We have been negligent here at Southern Ag Today in not adequately covering the hog and pork market, but today we are going to make up a little for that oversight. Southern states had about 19 percent of the U.S. breeding hog inventory on December 1, 2021. USDA’s next annual inventory report will be released on December 23, 2022. While more hogs are produced in the Corn Belt, the South is known for pork, whether whole hog bbq, ribs, or country hams from iconic producers.
For the year, pork production is about 2.2 percent below last year. Production is on pace for about 27.2 billion pounds which would be the least since 2018. The September USDA quarterly national inventory report indicated about 0.7 percent fewer breeding hogs and farrowings which likely means a smaller pig crop and fewer market hogs in 2023.
While hog prices in 2022 have been higher than in 2021 for most of the year, they have not translated to enough profitability to generate expansion. Several factors have combined to limit production. High feed costs have cut into returns, as they have in the rest of livestock production. Animal disease and difficulties with sow mortality have cut production and increased costs. Higher facility production costs have reduced expected investment profits. Higher anticipated future costs and uncertainty due to Proposition 12 has also been cited as a reason for restrained production.
On the pork side, wholesale ham prices have been significantly higher than last year since June. Strong ham exports, high turkey prices with hams as a potential substitute, and fewer hams in cold storage have pushed prices higher. Belly prices, while exhibiting their typical volatility, have been lower than last year since April. In October, 40.2 million pounds of bellies were in cold storage compared to only 11.6 million pounds the year before.
Tight supplies and likely high prices will be the ongoing story in the hog and pork market for most of 2023. Any increase in production will be delayed until late in the year, at best.
Data Source: USDA-AMS Livestock Marketing Information Center
Author: David Anderson
Professor and Extension Economist Livestock and Food Products Marketing, Dairy, Policy
The risk faced by producers in the 2022 growing season was unprecedented. As farmers were in the field preparing to plant their crop, Russia invaded Ukraine fueling uncertainty across the world and in agricultural input markets. A few months later, rain fell across the midsouth causing a great deal of yield losses stemming from late planting and prevented planting (Figure 1). Of the $1.4 billion in rain-related losses across the U.S., $0.4 billion were primarily in the midsouth states (USDA-RMA, 2022). In the summer, drought struck the entire United States which resulted in significant crop losses in Texas, Oklahoma, and parts of the east coast (Figure 2). Of the $3.9 billion in total drought-related losses across the U.S., $2.4 billion were in the southeast (USDA-RMA, 2022).
In addition to the production losses stemming directly from weather, many farmers experienced indirect price losses stemming from the low water levels in the Mississippi River. These price losses at the local grain elevator came in the form of extremely weak basis during arguably the most unfortunate time: harvest. During the usual harvest window, basis, or the local cash price less the relevant futures price, fell from about 40 over to 125 under (Figure 3). Once the river levels increased, basis strengthened to about 50 over and has stayed relatively consistent at this level even though most new crop delivery from the 2022 harvest is finished. However, farmers with on-farm grain storage may want to take advantage of the strong basis and deliver either grain from the 2021 old crop or newly stored grain from the 2022 new crop.
While measuring crop yield losses generally occurs throughout the growing season, USDA-RMA harvest prices are determined in the months of August through November depending on the state and crop. In the southeast, the harvest price was greater than the projected price, except for cotton and a few soybean exceptions (Figure 4). While corn, sorghum, and rice experienced a 10-21 percent increase in the harvest price relative to the projected price, cotton experienced between a 20-21 percent decrease in the harvest price over the projected price. Harvest prices for soybeans experienced between a 4 percent decrease and a 5 percent increase over the projected price.
Using the information on production losses and finalized harvest prices, it is useful to consider options to managing risk in the 2023 growing season. One option is to construct a marketing plan by pricing bushels and inputs which will reduce uncertainty revolving around tight margins (Maples, 2022). Another option is to begin considering alternative plans for crop insurance. The product which comprises most insured acres is Revenue Protection (RP) crop insurance which insures against price and production risks, both of which have been prominent in the 2022 growing season. RP provides one layer of protection against low prices and another layer of protection against crop losses which is best represented by the 2022 cotton crop characterized by significant yield and price losses. Another option is to use both strategies jointly which will allow a producer to be more aggressive in pricing bushels to be delivered at a later specified date (Biram et al., 2022). Using forward contracting in addition to RP crop insurance will provide one layer of price protection in the cash market, another layer of protection in the futures market, and third layer of protection from yield losses resulting from drought and early-season rains.
While the southeast saw a relatively quiet hurricane season, excess rainfall and drought still caused significant yield losses across the southeast and caused some farmers to lose out on cash prices at a critical time. Having a risk management plan which covers multiple layers of protection will help provide financial certainty greater peace of mind.
Figure 1. Rain-Related Losses as a Percentage of Total Liability (2022)
Figure 2. Drought-Related Losses as a Percentage of Total Liability (2022)
Figure 3. Daily Soybean Basis (ZSX) at Helena, Arkansas (2018-2022) (September 17th through November 14th)
Source: USDA-AMS MyMarketNews Data Query (2022)
Figure 4. Percent Changes in Projected Prices and Harvest Prices
USDA-RMA, 2022
References
Biram, H.D., J.D. Anderson, S. Stiles, and A.M. McKenzie. “Risk Management Tools and Strategies for Arkansas Corn and Soybean Producers: Implications of Mississippi River Transport Disruptions.” Fryar Price Risk Management Center of Excellence. Technical Report No. FC-2022-05. October 2022. (Link)
Maples, Will. “Considerations for Developing a Pre-Harvest Marketing Plan.” Southern Ag Today 2(47.1). November 14, 2022. (Link)
Cause of Loss Historical Data Files | USDA Risk Management Agency. November 21, 2022. (Link)
Report-Arkansas Daily Grain Bids | MARS. November 21, 2022. (Link)
Agricultural conservation easements (ACES) – given their perpetual and restrictive nature – are considered the best tool for protecting valuable agricultural soils from non-farm residential and commercial development. While ACES are also considered helpful in farm succession planning due to cash and tax – and often emotional – benefits, their principal feature – a restriction of future subdivision – may have frustrating consequences on an equal division of estate value and desired future development. While the outright restriction on subdivision is the default position in most ACE deeds, pathways exist in federal and state policy to preplan subdivision for the distribution of family lands to heirs to avoid co-tenancy while ensuring the resulting parcels are protected. Once a blanket restriction on subdivision is granted, however, it is tough – if at all – to undo.
Given the need for consolidation of management over tracts used in farming and forestry, it is generally undesirable to have multiple co-tenants on a single parcel, mainly when one “heir” is farming and one or more (usually siblings) are not, which can frustrate long-term decision-making and use of the land as collateral for loans. While parcel partition usually is available to a real property co-tenant under a state law proceeding, the conservation easement likely frustrates any judicial order of partition “in kind” (i.e., physical subdivision), resulting in a sale of the parcel as a whole.
Most agricultural conservation easement deeds receiving federal monies are based on a common template language provided by NRCS, which must include specific language to conform to public policy goals associated with the monies and tax benefits (among these being a blanket prescription against subdivision). However, the NRCS deed guidance provides sample language to contemplate the present or future subdivision of a parcel, and it is critical to ensure this option remains open from the outset of the application process (the NRCS manual provides criteria for consideration and acceptance of future subdivisions, including allocation of impervious surface ratios among subdivided parcels). Additionally, state laws and funding policies may contemplate future subdivisions. For example, North Carolina’s state ACE purchase fund – the NC Agricultural Development and Farmland Preservation Trust Fund – allows future subdivision provided no parcel is less than 20 acres, and North Carolina’s ACE authorization statute restricts such subdivisions to no more than three parcels).
How a request for future subdivisions impacts a particular project application’s ranking is unclear. Still, pre-planning is critical for those wishing to protect a large parcel while allowing a future subdivision among family members. For more detailed information on this topic, a draft paper is in development.
Author: Robert Andrew Branan, JD
Assistant Extension Professor, Agricultural and Resource Economics
While some states across the southern region have strict environmental regulations on applying broiler litter to farmland, other states can apply year-round. Fall application of litter is a common practice by some producers due to wet soil conditions in the Spring, lack of time to spread litter near planting, and litter availability in the spring vs. the fall. However, there are economic consequences to Fall application of broiler litter. Applying broiler litter in the fall, fallow ground will suffer from ammonium volatilization and leaching, resulting in little to no nitrogen come spring. Therefore, the economic value of spring application is higher compared to the fall application on fallow soils. Ammonium volatilization and leaching can be avoided in the fall if broiler litter is applied to cropland with a planted cover crop.
Regardless of when broiler litter is applied, the nutrient content of litter varies depending on in-house management strategies and feed mix. In February, I wrote an article illustrating the range of broiler litter nutrient content sampled in Kentucky (article found here). The average “as received” nutrient content of broiler litter was 50 lbs of nitrogen (N), 56 lbs of phosphorous (P2O5), and 47 lbs of potassium (K2O) per ton. Using this nutrient content (assuming your soil tests indicate the need for P2O5 and K2O) and current fertilizer prices of $825/ton for urea ($0.90/lb N), $930/ton for DAP ($0.66/lb P2O5), $857/ton for potash ($0.71/lb K2O), the economic value of broiler litter applied in the fall to fallow cropland is $65/ton. Given the variability in the nutrient content of broiler litter, Figure 1 illustrates the fall value of broiler litter applied to fallow cropland across 740 litter samples at current fertilizer prices. If broiler litter is applied to cover crops, the value increases to $88/ton. Both fall application values have increased compared to last year. Fall broiler litter values are up 20% compared to 2021 and have more than doubled since 2020.
If litter availability in the spring is a concern, stockpiling litter purchased in the fall can be an option if local, state, and federal regulations allow. Producers can expect minimum nutrient loss for spring application with the correct storage techniques and a properly staked litter pile. If the same commercial fertilizer prices hold, the average broiler litter would have a value of $92/ton if properly stored and applied in the spring. As illustrated, broiler litter’s value varies based on application timing, nutrient content, soil test data, and commercial fertilizer prices. It is critical to measure boiler litter and understand the economic and environmental consequences of fall vs. spring management strategies.
Figure 1. Variation in fall boiler litter value applied to fallow cropland given current commercial fertilizer prices and 0% N, 80%P2O5, and 100% K2O plant available nutrients (n=740)
We are approaching the end of 2022 and are getting a more complete picture of beef cow and heifer slaughter and its implications for future supplies. Through October, heifer slaughter is up about 5 percent (402k head) and beef cow slaughter is up 13 percent (375k head) as compared to a year ago. The bulk of the increase in national beef cow slaughter has occurred in the South with beef cow slaughter across the two Southern regions being 271k head higher than a year ago. In particular, beef cow slaughter in Region 6 (AR, LA, NM, OK & TX) is up nearly 30 percent.
Shown in the chart is a regression trend line that was estimated by the Livestock Marketing Information Center (LMIC) using the relationship between beef cow/heifer slaughter and the prior year’s inventory. Or put differently, it is how many cows and heifers were processed this year as compared to how many beef cows we started with. The numbers on the bottom axis (0.32 to 0.48) are proportions. A proportion of 0.4 means that beef cow and heifer slaughter was 40% of the starting beef cow inventory that year. The numbers on the left axis show the annual change in beef cow inventory. A change equal to 1 would mean no change, 1.02 is a 2% increase, and 0.98 means a 2% decline. Using 2014 as an example, the graph shows that cow/heifer slaughter during 2014 was about 41% of the beef cow inventory on January 1, 2014, and the beef cow herd declined just over 2% that year.
2022 is shaping up to be an exceptional year. The orange square on the graph for 2022 represents an estimate for 2022 that assumes the remaining slaughter weeks in 2022 are similar to year-ago levels. In that scenario, the proportion of beef cows and heifers slaughtered would be about 47%. Using this analysis, that would suggest a decline in beef cow numbers somewhere around the 4% to 5% during 2022 which would be levels not seen since 1985-86. Given that most of the beef cow slaughter increase has occurred in the South, it seems likely that cow inventories in these states could decline even more than the national decline.
Author: Josh Maples
Assistant Professor, Livestock, Production Economics, Commodity Marketing
