Financial factors farmers should consider in 2019

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Scales and money

WOOSTER, Ohio — Another year is about to begin, and along with it, another year of tight profit margins. Livestock and crop sectors are both seeing difficult times, especially in the dairy and row-crop industries.

The Ohio State University Extension and area bankers met Oct. 18 for an all-day discussion of ag lending trends and farm financials. The following is a recap of the trends, as we prepare for 2019.

Positive aspects:

• Unemployment is the lowest it’s been since the 1960s, at 3.7 percent. Salaries have also increased, although some employers have opted to increase employee benefits instead.

• The new farm bill, which Congress is still debating, includes an increase in Conservation Reserve Program acres of 1 million to 5 million acres. This will provide additional enrollment opportunity, and funding for farmers with land that is accepted into the program.

• Yields remain strong overall, with many farmers seeing near-record corn yields.
Consumer spending is expected to remain strong. Spending drives a large part of the economy, including consumer debt and the “desire for more.”

• Interest rates have increased. This gives those with cash assets an opportunity to invest in higher-earning savings programs, including the Certificate of Deposit.

• Farmland values remain mostly stable, with some slight increases. This is important for farmers who are borrowing against their equity, or who are repaying a loan.

• Consumer interest in fresh foods, and the rise of craft beer, have created new opportunities for specialty crops and specialization.

• For dairy farmers, the average net return per cow in Ohio, in 2017, was $475, compared to only $95 in 2016, and $36 in 2015.

Negative aspects:

• Although yields are strong, prices are not. Producers need to think critically about their optimum yield, and whether they have enough storage and equipment to handle the kind of yield they harvest. Cost of production is key, and paying less for a slightly lesser yield might be worthwhile.

• A slightly higher cost for crop production is expected in 2019, with a notable increase in fertilizer prices, and a flat, to modestly higher increase in energy costs.

• Even though crop profitability has been low, and in some cases unprofitable, a strong equity position and a willingness to retain control of land means that negotiating a lower land rent can be tough. Even if you believe the rent should be lower, there’s often two or three other farmers willing to step in and take your place, if you lose the negotiation.

• The farm markets continue to be volatile. While this can be beneficial, it also requires careful preparation and readiness for when the market bottoms out.

• Farmland values are still high, especially for new and beginning farmers. Purchasing farmland at today’s prices creates a significant challenge to profitability.

• Although specialty crops are in high demand, the risks of growing them are often greater than with row crops. The labor and inputs are usually more intensive, and profitability can be extremely variable, depending on growing conditions, and your marketing plan.

• For dairy farmers, cow numbers are simply too high — above 9 million head — with too much milk being produced for the market.

• For dairy farmers, cow slaughter is up, at least as of the latest report.

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