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  • Trade’s Importance to Southern Agriculture

    Trade’s Importance to Southern Agriculture

    Agricultural trade has certainly been a major topic among farmers and farm organizations recently amidst declining U.S. ag exports, a new era of ag trade deficits, and disappointment over trade policy. Dating back to colonial days, trade has been a major part of the Southern agricultural economy. Historically, the Southern region has produced, marketed, and shipped various unique southern commodities such as tobacco, rice, cotton and sugar, along with grains, livestock products, fruits, and vegetables to markets around the globe.  

    How important is agricultural trade to various southern states today?  In reality, individual state or regional trade data are difficult to measure since agricultural production, processing, and trade can occur in multiple states and/or regions. For example, a calf born and backgrounded in a southern state, might be finished at a feed lot in the midwest, and proccessed/packaged for export in another state or region.  Which state/region gets credit for this export?

    USDA’s Foreign Agricultural Service (FAS) relies on data from Census where U.S. ag exports by state or region are based on the final origin of movement of the product to the export market. Given a large volume of U.S. grain shipped out of New Orleans, the FAS methodology results in Louisana being the nation’s largest ag exporting state, despite the vast majority of these grains being produced in other states. Thus, FAS export data will generally understate the relative importance of international markets for inland states. Over the past five years (2019-2023), the FAS database ranks the Southern region as the leading ag exporting region with 38% of the value of U.S. agricultural exports, followed by the Western region (31%), Midwestern region (25%) and the Northeastern region (5%).  According to the FAS database, five of the eight largest U.S. agricultual ports by volume are located in the Southern region which accounted for 60% of U.S. ag export volume over the past five years, with New Orleans being the largest ag port accounting for 36% of U.S. ag export volume and 18% of U.S. ag export value.

    Alternatively, USDA’s Economic Research Service (ERS) measures trade data by state based on the state’s share of production value (cash receipts). Using the ERS methodology, within the southern region Texas recorded the largest value of agricultural exports over the past five years, averaging $6.9 billion of ag exports annually (ranks 6th nationally), followed by North Carolina ($3.9 billion), Arkansas (3.5 billion), Florida ($3.4 billion), Georgia ($3.1 billion) and Kentucky ($2.7 billion). Regionally, the ERS database ranks the Midwestern region as the largest exporting region with 48.1% of U.S. ag exports over the past five years, compared to only 23.2% for the Southern region, reflecting a large percentage of the U.S. agriculture initially produced in the Midwest, but exported out of other regions. 

    What about the relative importance of agricultural trade? Adopting the ERS methodolgy, ag exports represents about 1/3 of ag cash receipts in the Southern region. Using this metric, Table 1 illustrates that over the past five years of ERS export data,, Louisiana is the most ag trade-dependent Southern U.S. state with ag exports accounting for nearly one half of the state’s ag cash receipts, followed by Tennessee, Florida, Kentucky, and Mississippi rounding out the top five.

    Table 1: Ag Export Trade Dependency


    Southern U.S. State    		Ag Exports as a Percent of
    Ag Cash Receipts 
    (2018-2022)*
    U.S. Rank
       
    1.   Louisiana49.0%5
    2.  Tennessee44.6%11
    3.   Florida42.8%14
    4 .  Kentucky42.2%16
    5.   Mississippi38.2%22
    6.   Arkansas35.5%25
    7.   South Carolina35.4%26
    8.   Virginia32.6%30
    9.   Georgia32.6%31
    10. Maryland32.4%32
    11. North Carolina31.7%34
    12. Texas29.6%37
    13. Oklahoma27.3%41
    14. Alabama24.5%46
    *Source:  Calculations based on ERS/USDA data

    Snell, Will. “Trade’s Importance to Southern Agriculture.” Southern Ag Today 4(18.4). May 2, 2024. Permalink

  • The Importance of Rented Cropland to Mid-South Agriculture

    The Importance of Rented Cropland to Mid-South Agriculture

    The Mid-South region of the United States (Eastern Arkansas, Northeastern Louisiana, Northwestern Mississippi, and Southeastern Missouri) is a highly productive and extremely homogeneous agricultural region. The region produces the same crops (corn, cotton, rice, and soybeans), uses relatively the same types of agricultural management practices, and is highly dependent on groundwater for irrigation from the Mississippi River Valley alluvial aquifer (Massey et al., 2017). Producers in the Mid-South also depend heavily on access to rented cropland. Purchasing enough cropland to be economically viable would require a significantly large capital investment. In addition, the market for cropland is thin and only a small fraction of cropland changes hands annually (Bigelow et al., 2016). Renting cropland provides crop producers with the flexibility to adjust their farm size as conditions warrant to achieve the scale of operation needed to remain economically competitive. Renting cropland also helps young crop producers with limited capital get started in farming.

    Just how important is rented cropland in the Mid-South? Figure 1 presents harvested cropland in the Mid-South by tenure of the operator (full owners, part owners, full tenants) for the five agriculture census years 2002 through 2022 (USDA, NASS, 2024). Full owners operate only on land they own, while full tenants operate only on land rented from others. Part owners operate both land they own and land they rent from others. Hence, harvested cropland for part owners in Figure 1 is split between owned and rented cropland for each census year. The numbers in Figure 1 demonstrate the magnitude of importance that rented cropland plays in Mid-South agriculture. Significantly more cropland in the Mid-South is rented rather than owned, and dependence on rented cropland in the region has grown over time. Rented cropland by part owners in the Mid-South trended upward across the five census years, ranging from 4.1 million acres in 2002 to 5.1 million acres in 2022. A significant number of acres in the region are operated by full tenants, ranging from 3.6 million acres in 2022 to 4.4 million acres in 2012. In contrast, cropland operated by full owners trended downward for the region from 2.2 million acres in 2002 to 0.8 million acres in 2017 and 2022, while owned cropland operated by part owners remained relatively steady in the region at around 2 million acres each census year.

    Figure 2 presents the percentage of harvested cropland operated by each tenure classification across census years for the Mid-South. For comparison, the same percentages are presented for the United States in Figure 3. Rented cropland plays a stronger role in Mid-South agriculture than the United States as a whole. Adding the percentage of cropland operated by full tenants to the percentage of cropland rented by part owners reveals that the proportion of total cropland rented in the Mid-South has ranged from 65 to 76 percent of total cropland. In other words, two-thirds to three-quarters of all cropland acres in the Mid-South have been rented from others since the beginning of the 2000s. This compares with approximately one-half (46 to 50 percent) of cropland rented from others in the United States over the same period. The larger proportion of rented relative to owned cropland in the Mid-South is due largely to full tenants. Full tenant percentages for the Mid-South are 2.5 to 3 times greater than those for the United States in all five census years. The full tenant category is typically defined as being largely comprised of young producers with limited capital. However, the large full tenant percentages for the Mid-South reflect limited access to cropland for purchase within the region rather than a large prevalence of young producers.

    So why is the practice of renting cropland so prevalent in Mid-South agriculture? The simple answer is that most Mid-South cropland is owned by entities or individuals who are not farmers. These non-operator landlords are landowners who are not actively involved with a farm operation but rent their land out to other farm operators (Bigelow et al., 2016). The largest portion of these non-operator landlords are individuals, followed by partnerships. A large portion of these entities are retired farmers who rely on lease payments to support them in their retirement. Trusts and corporations represent other types of non-operator landlords (Bigelow et al. 2016). Non-operator landlord entities tend to hold on to the land rather than sell it to retain their investment in the land. They often seek others to farm the land to maintain its productivity and to receive a return on investment in the land.

    References and Resources

    Bigelow, D. A. Borchers, and T. Hubbs (2016). U.S. Farmland Ownership, Tenure, and Transfer. United States Department of Agriculture, Economic Research Service, Economic Information Bulletin Number 161. August 2016. https://www.ers.usda.gov/webdocs/publications/74672/eib-161.pdf?v=7044.6

    Massey, J.H., C.M. Stiles, J.W. Epting, R.S. Powers, D.B. Kelley, T.H. Bowling, C.L. Janes, and D.A. Pennington (2017). Long-Term Measurements of Agronomic Crop Irrigation Made in the Mississippi Delta Portion of the Lower Mississippi River Valley. Irrigation Science. 35:297-313. 

    USDA, NASS, (2024). United States Department of Agriculture, National Agricultural Statistics Service, Census of Agriculture. https://www.nass.usda.gov/AgCensus/index.php

    Watkins, Brad. “The Importance of Rented Cropland to Mid-South Agriculture.” Southern Ag Today 4(18.3). May 1, 2024. Permalink

  • Butterfat Continues to be a Major Driver of Milk Value

    Butterfat Continues to be a Major Driver of Milk Value

    Dairy farmers in the Southeast, Appalachian, and Florida Federal Milk Marketing #7 (FMMO #7) orders are ultimately paid on the amount of skim milk and butterfat they produce. Growing demand for dairy products like cheese and butter have increased butterfat values and their impact on milk prices over time.  For some perspective, Figure 1 contains the historical Uniform Butterfat Price for the Southeast Federal Milk Marketing Order from 2000 to 2024. There has been significant volatility, and the impact of COVID is pretty clear, but the general upward trend is evident – butterfat has become increasingly valuable over the last 24 years.

    In the interest of painting a complete picture, Figure 2 contains the Uniform Skim Price for FMMO #7. As with the butterfat series (Figure 1), volatility is clearly present. One can see strong skim milk price levels in 2007, 2014, and 2022, but one can also see multiple times when skim milk prices were south of $10 per cwt. The slight upward trend over time in skim milk price is not as evident as the trend in butterfat prices. 

    Because butterfat only represents a small percentage of the milk that is produced, it is easy to underestimate its significance on milk price at the farm level. To emphasize, for the month of March 2024, the uniform skim milk price was $11.23 per cwt and the butterfat price was $3.2099 per lb. When uniform milk prices are calculated by the orders, they are done so by assuming 3.5% butterfat levels. With that 3.5% butterfat assumption and a $3.2099 butterfat value per lb, each cwt of milk yields a butterfat value of $11.23 (3.5 lbs @ $3.2099 per lb). At the same time, the skim milk value from a cwt of milk was calculated to be $10.84 (96.5 lbs @ $11.23 per cwt). Combining the butterfat and skim values results in a uniform milk price of $22.07 per cwt for the month of March. This calculation can be seen in the first row of Table 1. Note that even at 3.5%, the butterfat value represents just over half of the uniform milk value. 

    This uniform milk price does not represent the price that an individual dairy producer would receive as that would be impacted by any premiums and/or deductions, as well as how their location differential compares to that of the base zone. Readers should use the specific prices with caution as they are just used for illustration. But, the difference in milk price as butterfat increases is very telling. Note that each additional 0.25% increase in butterfat results in an increase in milk value of $0.77 per cwt. Table 1 also illustrates the same milk price calculation for butterfat percentages from 3.5% to 5.0%. At 5%, milk price exceeds $26 per cwt, and butterfat accounts for over 60% of that value. Given the value differences calculated in Table 1, it is clear why increasing butterfat has been a focus of many dairy farmers in recent years. It is important to note that Table 1 looks only at price and does not consider the potential for increased expenses that may be associated with increasing butterfat.  

    Table 1. Uniform Skim Milk and Butterfat Price and Their Impact on Milk Value

    % ButterfatSkim Milk ValueButterfat ValueMilk Price% of Value from Butterfat
    3.50%$10.84$11.23$22.0750.9%
    3.75%$10.81$12.04$22.8552.7%
    4.00%$10.78$12.84$23.6254.4%
    4.25%$10.75$13.64$24.3955.9%
    4.50%$10.72$14.44$25.1757.4%
    4.75%$10.70$15.25$25.9458.8%
    5.00%$10.67$16.05$26.7260.1%
    Estimated from March 2024 Uniform Price Computations for FMMO #7. Uniform Skim Milk Price was $11.23 per cwt and Uniform Butterfat Price was $3.2099 per lb.
    (March 2024, Southeast Federal Milk Marketing Order)

    Burdine, Kenny. “Butterfat Continues to be a Major Driver of Milk Value.” Southern Ag Today 4(18.2). April 30, 2024. Permalink

  • Cash Grain Contracts and When to Use Them

    Cash Grain Contracts and When to Use Them

    As planting begins, it is an excellent time to review the various cash grain contracts available for producers to incorporate into their crop marketing plan. When considering contracts, the producer must understand the special features of each contract and the type of risk it is managing. Producers must also consider the effects of market movement on the contract outcome. This article outlines some common types of grain contracts and how the market can affect the contract results. Producers should speak with their local grain purchaser about the availability of the following contracts and associated fees. 

    Cash Market Sales – A cash market sale is simply selling grain at the prevailing market price. A producer may choose to sell in the cash market if they deem it appropriate to sell at the market price or if they need to move old crop grain from storage to create space for the new crop. Cash market sales are risky as a marketing strategy because the market price might not be acceptable when the producer is forced to sell, especially if no other strategy is in place.

    Forward Contract – A grain farmer may enter into a forward contract with a grain buyer, requiring the producer to deliver a specific quantity and quality of grain at a certain time, place, and price. This type of agreement can be made before planting or anytime during the growing season.

    Minimum Price Contract – A minimum price contract is an agreement between the producer and elevator in which a producer is guaranteed either a minimum agreed upon price or the current cash price. Under this contract, a producer must pay a premium, which is relatively high in volatile markets, and any transaction charges. A minimum price establishes a price floor and allows for upside price potential without the direct use of futures and options. Additionally, the contract can provide some leverage in obtaining credit.   

    Basis Contract – Basis is defined as the local cash price minus the futures price. A basis contract is an agreement in which a producer and elevator establish a basis but not the futures price. The producer can select the day on which the futures price is set. A basis contract is useful when the basis is stronger than normal or when one thinks the basis will weaken before a sale is made. Since a basis contract does not set a price, this contract does not provide price upside potential and exposes a seller to downside price risk since futures prices may move lower. A delivery obligation is established, so a producer is exposed to the production risk of fulfilling the contract.

    Hedge-to-Arrive Contract  – A hedge-to-arrive contract is the opposite of a basis contract and is an agreement that allows the producer to set the futures price but leaves the basis to be set at a later date and prior to delivery. Once the basis is established, the producer will receive the futures price less the basis. 

    Price Later (Delayed Pricing) Contract – A price later contract allows the producer to deliver grain and establish the sale price at a later date. Upon delivery, the title of the grain passes to the buyer. The price a producer receives will be the elevator cash price on the day the producer decides to establish the price minus any service charges. This contract allows the producer to move grain despite a relatively low price environment, but the producer is still open to downward price risk if the market moves against them since the grain is unpriced. 

    Which tool should a producer use?

                Figure 1 provides a guide on when to consider using the different types of contracts. The top right quadrant of Figure 1 represents ideal market conditions. In this quadrant, futures prices are expected to rise, and basis is expected to strengthen. Contracts that provide upside price potential are attractive in this scenario. These include minimum price contracts or price later contracts. The bottom left quadrant of Figure 1 represents the worst-case scenario for market conditions. Futures prices are expected to decrease, and the basis is expected to weaken. This scenario suggests that current market conditions are better than expected. Producers will want to consider selling at current price levels with either cash sales or a forward contract. 

                The top left and bottom right quadrants represent market conditions that are somewhere in between the best- and worst-case scenarios. The top left quadrant represents expected higher futures prices but with the risk of the basis weakening. A basis contract would allow producers to limit basis risk in this scenario by locking in a basis and providing upside potential for the price. The bottom right quadrant represents the expectation of increasing basis but a lower futures price. A hedge-to-arrive contract would allow producers to lock in a futures price and limit price risk but still be able to take advantage of a strengthening basis.  

    Figure 1. Best Fit Alternatives for Grain Contracts by Market Conditions*

    Maples, William E. “Cash Grain Contracts and When to Use Them.” Southern Ag Today 4(18.1). April 29, 2024. Permalink

  • US Supreme Court Finds Texas Landowners Can Pursue Takings Claim

    US Supreme Court Finds Texas Landowners Can Pursue Takings Claim

    The United States Supreme Court issued a unanimous decision in Devillier v. Texas, allowing Texas landowners’ takings claims to proceed against the State of Texas under an amended complaint.  [Read Opinion here.]

    Background

    A group of Texas farmers, ranchers, and rural landowners filed an inverse condemnation action against the State of Texas, claiming that the Texas Department of Transportation’s (DOT) widening of I-10 intentionally caused widespread flooding on their property, resulting in a taking for which they were due just compensation.

    The Plaintiffs brought takings lawsuits under both the Texas and United States Constitutions in Texas state court.  Texas removed the cases to federal court where they were consolidated into one case. Texas then filed a motion to dismiss claiming that the Plaintiffs were not entitled to sue directly under the Fifth Amendment.  

    The district court denied the Motion to Dismiss. Texas sought an immediate appeal of that order and the question of whether property owners may sue under the Fifth Amendment without invoking Section 1983.

    The United States Court of Appeals for the Fifth Circuit reversed in a one paragraph opinion, holding that the Fifth Amendment does not provide a right of action for takings claims against a state. See 53 F.4th 904.  

    The Plaintiffs sought review by the United States Supreme Court

    US Supreme Court Opinion

    Justice Clarence Thomas authored the unanimous opinion of the Court.  [Read Opinion here.] 

    The Court noted that this case raised only a question regarding the procedural vehicle by which a landowner may seek redress for a taking.  Typically, a lawsuit to invoke or assert a constitutional right is brought under the authority of another statute, such as 42 U.S.C. Section 1983.  The landowner argued that claims under the Fifth Amendment are an exception to this, meaning that the landowner believes the Fifth Amendment is “self-executing” and a claim can be brought based solely upon the Fifth Amendment.  Texas, conversely, argues that a claim under the Fifth Amendment must be based on a statutory basis.

    The Court noted that “our precedents do not cleanly answer the question whether a plaintiff has a cause of action arising directly under the Takings Clause.”  However, the Court continued, “this case does not require us to resolve that question.”  The Court held that the Texas state law inverse-condemnation cause of action provides the vehicle for a takings claim based on both the Texas Constitution and the Fifth Amendment of the US Constitution.  The Court held that because the landowners do have a state cause of action under which to litigate their federal Fifth Amendment claims, the Court need not address whether the Fifth Amendment is self-executing if no such statutory claim exists.

    In order for the landowners to rely upon the Texas inverse condemnation action, they will need to amend their Complaint, but Texas assured the Court it would not oppose such an amendment.

    Thus, the Court noted that the landowners should be permitted to pursue their Fifth Amendment claims under the Texas cause of action and can amend their Complaint to do so.  

    The judgment of the US Court of Appeals for the Fifth Circuit was vacated, and remanded the case.