Farmers caught between costs, prices

COLUMBUS – Commodity prices in the past decade rose by about one-third of farmers’ increased costs of production, putting them in an “unprecedented cost-price squeeze,” said Allan Lines, Ohio State University agricultural economist.

Prices farmers received for their products rose by 7 percent, while costs of production jumped 24 percent for a period going back to 1990-92, Lines said.

He used April 2001 as a basis of comparison. The mood in rural Ohio is turning sour, although three straight years of increased federal spending has buoyed farm income and agricultural land prices, Lines said.

“High costs and low prices are beginning to temper optimism among Ohio farmers,” Lines said. “Without the government program there would be a lot of people in deep water, financial-wise.”

Federal payments put money in farmers’ pockets, which they used to bid up land prices to as much as three times the land’s production value, Lines said.

Ohio land value.

Prime Ohio farmland is valued at $2,500-$3,000 per acre, compared to its productive worth of about $1,000 per acre, Lines said.

The latest comparative figures showed Ohio’s 2000 cropland prices lead the five-state Corn Belt, at $2,250 per acre. Indiana is third behind Illinois, with an average price of $2,210 per acre.

The Corn Belt average was $1,840 per acre. Ohio’s cropland rents average $75-$80 per acre, while individual cases are up to $125-$150 per acre, Lines said. Land rent steadily rose from $70.80 per acre in 1996.

Indiana’s land rent averaged $100 per acre in 2000, a steady increase from $94.80 per acre in 1996.

The 2000 Corn Belt average was $103 per acre.

The land-buying bonanza is cooling off as farmers are backing off from paying prices that were acceptable just one year ago, Lines said.

Something will give.

“It’s just an indication that something is going to break loose,” he said. “If the government supports hadn’t been there, we would have had a slow downward adjustment in land prices and rents many farmers could reasonably absorb.”

Congress appears inclined to continue the status quo with more supplemental payments, although the final amount has not been written into law. Lines thinks it would be a short-term solution to a beckoning problem.

“I don’t think that can be sustained over time,” he said.

Lines sees at least one of three scenarios emerging:

* A weather disaster somewhere in the world reduces grain supply, which raises prices toward levels of the costs of production. Farmers in the disaster area become victims.

* Federal belt-tightening reduces government payments and leaves farmers to fend for themselves with the open market.

* Lowered interest rates help farmers cope with the cash-flow demands of the cost-price squeeze. Hardest hit by the cost-price squeeze in Ohio are crop growers, Lines said.

In the past decade, their costs of production increased 27 percent, while April prices received for winter wheat, corn and soybeans declined by 9 percent, 10 percent and 25 percent, respectively.

Ironically, Ohio farmers intended to plant 4.65 million soybean acres this year, a 4 percent increase from 2000.

Indiana farmers planned to follow suit, with a 3 percent increase – or 5.8 million acres – this year.

Some relief.

The squeeze eases somewhat on Ohio pork and beef producers. Their costs of production increased by 20 percent from a decade ago, while prices received showed a 4 percent plus.

Dairy inputs cost 20 percent more one decade ago, while milk prices increased 10 percent, Lines said.

Poultry and egg producers’ costs of production increased 20 percent, while prices received increased 16 percent.