When US cattle slaughter facilities temporarily shut down during COVID-19, the live cattle to wholesale boxed beef price spread, which is the difference between the value of live cattle price and wholesale boxed beef value, reached record highs. The processing disruptions caused the fed cattle price to decline and beef price to increase. The price spread had a similar, but less extreme, reaction when beef processing capacity was temporarily shut down after the Tyson beef-packing plant fire in August 2019. These events led to questions regarding the interaction of the number of cattle slaughtered nationally each week and the price spread. Now that cattle numbers are declining and packing capacity is increasing questions about capacity utilization and the price spread remain.
In a recent article, my co-authors and I investigate the dynamic relationship between industry-level weekly (Monday through Friday) and Saturday operational slaughter capacity utilization with the live cattle to box beef price spread. Below are the highlights of the journal publication and our estimates of weekly and Saturday slaughter capacity utilization.
Key results from our study:
We find bidirectional causality between weekly slaughter capacity utilization, Saturday slaughter capacity utilization, and the live cattle to box beef price spread over the entire study period (2010-2021). In plain English, this means that the number of cattle processed on Saturdays affects the price spread and vice versa. However, additional analysis indicates these causal relationships don’t always occur.
An increase in the price spread in the previous week positively impacts the number of cattle processed nationally on Saturday in most weeks. That result makes a lot of intuitive economic sense because the larger spread implies more profits which is the market signal to produce more beef. This might suggest Saturday slaughter is more than a “catch up” day of processing but could also be a strategy to increase slaughter when the price spread is increasing.
This study does not find statistical evidence to support the notion that weekly, or Saturday slaughter capacity utilization is used by the beef packers to control the price spread.
Figure 1. Weekly (Monday through Friday) and Saturday Operational Cattle Slaughter Capacity Utilization from 2010 to 2021 in the United States
Paper Citation
Martinez, C., Li, P., Boyer, C. N., Yu, T. E., & Maples, J. G. (2023). Beef price spread relationship with processing capacity utilization. Journal of the Agricultural and Applied Economics Association.https://onlinelibrary.wiley.com/doi/full/10.1002/jaa2.48
Each year, USDA’s Office of the Chief Economist holds the Agricultural Outlook Forum. The event discusses important agricultural topics and provides supply and demand projections for the upcoming year. This article examines the 2023 Agricultural Outlook Forum projections and compares historical Agricultural Outlook Forum projections and final USDA estimates for corn, soybeans, and wheat for the 2010 to 2022 crop years.
Historical Projections compared to Final USDA Estimates
From 2010-2022, USDA’s February projected production for corn, soybeans, and wheat averaged 655 million bushels higher, 518 million bushels lower, and 15 million bushels higher than final estimates, respectively (Figure 1; production). The difference between February production projections and final estimates can be partially explained by yield or acreage changes, due primarily to weather events. For example, in 2019, floods in the Midwest dramatically reduced planted and harvested acres (Figure 1; acres planted and harvested); and in 2012, severe drought caused final corn yields to be 40.9 bu/acre below the February projection (Figure 1; national average yield). Considering the tremendous amount of uncertainty this time of year (February), USDA has been reasonably accurate with initial projections. On average, the difference (overestimated or underestimated) between projected and final production estimates has been 6.8% for corn, 5.7% for soybeans, and 6.4% for wheat.
Domestic consumption projections have also been accurate with an average discrepancy of 2.8% for corn, 2.6% for soybeans, and 6.0% for wheat. Exports have been more challenging to project, primarily due to the relationships between domestic production, foreign production, substitution, and global demand. On average, USDA has missed export projections by 23.4%, 11.7%, and 12.6% for corn, soybeans, and wheat, respectively. For corn, from 2010-2022, on average, the USDA February total use projection was 290.4 million bushels higher than the final estimate. Total projected wheat use was 31.4 million bushels higher, and soybean use was 11.4 million bushels lower than the final estimate, on average (Figure 2; exports and domestic use).
USDA has had challenges with projecting ending stocks and prices. Projected ending corn stock estimates have ranged from 1.4 billion bushels more to 316 million bushels less than the final USDA estimate, with an average projection of 342 million bushels higher than the final estimate (Figure 2; ending stocks). Soybean ending stocks have, on average, been projected 51 million bushels higher in February than final estimates, with a range of 320 million bushels higher to 449 million bushels lower than the February projection. Wheat ending stocks have, on average, been projected 47 million bushels lower in February than the final estimate, with a range of 239 million bushels higher to 213 million bushels lower than the February projection.
On average, USDA missed corn, soybean, and wheat marketing year average (MYA) prices by 17.4%, 12.7%, and 13.5%, respectively. In 8 out of 13 years, the February MYA price projection has been lower than the final MYA price for corn, soybeans, and wheat (Figure 2; marketing year average price). For corn, projected prices were under final prices by over 30% in 4 out of 13 years (2010, 2012, 2021, and 2022). The largest projected miss, among years where the February projected MYA price was higher than the final MYA price, was 7.1% in 2013.
2023 Projections
Initial expectations from the 2023 Agricultural Outlook Forum point to a 3% projected increase in planted crop acres for corn, soybeans, and wheat relative to 2022 plantings. Corn acreage is projected to increase from 88.6 million acres in 2022 to 91.0 million acres in 2023. In 2022, planted corn acreage was affected by weather delays, which prevented plantings in various regions of the United States. Soybean acreage is projected to stay the same as 2022 at 87.5 million acres. Soybean acreage projections are driven by strong demand for domestic crush and growth in biofuel production capacity. Of the three crops, wheat acreage is projected to incur the largest increase in planted acreage, up to 49.5 million acres in 2023 from 45.7 million planted acres in 2022. Increases in projected wheat plantings are driven by tight U.S. stocks and continued high global prices, caused in part by the war in Ukraine.
Prices for all three crops are projected to be lower in 2023 than 2022 but are projected to remain above their respective 10-year historical averages. Season average per-bushel prices for corn, soybeans, and wheat are projected to fall from $6.70, $14.30, and $9.00 in 2022 to $5.60, $12.90, and $8.50 in 2023. The price projections are driven by low beginning stocks and growth in projected acreage and yield, which will facilitate higher projected exports and ending stocks for the 2023/24 crop year. The decline in 2023 projected prices is driven by record expected soybean and corn crops in South America, which will increase competition in export markets. Additionally, estimates of the impact of increased biodiesel production capacity on soybean prices have been uncertain due to the United States’ ability to adapt planted acres to meet increased feedstock demand.
There remains a tremendous amount of uncertainty in production, use, stocks, and prices for the 2023 corn, soybean, and wheat crops. However, the current USDA projections have prices softening, compared to last year for all three commodities. As such, producers may want to consider using marketing strategies that protect against downside price movements while maintaining flexibility (such as options). This will allow producers to evaluate and modify pricing decisions when additional information is known about the 2023 crop. USDA will revise projections throughout the year with the next key report being the Prospective Plantings report at the end of March.
Figure 1. USDA – February Outlook Conference Projections Less Final USDA Estimates (Supply), 2010-2022*
*2022 final estimates are USDA WASDE estimates for February
Figure 2. USDA – February Outlook Conference Projections Less Final USDA Estimates (demand, stocks, and price), 2010-2022*
*2022 final estimates are USDA WASDE estimates for February
Southeastern U.S. farms growing perishable and seasonal food continue to achieve gains due to economies of scale and scope, largely dependent on management decisions made based on market information. Many produce farms have a corporate structure and grow vegetables nearly year-round on farms located throughout the US & abroad. Such operations have farms strategically located and follow the progression of seasons from south Florida to northern states to provide a year-round supply of produce as demanded by retail and foodservice buyers. Medium size farm operators are finding ways to collaborate to meet buyer needs, and technology-driven tools offer savings in time and resources needed to gather market information. Given that market access and market share drive profitability, exciting new technologies are emerging that reduce the cost of KNOWING and empower the individuals making informed decisions.
One such market-driven database is AgTools, an online platform that provides data for the specialty crop supply chain. A subscription-based service specific to each fruit or vegetable and informed by experienced producers and retail buyers, the AgTools engineers find and organize regularly updated relevant data current and historical. With over 76 variables and 29 years of records, AgTools offers key information to growers to use in daily production and harvest decisions, including price data, import data and trends, fuel and labor costs over time, current and optimal weather, measures of sustainability (food miles), up to the minute news specific to commodity, and a brand-new feature allowing buyers to see real-time growth stages of each crop and any reported disease issues unique to the production region (Figures 1 and 2).
Figure 1. Snapshot of AgTools Procurement Quality Analyzer query for blueberries, 22 February 2023, for Peru, Chile, and Florida, showing reported disease type and prevalence by stage of growth (eleven stages indicated from germination to harvest) specific to each growing region.
Figure 2. Snapshot of AgTools Operations Freight Cost query for strawberries grown in Central and South Florida and shipped to six destinations (Philadelphia, New York, Chicago, Boston, Baltimore, Atlanta) over the time period 23 November 2022 through 22 February 2023 (Note: Highlighted 4 February 2023 data point for cost comparison).
Producers have until March 15th to make their sign-up elections (agriculture risk coverage (ARC) or price loss coverage (PLC)) with FSA and enroll for the 2023 crop year. Based on the number of calls we have been receiving, relatively high but volatile commodity prices for many of the covered commodities have at least a few producers confused as to what would be the best choice to make. Unlike in many previous years, based on price forecasts for the 2023 marketing year average prices, there appears to be very little chance that the safety net for many of the major Southern commodities will trigger support based on price alone. Except for peanuts, marketing year average prices are projected to be well above reference prices used to calculate PLC payments. In other words, if the price projections come true, there would be no payments for the 2023 crop (Table 1).
This is the reason for many of the calls we receive. The caller usually says they are going to select ARC since it covers both price and yield. While this makes sense, it just isn’t that easy. With respect to price, ARC and PLC are counter-cyclical safety net programs. They were developed to provide little to no support when marketing year average prices are high, with support increasing as prices move lower year to year. Since ARC is a revenue program, there is protection against both low prices and low yields or some combination of low prices and low yields.
It is easy to see that a projected $6.80/bushel price for corn for the 2023 crop, for example, is well above the $3.70/bushel reference price, which means there is almost no way a PLC payment would be triggered for corn. But the same holds for ARC as well. Under ARC, the 2023 benchmark price for corn is $3.98/bushel. This is calculated taking the last 5 years of prices from the 2017 marketing year to the 2021 marketing year and calculating an Olympic average (dropping the high ($6.00) and low ($3.70) and averaging the remaining three years ($3.70, $3.70 and $4.53). Using yield data for Autauga County, Alabama, indicates a 2023 benchmark yield for corn of 174.70 bushels. That means the benchmark revenue is $3.98 * 174.70 or $695.31 per acre. Multiplying by 0.86 gets you to a guaranteed revenue for 2023 of $597.97. Without a yield loss, 2023 corn marketing year average prices would have to fall below $3.42/bushel for ARC to trigger payments for Autauga County, Alabama, corn producers. Using a 25% yield reduction (131 bushels/acre instead of 174.7) would require a corn price lower than $4.56/bushel to trigger an ARC payment for this year. That is still well below the $6.80/bushel that is projected for this crop year.
So, what should you do? We aren’t in the business of telling you exactly what to do because frankly we don’t know what will end up being the best choice. We do have a decision aid available at www.afpc.tamu.edu where you can input your info, and it will show you expected payments under as many different price scenarios as you want to look at. We also have students who will input your information for you and call you to discuss results. All you need to do is call (979) 845-5913 and ask for decision aid help.
With ARC and PLC unlikely to trigger, your crop insurance decisions take on even more importance. You may also want to look at tools like the Supplemental Coverage Option (SCO) or the new Enhanced Coverage Option (ECO), both of which provide area-wide coverage for part of the deductible not covered by your underlying policy. Importantly, you must choose between ARC and SCO – you can’t have both.
Hopefully we have given you something to think about as you consider your signup decisions. We wish you luck, and don’t hesitate to call for assistance.
Table 1. USDA 2023 Effective Reference Prices and Marketing Year Average Price Forecasts for Select Southern Commodities.
In 2023, the adverse effect wage rate (AEWR), which is the reference minimum hiring rate for H-2A workers, increased by 2.66 to 15.47 percent in all U.S. states (except Alaska). Florida registered the highest annual increase, with incremental rates in six other states exceeding 10 percent (Table 1).
There are two possible explanations for these 2023 AEWR growth differentials across states. First, sharp spikes in 2023 AEWRs may be associated with lower historical AEWR growth trends. From 2019 to 2022, AEWRs in states with the ten highest 2023 AEWR increases grew annually by only about 3 percent, while states with the ten smallest 2023 AEWR change registered an average growth of almost 6 percent. Figure 1 shows that these two trends are negatively correlated, thus supporting the contention that larger 2023 AEWR increases may have been designed to make up for lower annual AEWR growth rates from 2019 to 2022.
The other explanation revolves around gaps between AEWRs and livable wage levels in 2022. Livable wage, calculated by the World Population Review, measures the amount of income that can adequately cover basic family needs. In this analysis, a gap exists when AEWR is less than the livable wage per hour (LWH), indicating that AEWR could not adequately satisfy all basic needs; a surplus exists when AEWR exceeds LWH. Based on the summary in Table 1, all Top 10 states have AEWR-LWH gaps in 2022 as their ratios are below 100%. In contrast, five of the bottom ten states registered AEWR-LWH surpluses in 2022. Figure 2 plots the relationship between these two trends, where a no-gap demarcation line is drawn at the 100% level to distinguish surplus (above 100%) and gap (below 100%) situations.
From a business standpoint, stark increases in 2023 AEWRs may cause potentially harmful economic effects on labor-intensive, H-2A-dependent segments of each state’s agricultural industry. These are serious concerns, especially for states where H-2A workers account for a larger proportion of their annual hired farm labor complement. Last year, H-2A workers in Georgia and Florida comprised 62.88 and 55.31 percent of their hired farm labor force. Notably, Florida and Georgia had the two highest annual AEWR increases in 2023.
From a social standpoint, there will always be pressure to correct gaps between actual and livable wages. At the same time, it is important to understand the broader impacts of such corrective measures. One-time (abrupt) sharp increases in AEWRs may fix one problem but create a challenge elsewhere. Alternatively, corrective adjustments implemented in tranches, or gradually over time, could avoid the development of large living wage gaps while allowing farm businesses to make gradual strategic adjustments in preparation for additional costs.
Table 1. Relating 2023 AEWR Increases to Annual AEWR Growth and Livable Wage-AEWR Gaps Among States with Ten Highest and Ten lowest 2023 AEWR Growth Rates
STATE (RANK of 2023 AEWR Increase)
2022-2023 INCREASE
AEWR ANNUAL CHANGE (2019-2022)
LIVABLE WAGE GAP (AEWR/LWH)
2022 AEWR-LWH GAP RANK Worst (#1) to Best (#49)
Florida (1)
15.47%
3.36%
70.35%
6
Georgia (2)
14.01%
2.53%
68.63%
4
South Carolina (2)
14.01%
2.53%
54.52%
1
Alabama (2)
14.01%
2.53%
54.80%
2
Minnesota (5)
12.82%
4.33%
89.15%
25
Wisconsin (5)
12.82%
4.33%
79.23%
13
Michigan (5)
12.82%
4.33%
69.90%
5
Louisiana (8)
9.80%
3.21%
78.25%
12
Mississippi (8)
9.80%
3.21%
60.53%
3
Arkansas (8)
9.80%
3.21%
77.09%
9
South Dakota (40)
5.22%
4.63%
101.42%
43
Nevada (41)
4.88%
5.89%
95.64%
37
Utah (41)
4.88%
5.89%
93.86%
34
Colorado (41)
4.88%
5.89%
102.16%
44
Hawaii (44)
4.29%
3.96%
102.22%
45
Washington (45)
3.22%
5.03%
110.26%
48
Oregon (45)
3.22%
5.03%
106.29%
47
West Virginia (47)
2.66%
6.10%
93.54%
33
Tennessee (47)
2.66%
6.10%
90.37%
28
Kentucky (47)
2.66%
6.10%
88.98%
24
Figure 1. 2023 AEWR Increases and Average Annual AEWR Growth (2019-2022), All U.S. States
Figure 2. 2023 AEWR Increases and 2022 AEWR-Livable Wage Ratio, All U.S. States
