Ohio Farm Custom Rates 2018

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

Farming is a complex business and many Ohio farmers utilize outside assistance for specific farm-related work. This option is appealing for tasks requiring specialized equipment or technical expertise. Often, having someone else with specialized tools perform a 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

This survey summary reports custom rates based on a statewide survey of 352 farmers, custom operators, farm managers, and landowners conducted in 2018. These rates, except where noted, include the implement and tractor if required, all variable machinery costs such as fuel, oil, lube, twine, etc., and the labor for the operation.

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

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

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

The measures shown in the summary tables of the survey respondents. The measures are the average (or mean), standard deviation (a statistical measure of variability of the responses), range, median, minimum, and maximum. Average custom rates reported in this publication are a simple average of all the survey responses. Range identified in the tables consists of two numbers. The first is the average plus the standard deviation, which is the variability of the data from the average measure. The second number of the range is the average minus the standard deviation. The median represents the middle value in the survey responses. The minimum and maximum reported in the table are the minimum and maximum amounts reported from the survey data for a given custom operation.

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.

As a custom provider, the average rates reported in this publication may not cover 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. Calculate your own costs carefully before determining the rate to charge or pay.

The complete summary of Ohio Farm Custom Rates is available online at the Farmoffice website:

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

Grants and Low-Interest Loans for Ohio Small Farms

by: Eric Barrett, Assistant Professor

Are you looking for funding for a new venture on the farm? Are you interested in doing a research project to try something new on your farm?

OSU Extension has a new factsheet on Ohioline.osu.edu to help you find funding sources that match the ideas you have for your farm. The most difficult part of preparing to apply for these programs is developing a business plan. The factsheet includes information on where to get help with a business plan and where to find enterprise budgets to help develop the plan. The OSU South Centers has a website with templates and other information, a Small Business Toolbox to help you get your plan down on paper. The toolbox is located at: http://go.osu.edu/plans.

Grants to support current farming operations are difficult to find, but more available when it comes to trying a new idea. Most grant programs offer funding for research ideas, new ventures on the farm and ways to add value to products grown or produced on the farm. Many Ohio farmers have found the USDA Sustainable Agriculture Grant Program to be a fruitful funding opportunity for project ideas.

Low interest loan programs support all types of family farming operations. The factsheet explains types of loans and gives examples of where to start the search. One example is the AgriLink Deposit Program through the Ohio Treasurer’s Office that helps Ohio farmers get a lower interest rate by partnering with local banks.

The factsheet includes the names and information to use in internet searches to find the right program fits the needs of your farming operation and your ideas.

For complete details, you can read the factsheet at:

http://go.osu.edu/grantsloans

Ohio Farm Custom Rates 2018

Part 1: Soil Preparation, Fertilizer Application, Spraying Pesticides, Mechanical Weed Control, Aerial Applications, Planting Operations, Harvest Operations, Grain Drying and Storage, Hay Harvest

by: Barry Ward, Leader, Production Business Management, Department of Agricultural, Environmental and Development Economics & John Barker, Extension Educator Agriculture/Amos Program, County Director, Ohio State University Extension Knox County

Farming is a complex business and many Ohio farmers utilize outside assistance for specific farm-related work. This option is appealing for tasks requiring specialized equipment or technical expertise. Often, having someone else with specialized tools perform a 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

This survey summary reports custom rates based on a statewide survey of 352 farmers, custom operators, farm managers, and landowners conducted in 2018. These rates, except where noted, include the implement and tractor if required, all variable machinery costs such as fuel, oil, lube, twine, etc., and the labor for the operation.

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

  • Type or size of equipment used (e.g. 20-shank chisel plow versus a 6-shank)
  • Size and shape of fields,
  • Condition of the crop (for harvesting operations)
  • Skill level of labor
  • Amount of labor needed in relation to the equipment capabilities
  • Cost margin differences for full-time custom operators compared to farmers supplementing current income

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

The measures shown in the summary tables are the summaries of the survey respondents. The measures are the average (or mean), range, median, minimum, and maximum. Average custom rates reported in this publication are a simple average of all the survey responses. Range identified in the tables consists of two numbers. The first is the average plus the standard deviation, which is the variability of the data from the average measure. The second number of the range is the average minus the standard deviation. The median represents the middle value in the survey responses. The minimum and maximum reported in the table are the minimum and maximum amounts reported from the survey data for a given custom operation.

The complete summary of part 1 is available online at the Farmoffice website:

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

 

 

 

Current Commodity Situation and Outlook for Ohio

By Ben Brown

Agriculture is an uncertain industry, where the only certainty is a guarantee that there will indeed be uncertainty and risk. Already in 2018, frequent rains have delayed spring planting and increased the risk of disease and pest pressure. International trade disputes have increased the volatility in grain and livestock markets and international oil supply forecasts have led to unexpected increases in farm input costs. While the drivers of risk fall outside the hands of producers, individuals responds, react, and decide based on the best information available. This report summarizes several of the commodities important to Ohio producers and provides an outlook of supply and demand given current policies and expectations. Unless otherwise specified, the volatility caused by the renegotiation of the North American Free Trade Agreement (NAFTA) and the trade dispute with China are not considered due to their highly fluid situations at the time this article went to press. Supply and demand estimates for the 2018 Marketing Year (MY 2018) are published by the World Agricultural Outlook Board while Ohio inventory estimates are compiled by the National Agricultural Statistics Service. Understanding the balance sheet for many of Ohio’s commodities is important when making short and long-term decisions affecting farming and ranching operations.

Cattle Expansion Enters Fifth Year

The U.S. cattle heard on January 1, 2018 was larger than the count a year earlier, making 2017 the fifth consecutive year of herd expansion. Expansions in beef typically last four to six years. The U.S. appears poised for the possibility of at least one more expansion year in 2018 that would push beef production increases into the early part of the next decade. With constant demand for beef products, increases in beef production put downward pressure on the price received by producers. A cow that would have brought $2,000 in January 2015 brought about $1,200 in April 2018. As beef becomes cheaper, it starts to compete with other goods like pork for market share.

The inventory for all cattle including calves in the U.S. on January 1, 2018 was at 94.4 million head, up 0.7% from the previous year. Ohio’s inventory sits at 1.2 million head, a 0.8% increase. The average lifespan for a beef cow is 8 to 12 years meaning that 9.4 million replacement heifers are needed to maintain the current herd size. At almost 11 million replacement heifers at the start of the year, it is likely that 2018 will also be an expansion year in the national herd. In Ohio, dairy replacement heifers were up 0.8%, however it is likely that these heifers will leave Ohio for larger operations in Texas and Idaho where costs of production are lower. Cattle on feed decreases in Ohio by 6.7% while the national average increased 7.2%. Lower feed costs in Oklahoma, Kansas and Nebraska pull calves off farms earlier and out of Ohio. The outlook for cattle appears slight bearish as higher expected feed costs and dry weather in the southwest will move cattle into the market early. The number of cows and replacement heifers sold for slaughter will be important in determining if a herd expansion happens again in 2018.

Low to Negative Margins Drive Hog Industry

Rallies in grain markets, especially soybean meal, have increased feed costs for hog producers that did not lock in contracts when prices were low. Higher input costs along with a decline in pork prices erased many of the margins hog producers experienced in the first quarter of 2018, but prices rebounded in May. Large increases in hog production in Missouri, Ohio, Oklahoma, and Nebraska have contributed to the low prices. The national average for fed hog prices was $52.50 in January but fell to $45.3 by April. Prices have rallied in recent weeks, but still below 2017 levels at this same period. Prices reached a peak in July of 2017 at $67.30. Markets for the nearby July futures contract signal horizontal movements in price. Current prices would suggest a per head return of $2-$5 as a national average for 2018. With higher feed costs expected in 2019, negative margins could return.

Exports to international markets will be a large factor in the hog outlook. Exports of U.S. pork were lowered 35 million pounds in the May WASDE report on concerns around Chinese demand. With the implementation of a 25% tariff on U.S. pork, exports to China have lagged. Increased exports to emerging markets like South Korea and the Dominican Republic will be important in offsetting decreases to China and increased domestic supply. Exports make up roughly 22% of U.S. pork production with the largest markets being Mexico and Japan. However, U.S. pork exports to Mexico decreased in the first quarter of 2018, substituted by large amounts of turkey imports. The USDA forecasts even higher pork production in 2018. The key question will be levels of domestic and international consumption of pork with competition from potential substitutes like beef and poultry. If China backs away from U.S. pork, negative margins could return in as early as this year.

Corn Acreage Continues to Decline

Three supply shocks have increased corn prices and brightened the outlook for corn producers. A drought in South America, reducing both the Argentina and Brazilian corn crop, gave corn prices their first positive outlook. Then in March, U.S. producers indicated that they were going to plant 2 million fewer acres in 2018 than in 2017. Even with the reduction in acres, a trend corn yield would make the 2018 crop the fourth largest crop recorded. Frequent rains throughout the central and eastern regions of the Corn Belt have delayed spring plantings and increased prices. With three supply side adjustment to annual production, the corn market has been bullish with December 2018 futures contracts trading well above $4. Dealing with large supplies will continue to be a focus for grain merchandisers. Total supply in 2018 is expected to be 4% lower in 2018 than 2017.

Demand for corn (represented by the shaded area) continues to be strong. Feed and residual is expected slightly higher throughout the remainder of the year but lower in the next marketing year on the adjustments to the national herd size. If the national herd size continues to grow, this number will also increase. Ethanol continues to show growth and is up 1% from 2017 and up 8% since 2014. Changes in Chinese ethanol policy will drive international ethanol demand in the coming years. China announced in 2017 that it would mandate that all fuel for vehicles contain 10% ethanol. Their policy was three fold in that they wanted to reduce their large supplies of domestic stock, clean up air pollution, and create jobs. Whether China imports more raw corn or ethanol, the shock is expected to increase demand for corn on the world market. Only 2% of corn production is exported to China as raw exports. It is possible that it will take China a few years to increase their imports of U.S. corn. Even with the positive signals for demand for U.S. corn, total use is reduced in 2018 mostly a result of lower exports.

The outlook for corn looks favorable to producers as both supply and demand shocks suggest upward pressure on prices moving forward. Lower ending stocks for U.S. corn will increase the magnitude of price shifts due to weather-related events in the coming months. The stocks to use ratio of 19% is lower than 25% in 2017, but above the five-year average of 16%. The U.S. corn crop is mostly planted, and weather will be the largest variable driving U.S. supply through the summer months. December futures prices are currently above cost of production for most producers and potentially a strong option for those that have on-farm storage.

US Corn Balance Sheet- May 10, 2018
Marketing Year Sep-Aug 2014 2015 2016 2017* 2018** 2018 as % of 2017
Area Planted (mil. Acres) 90.6 88 94 90.2 88 97.6%
Yield (bu./acre) 170.9 168.4 174.6 176.6 174 98.5%
Production (mil. Bu.) 14,216 13,602 15,148 14,604 14,040 96.1%
Beg. Stocks (mil. Bu.) 1,232 1,731 1,737 2,293 2,182 95.2%
Imports (mil. Bu.) 32 67 57 50 50 100.0%
Total Supply (mil. Bu.) 15,480 15,400 16,942 16,947 16,272 96.0%
Feed & Residual (mil. Bu.) 5,284 5,114 5,463 5,500 5,375 97.7%
Ethanol (mil. Bu.) 5,200 5,224 5,432 5,575 5,625 100.9%
Food, Seed, & Other (mil. Bu.) 1,401 1,422 1,450 1,465 1,490 101.7%
Exports (mil. Bu.) 1,867 1,898 2,293 2,225 2,100 94.4%
Total Use (mil. Bu.) 13,752 13,658 14,638 14,765 14,590 98.8%
Ending Stocks (mil. Bu.) 1,728 1,742 2,304 2,182 1,682 77.1%
Stocks/Domestic Use Ratio 14.5% 14.8% 18.7% 17.4% 13.5% 77.4%
Season-Average Price ($/bu.) $3.70 $3.61 $3.36 $3.35 $3.57 106.6%
*Estimate **Projection Source: World Agriculture Outlook Board

 

Soybean Price will rely on Demand

For the last few years, soybeans have provided a per acre return to producers greater than corn. Thus, acreage shifts to soybeans have ensued across the Midwest. The ratio of new crop soybean to corn prices from November 2017 to April 2018 traded at 2.5:1. Historically a ratio of 2.5:1 or greater signaled that acres would continue to move from corn to soybeans and that the expectation was for more soybean acres in 2018. However, in March producer signaled that they intended to plant 1 million fewer acres than 2017. With a trend yield of 48.5 bushels/acre, the expected soybean crop would be the third largest crop on record behind the record set in 2017 and the third straight year over 4 billion bushels. Weather will be the largest factor over the summer months to the final production value, but expectations are for another large crop. The carry-over from 2017 was also high creating an expectation that the 2018 supply will be 2.5% higher than a year ago.

Demand for soybeans and soybean products continues to be strong. Increases in livestock numbers, especially pigs, has driven demand for soybean meal. Increases in crude oil prices could encourage use of biodiesel and expand soybean crush further. Chinese per capita income is strengthening and the demand for pork continues to grow internationally. Exports of U.S. soybeans to china have tripled in the last decade, but since 2012, Brazil has been the largest supplier of soybeans to China. Nearly 60% of U.S. soybean exports head to China, and the strength of that market will continue to influence U.S. soybean demand. Exports are projected higher in 2018, but Chinese tariffs could shrink Chinese demand of U.S. soybeans. The drought in South American weakened Chinese leverage over the U.S, as production in South America finished below expectations. Overall, the growth in soybean use appears strong at a 5.5% increase next year, but international trade and weather provide large uncertainties looking forward.

US Soybean Balance Sheet- May 10, 2018
Marketing Year Sep-Aug 2014 2015 2016 2017* 2018** 2018 as % of 2017
Area Planted (mil. Acres) 83.3 82.7 83.4 90.1 89.0 98.8%
Yield (bu./acre) 47.6 48 51.9 49.1 48.5 98.8%
Production (mil. Bu.) 3,927 3,926 4,296 4,392 4,280 97.4%
Beg. Stocks (mil. Bu.) 92 191 197 302 530 175.5%
Imports (mil. Bu.) 33 24 22 25 25 100.0%
Total Supply (mil. Bu.) 4,052 4,141 4,515 4,719 4,835 102.5%
Crush (mil. Bu.) 1,873 1,886 1,901 1,990 1,995 100.3%
Seed & Residual (mil. Bu.) 146 122 139 133 135 101.5%
Exports (mil. Bu.) 1,842 1,942 2,174 2,065 2,290 110.9%
Total Use (mil. Bu.) 3,861 3,950 4,214 4,188 4,420 105.5%
Ending Stocks (mil. Bu.) 191 191 301 531 415 78.2%
Stocks to Domestic Use Ratio 9% 10% 15% 25% 19% 77.9%
Season-Average Price ($/bu.) $10.10 $8.95 $9.47 $9.35 $9.38 100.3%
*Estimate **Projection Source: World Agriculture Outlook Board

Soybean prices in 2018 are expected to be similar to 2017 with the potential for a rally in late June, which would set up an opportunity for producers to contract grain. Trade uncertainty in the Chinese market could change the outlook for soybean profitability for both old and new crop soybeans. Weekly sales numbers will be an important indicator of the ending U.S. export value.

Access to the full report with information on poultry, eggs and wheat can be found here: https://aede.osu.edu/sites/aede/files/imce/images/Current%20Commodity%20Situation%20and%20Outlook%20for%20Ohio%20Report%20.pdf

2018 Ohio Dairy Enterprise Budget for 2018

by: Barry Ward, OSU Extension, Leader, Production Business Management

The newly updated Dairy Enterprise Budget for 2018 has been completed and posted to the farmoffice website: https://farmoffice.osu.edu/farm-management-tools/farm-budgets

This dairy budget assumes a large breed herd and an 80% corn silage / 20% hay feed ration. Details are provided for feed rations and building and equipment costs. The budget includes the costs associated with a cow during the lactating and dry periods with a 13-month calving interval and is based on a 700-cow herd.

For a herd with mid-level production of 24,000 lbs. rolling herd average, feed costs per hundred weight (cwt) of milk sold is $6.80. Variable costs per cwt are estimated to be $12.45 while total costs are calculated to be $18.36 per cwt.

This dairy budget was authored by Maurice Eastridge, Extension Specialist, Dairy Production; Barry Ward, Leader, Production Business Management and Dianne Shoemaker, Extension Field Specialist, Dairy.

OSU Extension Enterprise Budgets are compiled on downloadable Excel Spreadsheets that contain macros for ease of use. Users can input their own production and price levels to calculate their own numbers. These Enterprise Budgets have color coded cells that allow users to plug in numbers to easily calculate bottoms lines for different scenarios. Detailed footnotes are included to help explain methodologies used to obtain the budget numbers.

Ohio Corn, Soybean and Wheat Enterprise Budgets Projected Returns for 2018

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

Production costs for Ohio field crops are forecast to be largely unchanged from last year with slightly higher fuel, fertilizer and interest expenses that will increase total costs for some growers. Variable costs for corn in Ohio for 2018 are projected to range from $359 to $452 per acre depending on land productivity.

Variable costs for 2018 Ohio soybeans are projected to range from $210 to $231 per acre. Wheat variable expenses for 2018 are projected to range from $179 to $219 per acre.

Returns will again be low to negative for many producers. Projected returns above variable costs (contribution margin) range from $175 to $348 per acre for corn and $192 to $371 per acre for soybeans. (This is assuming fall cash prices of $4 per bushel for corn and $10 per bushel for soybeans.) Projected returns above variable costs for wheat range from $135 to $249 per acre (assuming $5.20 per bushel summer cash price).

Returns to land for Ohio corn (Total receipts minus total costs except land cost) are projected to range from $23 to $182 per acre in 2018 depending on land production capabilities. Returns to land for Ohio soybeans are expected to range from $84 to $254 per acre depending on land production capabilities. Returns to land for wheat (not including straw or double-crop returns) are projected to range from $28 to $135 per acre.

Total costs projected for trend line corn production in Ohio are estimated to be $760 per acre. This includes all variable costs as well as fixed machinery, labor, management and land costs. Fixed machinery costs of $65 per acre include depreciation, interest, insurance and housing. A land charge of $192 per acre is based on data from the Western Ohio Cropland Values and Cash Rents Survey Summary. Labor and management costs combined are calculated at $71 per acre. Returns Above Total Costs for trend line corn production are negative at -$93 per acre.

Total costs projected for trend line soybean production in Ohio are estimated to be $525 per acre. (Fixed machinery costs – $50 per acre, land charge: $192 per acre, labor and management costs combined: $48 per acre.) Returns Above Total Costs for trend line soybean production are also negative at -$23 per acre.

Total costs projected for trend line wheat production in Ohio are estimated to be $501 per acre. (Fixed machinery costs: $55 per acre, land charge: $192 per acre, labor and management costs combined: $42 per acre.) Returns Above Total Costs for trend line wheat production are also negative at -$110 per acre.

These projections are based on OSU Extension Ohio Crop Enterprise Budgets. Newly updated Enterprise Budgets for 2018 have been completed and posted to the OSU Extension farmoffice website:

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

Ohio Enterprise Budgets for 2018


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

Budgeting helps guide you through your decision making process as you attempt to commit resources to the most profitable enterprises on the farm. Crops or Livestock? Corn, Soybeans, Wheat, Hay? We can begin to answer these questions with well thought out budgets that include all revenue and costs. Without some form of budgeting and some method to track your enterprises’ progress you’ll have difficulty determining your most profitable enterprise(s) and if you’ve met your goals for the farm.

Budgeting is often described as “penciling it out” before committing resources to a plan. Ohio State University Extension has had a long history of developing “Enterprise Budgets” that can be used as a starting point for producers in their budgeting process.  Newly updated Enterprise Budgets for 2018 have been completed and posted to the farmoffice website:  https://farmoffice.osu.edu/farm-management-tools/farm-budgets

Enterprise Budget projections updated for 2018 include: Corn, Soybeans, Wheat, Alfalfa Hay; Alfalfa Haylage, Corn Silage, Swine – Farrow to Wean, and Swine –Wean to Finish.

Our enterprise budgets are compiled on downloadable Excel Spreadsheets that contain macros for ease of use. Users can input their own production and price levels to calculate their own numbers. These Enterprise Budgets have color coded cells that allow users to plug in numbers to easily calculate bottoms lines for different scenarios. Detailed footnotes are included to help explain methodologies used to obtain the budget numbers.

2018 Dairy Margin Protection Program Update

by: Dianne Shoemaker, Field Specialist, Dairy Production Economics

Largely considered a failure by dairy farmers, changes to the Dairy Margin Protection Program (MPP) included in the 2018 Bipartisan Budget Act earlier this year may be helpful for some farmers.

Dairy farmers should re-evaluate the use of the 2018 MPP before the June 1 signup deadline.  Originally initiated by 2014 Farm Bill legislation , the MPP intended to provide dairy farmers with a tool to manage risk by insuring a margin between the Statistical Uniform Milk Price and a calculated feed cost based on a set equation and monthly corn, soybean and hay prices.  This program replaced the MILC and support price programs.  Now farms can choose to participate in either the MPP, the Livestock Gross Margin Insurance Program, or neither.

Farmers that choose to participate in the MPP pay a $100 administrative fee and receive coverage for a $4 per cwt “catastrophic margin” (CAT), on 90% of their production history.  They can also choose to “buy up” coverage up to an $8 margin for 25% to 90% of their production history.

Changes Made

Administration Fee:

Farms that participate must pay a $100 administration fee.  Now this fee will be waived for limited-resource, beginning, veteran, and disadvantaged farmers.

Premiums: Tier 1 premiums now cover the first 5 million pounds of production history.  Previously, they applied to the first 4 million pounds.  Tier 1 premiums are also substantially less, offering new opportunities for farms covering up to 5 million pounds of milk.  Tier 2 premiums are unchanged.  See Table 1 for old and new premium rates.  Note that on the first 5 million pounds (Tier 1), coverage up to a $5.00 margin is now available at no cost.

Production History: No changes here.  Production history (PH) is based on the highest annual production from 2011, 2012, or 2013.  Farms that participated previously and paid their fees in a timely manner receive annual production increases with rates announced annually by Farm Service Agency (FSA).  Farms that started milking cows after 2013 should work with their FSA office to establish their farm’s production history.

Indemnity Calculations: Will be made and paid monthly in 2018.  Previously, margins were calculated and announced each month, but for program purposes, 2 months were averaged together and any indemnity payments were made on those 2-month averages.  For example, under the old rules the indemnity for January/February would have been based on an average of the January margin of $8.11705 and February’s $6.88349, or $7.50027.  If a farm had bought up coverage for an $8 margin, the indemnity payment on covered pounds would be $8 – $7.50027, or $0.49973 per cwt.

Under 2018’s revised rules, the indemnity for January is zero since the actual margin was more than $8.  February’s is ($8 – $6.88349) or $1.11651 per cwt, resulting in a higher overall indemnity payment for a farm that buys up coverage to the $8 margin.  These monthly calculations and payments can increase the dollars received by the farm, and result in faster payments to the farm.

No Play, No Pay:  Last fall, this option was initiated by the Secretary of Agriculture, and continues under the new rules.  Even if a farm had signed up for coverage prior to 2018, it may opt-out of the program for 2018.

Sign-ups reopened: The original sign up period for 2018 coverage opened and closed in 2017.  With the rollout of the new rules, a new sign-up period opened April 9th and continues through June 1.  If you signed up in 2017, even at the minimum level, you must sign up again!  If you do not, you will not be enrolled in the program for 2018.

Retroactivity: The sign up period is for January 1 through December 31, 2018, and coverage is retroactive to January 1.  This puts us in the interesting position of knowing the margins for January, February, and March before making a program decision.  By the end of May, we will also have a pretty clear idea of what the April margin will be plus or minus a few cents.

Making Decisions: The Margin Protection Program Decision Tool is updated with the new rules and Tier I Premiums.  Futures market data is updated daily by Mark Stephenson’s group at the University of Wisconsin which developed the tool.  Find it at https://dairymarkets.org/MPP/.  Plug in your production history and use the “Select Coverage” feature to see the administrative fees and premiums, expected payments and expected net returns for each margin coverage level at the percent of PH coverage that you select.

Projections:  Using futures market data available on April 30th, the MPP Decision Tool is projecting that the margin will stay below $8 per cwt through June.  If this is what actually happens, the decision tool projects an expected payment of $24,082 for a farm with a production history of 5 million pounds buying up coverage for an $8 margin on 90% of their production history (4,807,827 pounds of milk is covered).  The administrative fee and premiums for this coverage will cost $6,927 with the $100 administrative fee due at sign up, and the balance due by September.

If milk price improves, and/or feed prices decline, the expected payment could be considerably less.  The projections do not guarantee the actual performance of the program.  It projects what will happen based on yesterday’s futures market data.  Each farm has to make a final participation decision based on today’s information and your expectations of what will happen in the market place for the rest of 2018.

What we know for sure: What we do know for sure is that for a farm purchasing coverage at the $8 level, there will be indemnity payments for February ($1.11651) and March ($1.23163).  A logical next question is, “how much of the fees and premiums will that cover?”

For our example farm covering 90% of their 5 million pound beginning PH, the covered annual production is 4,807,827 pounds.  (A farm participating each year receives an annual increase to their PH, so their 2018 program PH is 5,342,030.)  To calculate monthly payments, the covered PH is divided by 12, regardless of when milk is actually produced on the farm.  Continuing with our example above, the farm’s monthly covered PH is 4,807,827 lbs/12 = 400,652 lbs or 4,006.52 cwt.

February          $1.11651 x 4,006.52 cwt =            $4,473

March              $1.23163 x 4,006.52 cwt =             $4,935

$9,408

Estimated 6.6% sequestration deduction            –    621

Feb/March Payment to the farm                     $8,787

 

Note: Farm Bill payments are subject to a sequestration deduction related to budget-balancing efforts.  Current estimates are that the deduction rate for MPP payments will be around 6.6%.

For our example farm, we know that the payments for February and March will return more than the $6,927 administrative fee and premiums.  It appears very likely that the margin forecasted for April will also be well under $7 with May and June currently forecasted above $7 but less than $8.  So, in this case, a farm can sign up knowing that the fees will be covered, and there will be some net return to assist with a few bills.

More than 5 Million Pounds: Our example farm at 5 million pounds of PH would be representative of a farm milking 200 cows selling 25,000 pounds of milk per cow per year.  How does MPP look for farms with more than 5 million pounds of milk?

Here we have to consider two important factors.

  • Tier 2 premiums for milk over 5 million pounds are considerably higher than the Tier 1 premiums for the first 5 million pounds of milk. For example, $8 coverage costs 14.2¢ per cwt for the first 5 million pounds, and $1.36 per cwt for any milk above that level.
  • Only one level of coverage can be selected for the first 5 million pounds, and any milk above 5 million pounds.

Because of this stipulation, farms with more than 5 million pounds will want to cover whatever percent of their PH that gets their covered milk as close to 5 million pounds as possible.  If your farm has more than 20 million pounds of PH, even at 25% coverage, you will be purchasing some Tier 2 protection.  Those high rates can quickly eat up any indemnity payments.  Use the MPP Tool to see what coverage optimizes net returns for your farm.

Because of the higher Tier 2 premiums on the milk over 5 million pounds, some farms will find that the February and March payments will cover less than half of the fees and premiums.  These farms will want to look carefully at the cost and probability of the program helping their farm business, factoring in their own market projections.

It is likely that farms with over 25 million pounds of production history will find that the fee and premiums will cost more than the projected indemnities.  Run the Decision Tool again shortly before the sign-up deadline as market projections will change.

Bottom Line:

  • Significant changes were made to the 2018 Dairy Margin Protection Program.
  • Farms who signed up in 2017 for the 2018 program must sign up again by June 1.
  • Sign up is retroactive to January 1, 2018 and coverage is for January through December 2018.
  • Sign up at your County Farm Service Agency office.
  • Farms should use the Margin Projection Program Decision Tool to evaluate their farm’s participation. Your County Extension Educator can assist you with the tool.
  • The MPP Decision Tool is updated with new futures markets information daily. Results and projections change because results are projections based on yesterday’s market data.
  • Combine MPP Decision Tool projections with your projections about this year’s markets and what we already know about January, February, and March margins to make the best decision for your farm.
  • Premiums must be paid in full by September 1. It makes sense to pay off the premium with indemnity payments received before using MPP payments to pay other bills.

The good news is that these changes may bring a few dollars to cash strapped farms.  Will it substantially help with pervasive cash flow issues?  No.  However, for 2018, it might help pay a bill or two.

Resources:

Program on Dairy Markets and Policy Website https://dairymarkets.org/

Margin Protection Program Decision Tool            https://dairymarkets.org/MPP/Tool/

Farm Service Agency Margin Protection Program for Dairy including announced prices and margins, you can also access the Decision Tool from this site

https://www.fsa.usda.gov/programs-and-services/Dairy-MPP/index

USDA MPP Terms and Conditions Update https://forms.sc.egov.usda.gov/efcommon/eFileServices/eForms/CCC782_APPENDIX.PDF

 

Should I Continue Farming?

by: Chris Zoller, Extension Educator, ANR  Tuscarawas County

 Introduction

Given the low prices of many farm commodities and a price outlook that may not be positive in the near term, you may be considering exiting agriculture.  Making a decision to sell part or your entire farm is not easy and brings with it a great deal of emotions.  Farmers have told me they worry about being seen as a failure, the impact a sale will have on family and employees, or what they will do with their life after the sale.  These are realistic concerns.  It’s important that you don’t let emotions drive the decision-making process.  Sometimes difficult business decisions must be made to preserve what is still left and plan for the future.

Finding someone you trust, who has good listening skills, and with whom you are comfortable discussing the details of your business, finances, goals, and options can be very helpful.  That person may not have the answers to all of your questions, but if they are willing to listen, they can offer advice and suggest people who can help.

Think of the following pages as a framework from which to begin the process of selling some or your whole farm.

Evaluate

Financial situation – What is the total amount of all debt obligations, to whom do you owe money, and how much is owed to each creditor?  What is your net worth?  Knowing the answers to these basic questions is important, regardless of your business or performance, and necessary to evaluate what and how many assets will need to sell.

Goals/Needs – Do you need to sell all or part of your assets?  Can you retain assets to farm part-time?  Is there another enterprise worth investigating?  Does it make sense to relocate and start a new business?  Are you at a stage in life where it’s best to retire and enjoy time with family, travel, or enjoy a hobby?

Life after farming – What skills do you possess?  You are more than ‘just a farmer’ – you probably have skills and/or education as a mechanic, electrician, carpenter, mason, nutritionist, agronomist, etc.  You have worked with livestock and machinery.  You may have an advanced degree that you can put to use.  You certainly have a great deal of practical, hands-on experience.

Your experiences, training, education, and skills will help you focus on finding your next career.  Maybe now is a time to take classes to increase your skills to enter a new career.  Talk to neighbors, family, and friends to let them know you are looking for a job.  State and county governments, as well as private companies, can assist you with identifying skills and job openings.

Decisions:

You and your business partners have agreed that a sale of assets is the best available option, but you don’t know where to begin.  The following can help you get the process started, answer questions, and/or raise issues you might not have considered.

Begin with a current balance sheet.  A balance sheet will provide you with a snapshot of your assets and liabilities at the time the inventories were recorded and values placed on them.  The balance sheet will also show your current and non-current debt obligations.

Determine whether you will sell all of your assets or a portion.  If only a portion, which ones?  If you are going to focus on crop production, you may want to retain a tractor(s), tillage equipment, planter or drill, harvest equipment, etc.

If assets are listed as collateral for loans, start talking to lenders immediately about how to handle the sale, discharging the lien, and the use of sale proceeds.

Meet with a farm appraisal real-estate professional to determine a reasonable value for the acres and any real estate assets you plan to sell.  Evaluate the advantages and disadvantages of a private sale, going through a realtor, or having a public auction.  If you use a realtor or auctioneer, determine the cost, services provided, and what is expected of you. Talk to more than one real-estate professional, request references, and ask that terms discussed be in writing.

Will the projected sale income be enough to cover debt obligations?  If not, what is the next plan of action?  If the sale of livestock isn’t enough to pay your debts, what else needs to be included?  Maybe it’s milking equipment, stalls, feed mixer.  While it provides a one-time cash infusion, the sale of timber or minerals may provide extra income.  The sale of real estate is an option.  You may not want to sell all of your acreage, but maybe there are a few acres you could sell.

Involve an attorney.  Contact one early and make them aware of your plans.  There may be issues related to the sale you hadn’t considered (for example, say you plan to divide a parcel into building lots, there may be zoning or other regulations to follow and associated court filings).

Meet with your tax advisor/accountant.  There are going to be tax implications from the sale of assets.  How many dollars must be set aside to meet tax obligations or liabilities?  A tax professional can help you implement strategies to minimize the tax bill.  As a financial advisor once told me, the difference between tax avoidance and tax evasion is about seven years!

Help is available

Coming to and making a decision to exit farming is not easy and is filled with a great deal of emotions.  There are people and agencies/organizations that can help, including:

Summary

Arriving at the decision to sell will not be easy.  Find someone with whom you can share your feelings and don’t see yourself as a failure.  Talk to professionals, get answers to your questions, and make the best possible decisions.  There are many people who can help you through this process!

 

Reviewed by:

David Marrison, Associate Professor and Extension Educator, ANR, Ashtabula County

Peggy Hall, Legal Educator, Ohio State University Extension

Dianne Shoemaker, Extension Specialist, Dairy, Ohio State University Extension

Susan Crowell, Editor, Farm and Dairy Newspaper

Farm Business Analysis and Benchmarking

by: Clint Schroeder, OSU Extension

As we turn the page from winter to spring we welcome the longer days and the warmth the sunshine brings us.  In farm country this is the time of year that hope is supposed to spring eternal.  As farmers head to the fields, they may not be as optimistic as previous years.  Although we’ve seen a nice winter rally in the grain markets, USDA forecasts are still predicting net farm incomes to decrease to the lowest levels since 2006.  Much of the talk on the winter meeting circuit focused on the importance of knowing your cost of production.  OSU Extension’s Barry Ward is forecasting higher energy prices with most other input costs staying flat to slightly higher.  Rising interest rates, high health care costs, a strong dollar, and the potential for uncertainty with our trading partners are doing little to brighten the mood.  The dim outlook coupled with already razor thin profit margins are starting to remind some of the more seasoned producers of the 1980’s farm crisis.

The farm crisis of the 1980’s saw land values plummet as many operations were unable to pay high interest rates and saw their farms foreclosed on.   It is estimated that nationwide around 300,000 farms were put out of business during the decade.  The fallout led to the creation of the Farm Financial Standards Task Force in 1989.  Their job was to develop standardized guidelines for agricultural producers.  Today, the name has changed to the Farm Financial Standards Council (FFSC), which currently uses 21 financial guidelines to evaluate farm data.  These guidelines are used by banks and lenders to help make decisions on extending credit to farms.  While the backstory might be a little bit of the unknown to producers, the terms liquidity, working capital, solvency, and several others are not.

While farmers have been relying on OSU Extension for help with developing nutrient management plans, herbicide plans, and analyzing data from on farm research, they have not yet realized the full potential of farm financial planning.  A grant was awarded from the USDA National Institute of Food and Agriculture (NIFA) to expand access to farm business analysis and benchmarking resources with the goal of helping Ohio farmers gain a better understanding of their financial health.  The program gives producers a farm finance scorecard that shows how they stack up in each of the FFSC’s 21 categories.  These numbers are then shown on graphs showing the trend from previous years for that specific operation, as well as their standings compared to the national average of all farms that submit their records.  Benchmark reports are used to identify successes and opportunities to improve.   Each farm that participates in the analysis program will receive personalized benchmark reports that include their farm’s numbers.  These individual values are then highlighted to show where their farm falls in the benchmark report for each item compared to participating Ohio farms.

Farm Business Analysis isn’t just for farms focusing on grain production.  There is a large network of dairy farms, primarily in Eastern Ohio, already participating. When multiple enterprises are present, the analysis can help producers allocate expenses between different areas in their operation.  Whether the farm wants to compare their crops on owned versus rented land, their crop operation compared to their livestock, or the profitability of an individual crop or custom farming operation there are tools available to analyze the data provided.  It has been estimated that the value of the benchmarking data, financial scorecard, and enterprise analysis is well over $1000.  Thanks to the grant from USDA National Institute of Food and Agriculture, OSU Extension is able to provide this service at a cost of only $100.  Several lenders have also stepped up and agreed to reimburse operations that successfully complete an analysis.

If you would like more information on the program, visit our website at https://farmprofitability.osu.edu  There you will find the completed business summaries for previous years and other resources that can help farm businesses.  The Farm Business Analysis team has also grown from the original location in Mahoning County with the addition of four new regional technicians.  To learn more about Farm Business Analysis, contact the technician closest to you:

  • Defiance County:  Clint Schroeder, 419.782.4771, schroeder.307@osu.edu
  • Licking County: David Grum, 740.670.5315, grum.1@osu.edu
  • Miami County: Sharon Harris, 937.440.3945, harris.2835@osu.edu
  • Pickaway County: Trish Levering, 740.474.7534, levering.43@osu.edu
  • Mahoning County (Headquarters): Christina Benton, 330.533.5538, benton.132@osu.edu
    • Program Coordinator: Haley Shoemaker, 330.533.5538, shoemaker.306@osu.edu
    • Field Specialist: Dianne Shoemaker, 330.533.5538, shoemaker.3@osu.edu