The hemp industry continues to struggle to find its balance in the agricultural economy. As the industry continues to work through hemp inventories produced in 2019, 2020, and 2021, which have continued to suppress farm gate prices, retail pricing remains sticky. For example, in Kentucky, 1,675 acres of hemp were harvested in 2021 representing a 63% decrease over 2020. Multiple states around the country are experiencing these types of declines. Hemp production destined for extraction continues to dominate the national market. Consumers of hemp products are loyal and purchase mostly online. However, there is market confusion within the industry as consumers need additional education on the differences between hemp and marijuana, according to our research.
2022
For the market to move forward in 2022 the industry needs to educate consumers on the differences between hemp and marijuana. Furthermore, uncertainties around regulations, THC content, pet and livestock feed approval, inconsistent smokable laws between states, and FDA approval continue to hinder growth in the hemp sector. Some processors continue to explore new marketing channels by focusing on cannabinoids other than CBD (i.e. CBG, CBN, etc.) or other THC attributes (i.e. delta 8,10). However, significant increases in floral hemp production are not expected until current stocks are processed (or destroyed because of storage issues) or demand shifts. Conversely, the grain and fiber industries are starting to see an increase in demand as investment in these sectors continue to increase. Hemp continues to be a small sector of agriculture that needs stability before significant increases in acreages are realized.
Satellite imagery has been widely promoted as a decision-making tool in agricultural production. Many agricultural software companies, crop consultants, and farm managers have integrated satellite imagery into their data analytics for production monitoring and management. Such data and analytics show promise for supporting field zone mapping, identifying relative variations in crop yield, and monitoring water use. There are tradeoffs between satellite platforms in terms of the scale and usefulness of the data collected depending on the application at hand. There are also cases where satellite imagery can be useful for mapping the impacts of extreme events such as flooding, drought, or derechos.
In June 2021, a 100-year flood event occurred in Southeast Arkansas. When such events happen, it is imperative that impact estimates are conducted as soon as possible to identify how and where to best support producers. The public imagery typically available for agricultural applications comes primarily from the NASA/USGS Landsat or EU Copernicus Sentinel missions. While imagery from these platforms comes at sub-monthly time-steps and relatively high spatial resolutions (30 and 20 meter pixels, respectively), it often isn’t available for several weeks after the images are taken due to processing. However, commercial imagery such as that produced by Planet Labs, offers opportunities for higher spatial resolution of 3-5 meters at near daily time-steps and becomes available in hours to days. When more than 15 inches of rain dropped over Southeast Arkansas, Planet Scope imagery was used to estimate the flood extent over cropland and illustrates the potential for more rapid cropland monitoring applications.
Figure 1 shows the color-infrared (CIR) imagery, flood extent, and heavy flooding (>1 ft) by crop type based on USDA NASS’s cropland data layer (CDL). Planet Scope records four bands of multispectral data for each pixel, including red (R), green (G), blue (B), and near-infrared (NIR). Many producers are familiar with the normalized difference vegetation index (NDVI), which is derived from NIR and R bands and corresponds to crop greenness. NIR reflects strongly when vegetation is present, and absorbs heavily when water is present. This relationship is very useful, as in this case, for mapping flooded fields. Based on the flood extent identified with thresholds for NIR, the CDL, and ground reference information provided by local county extension agents, there were 254,323 soybean, 190,150 rice, 54,817 corn, and 34,864 cotton acres estimated to have heavy flooding during this event in Arkansas. This information was generated within days of the flood event for the seven hardest hit counties. After a few weeks, impact estimates were generated for the broader area including 12 counties. Economic impacts from the event were estimated at approximately $60 million for corn, $6 million for cotton, $68 million for rice, $71 million for soybeans, and $1 million for wheat at an approximate total of $206 million.
Satellite imagery applications for agriculture are most commonly thought of for in-season monitoring and post-season assessment of maximum greenness to map field management zones. However, a lesser known but useful application of satellite imagery is for flood or natural disaster mapping. When flood events, derechos, or other natural disasters occur, estimating the extent of crop damage in a short timeframe is of utmost importance to best support recovery. We often rely on conversations and phone calls with county extension agents, producers, and crop consultants to gain an initial estimate of crop impacts. Satellite imagery can provide an additional tool for making damage estimates in those critical days and weeks following an event, especially when combined with on-the-ground conversations and validation. Planet and other satellite platforms will continue to play a role in improving and supporting agricultural production as wider access becomes available. This case represents one of many opportunities for satellite imagery to increase in its adoption and applications in crop production.
Figure 1: Estimates of Flood Extent and Acreage Impacts in Southeast Arkansas, June 2021.
Lumber prices have been on a roller coaster since the pandemic. They skyrocketed to a record high in May 2021, about quadruple the pre-pandemic five-year average prices, retreated swiftly over the summer, and started to surge again since mid-September. Lumber prices have made headlines and even been addressed by the Federal Reserve Chair. The South is often considered the wood basket of the country because of its significant role in wood supply. People would naturally think that southern timber prices increase dramatically as lumber prices soar because sawmills use timber as raw material to produce lumber. Timber prices and lumber prices are even used interchangeably by some news reporters. However, lumber and timber products are governed by different demand and supply factors.
Despite the marked rise in lumber prices, timber prices in the South have barely increased in the past two years until recently. According to TimberMart-South (TMS), the average southern sawtimber price (nominal) hovered around $23-25/ton from 2010 to 2020, compared with $37/ton in 2007. The southern timber market was among the hardest hit by the 2008-2009 economic recession. Roundwood harvest in the South dropped more than 30% compared to the peak in 2007 and timber prices declined more than 40%. Most mills curtailed their production. Some less efficient mills closed permanently. Trees continue to grow vigorously no matter what is going on in the economy. As a result, a significant volume of sawtimber has been accumulated on the stump over the past decade. Although demand for timber products has gradually improved with improvement in the housing market, the amply supply of standing timber has put constant downward pressure on timber prices in the region.
Fortunately, landowners have started to see a gradual increase in timber prices in 2021. Timber prices across the South averaged at $26.24/ton in the third quarter, a 15% increase year-over-year. In some parts of the region (e.g., South Georgia, Florida, and East Alabama), the prices could be more than $45/ton due to strong demand from local sawmills. Record high lumber prices and continued improvement in the housing market support investment in sawmills. Softwood lumber production capacity in the South has increased 2.9 billion board feet (bbf) from 2017 to 2020, an increase of 16%. Newly announced greenfield construction and existing mill expansion suggest that the capacity could increase by another 3.0 bbf by 2023 (TMS). Canadian firms account for most of the increase mainly due to the high timber costs in Western Canada. This is good news for private forest landowners in the South since the increased demand is likely to translate into higher timber prices.
Whether the recent rise in timber prices can be sustained largely depends on factors from the demand side. Positive signs include a stable growth in single-family housing starts, continued increase in home improvement and repair expenditures, sawmill capacity expansion, and recovery in log exports. Additionally, the U.S. Department of Commerce recently announced that it will double the tariffs on Canadian softwood lumber to 17.9%. This may push U.S. domestic lumber prices even higher but may also accelerate the pace of Canadian firms’ investment in southern lumber mills. Overall, standing timber prices are expected to hold their recent strength in the near term. However, supply chain disruptions and labor shortage in the logging, transportation, and sawmilling sectors add uncertainties to the market.
Many associate the phrase “breakeven” as the point where revenue and operating expenses are equal. But for ag producers, this breakeven point may leave significant cash needs unmet. Producers will need cash for interest obligations, payments on long-term debt obligations and family living and income taxes in addition to operating expenses. FLOID helps producers calculate their annual total cash requirements for the farming operation.
In the above example, the producer needs $1,160,000 of revenue to meet its whole farm cash requirements. If operating expenses are removed from FLOID, FL_ID remains, which totals $250,000 in this example. FL_ID is the earnings (EBITDA-Earnings Before Interest, Taxes, Depreciation, and Amortization) required to fulfill all cash obligations.
FLOID can also be used to calculate breakeven cash prices for each commodity in consideration. The table below provides a 2-step process for a hypothetical producer in the southeastern United States.
This information is useful to help determine the crops to grow by comparing current price expectations to actual prices being offered via futures, cash forward contracts or production contracts. Producers also use this information to evaluate changes needed in production costs or yield to achieve breakeven commodity prices for their operation.
Consider attending the 2022 Executive Marketing seminar to develop your own pricing signals using FLOID. Details can be found at www.clemson.edu/extension/agribusiness.
During the pandemic, the farm sector’s real concern has not been a decline in demand, but rather supply chain disruptions. Among these potentially disruptive factors was the mobility and availability of foreign contractual workers needed to sustain business operations. In the early days of the pandemic, the government promptly released regulations to ensure that the supply of H-2A workers would not be hampered. Indeed, H-2A labor petition approvals remained high during that time. However, border entry restrictions and strict screening procedures disrupted the flow of worker arrivals. A survey was conducted among farms with approved H-2A petitions in three southern states (Georgia, Florida, and North Carolina) consistently among the top 5 states patronizing the H-2A program in recent years. Results indicate that more than half of the expected H-2A workers were actually 3 to 5 weeks late in arrival. In order to mitigate such conditions, the popular coping strategies employed by farmers include maximizing family labor contributions (62.5 percent), reducing off-farm employment hours (52.9 percent), and adjusting production methods to less labor-intensive alternatives (47.1 percent). Reliance on domestic worker replacements was considered by 30% of the respondents, but this alternative was costly as farmers contend that labor productivity and efficiency differentials between domestic and H-2A workers led to about 52 percent decline in outputs during the interim period.
H-2A Workers’ Actual Arrival Status during 2021 Planting Season, Survey on Georgia, Florida, and North Carolina Farms
Source:
Cowart, W.L., C.L. Escalante, and V. Shonkwiler. “Agribusiness Employers’ Coping Strategies and Business Effects of Pandemic-Induced Delays in H-2A Worker Arrivals.” Outreach Bulletin, Department of Agricultural and Applied Economics, University of Georgia. August 2021. (Project is funded by the Georgia Farm Bureau)
