Losses are expected across the board for Ohio’s major crops in 2017, according to information presented at the Farm Science Review this week.
Barry Ward, OSU Extension’s income tax school director, and Matt Roberts, associate professor of economics, gave talks at the Review’s “Ask an Expert Panel” on Wednesday during which they discussed profitability and grain prices for 2017.
“The whole thing is pretty cyclical. From 2006 to 2012 profitability was relatively high and outpaced any increases in other costs,” Ward told the Madison Press, “These high profits attracted more people, and thus more efficiency of production and then excess supply.”
While crop prices remain low, other costs have in turn stagnated. Fertilizer prices will likely see a slight to moderate dip in price while chemicals and seeds will remain at current levels, Ward said.
Both had outlooks on the three major crops in the area: corn, soybeans and wheat.
Ward predicts $363 cash cost per acre with a return above variable costs of $245.
“Reality is with corn, we’re swimming in it,” Roberts said during his talk.
He warned people not to be too focused on personal experiences in Ohio, where some corn yields have been low. He noted that the areas north of Interstate 80 there are going to be high yields.
“We should be in a surplus. In the last three years we’ve had the three largest harvests in history,” he said.
Roberts recommends farmers store their corn and wait until May for the biggest profits.
According to both of their analyses, soybeans seems to have the least amount of losses.
“There’s a little demand there. We thought we would be swimming in beans for the last eight years,” Roberts said. “Somewhere in the summer, the rest of the world suddenly decided not only do they like beans, they really, really like beans. And we see a lot of late season demand materialize.”
Based on what happened in 2016, Roberts thinks a demand spike might happen again at the same time in 2017.
Roberts said there is a huge global supply of wheat keeping prices low. In addition to these massive supplies, Egypt, the world’s largest importer of wheat, had a zero tolerance policy on the ergot fungus on the crop, effectively halting all imports.
According to the Wall Street Journal, the ban was lifted Wednesday. This was after Roberts’ talk.
In addition there are other concerns.
“We have not seen the huge demand increases, in the United States or globally,” Roberts said. “In fact, it’s been the opposite: beans we have Chinese demand, corn we have U.S. ethanol demand, wheat instead we have [The Atkins Diet] and gluten.”
The popular diets and the concerns over Celiac Disease from gluten sensitivity have hurt demand for soft bread in America, he said.
While farmers should still observe competition, Roberts said that South America might be less of a competitor this year due to stagnating equipment and supply costs coupled with the lower profitability of various crops.
“The difference is they don’t have a well-developed banking system. They don’t have your community banks willing to extend lines to you. Or regional banks dedicated to ag,” he said.
Ward said that farmers should also look at depreciation of equipment and other capital. Trade in values on machines are lower so depreciation of value is getting higher. There will be higher expense in machine repair.
Out of concern for his bottom line, one farmer in the audience asked if equipment and supply costs would eventually lower along with crop prices.
Ward doubts this, citing that most companies look towards analyses from their economists above all.
“Some of these companies — Monsanto, John Deere, which are larger companies — they’re going to be answerable to those folks first,” he said.
He said more likely their price structure will flatten out.
Maximilian Kwiatkowski can be reached at 740-852-1616, ext. 1617, or on Twitter @msfkwiat.