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  • The Importance of Veterinarians in Rural Communities

    The Importance of Veterinarians in Rural Communities

    Rural communities frequently lack access to veterinary care, for both companion animals and livestock. This unmet need poses a threat to animal health and wellness, as well as ranch and rural community viability. The demand for veterinarians in rural communities is strong; however, fewer veterinarians opt to start a career in rural areas. Concerns about reduced economic opportunities and social experiences in less populated areas contribute to veterinarians’ and their families’ hesitation to locate in rural communities. Distance, lack of accessibility, and concerns about both economic viability of rural practices and hours on-call also have an impact. 

    The use of telehealth in both animal and human health has been on the rise since the start of the COVID-19 pandemic, allowing many practices to expand and providing access to more clientele. Keeping up with the advancements of digital information is crucial for telehealth in rural areas and requires viable broadband internet services. Rural areas continue to lag urban areas in both broadband availability and adoption, but ongoing public and private efforts continue to build rural broadband capabilities.

    The need for veterinarians located in rural areas will remain. However, telemedicine may provide opportunities both for rural vets and for the ranchers and rural residents who need their services. For example, telemedicine may provide access to specialists in more populated areas. Ranchers may also be able to communicate with their vet virtually (after they have an established relationship), saving travel time.

    In recent work, stronger ranch-veterinary relationships supported higher net revenues of $128.25 per cow plus an additional $24/cow increase in profit from reduced death loss of yearlings. Across 5,000 head, higher ranch incomes created an estimated $338,700 in output, including $79,500 in additional labor income, and 2.4 jobs in the county economy.

    Gains net revenue were estimated after accounting for higher veterinary, feed, supplement, and other costs. In one rural Texas county (population under 15,000), an estimated $60,000 in additional veterinary expenditures resulted in $72,600 output and an additional job in the county. The largest dollar (output) impacts accrued to a wide range of businesses beyond veterinary services, including real estate, banking, restaurants, electric utilities, and general merchandise retail. Equally important, the presence of a veterinarian may help recruit and retain other economic activities.

    King, Kallie, and Rebekka Duddensing. “The Importance of Veterinarians in Rural Communities“. Southern Ag Today 2(40.5). September 30, 2022. Permalink

  • The Securities and Exchange Commission Proposed Climate-Related Disclosures and Unintended Consequences?

    The Securities and Exchange Commission Proposed Climate-Related Disclosures and Unintended Consequences?

    In a previous Southern Ag Today article, I discussed the concept of unintended consequences which is a topic we talk a lot about in agricultural policy.[1]  Generally speaking, unintended consequences result from a lack of knowledge and/or lack of analysis of the potential consequences of a policy change.  The previous article focused on the unintended consequences associated with government policies that created the U.S. ethanol industry.  This article looks at the Securities and Exchange Commission (SEC) proposed rule changes that would require climate-related disclosures of publicly traded firms.[2]

    On March 21, 2022, the SEC proposed rule changes that would require certain climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements. 

    According to the SEC, the proposed rule “would require a registrant to disclose information about its direct greenhouse gas (GHG) emissions (Scope 1) and indirect emissions from purchased electricity or other forms of energy (Scope 2). In addition, a registrant would be required to disclose GHG emissions from upstream and downstream activities in its value chain (Scope 3), if material or if the registrant has set a GHG emissions target or goal that includes Scope 3 emissions.”  Required disclosures for each of the three scopes would be phased in over a period of time.

    This proposal generally requires publicly traded companies to provide investors more information about GHG emissions coming from business activities.  However, as reported by the American Farm Bureau Federation (AFBF), “While farmers and ranchers are not public companies and therefore not ‘registrants’ that are required to report directly to the SEC, their obligations through their regulated customers could be enormous….requirements for Scope 3 greenhouse gas emissions not only directly affects farmers’ and ranchers’ operations, but could create several substantial costs and liabilities, such as reporting obligations, technical challenges, significant financial and operational disruption and the risk of financially crippling legal liabilities.”[3]

    While the proposed rule’s focus is to provide investors more information about the GHG emissions of publicly traded companies, depending upon 1) if the rule is adopted and 2) how it is implemented, it could have implications for U.S. farmers and ranchers because as AFBF points out, “for agriculture, food, and forestry manufacturing alone, there are nearly 2,400 companies registered with the SEC that would be subject to reporting Scope 3 emissions from its farm suppliers.”

    Source: SEC data compiled by American Farm Bureau Federation (AFBF)

    [1] https://southernagtoday.org/2022/04/the-u-s-ethanol-industry-and-unintended-consequences/

    [2] https://www.sec.gov/rules/proposed/2022/33-11042.pdf

    [3] https://www.fb.org/market-intel/overreach-of-sec-proposed-climate-rule-could-hurt-agriculture

    Outlaw, Joe. “The Securities and Exchange Commission Proposed Climate Related Disclosures and Unintended Consequences?“. Southern Ag Today 2(40.4). September 29, 2022. Permalink

  • Peer Advisory Groups

    Peer Advisory Groups

    Agricultural producers use various resources to continue learning and implementing new practices and technologies. Peer advisory groups are an essential tool for progressive and business-minded farmers or ranchers who seek continuous growth and improvement of their ag businesses.

    Like most family businesses, agricultural managers make most business decisions alone. The lack of challenging and diverse ideas often means that producers miss business opportunities or fail to implement beneficial changes for their operations. A peer advisory group serves as a reciprocal advisory board that helps farm businesses generate knowledge and improve management strategies that can impact their operation. 

    A peer advisory group is formed by ranchers and farmers willing to share their experiences and make the most of each member’s talents to solve problems and make business decisions. They constantly exchange information, knowledge, ideas, experiences, and opinions. Each group usually consists of 8-12 producers who periodically meet on each member’s operation. This group size helps maintain the intimacy and trust necessary to obtain the best results from each group member.

    There are several peer group systems with methodologies for agricultural producers to achieve their goals. Argentina’s CREA groups are among the oldest and most experienced peer group associations (Regional Consortiums of Agricultural Experimentation). This association has more than 2,000 members and 60 years of using and perfecting the peer group methodology. CREA members have continuously improved their productivity and are at the forefront of new technologies and management practices. Thanks to the business management mindset generated within these groups, its members are among the top 20% of their country. 

    Although not as popular as in Argentina, a few agricultural companies use this methodology in the U.S. and several private consulting companies offer these services. Through the leadership of the Texas A&M AgriLife Extension Service and funding from Southern Risk Management Education, a peer advisory group has been developed with ranchers from North Texas and Oklahoma, using a similar methodology as CREA groups. This peer advisory group focuses on the production risk associated with new production systems and the business’s economic, financial, and organizational aspects.

    Abello, Francisco “Pancho”. “Peer Advisory Groups“. Southern Ag Today 2(40.3). September 28, 2022. Permalink

  • Drought Continues to Impact Cattle Flow

    Drought Continues to Impact Cattle Flow

    The latest USDA Cattle on Feed report was released on Friday and showed drought conditions continued to impact cattle movement into feedlots during August. Dry weather and poor pasture conditions in some areas have likely led to producers selling cattle sooner than normal. Placements into feedlots during August were up slightly over year-ago levels but were driven by lighter weight cattle. 

    Placements of cattle weighing less than 700 pounds were about five percent higher than in August 2021 while placements of cattle weighing more than 700 pounds were about two percent lower than a year ago. Looking at Texas where drought conditions have been severe, August placements of cattle weighing less than 700 pounds were nearly 12 percent higher than a year ago while total placements were up 9 percent.  

    The late summer months are seasonally the lowest cattle on feed months, and it appears August will be the low for 2022. Feedlot inventory on September 1st was estimated at 11.3 million head which is up slightly from August 1st and also up slightly from a year ago. Feedlot inventories will grow in the fall months but by how much is the big question. The increased placements of lighter cattle over the summer suggest there will be fewer placements during the fall months than usual. It is likely that some cattle that would have normally been placed in September through November were already placed into feedlots during the summer. Early indications for wheat pasture in the Southern Plains look disastrous unless some sustained rainfall comes soon.  Poor wheat pasture establishment will reduce stocker calf demand this Fall but may send more to feedlots at lighter weights.

    Maples, Josh. “Drought Continues to Impact Cattle Flow“. Southern Ag Today 2(40.2). September 27, 2022. Permalink

  • Marketing Strategies if Producers Do Not Have Access to On-Farm Storage

    Marketing Strategies if Producers Do Not Have Access to On-Farm Storage

    Several articles have discussed the benefits of on-farm storage for southern producers (Maples, 2022 and Duncan and Smith, 2022). However, there are marketing strategies that producers can investigate if they do not have on-farm storage. These include delayed pricing contracts, commercial storage, and using futures or options to establish a re-ownership position for the commodity sold.  

    Delayed pricing contracts allow ownership of the grain to be transferred to a local elevator, barge point, or other purchaser without establishing the price. Delayed pricing contracts allow the producer to fix the price after delivery at a future point in time. As with any legal contract, attention to detail is important to fully understand the differences in terms and conditions offered. Additionally, counterparty risk should be investigated. Counterparty risk is the probability that the other party in a transaction may not fulfill its part of the deal and may default on the contractual obligations.

    Commercial storage is another option that can be investigated. Commercial storage requires the producer to pay a monthly storage fee, while maintaining ownership of the grain. Storage fees are highly variable, based on facilities provided and local availability. Not all producers will have access to commercial storage in their location. Similar to delayed pricing contracts, terms, conditions and counterparty risks for commercial storage agreements should be fully understood. 

    Futures and options can be used to establish a re-ownership position after the sale of the crop. Producers can buy a futures contract or a call option for a deferred contract month and experience financial gains if the futures contract price appreciates after the cash crop is sold. For example, buying a March corn contract at $6.90 can provide a financial gain if the March futures contract, between purchase date and expiration, increases (buying low and selling high). This is a speculative position and can result in losses if the contract price declines. This strategy also requires a margin account to cover any losses incurred by the futures position.

    Buying a call option allows a producer the opportunity to profit if prices go higher with a limit on losses if prices decline. The cost of this opportunity is the upfront premium paid. For example, on September 7, 2022, a $6.80 March corn call could be purchased for 47 cents, thus the March futures contract would need to trade above $7.27 before a financial benefit is received by the purchaser. Premiums can be high, so producers may want to offset the premium cost. Selling a call option can reduce the upside potential but save the producer premium costs. Figure 1 shows a simple strategy of selling a $7.50 March corn call for $0.29 and buying a $6.80 call option for $0.47. The net result is a maximum loss of $0.18 and a maximum gain of $0.52. The return to the producer will be contingent on the price of the March corn contract and when options are exercised. The risk and reward should be fully understood before a producer enters any futures or options position. 

    Figure 1. March corn option example: buying an at-the-money call option and selling an out-of-the money call option

    References and Resources:

    Barchart.com. Corn Options Prices. Accessed at: https://www.barchart.com/futures/quotes/ZCH23/options?moneyness=20

    Biram, Hunter, and S. Aaron Smith. “The Option to Augment the Crop Insurance Price Floor.” Southern Ag Today 2(35.1). August 22, 2022. https://southernagtoday.org/2022/08/the-option-to-augment-the-crop-insurance-price-floor/

    Duncan, Hence, and S. Aaron Smith. “Estimating the Cost of a Grain Bagging System“. Southern Ag Today 2(31.3). July 27, 2022. https://southernagtoday.org/2022/07/estimating-the-cost-of-a-grain-bagging-system/

    Maples, William E. “On-Farm Grain Storage in Southern States“. Southern Ag Today 2(38.1). September 12, 2022. https://southernagtoday.org/2022/09/on-farm-grain-storage-in-southern-states/

    Smith, S. Aaron. “Marketing Strategies if Producers Do Not Have Access to On-Farm Storage.” Southern Ag Today 2(40.1). September 26, 2022. Permalink