Southern Ag Today

Author: Francisco Abello

  • 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

  • U.S. Sorghum-Corn Premium Prices Fell Sharply During this Quarter

    U.S. Sorghum-Corn Premium Prices Fell Sharply During this Quarter

    On average, sorghum prices received by U.S. farmers have followed corn prices, albeit generally at a discount compared to corn over the last 20 years. However, since May 2020, sorghum prices have paid a significant premium over corn (Figure 1). An increase in export demand improved the U.S. sorghum-over-corn premiums from an average discount of $0.14/bu from 2014-19 to an average premium of $0.44/bu for 2020-21. The U.S.-China Phase One Trade Agreement (U.S. sorghum exports are not subject to tariff-rate quotas, like corn), the recovery of the Chinese swine sector, and high corn prices that supported high exports of U.S. sorghum to China were considered the causes for the change in sorghum/corn price ratios.

    Figure 1: Sorghum Minus Corn Price Received by U.S. Farmers

    Unexpectedly, sorghum premiums over corn declined sharply during the second quarter of 2022. In July 2022, the average sorghum price received by U.S. farmers was at a discount of $1.70/bu compared to corn. The sorghum/corn ratio dropped to 0.76. 

    Many factors are contributing to the decline. In the past, years with strong exports of sorghum have been associated with higher sorghum premiums over corn. According to the USDA Foreign Agricultural Service (FAS), estimated sorghum exports for the 2022/23 marketing year have been reduced by 2.4 million metric tons (MT) compared to the previous marketing year (5 million MT in 2022/23 compared to 7.4 million MT in 2021/22). 

    Historically, the U.S. has been the world’s leading sorghum exporter, accounting for 73% of all international exports in the last 30 years. For the 2021/22 marketing year, U.S. sorghum exports represented 61% of world exports. Considering current USDA estimated exports, U.S. sorghum exports will only represent 51.4% of world exports for the 2022/23 marketing year. 

    China, the primary buyer of U.S. and worldwide sorghum is projected to cut its imports this season due to lower feed grain demand expectations. Total coarse grain imports from China are expected to decrease by 15% in 2022/23. The USDA estimated a reduction in China’s sorghum imports of 2.4 million MT (23.8%). During 2020/21, China imported 94% of total U.S. sorghum exports and about 85.5% of world sorghum exports. 

    In addition, sorghum production in the U.S. has been severely affected by drought, significantly reducing the amount of sorghum available to be exported. In fact, USDA estimates a reduction of 43.7% in U.S. production for 2022 compared to the 2021 season. Estimated yields and harvested acreage are 23% and 17% lower than last season, respectively. Ending stocks are estimated to drop back to 2020-21 levels of 0.517 million MT.  

    High sorghum discounts over corn generally result in a retraction of the planting area in the next growing season. FAPRI’s August Baseline Update for U.S. Agriculture Markets estimates 8% less sorghum planting area than last season. FAPRI estimates 5.8 million acres in the 2023/24 season, within the historic planting range before the 21/22 and 22/23 seasons. 

    References

    USDA Foreign Agricultural Service, Production, Supply, and Distribution. https://apps.fas.usda.gov/psdonline/app/index.html#/app/advQuery

    FAPRI, Baseline Update for U.S. Agricultural Markets https://www.fapri.missouri.edu/wp-content/uploads/2022/08/2022-Baseline-Outlook-August-Update.pdf

    Abello, Francisco “Pancho”. “U.S. Sorghum-Corn Premium Prices Sharply Fell During this Quarter“. Southern Ag Today 2(42.1). October 10, 2022. Permalink

  • Peer Advisory Groups

    Peer Advisory Groups

    Agricultural producers use various resources to continue learning and implementing new practices and technologies. Peer advisory groups are an essential tool for progressive and business-minded farmers or ranchers who seek continuous growth and improvement of their ag businesses.

    Like most family businesses, agricultural managers make most business decisions alone. The lack of challenging and diverse ideas often means that producers miss business opportunities or fail to implement beneficial changes for their operations. A peer advisory group serves as a reciprocal advisory board that helps farm businesses generate knowledge and improve management strategies that can impact their operation. 

    A peer advisory group is formed by ranchers and farmers willing to share their experiences and make the most of each member’s talents to solve problems and make business decisions. They constantly exchange information, knowledge, ideas, experiences, and opinions. Each group usually consists of 8-12 producers who periodically meet on each member’s operation. This group size helps maintain the intimacy and trust necessary to obtain the best results from each group member.

    There are several peer group systems with methodologies for agricultural producers to achieve their goals. Argentina’s CREA groups are among the oldest and most experienced peer group associations (Regional Consortiums of Agricultural Experimentation). This association has more than 2,000 members and 60 years of using and perfecting the peer group methodology. CREA members have continuously improved their productivity and are at the forefront of new technologies and management practices. Thanks to the business management mindset generated within these groups, its members are among the top 20% of their country. 

    Although not as popular as in Argentina, a few agricultural companies use this methodology in the U.S. and several private consulting companies offer these services. Through the leadership of the Texas A&M AgriLife Extension Service and funding from Southern Risk Management Education, a peer advisory group has been developed with ranchers from North Texas and Oklahoma, using a similar methodology as CREA groups. This peer advisory group focuses on the production risk associated with new production systems and the business’s economic, financial, and organizational aspects.

    Abello, Francisco “Pancho”. “Peer Advisory Groups“. Southern Ag Today 2(40.3). September 28, 2022. Permalink

  • Producers have Significantly Increased the use of LRP

    Producers have Significantly Increased the use of LRP

    Incorporating a price risk management plan into our operation has been difficult for many ranch businesses, even considering larger sized operations. Ranchers face many risks associated with cattle pricing, as we have seen these last years after disruptions in supply chains. Past events emphasize the importance of incorporating a price risk management plan as one of our management strategies to minimize economic losses, lock margins, or reduce the risk of business failure.  

    The USDA Livestock Risk Protection Feeder Cattle (LRP) program is an important tool to reduce price risk in our operations by setting a floor price for our cattle. An analysis made with the last ten years of data for stocker prices shows that this tool provides floor prices and, in many cases, above the October market value (Premium purchased in May, 30 weeks endorsement, at a 98% price level coverage). Producers can choose between different price coverage levels and buy the insurance up to 52 weeks before selling their cattle.  

    During the summer of 2019 and winter of 2021, the USDA made a few changes to the program. These modifications reduced the premium paid by producers, delayed the premium payment to the end of the endorsement period, and made it available in all states and counties. Payments due at the end of the period are a cash-flow advantage compared to buying a Put Option in the futures market.

    The LRP program is available for most ranchers since it does not require a minimum number of cattle to be insured. Small ranchers with even one cow could make use of it. Most importantly, both cow-calf and stockers operations can benefit from this program. 

    Producers from the southern region have significantly increased the use of LRP as a price risk management tool compared to 2020, as shown in Table 1. In 2022, producers will have insured 1.4 million head through the LRP program. For more information on LRP, please check the USDA Fact Sheet (Livestock Risk Protection Fed Cattle | RMA (usda.gov)). If you are interested in buying the insurance, the USDA website lists approved livestock agents and insurance companies. 

    Table 1. LRP – Quantity of Cattle Insured in the Southern States (Heads). Source: USDA – RMA

    Abello, Francisco “Pancho”. “Producers have Significantly Increased the use of LRP“. Southern Ag Today 2(35.3). August 24, 2022. Permalink