managing your farm in challenging times · chris hurt, professor, department of agricultural...

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


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


Estimated 2018 Crop Net Soybean Storage Returns


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


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


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%


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%


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%


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


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%


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%


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%


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


$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


$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

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


-$150

-$100

-$50

$0

$50

$100

$150

$200

$250

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


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

managing your farm in challenging times · chris hurt, professor, department of agricultural...

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