There are a lot of interesting things going on in livestock markets as we start Spring (at least by the calendar, if not the temperature). Calf prices are sharply higher, corn prices are down a little, and hog prices and beef exports are struggling. But, this week we’ll look at beef cow slaughter which is down sharply from earlier this year and compared to a year ago.
From the first week of the year through the first week of March 621,900 beef cows have gone to packers. That is 53,300 head fewer (down 7.9 percent) than the same period last year. The 63,000 head sent to slaughter for the week ending March 4th was the smallest non-holiday week beef cattle slaughter since early April 2021.
Beef cow slaughter data is reported by USDA with states aggregated into regions. Most Southern states are in Regions 4 and 6. Region 4 includes the deep South from Mississippi to North Carolina and up to Kentucky. Beef cow slaughter this year in region 4 is down 7.4 percent from last year. Region 6 culling, which includes Texas, Arkansas, and Louisiana, is 10.1 percent smaller than last year. It looks like culling in both regions has slowed even more over the last couple weeks. One notable region is showing an increase in beef cow slaughter. Region 7 includes Iowa, Kansas, Missouri, and Nebraska and slaughter is up 3.4 percent over last year. Drought remains severe in Kansas and Nebraska according to the drought monitor.
It is worth noting that beef cow slaughter normally declines seasonally a little from January into March and April. This decline in slaughter this Spring is larger than normal.
Most everyone who follows the cattle market knows that large numbers of beef cows were sent to market in 2022 due to drought and low calf prices relative to costs. One of the interesting questions for 2023 is whether cow culling slows down. The answer, so far, appears to be “yes.”
Anderson, David. “Beef Cow Culling Sharply Lower.” Southern Ag Today 3(12.2). March 21, 2023. Permalink
Supply and demand projections for the upcoming 2023 crop year were released at the USDA’s Agricultural Outlook Forum on February 23. In the March 6th issue of Southern Ag Today, we looked at how close previous projections have been to final USDA estimates for corn, soybeans, and wheat. In this article, we expand upon missed projections and look at how changes in corn demand from the USDA’s projections could affect the stocks-to-use (STU) ratio and, thus, price. The simple analysis gives us insight into the supply and demand dynamics for the upcoming crop year. Specifically, we focus on changes in corn exports. China, the largest importer of U.S. corn last year, cleared more Brazilian firms for corn export on March 6th to ease their dependence on U.S. imports (FAS, 2023; Samora, 2023). Additional access for Brazilian corn to China could reduce U.S. corn exports.
STU is a fundamental indicator in commodity marketing as it compares commodity ending stocks to commodity demand. The impact of missed projections on STU provides insight into each commodity’s supply and demand dynamics. Plot A of Figure 1 shows the STU and marketing year average price for corn by year. The main takeaway from Plot A is that a higher STU indicates lower demand relative to supply and, thus, lower prices, whereas a lower STU shows higher demand relative to supply and higher prices. For example, in 2012, the drought impacted the supply of corn, resulting in lower STU and higher commodity prices.
Plot B of Figure 1 looks at the impact of missed export projections by the USDA on STU. In 2023, the USDA is projecting a 15% increase in corn exports from last year (USDA, 2023). Holding all the other USDA corn estimates constant and changing exports, we find that a 100-million-bushel miss-projection in corn exports would change corn STU by 0.39%.
As the Brazilian corn crop is projected to hit record numbers, increased Brazilian corn exports could negatively impact U.S. corn demand (Donley, 2023). In 2022, China imported 5.26 billion bushels of corn from the U.S. (FAS, 2023). If these numbers were cut by just 500 million bushels, causing the USDA to over-project exports, corn STU could be higher than 2018 levels when the average corn price was $3.61, assuming the other projections are unchanged. The current average corn price for 2023 is projected at $5.60. If exports are cut, and STU increases, the marketing year average corn price will likely be lower than projected. Changes in projected supply and demand will impact STU for corn, and consequently the marketing year average price. Producers and traders should be cognizant of projected changes in STU and use this information as one factor that could influence price expectations for the upcoming crop.
Figure 1. Price and Stocks-to-Use (STU) Ratio by Year and Impact of Missed Corn Exports Projections on STU
Value-Added agriculture is often promoted as a way for farmers to capture a larger share of the food dollar and as a means of rural economic development. Under USDA definitions, farmers capture the enhanced value from either processing or intrinsic characteristics of the product (e.g., organically or locally grown). However, non-farm entrepreneurs within the regional economy can also add value by using local commodities in their products.
The table below provides an example of farm or non-farm entrepreneurs’ ability to capture a higher price and larger profit by processing locally-grown vegetables into salsa. The $1,000 in locally grown vegetables could be included in a jarred product worth almost $6,900. In the salsa scenario, sales and labor income are higher for both direct (entrepreneurs’) and community-wide impacts between businesses (indirect effects) and among households (induced effects). Labor income is double for the entrepreneur and triple for the community.
If a farmer processes the vegetables, s/he creates the additional value and retains the additional profit—a traditional value-added paradigm. If another business purchases the local vegetables, that business lengthens its longer value chain relative to purchasing wholesale vegetables from outside the region.
Value-added presents promising opportunities to farmers, but it’s not for everyone. Only about 1.65% of US farms reported value-added product sales in the 2017 census of agriculture, and value-added sales were clustered among smaller farms. Farmers interested in value-added processing should consider the costs of labor (including their own), other inputs, and marketing and distribution when evaluating potential products.
Example Economic Impacts of Raw Vegetable Sales versus Value-added Salsa
Livestock producers tend to be an independent lot. We can identify – we both have livestock backgrounds. It’s not uncommon for us to hear that there’s really nothing in the farm bill – or in farm policy in general – for livestock producers. In fact, livestock producers often wear it as a badge of honor, arguing they get nothing from the federal government and would prefer the federal government just stay out of their way in return. The problem: that’s not really the case…at least not anymore.
While it’s true that the farm safety net historically has been focused on row crops – with dairy being a very notable exception – there has been a significant shift over the past 25 years. Below, we highlight four of the major changes.
Environmental Quality Incentives Program (EQIP). The 1996 Farm Bill initiated the EQIP program to provide cost share assistance to crop and livestock producers. Fifty percent of the funding available for technical assistance, cost-share payments, incentive payments, and education under EQIP was targeted at practices relating to livestock production.
Livestock Disaster Programs. The 2008 Farm Bill was the first to authorize the livestock disaster programs, including the Livestock Forage Program (LFP), the Livestock Indemnity Program (LIP), and the Emergency Assistance for Livestock, Honey Bees, and Farm-raised Fish Program (ELAP). Unfortunately, the 2008 Farm Bill authorization was short-lived, and all three programs expired in 2011. The 2014 Farm Bill resurrected all three programs, providing permanent baseline funding going forward. As of February 2023, the Congressional Budget Office (CBO) estimates that those 3 programs will provide $5.6 billion in assistance to livestock producers over the next 10 years.
Disaster Preparedness. The 2018 Farm Bill maintained the livestock disaster programs and provided $300 million over 10 years for animal disease prevention and management programs in addition to authorizing supplemental funding through the appropriations process. The bill established a vaccine bank to respond to the accidental or intentional introduction of animal diseases like foot‐and‐mouth disease (FMD) and established the National Animal Disease Preparedness and Response Program to leverage local, state, and national resources to prevent and respond to animal disease threats.
Federal Crop Insurance. Historically, USDA’s Risk Management Agency (RMA) was limited to spending $20 million per fiscal year on livestock insurance policies. The Bipartisan Budget Act of 2018 eliminated the restriction. Since then, the liability insured by livestock policies has increased from just over $500 million in 2018 to more than $21 billion in 2022 – a 4,000% increase in just 5 years (Figure 1). There are also new insurance policies on the horizon, including one that would provide revenue coverage for weaned calves for cow-calf producers.
Bottom line: livestock producers have a vested interest in the farm bill. With that said, despite the rapid growth in liability insured by livestock policies, it still represents a small share of the value of livestock production in the United States and there are significant opportunities for expansion going forward. For policymakers, it’s likely worth exploring if the current infrastructure – including things like RMA’s Livestock Price Reinsurance Agreement (LPRA) – are up to the task.
Figure 1. Liability Insured by Livestock Policy Type and Year
Source: Authors’ calculations of USDA-RMA Summary of Business data.
While the cost of many inputs have retreated from historic highs made earlier in 2022, fertilizer and farm diesel fuel remain elevated continuing to push total costs of production in 2023. Despite the fact that commodity prices remain relatively strong, margins will be stretched thin for many crops this year.
Enterprise budgets can be a good farm management planning tool for growers to use when evaluating crop selection and budgeting returns (net or total specified with overhead) to land. In the 2023 enterprise budgets released by the LSU AgCenter, fertilizer prices for nitrogen, phosphate, and potash are estimated at $0.78, $0.90, and $0.67 per pound of active ingredient. This represents an increase of $0.02, $0.25, and $0.09 per pound of active ingredient, respectively from 2022. Another energy-related farm input, diesel fuel, is projected at $4.00 per gallon, an increase of $1.60 per gallon from the 2022 enterprice budget.
The magnitude of the fertilizer cost impact will have on a grower’s bottom line will vary with crop selection, variety, and soil nutrient profile. Soil testing is crucial in times of elevated input prices. Knowing the nutrient profile can be a cost-saving measure for the grower. For fuel cost, the extent of field preparation activities and irrigation will significantly impact a grower’s fuel expenditure.
Over the past three years, the cost of production for corn, cotton, rice, and soybeans in Louisiana have increased in conjunction with the increase in fertilizer and fuel costs. Figure 1 illustrates the cost of production (C.O.P.) per unit using representative farm yields for the 2021 to 2023 crop years.
Figure 1. Breakeven cost of production estimates for selected Louisiana crops.
Farm yields used in analysis are 180 bu/ac for corn, 1,200 lbs/ac for cotton, 65 cwt/ac for conventional (Conv) rice, 80 cwt/ac for hybrid (Hyb) rice, 55 bu/ac for soybeans in northern Louisiana, and 40 bus/ac for soybeans in southern Louisiana.
Especially in times of dramatic price and cost changes, it is critical to have a handle your cost of production. Estimating your own production costs is an important management exercise that helps with both understanding and controlling cost, as well as establishing price targets and marketing plans. A pre-season breakeven price is calculated by estimating the total cost of production related to a specific crop and dividing it by the expected yield of that crop. Or simply put: how much money do you expect it will take to produce each bushel or pound of production? Similarly, a breakeven yield is that same total cost of production divided by the expected price.
In today’s agricultural production environment, given the volatility in both input and commodity prices, breakeven analysis can help farmers make better short-term operational decisions. Enterprise budgets can be a useful tool in performing breakeven analysis utilizing both their individualized farm’s crop yields and expectations regarding market prices for a given commodity that is uniquely tailored for their agricultural production space.
Crop enterprise budgeting resources are available for download for Southern states by clicking on the links below.
