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  • Key Estate Planning Documents

    Key Estate Planning Documents

    Estate planning is not a topic most people are excited to consider.  However, having certain key documents in place can help ensure that one’s wishes are followed and help ease the legal burden on family members left behind. Many states, like Texas, for example, offer statutory forms for certain documents such as powers of attorney and advanced directives, making it easy for residents to prepare and execute these documents.  

    There are five key documents for everyone to have in place:

    1. Will

    A will is simply a document providing how certain assets will be handled upon a person’s death and often appoints an executor to act on behalf of the estate.  The specific rules for executing a will differ by state and may require signatures before witnesses or a notary on the particular state law.  It is highly recommended to have an attorney help draft a will, particularly if an estate includes minor children, adults with special needs, or significant assets such as a farm or ranch.

    2. Advanced Directive

    An Advanced Directive is a document instructing a physician of the patient’s wishes regarding life-sustaining treatment in the event they are diagnosed as terminal or irreversible.  This document clarifies how the patient wants to be treated in this scenario and is designed to avoid devastating family conflicts when wishes are unknown. 

    3. Medical Power of Attorney 

    A Medical Power of Attorney allows the person executing the document to appoint an agent to make medical decisions on they behalf in the event the signor is incapacitated.  For example, if a patient is unconscious during a surgical procedure and a decision must be made, the medical power of attorney would allow the agent to make that decision legally.  

    4. HIPAA Release

    The “Healthcare Insurance Portability and Accountability Act” protects a person’s private healthcare information from disclosure.  Generally, this is a positive, but it can be if a person is incapacitated, and family members are unable to obtain information about the care or condition of their loved one.  A simple form can help alleviate this issue and ensure a selected representative can obtain medical information. 

    5. Durable Power of Attorney

    A power of attorney allows the signor to appoint an agent to act on their behalf to handle financial affairs.  The power of attorney may be general (meaning the POA becomes effective immediately upon signing) or springing (which means the POA is not effective until a future event or date–usually the signor being declared incapacitated by a doctor).  This document allows an appointed agent to do things like pay bills, manage bank accounts, and deal with real estate issues.

    Lashmet, Tiffany. “Key Estate Planning Documents“. Southern Ag Today 2(35.5). August 26, 2022. Permalink

  • Importance of Agricultural Trade for the U.S.

    Importance of Agricultural Trade for the U.S.

    Trade is very important to production agriculture in the United States. Over the last decade, 2011 to 2020, agricultural exports have accounted for over one-third of U.S. gross farm income, 33.7 percent (USDA ERS and FAS).  U.S. gross farm income ranged from $399.4 billion in 2016 to $470.3 billion in 2014 while U.S. agricultural exports ranged from $137.2 to $154.5 billion in 2015 and 2014 respectively. Total agricultural exports reached a record in 2021 at $177 billion, but gross farm income data for 2021 is not out yet.  Moreover, in terms of volume, U.S agriculture exports over 20 percent of its production.  However, for some commodities that number is considerably higher.  In 2021, 83.6 percent of the U.Ss cotton crop was exported as well as 64.8 percent of U.S. sorghum crop (Table 1).  Soybeans, Wheat, and Rice producers also depend on exports for close to half of their production.  Also, the top five crops in Table 1 are very important crops in the South.

    Table 1. U.S. Agricultural Exports as Percentage of Production, 2021

    Commodity Percentage of Production Exported
    Cotton83.6%
    Sorghum64.8%
    Soybeans48.7%
    Wheat 48.6%
    Rice43.5%
    Pork25.4%
    Poultry16.5%
    Corn 16.2%
    Beef12.3%
    Source: Production, Supply, and Distribution (PS&D). USDA, ERS

    U.S. consumers also benefit from agricultural trade as they have year-round supply of food products that either cannot be produced domestically or are highly seasonal such as fruits and vegetables.  Virtually all limes and bananas consumed in the U.S. are imported and over 95 percent of the coffee consumed is not produced domestically (Table 2).  Orange juice and tomatoes are produced in the U.S. commercially, however, U.S. consumers depend heavily on imports for year- round supply of these products.

    Table 2. U.S. Agricultural Imports as a Share of Domestic Consumption, 2021

    Commodity Percentage of Consumer Expenditures
    Limes99.9%
    Bananas99.9%
    Coffee95.1%
    Orange Juice 57.8%
    Tomatoes41.2%
    Beef12.5%
    Pork 7.0%
    Sources: Production, Supply, and Distribution (PS&D). USDA, ERS
    Food Availability System, USDA, ERS

    Regardless of where the agricultural products are produced, domestically or overseas, all U.S. consumers benefit.  Table 3 shows the ranking of the top 10 countries in terms of lowest to highest percentage of disposable income spent on food at home and does not include eating out. U.S. consumers spend on average 7.1 percent of their disposable income on food which makes it the lowest out of 104 countries where data is available.

    Table 3. Percent of Consumer Expenditures Spent on Food Consumed at Home, 2020.

    Country/TerritoryShare of Consumer Expenditures
    1USA7.1%
    2Singapore7.9%
    3United Kingdom9.4%
    4Austria9.7%
    5Switzerland10.2%
    6Ireland10.3%
    7Canada10.6%
    8Australia10.8%
    9South Korea11.6%
    10Germany11.7%
    Sources: ERS, USDA Calculations based on annual household expenditure data from Euromonitor International, Available at HTTP://www.euromonitor.com

    Ribera, Luis. “Importance of Agricultural Trade for the U.S.“. Southern Ag Today 2(35.4). August 25, 2022. Permalink

  • Producers have Significantly Increased the use of LRP

    Producers have Significantly Increased the use of LRP

    Incorporating a price risk management plan into our operation has been difficult for many ranch businesses, even considering larger sized operations. Ranchers face many risks associated with cattle pricing, as we have seen these last years after disruptions in supply chains. Past events emphasize the importance of incorporating a price risk management plan as one of our management strategies to minimize economic losses, lock margins, or reduce the risk of business failure.  

    The USDA Livestock Risk Protection Feeder Cattle (LRP) program is an important tool to reduce price risk in our operations by setting a floor price for our cattle. An analysis made with the last ten years of data for stocker prices shows that this tool provides floor prices and, in many cases, above the October market value (Premium purchased in May, 30 weeks endorsement, at a 98% price level coverage). Producers can choose between different price coverage levels and buy the insurance up to 52 weeks before selling their cattle.  

    During the summer of 2019 and winter of 2021, the USDA made a few changes to the program. These modifications reduced the premium paid by producers, delayed the premium payment to the end of the endorsement period, and made it available in all states and counties. Payments due at the end of the period are a cash-flow advantage compared to buying a Put Option in the futures market.

    The LRP program is available for most ranchers since it does not require a minimum number of cattle to be insured. Small ranchers with even one cow could make use of it. Most importantly, both cow-calf and stockers operations can benefit from this program. 

    Producers from the southern region have significantly increased the use of LRP as a price risk management tool compared to 2020, as shown in Table 1. In 2022, producers will have insured 1.4 million head through the LRP program. For more information on LRP, please check the USDA Fact Sheet (Livestock Risk Protection Fed Cattle | RMA (usda.gov)). If you are interested in buying the insurance, the USDA website lists approved livestock agents and insurance companies. 

    Table 1. LRP – Quantity of Cattle Insured in the Southern States (Heads). Source: USDA – RMA

    Abello, Francisco “Pancho”. “Producers have Significantly Increased the use of LRP“. Southern Ag Today 2(35.3). August 24, 2022. Permalink

  • Fuel Price Volatility a Growing Concern for Commercial Poultry Growers

    Fuel Price Volatility a Growing Concern for Commercial Poultry Growers

    Even as we are in the middle of the heat of summer, contract poultry growers should be concerned about fuel prices going into this winter. Propane prices have remained at a high level through the spring and into the summer. Looking ahead, evaluating the world market demand for energy and current US inventories suggests that prices could increase drastically. According to an analysis by Propane Resources LLC, a leading US propane marketing company, growers should expect a very volatile six to nine months in propane prices. Much of this will be driven by a very active European market with much instability being caused by the Ukrainian conflict, which is stifling natural gas trading. To help fill that void, sellers of liquid natural gas that would normally supply Asia are rerouting that LNG to a European market. That LNG will likely be replaced in Asia by propane. 

    As supply and demand for propane becomes an even more global market, a look at the current and projected US propane inventory for 2022-23 does not give one a good feeling for the upcoming winter’s prices, or even into next spring. The current peak projected inventory for the US comes in at about 3.25 billion gals, and drops off from there, staying at or below the historical monthly minimum inventory over the last five years. This simply means that the supply of propane does not look to be ample for the next several months. For poultry growers, this means the time to secure future pricing is now. Waiting around for a mid-summer price drop will likely mean you will be paying more, not less, for your propane this winter. 

    Brothers, Dennis. “Fuel Price Volatility a Growing Concern for Commercial Poultry Growers“. Southern Ag Today 2(35.2). August 23, 2022. Permalink

  • The Option to Augment the Crop Insurance Price Floor

    The Option to Augment the Crop Insurance Price Floor

    Producers face risks every growing season. Production risks, such as extreme weather and drought, affect yield. Marketing risks, including price direction and volatility, is affected by global supply and demand. Developing strategies that use crop insurance in conjunction with options can be an effective way to manage marketing and production risks within the growing season for row crop producers. 

    Annually, Federal crop insurance provides over $100 billion in total liability protection (RMA, 2022). Many crop insurance products and features are available to producers; however, three popular crop insurance types are yield protection (YP), revenue protection (RP), and revenue protection with harvest price exclusion (RP-HPE). YP offers protection against declines in yield, whereas RP and RP-HPE offer protection against declines in revenue (yield and price). To calculate the insurance guarantee, RP policies use the greater of the projected or harvest crop insurance price while RP-HPE utilizes only the projected price. It is important for producers to consider the in-season price protection offered by the type of crop insurance policy and buyup coverage level as well as the price risk exposure throughout the growing season. Considering price risk exposure throughout the growing season introduces the opportunity for using crop insurance products in conjunction with other risk management tools such as futures and options.

    Options can be used during the growing season to establish a futures price floor greater than the projected price in the crop insurance policy. Buying options allows producers to obtain the right, but not the obligation, to establish a position in the futures market at a specified strike price. The cost to purchase the option is the premium. As such, the strike price minus the premium establishes a futures price floor for the bushels protected. Figures 1, 2, and 3 show the daily December corn futures contract closing price, the projected crop insurance price (for Arkansas the projected price discovery period is January 15 to February 14 (Table 1); projected price discovery periods vary by state), and the put option floor (strike price minus the premium) that could have been established when the market peaked during the 2020, 2021, and 2022 growing seasons. In 2021 and 2022, purchasing a put option was an effective method to establish a futures market price floor above the projected price provided by crop insurance. In both years, the price floor established with the option contract also exceeded the harvest crop insurance price (Table 1). However, each year presents different market opportunities. In 2020, no opportunity was presented to establish a futures market price floor through put option purchases above the crop insurance projected price – the December corn contract declined after the projected price determination period and remained flat through most of the growing season.

    Take Aways

    1. Producers should consider utilizing marketing tools that work in conjunction with crop insurance during the growing season.
    2. In-season marketing opportunities can be short lived, so action should be considered when opportunities are presented.
    3. Each marketing year is different, presenting unique challenges and opportunities. Knowing how to use numerous marketing tools (options, futures, hedge-to-arrive (HTA’s), forward contracts, basis contracts etc.) allows producers to select the tool that is best suited to provide in-season price protection.

    Figure 1. Projected Crop Insurance Price, December Corn Price, and May 20th Option Floor, 2022

    Figure 2. Projected Crop Insurance Price, December Corn Price, and May 7th Option Floor, 2021

    Figure 3. Projected Crop Insurance Price, December Corn Price, and February 21st Option Floor, 2020

    Table 1. Projected and harvest crop insurance prices for corn (Arkansas), 2020-2022

    YearProject Price Discovery PeriodProjected PriceHarvest Price Discovery PeriodHarvest Price
    2020
    2021
    2022    		01/15 – 02/14
    01/15 – 02/14
    01/15 – 02/14    		$3.95
    $4.48
    $5.75    		08/15 – 09/14
    08/15 – 09/14
    08/15 – 09/14    		$3.54$
    5.36
    TBD

    Resources and References

    USDA Risk Management Summary of Business. (August 2022). USDA Risk Management Agency. https://www.rma.usda.gov/SummaryOfBusiness

    Biram, Hunter, and S. Aaron Smith. “The Option to Augment the Crop Insurance Price Floor“. Southern Ag Today 2(35.1). August 22, 2022. Permalink