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  • Should We Form a Cooperative?

    Should We Form a Cooperative?

    On occasion, I am approached by a group of producers who have a business idea that is too big for any one producer to achieve. Their first thought is “we need a cooperative.” Their second thought is often “what is a cooperative, and how does it work?” Simply put, a cooperative is a business that is jointly owned by its customers. It operates much like any other business; however, its ownership and distribution of profits is based on an individual’s use of the business. Cooperatives are an integral part of our agricultural system and help to guarantee market access and manage risk for agricultural producers. They benefit their communities by helping profits to remain in the local economy. 

    Cooperatives generally form out of an economic need to correct shortcomings in the market. In general, agricultural producers form cooperatives for various reasons:

    • Reduce costs through volume purchasing
    • Obtain market access to more buyers
    • Improve bargaining power when marketing commodities
    • Obtain products and services that might not otherwise be available
    • Improve quality of offered products and services
    • Improve income through activities that add value to commodities

    Cooperation, then, is a strategy that agricultural producers jointly employ to achieve their business goals. However, this strategy comes with added complexity to manage. Further, it isn’t a solution for a poor business plan. A cooperative is a business with a joint ownership structure. Its success is subject to the economics of the business and its approach to the competitive environment. For those who are interested in forming a cooperative, you might ask yourselves a few pertinent questions.

    • Do we have a business plan?
    • What volume is required for profitability?
    • Will we have enough members to provide the needed volume of business?
    • Is this product or service already provided in the market?
    • Who are our competitors, and how might they react?
    • Is the cooperative necessary to combat the market power of our buyers or sellers?

    Your Extension professional can help you think through these issues. 

    Further Reading

    John Park. “The Question of Cooperation” Field & Fiber, Spring/Summer 2021, Plains Cotton Cooperative Association. https://pcca.com/article/the-question-of-cooperation/

    John Park, Jonathan Baros, Rebekka Dudensing. 2009. “Communicating the Value of Texas Cooperatives.” Roy B. Davis Cooperative Management Program, Texas A&M AgriLife Extension. https://agecoext.tamu.edu/wp-content/uploads/2013/08/Communicating_Cooperative_Value.pdf

    Park, John. “Should We Form a Cooperative?“. Southern Ag Today 2(39.5). September 23, 2022. Permalink

  • Why is Trade Freedom Important?

    Why is Trade Freedom Important?

    Recently the importance of agricultural trade for the United States was discussed which accounts for over one-third of U.S. gross farm income.  However, the benefits of trade freedom or having less trade barriers go well beyond a specific industry or country as seen in the graph below.  Countries are divided into three trade freedom groups, lowest, middle, and highest.  The areas compared for each trade freedom group are higher average per capita national income, food security, political stability along with violence and terrorism, and the environment. Countries with more trade freedom have higher average per capita national income, $28,947, compared to $8,513 and $3,769 for the middle and lowest trade freedom groups, respectively.  Moreover, countries with higher trade freedom scored higher in terms of food security.  This is an interesting point as some people believe that in order to have food security most of the food must be produced domestically, which is not necessarily the case.  Countries should produce agricultural products in which they have comparative and competitive advantages and import the ones that they do not or cannot produce them year-round.

    Countries with higher trade freedom experience more political stability and less violence and terrorism. Something very important for law-abiding citizens that just want a peaceful life for themselves and their families. Finally, countries with more trade freedom also have healthier environments and less polluted ecosystems.  As in the area of food security, trade freedom allows countries to be more efficient in the use of their resources by producing those products that they are competitive and import the rest.

  • Cover Crop Seed Availability Hinders Cover Crop Adoption by Agricultural Producers

    Cover Crop Seed Availability Hinders Cover Crop Adoption by Agricultural Producers

    As more aggressive action has been taken to confront the climate crisis under the Biden Administration, environmental sustainability issues have become more relevant. Interest in the value of cover crops as a means to preserve and improve cropland has continually increased. Cover crop use has once again been on the rise (2017 Census of Agriculture) as our producers continually seek a balance between environmental and financial sustainability. Among the challenges reported by producers, cover crop seed availability is an issue. Many producers have also said cover crop seed costs are too high and that the additional cost of planting and managing a cover crop stymies cover crop adoption.

    The University of Georgia Cooperative Extension Service conducted a cover crop survey with cotton, corn, and peanut producers throughout Georgia, Alabama, and Florida, from January 28, 2021, to March 31, 2021. Figure 1 illustrates the cost of cover crop seed based on the number of species in the cover crop blend. The average seed cost of single specie cover crops was $23.53 per acre, and for multi-species cover crops, it was $25.88 per acre. Most producers using cover crop monoculture indicate their seed cost ranges from $10 to $19 per acre. For mixed cover crops, there is more of a spread in the responses, with the $20-$29 range being the most common.  

    To solve the challenge of the availability of cover crop seed, some producers reported that they harvested their cover crop seed to either sell it or plant it the following year. However, most farmers were not harvesting their cover crop seed. A few possible explanations for not harvesting and selling seed could be machinery related, time, seed germination, or understanding the value of the seed if they were to sell. Another possibility for not keeping seed is that they have chosen either not to plant a cover crop the following year or to plant a different type. One last explanation could be that farmers participating in a cost-share program could not harvest the cover crop. Most conservation cost-share programs won’t allow producers to harvest seed to sell or save for seed. 

    A cover crop is relatively expensive to plant. Most farmers who responded to our survey in these three states do not currently graze or harvest their cover crop, which would help to offset some of that expense. It is important for farmers to find and adopt the most beneficial cropping practices, which may include cover crops. As more producers become interested in planting cover crops, emerging local business opportunities may materialize for specialized seed companies to identify and stock the cover crop seed mixes that are of interest.   

    Figure 1. Number of producers reporting specified ranges of cover crop seed cost per acre for single specie cover crops and multi-species cover crops for cotton, peanut, and corn producers in Georgia, Alabama, and Florida. Total respondents are 40. 

    References and Resources:

    USDA National Agricultural Statistics Service, 2017 Census of Agriculture. Complete data available at www.nass.usda.gov/AgCensus.

    Harkins, Madison, Yangxuan Liu, Alejandro Plastina, Guy Handcock, and Amanda Smith. “Cover Crop Seed Availability Hinders Cover Crop Adoption by Agricultural Producers.” Southern Ag Today 2(39.3). September 21, 2022. Permalink

  • Livestock Feed Price Implications for Fall

    Livestock Feed Price Implications for Fall

    As we move into fall, we have a pretty good feel for the size of the 2022 corn crop. Acreage is down significantly from last year and yield estimates were reduced recently to 172.5 per acre. Barring a major shock on the demand side, feed prices are going to be a challenge for cattle operations this winter.

    Perhaps the most important thing to remember is that cost of gain and value of gain are correlated. Feedlots prefer to place heavier feeder cattle when feed prices are high, so the price discount on higher weights gets smaller. This narrowing of price slides increases the value of additional pounds when feeder cattle are sold. Opportunities can still exist in high feed price markets depending on cattle price dynamics. Producers may find that opportunities to grow feeders still exist, especially if they can efficiently make use of alternative feeds. Along those same lines, producers need to make sure they distinguish between cost of feed and cost of gain. Cost per ton of feed really does not tell me much unless I know something about that feed’s ability to put weight on cattle. 

    Finally, there are also implications for fall grazing. A quick glance at the drought monitor reveals how much variation exists across the country. While grazing costs have increased recently as well, they have not increased as much as purchased feed. So fall pasture is likely the most attractive feed that can utilize to add pounds. The current market also increases incentives to incorporate rotational grazing or strip grazing to increase the utilization of those forages.

    Burdine, Kenny. “Livestock Feed Price Implications for Fall“. Southern Ag Today 2(39.2). September 20, 2022. Permalink

  • U.S. Feed and Residual Use: Consumption Trends in the Biofuel Era

    U.S. Feed and Residual Use: Consumption Trends in the Biofuel Era

    Feed and residual use has long been the largest consumption category in the USDA supply and demand tables for U.S. corn (Figure 1)[1]. That began to change with the passage of the Renewable Fuel Standard Program in 2005[2]. Corn for fuel increased over the next several years, from under two billion bushels in the 2005/2006 marketing year to over five billion bushels in 2011/2012 when it overtook corn for feed as the number one use category.  Since then, fuel and feed have competed for the top spot for corn consumption.   

    Additionally, the price of corn has been increasing in the biofuel era. From the increased planting flexibility in the Freedom to Farm Act in 1996 to the passage of the Renewable Fuel Standard in 2005, prices averaged $2.15 per bushel with a low of $1.82 in 1999 and a high of $2.71 in 1996. From 2006 to 2021, the average price more than doubled to $4.33 per bushel with a low of $3.04 in 2006 and high of $6.89 in 2012. Currently, the price estimate for the 2022 corn crop is $6.65, reflective of a 54% increase in one year alone.

    The peak in corn for feed consumption came in the 2004/2005 marketing year at just over six billion bushels. After the passage of the Renewable Fuel Standard in 2005, feed use began to fall, and the price of corn began to increase (Figure 2). From 2013 to 2019, the price of corn appears to be associated with an increase in feed use. Since 2020, feed use has fallen with increases in corn price.

    There is more to the corn story than the inverse relationship between feed input demand and prices, and the implications of relatively higher corn prices are always looming. In spite of the fall in corn for feed use in 2006 associated with the RFS, an ethanol fuel co-product became available known as distiller’s dried grains with solubles (DDGS).  Each bushel of corn (56 pounds) used for fuel produces about 16 pounds of DDGS which adds to feed grain production, providing some price relief to cattle, pork, and poultry producers.  In addition, the size of the livestock and poultry industries, measured by grain consuming animal units (GCAUs), has grown from about 75 million in the 1980s to 101.7 million GCAUs in 2019 (Figure 3). Another trend in the feed use category we can draw from GCAUs is the inverse relationship between corn prices and feed use. There was a rebound in use as prices fell from their record highs in 2012 with a peak in 2014. Even with relatively low and stable prices, energy feed plus DDGS per GCAU has been on a downward trend. That points to an increasingly efficient meat sector producing more pounds of protein on fewer pounds of feed.  

    What does this mean for corn prices moving forward? From the demand side of the balance sheet, the feed use category near term looks to be limited by lower overall GCAUs and declining feed use per GCAU. As livestock and poultry numbers increase and as grain prices go down, we may not return to previous levels of use. Improved feeding efficiencies may dampen the feed use response in future supply and demand balance sheets.   

    Figure 1. U.S. Corn Use

    Figure 2. U.S. Corn Feed and Residual Use and Season Average Farm Price

    Figure 3. Grain Consuming Animal Units (GCAU) and Energy Feed per GCAU

    Welch, J. Mark. “U.S. Feed and Residual Use: Consumption Trends in the Biofuel Era“. Southern Ag Today 2(39.1). September 19, 2022. Permalink

    [1] For an explanation of the feed and residual use category used by USDA in their supply and demand tables, see “Implications of an Early Corn Crop Harvest for Feed and Residual Use Estimates”, FDS-12f-01, Economic Research Service/USDA July 2012.

    [2] Details of the Renewable Fuel Standard Program authorized under the Energy Policy Act of 2005 and expanded under the Energy Independence and Security Act of 2007 can be found at https://www.epa.gov/renewable-fuel-standard-program.