Author: Bart Fischer

While questions about market power in the meatpacking sector have been around for well over 100 years, the spike in retail beef prices following the fire at the Tyson facility in Holcomb, Kansas, in August 2019, and the COVID-19 outbreak in early 2020, brought about a renewed focus on the issue.  In response to concerns in the countryside, several legislators offered policy solutions, with the bulk focused primarily on enhancing transparency and increasing negotiated trade volumes in fed cattle markets. 

With a number of legislative proposals floating around and with the Livestock Mandatory Reporting Act set to expire in September 2020, the bi-partisan leadership of the House Agriculture Committee asked the Agricultural & Food Policy Center (AFPC) at Texas A&M University to evaluate a number of issues in the cattle markets.  Given the sensitivity and regional nature of the topic, we chose to partner with several respected livestock economists from across the country.  That work ultimately culminated in the release of a book in October 2021 that cautioned against many of the proposed changes, warning that proposals to mandate a minimum amount of negotiated purchases could ultimately reduce prices to cattle producers.

Following the release of that book, Senators Grassley (R-IA), Fischer (R-NE), Tester (D-MT), and Wyden (D-OR) released a compromise bill – the Cattle Price Discovery and Transparency Act of 2021 (S. 3229) – that would, among other things, require the U.S. Secretary of Agriculture to establish a regional mandatory minimum threshold for the percentage of cattle purchased under negotiated grid or negotiated pricing terms.  Senator John Boozman, Ranking Member, Senate Committee on Agriculture, Nutrition, and Forestry asked AFPC to evaluate the bill.  Our January 2022 report found that an additional 6 million head would have to be purchased via negotiation from 2022 to 2026, with the burden (and cost) falling largely on the Southern Plains.

In April 2022, Senators Fischer (R-NE), Grassley (R-IA), Tester (D-MT), and Wyden (D-OR) released an updated version of their bill – the Cattle Price Discovery and Transparency Act of 2022 (S. 4030).  Senator Boozman again asked AFPC to weigh in on the updated bill.  Our latest report, released last Friday, found that the number of head impacted by the updated bill would likely be lower than in S. 3229, but we cautioned that the updated bill gives so much discretion to the Secretary that it was virtually impossible to assess the expected costs to the cattle industry.  When taking all of the uncertainty into account, we noted that it was conceivable that the estimated cost of the latest bill could far exceed earlier estimates. 

Last week, a group of livestock economists – all of whom were involved in drafting the book noted above – independently released a report noting there is “no research evidence of any significant or persistent fed cattle price discovery problem at this time” and that proposed legislation would impose “many millions of dollars of additional cost, added risk, and lost value”  that would result in “lower feeder cattle prices and higher consumer beef prices.”  Over the course of the past two years, that is a consistent message we’ve heard from every economist we’ve consulted.

Fischer, Bart. “Fed Cattle Pricing: Will Well-Intentioned Proposals Actually Reduce Cattle Prices?“. Southern Ag Today 2(18.4). April 28, 2022. Permalink

It’s around this time of year – with the release of the President’s budget – that we start to get a lot of questions about what’s going to happen with Federal spending for the year.  The questions are quite natural given the amount of attention the release of the President’s budget generates and the enormous volume of pages it fills (i.e. this year the Appendix alone spans 1,400 pages).  It’s somewhat ironic, then, that the Constitution gives no formal role to the President in the federal budget process.  In fact, the Constitution vests the authority to “lay and collect taxes” and to authorize the withdrawal of funds from the Treasury exclusively in the U.S. Congress.

While Congress controls the power of the purse, for the past 100 years – since passage of the Budget and Accounting Act of 1921 – there has been a statutory role for the President in establishing a budget and presenting it to Congress.  For the past 30 years, Federal law has stipulated that the President is to submit the budget to Congress “on or after the first Monday in January but not later than the first Monday in February of each year” (we’ll save the discussion about whether they are submitted on time for another day).

If Congress controls the purse strings, then what’s the point of the President’s budget? 

First, it kicks off the Congressional budget process.  In exercising the power of the purse, Congress establishes a budget resolution, which is a broad revenue/spending framework (which is also the basis for budget enforcement) that also provides spending allocations to the Appropriations Committees.  The budget resolution can also include reconciliation instructions, which featured prominently in last year’s debates on the Build Back Better Act.

Second, the President’s budget is an overview of the President’s policy vision.  Often, that vision includes proposing significant changes to existing Federal programs.  With respect to agriculture, notably, the last two budget cycles broke with recent tradition which had proposed a litany of ways in which farm policy could be slashed to save money.  Last year’s budget was silent on the matter and this year is no different.  With that said, the budget does hint at other significant changes that could have a major impact on agriculture.  For example, the so-called Green Book –the Treasury Department’s explanation of this year’s revenue proposals – contemplates imposing capital gains at death.  The Agricultural & Food Policy Center (AFPC) reported last summer on the enormous impact that the elimination of stepped-up basis (or the imposition of transfer taxes) could have on agricultural producers.  While the President can propose changes, only Congress has the power to actually change the law.

Bottom line:  the President’s budget kicks off the budget process and signals the policy priorities of the Administration, but it’s Congress that ultimately controls the purse strings.

Fischer, Bart. “President’s Budget: Does it Matter?“. Southern Ag Today 2(14.4). March 31, 2022. Permalink

As we’ve traveled throughout the Southern United States over the past two months, one of the questions we’ve most often been asked is whether a producer should purchase a Stacked Income Protection Plan (STAX) insurance policy for the 2022 crop year.  While we would never presume to know what’s best for a producer – because we are neither on the hook for paying the premiums nor do we know a particular producer’s financial situation or appetite for risk – we have been encouraging producers to take a very close look at STAX and to exhaust that option before considering any other alternatives.  Generally speaking, area-wide policies like STAX can serve as an effective complement to an individual crop insurance policy. With prices at their current levels, that option arguably becomes even more important.

            STAX was first authorized under the 2014 Farm Bill.  It was retained in the Bipartisan Budget Act of 2018 and the 2018 Farm Bill, but both bills required producers to choose between (1) Price Loss Coverage (PLC) or Agriculture Risk Coverage (ARC) and (2) STAX.  Any farm (FSA Farm Number) with seed cotton base enrolled in ARC or PLC is ineligible for STAX.  As a result, most producers we talk to are currently trying to choose between ARC (particularly ARC County, or ARC-CO) and STAX.

            While there are a number of factors that must be taken into consideration – for example, how much seed cotton base do you have on your farm and do you plan to plant that farm to cotton – in the example that follows we attempt to draw some comparisons between ARC-CO and STAX.  For those parts of the cotton belt with February 28^th sales closing dates (including the Arkansas, Georgia, and Mississippi counties in the example below), the projected price for crop insurance has been set at $1.02/lb with a 0.22 volatility factor (which is used to establish crop insurance premiums).  While the Texas and Oklahoma counties have a March 15th sales closing date and are still undergoing price discovery, the analysis that follows uses the same price assumptions.  The analysis also assumes that the maximum amount of STAX is being purchased, including a 20% coverage level with a 120% protection factor.  If a producer has an underlying crop insurance coverage level above 70%, then the STAX coverage would be reduced.

            Table 1 below illustrates the maximum possible ARC-CO payment rate in the event of sufficient price and/or yield losses.  It illustrates the same for STAX, but it also includes the estimated premiums paid for STAX coverage.  The last column compares maximum possible net indemnities from STAX to the maximum possible ARC-CO payments.  As noted below, in every case, STAX provides more than TWICE the coverage of ARC-CO (even after accounting for premiums).  Naturally, if both prices and yields end up hitting their average levels, then neither ARC-CO nor STAX will pay, and the producer will be left paying the STAX premium.  As a result, there is no clear-cut answer to the question above, but it is abundantly clear that the amount of protection a producer can secure under STAX vastly exceeds that offered by ARC-CO.  Finally, while we provide estimates in this article for purposes of illustrating options for you to consider, nothing can substitute for discussing these options with your crop insurance agent.

Table 1: Comparing ARC-CO and STAX in the Counties with the Largest Number of Planted Acres in the 5 Largest Southern Cotton States

---

Fischer, Bart L., and Joe Outlaw. “Should I Buy Stax?” Southern Ag Today 2(8.4). February 17, 2022. Permalink

For the 2022 crop year, producers will have several decisions to make over the next few months.  For example, the U.S. Department of Agriculture’s Farm Service Agency (FSA) has announced that producers will have until March 15, 2022, to make their Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) elections and enrollments for the 2022 crop year.  In addition, many of the sales closing dates for crop insurance for spring-planted crops are rapidly approaching.

For the ARC-County (ARC-CO) and PLC decision, the Agricultural & Food Policy Center (AFPC) at Texas A&M University provides a decision tool to evaluate the trade-offs between the two programs on a crop-by-crop and farm-by-farm basis.  AFPC also offers a spreadsheet calculator for producers who are considering ARC-Individual (ARC-IC).  Given the current price outlook – where producers may expect to receive little (or no) assistance from ARC and PLC – it arguably makes the crop insurance coverage decisions even more important.  

To that end, we offer the following “rules of thumb” for you to consider as you make farm safety net decisions for the 2022 crop year:

• Similar to the 2021 crop year, ARC and PLC are less likely to pay.  That’s okay!  Most producers tell us they would rather get their income from the market than the government anyway. 
• Rather than focusing on expected ARC/PLC payments (when neither may trigger), consider instead where you are most vulnerable.  Is it lower prices due to trade disruptions or slow economic recovery?  Is it lower yields due to persistent drought?
• Talk to your crop insurance agent to make sure you’ve evaluated all yield enhancement options (e.g., Yield Exclusion) and unit structures.
• With current price elections on crop insurance, perhaps now is the time to focus more on adding area-wide tools like the Stacked Income Protection Plan (STAX) for upland cotton, the Supplemental Coverage Option (SCO), and the Enhanced Coverage Option (ECO).
  • You can have STAX on a farm if the seed cotton base on the farm is not enrolled in ARC/PLC.
  • You can purchase SCO for a crop on a farm as long as it’s not enrolled in ARC.
  • You can purchase ECO on the farm regardless of ARC/PLC enrollment.
• At a minimum, on farms with little (or no) seed cotton base, be sure to take a close look at area-wide policies like STAX.  
• If your APH is relatively higher than the county average yields, then be sure to compare STAX against both SCO and ECO.  Because of the 10% limitation in ARC, you may find SCO to be a more attractive alternative (and PLC can be utilized as well, providing some downside price protection, even if you do not expect to need it).

Fischer, Bart, and J. Marc Raulston. “2022 Farm Safety Net Decisions“. Southern Ag Today 2(2.4). January 6, 2022. Permalink

Congress is rushing to finish up its year-end work.  President Biden has already signed the continuing resolution to fund most of the Federal government through February 18, 2022, and Congress has now reached agreement on other priorities like the National Defense Authorization Act and raising the debt ceiling.  Reaching agreement on the Build Back Better Act (BBBA) – which passed the U.S. House of Representatives on November 19, 2021 – has proven to be more elusive.

While the BBBA touches on a number of different topics – falling mostly under the banner of “human infrastructure” – most of the agriculture-related provisions are tied to addressing climate change.  As noted in Figure 1, the bill dedicates an estimated $76.9 billion in spending on agriculture-related priorities over the next 10 years.  For example, $26 billion is provided for forestry activities, most of which is for forest restoration and fuels reduction projects.  Another $25.3 billion is provided for a number of rural development priorities, including $6.6 billion for a “fix” to the debt relief for socially disadvantaged producers provision from the American Rescue Plan (which has run into a number of constitutional challenges in the courts).  Perhaps most notably, the bill also includes $23.5 billion for conservation, with $5 billion going to cover crops and most of the remainder going to temporary plus-ups for existing conservation programs.

The path forward for the BBBA is not clear.  Even if the Senate reaches agreement before the end of the calendar year, they may very well amend the bill which will require the House to weigh in again.  Finally, even if the bill does become law, the temporary nature of the funding increases on the agriculture-related provisions may very well add to the complications that Congressional negotiators will face as they write the next farm bill.

---

Fischer, Bart. “Build Back Better?” Southern Ag Today 1(50.4). December 9, 2021. Permalink