Southern Ag Today

Author: Francisco Abello

  • Supporting Sorghum Prices in the 2023/24 Season: Exports and Basis

    Supporting Sorghum Prices in the 2023/24 Season: Exports and Basis

    In recent weeks there has been a noticeable surge in the demand for sorghum. This is seen through robust sorghum export sales over the past two months, around 25% above the previous two seasons (Graph 1). A corresponding increase in the average basis offered on the Gulf Coast of Texas is also observed, with the sorghum basis currently standing at $1 per bushel above the price for positions with delivery from this month through December, 80 cents higher than last year by this time. These prices are expected to benefit producers significantly, especially in a year marked by anticipated higher production (393 million bushels) and better yields (66 bushels per acre).

    According to the August 2023 report from the United States Department of Agriculture’s World Agricultural Supply and Demand Estimates (WASDE), there is an increase in U.S. sorghum exports projected for the 2023/24 season. USDA export projections have reached 255 million bushels, marking a 155% increase over the previous season (Graph 2), even though projected exports are still lower than the levels in 2020/21 or 2021/22. In 2022/23, the U.S. exported 100 million bushels of sorghum, 67% lower than the recent peak in the 2021/22 season due to the low production from last year’s drought.

    Source: USDA/NASS/ERS/WASDE

    China will continue to be the primary importer of sorghum from the United States, primarily driven by the demand for feed from its livestock industry. USDA projections forecast a steady market for hogs, sustained growth in aquaculture and ruminants, and a resurgence in poultry feed demand. Consequently, China’s imports are anticipated to increase by 125.7 million bushels, fueled by higher U.S. production and competitive prices.

    The 2023/24 sorghum season presents promising sorghum export opportunities. This export surge will likely result in better sorghum premiums over corn, as evidenced by the positive basis farmers are currently experiencing on the Gulf Coast of Texas.  All of these factors taken together will likely result in the United States retaining its position as the top producer and exporter of sorghum.

  • Effect of Interest Rates on Beef Cow Bid Price

    Effect of Interest Rates on Beef Cow Bid Price

    Determining the appropriate bid price for beef cows is important for buyers and sellers in the ranching industry. The Bid Price for Beef Cows decision aid is a practical and valuable tool that simplifies the bid price calculation and enables insightful “what if” analysis based on your financial expectations and productivity projections. This tool employs a net present value (NPV) approach, factoring in the desired return or discount rate.

    Several variables play a significant role in determining the bid price for a cow, including: the total debt of your operation, operating costs per cow, estimated future calf prices, cull cow prices, required loan amount, interest rate, number of calves per cow, weaning weight, weaning rate, and more. In this example, we focused on the effect of higher interest rates in the bid process.

    The amount of debt required for cow purchases and the interest rates directly affect the bid price. The higher the debt and interest rates, the lower the amount a buyer can afford to pay. For instance, an interest rate of 11% will reduce the bid price by $367 per head (Graph 1) compared to the 6% interest rate we may have seen a couple of years ago.

    Figure 1: Beef Cow Bid Prices vs Interest Rates

    In conjunction with operating costs, future calf prices are crucial in determining the bid price. Calf prices have increased in recent years as well as operating expenses. For the example bid prices in Fig.1, we assume an initial increase in calf prices for the next three years, followed by a slight decline. We expect prices to decline when the US cow inventory grows and US beef production increases. We also included a variable discount rate that rose to 7% with higher interest rate scenarios.

    Using the Bid Price for Beef Cows tool will allow ranchers to analyze different scenarios and understand how much they should pay to restock their operations. Find the tool here (https://agecoext.tamu.edu/resources/decisionaids/beef/ ) and give it a try.  Estimating reasonable future prices for your cattle and operating costs is imperative to better assess how much you can afford to pay for a replacement cow. By carefully considering these variables, you can make informed decisions and ensure the financial viability of your operation.

    https://agecoext.tamu.edu/resources/decisionaids/beef/

    Abello, Francisco. “Effect of Interest Rates on Beef Cow Bid Price.” Southern Ag Today 3(33.3). August 16, 2023. Permalink

  • Sorghum Exports and Production Expectations for the 2023/24 Season

    Sorghum Exports and Production Expectations for the 2023/24 Season

    Current expectations indicate an increase in global and U.S. sorghum production and U.S. exports during the 2023/24 marketing year. Projections indicate 62.18 million metric tons of production globally, surpassing last year’s production of 57.34 million tons. According to USDA forecasts, the United States is anticipated to contribute significantly to the growth in sorghum production as the country rebounds from last year’s drought. 

    USDA’s May 2023 World Agricultural Supply and Demand Estimates (WASDE) report projects a substantial increase in U.S. sorghum production for the 2023/24 growing season, estimating a 91.5% increase from the previous year, which moves production from 188 to 360 million bushels (Table 1). 

    Table 1: U.S. Grain Sorghum Supply and Demand

    Source: USDA/NASS/ERS/WASDE

    The U.S. is currently projected to regain its position as the leading global sorghum producer and exporter. Projections indicate that the U.S. will export approximately 6.00 million metric tons of  the 9.75 million metric tons exported globally.

    While domestic consumption is projected to remain the same as last year, export projections suggest an increase in sorghum exports (Figure 1). The U.S. 2023/24 marketing year exports are expected to reach 235 million bushels, a substantial increase to the 90 million bushels exported last year. According to USDA data, China will continue to be a significant importer of U.S. sorghum.  Chinese demand is driven largely by the country’s livestock industry and has made up the largest share of U.S. grain sorghum exports since 2013/14, with the exception of 2018/19.

    Figure 1. US Grain Sorghum Exports

    Note: 2022/23 marketing season includes export data up to March 2023.
    Source: USDA WASDE

    Ending stocks are also expected to increase from 25 to 30 million bushels, a 20% increase from the previous year. The average farm price of sorghum is projected to mirror the corn price in the upcoming 2023/24 marketing year, with current estimates indicating an average price of $4.80/bu, a sharp decline from the $6.90/bu estimated for 2022/23 (Table 1). Although a lower price is expected compared to the last three marketing seasons, prices are expected to be above pre-pandemic values. The last season with prices lower than the expected 2023/24 price was in 2019/20, when the average price was $3.34/bu.

    In summary, the 2023/24 season presents opportunities for sorghum production and exports, with the U.S. expected to regain its position as the top global producer and exporter.  However, this comes at lower expected prices.

    Abello, Francisco Pancho, and Samuel Zapata. “Sorghum Exports and Production Expectations for the 2023/24 Season.” Southern Ag Today 3(22.1). May 29, 2023. Permalink

  • Benchmarking

    Benchmarking

    Agricultural producers constantly seek opportunities to improve their businesses by implementing new technologies and practices. In this quest for growth and improvement, benchmarking is a crucial tool that progressive and business-minded farmers and ranchers use to measure their performance against similar businesses in the industry.

    Benchmarking allows producers to identify their strengths, weaknesses, and areas where they have room to grow and improve. It should cover all management aspects, production costs, production systems, marketing, finance, and human resources. By benchmarking against other producers within the same group or the industry, one can see the production or economic results that can be achieved and understand the limitations that may prevent them from attaining them. Further, producers should also be able to analyze trends and see the results of their decisions.

    Producers should use a similar way to calculate results to ensure effective benchmarking. As a renowned agricultural economist, Danny Klinefelter, stated, “One of the most significant issues is to make sure the data is comparable and that you’re comparing apples to apples.”

    One effective benchmarking system for beef cattle producers is the Beef-Cattle Standard Performance Analysis (SPA) used in Texas and some southern states since 1992. SPA developers used the Farm Financial Standards Guidelines created by a national task force to prepare farm or ranch financial statements as a framework for analyzing and benchmarking cow-calf enterprises. Similar systems could effectively be implemented to compare all types of ag production.

    Ag Peer Advisory Groups have a long history of benchmarking, given their group culture of discussing and learning from each other.  One such example is a group of ranchers from North Texas and Oklahoma that meet monthly to critique each other’s operations, share ideas, and benchmark production and economic performance.  The group is facilitated by leadership from Texas A&M AgriLife Extension and supported with funding from the Southern Risk Management Education Center.       

    While informal peer advising is common, the advantage of formal groups or associations is the development of production and financial management standards to ensure they compare the same information.  Developing and implementing effective benchmarking systems across all types of ag production will enable producers to continually improve their performance.  Check with your state’s Extension Economists to learn more about performance benchmarking opportunities. 

    Abello, Francisco Pancho. “Benchmarking.” Southern Ag Today 3(16.3). April 19, 2023. Permalink

  • Small Grain Pastures

    Small Grain Pastures

    Wheat and other small grain grazing is an important source of demand for calves every Fall.   Fewer cattle will likely be grazing on small grain pastures this Winter due to poor plant establishment caused by drought. The January 2022 USDA-NASS Cattle report indicated 1 percent fewer cattle grazing on small grain pastures in Kansas, Oklahoma, and Texas last winter. Many producers from the Southern Plains (Kansas, Oklahoma, and Texas) have already early weaned and sold their calves due to the drought. Lower winter wheat forage production this year will reduce cattle demand from other Southern states.

    Planted acres of winter wheat are expected to increase in the Southern States from last year. However, early planting conditions challenge future grazing forage production for ranchers in this area. Winter wheat planting conditions have been severely affected after three consecutive ENSO Niña periods. About 95 percent of the winter wheat area in the Southern Plains (Kansas, Oklahoma, and Texas) is still under drought (Figure 1), compared to an estimated 33 percent at the beginning of last season.

    Figure 1. Winter Wheat under Drought Conditions

    Source: U.S. Drought Monitor

    The planting rate in the Southern Plains States is 4.2 percent lower than the average over the last five years (Figure 2). However, the crop emergence rate is even lower than the planting rate. Kansas winter wheat has the lowest emergence rate of 40 percent (34.4 percent lower than the five-year average). Oklahoma’s emergence rate is 11.5 percent lower than average, while Texas’s is only down 4.2 percent. 

    Figure 2. Winter Wheat Planted Acres and Wheat Emergence Rates

    Source: USDA – NASS

    Compared to last year, some stockers were grazed in deferred summer grasses, with higher costs and at the expense of a reduced spring forage supply for their cow-calf operation. Range and pasture conditions have severely decreased compared to last year (Figure 3). In Kansas, 79 percent of Range and Pasture Condition was categorized as very poor and poor. In Oklahoma and Texas, range and pasture conditions are 58 and 30 points higher for similar categories. This alternative will not be available this year, where all forage left will likely be reserved for cows.

    Figure 3. Range and Pasture Conditions

    Source: USDA – NASS

    Producers will face many challenges putting weight on stockers if poor winter wheat conditions do not improve during the season. As the drought continues, the higher the risk of seeing more calves being sold underweight and earlier in the market.  It will likely mean less of a seasonal decline in heavy feeder prices in the March-May period.

    Pancho Abello

    Assistant Professor and Extension Specialist-Management

    pancho.abello@ag.tamu.edu 

    Abello, Pancho. “Small Grain Pastures“. Southern Ag Today 2(45.2). November 1, 2022. Permalink