Drought '99 Ohio State University Extension August 19, 1999 Drought Won't Dry Up Ohio Grain Income, Says Ag Economist By Steve Zolvinski Sources: Carl Zulauf (614) 292-6285 Allan Lines (614) 292-5926 COLUMBUS, Ohio -- Lower crop yields due to drought, combined with dipping crop prices, won't necessarily equal a disastrous gross income for Ohio's grain farmers, said an Ohio State University agricultural economist. The U.S. Department of Agriculture estimates that Ohio's corn yield will be 131 bushels per acre, or 10 bushels less than last year's yield of 141 bushels per acre. The USDA also estimates Ohio's soybean yield will be 42 bushels per acre, or two bushels per acre less than last year's yield of 44 bushels per acre. However, Carl Zulauf said the government offers a safety net in the form of a marketing loan program, which potentially offers rates for corn and soybeans above the market prices for those commodities. For the average Ohio farmer, gross income from corn and soybeans should decline no more than 5 percent from last year's level, Zulauf said. Current quotes for corn prices at harvest are around $1.94 per bushel, compared with a $1.90-per-bushel loan rate. Current quotes for soybean prices at harvest are $4.21 per bushel compared to a $5.38-per-bushel government loan rate. "For soybeans, the price at harvest will not matter because it is below the loan rate," Zulauf said. "Among those in the farm community, there is an incredible fixation on prices, but it flat-out doesn't matter to soybean producers right now." Based on an expected 131-bushel-per acre corn crop and the current harvest quote of $1.94 per bushel, farmers can make a gross income of $254 per acre. That compares to last year's per-acre gross income of $268, using 1998 yield and loan rate data. The difference between the two income figures is about 5 percent. Based on a 42-bushel-per-acre average Ohio soybean yield and the $5.38-per-bushel loan rate, farmers can make $226 per acre, compared to last year's per-acre gross income of $238 using 1998 yield and loan rate data. Zulauf emphasized the figures are averages, and the typical Ohio farmer's net income will depend on yields for a particular farm and costs of production, which will individually vary higher or lower than the average. Although crops have sustained drought damage in some parts of the state, other areas are reporting relatively good yields for corn and soybeans, said Zulauf. Consequently, the state's average yields for both crops are expected to be about equal to the five-year average, he said. Zulauf calculates the five-year average by averaging all but the highest and lowest annual yields for the past five years. "You cannot generalize from the local condition to the aggregate one," Zulauf said. "What you've got in this state is an extreme range of conditions. There's no question in my mind that farmers are hurting. But you've also got large portions of the state with good yields. There is this fixation with disaster, but we should not forget the bigger picture." However, another Ohio State agricultural economist, Allan Lines, said USDA's yield estimates are too high for Ohio corn and soybeans. "I have driven all over the state, and what I've seen isn't an average crop, and that's what their (USDA) report is saying. USDA is a little on the high side," Lines said. "As I have driven around the state, I would have pegged the Ohio corn yield at 125 bushels per acre. That's just eyeballing the crop from the road. The USDA probably knows more than I do because they do a statistical analysis rather than a windshield survey. As for soybeans, I would say we have a 40 bushel-per-acre yield." Zulauf said the commodity markets aren't buying a crop disaster scenario, because the drought-stressed Eastern Corn Belt and Eastern United States are small players in U.S. production. Some states in the Western Corn Belt are expected to have record or near-record yields, he said. "I don't want to underestimate the difficulty for the Eastern Corn Belt, but in terms of national production, it doesn't matter," Zulauf said. "What does matter for setting prices is what goes on in Illinois, Iowa, Minnesota and Nebraska." However, Lines also thinks USDA's national yield projections are on the high side, because the estimated national corn yield of 134.7 bushels per acre and the estimated national soybean yield of 39.2 bushels per acre are close to records set in 1994. "I guess even the national yields are tilted on the optimistic side," Lines said. "I find it difficult to believe we're so close to the records given the (drought) growing conditions in the southern Eastern Corn Belt." Zulauf left open the possibility that national yields could be hurt if weather turns for the worse in the Western Corn Belt. Nevertheless, this is not a year for farmers to gamble on prices, unless one has a proven track record in "beating the market," he said. "There's a time for risk-taking in marketing a crop, and a time not to take risks," Zulauf said. "I would say this is not a time for risk-taking. Most farmers in this state can live with getting $5.38 per bushel for soybeans. They're not going to make a lot of money, but they're not in danger of bankrupting the farm either." -30- All educational programs conducted by Ohio State University Extension are available to clientele on a nondiscriminatory basis without regard to race, color, creed, religion, sexual orientation, national origin, gender, age, disability or Vietnam-era veteran status. Keith L. Smith, Associate Vice President for Ag. Adm. and Director, OSU Extension. 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