Category: Farm Management

The H-2A Program allows direct farm employers to hire H-2A workers through Farm Labor Contractors (FLCs) (CFR § 655.132).  Current regulations allow an FLC to file a single foreign labor certification application where they declare the need for a batch of workers intended to service multiple farms at several farm work locations.  These work assignments can even extend beyond the FLC’s home state boundaries (Castillo, Martin, and Rutledge, 2022).  

In 2021 and 2022, FLCs have hired more than 40 percent of all DOL-certified H-2A workers, with California, Florida, and Georgia as the most popular work destinations in recent years (Table 1).  More than 60 percent of FLCs’ H-2A hires are accounted for by companies based in Florida and California. In recent years, Georgia, Texas, and North Carolina are the other Southern States included in the Top 6 home states of FLCs.

In 2023, most H-2A workers hired by California FLCs were detailed within the state (88 percent), with about 10 percent outsourced to Arizona farms, while the rest worked in four other states (Colorado, Nevada, Texas, and South Carolina).  In contrast, H-2A hires of Florida-based FLCs are more dispersed, with 52 percent ending up employed within the state, while the rest are deployed in 28 states with North Carolina and Michigan (11 percent each), Indiana (6 percent), Georgia (4 percent), and Illinois (3 percent) as the five most popular work destinations. 

The value of FLCs in the H-2A hiring scheme lies in their greater familiarity with the farm labor supply conditions in countries where most potential H-2A workers come from.  FLCs maintain extensive social and business networks in those countries that allow them to solicit workers even from remote local communities.  In contrast, individual U.S. farm businesses’ worker solicitation outreach networks are usually not as broad and far-reaching.  Thus, the FLCs capitalize on their good connections and extensive outreach, making them viable suppliers of prospective H-2A workers for U.S. farms.  

However, a cursory review of wage-related violations in agriculture indicates high incidences of infractions associated with the FLC-H-2A hiring scheme. Based on more recent wage violations data compiled by the Department of Labor’s Wage and Hour Division (DOL-WHD), FLCs’ H-2A hires account for 27 percent (2022) to 31 percent (2023) of all H-2A-related cases.  Back wages owed to FLC’s H-2A workers account for 15 percent (2022) to 26 percent (2021) of all H-2A back wages.  These proportions may be less than the FLCs’ H-2A supply proportions of about 33 to 44 percent during these years, but the nature of these violations provides an interesting discussion of the crucial impact of FLCs on the viability of the H-2A program.  In a later issue, a follow-up article will discuss the nature of these FLC-associated labor violations and back wages, as well as shed light on how federal budgetary decisions could influence the varying efficiency, scope, and depth of the DOL-WHD’s policy compliance auditing process over the years.

Table 1. H-2A Workers Hired by Farm Labor Contracts, Geographical Dispersion, and Wage

References:

Castillo, M., P. Martin, and Z. Rutledge. (2022).  The H-2A Temporary Agricultural Worker Program in 2020.  Economic Information Bulletin #238, Economic Research Service, U.S. Department of Agriculture.  Washington, DC.

Code of Federal Regulations (CFR). Labor Certification Process for Temporary Agricultural Employment in the United States, Subpart B. National Archives, Government Policy and OFR Procedures, Washington, DC.

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Escalante, Cesar L. “Hiring H-2A Workers through Farm Labor Contracts.” Southern Ag Today 4(30.3). July 24, 2024. Permalink

Crop Insurance decisions are closely tied to farmer’s risk preferences. Each producer faces different circumstances and has a different risk tolerance. Some producers prioritize revenue stability and opt for higher coverage levels and choose optional units for more targeted coverage. Conversely, others may be able to tolerate more risk and choose lower coverage levels or utilize basic or enterprise units in exchange for lower premiums. Crop insurance decisions can be overwhelming as the full suite of protection also involves choices on the FSA programs (ARC or PLC), crop insurance product, unit structure, and coverage level. Each of these choices need to made taking into account producer risk preference. 

In discussing the effects of risk on crop insurance decisions, we use an online application, “Crop Insurance Decision Maker, ” which can be found here. A set of example results for Christian County, Kentucky, can be seen in Figure 1. In our case example, we look at insurance on non-irrigated corn acreage using enterprise units. The case example illustrates that as the coverage level increases, average net revenues increase. Among the three main crop insurance products (YP, RP, RP-HPE), Revenue Protection (RP) consistently yields the highest net revenues, followed by Yield Protection (YP) and then Revenue Protection with a Harvest Price Exclusion (RP-HPE). This suggests that on the example farm, higher levels of coverage generally lead to better average net revenues ($/acre), with RP providing the most significant benefit. 

The fact that average net revenue increases with coverage level may seem counterintuitive but is evidence of the effect of a reduction in the actuarially fair insurance premium. To discuss this point, we use Figure 2, which compares the net revenue distributions for Christian County, Kentucky, utilizing no crop insurance and a 75% RP plan utilizing Enterprise Units. Figure 2 indicates that with no crop insurance, a producer faces a 20% chance of net revenues less than zero which is the downside risk a producer wants to minimize or eliminate. Conversely, the 75% coverage level in this example eliminates the downside risk of negative net revenues while slightly reducing the likelihood of larger returns. Due to the protection offered, net income increases on average. That is, the downside risk reduction outweighs the reduction in the upside potential driven by the producer paid premium.

Our comparisons in Figure 1 and Figure 2 should be considered for each insurance decision. Net revenue probabilities change each time a crop insurance product, unit structure, or FSA program is changed. Each producer needs to determine their risk preference as under-insuring could leave the producer vulnerable to losses. Still, over-insuring could limit net income in years when indemnities are not triggered. The “Crop Insurance Decision Maker” aims to make these choices easier. It is important to note that the effects of each crop insurance decision change by county depending upon premiums, and the results for Christian County, Kentucky, may not hold for your operation.

Figure 1: Crop Insurance Decision Maker Web Application Output

Figure 2: Net Revenue Distribution for No Insurance VS a 75% Revenue Protection Plan using Enterprise Units

References

Biram, Hunter D., et al. “Mitigating price and yield risk using revenue protection and agriculture risk coverage.” Journal of Agricultural and Applied Economics 54.2 (2022): 319-333.

Maples, William E., et al. “Impact of government programs on producer demand for hedging.” Applied Economic Perspectives and Policy 44.3 (2022): 1126-1138.

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Serrano, Enil, Grant Gardner, and Hunter Biram. “Using Risk Preference to Inform Crop Insurance Decision-Making.” Southern Ag Today 4(29.3). July 17, 2024. Permalink

The United States Department of Agriculture National Agricultural Statistics Service (USDA-NASS) releases monthly indexes for input prices paid and output prices received. These indexes include collecting survey responses for output and input prices for agricultural production, crops, livestock, and food commodities. The spread between these two indices often helps understand where farmers are getting price squeezed and how their profit margins are impacted. Current farm income instability from inflationary pressures, high interest rates, and several supply chain disruptions (e.g., the Russian-Ukraine war and Panama/Suez Canal) are forcing farmers to pay higher input costs while receiving lower commodity prices, emphasizing the need to consider these indexes into the future. 

These price indices measure the change in prices paid (and received) relative to a point in time—2011 in this case (Figure 1). The base year is often chosen during a time without prevailing inflation or major supply chain disruptions (Schulz, 2022). 2011 was a good year for agricultural production and profitability. As such, using 2011 as a base year is a way to highlight how better or worse-off agricultural producers are compared to a good year. 

Figure 1. Crop Output Prices Received vs. Input Prices Paid

Figure 1 compares the annual index value from 2000-2024 for the two indices with 2011 as the base year. The price received index in 2012 was 102.8%, meaning that the crop price received, on average, in 2012 was 2.8% higher than in 2011 (base year = 100%). The red circle in Figure 1 shows the beginning of a divergence between input and output prices. In 2013, when writing the 2014 farm bill, the index for input prices paid was almost exactly the index for output prices received. This is where most of our current farmer safety net support stems from, and since then, we’ve seen a major divergence in the two indices, with the widest gaps between 2014 – 2020 (USDA-NASS). From 2021 – 2022, we saw both indices increase, but the gap remained, and the divergence has grown wider in 2023 and 2024 due to declining commodity prices. 

Another way to view the indices is to calculate how they change year to year. Figure 2 plots the same indices as Figure 1 but shows the yearly change between the index values. Using this percentage change helps producers understand 1) the volatility of crop output prices and 2) the magnitude of change as compared to the previous year. A key takeaway is that input prices are less volatile (in terms of yearly % change) than output prices. Secondly, the percentage change in crop output prices between 2023 and 2024 (-13.8%) is much larger than the percentage decrease in input prices (-1.38%) during that period.

Without any relief in the form of improved crop prices received, figure 1 suggests farmers will continue to suffer from cost/price squeezes and eroding profit margins. Further, figure 2 shows the magnitude of that spread between the indices in Figure 1; if input and output prices continue this trajectory, an improved farm safety net will be warranted. This will be at the forefront of every producer’s mind, with ongoing Farm Bill debates in 2024.  

Figure 2. Year-over-Year % Change in Input and Output Crop Prices

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References

Schulz, L. (2022). Disentangling Input and Output Price Relationships. Retrieved from: https://www.extension.iastate.edu/agdm/articles/schulz/SchSep22b.html

The Observatory of Economic Complexity (OEC). (2024). Fertilizers in Russia. Retrieved from: https://oec.world/en/profile/bilateral-product/fertilizers/reporter/rus

USDA-Economic Research Service (2024). Farm Sector Income & Finances: Highlights from the Farm Income Forecast. Retrieved from: https://www.ers.usda.gov/topics/farm-economy/farm-sector-income-finances/highlights-from-the-farm-income-forecast/

USDA- Economic, Statistics, and Market Information System. (2024). Agricultural Prices. Retrieved from: https://usda.library.cornell.edu/concern/publications/c821gj76b?locale=en

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Loy, Ryan, and Hunter Biram. “The Disparity Between Crop Prices Received and Input Prices Paid.” Southern Ag Today 4(28.3). July 10, 2024. Permalink

The University of Tennessee Institute of Agriculture hosted the 2024 Beef Improvement Federation Conference two weeks ago. One session that spurred on great conversations was estate transition planning and what that entails. Table 1 displays the Southern Ag Today states and the age break downs of total producers. Kentucky has the highest percentage of producers that are under the age of 35 (10%). For the age range of 35 years to 64 years, all states have over 50% of their producers in this category. But, six states (TX, VA, MS, GA, SC, and FL) have 40% of their producers in the 65 years of age and older category, with Mississippi having the highest percentage at 42%. Farm management is often thought about only from a financial performance (income statement, balance sheet, cash flow statement) standpoint, but sound farm management also includes planning for the future, including estate and management transitions. 

A large number of producers in the Southern region are potentially nearing retirement or are over the age of 65 years. This would suggest that estate transition planning should start becoming a priority. If the goal of the farm is to stay a farm, then at some point in the future, the farm will change hands. Transition planning can become a huge task if no plan has ever been thought about or developed. Often, producers indicate that they don’t know where to start. That is understandable. Thus, a good starting point could be, “What is adequate retirement income?” Building upon this question could solve questions like: “What are my lifestyle costs? Will costs change in retirement (life care)? How much income will come from social security, pensions, savings, investments, and the farm?” Each farm is different and has diverse challenges like trusts, multiple families/individuals in the operation, debt amounts, urban encroachment, and many more. 

However, starting the conversation is the most important step for everyone involved in the process. The key to this falls on the shoulders of the parent(s). Not only is it awkward for the child, or children, to start this conversation, but if there are multiple children and one takes the lead, it can have unintended consequences. But just initiating the conversation is the start. Throughout the process, there are many tools that can be utilized: a will, power of attorney, advanced healthcare plan, healthcare agent, trusts, insurance, letter of last instruction, and easements. While the previous sentence has a lot of moving parts, having a team of professionals could aid in the process and make it easier. The team could include an attorney, accountant, financial planner, lender, extension educator, business consultant, and communication specialist.

The topic of estate transition is diverse, and it looks different for every operation, but starting the process is never the wrong step. This article only scratches the surface, but below are resources available to you to start. 

University of Tennessee: Farmland Legacy- https://farmlandlegacy.tennessee.edu

University of Minnesota- https://agtransitions.umn.edu

Iowa State University- https://www.extension.iastate.edu/bfc

Table 1. Age Group Break Down of Total Producers for Southern Ag Today States

		Percent of Producers in Age Group
State	Total Producers	<35	35-64	65 and Older
TX	402,876	6%	52%	41%
OK	124,743	9%	53%	37%
AR	67,425	9%	54%	36%
LA	42,551	8%	54%	38%
KY	119,132	10%	55%	35%
VA	67,798	8%	52%	41%
TN	107,817	7%	53%	39%
NC	72,479	9%	54%	38%
MS	52,025	7%	51%	42%
AL	62,777	8%	53%	39%
GA	67,082	7%	53%	40%
SC	38,097	8%	51%	41%
FL	79,253	7%	53%	40%

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Martinez, Charley, and Kevin Ferguson. “Estate Transition Planning.” Southern Ag Today 4(27.3). July 3, 2024. Permalink

Agricultural lenders listed liquidity and working capital as their top concern for producers this crop year, according to a survey conducted by the American Bankers Association and Farmer Mac last August. This is likely an indicator that lenders are seeing the outlook for lower commodity prices while at the same time retaining elevated input costs, including interest rates on operating notes. Because of the nature of agriculture, where there are months when cash outflows exceed inflows during the growing season, liquidity and working capital should be a priority every year, regardless of market outlook.

Liquidity is a producer’s ability to meet their cash financial obligations as they become due. Working capital is a measure of liquidity that measures how much current assets exceed current liabilities. 

Current assets and current liabilities are found on the balance sheet. Current assets include cash and other assets that can be converted to cash relatively quickly, while current liabilities include any debts that are due within a year or less. Some examples of current assets include cash, inventories of crops, market livestock, livestock products and supplies, accounts receivables, prepaid expenses, marketable stocks and bonds, and the cash value of life insurance. All of these can be quickly converted to cash to pay any debts that come due. Current liabilities are debts or obligations that must be paid within a year’s time or less, including accounts payable to merchants and suppliers, current notes payable and the current payments required on long-term notes payable to lending institutions.

Liquidity, by definition, is related to cash flow. In agriculture, a pro forma cash flow statement is a great tool to estimate cash flows and working capital balances for the upcoming crop year, providing an idea of the approximate timing and size of inflows and outflows. Of course, it is difficult to truly predict the future. As a result, producers need to have an appropriate amount of working capital on hand to provide flexibility in meeting uncertain cash flows. 

An example of this occurred during the planting season this year. The weather was unusually wet in some areas this past month, leading to saturated soils that caused seedling damage. Some producers had to make the decision to replant some of their fields. Those who had the working capital available were able to afford this unexpected cash outflow. Liquid reserves, by means of working capital, are necessary for the sustainable operation of the farm business every year.

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Sources/Resources:

Fall 2023 Agricultural Lender Survey Results. (Nov 6, 2023). The American Bankers Association and Farmer Mac survey conducted August 2023. https://www.aba.com/-/media/documents/reference-and-guides/2023-ag-lending-survey-report.pdf Obtained online Jun 10, 2024.

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Smith, Amanda R. “Liquidity and Working Capital a Priority.” Southern Ag Today 4(26.3). June 26, 2024. Permalink