By Matt Reese
This fall most farmers in Ohio will be grinning at the numbers they see on their yield monitors and scowling at the numbers they see in the markets as combines roll through crop fields.
The USDA’s September supply and demand estimates did not help matters. The September Crop Production Report had an Ohio corn yield of 188 bushels per acre and an Ohio soybean yield of 58 bushels per acre. Multiplied by expected harvested acreage, this would be Ohio’s second largest corn crop and largest soybean crop in terms of production. Total U.S. yields were 181.3 bushels per acre for corn and 52.8 bushels per acre for soybeans. The high yield estimates, compounded by demand concerns, did not improve the outlook for prices.
“As far as commodity prices received to producers, this was another WASDE to burn. However, producers will have to shake it off because while complaining about prices might make one feel better, it historically hasn’t changed the result,” said Ben Brown with the Ohio State University Department of Agricultural, Environmental, and Development Economics. “The yield forecast confirmed early reports by the Pro-Farmer Tour and Ohio Ag Net that this had the potential to be a record crop. The Pro-Farmer Tour had results of 177 bushels per acre for corn and 53 bushels per acre for soybeans for a national average. Ohio yields in the Pro-Farmer tour were 184 bushels acre for corn and 60 bushels acre for soybeans. Both would be new yield records for Ohio beating previous records of 177 bushels per acre for corn in 2017 and 54.5 bushels per acre for soybeans in 2016.”
With a big supply of corn and soybeans in Ohio and around the country, there are also concerns about demand.
“Export numbers for soybeans would suggest there is some bad blood in the water between the United States and China,” Brown said. “Trade theory would suggest that the U.S. price will either be bid lower on excess supply and weakened demand or the rest of the world price — mainly large exporters like Brazil — will be bid higher on stronger demand for their product until the U.S. price plus the tariff is equal to the Brazilian price. With an additional 25% Chinese tariff on U.S. soybeans, that would mean that the U.S. soybean price will would need to be 80% of the rest of the world price (i.e. Brazil) for the two prices to be substitutable to Chinese buyers. That wedge as of today sits at 83%, meaning that the Brazil price is still not high enough or the U.S. price has not hit its floor yet. Sorry for the bad news.”
To compound the problem, world production may increase as well due to the stronger world prices.
“Due to the higher world price, Chinese, Brazilian and European producers are getting the signal to produce more product. Similarly, Chinese consumers are getting the signal to consume less. This creates a decrease in the amount of soybean imports for China, holding everything else constant,” Brown said. “Looking at the May WASDE, which in this case represents the before-tariff estimates and the September WADE, which represents post-tariff estimates we can draw conclusions about use. Chinese soybean production in the September WASDE is increased from the May WASDE by 6%, and their imports of soybeans are decreased by 9 million metric tons or 8.7%.”
Brown pointed out, though, the lower prices in the U.S. will increase domestic consumption, which offers some good news.
“As expected, a lower commodity price will spur domestic use. Corn ethanol production is up 50 million metric tons compared to a year ago and finally we are seeing increases in the feed and residual use value — up 125 million bushels from 2017. This value was also increased 50 million bushels from the August report. Exports for the 2018 crop are still down from 2017, but raised from the August report on strong growth in sales to Egypt, Columbia, and Mexico,” Brown said. “Soybean use shows a 15 million bushel increase in crush, driven by profit margin of soybean oil. Biodiesel is increased 800 million pounds on the resulting increase in soybean oil.”
With a huge supply and the demand challenges, though, the price outlook for harvest looks grim. Brown said the season marketing average from Sept. 1, 2018 through Aug. 31, 2019 for corn is now projected at $3.50 per bushel and for soybeans at $8.60 per bushel.
With these crop price levels, a continued decline in total net farm income is expected in Ohio. Brown co-authored a recent article with Ana Claudia Sant’Anna and Ani Katchova in OSU’s Department of Agricultural, Environmental, and Development Economics on the subject. Ohio net farm income showed an increase in 2017 of about three times over 2016 after large declines since 2013, though Ohio net farm income will likely see a decrease in 2018 with respect to 2017.
“Net farm income for Ohio dating back to 1949 shows that the Ohio farm sector is not doing as well as it was 5 years ago,” they wrote. “Although the drop in net farm income witnessed in 2016 was not as low as that during the 80s farm crisis, it is still the lowest since the 1980s in real terms. In fact, since 2014 Ohio net farm income has been below the 69-year average of $2 billion in 2018 dollars. The length of time which Ohio net farm income remains below its long‐term average is concerning. In the twenty first century, Ohio net farm income remained below the 69-year average a couple of periods, but the longest duration was for four years (2005 to 2008). Current statistics, though, point to 2018 possibly being the fifth consecutive year that Ohio net farm income is below the long‐term average. Greater emphasis should be placed on the length of the downturn rather than the fact that net farm income in Ohio is not as low as it was during the farm crisis.”