SALEM, Ohio — Although a return to the record profits of 2008-2013 is unlikely, farmers have more reason to be hopeful heading into 2018 than they’ve had in years.
After three consecutive years of declines, farm sector income is expected to increase for 2017, according to Ani Katchova, associate professor and farm income enhancement chair in Ohio State University’s department of ag economics.
Katchova spoke during the university’s ag outlook conference in Columbus, Nov. 9, where she used U.S. Department of Agriculture data and local surveys to forecast what grain and livestock farmers can expect.
Net cash farm income for 2017 is expected to be $100.4 billion, up 12.6 percent from 2016. Net farm income is forecast to be $63.4 billion in 2017, up 3.1 percent from 2016. If realized, the increase would represent a turnaround from the 50 percent decline, from the years 2013-2016.
“I’m seeing improvement in farm income and I’m hoping that continues into the future,” Katchova said. “I’m hoping that we bottomed out last year and we’re going to see improvement. But only the future will tell. I am cautiously optimistic.”
Cash receipts are forecast to increase by $14.1 billion, or 4 percent, according to Katchova, mostly driven by increases in livestock and dairy receipts, with more modest increases in crop receipts.
In context
With the increases, Katchova said it’s also important to remember the decreases, and that recovery will not happen in one year alone.
In 2016, for example, Ohio cash receipts declined by 11.8 percent, due to a decline in livestock receipts.
Inputs
As for actual production costs, farmers can expect increased prices for labor and fuel expenses, and declines in feed and fertilizer prices.
Ohio land values continue to decline slightly, and now average $5,780 per acre for cropland, a .3 percent decrease from 2016. In Pennsylvania, cropland averages $6,000 per acre, a 1.6 percent decrease from 2016.
Cash rent in Ohio averaged $152 per acre in 2017, a 1.3 percent increase over 2016. And cash rents in Pennsylvania averaged $79 per acre, also a 1.3 percent increase.
The actual cash rent per farm varies greatly according to soil type. In Ohio, the range is from $29 per acre, to more than $200 per acre for the most fertile soils.
Modest futures
Gary Schnitkey, professor and farm management specialist with the University of Illinois’ department of ag economics, said he doesn’t see corn going above $4 a bushel in 2018, and Ohioans could easily see corn prices of $3.50 a bushel, and soybeans priced at $9.30 a bushel.
“That’s sort of a realistic number,” he said. “In some respects, it’s amazing that we have as high of prices as we do, given the production we’ve had.”
Schnitkey said it would take a significant yield shortfall for prices to improve much beyond those estimates — something that only happens in about 20 percent of growing seasons.
He doesn’t foresee a financial crisis, but he expects the tight margins are here to stay.
“Many farms will be just fine,” he said. “But we’re back to normal, with more financial stress.”
Not 1980s repeat
Katchova said the decline in profits has some parallels to the farm crisis of the 1980s, but also some important differences. For example, interest rates in the 1980s were much higher, at 17.5 percent, compared to just 4-5 percent today.
Also, today’s average debt-to-asset ratio, at 11 percent, is much lower than 20 percent in the 1980s. Today’s farmers also have better crop insurance options, making a repeat of the ’80s crisis unlikely.
Trade deals
Politically, the year ahead could be affected by international policy, especially with the discussion of trade agreements.
The U.S. is currently in the process of renegotiating the North American Free Trade Agreement, and President Donald Trump has pulled the country out of negotiations with the Trans-Pacific Partnership.
Ian Sheldon, chairman of the Anderson’s Program in International Trade at OSU, said free trade agreements represent significant market opportunity for U.S. agriculture, and that by not participating, the country is essentially “locking itself out” from the market.
The TPP, specifically, was expected to generate $2.8 billion by 2025, a 33 percent increase in export market share. Equally important, Sheldon said, is that the TPP would have gained the U.S. market access to countries where it currently has no free trade agreement, most importantly in Japan.
The Agricultural Policy and Outlook Conference was hosted by OSU’s Department of Agricultural, Environmental, and Developmental Economics. Farm and Dairy watched the conference via live webinar. For more information or to view presentations, visit aede.osu.edu.
