Ohio Correspondent

LONDON, Ohio – One of the highlights at any Farm Science Review is the “Ask the Experts” segment, a time for farmers to converge under a large tent and bombard agricultural experts with their questions concerning a number of pressing issues. There were roughly 30 topics at this year’s show.

In most of these segments roughly 10-20 farmers are in attendance, but it was standing room only when economist Ani Katchova, Ohio State University and farm income enhancement chair, spoke about the pulse of Ohio farms and where they stand financially.

“Financially, Ohio farms are in pretty good shape,” Katchova told the gathering. “According to the USDA Farm Income Forecast for 2022, we expected farm net farm income to be at $450 billion, a 5 percent increase from last year. That’s double what it was five years ago, and cash receipts are expected higher this year. All this is due to higher commodity prices. Yes, we’re seeing this increase but on the opposite end are those production expenses. These will also be higher.”

In the long term, however, Katchova isn’t as quite as optimistic.

“We don’t have much confidence in the long-term projections,” she said. “One aspect we take a look at is profitability and that has been an issue for Ohio farms generally. Profitability on Ohio farms has been down the past six years. The income that we see for Ohio is not as high as farms in the rest of the country, and some of that comes from expenses. Compared to the rest of the country, in Ohio we have more family farms and not as many commercial farms, and that’s the difference. What’s helping farmers at the moment is the higher farm income and their higher liquidity. Smaller farms will always struggle with profitability. One-third of commercial farms have good profitability because they have the scale to operate well.”

Questions were raised as to the current ag credit conditions in light of higher interest rates and higher inflation. Many wonder if harder times are projected when it comes to repaying debt.

“This year is very unique,” Katchova said. “We’re looking at a new environment for lending. On the one hand, we’re seeing that we got into 2022 with stronger conditions. Farm incomes were a bit up, farmers had enough liquidity, and they began buying up land. At the same time, we saw that inflation concerns were beginning to come about. So now we have high inflation rates between 8-9 percent. Corresponding to this we also have an environment where we have increasing interest rates. So, what’s happening is a lot of the farm loans are seeing increases in the interest rates as well.

“As any other economist will tell you, speculating about interest rates is hard,” Katchova said. “Interest rates of today are nowhere near what they were in the 1980s. Looking even just a decade ago we’ve seen higher interest rates. We’re all wondering how the Federal Reserve Bank will handle inflation. Concerns about inflation are high and the Federal Reserve Bank doesn’t want to put the economy in a recession. These are the tradeoffs. In my opinion, interest rates will likely rise toward the end of the year and maybe they’ll go even higher. We’re coming out of a period where they have been near zero for a long time.”

Katchova briefly spoke about Chapter 12 bankruptcies, telling the audience delinquency on ag loans in Ohio are at about 2 percent. “They’ve been much higher in the past,” she said.

While those in attendance had many questions filled with worry, Katchova brought smiles to the crowd when she spoke of the trend in farmland values.

“Farmland values in Ohio alone have risen about 11 percent since last year,” she said. “The reason for this is that farmland is considered a very safe investment. Every time there are concerns about instability or high interest rates or inflation fears, investors are looking at farmland. Historically, farmland has produced very stable returns.

“On the one hand, every time we have uncertainty in the ag sector farmland has always been a very safe investment and people have always gone to farmland to invest their money. On the other hand, the higher interest rates are also preventing farmers from getting loans to buy farmland. These are the current conditions we are seeing.”

The last dip in farmland values, she said, occurred in 2009.

“One concern we have is the possibility of speculative bubbles,” she said. “This occurs when the value of an asset exceeds its fundamentals. For example, the value of the land exceeds what it could bring back in cash rents. So, because of higher interest rates we would get to lower demand for farmland in the near future.”