Barry Ward, Leader, Production Business Management, Department of Agricultural, Environmental, and Development Economics, shares his yearly overview of land values, input costs and margins for the coming year. These are some items we want to pay close attention to over the next few years.
According to Ward, low crop margins and uncertain land value and cash rental markets will continue to be important themes as we look ahead to 2016 as producers grapple with high costs relative to crop prices received.
According to data from the Ohio Ag Statistics Service, bare cropland value increased 3.5 percent in Ohio in 2015. According to this data, bare cropland averaged $5,850/acre, up from $5,650/acre the previous year. The Western Ohio Cropland Values and Cash Rents Survey (AEDE) was conducted in January 2015. The projected value for Average cropland in western Ohio was $7,315 per acre. Top cropland in western Ohio was projected to average $9,190 per acre while Poor cropland in western Ohio was expected to average $5,673 per acre. These values reflect projected decreases of 5.5 to 9.5 percent.
The Chicago Federal Reserve Bank Oct. 1 survey of bankers found land values of “good” farmland were unchanged from last year however the third quarter showed an increase in farmland values of 1 percent across the district. Purdue University conducted their annual land value survey in June 2015 and found decreases in farmland value that ranged from 3.8 to 5.1 percent depending on land productivity class.
Strong equity positions together with continued low interest rates continue to lend positive support to land values. Low projected profit margins in 2016 will likely restrict further land value increases and possibly cause values to decrease. These competing fundamentals create a continued uncertain picture for land values in 2016 although continued low margins together with the potential for higher interest rates suggest lower farmland values in 2016.
Strong equity positions together with higher property taxes will continue to lend support to cash rental rates however low profit margins in 2016 will put downward pressure on rents. These competing fundamentals suggest a flat to slightly lower cash rental market outlook for 2016.
Outlook information presented here was developed with data from AEDE research, the Energy Information Administration, USDA, other Land Grant research, futures markets and retail sector surveys. Keep in mind, these are best-educated scenarios by Ward, forward looking statements contained in this document may prove to be incorrect due to changes in supply and demand and other political and economic related events.
So what do our Enterprise Budgets say? According to Ward, production costs for Ohio field crops are forecast to be somewhat lower in 2016 but the profit picture looks poor, much the same as it did 2015. Variable costs for Ohio corn for 2016 will be 8.5 percent to 10.6 percent lower compared to 2015. Variable costs for corn for 2015 are projected to be $336 to $421 per acre.
Variable costs for 2016 Ohio soybeans are projected to be 6.2 percent to 6.6 percent lower and range from $196 to $214 per acre. Wheat variable expenses for 2016 are projected to range from $169 to $211 per acre. Lower fuel and fertilizer prices will be the primary fundamental drivers of lower variable costs in 2016.
With continued lower crop prices expected for 2016, returns will likely be low to negative for many producers. Projected Returns to Variable Costs (gross revenue minus variable costs) are projected to be $185 to $345 per acre for Ohio corn in 2016 depending on land production capabilities. Budget projections for 2016 soybeans show Returns to Variable Costs to be $179 to $331 per acre.
Wheat budget projections for 2016 show Returns to Variable Costs to be between $125 and $218 per acre. This is assuming current prices of inputs and current December, November and September 2016 futures prices, respectively.
Returns to Land for Ohio corn (Gross Revenue minus all costs except land cost) are projected to range from -$40 to $108/acre in 2016 depending on land production capabilities. Returns to Land for Ohio soybeans are expected to range from $6 to $150 per acre depending on land production capabilities. Wheat returns to land are projected to fall between -$51 and $35 per acre in 2016.
Total costs projected for trend line corn production in Ohio are estimated to be $813 per acre. This includes all variable costs as well as fixed machinery, labor, management and land costs. Fixed machinery costs of $130 per acre include depreciation, interest, insurance and housing. A land charge of $199 per acre is based on data from the Western Ohio Cropland Values and Cash Rents Survey Summary. Labor and management costs combined are computed to be $77 per acre. Returns Above Total Costs for trend line corn production are negative at -$169 per acre.
Total costs projected for trend line soybean production in Ohio are estimated to be $581 per acre. (Fixed machinery costs, $108 per acre, land charge, $199 per acre, labor and management costs combined, $53 per acre.) Returns Above Total Costs for trend line soybean production are also negative at -$120 per acre.
These projections are based on OSU Extension Ohio Crop Enterprise Budgets. Newly updated Enterprise Budgets for 2016 have been completed and posted to the Farm Management Website of the Department of Agricultural, Environmental and Development Economics. Updated Enterprise Budgets can be viewed and downloaded from http://aede.osu.edu/research/osu-farm-management/enterprise-budgets
Tony Nye is the state coordinator for Small Farm Programs and an OSU Extension educator, agriculture and natural resources, for Clinton County and the Miami Valley EERA
RECOMMENDED FOR YOU