Looks like we’re starting the new year where we left off the last one: with beef cow slaughter. But, this time with some good news. Beef cow slaughter for the last two reported weeks, to date, in December were smaller than the same weeks the year before. For the first time in 2022, weekly beef cow slaughter declined. These weeks were the first year-over-year decline since July 2021.
Weekly beef cow slaughter for the weeks ending December 10th and 17th totaled 75,900 and 76,900, respectively. Weekly beef cow culling during the same weeks of 2021 totaled 79,800 head. Cow slaughter in the South has been a little below last year during most weeks since October. In Region 6, which includes Texas, Arkansas, and Louisiana slaughter was only below last year for the week ending December 10th.
Some of the decline is seasonal. Beef cow slaughter tends to drop off in December after the highs of October and November. The fact that slaughter has been so large in 2022 may also contribute to some decline. Some winter weather might have also contributed to a bit lower slaughter. Beef cow slaughter often picks up briefly in January after the rush of the holidays and also after the 1st to get to the next calendar/tax year. In the coming weeks, watch to see if cow culling is below that of early 2022. Reduced culling will be needed to begin to slow cattle herd shrinking, but it’s likely too early to see any evidence of that.
Author: David Anderson
Professor and Extension Economist Livestock and Food Products Marketing, Dairy, Policy
Cotton prices in 2022 were like a roller coaster ride, including increased volatility and the highest price achieved for the past decade (Figure 1). Multiple rapid market rallies in the cotton market were observed in 2022, followed by a quick withdrawal of speculative money, resulting in an immediate plunge in cotton prices after the rally. The highest daily spot cotton price for 2022 was achieved on May 4th at 149.76 cents per pound, and the lowest daily spot cotton price in 2022 was observed on October 31st at 72.26 cents per pound. Several factors contributed to the price volatility in 2022, including stock market volatility, soaring inflation, supply chain disruptions, rising interest rates, appreciation of the U.S. dollar, and severe drought in major cotton production areas.
In 2022, the U.S. planted 13.6 million acres of upland cotton, the highest in 3 years. However, harvested acres are forecasted by the U.S. Department of Agriculture to be only 7.7 million acres, indicating an overall U.S. abandonment rate for upland cotton of 43.4%, the highest on record. Severe drought conditions hit major cotton production areas, including Texas, Oklahoma, Kansas, and Missouri. The abandonment rate is estimated to be 68% for Texas which accounted for 58% of total U.S. planted cotton acres (7.9 million) in 2022. Due to drought, cotton production in the U.S. plunged in 2022 resulting in a 2.37 million bale year-over-year decline in cotton exports. The December 2022 USDA World Agricultural Supply and Demand Estimates (WASDE) report projected U.S. cotton production at 14.2 million bales for the 2022/2023 marketing year, slightly below U.S. cotton demand – 12.3 million bales of exports and 2.2 million bales of domestic mill use. Globally, in 2022, cotton production is projected at 115.7 million bales, above the world cotton mill use at 111.7 million bales.
Looking ahead, 2023 could be a challenging year for cotton producers. According to the International Monetary Fund October 2022 World Economic Outlook report, global economic growth is expected to slow down to 2.7%, combined with high inflation worldwide at 6.5%. The reduction in economic activity and high inflation in 2023 will likely continue to reduce consumer demand for discretionary items, such as textiles and apparel, thus suppressing cotton prices.
In response to high inflation, the Federal Reserve increased the federal funds rate from about 0% in February to 4.25-4.50% in December. The interest rate increases were the largest since the 1980s. The Federal Reserve’s commitment to bringing inflation back down to its target of 2% will likely result in higher interest rates for producers in 2023. The bank prime loan rate has risen to 7.5% in December, up 4.25% since the start of 2022. Rising interest rates further accelerated the appreciation of the U.S. dollar. Cotton is a global commodity; on average, over 80% of cotton produced in the U.S. is exported. The appreciation of the U.S. dollar increases prices paid by foreign consumers and makes U.S. cotton less attractive compared to other cotton exporting countries with a relatively weaker currency. This could result in a further decline in cotton demand from the U.S. and lower cotton prices for U.S. producers in 2023.
U.S. cotton acreage and production are likely to decline in 2023, due to a lower relative price expectations compared to competing crops. Additionally, profit margins for cotton producers have been adversely affected due to high input costs and low prices. As of December 15, 2022, December cotton futures prices, CTZ23 (Dec’ 23), are currently at 79.29 cents per pound. An optimistic futures price for cotton in 2023 is 80 to 85 cents per pound, and a pessimistic price for 2023 is 69 to 75 cents per pound. For planning and budgeting projections, a price of 72 to 78 cents per pound is suggested for 2023. On a positive note, an economic recovery could occur in the fourth quarter of 2023, and the winter ice in the cotton market could start to melt during the cotton harvest in 2023.
Figure 1. Cotton Cash Prices for the past decade.
Source: Board of Governors of the Federal Reserve System
The Supreme Court of the United States (“SCOTUS”) has recently had a significant docket of cases with an impact on agriculture. Two cases have been heard this fall, with another hearing set for next spring.
In Sackett v. EPA, the Supreme Court once again considered the scope of wetlands jurisdiction under the Clean Water Act (“CWA”). Specifically, the Court was asked to revisit its landmark Rapanos ruling which resulted in two tests to establish when a wetland should receive CWA protection. However, the Court rules are sure to impact the scope of CWA jurisdiction, and potentially impact EPA’s ongoing attempt to redefine the key CWA term “waters of the United States.” To learn more about the case, click here.
In National Pork Producers Council v. Ross, SCOTUS considered the constitutionality of “Prop 12,” a California law regulating space requirements for farm animals. Specifically, the court heard arguments about the circumstances under which a state government can pass laws that primarily affect the actions of people in other states. To learn more about this and other similar challenges to Prop 12, click here.
The upcoming case involves water rights in the Colorado River basin, an area where drought conditions are already causing existing water allocations to be substantially reduced. In November, SCOTUS agreed to hear two cases involving the Navajo Nation’s potential rights to Colorado River water. These cases have been consolidated so that there will be only one hearing, which is expected to be in early 2023. To read more, click here.
In all three cases, a decision is expected by June 2023.
According to the USDA, U.S. agricultural exports are projected to decline by $2.5 billion from $196 billion in Fiscal Year (FY) 2022 (forecasted) to 193.5 billion in FY 2023. At the same time, agricultural imports are projected to expand by $5 billion from $192 billion in FY 2022 (forecasted) to $197 billion in FY 2023. The result is an agricultural trade deficit of $3.5 billion—the second largest deficit since 1990.
The primary macroeconomic factors driving these trade relationships are the persistent strength of the U.S. dollar relative to other major currencies, like the Euro and the Yen, and the sluggish economic performance in many parts of the world. In the short-term, poor economic growth will likely be exacerbated as central banks around the world tighten monetary policy to fight rising inflation rates. Moreover, while global supply chain crises have gradually faded this year, freight and shipping costs remain heightened as a result of hefty energy prices driven by the ongoing Russian invasion of Ukraine.
Alongside these macroeconomic factors, the drop in U.S. agricultural exports is also the result of tight domestic supplies of cotton, beef, and sorghum. The largest trade losses are expected to be with major trading partners, including the European Union (EU), South Korea, and Egypt, each of whom is expected to lose approximately $300 million in trade. The projected increase in agricultural imports is primarily driven by grain and feed imports (up by $0.9 billion), as well as increased imports of horticultural products (up by $2.9 billion) and sugar and tropical products (up by $1.8 billion).
In 1917, the United States was in the midst of World War I. The government wanted to increase revenues to fund the war, so Congress passed the War Revenue Act of 1917. It created several provisions, but one was the requirement that businesses start reporting payments made to other businesses. This reporting requirement created 1099s. It stated that if payments of $800 or more were made, it was to be reported to the Internal Revenue Service (IRS) [1,2]. In this article, we will review how this affects farm businesses.
Today the requirements are roughly the same, but the threshold is $600. The threshold is the total of all qualified business payments made. So, two payments of $400 for rent ($800 total) to the same recipient would qualify. Further, $400 for rent and $200 for services ($600 total) to the same recipient would also qualify. It is important to note this is only on payments made from one business to another. Payments made for personal purposes do not have this reporting requirement. For example, contracting someone to paint your personal residence (not required) vs. contracting someone to paint the barn for your farm business (required). Most often in agriculture, payments for rent and services are what create 1099 filing requirements. Payments for physical goods and payments to corporations (C or S) are typically exempt from these reporting requirements (with a few exceptions). If the business had payments during the year exceeding the threshold, it is a good idea to investigate whether a 1099 needs to be filed. Oftentimes, recordkeeping software or your accountant can make you aware of these situations.
It is common that a farm operator may receive and issue 1099s. Receiving a 1099 indicates you were paid amounts during the year that required a 1099 to be issued. Ideally, this will coincide with what has already been recorded through the books and records of the business. For the operator or tax preparer, it is then a question of what the payment was for and how it should be reported for tax purposes. Receiving a 1099 does not necessarily mean that amount is taxable. It depends on the facts and circumstances relating to the payment.
If a business is required to file 1099s, it is referred to as an informational return. The form itself does not remit any money to the recipient or the IRS; it is a summary of amounts that were paid during the year. Generally, there are going to be four copies of this form. (1) One sent to the recipient, (2) one sent to the IRS, (3) one sent to the state of the recipient*, and (4) one for your own business records.
1099s must be sent to the recipient by either January 31st or February 15th, depending on the variation of the form. The IRS copy of the 1099-NEC must be sent by January 31st, and all other 1099s must be sent by either February 28th (paper) or March 31st (electronic) [3]. Due dates for states vary, but January 31st is common. Research individual states to find out their requirements and due dates. Penalties for late filing could be significant depending on the number of returns and the lateness of each.
Below are common (but not all) 1099 variants seen in agriculture:
* Sometimes states will not require a 1099 or it will already be sent to the state from filing the federal form. It is important to review the individual state’s requirements to remain compliant.
** Form 1099-MISC must be issued to a veterinarian even if the veterinarian is incorporated.
