Source: Gary BrockMatt Roberts and Barry Ward talk agriculture land prices, rental and crop prices for 2018.
By Gary Brock
CIRCLEVILLE — Fairfield County farmer David Steele had not attended an annual Agriculture Outlook meeting for Ohio farmers in several years.
The Amanda Twp. resident was prepared to hear speakers at the Ohio State Extension-sponsored event give him bad news about what they can expect this year — maybe.
The nearly 100 farmers attending the event in Circleville Jan. 22 did hear some news from agriculture “heavy hitters” for Ohio agriculture, Dr. Ian Sheldon, Barry Ward and Matt Roberts.
The bottom line for this year?
– Land rental prices will be about the same, and should drop in a few years;
– Land values will drop slightly;
– Interest rates will increase;
– Both corn and soybean yields will increase again this year, which has happened for the last several straight years;
– Soybean planting will exceed corn acreage again across the nation and Ohio.
Steele’s experience in 2017 and his aspirations for this year are typical of most farmers at the meeting.
What kind of year is Steele expecting for 2018? “We are always optimistic that this year will be better than the last. We have to be if you are a farmer,” he said before the meeting’s start. How was 2017? “It was tight for us. It seemed like we were behind the eight-ball all year for a variety of reasons.” He said last year they lost their wheat crop because of weather issues.
The Steele family farms about 850 acres, growing corn, soybeans, wheat and they have some livestock. In 2018, Steele said they will farm about 15 percent wheat and corn, and soybeans about a 50-50 split.
For them, corn yield averaged about 170 bushels an acre for corn and 60 bushels an acre for soybeans. “Where it was good, it was really good, and where it was bad it was zero. There were spots in the fields with nothing,” Steele lamented.
What kind of prices is Steele looking for in soybeans and corn? “It all depends on what China is going to do, right?” he said.
And throughout the meeting, China and its future impact on Ohio farmers was at the heart of the discussion.
Matt Roberts, formerly of The Ohio Sate University and now a private grain specialist with Kernmantle Group, has good news about yields but concerns about growth in the grain market.
He talked about the rise of global wealth and the drop in global poverty having a major impact on agriculture and farming. “Everything in ag is driven by the increase in wealth both here and globally,” he said.
“Right now in agriculture it is a crazy time. There is a lot of uncertainty,” he added.
“The problem with corn is that you guys are too good at growing it. We are growing corn yield at 1.75 bushels per acre per year. But we are growing demand at 1.2 billion bushels per year. That’s an extra half bushel per year year after year. In the last couple of years that is 50 million bushels a year that doesn’t have a home,” he pointed out.
He added that Ohio has had large corn harvests within the last couple of years. “That is where this overhang is coming from – four good years of production. Since the 1960s we have had a few three-year runs, but we haven’t had four in a row. We will see where 2018 shows up.”
Roberts said corn yields continue to rise. “We have exceeded trendline yields in corn for four years in a row. Is this accelerating or not? Maybe.”
He said there is an increase in corn feed and ethanol use continues to grow. “That is surprising to most economists. We are growing 25-30 million bushels a year in ethanol. The Marion plant has announced it is going to double its size, and the Greenfield plant opened last year.”
He had news on the ethanol front. “There is also buzz about China wanting to achieve an E-10 air quality level, so there may be ethanol demand there. They have to procure the corn from somewhere. They don’t have corn production there to meet this demand along with their livestock feed needs,” he said, adding that this may create a new corn market for American farmers in China to go along with the huge soybean sales there.
“We know that world grain stocks (inventory) are high. We are going to hold levels of inventory in corn like never before, but we will also have levels of demand like never before. Inventory of 2.5 billion bushels carryout is huge, but we are seeing levels of consumption like never before.”
Roberts pointed out that half of our corn stocks are in China, “and we have no idea what the quality of that stock is. This adds tremendous uncertainty in the markets when we have three-four-five billion bushels sitting in China. At least some of it is very poor quality, so it leads to uncertainty.”
He said he expects corn exports will drop in 2018, predicting it will be 1.9 billion bushels instead of the 2.3 billion bushels in 2016. “That’s not unprecedented. About a 14 percent decline. Part of this is competition. Good harvest in good harvest in Brazil.”
“We are entering probably 5-7 years of corn planting decline. There’s just not the growth here. There is fundamental global growth in soybeans that we don’t have in corn, so I expect to see a decline in planting,” he predicted.
“I am just talking about flipping the role of corn and soybeans to the way they were in 2010-11-12 over the next five years. This is 95 million acres of beans and 85 million acres of corn,” said Roberts.
Regarding soybeans, Roberts said, “We have had four years of above trendline increases in yields. We did not have quite as big a jump over last year than we did in corn.”
And the big question of soybean exports? “We are USDA forecasting lower exports of soybeans in 2017-18 than in 2016-17. It is not because China is importing less. We are going to export less but the Chinese import will grow. There is going to be more origination from South America growth than here,” he said.
He said history has shown that China is a very savvy buyer. “I think what we will see going into summer is some of these contract origins flip from South America to the U.S. With all the trade rhetoric out there, would you want contracts now for summer delivery from the U.S. or China? Sadly, South America might be a more stable option now with concern over tariffs and a trade war,” he cautioned.
“As we go into summer I think these origins will flip. In the future, I don’t think going South America is going to be able to keep up economically with the demand. But right now I think our trade rhetoric is hurting us.”
Roberts said there is no good news for wheat. “There is so much competition for wheat globally. Interestingly, in Ohio we saw a 70,000 acre increase last fall in wheat crops. It is now becoming this money-optional cover crop. I’ve yet to find a farmer who has told me they have increased acreage in wheat as a crop, but they are using as cover crop,” he said.
What is the big story about wheat? “Glutten-free. The other is Adkins; high-protein diets. Not only are there two stories but both are bad. Wheat is being blamed for everything bad in the world,” said Roberts.
“We are a few years away from normalizing our crop market. We may normalize more quickly if we have a short crop,” said Roberts. “We have a lot more bushels — demand has to catch up. That’s what we are waiting for.”
He had good news about the future.
“The opportunity to be non-traditional, especially for young beginning farmers, has never been greater,” Roberts said.
“I am bullish on agriculture. The next couple years stay hard, the good news is for those who take their time to manage and plan, it is good to set yourself up for profits in the future.”
Barry Ward, program leader in production management at Ohio State Extension also had some good news for the farmers at the Circleville meeting, but he warned that farmers will not be getting their ARC insurance payments this October if the 2018 farm Bill legislation stays as presently proposed.
What farm costs for 2018 will be up or down according to Ward? Energy prices will be moderately higher this year, while fertilizer will be flat to modestly higher. But he added that quantity may be a concern with new weed problems — so costs may be higher, seeds probably modestly higher for most, softer secondary machinery market.
He said if corn prices are about $3.65 a bushel and yield about 199 bushels an acre, the profit numbers look better, and even better with yield over 200 bushels an acre.
“Land rentals will remain about the same, but may drop in a few years,” said Ward. “There have been very decent yields, so I don’t see much change now in the rents. Nationally they went up about one percent.”
In comparing corn and soybean profit potential for 2018, “It [comparisons] is arguing for more soybean acres right now,” he said. “We will find out in March how many people will be making these changes. It is not that simple. We will see finally the effect of lower property values and taxes, and then lower rental rates.”