While cropland values in Ohio increased in each of the past three years, several factors, including continued low interest rates, low debt-to-asset ratios and lower profit margins, are likely going to make for a relatively flat land market in 2015, an economist from Ohio State University’s College of Food, Agricultural, and Environmental Sciences said.
Ohio cropland value rose 8.9% in 2014, with bare cropland averaging $5,650 an acre, said Barry Ward, production business management leader for Ohio State University Extension.
Ward, citing statistics from the Ohio Field Office of the National Agricultural Statistics Service, said he expects values to be flat to modestly lower this year depending on relative crop margins and interest rates.
“Projected budgets for Ohio’s primary crops for 2015 show the potential for low margins and pressure to decrease cash rents,” he said. “On the other hand, strong equity positions together with higher property taxes will likely continue to lend support to cash rental rates.”
Lower profit margins in 2014 and 2015 will put downward pressure on rents, Ward said.
“These competing fundamentals suggest a relatively steady to possibly slightly lower rental market outlook for cash rental rates in 2015. Rental rates will take their cues from crop margins. The lower the crop price and corresponding profit margin, the more downward pressure on rental rates,” he said. “Rental rates have been driven by strong farm income and strong balance sheets. Higher CAUV calculations are part of this too. We have healthy balance sheets verses lower crop net income. I think the balance sheet will still win out in 2015. Property taxes will be an additional floor and it will be hard to have conversations with landowners who just saw their land taxes double or triple. To manage rents in tough times, emphasize the non-cash benefits of rental agreements and consider flexible cash leases.”
Ward said that farmers can expect crop input costs to be mixed, with energy costs predicted to be lower and seed costs expected to range from modestly lower to modestly higher depending on the seed company, genetic package and the newness of the hybrid or variety.
Meanwhile, fertilizer will continue to be the most volatile crop input cost, said Ward, who is also an AEDE assistant Extension professor.
“Most fertilizer products are at slightly higher prices compared to last year at this time,” he said. “Production issues, short gas supplies, plant turnarounds and political unrest have lent support to higher prices.”
Returns to variable costs are projected to be $128 to $296 per acre for Ohio corn this year depending on land production capabilities, Ward said. Returns to variable costs for soybeans are projected to be $145 to $302, with returns to variable costs for wheat projected at $102 to $202 per acre, he said. These figures reflect the dollars left over to pay ownership costs for machinery and equipment, land rental or ownership charges, and operator labor and management.
The projections are based on OSU Extension Ohio Enterprise Budgets, and assume current prices of inputs, and December 2014, and November and September 2015 futures prices, respectively, Ward said.
OSU Extension has a long history of developing enterprise budgets that can be used as a starting point for producers in their budgeting process. Farmers can find enterprise budgets for 2015 at http://aede.osu.edu/research/osu-farm-management/enterprise-budgets. The website is offered by AEDE.
The budgets are downloadable Excel spreadsheets. Users can input their production and price levels to calculate their numbers. The budgets feature color-coded cells that allow users to plug in numbers to easily calculate bottom lines for different scenarios. Detailed footnotes are included to help explain methodologies used to obtain the budget numbers. The budgets also include a date in the upper right-hand corner of the front page indicating when the last update occurred.