The USDA recently released data from the 2022 census of agriculture. In 2022, cover crops were planted on 6.2% of the total cropland acres in the South, surpassing the national average of 4.7% for the 48 contiguous states. In fact, the top five counties in the US in terms of percent of cropland in cover crops were all from the South, located in Virginia, Maryland, and Florida. However, there is substantial variation in the adoption of cover crops across counties, as shown in Figure 1. Maryland led the way with 27.3% of its total cropland acres in cover crops, followed by Virginia at 15.2%. On the other end of the spectrum, Louisiana and Arkansas had the lowest rates, at 3.2% and 3.4%, respectively.
Figure 1: 2022 Southern Cover Crop Adoption Rate by County, as Percent of 2022 Cropland
Data source: 2022 U.S. Census of Agriculture
Between 2017 and 2022, there has been a significant change in cover-crop adoption across the southern states. Texas saw the largest increase in cover-crop area in the US, adding over half a million acres, corresponding to a 1.9 percentage-point increase as a percentage of 2022 cropland. The remaining states in the South combined for a net increase of just fifty-thousand cover crop acres. This was largely due to the disadoption of the practice, as six states observed decreases in cover-crop acreage from 2017-2022. In fact, 49.8% of counties in the southern states saw disadoption over the period – as demonstrated by the blue counties in Figure 2 – disadopting over one million acres of cover crops in total. Overall, the adoption of cover crops decelerated between 2012-2017 and 2017-2022, driven by the increased number of counties that experienced disadoption.
Figure 2. Change in Cover Crop Adoption Rate by County (2017-2022)
Data source: Authors’ calculations based on Census of Agriculture (USDA, 2024)
These patterns help us understand how the cover crop adoption rate in the South has changed. The adoption of cover crops has expected benefits, including soil health, erosion control, weed and water management, and carbon sequestration. Patterns of adoption over time should reflect areas where realized benefits and any additional subsidy (state, federal, or private sector) outweigh the costs of implementation. Similarly, disadoption is likely an indication of producers experiencing cover crop expenses that exceed any realized or perceived benefits. Acres fluctuating in and out of cover crops may have implications on the credibility and stability of voluntary carbon markets and contracts tied to the practice. One thing is clear: the costs and benefits of cover crop systems are dynamic and can vary significantly by producer, commodity, and region.
References
U.S. Department of Agriculture. 2024. 2022 Census of Agriculture. Washington, DC: U.S. Department of Agriculture, National Agricultural Statistical Service.
U.S. Department of Agriculture. 2019. 2017 Census of Agriculture. Washington, DC: U.S. Department of Agriculture, National Agricultural Statistical Service.
The USDA’s Transparency in Poultry Grower Contracting and Tournaments ruling became effective on February 12, 2024. This ruling modifies the Packers and Stockyard Act by adding several additional requirements to be met by “Live Poultry Dealers,” or what most contract growers know as integrators or poultry companies. The rule requires integrators to provide two disclosure documents: The “Live Poultry Dealer Disclosure Document” and the “Tournament Specific Input Disclosure.” A fact sheet covering the rule and its requirements can be found here: https://www.ams.usda.gov/sites/default/files/media/PoultryGrowerFactSheet.pdf
The USDA also has a webinar that goes into further detail about the rule: https://www.youtube.com/watch?v=ndz_gw4dpfM In this webinar, USDA states that they expect implementation to evolve for each company as they make changes to comply, and they will work with companies to assist in compliance.
One of the requirements of interest is for integrators to guarantee an absolute minimum number of flocks per year and a minimum number of birds placed, or pounds of birds produced, per year on the contract grower’s farm. The results of this part of the ruling could be both positive and negative for growers.
On one side there is the contract broiler grower who has invested a large amount of capital to build a farm. A new broiler farm consisting of four 54’ x 500’ barns can cost $2 million or more to build and get ready for birds. The grower then must cover the utility and labor cost of growing the birds, both of which are steadily increasing. With interest rates above 7% currently, a grower would face over $400,000 in annual costs for his loan and expenses. This makes any form of income guarantee important to growers, as well as lenders. Before the new ruling, the best information available was company-provided estimates for grower income based on averages over time. The new ruling requires companies to guarantee a minimum number of birds per flock and flocks per year but not flock payments or final gross revenue. Under typical competitive pay programs, final flock payments are affected by bird growth, which is affected by on-farm management and cannot be guaranteed. Thus, the final flock payment to a specific farm could still vary significantly from company averages and is unknown until the end of the flock. This kind of income risk can make farm budgeting difficult and can drive growers to a defensive cost-saving posture as their only predictable form of income protection. Such cost-saving management decisions can negatively impact the birds’ performance and decrease the income potential for the grower and increase cost of production for the company. In such cases, a guarantee of income could be beneficial if it were sufficient to cover all or most known cash flow needs. Some companies had begun implementing modified pay programs with some income guarantees before this ruling came out.
On the company side, the placement guarantee rule leaves out the biological variability of producing broilers. There is an old saying, “don’t count your chicks before they hatch.” Poultry companies must plan months ahead and “count the chicks” before the eggs are laid. Sometimes, these expectations are not met for uncontrollable biological reasons, and there just aren’t enough chicks to go around. There is no language in the ruling that takes this into consideration.
There is also no language that addresses problems that can and do occur at the farm and company level that could interrupt timely placement and affect a farm’s number of flocks placed per year – whether that be planned, like plant maintenance or holidays, or unavoidable, like an HPAI outbreak. Sometimes, individual farms must perform maintenance or repair damage that would delay flock placement for several days or longer on that farm. Sometimes, integrators may need to respond to market downturns with placement changes. Such situations would typically only affect a percentage of a company’s broiler growers and only for a short time as well, though longer impacts have been known to occur in times of severe market struggles, like what happened with COVID-19. If the timing of any of these situations were right, they may keep an affected farm from getting the stated minimum number of flocks in one year.
These real-world situations may result in companies not contractually guaranteeing what they normally may expect growers to receive, nor what they desire to process through the plant, but instead guaranteeing significantly less to avoid running afoul of the rule. This makes obvious sense and protects the company, but creates additional problems for the grower, especially when it comes to securing financing for new facilities. There is a significant possibility that financial institutions would only be able to calculate income potential generated from the guaranteed minimums. Such a decreased income could hinder growers from obtaining loans.
Another important requirement is that companies must provide average grower revenue numbers per square foot by housing type, low to high by quintile, and across time. These could be used as a basis of income for financial determinations. It could be argued that, except for house type and quintile breakdown, this is the same as the overall average gross returns that integrators have been providing in pro forma documents before the ruling. The biggest difference is that this would give potential growers a snapshot of what pay could be, both high and low, and how it can vary rather than a single-point average. The problem is that under typical competitive pay programs now, grower income is subject to change for every flock. Therefore, a farm could and likely will fall within each of the quintiles at some point in time. Therefore, if a grower was wanting to estimate revenue based on the least risk, he would be forced to only consider the lowest quintile pay as his basis for a decision. This conservative evaluation may project an artificially negative outlook on starting a poultry farm both for growers and financial institutions.
The Mid-South region of the United States (Eastern Arkansas, Northeastern Louisiana, Northwestern Mississippi, and Southeastern Missouri) is a highly productive and extremely homogeneous agricultural region. The region produces the same crops (corn, cotton, rice, and soybeans), uses relatively the same types of agricultural management practices, and is highly dependent on groundwater for irrigation from the Mississippi River Valley alluvial aquifer (Massey et al., 2017). Producers in the Mid-South also depend heavily on access to rented cropland. Purchasing enough cropland to be economically viable would require a significantly large capital investment. In addition, the market for cropland is thin and only a small fraction of cropland changes hands annually (Bigelow et al., 2016). Renting cropland provides crop producers with the flexibility to adjust their farm size as conditions warrant to achieve the scale of operation needed to remain economically competitive. Renting cropland also helps young crop producers with limited capital get started in farming.
Just how important is rented cropland in the Mid-South? Figure 1 presents harvested cropland in the Mid-South by tenure of the operator (full owners, part owners, full tenants) for the five agriculture census years 2002 through 2022 (USDA, NASS, 2024). Full owners operate only on land they own, while full tenants operate only on land rented from others. Part owners operate both land they own and land they rent from others. Hence, harvested cropland for part owners in Figure 1 is split between owned and rented cropland for each census year. The numbers in Figure 1 demonstrate the magnitude of importance that rented cropland plays in Mid-South agriculture. Significantly more cropland in the Mid-South is rented rather than owned, and dependence on rented cropland in the region has grown over time. Rented cropland by part owners in the Mid-South trended upward across the five census years, ranging from 4.1 million acres in 2002 to 5.1 million acres in 2022. A significant number of acres in the region are operated by full tenants, ranging from 3.6 million acres in 2022 to 4.4 million acres in 2012. In contrast, cropland operated by full owners trended downward for the region from 2.2 million acres in 2002 to 0.8 million acres in 2017 and 2022, while owned cropland operated by part owners remained relatively steady in the region at around 2 million acres each census year.
Figure 2 presents the percentage of harvested cropland operated by each tenure classification across census years for the Mid-South. For comparison, the same percentages are presented for the United States in Figure 3. Rented cropland plays a stronger role in Mid-South agriculture than the United States as a whole. Adding the percentage of cropland operated by full tenants to the percentage of cropland rented by part owners reveals that the proportion of total cropland rented in the Mid-South has ranged from 65 to 76 percent of total cropland. In other words, two-thirds to three-quarters of all cropland acres in the Mid-South have been rented from others since the beginning of the 2000s. This compares with approximately one-half (46 to 50 percent) of cropland rented from others in the United States over the same period. The larger proportion of rented relative to owned cropland in the Mid-South is due largely to full tenants. Full tenant percentages for the Mid-South are 2.5 to 3 times greater than those for the United States in all five census years. The full tenant category is typically defined as being largely comprised of young producers with limited capital. However, the large full tenant percentages for the Mid-South reflect limited access to cropland for purchase within the region rather than a large prevalence of young producers.
So why is the practice of renting cropland so prevalent in Mid-South agriculture? The simple answer is that most Mid-South cropland is owned by entities or individuals who are not farmers. These non-operator landlords are landowners who are not actively involved with a farm operation but rent their land out to other farm operators (Bigelow et al., 2016). The largest portion of these non-operator landlords are individuals, followed by partnerships. A large portion of these entities are retired farmers who rely on lease payments to support them in their retirement. Trusts and corporations represent other types of non-operator landlords (Bigelow et al. 2016). Non-operator landlord entities tend to hold on to the land rather than sell it to retain their investment in the land. They often seek others to farm the land to maintain its productivity and to receive a return on investment in the land.
References and Resources
Bigelow, D. A. Borchers, and T. Hubbs (2016). U.S. Farmland Ownership, Tenure, and Transfer. United States Department of Agriculture, Economic Research Service, Economic Information Bulletin Number 161. August 2016. https://www.ers.usda.gov/webdocs/publications/74672/eib-161.pdf?v=7044.6
Massey, J.H., C.M. Stiles, J.W. Epting, R.S. Powers, D.B. Kelley, T.H. Bowling, C.L. Janes, and D.A. Pennington (2017). Long-Term Measurements of Agronomic Crop Irrigation Made in the Mississippi Delta Portion of the Lower Mississippi River Valley. Irrigation Science. 35:297-313.
In March 2022, the Federal Reserve began raising interest rates at an aggressive pace to fight rising inflation. Now, two years later and with inflation near the Federal Reserve’s target rate, the question on most of our minds is, will the Federal Reserve begin to bring interest rates down this year?
The Federal Reserve enacts monetary policy in the United States with the dual mandate of 1) keeping inflation low and stable and 2) maintaining full employment in the economy. To achieve these goals, the Federal Reserve’s main policy tool is to adjust the federal funds rate or the rate at which banks in the Federal Reserve System lend to one another overnight. This rate is set by the Federal Open Market Committee (FOMC), which meets eight times each year (roughly every six weeks) to determine if any change in the federal funds rate is warranted.
Figure 1 below shows how the federal funds rate has changed in comparison to the inflation rate, measured using the Personal Consumption Expenditure index (PCE), and the unemployment rate. From March 2022 until August 2023, the FOMC increased the federal funds rate every time they met. Since then, they have held interest rates steady between 5.25% and 5.50%.
Figure 2 below shows how increases in the federal funds rate have impacted the cost of borrowing. Since March 2022, the bank prime rate has increased from 3.25% to 8.50%. Rates for variable rate agricultural loans, as reported by the Federal Reserve Bank of Dallas Agricultural Survey, have followed a similar trend. Interest rates reported in the survey for the first quarter of 2024 were roughly 9.50% for operating loans, 9.27% for intermediate loans, and 8.88% for long-term farm real estate loans.
Whether or not the FOMC begins to ease interest rates this year will depend largely on whether the inflation rate continues to decline. As shown in Figure 1, the rate of overall inflation in February 2024 was 2.5%. The core inflation rate, which excludes food and energy expenditures, was slightly higher at 2.8%. The Federal Reserve’s target rate for inflation is 2.0%.
It seems clear from the figure that the FOMC’s aggressive rate increases have been successful in taming inflation; however, inflation remains above the Federal Reserve’s target rate. Perhaps more concerning, at least from the perspective of the FOMC, is that the rate at which inflation is decreasing has slowed over the past year. In fact, the inflation rate essentially remained unchanged from December 2023 through February 2024.
It is unlikely that the FOMC will bring interest rates down if inflation remains above the Federal Reserve’s target rate. However, FOMC members have given no indication that they intend to raise interest rates above their current levels to achieve that goal either. In the short term, the safe bet seems to be to expect interest rates to hold steady at or near where they are now. Two caveats to this prediction are unexpected changes in either the inflation rate or the level of employment in the U.S. economy. Should the inflation rate begin to move upward, the FOMC may decide they have no choice but to resume interest rate increases. Alternatively, signs that indicate the U.S. economy is entering a recession would pressure the FOMC to begin lowering interest rates despite greater-than-desired inflation.
According to the Federal Reserve’s description of its monetary policy goals, the Fed does not specify a numerical goal for employment like it does for inflation; therefore, it is difficult to predict what specific economic conditions would encourage the FOMC to ease interest rates prematurely. One employment indicator that the FOMC will pay attention to as it makes interest rate decisions is the unemployment rate. An unexpected increase in the unemployment rate could indicate that the economy is entering a recession.
The most recent estimate from the Bureau of Labor Statistics places the unemployment rate at 3.8%, which is below the 30-year average and in line with the long-term projections made by FOMC members. Furthermore, the unemployment rate has held steady at or near pre-pandemic levels even as interest rates have increased (Figure 1). Based on this data, it appears that high interest rates have had little impact on employment, at least up to this point. Should this continue, the chance that the FOMC will vote to decrease interest rates before they reach their inflation target is small.
Figure 1. Changes in the Inflation rate, the Federal Funds Rate, and the Unemployment Rate, January 2018-February 2024
Figure 2. Changes in the Federal Funds Rate, Bank Prime Rate, and Selected Agricultural Loan Rates, Q1 2018-Q1 2024
References
U.S. Bureau of Labor Statistics, Unemployment Rate [UNRATE], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/UNRATE, April 5, 2024.
Board of Governors of the Federal Reserve System (US), Bank Prime Loan Rate Changes: Historical Dates of Changes and Rates [PRIME], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/PRIME, March 27, 2024.
Board of Governors of the Federal Reserve System (US), Federal Funds Effective Rate [FEDFUNDS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/FEDFUNDS, April 1, 2024.
Board of Governors of the Federal Reserve System (US), Median Personal Consumption Expenditures Inflation, retrieved from the Federal Reserve Bank of Cleveland; https://www.clevelandfed.org/indicators-and-data/median-pce-inflation.
Board of Governors of the Federal Reserve System (US), Agricultural Survey, retrieved from the Federal Reserve Bank of Dallas; https://www.dallasfed.org/research/surveys/agsurvey/2024/ag2401#tab-report.
Board of Governors of the Federal Reserve System (US), Monetary Policy Principles and Practice, Monetary Policy: What Are Its Goals? How Does It Work. Retrieved from: https://www.federalreserve.gov/monetarypolicy/monetary-policy-what-are-its-goals-how-does-it-work.htm
Board of Governors of the Federal Reserve System (US), March 20, 2024: FOMC Projections Materials, Accessible Version. Retrieved from: https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20240320.htm
American agriculture has been experiencing labor shortages for many years. Domestic workers left the sector for higher-paying opportunities, and farmers constantly struggle to find people for multiple tasks. While H-2A visas and importing food products from other countries (especially Mexico) are viable alternatives in the short-term, automation is seen as a long run solution to persistent farm labor shortages (Gutierrez-Li, 2021). Machines can be developed to mimic harvesting tasks currently performed by human beings. In addition, robots can tolerate wider weather conditions (like heat waves, smoke from fires, droughts, or excess rain) and operate for longer hours. Drones and other technologies can harvest fruits and vegetables, apply pesticides, water crops, and transport and pack commodities. If mechanization offers so many benefits, why have farmers not automated more production processes? The answer is simple: costs. Designing, creating, and testing machines involves high R&D investments, meaning the price tag for automation is often cost prohibitive for small and medium-sized farmers.
One major limitation of the current H-2A program is that its use is restricted to seasonal agriculture, putting year-round sectors, like dairy, at a disadvantage. For this reason, dairy farmers have had more incentives to invest in automation, given their inability to access foreign legal labor. To better understand the unique needs and challenges of dairy farmers related to labor, we surveyed dairy producers in Wisconsin and Minnesota, two important milk-producing states. We were interested in learning about the use of automatic milking systems (AMS). AMS use robotic arms to attach teat cups using sensors, yielding a “hands-free” milking process. These technologies are more prevalent in other regions (particularly Europe), where dairy farmers have more readily adopted robots capable of conducting some of the tasks previously performed by humans.
Our survey targeted 2,000 dairy farmers and received 650 responses in January 2023. Of those, only 39 farmers were already using AMS. Most adopters of this technology considered their investment in AMS worthwhile. Some of the benefits mentioned include increasing productivity, reducing the workload of existing workers, allowing owners and workers to plan more efficiently, cows being more comfortable, and farmers not being under the constant stress of finding and managing crews. However, not all comments were positive. Some producers mentioned constant issues with robots breaking down and high maintenance costs. The size of the operation (number of cows) and availability of skilled labor (or the lack thereof) also determined the net value of AMS. A selected sample of comments (each from a different respondent) is included at the end.
In summary, tight agricultural labor markets, political divisions complicating the passing of immigration reforms, and a growing population to feed emphasize the importance that mechanization will play in U.S. agriculture. However, the transition to automated food production processes is complex. Technologies take time to be developed, do not entirely eliminate the need for labor, and are costly to maintain and repair. Farmers’ decisions to mechanize their practices will depend on the feasibility of realizing increases in productivity that will outweigh the costs of automating. Other considerations such as commodity prices, availability of specialized labor, animal welfare, environmental concerns, and farm succession to the next generation also play a role.
Farmers’ Perceptions about Using Automatic Milking Systems
Positive Experiences
“Yes, it was well worthwhile. it made improvements in all parts of our operation. It’s only been a year and a half, but we are seeing better production, breeding, health, and much easier handling of the cows. We remodeled our existing free stall barn for dry cows and heifers so now we have all animals in 2 barns. So much more efficient and can do all the work in less time. Don’t regret doing it at all!”
“Yes, because the cows are more relaxed and comfortable. The workers are also more relaxed and get more free time.”
“The stars all lined up for this project. -Stall pipes needed to be replaced anyways, so it was a good time to redo the barn. – Milking is hard on a lot of bodies especially during cropping. – Finding people to help milk wasn’t getting easier. – This project was money well spent.”
“Yes, I do. It often is a different type of flexibility than a traditional parlor, but it also ties you down more. Tough to leave further than 30 minutes away because it is difficult to find qualified people to be “on call”. In the last 11 years we have gone from 4 to 8 robots.”
“For our farm it was either sell the cows or put in an AMS system. My husband’s knees and shoulders are shot, and he’s not old enough to retire, with the AMS he is able to do the other chores (mixing feed, cleaning barn, and feeding calves). It was a big investment, but it is serving us well and it allows me to continue to work full time off the farm. The cows do really well with it, the information you get on each cow is amazing. It also has improved our heat detection and insemination rate.”
“Yes. Before AMS, we were milking 180 cows in a D8 parallel. All labor included was 18-man hours/day. That’s everything. Breeding, feeding, bedding, milking calves, heifers, everything! After Ams, it’s 12-man hours for same work plus 80 more cows on milk and 10x more milk.”
Negative Experiences
“Had robots from 2001 to 2007. Anything and everything went wrong. Robots called house almost every night for problems. Spent hours trying to fix robots. In summer 2006 a new update was put into computer causing virus to get into the system which made cows 2 and 3 titers. Had 30 rows come down with Mastitis in 2 weeks’ time before we figured out where the problem was coming from. The decision was made to pull the robots out and put a herringbone parlor in place of the robots. now we milk 2x per day and can walk away when milking is done and can sleep thru the night without a robot calling us to come to the barn for another problem.”
“We’ve had robots for 9 years. Certainly, we cannot milk all cows ourselves (just me and my husband) But the monthly bill is extreme. We can fix some things ourselves, but they have to come a lot always something wrong. We find them very frustrating. Would I recommend them? After 9 years I’m still not sure.”
References
Gutierrez-Li, A. (2021). The H-2A visa program: addressing farm labor scarcity in North Carolina. NC State Economist. North Carolina State University.
