Southern timber prices in the first quarter of 2023 fell year-over-year for all product types. According to TimberMart-South, average prices dropped 7% to $25.87/ton for pine sawtimber, 15% to $9.39/ton for pine pulpwood, 5% to $31.95/ton for hardwood sawtimber, and 25% to $9.07/ton for hardwood pulpwood. However, the pine sawtimber prices are still above the pre-pandemic level.
The weakened timber prices are mainly caused by reduced demand for lumber. Higher mortgage rates, deteriorated housing affordability, and worries of an economic slowdown have cooled the general housing market and resulted in reduced housing starts (major driver of lumber and structural panel products). Lumber prices skyrocketed during the pandemic but have receded sharply since mid-2022 and have been stabilizing at the long-term average level.
Although we use south-wide average prices, it is hard to say we have an integrated timber market in the U.S. South. It is actually made up of multiple local timber markets and the timber prices are largely determined by local timber inventory, mill types and capacities, logging capacity, site accessibility, transportation conditions, etc. Therefore, some local timber markets may fare relatively better than others. For example, the average pine sawtimber prices in southeast Georgia, north Florida, and east Alabama are generally higher than the average prices in the West Gulf regions.
Considering the oversupply of sawtimber in the region, whether the decrease in timber prices will continue or not largely depends on factors from the demand side. Softwood lumber production capacity in the South has increased 20% in the past 5 years and reached 26.9 billion board feet (bbf) in 2022 (Forisk, 2022a). Announced greenfield construction and existing mill expansion suggest that the capacity could increase by another 5.1 bbf by 2025 (Forisk, 2022b). However, economic outlook (especially the housing market) adds uncertainties to the market.
References
Forisk. 2022a. Forisk North American forest industry capacity database.
Forisk. 2022b. Forisk Research Quarterly: Fourth Quarter 2022.
In the last several decades, the United States has seen a continuous decline in the supply of domestic farmworkers. Economic and population growth, as well as consumer preferences, have led to an increase in the demand for hand-harvested products. As a result of the strong demand for labor-intensive agricultural commodities and the limited availability of US-born farmworkers, the H-2A program has experienced rapid growth since the first visas were issued in the 90s (Gutierrez-Li, 2021). This legal avenue allows US employers to bring farmworkers for fixed periods of time on a seasonal basis.
While the H-2A program has worked as a lifeline to many US farmers who otherwise would have gone out of business, it has been criticized by some agricultural groups as costly and overly bureaucratic. Based on the program’s rules, US employers are obligated to pay for transportation from the country of origin of workers (and within the United States), compensation insurance, housing, and wages. Wages are perhaps the main source of controversy. According to the law, employers must pay their H-2A workers at least the highest of (Osti et al., 2019):
a minimum wage known as the Adverse Effect Wage Rate (AEWR)
the prevailing wage
the prevailing piece wage
the wage agreed upon a collective bargain or
the federal or state minimum wage
The AEWR condition is supposed to ensure that employing a foreign worker will not negatively affect the compensation of similarly qualified individuals working in related jobs. The wages differ by state and are generally set to a level above the minimum wage. All AEWRs were previously determined by surveys conducted by the US Department of Agriculture.
On February 28, 2023, the US Department of Labor (DOL) published a final rule that modifies how much H-2A workers need to be paid. The changes became effective on March 30, 2023. Specifically, the government agency introduced a new methodology for the calculation of the hourly wages of some H-2A workers. Under the previous methodology, which dates back to 2010, there were 50 different AEWRs (one per state, Figure 1). With the new rules, there could be multiple hourly wages paid to H-2A workers in each state. According to the new methodology, the DOL will continue to calculate the AEWRs for field and livestock occupations based on the US Department of Agriculture Farm Labor Surveys (FLS) whenever such information is reported. However, if the FLS does not report wages in a state or region, the DOL will instead use data from the Occupational Employment and Wage Statistics (OEWS) surveys from the US Bureau of Labor Statistics to set a statewide AEWR for workers of other categories.
Field and livestock workers include individuals who “plant, tend, pack, and harvest field crops, fruits, vegetables, nursery and greenhouse crops, or other crops” or “tend livestock, milk cows, or care for poultry,” including those who “operate farm machinery while engaged in these activities.” The Standard Occupational Classification codes (SOCs) and titles associated with these workers are: 45-2041 (Graders and Sorters, Agricultural Products), 45-2091 (Agricultural Equipment Operators), 45-2092 (Farmworkers and Laborers, Crop, Nursery, and Greenhouse), 45-2093 (Farmworkers, Farm, Ranch, and Aquacultural Animals), 53-7064 (Packers and Packagers, Hand), and 45-2099 (Agricultural Workers, All Other) (Department of Labor, 2023). For all other occupations, the DOL will set a statewide annual average hourly wage based on OEWS data. Additionally, if a job includes multiple tasks (thereby giving room for it to involve multiple occupations), the highest wage rate will be chosen.
It is too early to determine whether the new methodology will achieve the goal (of the government) of paying fairer wages to H-2A workers performing tasks that require more training or skills like van or truck driving. However, the new rule has already faced strong opposition from farming groups (Agriculture Workforce Coalition, 2023), which sued under the argument that it will make the H-2A program more costly and cumbersome than it already is. It remains to be seen how easy it will be for the government to classify workers’ occupations in practice and if employers will strategically classify workers to affect the wages they pay.
Figure 1. 2023 H-2A Adverse Effect Wage Rates
Source: U.S. Department of Labor.
References
American Workforce Coalition. (2023). Letter to the House and Senate.
Gutierrez-Li, A. (2021). The H-2A Visa Program: Addressing Farm Labor Scarcity in North Carolina. NC State Economist. North Carolina State University.
Osti, S., Bampasidou, M., & Fannin, J. M. (2019). Labor-Intensive Multiple Cropping Systems and the H-2A Program. Choices, 34(1), 1-6.
US Department of Labor. (2023). 2023 H-2A Adverse Effect Wage Rate (AEWR) Final Rule FAQs. Office of Foreign Labor Certification.
In recent years, the South has emerged as the top regional employer of H-2A workers. The Southern states’ demand for H-2A workers has been increasing (from 118,437 positions in 2019 to 143,415 in 2021), mirroring the same trend in its share of the country’s H-2A pool. Over the same period, the region accounted for 43 to 45 percent of the total number of H-2A positions certified by the Department of Labor.
A closer look at the region’s H-2A labor certification requests indicates that most workers work in the fruit, vegetable, and horticulture industries. The smaller business scales of these Southern industries relative to their peers in other regions can partially explain the region’s strong demand for H-2A workers.
When the farm labor shortage problem arose due to stricter immigration controls, domestic workers generally lacked the motivation and willingness to supply replacement farm labor for the evicted undocumented workers. Under such conditions, farmers’ coping strategies include, among others, input substitution through increased mechanization, optimizing family labor potentials, and shifts in production methods and crop choices. Smaller farms normally face financing constraints that render the mechanization alternative infeasible for their farming situations. Hence, when the other non-mechanization strategies have been exhausted, these farms rely on the H-2A solution.
H-2A employment discussions are inextricably linked to adverse effect wage rates (AEWR), which is the minimum wage that H-2A workers must receive. The AEWR benchmark is set to ensure that H-2A wages are not too low and would not cause a downward market pressure on U.S. wages of workers in similar occupations.
Regional AEWR trends indicate that rates in the South are the lowest among the regional averages during the three-year period. Interestingly, among the five regions (Figure 1), the South’s average annual agricultural wages per worker are consistently closest (among regions) to the national average annual wages per worker (79 to 81% of wages for ALL industries) and the average annual wages per worker for the economy’s Goods Sector (65 to 69% of combined wages for the sector’s industries that include agriculture, construction, and manufacturing). Notably, Southern states posted higher annual AEWR increments this year than the other states, so their current rates are now at par with the other regions. When these two arguments are taken together (the lowest regional gap between agricultural wages and national/goods sector wages AND the 2023 re-adjustment of AEWR levels to national standards), the South has indeed taken an aggressive stance in addressing workers’ welfare issues in the region.
Table 1. Regional H-2A Program Patronage and Adverse Effect Wage Rates, 2019 to 2021
REGION
NUMBER OF H-2A CERTIFICATIONS
REGIONAL SHARE of H-2A CERTIFICATIONS
AVERAGE ADVERSE EFFECT WAGE RATES
2019
2020
2021
2019
2020
2021
2019
2020
2021
ATLANTIC
48,887
37,843
39,693
17.68%
13.75%
12.52%
12.95
13.68
14.33
MIDWEST
19,609
21,440
24,683
7.09%
7.79%
7.78%
13.36
14.34
14.94
PLAINS
12,550
14,931
16,820
4.54%
5.42%
5.30%
13.66
14.22
14.94
SOUTH
118,437
122,247
143,415
42.84%
44.41%
45.23%
11.52
12.17
12.44
WEST
76,991
78,790
92,458
27.85%
28.62%
29.16%
13.55
14.23
14.98
ALL STATES
276,474
275,251
317,069
12.96
13.68
14.28
Source: H-2A Disclosure Datasets, Department of Labor The regional groupings of the states are as follows: ATLANTIC (North Carolina, Virginia, West Virginia, Maryland, Connecticut, Massachusetts, New York, Vermont, New Hampshire, Maine, New Jersey, Rhode Island, Delaware); MIDWEST (Minnesota, Iowa, Wisconsin, Illinois, Missouri, Indiana, Ohio, Pennsylvania, Michigan); PLAINS (Nebraska, Kansas, Texas, North Dakota, South Dakota, Oklahoma); SOUTH (Arkansas, Florida, Georgia, Louisiana, Mississippi, Alabama, Tennessee, South Carolina, Kentucky); WEST (California, Washington, Oregon, Idaho, Montana, Wyoming, Colorado, New Mexico, Arizona, Utah, Nevada, Alaska, Hawaii); PLAINS (Nebraska, Kansas, Texas, North Dakota, South Dakota, Oklahoma);
Figure 1. Ratios of Agricultural Wage Per Worker to National (All Industries) and Sectoral (Goods Industries) Wage Rates Per Worker
Years ago, at a county production meeting with growers, I was asked by a producer: “When is the best time of year to buy farm diesel?” In other words, he wanted to know if there is any seasonality to farm diesel fuel prices.
Seasonality of prices occurs when there is a time (season) of the year when prices are high or low compared to the annual average price. We typically see seasonality of prices in crops, fruits and vegetables, and some cuts of meat (steaks). An example of seasonality here in Georgia, the price of watermelons tends to be lower during the summer months when local melons are harvested and sold throughout the region. However, during winter months (or Georgia’s off-season for watermelons), prices are higher because there are fewer for sale, and grocers have to source them from other parts of the country or world.
Most often, seasonal indices use monthly data over a 5-year (60-month) period. In the last 5-years, we have had a global pandemic and the war between Russia and Ukraine, which have both affected global petroleum prices and local diesel prices in different ways. Because these events created much volatility in fuel prices, I wondered if they also impacted the seasonal behavior of diesel fuel prices.
Seasonal Indices of Farm Diesel Fuel Prices in the US Lower Atlantic Region for the 60 months prior to the Covid-19 Pandemic and the most recent 60 months.
Chart Source: Author Created with data from the US Energy Information Administration and the Georgia Department of Revenue information on Excise Taxes
The figure shows two monthly seasonal price indices for farm diesel. The first index (orange) was created from data during the five years, or 60 months, prior to the beginning of the Covid-19 pandemic, from January 2015 through December 2019. The orange index can be considered a baseline since it was created from data prior to the pandemic and the war in Ukraine. The second index (blue) is based on recent data from the past 60 months, from June 2018 through May 2023. The solid black line at 100 represents the average annual price over each 60-month time period. When the monthly average index falls below 100, we can assume that prices during that month tend to be below the annual average price (i.e., a better time of the year to buy diesel). When the monthly index rises above 100, we can assume prices during that month tend to be above the annual average price (i.e., not the ideal time of the year to buy diesel).
So how have things changed since the pandemic and the war in Ukraine? Prior to the Covid-19 pandemic, the best times of the year to buy diesel appeared to be August and December. Things have changed slightly in the most recent 60 months with the most pronounced differences occurring in January and March, likely influenced by the invasion of Ukraine in late February 2022 and the steep run-up of diesel fuel prices that followed. Based on the last 60 months of data, the seasonal index suggests a stronger pattern of two buying windows: winter (Dec-Feb) and late summer (Aug-Sep).
Individual producers should keep in mind that these indices are based on historical data and local prices may differ from regional price averages. Future events that cause market volatility may occur and cause prices to behave differently, or a lack of major events might return us to the less volatile pre-pandemic seasonal price trends. Furthermore, any potential savings from bulk seasonal purchases must be weighed against the cost of fuel storage. For producers who already have on-farm storage capabilities for diesel fuel, it may be worth considering purchases of farm diesel during the winter and late summer so they can capitalize on lower prices.
Every July at the Southern Extension Committee Meetings, Southern Ag Today likes to take the opportunity to recognize our authors for all their hard work. We look at all the articles written over the past year May 2022 – April 2023 and decide which were read, viewed, and shared the most using our analytics. We are pleased to announce our 2022-2023 winners.
