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Hot Dog!  It’s Fourth of July!

I hope you all have a great holiday, celebrating our country’s independence.  I suspect a bunch of us will spend some time out tending a grill or smoker for a bit this week.  With that in mind today’s article looks at retail and wholesale meat prices.

Retail meat prices for beef, pork, and chicken, reported monthly by the Bureau of Labor Statistics and USDA, have been moving in different directions.  Retail pork prices were below a year ago while chicken and beef prices were above a year ago.  Each market is responding to their own supply and demand issues which are causing prices to move in opposite directions.  But, all share the issues of higher production costs including those to get the products from where they are produced to your local meat case.

Choice beef prices hit a record high of $8.08 per pound in May (the latest data), surpassing the $7.90 per pound in October 2021.  The all-fresh beef price data series was just a couple of cents per pound off its record high.  Tighter beef supplies, down 4.8 percent compared to a year ago, coupled with continued consumer buying is pushing prices higher.  Fewer cows going to market and fewer fed cattle have led to higher ground beef prices.  The start of summer grilling season provides a little demand boost too.

The retail pork price was $4.73 per pound in May.  That was 3.2 percent below last year and unchanged from the month before.  Pork production for the year is 0.3 percent more than last year.  In the wholesale pork market, prices for cuts like loins, bellies, and ribs have languished this year, in part, due to a little more production but, also due to some apparent demand problems.  Wholesale pork cut prices have started to increase in the last couple of weeks and that will likely bring pressure for higher retail prices if the consumer demand is there.

Chicken (broiler) production is 1.5 percent larger than last year, so far.  The reported monthly retail price was $2.45 per pound, just slightly above last year’s $2.42 per pound.  Wholesale chicken cut prices have been well below last year’s level most of the year.  Boneless, skinless breasts were $1.29 per pound compared to $3.02 at this time last year.  Wings were $0.88 per pound versus $1.82 last year.  USDA’s weekly featuring report indicated a few more grocery stores with retail features and specials on chicken prices this week and lower prices than year ago on breasts and wings.

Regardless of your grilling choices this holiday, I hope you have a great holiday celebration!  Happy Fourth!

Anderson, David. “Hot Dog! It’s Fourth of July!” Southern Ag Today 3(27.2). July 4, 2023. Permalink

July 4, 2023

USDA Acreage Report Results: Price and Crop Insurance Impacts

Throughout the year, the United States Department of Agriculture (USDA) updates its estimates of U.S. supply and demand factors for selected crops. This article explores projection updates, via the USDA Acreage Report (AR), released on June 30, 2023, and marketing and risk management implications. The initial estimates for the 2023/24 growing season planted acreage were released in February at the USDA Agricultural Outlook Forum (AOF) (Smith and Gardner, 2023). The estimates were then updated in March via the Prospective Planting Report (PPR) (Biram and Maples, 2023). Projected acreage for five crops (corn, soybeans, wheat, rice, and cotton) and the percentage change in acreage estimates can be found in Table 1.

The initial estimate for corn acreage was 91 million acres in February, which was increased to 92 million in March, and now sits at 94 million in June. This is the third-highest number of acres planted to corn since 1944 (USDA-NASS, 2023). It is worth noting that corn harvested for grain makes up a smaller number of acres at 86.3 million acres but is still up 9% from last year (USDA-NASS, 2023). Estimated soybean acreage dropped 4.6% to 83.5 million acres in the most recent acreage report, whereas wheat acreage has been similar in all three reports. Rice acres have increased sequentially by month and are up 7.5% from the initial February projection. Cotton acres increased from 10.9 million acres to 11.3 million acres in March before finding common ground at an estimated 11.1 million planted acres in June.

Looking at the possible price impacts in the acreage report, we take a close look at corn and soybeans, which have experienced the largest acreage changes. Recent upticks in the prices of both commodities have been driven by drought throughout major crop-producing states, causing a weather induced “crop scare event.” During this crop scare, the drought impacted corn and soybean supply expectations which caused market and futures prices to increase drastically. Prices peaked on June 21^st and began to fall due to rainfall in key production states such as Indiana, Illinois, and Iowa. The large increase in corn acreage in the June acreage report will make the corn market price less susceptible to future supply shocks, causing a lower price environment. However, the opposite may hold true for soybeans which have dropped 4 million acres. As there are fewer soybean acres than previously projected, soybean prices could be more susceptible to further price increases due to detrimental weather, which causes deterioration in crop conditions and expected yield.

Corn and soybeans had complete opposite price responses to the June Acreage Report, with the corn price decreasing 33 cents to $4.95/bu and soybeans increasing 77 cents to $13.42/bu. Rough rice and cotton futures had essentially no response to the June acreage report with rough rice remaining flat at $15.25/cwt and cotton only increasing to 80.37 cents/lb from 79.04 cents/lb. A marketing tool available to producers that could be considered is buying a put option to place a floor on the futures price. A put option gives the right but not the obligation to sell a futures contract at the strike price specified in the put option contract, so long as the futures price is below the strike price at the time the option is exercised (i.e., “in the money”). Producers can use this strategy to protect against futures market price declines while allowing them to benefit if prices rally. See Biram and Smith (2022) for an explanation of using options to augment one’s risk management plan. Additionally, producers can manage price risk in their local cash market by locking in prices received at harvest at a local grain elevator or grain purchaser through forward contracting (see Maples, 2023).

Lastly, we take a look at the potential price protection a producer has if they purchased crop insurance by considering the futures price as of the afternoon of June 30, 2023, relative to the Projected Crop Insurance Price released by USDA-RMA in the winter (Table 2). Harvest month futures contracts for corn, soybeans, rice, and cotton are lower relative to their respective Projected Price with corn having a substantially lower price. Notably, if the 2023 growing season were to end today, holding 2023 harvest yield the same as APH yield, 85% Revenue Protection would already trigger an indemnity for corn with ZCZ23 being 83% of the Projected Price. The current harvest month corn futures price would also trigger an indemnity under Enhanced Coverage Option (ECO) and Supplemental Coverage Option (SCO), assuming no difference in the county expected harvest yield and established APH. This is because ECO and SCO trigger an indemnity once county-level revenue falls below 95% and 86% of the county-level revenue guarantee, respectively. We also see ECO would trigger an indemnity for rice, assuming no change in the expected harvest yield.

Table 1: Acres Planted by USDA Report and Percentage Change

Report	AOF	PPR	AR	% Change from February	% Change from March
Month	February	March	June	% Change from February	% Change from March
Corn Acres (Millions)	91	92.0	94.1	3.4%	2.3%
Soybean Acres (Millions)	87.5	87.5	83.5	-4.6%	-4.6%
Wheat Acres (Millions)	49.5	49.9	49.6	0.3%	-0.5%
Rice Acres (Millions)	2.5	2.6	2.7	7.5%	4.0%
Cotton Acres (Millions)	10.9	11.3	11.1	1.7%	-1.5%

Table 2. Current Futures Price as a Percentage of RMA Projected Crop Insurance Price

Crop	Futures Price	Projected Price	Futures Price as % of Projected Price
Corn (ZCZ23)	$4.95/bu	$5.94/bu	83%
Soybeans (ZSX23)	$13.42/bu	$13.65/bu	98%
Rough Rice (ZRX23)	$15.25/cwt	$16.90/cwt	90%
Cotton (CTZ23)	80.31 ¢/lb	85.00 ¢/lb	95%

References:

Biram, Hunter, and William E. Maples. “Key Takeaways and Reliability of the 2023 Prospective Plantings Report.” Southern Ag Today 3(14.1). April 1, 2023. Permalink

Biram, Hunter, and S. Aaron Smith. “The Option to Augment the Crop Insurance Price Floor“. Southern Ag Today 2(35.1). August 22, 2022. Permalink

Maples, Will. “Considerations for Developing a Pre-Harvest Marketing Plan.” Southern Ag Today 2(47.1). November 14, 2022. Permalink

Smith, Aaron, and Grant Gardner. “February USDA Agricultural Outlook Forum Projections Compared to USDA Final Estimates.” Southern Ag Today 3(10.1). March 6, 2023. Permalink

United States Department of Agriculture. “Cotton Outlook,” 2023. https://www.usda.gov/sites/default/files/documents/2023AOF-grains-oilseeds-outlook.pdf.

United States Department of Agriculture. “Grain and Oilseeds Outlook,” 2023. https://www.usda.gov/sites/default/files/documents/2023AOF-grains-oilseeds-outlook.pdf.

USDA-NASS. “Acreage” 2023. https://downloads.usda.library.cornell.edu/usda-esmis/files/j098zb09z/hh63v8465/zg64w269x/acrg0623.pdf

USDA-NASS. “Prospective Plantings Report” 2023. https://downloads.usda.library.cornell.edu/usda-esmis/files/x633f100h/rv044597v/gx41nz573/pspl0323.pdf

July 3, 2023

U.S. Supreme Court Issues Important Clean Water Act Ruling

On May 25, 2023, the United States Supreme Court released its highly-anticipated opinion in Sackett v. EPA, a lawsuit concerning the scope of wetlands jurisdiction under the Clean Water Act (“CWA”). This decision from the Court intends to clarify when a wetland may be considered a water of the United States or WOTUS. Only those waters identified as a WOTUS receive CWA protection.

Prior to Sackett, the Environmental Protection Agency (“EPA”) interpreted WOTUS according to the Supreme Court’s 2006 decision, Rapanos v. U.S, which also considered the scope of wetlands jurisdiction. Instead of issuing a majority opinion in Rapanos, the Court issued both a plurality opinion – an opinion that the largest number of Justices signed onto, but not enough to result in a majority – and a concurring opinion written by Justice Kennedy who agreed in the outcome of the case, but not the legal reasoning. In the plurality opinion, the justices concluded that only those wetlands that share a “continuous surface connection” with relatively permanent bodies of water should be considered WOTUS. The concurrence concluded that wetland jurisdiction should be determined based on whether the wetland possessed a “significant nexus” to a recognized WOTUS. A significant nexus exists when a wetland “significantly affect[s] the chemical, physical, and biological integrity of other covered waters[.]”

Following Rapanos, EPA engaged in several rulemaking attempts to define WOTUS, including the most recent rule finalized earlier this year that interpreted WOTUS to include wetlands that meet either test. However, many felt that the “significant nexus” test created uncertainty for regulated parties. The plaintiffs in Sackett asked the Supreme Court to formally adopt the “continuous surface connection” test, arguing that the plurality’s test was both a more accurate interpretation of the CWA and provided greater clarity for landowners. The Court agreed with the plaintiffs and decided to officially overturn the “significant nexus” test and confirm that only those wetlands that share a continuous surface water connection with relatively permanent bodies of water could fall under the definition of WOTUS and receive full CWA protection. To learn more about the Court’s decision, click here.

Rollins, Brigit. “U.S. Supreme Court Issues Important Clean Water Act Ruling.” Southern Ag Today 3(26.5). June 30, 2023. Permalink

Photo by Cam Green: https://www.pexels.com/photo/aerial-view-of-wetland-near-a-river-10144176/

June 30, 2023
U.S. Whiskey Exports Remain Strong as Ag Exports are Expected to Decline Overall

When considering U.S. agricultural exports, we often think about major bulk commodities like soybeans, corn, and cotton, as well as animal products such as beef, pork, poultry, and dairy. Rarely do we consider whiskey (which includes bourbon, whiskey, rye whiskey), despite distilled spirits being a major U.S. export, listed as an official agricultural category by both the U.S. Department of Agriculture (USDA) and the World Trade Organization (WTO), and despite the sectors use of corn, barley, and rye as primary inputs for production. In the recent Outlook for U.S. Agricultural Trade published by USDA, U.S. agricultural exports in fiscal year (FY) 2023 are projected to decrease to $181.0 billion, which is significantly lower than exports in FY 2022 ($196.4 billion), primarily driven by expected decreases in corn, wheat, beef, and poultry exports (USDA, ERS, 2023). In spite of this expected decline overall, U.S. whiskey exports should increase, as evidenced by exports as of April 2023.

Figure 1 shows U.S. whiskey exports in FY 2023 (as of April, October-April) versus FY 2022. Note that whiskey exports in FY 2023 are significantly higher both in terms of value and volume. As of this April, U.S. whiskey exports were valued at $1.1 billion, which is a 73% increase when compared to exports during the same period in FY2022 ($637 million). In terms of volume, exports during this period were 25% higher in FY 2023 (118 million proof liters) when compared to FY 2022 (94 million proof liters). Given the relatively lower increase in volume, the overall increase in due to higher prices. This could be due to inflation as well as increased sales of higher quality products. Note that the average unit value in FY 2022 (October – April) was $6.75 per liter, but this increased to $9.34 per liter in FY 2023. The overall increase is mostly driven by exports from Tennessee (up 125% increase). Tennessee accounted for over 70% of total U.S. exports this fiscal year. As far as destination markets, most of this increase was due to higher sales to the EU27, including a more than 400% increase in exports to the Netherlands. The U.S. also experienced significantly higher sales in Australia and the U.A.E. (USDA, FAS, 2023).

Figure 1. U.S. Whiskey Exports: 2022 and 2023 Year-to-Date (fiscal year – October-April)

Source: USDA, FAS (2023)

References

U.S. Department of Agriculture (USDA, ERS). 2023. Outlook for U.S. Agricultural Trade. Economic Research Service, Washington, DC. https://www.ers.usda.gov/topics/international-markets-u-s-trade/u-s-agricultural-trade/outlook-for-u-s-agricultural-trade/

U.S. Department of Agriculture (USDA, FAS). 2023. Global Agricultural Trade System (GATS). Foreign Agricultural Service, Washington, DC.

Muhammad, Andrew. “U.S. Whiskey Exports Remain Strong as Ag Exports are Expected to Decline Overall.” Southern Ag Today 3(26.4). June 29, 2023. Permalink

June 29, 2023
New Rules for the Calculation of H-2A Workers’ Wages
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):
1. a minimum wage known as the Adverse Effect Wage Rate (AEWR)
2. the prevailing wage
3. the prevailing piece wage
4. the wage agreed upon a collective bargain or
5. 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.

Gutierrez-Li, Alejandro. “New Rules for the Calculation of H-2A Workers’ Wages.” Southern Ag Today 3(26.3). June 28, 2023. Permalink
June 28, 2023