There are examples of successful cooperatives in almost every business sector from funeral homes to ski resorts. Cooperatives are particularly prominent in the U.S. agricultural sector. Understanding the forces behind that observation reveals a lot about our agricultural sector and the cooperative business model.
Many sectors of U.S. production agriculture are dominated by family farms. Generally speaking, the family farm structure has been successful, and family members, or in many cases extended family members with skin in the game, are able to manage the unique aspects of the farm resources. However, that family-based organizational structure also leads to inherent challenges. Many farms are specialized in a single standardized commodity. They also deal with firms that are much larger than them in both their upstream (input purchase) and downstream (commodity marketing) transactions.
Agricultural cooperatives function as extensions of the farm firm allowing producers to achieve economies of scale and a better bargaining position for both inputs and marketing. One of the major reasons that agricultural cooperatives are prominent in the U.S. is that family farms are prominent in the U.S. Cooperatives allow farmers to operate independently but still capture the economies of a large-scale business structure. Those scale economies are possible because many producers are sourcing similar inputs and marketing similar commodities.
Geography and transportation also contribute to the rationale for agricultural cooperatives. A dairy producer in New York cannot sell their milk to a processor in California. Producers depend on input suppliers and marketing outlets near their location. Their success is dependent upon those outlets remaining in existence. They also face the possibility that a local input supplier or marketing firm could have a “mini-monopoly” in an area. Agricultural producers form cooperatives to guarantee access to input and marketing infrastructure and to help keep markets honest.
In my Agricultural Cooperative textbook, I have an entire chapter discussing the economic rationale for cooperatives. In the case of agricultural cooperatives, their prominence and success relates back to the prominence of family and multi-family farms. The gap in size between family farms and their upstream and downstream trading partners continues to grow rapidly. That suggests that agricultural cooperatives are more important now than ever!
Several provisions in the Tax Cuts and Jobs Act of 2017 will begin to expire at the end of 2025. While most of the attention will be on extending the expiring provisions, Congress may wish to consider the inclusion of Tax-Deferred Farm Savings Accounts (TFSAs). Over the last 20 years, a number of different TFSAs have been proposed. The most recent proposal—the Farm Risk Abatement and Mitigation Election Act of 2017—was introduced by Congressman Rick Crawford (R-AR) and referred to the House Ways and Means Committee. Despite dozens of attempts by several Members of Congress, TFSAs have never gained traction.
The premise of past TFSA proposals has essentially been the same: create a mechanism that allows producers to shelter taxable income in a good year to utilize in a future year. In current practice, the common tax management strategy for producers who have made money is to utilize Section 179 immediate expensing. Immediate expensing allows agricultural operations to fully depreciate (or expense) equipment or on-farm structures such as barns or grain storage in the year it is purchased. This sometimes results in producers purchasing equipment or farm structures that are not integral to the operation of the farm but were purchased to limit income taxes. As an alternative, TFSAs would allow producers to deposit (and earn interest on) taxable income and either save it for a rainy day or have time to plan how they will use it moving forward.
While many different versions of TFSAs have been proposed in the past, we would argue that most of them were needlessly complicated, which likely helps explain why they’ve never been implemented. In our view, these accounts could be quite simple: taxable income generated by the farm could be deposited in an interest-bearing, tax-sheltered account and be treated as taxable income—and subject to ordinary income tax rates—on withdrawal from the account. While policymakers likely would want to weigh in on how much money producers could shelter each year and how long the funds could be held in the accounts, the more complicated they get, the less effective they become (and the less likely they are to become a reality).
Some may ask why now would be an appropriate time to implement these accounts. After all, most row crop producers are more worried about losing money in 2025 than managing income. But, at some point, farm income will recover, and growers will once again find themselves feeling the pressure to purchase equipment to avoid taxation. Imagine a scenario where prices have recovered, net operating losses have been exhausted, and producers make a bumper crop. With a TFSA, they would be able to shelter the income—tax free—and then use the savings in the future to help weather a downturn or to buy equipment when it makes sense for the business. Some may argue that this would result in less income tax revenue for the government, but that ignores the fact that farmers can already avoid taxation by using Section 179. Ultimately, TFSAs could simply be another tool in the toolbox—alongside the farm safety net and current tax management strategies—to help farmers and ranchers weather the extraordinary risks they face.
USDA released the latest World Agricultural Supply and Demand Estimates (WASDE) report on March 11, 2025. The most significant item presented was a clarifying “note” at the beginning of the report that is important for users of USDA WASDE estimates to understand.
“The WASDE report only considers trade policies that are in effect at the time of publication. Further, unless a formal end date is specified, the report also assumes that these policies remain in place.”
In other words, the effects of tariffs that are to be implemented in the future, even if already announced, are not included in the report estimates. This includes the Canada and Mexico tariffs that have been suspended until April 2. Alternatively, retaliatory tariffs from Canada, along with U.S. tariffs on China and China’s retaliatory tariffs are all currently in effect and are reflected in the current WASDE estimates as if they will continue indefinitely into the future. Users of these estimates need to consider this factor in their interpretation.
The effects of trade policy on markets are particularly important given the large percentage of exports that are reflected in crops contained in the WASDE report. Table 1 shows the March 2025 WASDE estimates of supply, use, stocks, and prices of four major row crops produced throughout the southern region. Total exports are reported, along with calculated exports as a percentage of total use. Corn has the smallest estimated exports as a percentage of total use at 16%, followed by wheat and soybeans at 42% and cotton at 87%. Thus, when and if tariffs are implemented, the USDA estimates have the potential to change with the inclusion of trade impacts in the WASDE report.
Beyond this note, there was very little movement in current estimates. The average price of wheat at $5.50 per bushel is 5 cents lower than a month ago, continuing a downward trend. Ending stocks of wheat increased to 819 million bushels. For U.S. corn, the USDA is projecting no change in ending stocks from the prior month, staying at 1,540 million bushels and maintaining a $4.35 per bushel marketing year average price for 2024/25. Soybeans were also stable at the prior month’s estimates; however, the USDA revised the marketing year average price down 15 cents to $9.95 per bushel. Meanwhile, the balance sheet for cotton remained unchanged from last month, while the marketing year average price was adjusted down a half cent to 63 cents per pound. The next potential market mover from the USDA comes at the end of the month with the release of the Prospective Plantings report.
Table 1. 2024/25 Wheat, Corn, Soybean, and Cotton Supply, Use, Stocks, and Price Estimates, March 2025 WASDE
Highly pathogenic avian influenza (HPAI) has been in the news regularly due to high egg prices and limited quantities of eggs on grocery store shelves. These effects have mostly been driven by large numbers of table egg layers depopulated due to HPAI (see Figure 1). Depopulation is “the rapid destruction of a population of animals in response to urgent circumstances with as much consideration given to the welfare of animals as practicable” (USDA APHIS, 2022). Depopulation is a key response to HPAI and other highly contagious diseases for two reasons. First, HPAI is deadly to poultry, causing high rates of death within a matter of days and rapid spread through a flock given even minimal contact. Second, when HPAI is allowed to circulate in poultry populations it can easily spread to other farms and potentially to farm workers. Despite rapid depopulation of farms where HPAI is detected, ongoing exposure threats exist due to virus circulation in wild bird populations.
Currently, HPAI circulates in all four wild bird flyways (Pacific Flyway, Central Flyway, Mississippi Flyway, and Atlantic Flyway) that extend across the Western Hemisphere and overlap into the Eastern Hemisphere. For example, the Pacific Flyway overlaps the East Asian and Australasian Flyway. This overlap created the origins of the 2014-2015 Eurasian H5N8 HPAI outbreak in the U.S. from migratory birds moving along the Pacific Flyway (USA APHIS, 2016). HPAI strains mutate rapidly, and most recently in 2024 H5N1 HPAI spilled over into dairy cattle. However, dairy cattle are less susceptible with much lower rates of inflection within herds (<10% of cows), less significant clinical signs, and very low rates of death (AVMA, 2024). This has allowed dairies to isolate and quarantine infected dairy cows until they recover and can be cycled back into production, barring any complications in the cow’s recovery. As a result, depopulation has not been pursued for HPAI control in dairy production. Rather there is a greater interest in the use of vaccination, which is still in the development process and is not commercially viable at this time.
There are other highly contagious diseases for which depopulation would likely be used to reduce disease spread. The first example is foot-and-mouth disease (FMD), which has not been found in the U.S. since 1929 but circulates in wildlife and livestock populations in other parts of the world. Unlike HPAI, FMD has a low rate of mortality. However, FMD has a very high (almost 100%) rate of infection from relatively low exposure and rapid spread through herds. FMD is also a hardy virus that lingers in an environment for some time. For that reason, FMD is another disease for which the baseline response is depopulation of infected animals.
The second example is African swine fever (ASF), which is also highly contagious with high rates of spread, as well as serious clinical signs and high rates of mortality among young pigs. ASF response would also likely involve depopulation of infected herds. The danger of ASF to swine industries was highlighted by the outbreak in China in 2018. China is the largest swine producer in the world, and also the largest pork consumer. The estimates of the Chinese swine herd that died or were depopulated due to ASF were reported as 40.5% with a 39.3% decline in the breeding herd (Ma et al., 2021); for perspective, the 12.3 million head death loss in China’s breeding herd was roughly twice the size of entire U.S. swine breeding herd in that same year (6.17 million head). In the following 2 years, as the herd was rebuilt, China depended heavily on imported pork from a variety of trading partners. Neither FMD nor ASF are zoonotic diseases, with the potential to spill over into humans, and neither FMD nor ASF is currently in the U.S.
Depopulation is expensive, with depopulation costs associated with the destruction of animals, the disposal of contaminated carcasses, and the indemnities to compensate producers for depopulated livestock or poultry. However, this is offset by some benefits, mainly associated with maintaining consumer confidence in the safety of the food supply as well as maintaining access to international markets. For an industry that exports a significant amount of meat or animal product into the world market, the loss of export market share can be very expensive. However, if outbreaks can be constrained geographically export losses can be minimized through the application of regionalization. Regionalization is a general term for allowing trade to continue from disease free areas. Regionalization requires transparent reporting of the disease and eradication measures, which typically includes extensive quarantine, movement restrictions, depopulation of infected premises, and surveillance. Bilaterally, trading countries can place regionalized trade bans of different extents and durations, which could be a control zone within 20 km of an infected herd, a county, or a state or multi-state region. A national trade ban can occur, but is used by fewer countries where proof of geographic containment can be provided.
Most recently, there is discussion of investing in vaccination strategies for highly contagious animal diseases in order to reduce spread and consequently reduce the need to depopulate. There are a few considerations for vaccination to think about. First, a vaccine needs to match the circulating virus well to be effective. This is why viruses that are fairly stable can be effectively eradicated through vaccination. The highly contagious animal diseases mentioned here mutate quickly. A viable vaccine is available for FMD, and the U.S. has invested in a FMD vaccine bank that can be quickly deployed in the event of an outbreak. However, no approved vaccine is currently available for ASF. The threat of HPAI in both poultry and dairy cattle has accelerated the development of vaccines, and the ability to match an HPAI vaccine is improving even with a quickly mutating virus. Licensed HPAI vaccines are not commercially available and there are aspects of an HPAI vaccination policy that are yet to be worked out. For all of the potential benefits, vaccination will likely come at a high cost also.
Trade partners generally will treat eradication or prevention through vaccination campaigns with similar trade bans to outbreaks. This is because vaccination can prevent signs of clinical illness but may not prevent infection. As a result, extensive surveillance requirements are needed to assure that infection is not being spread to areas outside of the vaccination zone through the movements of animals or products. Bilateral discussions with trading partners will be needed to agree to protocols for ensuring disease freedom status. This can be expensive, both in terms of budget and also in terms of trained personnel to track vaccinated animals. If vaccination is expected to be ongoing due to external disease pressure, as is the case with HPAI in wild bird reservoirs, costs will accrue on an annual basis. The logistics of applying a vaccine may be challenging. FMD and HPAI vaccines require two doses to be fully effective, requiring animals to be handled multiple times. In long lived species like cattle, the vaccination must be repeated for protective immunity. Vaccination is unlikely to ever be used to prevent a disease from entering a country due to these expenses and complex policy implications. However, for a disease like HPAI where risk of introduction is ongoing via wild bird exposures, vaccination may well be a viable response strategy.
Figure 1. Table Egg Layer Inventory (left axis) and Real Egg Price Per Dozen Egg (right axis) from 2013 to 2024, with HPAI Outbreaks Highlighted In Each Box
Data Source: USDA National Agricultural Statistics Service; Outbreak Dates: USDA Animal and Plant Health Inspection Service
References:
United States Department of Agriculture Animal and Plant Health Inspection Service (USDA APHIS). 2022. “HPAI response: Response goals & depopulation policy” Available online: https://www.aphis.usda.gov/sites/default/files/depopulationpolicy.pdf
United States Department of Agriculture Animal and Plant Health Inspection Service (USDA APHIS). 2016. “Final report for the 2014–2015 outbreak of highly pathogenic avian influenza (HPAI) in the United States.” Veterinary Services Surveillance, Preparedness, and Response Services Animal and Plant Health Inspection Service. Available online: https://www.aphis.usda.gov/media/document/2086/file
Ma, M., H.H. Wang, Y. Hua, F. Qin, J. Yang. 2021. “African swine fever in China: Impacts, responses, and policy implications.” Food Policy, 102(102065).
While it is hard to dispute the overall strength of the recent cattle market, it is also important to note that during the last 26 months there have been multiple times when markets saw significant downward swings. The most recent of these occurred since the end of January and was likely sparked by the resumption of live cattle imports from Mexico, continued talk of trade disruptions, Avian Influenza, and any number of other factors. The market also fell by more than $40 per cwt from September to December 2023 and more than $30 per cwt from late May to early September 2024. For producers who sold cattle during those pullbacks, the impact on returns was significant.
There are a lot of potential strategies to manage price risk, and the simplest one may be a forward contract. By forward contracting cattle, price risk is largely eliminated as the seller and buyer agree on a purchase price prior to delivery of the cattle. A similar strategy would be selling cattle through an internet auction and specifying delivery at a later time. In both cases, the seller entering the forward contract still has production risk as they must meet the specifications of the contract (weight, quality, etc.), but market swings are no longer a concern.
Finally, I have talked more about Livestock Risk Protection (LRP) insurance than any other risk management strategy recently. It works almost exactly like a put option but is much simpler and has the advantage of flexibility on scale. Unlike several other price risk management tools, LRP insurance can be purchased on any number of head, which is much easier for smaller operations to utilize. LRP has been made more attractive over the last several years through increased premium subsidies and allowing producers to pay premiums after the ending date of the policy.
The specific tool or strategy that cattle producers utilize to manage price risk is less important than their overall risk management plan. I encourage producers to know what risk management tools are available to them, understand how changes in sale price impact their profits, and plan to cover themselves from downside price risk. I still feel good about the fundamentals of the cattle market, but I think the first couple weeks of February have been a good reminder that price risk always exists, even in a bull market!
