Times may be tougher than they were a few years ago but farm balance sheets are still healthy in a historical context with potential for more positive days ahead.
“Two years from now we will see some big relief,” said Barry Ward at the 2016 Ohio Grain Farmers Symposium yesterday. “We have a couple maybe three years wait before we see meaningful change in the price points.”
An agricultural economist at The Ohio State University, Ward shared his outlook on cost predictions for 2017 regarding energy, fertilizer, seed, chemical, machinery and equipment, land values, renting, and crop input costs.
“The challenges have been with us for the last couple years. We’ve got a cost structure in place for grain production in Ohio and the Midwest for that matter that’s really difficult, making our margin improvement difficult,” he said. “We’ve got commodity prices that are going to continue to be at lower prices than they were in 2010 through 2012 so we are essentially stuck with that cost structure.”
Ward recognized that it is a difficult time for corn, soybean and wheat production.
“I wish we had better news for 2017,” Ward said. “It may not be as dark as we predicted last year but there will still be challenges.”
Land rents and expected values are looking to continue economic depreciation. Margins are declining as cash rents are renegotiated.
“Cash rental rates that are a part of many of our producers’ costs are going to be a continued issue,” Ward said.
This winter, Ward is offering nine strategies for farmers in Ohio to remain profitable in 2017 — but expenses will need to be cut. Ward’s nine strategies were outlined in a release from OSU:
- Reevaluate crop production inputs such as prophylactic fungicide applications and specialty fertility products.
- Forgo phosphorus and potassium fertilizer, if soil tests show there’s enough in the ground for the coming crop.
- Review and adjust nitrogen rates and application timing.
- Re-evaluate seed technology. “Seeds with fewer GMO traits are usually less expensive,” Ward said. “But this will require more management time — you may have more weed pressure, more insect pressure. You need to weigh the pros and cons — and if you’ve done some on-farm evaluation, you will know what works and is worth the investment.”
- Eliminate excess equipment and re-evaluate equipment sizing. “The secondary markets are soft, so it’s not the best time to sell excess equipment. If there is a true need for equipment, this would be the time to buy,” he said.
- Renegotiate cash leases. “The economics of the past three years have cried for a lowering of cash leases, but they have held up because of equity positions on behalf of farmers and landowners’ property taxes,” Ward said. “Landowners need to understand that margins have declined and lease prices need to come down.”
- Consider more do-it-yourself repair and services, including spraying, soil sampling and equipment repair.
- Evaluate farm yield ratios with price ratios when determining crop mix.
- Re-examine family living expenses. “It’s not easy to do,” Ward said, “but family living expenses need to ratchet back to pre-2006 levels.” According to Illinois Farm Business Farm Management data, family expenses were $85 per acre in 2006, compared with $110 per acre in 2015.