Category: Crop Marketing

The Nonrecourse Marketing Assistance Loan Program (MAL) is a marketing tool available for select commodities.  Authorized through Title I of the farm bill, MALs provide cash to producers at harvest to allow storage and marketing of the crop for a nine-month period following harvest.  Producers repay the MAL (with interest) or forfeit the crop that was pledged as collateral to the Commodity Credit Corporation (CCC).  MAL rates are defined in the farm bill for each eligible commodity and are thus a point of negotiation in farm bill debates. 

On May 1, 2024, the Senate Majority released their farm bill position, which details an escalator based on the percentage increase in cost of production compared to the previous five years, as estimated by the USDA Economic Research Service (ERS).  There is a cap in the Senate Majority position of a 10% increase over the 2018 Farm Bill loan rates.  

The House Committee on Agriculture then proposed new loan rates that are predominately 10% higher than the existing loan rates for the major crops listed in Table 1.  This proposal passed out of Committee on May 24, 2024.  Details of the two farm bill positions can be found in the May 24, 2024 Southern Ag Today article.

The purpose of this article is to explore the differences between the Senate Majority position and the House Ag Committee bill, as well as to illustrate the degree to which the MAL can be used as a marketing tool to cover operating costs of production.  Table 1 shows the ERS cost of production estimates, FAPRI projected commodity prices, the current loan rate, and the proposed Senate and House MAL rates.  The “percentage increase in operating cost” compares the 2024 estimate to the five-year average 2019-2023 operating costs.  In all crops listed there is at least a 10% increase in operating costs compared to the previous five-year average, with rice operating costs estimated at a 16.7% increase.  Therefore, the Senate position would trigger the 10% cap on the increase in MAL rates.  This means that both the Senate position and House committee bill would result in the same loan rate at the present time for all but peanuts and cotton.  There is an additional $0.50/ton in the Senate position for peanuts compared to the House bill.  The calculation of the upland cotton loan rate is more complicated than illustrated in the Senate summary document.  The 2018 Farm Bill specifies a range of $0.45-$0.52/lb for the loan rate.  At a 10% increase, that would result in the Senate position of $0.50-$0.57/lb.  The House bill specifies $0.55/lb, thus being higher or lower than the Senate position, depending on how it is implemented.    Furthermore, the Senate position would require an annual calculation for all loan rates and then an adjustment based on the current 2018 Farm Bill loan rates. 

The other question is the degree to which the MAL can be used as a marketing tool to provide short term funding compared to the operating cost of production for these crops.  Table 2 shows the ratio of the 2018 loan rate to the 2018 operating cost per unit.  For all but sorghum and upland cotton, the ratio was greater than 1.0, indicating coverage greater than 100% of the operating cost of production at the time the 2018 Farm Bill was written.  The Senate proposal at the 10% loan rate increase and the House bill produce the same ratios for all but upland cotton.  In both of these bills, there is a decrease in the ratio of the loan rate to the operating cost per unit for all crops other than barley and upland cotton.  In fact, corn, oats, rice, sorghum, and upland cotton all have a ratio below 1, indicating loan amounts less than 100% of the operating cost of production.  Farmers who use this marketing tool should consider this relationship to better understand how much of their operating costs can expected to be covered at harvest by this program.

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References

Fischer, Bart. 2024. Battlelines Are Being Drawn: Comparing Current Farm Policy Proposals.  Available at: https://southernagtoday.org/2024/05/24/battlelines-are-being-drawn-comparing-current-farm-policy-proposals/

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Rabinowitz, Adam. “Current Farm Bill Negotiations for the Marketing Assistance Loan Program.” Southern Ag Today 4(26.1). June 24, 2024. Permalink

USDA released its latest World Agricultural Supply and Demand Estimates (WASDE) on June 12^th. This report follows the first set of estimates for the 2024/2025 crop marketing year that were released in May. This month’s report continues to use the March Prospective Plantings report as the basis for estimated acreage. As a result, there were no changes to the production or price projections for most crops, with wheat and cotton the exceptions as shown in table 1.

Table 1: WASDE Estimated and Projected Prices 5 by Crop and Marketing Year

Cotton’s 2024/2025 marketing year average price is a projected $0.70/lb., which represents a $0.04/lb. decrease from last month’s projection. This change was driven by a 0.45 milllion bale increase in the estimated cotton stocks at the start of the marketing year, bringing estimated stocks up to 2.85 million bales. The revision to beginning stocks was due to a halfmillion bale reduction in expected U.S. cotton exports during the 2023/2024 marketing year. While global demand for cotton remains strong, U.S. cotton export sales have been slower than expected amid tight supplies, and Brazil is expected to overtake the U.S. as the top cotton exporter for 2023/2024. If realized, this would mark the first time since the 1992/1993 marketing year that the U.S. would not be the world’s top cotton exporter. As a result of reduced exports, U.S. cotton stocks are projected to increase to 4.1 million bales at the end of the 2024/2025 marketing year. 

On the other hand, the projected 2024/2025 marketing year U.S. wheat price increased by $0.50 to $6.50/bu. This price increase is due to a 25 million bushel increase in projected exports this coming marketing year, in spite of a slight increase in projected U.S. wheat yields and soft harvest-time prices in the United States. The increase in U.S. exports follows a 1% decrease in projected global wheat production because of yield reductions for major wheat exporters Russia, Ukraine, and the European Union. The decreased global yield projections were driven by dry weather in Russia and Ukraine, late-season frosts in Russia, and excessive precipitation in France.

Looking ahead, we should expect to see more significant changes in next month’s WASDE report. On June 28^th, USDA is scheduled to release the Acreage report, which will likely result in adjustments to acreage planted and harvested estimates for most row crops. These updated acreage estimates will affect projected production and be taken into account in the July WASDE report.

References

Biram, Hunter, and Ryan Loy. “May WASDE Projects Higher Supplies and Lower Prices Again in 2024.” Southern Ag Today 4(20.1). May 13, 2024. Available at: http://southernagtoday.org/may-wasde-projects-higher-supplies-and-lower-prices-again-in-2024/

USDA-NASS. World Agricultural Supply and Demand Estimates. June 12, 2024. Available at:  https://www.usda.gov/oce/commodity/wasde/wasde0624.pdf

USDA-FAS. Cotton: World Markets and Trade. June 12, 2024. Available at:  https://downloads.usda.library.cornell.edu/usda-esmis/files/kp78gg36g/xk81m8188/xs55p371r/Cotton.pdf

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Sawadgo, Wendiam. “June WASDE Report Projects Increases to Wheat Prices, Decreases to Cotton Prices.” Southern Ag Today 4(25.1). June 17, 2024. Permalink

U.S. exports can be a key driver for commodity prices. U.S. production of corn, soybean, and wheat exceeds domestic use, making access to export markets crucial. Data from 2018/19 to 2022/23 shows that corn, soybean, and wheat exports are dominated by a few key countries. For corn, the United States, Brazil, Argentina, and Ukraine constitute 85% of global exports (Figure 1). For soybeans, Brazil is the largest exporter followed by the United States and Argentina; together, the three countries account for 90% of soybean exports (Figure 2) and 84% of soybean meal exports. Wheat exporting countries are more diversified, with the United States, Russia, the EU, Canada, Australia, Ukraine, and Argentina making up 84% of the market (Figure 3).

In 2022/23 Brazil overtook the United States in corn exports and is expected to remain the largest export competitor to the United States. In the 2022/23 marketing year, Brazilian soybean exports nearly doubled those of the United States, and Brazil is projected to maintain its role as the worlds largest exporter of soybeans. In 2023/24, Brazilian exports are estimated at 50 million metric tons (MMT) of corn and 102 MMT of soybeans. Brazilian export projections for 2024/25 are at 49 MMT of corn and105 MMT of soybeans. In comparison, the United States is estimated to export slightly more corn at 55 MMT and 46 MMT of soybeans in 2023/24. 2024/25 U.S. export projections are at 56 MMT of corn and 50 MMT of soybeans. Wheat export patterns have remained relatively stable, despite geopolitical conflicts affecting some regions. The largest question for 2024/25 wheat exports pertains to Russia, which is experiencing weather-driven yield and quality issues in addition to the war with Ukraine.

Export data is vital for commodity marketing. Weekly, the USDA Foreign Agricultural Service reports sales transactions entered into with a buyer outside the United States. In addition to the weekly reporting requirements, daily reports to USDA FAS are required for any export sales activity of quantities totaling 100,000 metric tons or more of one commodity sold in one day to one destination or 200,000 metric tons or more of one commodity sold to one destination during any reporting week. Positive U.S. export bookings support domestic commodity prices. If exports exceed projections or expectations, prices will typically rise, offering a potential opportunity for producer sales. 

Weather events in other major exporting countries, particularly in South America, can signal support for prices and provide opportunities for increased U.S. commodity sales, especially for corn and soybeans. Wheat can be less sensitive to weather as wheat is produced on six continents in both hemispheres, so production is spread throughout the calendar year. Wheat can be strongly influenced by geopolitical and weather events, making it harder to predict specific timing for market changes. 

Exchange rates can also affect exports. The strengthening of the USD, relative to the export competitor’s currency, can make U.S. exports relatively more expensive to an importer. A weakening USD makes U.S. exports more competitive.

The competitiveness and small number of countries in export markets, particularly Brazil and Argentina in corn and soybeans, along with the past relative stability in wheat exports underscores the importance of monitoring both export trends and external factors to optimize commodity marketing strategies.

Figure 1: World Corn Exports by Country, 2018/19-2022/23 Marketing Years Average (%)

Figure 2: Soybean Exports by Country, 2018/19-2022/23 Marketing Year Average (%)

Figure 3: World Wheat Exports by Country, 2018/19-2022/23 Marketing Year Average (%)

References

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

USDA Foreign Agricultural Service. Export Sales Reporting Program. https://fas.usda.gov/programs/export-sales-reporting-program and https://apps.fas.usda.gov/export-sales/esrd1.html.

Gardner, Grant. “Ag Export Percentages: A Focus on Corn, Soybeans, and Wheat.” Southern Ag Today 4(24.1). June 10, 2024. Permalink

Calculating trendline yields can be a useful tool for budgeting or developing a crop marketing plan. Using trendline yield estimates at the start of the production year can assist in determining potential profitability, at current market prices, and determine if additional sales or price risk management is warranted. Projected yields should be periodically revisited during the production year to make adjustments to management practices and marketing strategies to improve the likelihood of positive financial outcomes. This article examines differences in linear trendline yields for corn across Southern States.   

There is tremendous variability in average USDA NASS corn yields across the Southern States (Figure 1).  Over the past five years (2019-2023), Arkansas had the highest average corn yield at 179.8 bu/ac followed by Kentucky (177.6 bu/ac) and Mississippi (176.2 bu/ac). The lowest five-year average yields occurred in Texas (121.2 bu/ac), North Carolina (129.2 bu/ac), and South Carolina (129.8 bu/ac). 

Projected linear trendline yields in 2024 for corn, using USDA NASS data from 1980-2023, vary tremendously (Table 1). The slope coefficient, in Table 1, provides the annual average increase in yield for each state from 1980 to 2023. The constant in Table 1 is the initial yield at the start of the linear trend line. For example, on average from 1980-2023, corn yields in Mississippi increased 3.33 bu/ac per year from a starting trendline yield of 43.57 bu/ac. An easier way to think about this is that over a ten-year period, average yield in the state of Mississippi increased by 33.3 bu/ac. Increases can be a result of production practices (such as irrigation) or technology (genetic improvements). In the past ten years (2014-2023), the increase in annual yield improvement for most Southern states has slowed.  R² is a measure of the proportion of variation in the dependent variable (yield) that can be explained by the independent variable (time). Across the Southern U.S., we see tremendous variation in the R² for linear trendline yields, ranging from a high of 0.926 for Mississippi to a low of 0.285 for Texas. Low R² values indicate that the independent variable (in this case time) does not explain the variation in yield, thus other variables need to be considered when projecting yield.  

Ideally, projecting annual yield should be conducted at the farm or field level using producer data. Crop insurance records or yield monitor data can allow producers to analyze, and project, yield and production to guide management and marketing decisions.

Figure 1. Corn Yields in Southern States, 1980-2023 

References

USDA NASS Quick Stats. Corn Yields, 1980-2023. Accessed at https://quickstats.nass.usda.gov/  

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Smith, Aaron. “Corn Yields and 2024 Projected Linear Trendline Yields in Southern States.” Southern Ag Today 4(23.1). June 3, 2024. Permalink

It is critical to consider the relationship between macroeconomic forces and the balance of global sugar supply and demand when examining sugar markets. Global economic expansion, along with a world population that is growing at approximately 1% per year  (U.S. Department of Commerce, 2024), supports strong sugar demand globally, which typically also supports world prices. However, falling energy prices and/or a worldwide recession could push global sugar prices lower. 

The world raw sugar price is somewhat reflected in the Sugar No. 11 futures contract (Figure 1). The Sugar No. 11 contract price does not include the transportation costs associated with delivering sugar to destination ports. As stated in the specifications for the Intercontinental Exchange (2024) Sugar No. 11 futures contract, “the contract prices the physical delivery of raw cane sugar, free-on-board the receiver’s vessel to a port within the country of origin of the sugar.” 

Major sugar-producing countries like Brazil, India, and Thailand provide subsidies and other support for their sugarcane sector, which can have a strong influence on the Sugar No. 11 futures contract price.  This is especially true when production fluctuates due to weather conditions or when governmental policies dictate a diversion of sugar into ethanol production. 

Worldwide sugar deficits have occurred in three out of the last four years. In turn, a tightening global stocks-to-use ratio has supported world sugar prices. As world raw sugar prices have moved upward, so too have U.S. raw sugar prices, which are reflected in the Sugar No. 16 futures contract price (Figure 1). The Sugar No. 16 futures contract does include transportation costs associated with delivering sugar to the destination port and, thus, the contract incorporates physical delivery into its price.

Figure 1. Sugar No. 11 and Sugar No. 16 Futures Contract Prices, their relationship, and the Tier 2 Tariff, 2020 to 2024. Source USDA ERS, 2024.

At present, Mexico’s ability to export sugar to the U.S. is hindered by drought, and Mexican production is expected to be significantly reduced again this year. As such, Mexican sugar exports into the U.S. market are expected be at a decade-and-a-half low at only 497,000 tons, according to the May USDA (2024) World Agricultural Supply and Demand Estimates report.

Under the terms of the World Trade Organization (WTO) and several free trade agreements, sugar imports are allowed duty free under a Tariff-rate Quota (TRQ) system. In situations where raw sugar is imported outside of the TRQ, importers must pay a 15.36-cents-per-pound tariff in addition to the world raw sugar price plus transportation costs. This tariff is referred to as a tier-2 sugar import tariff and is shown as the green line in Figure 1. 

The red line in Figure 1 demonstrates the world raw sugar price plus transportation costs to the U.S. plus the tier-2 tariff. If the expected U.S. sugar supply falls and pushes domestic prices up to the point that they exceed that level, higher levels of tier-2 raw sugar will be attracted to the U.S. Thus, the red line represents the effective cap on U.S. raw sugar prices. For example, the existence of substantial demand for sugar beyond what Mexico can supply has resulted in large amounts of tier-2 imports [see Deliberto et al. (2024) for more information]. Those imports will enter the U.S. whenever the price for world sugar plus transportation costs plus the tier-2 tariff (red line, Figure 1) falls below the cost of procuring raw sugar supplies from preferential-access imports or domestic supplies (including Mexican production). Again, that relationship effectively caps the wholesale price of domestic raw sugar in the U.S. (red line, Figure 1).  

Conversely, if supply was expected to rise relative to demand in the U.S. (e.g., due to higher-than-expected domestic production or imports from Mexico) then the demand for tier-2 sugar would fall, bringing domestic prices further below the tier-2 cap. But, so long as demand for tier-2 sugar exceeds zero, the price in the U.S. for raw sugar will be driven by world prices plus transportation costs plus the tier-2 tariff of 15.36 cents per pound (red line, Figure 1). It should be noted that the figure depicts monthly prices as well as a static assumption of transportation costs of five cents per pound. There have been significant amounts of tier-2 sugar entering the U.S. over the past several years, which likely represents arbitrage opportunities to bring in tier-2 raw sugar due to pricing relationships or transportation cost adjustments that are occurring on a daily basis.

We observe that the same relationship frames the prices for wholesale refined sugar in the U.S., which is capped at the world price, or the Sugar No. 5 futures contract price for refined sugar plus the tier-2 refined tariff (16.21 cents per pound) plus transportation costs of shipping refined sugar to the U.S. With falling world refined prices coupled with the expectation of near-record high sugarbeet production, the U.S. wholesale refined sugar price has recently followed the world Sugar No. 5 price downwards. Midwest refined beet sugar spot prices have ranged between 55 to 58 cents per pound. When pricing the 2024 expected crop, refined sugar prices have held steady in the 53 to 55 cent range, which is considerably lower than prices in the prior 18 months that reached as high as 70 cents per pound. 

Overall, raw and refined sugar prices in the U.S. are currently driven by transportation costs associated with shipping bulk raw sugar and containerized refined sugar to the U.S., and factors that are affecting the global sugar market. Those factors include, among others, foreign subsidies [e.g., World Trade Organization (2024)], demand for ethanol as a transportation fuel [e.g., Bloomberg (2024)], and global growing conditions for sugarbeets and sugarcane crops [e.g., USDA FAS (2024)].

References

Bloomberg. 2024. Tereos Brazil to Keep High Sugar Output as Peers Endure Drought. Retrieved from: https://www.bloomberg.com/news/articles/2024-04-01/tereos-brazil-to-keep-high-sugar-output-as-peers-endure-drought

Deliberto, M., K.L. DeLong, and B. Fischer. “Navigating U.S. Sugar Imports From 70 Countries.” Retrieved from: https://southernagtoday.org/2024/04/18/navigating-us-sugar-imports-from-70-countries/

Intercontinental Exchange. 2024. Sugar No. 11 Futures. https://www.ice.com/products/23/Sugar-No-11-Futures  Date accessed: May 3, 2024.

USDA. 2024. May WASDE. Retrieved from: https://www.usda.gov/oce/commodity/wasde

USDA ERS. 2024. “Sugar and Sweeteners Yearbook Tables.” Retrieved from: https://www.ers.usda.gov/data-products/sugar-and-sweeteners-yearbook-tables/ Date updated: April 2, 2024. Date accessed: April 18, 2024. 

USDA FAS. 2024. Global Agricultural Information Network: Sugar Annual. Retrieved from: https://apps.fas.usda.gov/newgainapi/api/Report/DownloadReportByFileName?fileName=Sugar%20Annual_Managua_Nicaragua_NU2024-0002.pdf

U.S. Department of Commerce. 2024. “Census Bureau Projects U.S. and World Populations on New Year’s Day.” Retrieved from: https://www.commerce.gov/news/blog/2024/01/census-bureau-projects-us-and-world-populations-new-years-day#:~:text=The%20projected%20world%20population%20on,the%20U.S.%20and%20world%20populations. Date updated: January 3, 2024. Date accessed: April 18, 2024. 

World Trade Organization. 2024. India’s Measures to Provide Market Price Support to Sugarcane. Retrieved from: https://web.wtocenter.org.tw/downFiles/12294/398060/00k37djfolGb0l5OnjSaA8xFnrwmAEQAiLp0Y7SoysK00000tZTwiAmB3qaIG9YFD0000073wLiCTUqy9oiKW087r8sHXz4A==

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Deliberto, Michael, Karen L. DeLong, and Bart L. Fischer. “Analyzing World and U.S. Sugar Price Dynamics.” Southern Ag Today 4(21.1). May 20, 2024. Permalink