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Grim picture for 2016 crop prices

first_imgShare Facebook Twitter Google + LinkedIn Pinterest Barry Ward recalls the not-so-distant past when he could relay positive stories and bright agricultural outlooks in the weeks and months ahead. Those talks were just a memory for the speaker at today’s Grain Farmers Symposium.“This was a lot nicer talk to give a few years ago. That was a period unlike anything we had even seen in our lifetimes,” said Ward, leader of OSU Extension’s Production Business Management program. “There is not much good news in terms of profitability in crop agriculture today. There are a few small positives but not many.”Ward, from the Ohio State University’s College of Food, Agricultural, and Environmental Sciences Department of Agricultural, Environmental, and Development Economics (AEDE), delivered generally grim numbers in his outlook on land values, rental rates and input budgets..Land valuesIn terms of land values, prices are likely heading down.“When you look at net farm income we are not seeing much good news. What does that mean when we start to talk about land values? They continue to outpace a lot of experts’ opinions on average U.S. farm real estate values. As we  go through this data it is a really mixed bag,” Ward said. “We are seeing a lot of uncertainty from the experts. That leads me to believe that we may be at the top and we are having trouble sorting out the change in the direction from here.”For example, according to the Ohio Ag Statistics Service, cropland value increased by 3.5% in Ohio in 2015, with bare cropland averaging $5,850 per acre up from $5,650 per acre in 2014.  But, the AEDE survey of western Ohio cropland from January of 2015 showed high yielding farmland projected to average $9,190 and poor cropland was expected to average $5,673 per acre. These numbers were decreases of 5.5% and 9.5% compared to 2014.“A lot of the fundamentals are arguing that we are seeing some softening,” Ward said. “Land value has been driven by excellent crop net income from ‘06 to ‘13 and the low interest rates. There is still a sluggish world economy, but there is real interest in raising interest rates. Crop income will be likely lower or negative and higher interest rates are likely. But, farm equity positions are healthy and livestock and dairy income is mixed. These strong cash equity positions are still supporting land values. We were looking at strong dairy and swine incomes last year and this year is a different story with flat to low incomes in many areas. These factors will pull land values down if we do not see some changes. Land costs will likely be flat to slightly lower next year, in my opinion.” Ohio cash rent“We tend to offend at least half of the audience when talking about correction of rental rates because we are talking to both landlords and tenants,” Ward said. “What has driven rental rates? Crop net income has been good and landowners have seen property tax rates at two to three times higher and that makes them reluctant to reduce rents. In addition, high profits in recent years had led to excess machinery capacity and need for farms to cover more ground.”The economic situation will likely move rental rates lower, though there is ample uncertainty about the rental price outlook.“Our data was showing a softening rental market going into 2015. We see some sets of data pointing higher and some pointing lower. There is lot of uncertainty out there with rental rates,” Ward said. “Our survey data showed softening rental rates for 2016 and so did Purdue, but we did see a mixed bag of data. There is the same set of competing fundamentals as there is with farmland values. What is going to win? Farm balance sheets are weakening but still high. There are higher property taxes and that is an issue. Certain areas of the state saw a tougher year in 2015, and those areas may see more renegotiating.” Input costsInput costs remain high compared to crop prices, but have started to flatten out.“We have seen some relative flattening in terms of input costs. Seed costs have continued to march up, though we have seen some flattening off to give producers some relief. Still, there is a pretty high price to pay for all of these traits. Seed cost will be flat to modestly higher for 2016,” Ward said. “We are at very low energy prices going forward. Fertilizer prices have weakened and we may see some continued softness through the winter. We continue to track many of these new potential builds of fertilizer plants around the country. There is not much change in chemical costs, depending on the product.”In total, variable costs for Ohio field crops will be 8.5% to 10.6% lower in 2016 than they were in 2015. Ward said returns to variable costs are projected to be $185 to $345 per acre for Ohio corn in 2016 depending on the production. Soybean budget estimates show returns to variable costs at $179 to $331 per acre. Wheat returns look to be between $125 and $218 per acre.Of course, actual costs on Ohio farms vary widely and it is not hard to pencil out negative budgets with per bushel production costs in excess of the current market prices.last_img

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