Managing Your Farm in Challenging Times€¦ · August 21 Storage Season Bids: Nov $8.86 to July...
Transcript of Managing Your Farm in Challenging Times€¦ · August 21 Storage Season Bids: Nov $8.86 to July...
August 22, 2018
Managing Your Farm in Challenging Times
Chris Hurt, Professor, Department of Agricultural Economics
Craig Dobbins, Professor, Department of Agricultural Economics
Michael Langemeier, Associate Director, Center for Commercial Agriculture
James Mintert, Director, Center for Commercial Agriculture
Managing Your Farm in Challenging Times Webinar, August 22, 2018
Weak Grain & Soybean Prices and Incomes from 2014 to 2017
But In Spring 2018 Optimism Returned – “Ag Was Turning the Corner”
Reasons for optimism in Spring 2018
1. Declining grain inventories
2. Strong U.S. economic growth
3. Strong world economic growth
4. Result: Strong new crop cash bids: $10 soybeans and $4 corn
Spring 2018: Ag Emerging from Financial Darkness
Soybeans Nov ‘18 Futures $10.60
$8.26
$9.00
What Changed?
1. U.S. favorable weather & good yield prospects2. Trump Administration Tariffs3. Retaliatory Tariffs by Importers
a. China: 25% on soybeans, corn,wheat, pork, beef, poultry, dairy
b. Mexico: 20% on pork
Since June 1: Futures P Change
Trade Aid ProductsSoybeans -14%Corn/Sorghum -9%Wheat -5%Cotton -10%Hogs -11%Milk -11%
Purdue Center for Commercial Agriculture Managing Your Farm in Challenging Times Webinar, August 22, 2018
$7.75
$8.25
$8.75
$9.25
$9.75
$10.25
$10.75
$11.25
$11.75
01/03/2018
01/31/2018
02/28/2018
03/28/2018
04/25/2018
05/23/2018
06/20/2018
07/18/2018
8/15/2018
9/12/2018
10/10/2018
Soybean Prices, Brazil Port vs. U.S. Gulf
Brazil Port Gulf
Brazil Port = $10.40U.S. Gulf = $10.40
Brazil Port = $10.50
U.S. Gulf = $9.00
Purdue Center for Commercial Agriculture Managing Your Farm in Challenging Times Webinar, August 22, 2018
0.160.19
0.25 0.260.30 0.29 0.28
-0.05 -0.06
-$0.20
-$0.10
$0.00
$0.10
$0.20
$0.30
$0.40
O N D J F M A M J J A
Estimated 2018 Crop Net Corn Storage Returns
On-Farm Storage Commercial Storage
August 21 Storage Season Bids:Dec $3.74 to July $3.99 = +$.25Cash Price Range $3.40 to $3.80Futures Premium $.25Basis Gain $.15Expected Carry $.40
MonthPurdue Center for Commercial Agriculture Managing Your Farm in Challenging Times Webinar, August 22, 2018
0.00 -0.03
0.200.25
0.38 0.38
0.48 0.470.54 0.53
0.18
-$0.50
-$0.40
-$0.30
-$0.20
-$0.10
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
O N D J F M A M J J A
On-Farm Storage
Commercial Storage
Month
August 21 Storage Season Bids:
Nov $8.86 to July $9.30 = $.44
Cash Price Range $8.30-$9.10
Futures Premium $.44
Basis Gain $.35
Expected Carry $.79
Purdue Center for Commercial Agriculture Managing Your Farm in Challenging Times Webinar, August 22, 2018
Estimated 2018 Crop Net Soybean Storage Returns
Managing Your Farm in Challenging Times Webinar, August 22, 2018
1,1761,099
876
1,289
1,399
1,166
1,407
1,329 1,353
1,2131,264 1,268 1,279
1,3091,340 1,370 1,370 1,390
600
700
800
900
1,000
1,100
1,200
1,300
1,400
1,500
10 11 12 13 14 15 16 17 18
Mill
ion
Bu.
Indiana Est’d Storage Needs vs. Capacity: October 1
Storage Needs Storage Capacity
Year
Managing Your Farm in Challenging Times Webinar, August 22, 2018
Corn:Current storage season bids $3.40 to $3.80Tightening inventories and strong demand give $.20+ upsideTariff’s settlement would add more—Maybe $.25+Storage season range $3.40 to $4.25Store On-Farm UnpricedDo not store commercial-Buy Futures or CallsSoybeans:Current storage season bids $8.30-$9.10Record U.S. crop & Big South American increase aheadHuge inventories in U.S. & World gives $.40 lower pricesNo settlement of trade conflicts, range of $7.90 to $8.70Settlement of trade conflicts could add $1.25 to $1.50Then storage season bids would range from $7.90 to $9.95Store on-farm and commercial unpricedStore on-farm and commercial priced
Tariff Outlook:Mexico and U.S.---AugustCanada HOPE for Sept.China:
-Lower level talks-August-High level talks in November
Possible Bullish Outcome-China Buys More Ag products
Managing Your Farm in Challenging Times Webinar, August 22, 2018
Indiana Farmland Values 2018 Survey Results, State Averages
Land QualityYield
(Bu./A)Value ($/A) Percent
Change2017 2018Top 204 $8,529 $8,668 1.6%Average 173 $6,928 $7,072 2.1%Poor 141 $5,280 $5,407 2.4%
Managing Your Farm in Challenging Times Webinar, August 22, 2018
2017/18 Six-Month Land Value Changes
Land Quality 6/2017 – 12/2017 12/2017– 6/2018
Top 1.7% -0.1%Average 2.5% -0.4%
Poor 3.1% -0.7%
Managing Your Farm in Challenging Times Webinar, August 22, 2018
Land Value ChangeActual and Forecast
Land Quality Actual12/2017 – 6/2018
Forecast6/2018– 12/2018
Top -0.1% -0.7%Average -0.4% -0.9%
Poor -0.7% -0.7%
Managing Your Farm in Challenging Times Webinar, August 22, 2018
Survey Respondents View of Land Value Drivers
-3.0
-2.0
-1.0
0.0
1.0
2.0Av
erag
e va
lue
Influence Factor
2016 2017 2018
1.N
et In
c.
2. G
row
th R
et.
3. C
rop
pric
es
4.Li
vstk
Pric
e
5. In
tere
st
6. A
lt. In
vest
7. E
xpor
t
8. In
flatio
n
9. S
uppl
y
10. C
ash
11. A
g Po
licy
Managing Your Farm in Challenging Times Webinar, August 22, 2018
Indiana Cash Rental Rates 2018 Survey Results, State Averages
Land Quality
Yield(Bu./A)
Value ($/A) Percent Change2017 2018
Top 204 $253 $261 3.2%Average 173 $205 $210 2.4%Poor 141 $163 $168 3.1%
Managing Your Farm in Challenging Times Webinar, August 22, 2018
Short–Term Expectations
Cash Rent Projections for 2019
Change %
Respondents Average %
Change
Higher 22% 6.8%
No Change 51% 0.0%
Lower 27% -6.4%
Managing Your Farm in Challenging Times Webinar, August 22, 2018
5-Year Forecast By Survey RespondentsWhere do you expect farmland prices to be in 5 years?
Direction % Respondents ChangeIncrease 52% 6.8%No change 30% 0.0%Decrease 18% -9.0%
82%
48%
Managing Your Farm in Challenging Times Webinar, August 22, 2018
Net Returns to Land and Cash Rental Rates• Net returns to land are more variable than cash rents
• Though more variable, net returns to land still have a significant impact on cash rents
• Factors Impacting Net Returns to Land
– Crop Yields
– Crop Prices
– ARC-CO / PLC Payments
– Economic Loss from Trade Payments
– Production Costs
• Cash rents also depends on lagged cash rent and liquidity considerations
Managing Your Farm in Challenging Times Webinar, August 22, 2018
$0$50
$100$150$200$250$300$350$400$450$500
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Net Return to Land Cash Rents
Cash Rental Rates and Est’d Net Returns to LandWest Central Indiana$ per acre
Year
Managing Your Farm in Challenging Times Webinar, August 22, 2018
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$50
$100
$150
$200
$250
$300
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$400
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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Net Return to Land Cash Rents
Cash Rental Rates and Est’d Net Returns to LandWest Central Indiana$ per acre
Year
Managing Your Farm in Challenging Times Webinar, August 22, 2018
-$150
-$100
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$0
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$150
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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Difference in Earnings per AcreWest Central Indiana (Corn Minus Soybeans)
Year
$ per acre
Managing Your Farm in Challenging Times Webinar, August 22, 2018
Possible Cash Rent Adjustments2019 and Beyond
Scenario CornPrice
SoybeanPrice
Short-TermImpact (2019)
Long-TermImpact
(Multi-Year)
#1 $3.25 $8.00 -3.8% -23.1%
#2 $3.50 $8.50 -2.1% -13.1%
#3 $3.75 $9.00 -0.5% -3.1%
Consider moving to a Flexible Cash Lease based upon revenues
August 22, 2018
For a detailed version of the Purdue Land Values Survey, go to purdue.edu/commercialag
Under Resources tab, select “Purdue Agricultural Economics Report”
Next Webinar:September 13, Fall 2018 Crop Outlook