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Episode 26: Cash Rents - Tips & Strategies for Mitigating Risk with Barry Ward

According to economist and farmer Barry Ward’s projections, “we’re in for another year of increases.”

It’s something producers don’t want to hear, but doesn’t come as a huge shock as higher costs for fertilizer, fuel, and equipment climbed in 2022. Same with land prices.

Even at heightened costs, farmers are aggressively pursuing farmland, and the land rental market is following suit.

“We’re in one of those situations where we’re seeing really high prices,” says Barry. “Landowners might be asking for a little bit more.”

So how does a young, beginning, or starting farmer navigate a cash rent arrangement amongst high operating costs? Barry shares some helpful tips and strategies for negotiating costs and mitigating risks.

The Basics

For growers, a cash rental arrangement is fairly common. “We’re exchanging dollars for the use of productive farmland,” explains Barry. “Typically, we either have some kind of oral or written agreement between the two parties - the landowner and the tenant farmer.”

Cash rent arrangements for row crop land are simple once a price is determined, says Barry. “But that’s the difficult part. Is that negotiation.”

Suggest a Flex Lease or Indexed Lease

Incorporating a little bit more flexibility into a cash lease can help a grower in the tougher production years.

Instead of a flat rental rate, a flex lease is a standard flexible cash rent arrangement that allows the farmer to negotiate rent with the landowner if conditions change, like price and yield.

“It adds more work and requires more communication between the two parties,” says Barry. “But one thing that it does allow is for the tenant farmer to give that landowner a little upside without negotiating a higher base rent that they’re stuck with for several years.”

Another option is an indexed lease. Often based off of USDA NASS numbers, “if that number goes up by 6%, then rent goes up 6%. If it goes down by a couple of percent, then rent goes down,” explains Barry.

Have a Written Contract

A written arrangement is better than an oral arrangement.

“In most cases, and in many parts of Ohio, we’re still not quite where we want to be,” says Barry. Based on informal polling, Barry predicts that only around 50% of leases are written.

A written lease is recommended, especially in any potential legal situations.

Signed into law this year, the new Ohio House Bill 397 requires landowners to give notice prior to September 1st if they want to discontinue lease arrangements with a farmer for row crop land.

“It gives more protection to the tenant farmer,” says Barry. “ It allows them to be able to do some forward planning.” 

Mitigate Risk

As rates increase, so does the cost of operating. As commodity prices go up, inputs catch up. “We see higher profitability on those up years as we’re increasing commodity prices,” says Barry. “And then if and when prices decide to come back down, then input costs will respond. And we see on the downside of that price curve, often some tougher times, some loss.”

But in volatile economic conditions, Barry says farmers can do a few things to curb risks to rent increases. 

The first is to have enough credit reserves to weather some of those storms when they do come. For a beginning farmer, it may be tempting to invest in new infrastructure or equipment during a high year, but it’s also important to save some money back for a possible low year.

Another strategy is to offer useful services. “Young farmers especially, can provide services in lieu of additional cash rent,” says Barry.

Look into Tax Credits

Lastly, for Ohio landowners interested in working with new farmers, there are incentive programs.

“Landowners can get a tax credit up to 3.99% by leasing or selling farmland to those that qualify as beginning farmers,” explains Barry.

These programs help young farmers and provide an additional incentive to landowners looking for the next generation to continue farming.

Here’s a glance at this episode:

  • [01:42] Barry introduces himself and his background.
  • [02:37] Barry explains the basics of what cash rent is.
  • [04:18] Barry describes the shift from predominant crop share leases to cash rental arrangements and why they can be less risky.
  • [06:27] Discussing oral versus written contracts, Barry shares what percentage of written leases fall under in Ohio.
  • [07:40] Barry shares the different types of cash rent options, including a flex lease.
  • [11:00] Barry shares what type of cash rent product is most common.
  • [14:32] Barry shares why he foresees the rental market continuing to increase in price.
  • [15:37] For young or beginning producers, Barry shares advice and strategies for mitigating risk in cash rents.
  • [19:41] Barry explains what the Beginning Farmer Tax Credit is and how it could be incentivizing for a landowner.
  • [21:36] Barry explains the basics of the new Ohio House Bill 397 signed into law.
  • [27:07] Talking about projections for 2023, Barry shares his thoughts on farming costs.

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Bios

Guest Barry Ward

Barry wears many hats at The Ohio State in the College of Food, Agriculture, and Environmental Sciences. He is the director of the OSU Income Tax School. He is also an undergraduate instructor and is part of the OSU Farm Office where he focuses on creating budgets, evaluating cash rents, and land values around the state of Ohio. He also farms part-time with his family farm back in Urbana, Ohio.

Host Matt Adams

Matt serves Paulding County as an account officer at AgCredit. He has worked in ag lending for over four years and previously worked in farm equipment sales for 11 years. He and his wife farm in northwest Ohio with their two daughters and son. His favorite part about AgCredit is the people. From the member-borrowers to the internal team at AgCredit, every day keeps getting better. Matt hopes to bring insights to ag lending and some laughs to the AgCredit Said It podcast.

Host Libby Wixtead

Libby has been an account officer for eight years serving AgCredit members in Marion County. She grew up on a 200-acre grain farm and was very active in 4-H and FFA. Today, Libby and her husband operate a 2,400-head swine finishing barn. Her favorite part about working at AgCredit is working with local farmers from the same area where she grew up and seeing their operations thrive. She loves working in agriculture and helping her customers be successful year after year.

Transcription

Voiceover (00:05):Welcome to AgCredit Said It. In each episode, our hosts sit down with experts from all parts of the agriculture industry to bring you insights and must have information on all things, from farming to finances and everything in between.

Matt Adams (00:27):Welcome back to another episode of AgCredit Said It. I'm one of your hosts, Matt. And I’m here again with Libby.

(00:33):Hey, Libby how are you doing today?

Libby Wixtead (00:35):I’m doing great. We are lucky to be here at the Ohio State University ag campus.

Matt Adams (00:42):The sun is shining and it’s a pretty nice day out for the winter weather. Today we’re talking with Barry Ward on a hot topic with the cost of everything – is cash rents. So Libby why don’t you go ahead and introduce Barry?

Libby Wixtead (01:07):Barry wears many hats at Ohio State in the College of Food, Agriculture, and Environmental Sciences. He is the director of the OSU Income Tax School. He is also an undergraduate instructor, and we all know him more as being a part of the OSU Farm Office, creating budgets, evaluating cash rents, and land values around the state of Ohio. And one thing that I didn’t realize, that Barry does, is he is also a part-time farmer with his family farm back in Urbana, Ohio.

Matt Adams (01:42):Well, Barry, I'd like to thank you for being part of our podcast today. Why don't you go ahead and tell our listeners a little bit of background about yourself and how you came to be in the position you are?

Barry Ward (01:54):All right, I'll give it my best. It's good to be with all of you today and thanks for having me on. First and foremost, I grew up on a grain farm. Well, I guess it was more than that. It was a very diversified farm in Western Ohio, so around Urbana, Ohio. And that led me to Ohio State, eventually, a couple of degrees later I was an extension educator. And then I changed and was able to move into this position here on campus. So most of the work that I do is in farm management and tax education now.

Libby Wixtead (02:31):I guess we'll start off with our first question then. Can you explain exactly what cash rent is for those who don't know?

Barry Ward (02:37):All right. Yes, starting at the beginning. A cash rent is an exchange of one thing for another. In this case, we're exchanging dollars for the use of productive farmland in most cases. We're talking about row crop land in Ohio and we can talk about other things as far as renting pasture or renting wood lots and those things. But I'm assuming we're going to focus mostly on just a cash rent arrangement with row crop farmland, it's pretty straightforward. Typically, we either have some kind of oral or written agreement between the two parties, the landowner and the tenant farmer. And what we're looking at is some variation of that. We're talking about cash exchanging hands in the form of however that does. At the beginning of the year, and then at the end of the year, we're seeing more of these arrangements set up though as we see more profitability in the last couple of years or more, that cash rents are paid up front in a lot of cases.

(03:46):So it's just a pretty simple arrangement where we agree... Well, it's simple once we know what that price is. But that's the difficult part. Is that negotiation.

Matt Adams (03:58):Barry, do you guys see with the information that you gather across the state, ground transitioning more from what I always considered the traditional crop share with the landlord to cash rent... Is more ground now in a cash rent side than a crop share, in your opinion?

Barry Ward (04:18):Yes, both anecdotal evidence and some of the survey data that's been collected over the years, sure indicate that we're at a higher percentage of straight cash rents or flex rents. If you want to throw those in there, and we'll talk about those I think a little bit later. But we've gradually switched over from what used to be a predominant type of a lease, which was the crop share lease to now which is the predominant kind is a cash rental arrangement. If we look at some of the evidence and some of the data, it would roughly be about two-thirds of the rents or some kind of a cash rental arrangement. And about one-third are crop-share arrangements in Ohio. And it varies a little bit by region and by county. There are some areas, some counties that have more crop share leases and probably are a higher percentage. But that's at least where we think those numbers land right now.

Matt Adams (05:11):I always kind of wondered that because when we look at a lot of the land sales that have happened in our area here in the last two years, and it seems like more of the ground is being owned by... I want to say that generation that is one generation off of producing off the farm. So now it's more of just an asset to them where maybe that cash rent seems a little bit more... You're mitigating that risk a little bit. They know it's a set fee they're going to be getting versus the turmoil we could have in crop production.

Barry Ward (05:43):Yeah, it's less risky; it's more certain. Of course, that goes along with the risk profile. But it's also, as you mentioned, we have more folks that are further removed from the actual production so they know even less. And they know a little bit less about the whole management concept, what it takes to spend on the inputs, the marketing aspect and all those things that really you need to have to be a crop share landlord.

Libby Wixtead (06:12):Yeah. And I think too that you are probably seeing more written contracts now rather than oral, maybe with this generation that's been-

Matt Adams (06:24):The old handshake doesn't quite get it done anymore.

Libby Wixtead (06:27):And that's where I guess do we truly see that or is that still a push that you and maybe us as lenders would like to see more written contracts? And the understanding that those should be... If they're over a certain amount of years, that they should be filed at the recorder’s office as well.

Barry Ward (06:45):Exactly. Well, that's the hope, although I think the reality in most cases in many parts of Ohio we're still not quite where we want to be. We did some just kind of polling at some of our lease meetings in the past six or seven years I suppose it's been, and it still showed that it was only around 50% of the leases were written leases. Now I think that number has gradually increased since we did that informal polling. I'm hopeful that it's closer to two-thirds or three-fourths, but I think the reality is it's still probably hovering closer to 50%. We would like to of course more written. Peggy Hall and I worked together on putting together some of these lease meetings in the past. She's our attorney that works with us here in the college and that's one of the things that she wants to see more of.

Libby Wixtead (07:40):And I just think that's protection. That's protection for everybody and especially when changing hands of landowners if they're passing away, going to the kids and just different things that could possibly happen with that. And I think it gives you opportunity to do different types of leases. Could you explain more of what the flex cash rent could be or what we typically think of when we hear a cash rent? There are some different options out there.

Barry Ward (08:08):Yeah, sure. One thing that we've also talked about for the last, well, 20-plus years, I suppose, along with many of you out there working with growers, is trying to incorporate a little bit more flexibility into these cash leases. Allowing them to move a little bit during the year, even if the parameters change. If the prices and yields are better or worse than what was expected as the rent was negotiated. So we would like to see more, however, it adds more work. It requires more communication between the two parties and sometimes one or the other aren't interested in some of these moving parts. But one thing that it does allow the tenant farmer to give that landowner a little upside without negotiating a higher base rent that they're stuck with for several years if conditions change. And maybe we're in one of those situations now where we're seeing really high prices, and I've had a couple pretty good years on average here in Ohio. So landlords might be asking for a little bit more.

(09:20):And the farmer might just suggest at least that we look at perhaps a flex lease. So there's some standard kinds of flexible cash rent arrangements rather than just a straight cash rent. But one common one is the percent of gross revenue, and that has worked well for some arrangements. However, in the situation that we're in now, I think it looks a little bit worse for the tenant farmer because input costs have really rallied right up. And even though we've got this high gross revenue, the net income perhaps is not as good as what they would hope. So they may be paying these higher rents based on this flexible arrangement that we worked into our agreement. And maybe they're not seeing that net income compensate for that, so that's one.

Matt Adams (10:19):We always say high prices get you high prices.

Libby Wixtead (11:24):Yes.

Matt Adams (11:25):So we talk about, for the most part, three good years we're coming off of good yields, good crop prices. Next year we're kind of looking at some different factors driving our cash rent. As of right now, what would you say is probably the most common cash rent basic product? Or is it a flat still $200 an acre, just for average? Is it just a straight cash rent that's out there that you guys see? Or is it transitioning more and more to that flexible arrangement?

Barry Ward (11:00):It's still a large majority of those cash rents I see are just straight cash rents with no flex arrangement. With no flex language in the lease. We're seeing more of those, but it's still, I think, the minority.

Matt Adams (11:17):I always kind of wondered with younger producers coming in, if that's something more a younger producer driven thing to want to give that little bit of added benefit to the landlord versus the long term farmer that, hey, we've always done it this way. We're going to keep continuing it this way. So it's always just interesting to kind of see where we're transitioning. Especially in good years now, like you said, when things start tightening up it'll be interesting to see the ones that were on a different setup, will they try and revert back to a set rate then.

Barry Ward (11:55):Yeah. It's an interesting time that we're in with all of the... Well, a lot of changes.

Matt Adams (12:01):Well, a lot of good information here. We're going to take a quick break and we'll be back with you here on AgCredit Said It.

Voiceover (12:07):If you'd like to hear more from Barry Ward, join us next Wednesday, January 11th at 7:00 PM for a free webinar. Barry will join us to discuss budgets and market outlook for 2023. Pre-registration is required for this free webinar. To register visit our website at www.agcredit.net/webinars and we hope that you can join us.

 

Matt Adams (12:32):All right. We are back with Barry Ward talking the big topic for going into 2023, especially we look at as lenders as cash rents. So going back to talking about 2023 and some of the driving factors on what's going to kind of influence our cash rent prices. We're looking at possibly, as I've been hearing, the most expensive crop ever produced in 2023.

 

(13:03):And I think that's more we're looking at the price of the crop versus all the input costs as well. How is that in your opinion, going to be driving our cash rent going forward? Because I know we came off two good years where net farm margins are very good, but I believe we're kind of looking at possibly tightening it up a little bit in 2023 with our input costs. Do you see cash rents tighten up or continue where they're at, or possibly increase just with the increased price of our crop?

Barry Ward (13:42):Well, I'm going to probably say something that most growers don't want to hear, but I think we're in for another year of increases regardless of what we would like if we're on the production side. It's just something that I think is inevitable now, whether or not we see the increases that we've seen in the last couple of years on average in Ohio. As far as cash rents go, I don't know. I think we're still going to be open to a lot of variables that we don't really know what they're going to end up with come planting and then harvest time. But these rents some of them have already been negotiated for this next year and most of the other ones are going to be done here in the next couple of weeks, or some are later and won't get negotiated until the spring.

 

(14:32):But I think with what we've seen in the past few years with some of the government payments and the profitability, there's just a lot of dollars out there. We've seen it with farmland. There are lots of farmers that are actively, aggressively pursuing farmland. And I don't think it's going to as far as purchasing, and I don't think it's going to be different with the rental market.

Matt Adams (14:52):And it's interesting because Libby and I are both producers as well as ag lenders, and we have a Federal Reserve right now - very aggressive Federal Reserve - that keeps increasing rates, which in the long of it increases our cost to operate. So as a producer, I look at that a little bit that well hey, it's costing me more to produce this crop, so my cash rent should be a little less because I'm not making the margin. Is there any advice, I guess, you can give that younger producer that may be looking at it that way? No one's rent is going to go up, but hey, what can I do to help mitigate that risk a little bit?

Barry Ward (15:37):Well, it's tough because typically in these volatile cycles we see as the commodity prices are going up and inputs are catching up, we see higher profitability on those up years as we're increasing commodity prices. And then if and when corn price decides to come back down to, well, a lower level, whatever that might be, then input costs then respond. And we see on the backside or the downside of that price curve, oftentimes some tougher times, some loss. So it's a matter of having enough reserves, having enough net worth to weather some of those storms or having a credit reserve. So all of those things, I try to give a better picture. But the brutal truth is that's usually the economic cycle that we're faced with.

Matt Adams (16:37):And I think it's always tough when we look at even younger producers and long-tenured producers. When we have good years on the farm, we're ready to update infrastructure, put money back into the farm which is a needed thing at all times. But also it's good to, like you say, keep some money back in reserve just that way we can stay fluid when times get just a little tougher. Which we all know in agriculture, we go in cycles. So we're in the high cycle and we know there will be a low cycle. We just don't know when.

Barry Ward (17:13):No, we don't. And you had asked maybe for a little bit more as far as some strategies on the rent side. It's one thing to hold the line on rents and say, no, I won't pay anymore. Sometimes you lose land base to landlords that are really a little more aggressive and they understand that the marketplace will give them more. So you can offer a flex lease arrangement. That's one thing that we recommend or an indexed lease, maybe that's indexed to a certain set of numbers. Oftentimes maybe the USDA NASS numbers. So if that number goes up by 6%, then our rent goes up by 6%. If it goes down by a couple of percent, then our rent goes down. So that's one way that you can do it without a lot of maybe adverse negotiations. This is something I've just started talking about and we could talk more about it later on as we meet.

 

(18:15):But maybe putting some sunset clauses into a lease arrangement where we bump it up for a couple of years and then it comes back down to the base where it was. I don't know, that's maybe a tough sell for landlords. And the other thing is offering services, and I know many of you, especially young people that are in farming, will provide services in lieu of additional cash rent.

Libby Wixtead (18:40):I think we had talked about that on our branding podcast in our season one, of are you going to mow the ditches and take care of things? Some guys are trying to put tile into their rental ground and trying to lock in that rental rate for so many years too. And so there are some different things I think you can do. And I would encourage, if you guys haven't listened to that branding podcast, I think it's one of our last episodes in season one. Do that because Barry is hitting very hard of what Stacie McCracken had talked about, in that of there are other things that you can do as a young producer to add to that. Because we know there's other more tenured farmers that are paying a lot more rent than you can afford right now.

Matt Adams (19:28):Just setting yourself apart from the rest of the crowd pretty much.

Libby Wixtead (19:33):Absolutely, you have to sell yourself. You are a salesman if you don't realize it or not.

Barry Ward (19:41):Yeah. The other thing that I guess I don't know that we talked about, well we didn't yet. But the beginning farmer tax credit is available now for those landlords that are more interested in working with young people, so they can get a tax credit for their Ohio taxes up to 3.99% by leasing or selling farmland to those people that qualify as beginning farmers. So that's a whole other discussion, but I just thought I'd throw it out there.

Matt Adams (20:08):And I think that's a great thing just to bring up because that's one program I feel does not get a lot of traction out there, that just people don't know about that much.

Barry Ward (20:18):Well, it's just getting traction. So I think it's maybe going to be more utilized here in the next couple of years.

Libby Wixtead (20:26):Just another tool in your toolbox when you're going out and trying to gain more land base.

Barry Ward (20:30):And a landowner that's maybe a little bit more interested in working with young people, they want to give somebody a kind of a leg up, this is an additional incentive for them.

Libby Wixtead (20:42):And I think we're actually finding that more that it seems like there are older farmers that actually want to retire now and they're looking on, if they don't have sons and daughters that want to come into it, they are looking for that younger farmer because they want to be that helping hand to continue their farm. And just maybe not them farming but another young guy and knowing that the life that they had they want to pass on.

Matt Adams (21:03):And I think that producer looks at that too, as he knows his farm will be. He can guide that person a little bit to take care of it the way he took care of it a little bit too.

Libby Wixtead (21:15):So I guess since we started talking about some of the new laws that have been out, can you go into a little bit more depth on the cash rental law that came out on cash rent renewals and just all the changes that happened with that?

Matt Adams (21:30):And he's getting the notes out. So strap in.

Barry Ward (21:36):We're talking about the new Ohio House Bill 397 that was just signed into law this year. And well, I guess it's more of the informal title, but it's the statutory termination requirements for farm leases law. And essentially it sets a deadline. And this is new for Ohio, but it's not new for the Midwest. There's a number of other states that have this language, have this in their statutes that requires... If you want to boil it down, it requires the landowner, the landlord to give notice if they want to sever the lease arrangements. Or if you want to put it real kind of bluntly, they want to fire their farmer. So they have to do it in writing by September 1st if there's no other language in the written lease. So this applies to both written and oral lease arrangements. Oral, it applies to all, well, most oral leases and any written lease that doesn't already have language in it as far as a termination date.

 

(22:42):So what we're typically thinking about here are oral leases that roll over from year to year, which a lot of them do without much discussion between the landowner and the tenant. So what needs to happen if the landowner wants to sever or discontinue the lease, they have to send in writing by delivery fax or email to the farmer prior to September 1st, their decision that they want to discontinue the lease. If that's done, then the termination date shall be either the date of harvest or December 31st, whichever's earlier. So that's kind of the basics. There's some more points. It applies only to crop leases, it applies only to the landowner. So the tenant, they could sever the lease arrangement after the September 1st date. And there's some recommended terms to include also for the landowner to put into that written lease if they want to make it more legally sound.

Matt Adams (23:48):What was different with what we have in place now to what was prior in place?

Barry Ward (23:54):Well, there's nothing in the statute as far as any kind of a date. However, in the past there have been some... I'm not an attorney and Peggy should be here to discuss this.

Matt Adams (24:09):I was trying to remember if you basically had already worked the inputs in for the next year.

Barry Ward (24:14):That kind of has been a court case or two at least that have given traction or given some backing to that kind of thinking. If you've gone out and done some tillage, if you bought seed, chemical, fertilizer for that particular acreage, you could take them and people have won on those grounds to continue the lease for that next year. I hate to get too far into the legal part here because it's not my area.

Matt Adams (24:42):This new law basically it's protecting the landlord and the tenant farmer that this is how it's going to be.

Barry Ward (24:48):Oh yeah, it certainly makes it more cut and dried, but it gives more protection to the tenant farmer I think. And it allows them to go ahead and do some more forward planning. And to be honest, and you guys know it too, most of them have already started their planning and in some cases purchasing by September 1st, so-

Matt Adams (25:16):Oh gosh, yeah.

Barry Ward (25:18):Yeah, you guys have seen this happen and some cases, it's months before that.

Matt Adams (25:23):Yeah, it seems like even mid-summer now we have so many producers that take advantage of that early pretty buy and have inputs. Yeah, we talk about our farm inputs and operating. We used to always think of it like, well, it's a 12-month cycle. Not really; it looks somewhat like 18 months, 20 months, a 24-month cycle because we're always into one crop year and buying for the next. And possibly buying some for the year after that just, depending on the buying power that we can obtain.

Libby Wixtead (25:55):And I think with the supply chain problems that we've had and going back into COVID, guys are looking at things earlier and trying to price things earlier. And so it is starting a lot earlier.

Matt Adams (26:05):I want to make sure we got the inputs to put in the ground.

Libby Wixtead (26:08):Yes, absolutely.

Barry Ward (26:10):Absolutely.

Libby Wixtead (26:12):Yeah, and I think this law comes back to reiterating, have your leases in writing too. Yeah so everything is very clear.

Barry Ward (26:22):We recommend that.

Libby Wixtead (26:23):And please back me up on this too. Over three years needs to be recorded at the recorder’s.

Barry Ward (26:31):It does. That's correct. It needs to be recorded. Now, just because it has to be recorded doesn't have to mean that you have to include the rental amount, as I understand it. But again, we're dipping into legal waters here that as an economist I start to get a little nervous. But I've been in enough of those meetings with Peggy Hall to know that it's beyond three years that, yes, you've got to have that recorded. And-

Libby Wixtead (26:57):I just want to make sure we say that two or three times on here just to make our point very clear just to have that. And I think this is a great law to protect the farmer.

Matt Adams (27:07):Well, to kind of talk about it too, Barry, a little bit, and I don't want to get too far deep into it because I know you will be joining us on one of our webinars coming up. But projections for 2023, our inputs. Give me just a little teaser, what are you seeing for 2023?

Barry Ward (27:26):Well, I think overall the basket of cost is going to be higher. And I think that's no surprise to anybody, because for the '22 crop we had some opportunities to buy some things in '21 when costs weren't quite so high. So some growers were able to cost average some of their fertilizer perhaps and had a lower average price point. For the '23 crop, there's not been any of those opportunities. So I think we're faced with overall, even though prices have kind of stabilized in the fertilizer side and even softened a little bit, I think the overall fertilizer cost bundle is going to be higher for almost all growers. Fuel, actually it looks like it's going to be a little softer, mostly flat to softer. Although compared to two years ago, higher. Chemical, I think right now at least the way we're seeing it's mostly flat compared to last year.

 

(28:20):There may be some of those products that might be a little bit lower. But then we get into things like interest expense, rental expense, those are going to be higher. And the big one is machinery and equipment. We're plugging in about 20% higher machinery and equipment costs and repairs or parts, if you will. So that's going to be a big thing to absorb.

Matt Adams (28:43):One thing I look at, I want your opinion too, as far as our corn versus soybean acres, we talk about the input costs. I do know just from hearing through the corn belt more through the grain belt, I think a lot of producers have kind of took the sit on it and wait with some of their crop out there. Do you see a switch in acres for 2023 versus kind of what was planned?

Barry Ward (29:10):Oh boy. Well, with the numbers that were continuing to run through and if you would've asked me a couple of months ago, I would've said that there started to seem to be a better argument for a shift towards more corn acres. But some recent price changes, soybeans have rallied a little bit. And the way our numbers look, at least our bottom line net farm income projections for each of the crops, soybeans look right now to be the better bet here in Ohio at least with our costs that we're evaluating. So I wouldn't see much change this next year, although that grain side is not necessarily my comfort area.

Matt Adams (29:55):There's just so much, I don't want to call it turmoil in the grain side, but we look at transportation out of the grain belt. And the Vomitoxin that's hit our corn crop here just in my area, Northwest Ohio, that it makes you wonder 10, 12 months from now, how's that going to affect our supply since 90% of our corn is up for animal feed. How's that going to really affect the long term demand? But I guess as a producer, I'm always looking at that thing, hey, in my mind, if we have some corn that can't be utilized, it should be bigger demand for corn. Correct?

Barry Ward (30:41):Quite possibly. Yeah, that makes sense. It's something that we've been following a little bit, but I've been following it at a distance. I have been following closely what's going on with the Mississippi corridor primarily due to just my interest in the fertilizer sector. And we've got to ship grain down and ship fertilizer up. And that's certainly been another supply chain issue that we really didn't need.

Matt Adams (31:11):Yeah, that I still think has not really resolved itself a whole lot. And not for the foreseeable future really.

Barry Ward (31:17):No, it doesn't look like it.

Matt Adams (31:21):Well, they say you could go in Vegas and gamble or you could farm and do it every day.

Libby Wixtead (31:25):We just said that in our office this week.

Matt Adams (31:29):Yeah. Well, very good. Great information.

Libby Wixtead (31:31):So that was a little teaser on what's coming up for our series of webinars that will start in January. Barry is our first guest, and he will be on our webinar for the evening of January 11th at 7:00 PM. So please join us then.

Matt Adams (31:46):Thank you for joining us for another episode of AgCredit Said It. Be sure to follow us on all the social media platforms and on your favorite podcast app. And we'll talk to you next time on AgCredit Said It.

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