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Newsletter | Past Issues
May,
2005
In This Issue:
New
2005 Enterprise Budgets for Corn & Soybeans Including
Soybean
Budget
Scenarios for Rust and Aphid Pressure
Workers Compensation 1K Program Offers
Potential Savings to Ag
Employers
The
Economic Drama of Soybean Rust in 2005
The
Effect of Fuel Price Increases on Custom Farming Rates
Sources
of Weather Data
Poster
Requirements for Farm Operations
Emerging
Issues in Agricultural Lending
Trade
Adjustment Assistance for Farmers
Will
Brazil Surpass the U.S. in World Soybean Production?
New
2005 Enterprise Budgets for Corn & Soybeans Including
Soybean Budget Scenarios for Rust and Aphid Pressure
Barry
Ward, Leader, Production Business Management, OSU Extension
and The Department of Agricultural, Environmental, and
Development Economics
Whether
it's done in an Excel spreadsheet or simply mulled over
in one's mind, “budgeting”, or estimating profitability
of an enterprise, is an important process. Budgeting
is often described as “penciling it out” before committing
resources to a plan. Ohio State University Extension
has had a long history of providing “Enterprise Budgets”
that can be used as a starting point for producers in
their budgeting process.
Newly
updated Enterprise Budgets for 2005 have been completed
and posted to the Farm Management Website of the Department
of Agricultural, Environmental and Development Economics.
Updated Enterprise Budgets have been published for the
following field crops: Conservation Tillage Corn, No-Till
Corn, Roundup Ready Conservation Tillage Soybeans, Roundup
Ready No-Till Soybeans, Non-GMO Conservation Tillage
Soybeans, and Non-GMO No-Till Soybeans. With the increased
importance of new pest threats to soybeans we have included
special budgets for soybeans with Asian Soybean Rust
and/or Soybean Aphid pressure. These budgets include
Roundup Ready No-Till Soybeans with Asian Soybean Rust
Pressure, Roundup Ready No-Till Soybeans with Soybean
Aphid Pressure, and Roundup Ready No-Till Soybeans with
Asian Soybean Rust and Soybean Aphid Pressure. To access
these budgets online, see the following website: http://aede.osu.edu/programs/FarmManagement/budgets/
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Workers
Compensation 1K Program Offers Potential Savings to
Ag Employers
Dianne Shoemaker, Extension Dairy Specialist,
Extension Center at Wooster.
Farm
businesses must have Worker's Compensation Coverage
if they have employees. It is not optional, and represents
a significant expense for Ohio 's farm businesses. Premium
costs can reach 25% of gross payroll without careful
management. The first, most important on-farm practice
is to train employees to work safely. Secondly, each
farm should be enrolled in a Group Rating Program if
their safety record permits their participation.
An
additional opportunity to control WC costs is to enroll
in the “$1,000 Medical-Only” or 1K Program. An employer
must enroll in the program before a claim occurs. Once
enrolled, if an accident occurs, an employer can pay
all medical expenses up to $1000 if no more than 7 days
of work are lost. The accident will not be part of the
employer's WC claim history. This claim history is used
to determine eligibility for group rating program participation.
Larger claims must go through the regular Worker's Compensation
claim process.
Follow
the link to find more detailed information on this program:
http://www.ohiobwc.com/basics/guidedtour/generalinfo/empgeneralinfo26.asp
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The
Economic Drama of Soybean Rust in 2005
Corinne
Alexander, Craig Dobbins, Chris Hurt, and George Patrick
Corinne
Alexander is an Assistant Professor; Craig Dobbins is
a Professor; Chris Hurt is a Professor; and George Patrick
is a Professor in the Department of Agricultural Economics
at Purdue University.
Asian
soybean rust has arrived! The economic consequences
of this disease will be a drama, but not a tragedy as
rust can be managed. Brazilian farmers have demonstrated
that they can manage the disease without severe reductions
in national yields. However, it requires new understanding
of the life cycle of rust, and especially how to identify
and treat the disease. Every indication is that USDA,
Land Grant Colleges , fungicide companies, local custom
spray companies, and especially U.S. soybean producers
are rising to this new challenge, and that we too will
be able to manage soybean rust .
To
view the entire article, see the February 2005 Edition
of the Purdue Agricultural Economics Report at: http://www.agecon.purdue.edu/extension/pubs/paer/
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The
Effect of Fuel Price Increases on Custom Farming Rates
Barry
Ward, Leader, Production Business Management, OSU Extension
and The Department of Agricultural, Environmental, and
Development Economics
Whether
you're a custom farmer or someone in the market for
custom farm work, rising fuel prices may have something
to say about the price charged for your next custom
farming job. Custom farming rates have changed very
little in the last several years as tradition seems
to govern many long-term custom rate arrangements. Well,
we've charged Johnny Farmer $21/acre to harvest his
corn for the last 3 years, so that's what it'll be this
year. Times may be changing. Diesel fuel price increases
the last several months have caused many to rethink
their custom farming rates.
Diesel
fuel prices have increased significantly over the last
24 months at the farm gate. Survey work has shown diesel
prices in the spring of 2003 averaged around $1.10/gallon
while today's diesel prices for farm usage are in the
$1.85/gallon range.
If
we look only at fuel price increases as they relate
to in-field operation of the farm equipment we see a
significant increase in the cost of many farm operations.
(And this assumes we ignore the effects of fuel price
increases to the manufacturing and cost of the implements,
cost of oil and lube, and cost of driving or transporting
the equipment to the field.) The following list highlights
the fuel requirements of farm equipment operations and
increase in fuel cost from April 2003 to April 2005.
Implement
Gal./Ac. Fuel Cost/Ac.
Fuel Cost/Ac. Increase
Diesel 1
2003 2
2005 3
03 to `05
Combine
Corn-6 Row
1.93
$2.12
$3.57
$1.45
Combine
Soybeans-25 ft.hd. 2.02
$2.22
$3.74
$1.52
Chisel
Plow-23 ft.
0.64
$0.70
$1.18
$0.48
Disk/V-Ripper-17.5
ft.
1.69
$1.86
$3.13
$1.27
Planting
Corn -12 Row
0.34
$0.37
$0.63
$0.26
Round
Bale-1000 lb.
0.77
$0.85
$1.42
$0.57
So
what now? You may decide that changing custom rates
will change other relationships with your customer that
you may not want to forfeit. So you swallow the price
increase and continue to spread your fixed costs over
more acres. Or, you may decide that it's time to rachet
your custom rates up a little to avoid a lower return
to your time and management.
If
you are having second thoughts about raising those rates
you might want to consider adding a “fuel surcharge”
to your existing custom rate to offset the rise in fuel
prices. This method may make it more palatable for your
customer. Fuel surcharges have been used in the trucking
industry and may be an option for custom farm operators.
A base custom rate and a base fuel price are parts of
this equation. As fuel prices increase from the base
price, clients pay the difference between the base fuel
price and the spot fuel price. This is a simple example
that doesn't take into account higher machinery, fuel,
lube or transport costs.
Whatever
you decide, understand that these cost increases are
real and will impact the custom farming business, whichever
side of the transaction you are on.
1
Gallons per acre diesel fuel values are estimates borrowed
from the “Farm Machinery Cost Estimates for 2005” publication.
See the full publication and estimates for diesel fuel
use per acre for other implements at: http://www.extension.umn.edu/distribution/businessmanagement/DF6696.pdf
2
Diesel Fuel Price used for 2003 is assumed to be $1.10/gallon.
3
Diesel Fuel Price used for 2005 is assumed to be $1.85/gallon.
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Sources
of Weather Information
Donald
J. Breece Ph.D., Farm Management Specialist, OSU Extension
Center at Lima
The
Web today has numerous sources of weather statistics,
forecasts and information. Here is a list of several
that may be of interest to farmers:
http://www.geography.ohio-state.edu/faculty/rogers/statclim.html
: The State Climatology Office for Ohio strives
to acquire, archive, process and disseminate all climate
and weather information that is of value to public officials
and organizations, corporations, research scientists,
and private citizens of the state. The fact that
there is a state climatology office is not widely known
around Ohio and many of the requests are either from
central Ohio or they are from other states, from persons
that know of climate services in their home state.
http://sisyphus.sws.uiuc.edu/index.html
: The Midwestern Regional Climate Center (MRCC)
is a cooperative program of the Illinois State Water
Survey and the National Climatic Data Center (National
Oceanic and Atmospheric Administration, U.S, Department
of Commerce).
http://www.extension.iastate.edu/notes/display.aspx?catID=102Weather
: Weather and Crop Comments by Elwynn Taylor,
Iowa State University Extension climatologist.
According to Elwynn, on 4/27/05, "As of late April 2005
the Leading Crop Weather Indicators point to an above
trend U.S. corn crop. The risk factors considered were:
subsoil moisture(favorable or above usual moisture for
the Corn Belt), ocean conditions north of Hawaii(PDO)(slightly
unfavorable for the Mountain West and the western Corn
Belt), El Niño (weak but still slightly favorable),
Bermuda High Pressure(favorable), Benner 19-year Cycle
(unfavorable), and the National Weather Service forecast
for May-June-July (favorable). With no strong
trends in place, yields for 2005 are expected to exceed
the trend by 2-5% (nationally about 42 Bu./a for Soybean
and 145-150 Bu./a for Corn). No assessment of potential
loss to Asian Soybean Rust was made." http://mrcc.sws.uiuc.edu/Watch/watch.htm
: Climate maps are available and are up-to-date
through the previous day midnight using data received
by 11:00 am Central Time each day.
http://twister.sbs.ohio-state.edu/
: Ohio State University weather information
site with lots of links.
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Poster
Requirements for Farm Operations
Dee Jepsen, Program Director, Ag Safety and
Health, Ohio State University Department of Food, Agricultural,
and Biological Engineering
The State Safety Office has received questions about
farmers being solicited by a poster service and the
mandatory poster requirements for farm operations.We
have reviewed the federal and state regulations and
found this IS a labor regulation, and that farmers NEED
TO BE IN COMPLIANCE.
Here's a summary of the regulations: The poster requirements
apply to ALL EMPLOYERS in the state of Ohio. So
this is not an agricultural regulation, but one that
affects businesses that hire employees. (More
specifically, it is regulated under the Ohio Department
of Commerce, Division of Labor and Worker Safety.)
There are no exemptions for agricultural operations,
and the requirements apply if at any time during the
year an employee is hired (even for one hour).
Three posters are mandatory:
·
State of Ohio Minimum Wage
·
Unemployment Compensation Coverage
·
Ohio Fair Employment Practices Law
If the farm hires minors, then the Ohio Minor Labor
Law poster is also required. If the farm hires
large labor forces (more than 500 man hours in a year)
or migrant workers, and/or contracts with the federal
government, there are several other poster requirements.
A useful website for farmers to know about is:
< http://www.dol.gov/elaws/posters.htm
>. This service walks farm employers through
a series of questions to determine their exact poster
requirement for federal compliance.
The solicitation many Ohio farmers received was from
a service that charges a fee to help get them
into compliance for the type of poster(s) they need
on their farm. While these service providers are
legitimate and will certainly provide the posters meeting
the regulations, they may not be tailored to the specific
farm operation. In other words, the farmer will
still have to decide which posters to display.
These posters are FREE from the regulatory agency, whereas
the poster service company charges $60.
These posters can be received from the the Bureau of
Civil Rights within the Ohio Department of Job and Family
Services at 614-644-2703.
If you have additional questions about this recent discovery
of poster requirements for farm employers, please email
Dee Jepsen at jepsen4@osu.edu.
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Emerging
Issues in Agricultural Lending
Donald J. Breece,
Farm Management Specialist, OSU Extension Center-Lima
The
agricultural lending market providing loans to US farmers
and ranchers has been undergoing a rather rapid transformation
in the last ten years. It took the proposed sale of
the Farm Credit Services of America, a large association
in the Farm Credit System, to the Dutch bank Rabobank
to underscore how significant these changes could be.
Although this sale ultimately fell through, it left
in its wake a number of issues facing the Farm Credit
System and agricultural lenders in general. The new
international accords on banking, known as the Basel
Capital Accords (Basel II), represent another force
likely to cause change in agricultural lending.
The
most recent issue of Choices provides a retrospective
on the Rabobank near-deal and a broad view on the current
state of agricultural lending. Click on the links below
to explore these issues of emerging importance to agricultural
lending:
Overview:
Changing Face of Agricultural Lending
David
M. Kohl and John B. Penson, Jr.
Growing
Complexity of Agricultural Lending Decisions
Danny
A. Klinefelter and John B. Penson, Jr.
This
paper initially discusses the drivers of change in agricultural
lending markets from the perspective of their customer
base. As farms become larger and more complex, agricultural
lenders will need to keep abreast of the broader set
of markets, contractual and ownership arrangements,
and a host of credit and portfolio risk management issues.
History
and Unique Features of the Farm Credit System
Neil
E. Harl
It
is necessary to understand the underpinnings and uniqueness
of the Farm Credit System as a lender to agriculture
in light of the attempted purchase of a part of this
lending cooperative. This includes its special tax-exempt
status and the exit fee a Farm Credit System entity
being sold must pay out of unallocated surplus.
Restructuring
of the Ag Lending Markets: The FCS Dilemma
Michael
Boehlje and Allan Gray
A
changing competitor landscape and changes in their traditional
customer base will challenge the Farm Credit System.
These challenges include the efficiency of its capitalization
and limits placed on ability to diversify its portfolio.
Selling
a Piece of the Farm Credit System
Robert
W. Jolly and Josh D. Roe
This
paper describes the players in the proposed sale of
an association in the Farm Credit System to Rabobank,
the nature of the offer, and some of the unanswered
questions that arose as a result of this proposed sale.
Are
Rural Credit Markets Competitive? Is There Room for
Competition in Rural Credit Markets?
Maureen
Kilkenny and Robert W. Jolly
The
question raised by the title of this article is motivated
by the recent bid by Rabobank to become a major lender
in the western region of the Corn Belt . This paper
examines the competitiveness of this all-important market
to farmers and ranchers, including its distance from
urban competitors. Price discrimination and barriers
to entry may result in credit rationing to farmers and
ranchers.
FCSA
Sale to Rabobank: Selling What? On Whose Authority?
And For Whose Benefit?
Roger
Ginder
The
questions raised in the title over the failed sale of
a large association in the Farm Credit System are the
focus of this article. One of the major issues dealt
with is who has a legitimate legal claim to the unallocated
surplus of an association in the Farm Credit System
if it is sold.
The
New Basel Capital Accord: Implications for U.S. Agricultural
Lenders
Ani
L. Katchova and Peter J. Barry
An
overview of the capital accords adopted by the global
banking community will affect the calculation of individual
bank capital requirements which are expected to go into
effect by the end of 2006. These accords include alternatives
for measuring credit risk and operational risk.
Agri-lending
Vision 2020: When Vision and Reality Meet
David
M. Kohl and Alicia M. Morris
The
final paper in this theme takes a long-term look at
what agricultural lending could look like by the year
2020. This includes continued consolidation in the farm
sector and in the Farm Credit System. The paper characterizes
different segments of participants in agriculture, including
the super commodity/agribusiness operation, that will
likely be highly geographically diversified.
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Trade
Adjustment Assistance for Farmers
Donald
J. Breece, Farm Management Specialist, OSU Extension
Center-Lima
Trade Adjustment Assistance (TAA) provides
producers of raw commodities, who have been adversely
affected by import competition, with free technical
assistance and cash benefits up to $10,000 per year.
TAA covers farmers, ranchers, fish farmers, and fishermen
competing with imported aquaculture products. It does
not cover the forest products. The USDA has a Web site
at: http://www.fas.usda.gov/itp/taa/taaindex.htm
.
Until recently, commodities produced outside of Ohio
were identified, such as Wild Blue Berries, Salmon,
Shrimp, Olives, Avocados and Lychee. Now, Concord
Juice Grapes produced in New York, Pennsylvania, and
Ohio have qualified for assistance. The Farm Service
Agency will certify producers' eligibility for
adjustment assistance if they can demonstrate that their
prices are less than or equal to 80 percent of the national
average price during the previous 5 marketing years,
and that increases in imports of like or competitive
products "contributed importantly" to the decline in
prices. The five year average price for Concord
Juice Grapes was $271.72 per ton for the three state
area. Eighty percent of this average, therefore,
was $217.38. In 2003 the average price fell below
this 80% figure to $211.25, or a $6.13 difference.
The payment rate, therefore, is $3.06 per ton since
the amount of cash payment will be equal to the quantity
produced in the most recent marketing year, multiplied
by one-half the difference between the average price
in the most recent marketing year and 80 percent of
the average price for the 5 preceding marketing years.
After submitting an application, producers are immediately
eligible to request trade adjustment technical assistance
from the Extension service at no cost. The Extension
office will provide information regarding the feasibility
and desirability of substituting one or more alternative
commodities and technical assistance that will improve
the competitiveness of the production and marketing
of the adversely affected commodity.
Concord Juice Grape producers, covered by a certification
of eligibility, may apply for adjustment assistance.
To qualify for a TAA cash payment, producers must complete
Form FSA-229, meet with the county Extension service,
and submit all supporting documentation by September
30. If an applicant has already received $10,000 in
TAA benefits or $65,000 in counter-cyclical payments
for the year, reported an increase in net farm or fishing
income in the most recent tax year, or has an annual
adjusted gross income greater than $2.5 million, he
or she is disqualified from receiving an additional
TAA cash payment.
Where can I obtain further assistance?
Your first stop should be your local FSA county
office. You can also contact the Trade Adjustment Assistance
Office, Foreign Agricultural Service, at (202) 720-2916
or write to USDA, Foreign Agricultural Service, Trade
Adjustment Assistance, STOP 1021, 1400 Independence
Avenue, SW, Washington, DC 20250-1021, or e-mail at:
trade.adjustment@fas.usda.gov. Ohio produces lots
of diverse commodities, and will most likely have
more farm products to become TAA eligible. Ohio's
Concord Juice Grape growers happen to be the first under
the newest TAA Act, and are charting this new territory
with both FSA and Extension. Remember, this is
a very recent Trade Adjustment Assistance program initiative.
More will be known as Ohio's program becomes further
developed early this summer.
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Will
Brazil Surpass the U.S. in World Soybean Production?
Adam
Zeedyk and Donald W. Larson Graduate student and professor,
respectively, Department of Agricultural, Environmental,
and Development Economics, The Ohio State University,
Columbus , Ohio.
Brazil
‘the new soybean frontier', as many enthusiasts are
proclaiming, has a seemingly unlimited supply of untamed
land that is readily available for soybean production.
The USDA has estimated that the ‘Legal Amazon' has an
astounding one hundred million acres that is looking
for investment opportunities to bring this land into
production agriculture. Brazil is rapidly expanding
its soybean production capabilities and gaining market
share in supplying the world's growing soybean needs.
Many experts are predicting that Brazil will surpass
the U.S. in soybean production by the end of the decade.
Not only does Brazil have a seemingly unlimited supply
of land to bring into production, but also the opportunity,
in many areas, of planting year around. It is very common
to see farmers' double cropping soybeans with corn with
Brazil 's tropical climate.
Brazil
's land values have appreciated significantly, as land
values in the state of Mato Grosso have reportedly increased
from an average of US$ 50 per acre to nearly $1,000
an acre over the past decade. Land values are relatively
high in the established high production land in the
south costing over $2,500 per acre. This land has infrastructure
near what many farmers are accustomed to in the U.S.
In the northern territory , land is significantly cheaper
due to the high transportation costs from production
areas to markets in these more remote areas. Similar
to the U.S. , Brazil has a large variance of soil types
with the majority of the soils devoted to agriculture
being generally very deep and well-drained with excellent
yield potential.
The
rapid expansion of soybean production has intensified
the need for large capital investment. High Brazilian
interest rates make it very hard to borrow money domestically,
which further signifies the need for foreign investment
to spur the continued growth of this new land. Due to
the high domestic interest rates, soybeans growers have
started to barter where farmers will routinely trade
bags of soybeans for fertilizer and land payments.
Sugarcane
production is a very viable industry in Brazil where
fifty-two percent of the sugarcane produced is used
for ethanol production. The common sugarcane producing
areas are primarily in the southern growing regions.
A majority of gasoline stations has the selection of
both an ethanol and a gasoline pump, as most Brazilian
vehicles are capable of running a forty percent ethanol
blend. Brazil normally prices ethanol at a thirty-five
to forty percent discount to gasoline.
Brazil
possesses almost all of the technological capabilities
of the U.S. including the availability of new machinery
with common lines such as Case New Holland and John
Deere. The readily cheap labor force, with an average
weekly wage of a meager $75 a week for unskilled factory
workers, allows for low cost production.
The
major grain trading companies such as ADM, Bunge, and
Cargill have established facilities in Brazil capitalizing
on the rapid soybean production growth. Interior soybean
producing areas face extremely high basis volatility
levels due to the large distance from major shipping
ports. The town of Quencia, Matto Grosso that is 1000
miles from Port Parana (in the south of Brazil), had
basis levels as weak as $3.30 per bushel under the May
CBOT futures price during peak harvest last season (late
March-early April of 2004). The large distance between
elevator facilities, long harvest truck lines, and poor
road conditions make it almost essential for a successful
farming operation to own storage space. Logistical issues
are a primary concern as truck lines of over sixty miles
have been reported in the past at Port Parana's shipping
facility, which is Brazil 's leading exporting location.
The lack of port storage space, under scaled shipping
capacity, and Brazil 's rapid soybean expansion is adding
to the growing logistical concerns.
Brazil
has many positive aspects in soybean production but
much of this does not come without challenges of overcoming
Mother Nature's natural barriers. Many of Brazilian
soils have high acidity levels, in many areas ph levels
on new virgin soil could be as low as 4.0 to 4.5, requiring
up to four tons of lime per acre to put this land into
production. The Brazilian climate is near ideal for
Asian soybean rust as northern territories have had
reports of spraying as many as six times for rust this
season, but three and four applications are more common
in this area. Another obstacle that Brazil faces is
the cost of insecticides because there is no winter,
making bugs a major concern in many areas with the need
for spraying up to three times per year (about $12-15
per acre per spray).
The
devaluation of the Brazilian Real has added considerably
to the costs of production due to the higher costs of
imported fertilizer, fuel and other variable cost inputs.
Interior production areas have felt the greatest negative
effects of the devaluation as the higher fuel costs
have added significant transportation costs to interior
land locked areas.
Brazilian
agriculture has many positive attributes that encourage
the interest of many entrepreneurial American farmers,
but one must be able to sacrifice many of the modern
conveniences that we have become accustomed to. Many
recently cleared farming operations may be a three-hour
drive to the nearest grocery store or to the nearest
machinery parts dealer.
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can subscribe electronically to this newsletter by sending
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A successful subscription message will receive by an
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Ohio State University Extension Office or e-mail dmarrison@ag.osu.edu
if you have problems subscribing.
Ohio
Ag Manager Team Leaders: Chris
Bruynis & David Marrison
Web
Page Managers: David Marrison & Andy Kleinschmidt
Information
presented above and where trade names are used, they
are supplied with the understanding that no discrimination
is intended and no endorsement by Ohio State University
Extension is implied.
All
educational programs conducted by Ohio State University
Extension are available to clientele on a nondiscriminatory
basis without regard to race, color, creed, religion,
sexual orientation, national origin, gender, age, disability
or Vietnam-era veteran status.
Issued
in furtherance of Cooperative Extension work, Acts of
May 8 and June 30, 1914, in cooperation with the U.S.
Department of Agriculture, Keith L. Smith, Director,
Ohio State University Extension.
link
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