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  • Uptick in Livestock Risk Protection for Feeder Cattle

    Uptick in Livestock Risk Protection for Feeder Cattle

    Livestock Risk Protection (LRP) is an insurance policy that cattle producers can purchase to insure a minimum price level when they market their cattle. LRP policies are available daily and can be customized by the number of head (between one and 25,000 head per crop year), the insurance periods (13, 17, 21, 26, 30, 34, 39, 43, 47 or 52 weeks), and coverage levels (70-100%) of an expected price at the end of the insurance period. Additionally, a policy can be adjusted for sex, breed, and weight. Policyholders are paid an indemnity payment at the end of an insurance period if the actual price is lower than the insured coverage price. LRP has been available to producers since 2003, but the purchase of LRP policies by feeder and fed cattle producers has been low. In 2019 and 2020, the premium subsidy rate for LRP was increased. The adjustment reduced the insurance premium cost to producers. The premium subsidy increased to 20% from 13% of the total premium cost in 2019. Then, in 2020, a tiered subsidy rate was set. Subsidy rates became 35% for coverage between 95–100%, 40% for coverage between 90–94.99%, 45% for coverage between 85–89.99%, 50% for coverage between 80–84.99%, and 55% for coverage between 70–79.99%. 

    We recently published research analyzing the impact of the premium subsidy rate increase on feeder and fed cattle LRP costs and, as expected, found these changes reduced the cost of LRP to producers (Boyer and Griffith 2023a, 2023b), but we were still not sure how producers responded to these lower premiums until recently. The figure below shows the number of policies sold and head of cattle insured by year in the US under LRP. Starting in 2021, there has been an increased interest in LRP feeder cattle policies, with purchases and the number of head insured nearly tripling. While the increase in LRP sales is higher than before, purchases of LRP relative to the cattle eligible for LRP coverage is still low. It should also be noted that other factors than the subsidy rate could be driving the increased use of LRP (i.e. risk experienced due to COVID-19, recent feeder calf price increases). 

    References

    Boyer, C.N., and A.P. Griffith. 2023a. “Subsidy Rate Changes on Livestock Risk Protection for Feeder Cattle” Journal of Agricultural and Resource Economics 48(1):31-45. (Link)

    Boyer, C.N., and A.P. Griffith. 2023b. “Increasing Livestock Risk Protection Subsidies Impact on Producer Premiums” Agricultural Finance Review 83(2):201-210. (Link)

    Boyer, Chris, Charley Martinez, Enchun Park, Andrew Griffith, and Karen L. DeLong. “Uptick in Livestock Risk Protection for Feeder Cattle.” Southern Ag Today 3(24.2). June 13, 2023. Permalink

  • Our Most Read Articles for 2022-2023

    Our Most Read Articles for 2022-2023

    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.

    Overall Winner – Yanshu Li, “Do I need to pay the Net Investment Income Tax on my timber income?”

    Crop Marketing Monday Winner – Hunter Biram & Will Maples, “Key Takeaways and Reliability of the 2023 Prospective Planting Report”

    Livestock Marketing Tuesday – David Anderson, “Another Week, Another Record”

    Farm Management Wednesday – Max Runge, “ Wheat Straw Nutrient Removal”

    Policy/Trade Thursday– Bart Fischer and Joe Outlaw, “An Early Look at the Farm Safety Net for Cotton in 2023”

    AgLaw/Specialty Topics Friday (Cooperatives) – John Park,   “Should We Form a Cooperative?”

  • Difficulty in Forecasting 2023 U.S. Cotton Production

    Difficulty in Forecasting 2023 U.S. Cotton Production

    It is frequently challenging to forecast crop production because of varying local weather and crop conditions.  In the case of upland cotton, the situation is further complicated by plant biology. The major row crop substitutes to U.S. cotton include corn, sorghum, wheat, soybeans, and peanuts. The first three of these are annual grasses, while the latter are annual legumes. The reproductive strategy of these annuals is to produce as much seed (yield) as allowed by weather and soil conditions. As a result, aggregate yields of annual crops are often thought to be well correlated with weekly crop condition rates. 

    In contrast, upland cotton is relatively more complicated in its growth habits and resulting predictability.  The reason is that cotton is a perennial in its native tropical environment, akin to a crepe myrtle bush.  When grown as an annual crop in temperate regions, cotton plants can still shift back and forth between vegetative and reproductive growth.  This mixed and indeterminate growth habit is illustrated by a poor visual inspection of the weekly cotton crop condition and the resulting Texas average cotton yield (Figure 1).  The Texas aggregate situation is even further complicated by the range of planting dates, from March-April in southern Texas to May-June in northwestern Texas.  Such phenomena in Texas can have a major influence on U.S. production estimates since Texas represents over half of U.S. planted acreage (USDA NASS). 

    The situation in 2023 is further complicated by a mid-year shift in the weather.  The first quarter of 2023 saw severe drought conditions over much of Texas (Figure 2, left panel).  Widespread and repeated rains since April have reportedly helped developing crops in southern Texas while complicating planting in northwestern Texas.  How much the latter will contribute to more or less cotton production is unknown. It is possible that the State will realize prevented planting from drought preceding prevented planting from too much rain.  With much of the growing season still ahead, further shifts in weather may also occur.  It may not be until early fall before we have reliable forecasts of the resulting production outcome.

    Figure 1. Texas Cotton Crop Condition Index

    Source USDA/NASS

    Figure 2. U.S. Drought Monitor Maps from March 7, 2023, and June 6, 2023

    Robinson, John. “Difficulty in Forecasting 2023 U.S. Cotton Production.” Southern Ag Today 3(24.1). June 12, 2023. Permalink

  • Feasibility Analysis—A Key Step to Success 

    Feasibility Analysis—A Key Step to Success 

    Streams of grant funding such as broadband support, the infrastructure bill, FEMA disaster prevention, and business attraction often come in large waves and encourage rural communities to improve local capacity and infrastructure. When generating ideas, planning, and creating strategies and action plans to apply for a grant, it is key to conduct a feasibility analysis. Take the time to evaluate if the local community has the resources, time, and inputs needed to take on the project as well as the resources and capacity to sustain the effort. 

    The overarching goal of a feasibility analysis is to understand “is this a viable idea to proceed with” (1). Feasibility studies often include market analysis, technical analysis, financial analysis, as well as environmental and social impacts (1,2,3,4). Results should help the community understand if the effort balances the financial, social, and environmental costs with the benefits (3). The analysis should focus on both the feasibility of implementing or building the effort as well as maintaining it. Many communities skip the assessment of maintenance, and when programs fail or fizzle, infrastructure degrades or incurs deferred maintenance costs. 

    While some feel feasibility analysis can discourage a community from dreaming big, leaders should “know what they have to work with” (4) and focus on developing aspects in the community that can succeed. If projects or programs are not feasible, the community can prioritize a different effort or focus on building the capacity and partnerships needed to address feasibility concerns. 

    1. https://extension.psu.edu/feasibility-studies-what-are-they
    2. https://dec.vermont.gov/sites/dec/files/wsm/rivers/docs/shw_sullivanslides.pdf
    3. https://www.nrecainternational.coop/wp-content/uploads/2016/11/Module5MethodologyforEvaluatingFeasibilityofRuralElectrificationProjects.pdf
    4. https://www.islandinstitute.org/ii-solution/feasibility-study/

    Walker, Jamie Rae. “Feasibility Analysis—A Key Step to Success.” Southern Ag Today 3(23.5). June 9, 2023. Permalink

  • Adjusting Reference Prices Based on Changes in Cost of Production

    Adjusting Reference Prices Based on Changes in Cost of Production

    A recent Agri-Pulse article explored “raising reference prices based on a commodity’s relative input costs” suggesting that the approach “could benefit some southern crops over commodities such as soybeans and corn.”  In the article, I was quoted as saying that an “across-the-board increase in PLC reference prices could penalize farmers who don’t grow corn, soybeans and wheat, which together account for 85% of the acreage eligible for the program.”

    While the article has generated a significant amount of interest (judging by the call and email volume over the past week), I do think additional context is important.  My purpose in making the statement was this:

    • Corn, soybeans, and wheat account for 85% of the base acres nationwide.  As a result, decisions made for those three crops will necessarily drive the vast majority of the spending in Title 1 of the farm bill.
    • Because each crop is different – with different risk profiles and with producers who have varying views on the various components of the farm safety net – policymakers are in no way constrained to simply making across-the-board adjustments to the farm safety net.

    I also argued – and continue to do so – that cost of production is an appropriate metric for making decisions about Reference Prices.  The entire point of the traditional farm safety in Title 1 is for it to be reflective of the cost of producing a crop.  I suspect that most producers reading this would agree with that point.  After all, the primary complaint we’ve heard from the hundreds of producers we work with around the country over the past several years is that the Title 1 safety net has not kept up with the cost of doing business.  

    The article culminated with a comparison of corn and rice that has led some to ask if I’m suggesting that corn producers (and soybean and wheat producers for that matter) are not in need of a Reference Price increase.  To clear up any confusion, in the space that remains, I will quickly address this point for corn, soybeans, and wheat.

    Using publicly available data from USDA’s Economic Research Service (USDA-ERS), I compared the total cost of production from 2012-2014 (the 3-year period during which the current Reference Prices were initially established) to the most recent 3-year period for which data is available (2020-2022).  As noted in Figure 1, the average cost of production across the United States for corn, soybeans, and wheat increased by 15%, 21%, and 19% respectively over that timeframe.  It is also important to note that the impact was not uniform across the nation.  For example, while the increase in the national average cost of producing corn may have been 15%, costs in the Northern Crescent (including Michigan, Wisconsin, and parts of Minnesota), the Prairie Gateway, and the Southern Seaboard were all in excess of 20%.  A similar dynamic exists for soybeans and wheat.  For example, the national average increase for wheat is 19%, but the cost of production for growers in the Northern Great Plains increased more than 25%. 

    Bottom line:  corn, soybean, and wheat producers are absolutely justified in requesting Reference Price increases.  Depending on the region in which you produce, the sense of urgency may be even greater.

    Figure 1.  Percent Change in Cost of Production by Region, 2020-2022 versus 2012-2014.

    Source:  author calculations of USDA-ERS Commodity Costs and Returns data. 
    NOTE:  for assistance in deciphering the regions, see this map.

    Fischer, Bart. “Adjusting Reference Prices Based on Changes in Cost of Production.” Southern Ag Today 3(23.4). June 8, 2023. Permalink