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  • Cattle Prices in Record Territory

    Cattle Prices in Record Territory

    Fed cattle prices surged into record territory last week, with the daily average 5 market live fed steers hitting $175.87 on April 7th.  Daily average fed steer prices last reached the $170s in late 2014 and early 2015, with a high of $172.08 on November 26th, 2014.  Steer prices have, generally, been increasing since the beginning of the year, with a couple weeks of dips in mid-January and mid-March.  

    The calf market surged along with it.  Georgia, 7-800 pound feeder steers began the year at $156 per cwt and finished last week at $176.  The same weight steers in the Southern Plains have advanced from $184 in January to $193 last week.  Lighter weight, 4-500 pound steers in Georgia and the Southern Plains averaged $240 and $247 last week, respectively.  

    Packers have continued to demand cattle as supplies have tightened.  Beef demand appears to continue to be good.  While wholesale prices for steak cuts like ribeyes and loin strips have declined over the last couple of weeks, 90 and 50 percent lean boneless beef and cuts like briskets have increased.  Higher fed cattle prices have pulled calf and feeders higher.  Lower feed prices are also boosting feeder cattle prices.  

    The big unknown in the market is beef demand over the course of the year.  The effect of federal reserve action to slow the economy to fight inflation is yet to be fully felt.  Will a broader segment of consumers buy less beef in response to tightening incomes?  Can retail beef prices increase to reflect record live animal prices or will margins absorb the higher live prices?  So far, packer margins have shrunk absorbing higher live prices.  Regardless of those questions and answers, beef supplies will continue to tighten.  High calf and feeder prices may provide some opportunities for cattle ranchers to grab some profits.  

    Tomorrow’s SAT will look at futures market prices and some ways to protect these higher prices now for this Fall.

    Anderson, David. “Cattle Prices in Record Territory.” Southern Ag Today 3(15.2). April 11, 2023. Permalink

  • Rethinking Fertilizer Prices

    Rethinking Fertilizer Prices

    Although the Russian war with Ukraine has been pinpointed as the leading cause of high fertilizer prices, the price of nitrogen fertilizer began to increase in May of 2021, long before Russia invaded Ukraine on February 24, 2022. The increases in fertilizer prices in 2021 were caused by supply and demand factors. On the supply side, increases in natural gas prices and shipping costs likely influenced fertilizer prices (Smith, 2022). Additionally, corn futures prices increased drastically in May 2021, incentivizing farmers to apply more nitrogen per acre. Following nitrogen application, fertilizer prices dropped slightly before increasing again in February of 2022 due to the Russian invasion of Ukraine, which caused supply chain disruptions in nitrogen fertilizer exports. Since September, fertilizer prices have dropped significantly. In this article, we reframe fertilizer prices to look more closely at the recent declines in fertilizer prices. Specifically, we focus on the fertilizer price to new crop corn futures ratio. Using this ratio, we can frame fertilizer prices in a form allowing us to account for fertilizer and corn prices.

    Figures 1, 2, and 3 show the plotted ratio of fertilizer price to new corn futures ratio for NH3, urea, and UAN from 2020 to early March of 2023, respectively. Unsurprisingly for all three commodities, the lowest ratios occurred before the price increases in 2021. Following the 2021 price increases, the impact of the Russian-Ukrainian war sustained an already high nitrogen price. The red line in each graph depicts the 2023 nitrogen price relative to the price of corn. For UAN and urea, the ratio of fertilizer to new crop corn price has fallen below the 5-year average levels, whereas the price of NH3 is still slightly above the 5-year average. These results may indicate that ammonia fertilizers are still unreasonably high due to Russia being the second largest NH3 exporter, behind Trinidad and Tobago (World Bank, 2021). 

    Figure 1. NH3 (Anhydrous Ammonia) Price Relative to New Crop Corn Futures

    Figure 2. Urea Price Relative to New Crop Corn Futures

    Figure 3. UAN Price Relative to New Crop Corn Futures

    As the ratio for NH3 remains above the five-year average, it may be time to look at alternative nitrogen sources. One nitrogen source of interest is urea, the nitrogen source furthest under the 5-year average. The average price of nitrogen/pound of urea is historically higher than that of NH3. However, this season, the current price per pound of nitrogen from both sources is similar, making the switch from NH3 to urea more appealing. If in-season nitrogen application is needed, the relative price of urea is historically lowest in June. However, it is worth noting that an escalation in Ukraine or a discontinuation of the Black Seas Grain Deal would likely cause the price of each nitrogen source to increase.

    Sources:

    Smith, Aaron. “The Story of Rising Fertilizer Prices.” Aaron Smith, March 2, 2022. https://asmith.ucdavis.edu/news/story-rising-fertilizer-prices.

    World Integrated Trade Solution. “Ammonia; Anhydrous Exports by Country |2021.” World Bank. Accessed March 20, 2023. https://wits.worldbank.org/trade/comtrade/en/country/All/year/2021/tradeflow/Exports/partner/WLD/product/281410.

    Gardner, Grant, and Hunter Biram. “Rethinking Fertilizer Prices.” Southern Ag Today 3(15.1). April 10, 2023. Permalink

    Photo by Todd Trapani: https://www.pexels.com/photo/corn-field-1382102/

  • Right to Farm Bills in the South

    Right to Farm Bills in the South

    States in the South are in their legislative sessions, and several are looking to amend their right to farm statutes.  A right to farm statute is a state law intended to protect qualifying agricultural operations from nuisance lawsuits brought by neighbors for noise, dust, odor, or other actions that interfere with the neighbors’ use and enjoyment of their property.  State law can vary dramatically across the country and small changes to language can have a major impact on how the law is applied in that state.

    Some proposed changes in the South are relatively minor, while others would make substantial changes in how nuisance laws would affect agricultural operations.  Below are the links to current bills in the South and a short description of the potential impact of the legislation.

    • Arkansas – HB 1434 – This bill was enacted into law and specifies that the burden of proof in a nuisance lawsuit is borne by the party that brought the lawsuit against the farming operation.  
    • Florida – HB 1361 and SB 1472 – Both bills are companion bills (bills that are largely the same, but filed in different chambers or by different members in the state legislature) that would allow farm operations to store, process and distribute organic material.  Organic material is defined as “vegetative matter resulting from landscaping maintenance or land clearing operations … ” This definition would not include organic material from animal agriculture operations.
    • Oklahoma – HB 1457 – Nuisance lawsuits involving the cultivation of medical marijuana would be excluded from the protections of the Oklahoma Right to Farm Act under this bill. 
    • South Carolina – H 3432 – This bill would change several things.  Importantly for the state right to farm statute, it would define several terms deemed “covered activities”, including composting. It would also require the Commissioner of Agriculture to investigate complaints about agricultural operations and make recommendations about best management practices.
    • Texas – SB 1421, HB 2308, and HB 1750
      • SB 1421 – This bill could significantly strengthen the existing Texas Right to Farm Act by setting one establishment date for the agricultural operation and protecting all activities after one year has passed (unless it is determined to be a “substantial change”).  Currently, expansions are not protected until the expansion has been in existence for at least one year.  This bill would also extend coverage to veterinary practices, increase the burden of proof to clear and convincing evidence, strengthen the attorney fees provision, limit the power of city governments to regulate farming operations in city limits, and make other small changes.
      • HB 2308 – Largely a companion bill to SB 1421; however, it does not have language about restricting the powers of city governments to regulate agricultural operations within city limits.
      • HB 1750 – Also largely a companion bill to SB 1421 and contains the language limiting city governments on how they regulate agricultural operations, but does not include the language on changing the establishment date or the addition of the language about “substantial change.”

    Words matter in the legal context.  Some changes, like with the Arkansas bill, may have little impact on how the state right to farm act is applied, while the changes to the Texas law, if enacted, could substantially change how nuisance lawsuits and zoning disputes move forward.  Even if your state is not on the list for proposed changes for this legislative term, it is common for other state legislatures to copy legislation and try to enact similar bills in their states in subsequent years. To see your state’s current right to farm statute, click here.

    Rumley, Rusty. “Right to Farm Bills in the South.” Southern Ag Today 3(14.5). April 5, 2023. Permalink

    Photo by Alejandro Barrón: https://www.pexels.com/photo/corn-field-during-daytime-96715/

  • Expanded U.S.-Mexico Trade in Avocados Benefits U.S. Consumers

    Expanded U.S.-Mexico Trade in Avocados Benefits U.S. Consumers

    Approximately 90% of the avocados consumed in the U.S. are imported from Mexico. However, before last year, the U.S. only allowed the importation of avocados from one Mexican state—Michoacán—due to phytosanitary concerns about seed weevils and fruit flies. The Michoacán avocado industry is heavily controlled by the cartel, which has sometimes led to shaky trade relations with Mexico. 

    In late 2021, the U.S. Animal and Plant Health Inspection Service (APHIS) and the Association of Avocado Exporting Producers and Packers of Mexico (APEAM) reached an agreement to allow avocado imports from an additional Mexican state—Jalisco (see Figure 1). The first shipments of avocados from Jalisco entered the U.S. in August 2022. 

    This regulatory change is the focus of some of my current research with co-author Irvin Rojas at the Centro de Investigación y Docencia Económicas (CIDE) in Mexico City. We investigate the economic impacts of expanding this phytosanitary exclusion zone to include Jalisco on U.S.-Mexico avocado trade. We have also collected price information from 37 markets around Mexico to see the impacts of the policy change on local Mexican markets. 

    What did we find? 

    We find that this policy change was unequivocally beneficial from the perspective of U.S. avocado users and consumers. Authorization of avocado imports from Jalisco led to about a 10% reduction in the border price for Mexican avocados (see Figure 2), relative to what prices would have been had we continued to source only from Michoacán. The policy change also had a dramatic effect on U.S. access to Mexican avocados. The volume of avocado imports increased by almost 35% relative to a scenario in which the U.S. continued to source exclusively from Michoacán. In total, we estimate that the policy change leads to an economic welfare gain of approximately $229.5 million per year for U.S. avocado users and consumers. 

    Economic outcomes in the Mexican domestic market are slightly more nuanced. We find that—among the 37 markets studied—the policy led to a price increase for avocados sourced from Jalisco, but only for the range of avocados that were already being priced highest in the market. We did not detect a price impact for the “average” avocado sourced from Jalisco. Mexican domestic prices fell for avocados sourced from Michoacán. This result held across all ranges of avocado price tiers. 

    The trade and domestic market impacts we measure certainly change the incentive structure within (and outside) the Mexican avocado industry. Time will tell what these shifting incentives mean for cartel activity in Michoacán and Jalisco. 

    Figure 1: Location of Michoacán and Jalisco in Mexico

    Figure 2: Avocado Imports from Jalisco and U.S.-Mexico Trade Outcomes

    Schaefer, K. Aleks. “Expanded U.S.-Mexico Trade in Avocados Benefits U.S. Consumers.” Southern Ag Today 3(14.4). April 4, 2023. Permalink

  • Days Suitable for Planting Rice in Arkansas

    Days Suitable for Planting Rice in Arkansas

    Rice planting can be very stressful during the spring in Arkansas and across the rice belt, as weather greatly affects the timing of planting. Extreme weather events like excessive spring rainfall and cooler-than-average temperatures can reduce the number of days available for planting rice early. Excessive rainfall and flooding events have delayed the timing of rice planting in Arkansas in three of the last four years (2022, 2020, 2019). The years 2019 and 2020 also had the largest and second-largest numbers of rice prevented planting acres on record. Optimum planting dates in Arkansas range from March 28th to May 20th in eastern Arkansas based on the Arkansas Rice Production Handbook. Planting rice outside of these dates can significantly reduce rice yields. A late planting season can also lead to delayed harvest in the fall, where rain and dew could lead to reduced rice kernel quality and additional drying costs associated with the late harvest.

    Given these reasons, an analysis of historical weekly Crop Progress and Condition Report data from 1981 to 2022 was undertaken to better understand the number of suitable fieldwork days that have been available for planting the Arkansas rice crop by (USDA-NASS, 2023). We calculated a frequency distribution from these data to determine historical probabilities for the number of suitable fieldwork days per week available during the recommended rice planting window in Arkansas. The results are reported in the attached figure. There is a wide range in the number of days available per week, mainly reflecting extreme weather conditions during the recommended planting window. However, four days per week have the highest percentage of chance occurrence (29% likelihood), followed by five or six days per week (21% likelihood each). The likelihood of having three or fewer days per week to plant rice is 23% (approximately 1 out of four years), while the likelihood of having a whole week to plant the rice crop is 7%. 

    The average number of fieldwork days per week during the recommended planting window is 4.5 days.  Rice producers can use this information to estimate the number of days available to complete a rice planting in years when planting has been delayed. For example, if most of a producer’s rice acres have not been planted by the end of April due to weather conditions, the rice producer has roughly three weeks left to complete rice planting within the optimal planting window. Assuming the average of 4.5 suitable fieldwork days over the next three weeks, the rice producer would expect to have approximately 13.5 days available to plant the remaining rice acres. The producer then can decide whether to plant rice or soybeans on the remaining acres based on the economic feasibility. 

    References and Resources

    University of Arkansas System Division of Agriculture, Cooperative Extension Service. 2021. Arkansas Rice Production Handbook. https://www.uaex.uada.edu/farm-ranch/crops-commercial-horticulture/rice/

    USDA-NASS. 2023. United States Department of Agriculture, National Agricultural Statistics Service, Arkansas Field Office. Crop Progress & Condition Report. https://www.nass.usda.gov/Statistics_by_State/Arkansas/Publications/Crop_Progress_&_Condition/index.php

    Badarch, Bayarbat, and Brad Watkins. “Days Suitable for Planting Rice in Arkansas.” Southern Ag Today 3(14.3). April 3, 2023. Permalink

    Photo by Pixabay: https://www.pexels.com/photo/rice-grain-164504/