of 2020 as many had been initially concerned at the beginning of the pandemic. The U.S. farm economy has been supported by strong government payments which reached $46.3 billion in 2020, the largest amount in history. Combined with strong farmland values and low interest rates, the farm bankruptcy rate in Ohio rather decreased in 2020, with 1.29 farm bankruptcies per 10,000 farms.

The report is available at:

https://aede.osu.edu/sites/aede/files/publication_files/BankruptcyUpdate2020Q4.pdf