Annual Ag Outlook for coming years
ATTICA – Economists from Ohio State University say farmers should keep cash in their bank accounts to prepare for lower prices and fewer government programs in coming years.
Ag economists Carl Zulauf and Matt Roberts spoke during the annual Ag Outlook meeting Monday evening at Attica Fairgrounds.
“The decisions you make in the next 12 months will do a lot toward what your income statement looks like five years from now. We’re moving back into much more normal prices,” Roberts said.
In a nutshell, he said farmers won’t be seeing the high prices they’ve benefitted from during the past six years. He said they should buy crop insurance to protect against short-term losses, participate in the ACRE program to handle intermediate concerns and make appointments with their accountants to go over their balance sheets to ensure long-term stability.
Roberts said he expects corn in the next five years to be selling at $3.50-$4 per bushel, and soybeans at $9-$10.50 per bushel.
“2014 will be a profitable year,” he said. “It’s a year for you to prepare for the years to come, to build that capital. You need to have one year of land payments sitting in a rainy day fund.”
He suggested forgoing end-of-year equipment purchases, and paying the taxes instead.
Roberts reviewed the global economics and his reasons for his advice.
He said soybean markets will remain strong, mainly because of ever-increasing exports to China.
To put it in perspective, Roberts said it takes three times the amount of cropland available in Ohio to grow enough soybeans for China currently.
Corn’s outlook, however, isn’t as good.
He said the ethanol market will remain solid, especially as prices decrease, but the demand flattens because there isn’t any place new to sell more ethanol.
In his political policy update, Zulauf said it’s likely there will be a farm bill.
Farmers should expect fewer government crop supports in this bill, and expect some form of conservation compliance to be required.
Zulauf explained the conference process where the farm bill is now being discussed. But he said discussions go beyond negotiating the financial amount both sides can agree on.
While the bills don’t seem largely different on the surface, he said small differences result in big political differences.
“When you dig into the bills, you realize the differences are more philosophical than monetary,” he said. “There is a huge debate about distribution of wealth, and this falls under that debate.”
One of three things could happen, he said.
The conference could come to an agreement that would be eventually enacted into law.
Secondly, the current farm programs could be extended two years with cuts in direct payments.
And thirdly, the conference could not come to an agreement at all and there would be no farm bill.
“There’s a non-zero probability that they will simply walk away and do away with the farm bill,” he said.
The crop insurance program is handled under a different program.
Zulauf recommended farmers learn about crop insurance and how it differs from preparing a farm to handle multiple years of revenue risks.
“There’s the issue of who benefits from crop insurance,” he said. He said bankers benefit because their risk is handled, and insurance companies benefit from selling it.
“What is not clear is whether the farmers benefit from crop insurance,” he said. “It reduces yield risk and revenue risk, but what isn’t clear is does it reduce your total risk.”