This article was originally published on the website of OSU's College of Food, Agricultural, and Environmental Sciences.
COLUMBUS, Ohio – Thanks to increased global grain production and lower domestic demand for grain for ethanol, crop producers will find 2014 to be tougher than the past few years and should prepare now for lower prices, an expert from Ohio State University’s College of Food, Agricultural, and Environmental Sciences said.
“Prices reflect that we have moved from an era of scarcity to one of adequate inventories and prices have responded by moving lower,” said Matt Roberts
, an Ohio State University Extension economist. OSU Extension is the outreach arm of the college. “We are already seeing lower prices come into the market, and unless U.S. or South American acreage declines, those prices are likely to continue to move lower.
“The prices we had earlier in the year aren’t guaranteed to return.”
The event featured presentations by experts from the college’s Department of Agricultural, Environmental and Development Economics (AEDE), who discussed issues the food and agricultural community should expect in 2014, including policy changes and market behavior with respect to farm, food and energy resources, and the environment.
Thanks to several factors including no growth in ethanol demand and expanded global crop acreage, markets are moving back toward matching supply and demand, Roberts said.
Add another year of 160 or more bushels per acre yields on corn and 42 bushels per acre soybean yields, and growers can expect to see even lower prices that are well below the cost of production on land that has been purchased or cash-rented in the past three to four years, he said.
“Prices will only return to profitable levels if supply declines due to acreage leaving primary row crops or demand returns,” Roberts said. “This will likely create a significant financial strain in crop-growing areas.”
In order to prepare for the impact of lower prices, farmers should build a working capital cushion of a year to 1.5 years of land charges above what they typically need to operate, he said.
Other ways growers can prepare include:
- Avoiding machinery and building expenditures just to take advantage of section 179 is an easy way to build capital
- Refinancing any and all loans and mortgages into 10-year fixed rates
- Holding off buying land or entering into multi-year leases
- Carefully evaluating living expenses
To read Roberts’ entire policy brief for the conference series, visit: http://go.osu.edu/YhJ.
December 5, 2013