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  • Surprisingly Big Placements in the June Cattle on Feed Report

    Surprisingly Big Placements in the June Cattle on Feed Report

    The latest Cattle on Feed report was released on Friday by USDA-NASS. June 1 total cattle on feed for feedlots with capacity of 1,000 or more head was estimated at 11.55 million head which was 2.9 percent below June 1, 2022. This marked the ninth consecutive month that total cattle on feed was lower than the same month of the previous year. 

    The biggest surprise from this report was the larger than expected placements of cattle into feedlots during May which were estimated at 1.96 million head. Placements were 4.6 percent (86,000 head) above May 2022 totals which was above the pre-report average expectation of a 1.7 percent increase. This was the largest May placements total since 2020. 

    Placements were higher across all weight classes except for the 900-999 pound group which was down 2.3 percent. Placements of cattle weighing less than 600 pounds were up 4.1 percent, 600-699 pounds up 9.3 percent, 700-799 pounds up 3.2 percent, 800-899 pounds up 6.5 percent, and over 1,000 pounds up 6.7 percent. 

    Looking at regional placements, most of the overall increase was driven by Nebraska where placements were 13.9 percent higher than last May, and placements were up double digits in all weight categories. Drought almost certainly was a factor in the larger Nebraska placements. Placements in Texas were interesting because of the contrast between light and heavy weight placements. Texas placements of under 600 pound cattle were up 7.1 percent (10,000 head) while placements over 800 pounds were down 8.7 percent (10,000 head) as compared to May 2022.

    Cattle marketings were reported at 1.95 million head which is 1.8 percent above a year ago. This was slightly higher than expected pre-report but within the range of expectations. 

    Looking ahead, it will be interesting to watch where cattle on feed numbers go during the summer months. Cattle on feed numbers typically decline in the summer and reach their seasonal low point around August before beginning to expand again for the Fall. Just how low that low-point is this year, and the percentage of heifers, will be informative for discussions on cattle and beef supplies. 

    Maples, Josh. “Surprisingly Big Placements in the June Cattle on Feed Report.” Southern Ag Today 3(26.2). June 27, 2023. Permalink

  • Interest Rates and Grain Storage

    Interest Rates and Grain Storage

    For the 2023/24 marketing year, higher interest rates will negatively impact producers’ costs for holding grain in storage, especially for producers utilizing operating loans. This article expands on the recent Smith and Johnson Southern Ag Today article to examine operating loan interest costs of storing grains at different interest rates and lengths of time and how to calculate operating loan interest costs when grain is stored. The article also provides charts to depict the change in operating loan interest cost of storing corn, soybeans, and wheat. For example, an increase in interest rate from 4% to 8% will increase the storage costs of corn stored for five months by 112.5% or $0.09/bushel. 

    The Federal Reserve began increasing the Federal Funds rate in February 2022 to combat inflation. When the Federal Reserve raises the Federal Funds rate, the prime rate increases. The prime rate is used as a reference interest rate for many types of loans, including operating, term, and credit card loans. On May 4, 2023, the prime rate reached 8.25%, the highest since 2006/07. Higher interest rates impact every aspect of a farming operation, including marketing strategies, especially producers using operating loans to hold grain in storage. Typically, operating loans are variable interest rate, meaning they are not fixed but increase when the prime rate changes; however, some lenders have started offering fixed-rate operating loans to provide customers with cost certainty. Operating loans are used to pay for inputs until grain can be sold and the operating loan paid back. There is an interest cost for holding grain in storage compared to selling at harvest and paying down operating loans. Grain in storage typically allows producers to increase profit through marketing strategies which utilize market or basis carry. However, the operating loan interest costs need to be accounted for when interest rates are elevated. 

    The operating loan interest cost on a dollar-per-bushel basis can be calculated by multiplying the harvest price by the interest rate and dividing the number of months the crop is stored by 12. For example, a producer that holds corn harvested in October until March (5 months), has an operating loan interest rate of 8% and is expecting a harvest price of $5.00/bushel would have operating loan interest costs of storage of $5.00 × 0.08 × (5/12). 

    Figures 1, 2, and 3 show the impact of the number of months of storage and interest rates on corn, soybeans, and SRW wheat operating loan storage costs. Harvest prices are assumed to be $5.00/bu for corn, $12.00/bu for soybeans, and $6.00/bu for SRW wheat. The storage costs increase the longer grain is stored. Additionally, costs increase as the price of the commodity increase, i.e., interest costs are higher for soybeans than corn or SRW wheat. 

    The table at the bottom of each chart can be used to estimate increased operating loan interest costs for grain held in storage due to climbing interest rates. Following our previous example, if corn is harvested in October for March delivery (5 months) and the interest rate is 4%, operating loan interest costs of storage for $5 corn would have been $0.08/bu. When the rate increases to 8%, closer to current rates, the operating loan interest costs of storage are $0.17 per bushel. This result indicates an increased operating loan interest cost of $0.09/bu ($0.17 minus $0.08), a 112.5% increase due to a 4% increase in interest rates. 

    In conclusion, high-interest rates increase the storage costs for producers holding grain via an operating loan, affecting each operation’s bottom line and potentially negating the price benefits of storage. Storage costs are rising with interest rates and should be accounted for in your grain marketing decisions. 

    Figure 1: Impact of Interest Rates Increases on Corn Storage Costs

    Figure 2: Impact of Interest Rate Increases on Soybean Storage Costs

    Figure 3: Impact of Interest Rate Increases on SRW Wheat Storage Costs

    References

    Smith, Aaron, and William “Bill” Johnson. “The Impact of Interest Rates and Basis on Net Cash Price for Corn.” Southern Ag Today 3(23.1). June 5, 2023.

    Gardner, Grant. “Interest Rates and Grain Storage.” Southern Ag Today 3(26.1). June 26, 2023. Permalink

  • What to Know About Employing Minors in the Summer and Beyond

    What to Know About Employing Minors in the Summer and Beyond

    Lifelong lessons in work ethic are often learned as a kid bailing hay on hot summer days. It’s summer, the kids are out of school, and many are looking for summer jobs. It’s a good time to take inventory of the measures agricultural operators need to take to keep minors safe and stay in compliance with state and federal child labor laws. In addition to the federal child labor laws discussed herein, there are likely additional state laws that should be fully explored and familiarized prior to employing a minor in an agricultural operation.  

    When hiring youth to assist with farm chores, there are various factors that can affect what duties a minor may or may not legally perform. Prudent operators would certainly never intentionally assign dangerous farm tasks to minors. However, what the law considers “hazardous” may vary from even the most reasonable operators’ idea of dangerous. For instance, the law very specifically addresses whether a minor may assist with, or even ride on a tractor. Other common tasks such as feeding bulls, checking on calving cows, and spraying weeds or spreading fertilizer may or may not be permissible, depending on a number of factors.

    The duties that a minor may perform on an agricultural operation varies depending upon their age. Under the Fair Labor Standards Act (“FLSA”), children under the age of 12 must have parental consent to work on a small farm (as defined by FLSA) and are exempt from federal minimum wage provisions. Children the age of 12 or 13 may work with parental consent or where the child’s guardian is also employed. If 14 years of age, a minor may work without parental consent but only in non-hazardous agricultural jobs. Once a minor reaches the age of 16, they may perform any farm job including those deemed hazardous by the Secretary of Labor. Minors that are 16 or older may also work at any time, including during school hours, while youth under age 16 may only work outside of regular public school hours, even if home schooled, unless employed by their parents or guardian. There are also limitations on the number of hours minors may work, depending upon their age and whether school is in session in the local public school district.

    The Secretary of Labor has identified 11 categories of duties deemed “hazardous” that minors under the age of 16 may not perform. Those range from operating a tractor with over 20 PTO horsepower to entering a pen or yard with male breeding stock or with pigs or cows that have recently given birth, to handling agricultural chemicals which include the word “danger” or “poison” with skull and crossbones or “warning” on the label. A full list of these hazardous activities as well as other federal laws regarding the employment of minors in agriculture, can be found in the U.S. Department of Labor’s (“DOL”) Child Labor Bulletin 102. Exemptions to these hazardous activity prohibitions may apply to minors employed by their parents or enrolled in certain formal training or vocational programs. 

    While federal law does not require a work permit for minors employed in agriculture, some states may require one. The DOL maintains a comparison of federal and state requirements of child labor laws that is searchable by state here. However, even where not required, it may be prudent to request a state issued age certification in order to protect employers from unintentional violations of the federal age requirements. 

    There may be no better place to learn the value of hard work than a farm or ranch. When providing opportunities to minors, be prudent, ensure you’re in compliance, and keep our youth safe. Don’t forget to keep the lemonade flowing. 

    Friedel, Jen. “What to Know About Employing Minors in the Summer and Beyond.” Southern Ag Today 3(25.5). June 23, 2023. Permalink

    Photo by Stephen Andrews

  • Southern Economic Impacts of Premium-to-Liability Ratio Limits in U.S. Crop Insurance

    Southern Economic Impacts of Premium-to-Liability Ratio Limits in U.S. Crop Insurance

    The U.S. federal crop insurance program has experienced substantial growth over the past three decades. This expansion has led to an increase in the number of insured acres, greater overall liability, and higher subsidies for insurance coverage. Crop insurance aims to help farmers and ranchers effectively manage the risks associated with potential decreases in crop yields and revenue. The program is jointly managed by the USDA Risk Management Agency (USDA-RMA) and the Federal Crop Insurance Corporation. The Agency’s role is to determine the premium rate for crop insurance, considering various factors, such as the risk associated with the insured crop in a specific county, the chosen coverage level for the farm, the type of insurance product, and farm-specific practices like irrigation. The agency strives to establish actuarially fair premium rates, ensuring that the rates accurately reflect the expected indemnities per dollar of liability.

    The subsidy for crop insurance premiums has witnessed a remarkable expansion, reaching about $11.6 billion in 2022, compared to $205 million in 1989 (USDA-RMA, 2023). This noteworthy surge is concurrent with the broadening array of crop insurance alternatives made available to farmers. Nevertheless, the allocation of the subsidy among farmers exhibits significant disparities across distinct levels of crop insurance coverage (Bullock & Steinbach, 2023). In our study, we evaluate the distribution of the farmer premiums to liability ratio across diverse levels of crop insurance coverage, drawing comparisons between the number of insured enterprise units and the amount of insured liabilities. Furthermore, we investigate the potential economic ramifications of capping the premium-to-liability ratio of 4.0% for different categories of crop insurance offered within the federal crop insurance program.

    Figure 1 illustrates the distribution of the farmer premium-to-liability ratio for crop insurance coverage levels below 65%, between 65% and 75%, and above 75%. We compare the distribution based on the insured enterprise units (blue) and insured liability (red) for the Southern United States in 2022. For approximately 96.9% of the insured liability, the ratio is less than 4.0% at the <65% coverage levels. Moving to the 65% to 75% coverage levels, the ratio drops to 73.5% and falls further to 68.1% at the >75% coverage levels. Notably, there is a disparity in the number of insured units. While 90.8% of the enterprise units at the <65% coverage level have a farmer premium to liability ratio below 4%, this number falls to 75.5% at the 65% to 75% and 42.1% at the >75% coverage levels. This imbalance implies that fewer and larger enterprise units have a farmer premium-to-liability ratio below 4.0% at higher crop insurance coverage levels. This share is significantly higher and favors smaller enterprise units at lower coverage levels.

    We now investigate the potential economic implications of capping the premium-to-liability ratio at 4.0% for different categories of crop insurance offered within the federal crop insurance program. Limiting the farmer premium to liability ratio to 4.0% would require 6.1% or $89.5 million in additional subsidies. Of these supplementary payments, 81.1%  would be allocated to enterprise units with crop insurance coverage levels ranging from 65% to 75%. The distribution of the extra subsidies would primarily favor cotton, receiving approximately 73.2% of the additional payments, followed by wheat (9.9%), corn (6.0%), and soybeans (5.9%). The crop-specific subsidies would experience an increase ranging from 1.9% for soybeans to 9.8% for cotton. 

    Our findings indicate that the current allocation of farmer premiums per liability in the federal crop insurance program exhibits inequities across various levels of coverage. The suggested modifications to the program would particularly benefit farmers with a coverage level exceeding 70%, which holds significance considering the elevated vulnerability of these farmers to crop or revenue losses. Additionally, our findings emphasize the need to consider the consequences of program adjustments on different commodities and states. Furthermore, the analysis implies that the proposed change could incentivize farmers to allocate more acreage to higher coverage levels, enhancing their risk management options. All in all, this study offers insights into the distributional implications of the federal crop insurance program. Furthermore, it underscores the potential advantages of program modifications to foster equity for farmers and ranchers.

    Figure 1: Distribution of the Farmer Premium to Liability Ratio for Different Crop Insurance Coverage Levels.

    Note. Data for this analysis come from the USDA Risk Management Agency (2023). The analysis focused on the 2022 APH, RPHPE, RP, and YP insurance plans, considering different unit structures such as enterprise units, enterprise units separated by cropping practice, and enterprise units separated by irrigation practice in the Southern United States. The ratio was calculated by subtracting the subsidy from the total premium and dividing it by the liability at the enterprise unit level. We constructed the distribution using the number of insured units and the insured liability as analytical weights. All farmer premium to liability ratios above 10% were grouped into the “>10” category.

    Learn More

    Bullock, D. & Steinbach, S. (2023). “Capping the Farmer Premium-to-Liability Ratio for the Major Federal Crop Insurance Coverages: An Evaluation of the Potential Economic Implications,” AAE Staff Paper 2023-01, North Dakota State University. https://ageconsearch.umn.edu/record/333994

    U.S. Department of Agriculture, Risk Management Agency. (2023). Summary of Business (SOB) online database. Available at: http://www.rma.usda.gov/data/sob.html.

    Bullock, David W., Sunghun Lim, and Sandro Steinbach. “Southern Economic Impacts of Premium-to-Liability Ratio Limits in U.S. Crop Insurance.” Southern Ag Today 3(25.4). June 22, 2023. Permalink

  • The South as the Nation’s Primary Regional Employer of H-2A Labor

    The South as the Nation’s Primary Regional Employer of H-2A Labor

    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

     REGIONNUMBER OF H-2A CERTIFICATIONSREGIONAL SHARE of
    H-2A CERTIFICATIONS    		AVERAGE ADVERSE EFFECT WAGE RATES
    201920202021201920202021201920202021
    ATLANTIC48,88737,84339,69317.68%13.75%12.52%12.9513.6814.33
    MIDWEST19,60921,44024,6837.09%7.79%7.78%13.3614.3414.94
    PLAINS12,55014,93116,8204.54%5.42%5.30%13.6614.2214.94
    SOUTH118,437122,247143,41542.84%44.41%45.23%11.5212.1712.44
    WEST76,99178,79092,45827.85%28.62%29.16%13.5514.2314.98
    ALL STATES276,474275,251317,06912.9613.6814.28
    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

    Source:  Bureau of Labor Statistics (https://data.bls.gov/cew/apps/data_views/data_views.htm#tab=Tables)

    Escalante, Cesar L., and Shree Ram Acharya. The South as the Nation’s Primary Regional Employer of H-2A Labor. Southern Ag Today 3(25.3). June 21, 2023. Permalink