This article was originally posted on the Ag Answers website.
COLUMBUS, Ohio - Although cropland values in Ohio have increased in recent years, low projected profit margins next year will likely restrict land values from increasing in 2016 and may cause land values to decrease, an agricultural economist from the College of Food, Agricultural, and Environmental Sciences at The Ohio State University said.
Ohio cropland values rose 3.5 percent in 2015, with bare cropland averaging $5,850 an acre, said Barry Ward, production business management leader for Ohio State University Extension. OSU Extension is the outreach arm of the college.
Ward, citing statistics from the Ohio Field Office of the National Agricultural Statistics Service, said continued lower margins together with the potential for higher interest rates suggest farmland values will be lower in 2016.
“Low crop margins and uncertain land value and cash rental markets will continue to be important themes as we look ahead to 2016 as producers grapple with high costs relative to crop prices received,” he said. “There’s not much good news when you talk about profitability in this sector, and it’s been that way for the past two years.”
Ward said strong equity positions together with higher property taxes will continue to lend support to cash rental rates.
“However, low profit margins in 2016 will put downward pressure on rents,” he said. “These competing fundamentals suggest a flat to slightly lower cash rental market outlook for 2016.”
Ward spoke during the college’s 2015-2016 Agricultural Policy and Outlook series, which is a series of local meetings held statewide through January. Dates and times for the meetings can be found at go.osu.edu/2016outlook.
The meetings feature presentations by experts from the college’s Department of Agricultural, Environmental, and Development Economics, who discuss issues the food and agricultural community should expect this year, including policy changes and market behavior with respect to farm, food and energy resources, and the environment.
Ward said returns to variable costs are projected to be $185 to $345 per acre for Ohio corn in 2016, depending on land production capabilities. Returns to variable costs for soybeans in 2016 are projected to be $179 to $331 per acre, with returns to variable costs for wheat projected at $125 to $218 per acre, he said.
These figures reflect the dollars left over to pay ownership costs for machinery and equipment, land rental or ownership charges, and operator labor and management.
The projections are based on OSU Extension Ohio Enterprise Budgets and assume current prices of inputs and December, November and September 2016 futures prices, respectively, Ward said.
OSU Extension offers enterprise budgets that can be used as a starting point for producers in their budgeting process. Farmers can find enterprise budgets for 2016 at aede.osu.edu/research/osu-farm-management/enterprise-budgets. The website is offered by AEDE.
The budgets are downloadable Excel spreadsheets. Users can input their production and price levels to calculate their numbers. The budgets feature color-coded cells that allow users to plug in numbers to easily calculate bottom lines for different scenarios. Detailed footnotes are included to help explain methodologies used to obtain the budget numbers. The budgets also include a date in the upper right-hand corner of the front page indicating when the last update occurred.