Southern Ag Today

Blog

  • Peak Meat

    Peak Meat

    The U.S. hit “peak meat” production in 2022 totaling 107 billion pounds, a record for meat production that includes beef, pork, chicken, turkey, lamb, and veal.  Even though there are cycles in beef production and seasonal patterns in demand and supply, meat production has trended upward over the long-term.  However, meat production should decline in 2023 and again in 2024 due mostly to supply challenges.  

    Record meat production last year was driven by increases in beef and chicken production while pork and turkey declined.  The beef production increase was due to reduced heifer retention and increased beef cow culling brought on by drought and cost increases relative to cattle prices.  Broiler production surged as high chicken prices fueled profits.  Pork production declined about 2.5 percent to 27 billion pounds brought on by animal disease pressures and sow productivity issues.  Turkey production was reduced by Highly Pathogenic Avian Influenza (HPAI). 

    While each species has its own circumstances that affected production, there are some common reasons for less production.  First is feed costs.  High feed costs reduce profits for producers and that leads to less production.  Other production costs like fuel, building costs, and higher interest rates also lead to less production.  Drought conditions have hurt cattle and beef production.

    In 2023, total meat production is expected to decline about 1 percent, to about 105.9 billion pounds.  Beef production is expected to fall by about 5 percent.  Pork production is expected to decline slightly (less than 1 percent).  Broiler production may show a small increase over 2022.  Turkey production is likely to increase by close to 3 percent as it recovers from HPAI and high prices should deliver some profits.  Total meat production is likely to decline again in 2024 as increases in broiler production are not enough to offset declining beef production.  

    So, was last year the peak of meat production for many years to come?  Not likely.  Drought recovery, declining feed prices, and easing disease pressures will boost meat profits and production in the future.

    Anderson, David. “Peak Meat.” Southern Ag Today 3(9.2). February 28, 2023. Permalink

  • One Last Thought on Revenue Insurance for Rice in 2023

    One Last Thought on Revenue Insurance for Rice in 2023

    Monthly average Rough Rice futures prices broke $16/cwt in March 2022 and have remained well above this price (Barchart.com, 2023). In fact, the monthly average has not been at this level since July 2013, when the monthly average closing price was $16.04/cwt. This spike in prices is most likely driven by the lowest global ending stocks reported in five marketing years due to below trend production in 2022/2023 with a steady increase in consumption since the 2015/2016 marketing year (USDA-FAS, 2023). These historically high rice prices provide an opportunity to lock in higher revenue guarantees for Revenue Protection (RP) crop insurance to help manage downside price risk, which is likely if global production bounces back to trend in the upcoming marketing year.

    RP is a risk management tool administered by USDA’s Risk Management Agency (RMA) and provides an indemnity when farm-level revenue for a crop falls below a revenue guarantee. The revenue guarantee is found by taking the product of the farm-level yield expectation given by the actual production history (APH), the projected price determined by USDA-RMA, and the coverage level chosen. The projected price is a 30-day average (prior to planting)[1] of the harvest-month futures contract for a given commodity, which in this case is November Rough Rice (ZRX). USDA-RMA completed the projected price discovery period on February 14th for long-grain rice producing states in the South with a February 28th sales closing date and has determined the 2023 projected price for long grain rice to be $16.90/cwt (i.e. $7.61/bu[2]). This price is $2.40/cwt (i.e. $1.08/bu) higher than last year’s projected price of $14.50/cwt ($6.53/bu).

    As noted above, revenue guarantees depend on the farm-level APH, projected price, and the chosen coverage level. I illustrate the increase in the RP revenue guarantee for long-grain rice producing states using states in the Mississippi Delta, but the impact is generally applicable across southern states with a February 28th sales closing date. Figure 1 shows the year-over-year changes in the revenue guarantees for the 75% coverage level in 2023 relative to 2022 and assumes the APH yield is equal to the Reference Yield which USDA-RMA provides at the county-level. RP revenue guarantees in the Mississippi Delta are expected to increase by more than $100/ac in most counties and by more than $150/ac in a few others. 

    It is not too late for farmers to contact their crop insurance agent to discuss enrolling their rice in RP insurance. The amount of coverage chosen largely depends on each farm’s financial condition and each farmer’s risk tolerance, but 75% tends to be the most popular coverage level chosen. The deadline to enroll is tomorrow, February 28th.

    References

    Barchart.com. November Rice Historical Monthly Average Closing Prices. Accessed via API.

    USDA – Foreign Agricultural Service (FAS). Production, Supply, and Distribution Online. https://apps.fas.usda.gov/psdonline/app/index.html#/app/home

    USDA – Risk Management Agency (RMA). Actuarial Data Master. https://pubfs-rma.fpac.usda.gov/pub/References/actuarial_data_master/

    USDA – Risk Management Agency (RMA). Commodity Exchange Price Provisions (CEPP). https://www.rma.usda.gov/Policy-and-Procedure/Insurance-Plans/Commodity-Exchange-Price-Provisions-CEPP

    USDA – Risk Management Agency (RMA). Price Discovery. https://prodwebnlb.rma.usda.gov/apps/PriceDiscovery

    [1] The projected price discovery period depends on the sales closing date. For states with a February 28th sales closing date, the projected price discovery period is January 15 – February 14 (USDA-RMA CEPP, 2023). Therefore, the projected price will be the average of the daily closing prices for ZRX over January 15 – February 14.

    [2] One can find the dollars per bushel price of the Rough Rice futures contract, priced in dollars per hundredweight, by dividing the futures price by 2.22.

    Biram, Hunter. “One Last Thought on Revenue Insurance for Rice.” Southern Ag Today 3(9.1). February 27, 2023. Permalink

  • State Foreign Ownership Proposals

    State Foreign Ownership Proposals

    In January 2023, the United States Department of Agriculture (USDA”) published its latest report of information collected under the Agricultural Foreign Investment Disclosure Act (AFIDA) of 1978, which provides data on foreign U.S. landholdings through December 31, 2021. Under AFIDA, certain foreign persons are required to disclose their ownership interests and investments in farm, ranch, and forestland to USDA. According to the report, foreign persons hold an interest in over 40 million acres of private U.S. agricultural land, an increase of 2.4 million acres from 2020. From 2011 through 2021, foreign ownership in private U.S. farmland has increased 35.7%.

    This increase of foreign agricultural landholdings has become a growing concern for the majority of state legislatures. In the past two years or so, the issue of restricting foreign ownership and investments in privately held agricultural land emerged or reemerged in at least twenty-six states. Currently, there are approximately fourteen states that specifically forbid or limit nonresident aliens, foreign business entities, and/or foreign governments from acquiring or owning an interest in farmland within their state.

    Additionally, several other states have introduced bills that take their own approach to restricting foreign acquisitions of farmland and real property. Some states have proposed measures that would restrict foreign ownership in not only agricultural land, but all real property located within their state. Of the states that have considered restrictions within the previous two years, Indiana is currently the only state to enact a foreign ownership law during that time period. With the majority of states considering proposals that seek to restrict foreign interests in farmland, other states may begin to consider the issue of prohibiting or limiting foreign purchases and ownership of land within their state.

    Brown, Micah. “State Foreign Ownership Proposals.” Southern Ag Today 3(8.5). February 24, 2023. Permalink

  • Fresh Produce Imports from Mexico Continue to Rise

    Fresh Produce Imports from Mexico Continue to Rise

    Mexico is the largest agricultural trading partner for the United States totaling $71.9 billion (imports plus exports) in 2022.  U.S. agricultural exports to Mexico totaled $28.5 billion while imports from Mexico totaled $43.4 billion.  The main agricultural products imported from Mexico are fruits and vegetables, in fact 44 percent of the fruits and 48 percent of the vegetables imported by the U.S. are from Mexico. The United States imported $18.7 billion of produce from Mexico during 2022, including fresh, frozen, and processed fruits, vegetables, and nuts. Just over 98 percent of these imports entered the United States by land ports between Mexico and Texas, New Mexico, Arizona, and California. When considering only fresh fruits and vegetables, which is nearly 89 percent of total produce, imports totaled $16.6 billion. These imports were shipped in 590,906 forty-thousand-pound truckloads. About 55 percent of U.S. fresh fruit and vegetable imports from Mexico entered through Texas land ports, arriving in 325,467 truckloads and worth $11.6 billion. The most active single port for fresh produce import from Mexico in 2021 was Pharr, Texas with 197,253 truckloads followed by Nogales, Arizona with 144,027 truckloads. Laredo, Texas (75,409 truckloads) and Otay Mesa, California (73,580 truckloads) rounded out the top four. Although there was a small drop of the number of fresh produce trucks crossing from Mexico in 2022, the expectation is that the positive trend seen over the last decade will continue as U.S. consumers continue to demand year-round supply of fresh produce.

    Figure 1. U.S. Imports of Fresh Produce from Mexico by Truck, 2012-2022

    Source: Agricultural Marketing Service (AMS), USDA

    Photo by PhotoMIX Company: https://www.pexels.com/photo/vegetables-stall-868110/

    Ribera, Luis. “Fresh Produce Imports from Mexico Continue on the Rise.” Southern Ag Today 3(8.4). February 23, 2023. Permalink

  • Outcomes of Chapter 12 Bankruptcy Fillings

    Outcomes of Chapter 12 Bankruptcy Fillings

    There are two primary outcomes of Chapter 12 bankruptcy filings, discharge and dismissal.  The most common objective is the discharge of eligible debts.  After completing all the payments required under the Chapter 12 plan, the debtor will certify that all obligations have been paid.  At that time, the debtor can receive a discharge of eligible debt.  The discharge can release the debtor from all debts, with some exceptions.  Several debts will not be discharged, including child support and alimony payments.  Other debts that would not be allowed to be discharged are those that have been secured or restructured.  With restructured debts, the plan may allow for payments past discharge based on the type of asset and quality of the asset.  For example, claims secured by livestock may be allowed to be restructured over 5 to 10 years.

    At the same time, a debtor may qualify for a hardship discharge.  A hardship discharge is allowed when the debtor fails to meet the plan payments through circumstances beyond the debtor’s control.  For example, if the debtor became seriously ill and unable to work during the plan, this potentially could lead to a hardship discharge.

    An alternative to discharge of debt may occur when the court grants a dismissal order.  

    Dismissals occur for a variety of reasons, including the failure to pay the filing fee, failure to file all required documents, or failure to make plan payments.  Additionally, debtors sometimes will request a dismissal when financial situations change, or negotiations result in the ability to pay back debt without further protection from the courts.

    Figure 1 shows the breakdown of the most common outcomes in the southern U.S. bankruptcy cases that we have looked at in this four-part Southern Ag Today series. From October 1st, 2012 to September 30th, 2022, there was an equal percentage of discharged filings and dismissals.  Only 1% of the discharged cases were in the hardship category, with the other 99% resulting in some form of debt relief.  

    Approximately 19% of the dismissed cases were for failure to make a plan payment.  This may occur when the bankruptcy repayment plan does not provide sufficient relief, or additional financial issues develop.  The remaining 81% of dismissed cases fall into the multiple dismissed categories previously discussed, although the data provided do not allow for identification between those groups.  However, it should be noted that some of those dismissed cases are voluntary, which can be viewed as an optimal decision by the debtor to exit the court process.  

    What is apparent from these data is that filing bankruptcy does not provide automatic relief from dischargeable debt.  There is still a need to negotiate with the court and the creditors throughout the process.  The court protection can hold off other legal action and foreclosures, but this can also be achieved by early communication with creditors when financial problems become apparent.  If necessary, U.S. bankruptcy law does provide farmers with a unique court protection option.

    This work is supported by the Agriculture and Food Research Initiative (AFRI) program, grant no. 2022-67023-36112/project accession no. 1028056, from the U.S. Department of Agriculture, National Institute of Food and Agriculture.

    Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and should not be construed to represent any official USDA or U.S. Government determination or policy.

    Rabinowitz, Adam, Paul Goeringer, and William Secor. “Outcomes of Chapter 12 Bankruptcy Filings.” Southern Ag Today 3(8.3). February 22, 2023. Permalink