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What Would Our Clean-Slate Safety Net Look Like?
Over the last year we have spoken at more than 100 farm policy meetings across the United States.  This week a simple but thought-provoking question was posed during Q & A after a farm bill presentation at the Council for Agricultural Science and Technology (CAST) Annual Meeting.  The question was simply: if you had a clean slate to create a strong producer safety net, what would it look like?

In general, the role of a policy economist is typically not to suggest what Congress should do, but rather to help evaluate the impacts of policy proposals on producers and other stakeholders, estimate costs, and try to discern any unintended consequences of the proposal.  It is the job of Congress to consider all the relevant information and make informed decisions.  Think about all of the meetings with producer groups, hearings, and listening sessions that members of the House and Senate agricultural committees and their staffs have held to determine what should be in the next farm bill.  It is their job to determine what they believe is best for their constituents and producers in general.

With that said, combined we have more than 50 years of experience working in agricultural policy; surely we have some thoughts on the matter.  Upon some reflection, the three-legged stool of price loss coverage (PLC), marketing assistance loans (MAL), and crop insurance constitutes an effective safety net.  Together they provide a counter-cyclical, low-cost, and adaptable safety net for U.S. crop producers.  Let’s look at why each of these characteristics are important.
- Counter-cyclical. These programs step in and help when conditions warrant because of low prices (PLC and MAL) or low yields/revenue (crop insurance), and payments go away when conditions are good. The U.S. fiscal situation demands that the limited resources made available to agriculture are used wisely and efficiently. This is why our clean-slate safety net would not continue ARC, which essentially covers the same losses as the Supplemental Coverage Option (SCO), an area-wide insurance policy.
- Low-cost. The safety net is not designed to make producers whole from an expected gross receipts standpoint. Reference Prices that trigger PLC payments due to low prices have been established well below the full cost of production, and MAL Loan Rates are less than one-half the full cost of production for the 23 covered commodities. While Congress is anticipating increases for both Reference Prices and Loan Rates, the levels under discussion are still well below average costs of production. Payment yields are well below budgeted yields for most producers, and the 85% payment factor further reduces producer payments. Crop insurance utilizes a substantial deductible that producers have to lose before insurance begins to pay. And more importantly, with respect to crop insurance, producers pay premiums that are higher or lower depending upon the level of risk in their area/crop and the coverage level chosen.
- Adaptable. The components of the safety net need to be adaptable. While more could be done to ensure that Reference Prices keep up with inflation going forward, Reference Prices have the ability to increase along with market prices due to the Effective Reference Price changes made in the 2018 Farm Bill. As for crop insurance, coverage is based on prevailing prices in the futures markets and policies can be established/adjusted to keep pace with the changes in cropping practices and risks faced by producers.
There are a number of other elements or considerations that we could discuss, but it is worth noting that the clean-slate safety net that would ensure producers can weather the tough times is very similar in structure to what we have now.

Outlaw, Joe, and Bart L. Fischer. “What Would Our Clean-Slate Safety Net Look Like?” Southern Ag Today 3(45.4). November 9, 2023. Permalink
November 9, 2023

Estimate and Manage Your Largest Cost as a Cow-calf Operator

As we move further into fall, winter feeding will move into the forefront of cow-calf operators’ minds. Most cow-calf operations have already begun feeding hay or will do so very soon. Winter feed costs are likely the largest cost for a cow-calf operation and are impacted by the number of days an operation feeds hay, the cost of the hay (or other feeds) that is fed, and the efficiency of the feeding program.

The number of winter feeding days is largely a function of stocking rate and pasture conditions throughout the grazing season. At the national level, the percentage of pasture rated poor and very poor has been lower than last year, but higher than the average of the previous 5-year period. In the Southeast, pastures are generally in worse condition than last year and considerably worse than the 2017-2021 average. In my home state of Kentucky, a lot of cow-calf operations have been feeding hay for a while and will see a higher than normal number of feeding days this winter.

Hay values are not always easy to estimate because most operations produce their own hay. Much of the hay market consists of private transactions, so there is limited public data on market price. Hay is also unique in the sense that there can be wide ranges in quality, as well as, value across regions due to the high costs associated with moving hay from one area to another. For these reasons, producers really have to put a value on the hay they feed based on what it cost them to produce it or what they paid for it, if purchased.

Finally, feeding efficiency is sometimes the forgotten factor in winter feed costs because it can be hard to observe and quantify. There is always a loss associated with feeding as cattle don’t utilize 100% of the hay that is produced or purchased. This is typically a function of hay storage and feeding method and there is merit in looking for economical ways to limit losses at these two points.

I use the table below in Extension programs as a way to discuss the variation in winter feeding costs based on hay values and losses associated with storage and feeding. Costs are expressed on a daily basis with the assumption of a 1,300 lb cow consuming 2.25% of her body weight each day. The number of hay feeding days can be multiplied by the daily costs to estimate hay cost per cow through the winter.

Over the last couple of years, hay values in my area have seemed to shift from the left half of the table to the right half and that has had a significant impact on the cost of wintering cows. For illustration, a $20 per ton increase in hay value leads to an increase of $0.34 per day at the 15% loss level and increases at higher loss levels. Similarly reducing storage and feeding losses from 30% to 15% results in a savings of $0.37 per cow per day when hay is valued at $100 per ton and increases as hay becomes more valuable. Having a feel for winter feeding costs can be a crucial first step in understanding cow-calf profitability and is definitely something that cow-calf operators should seek to manage.

Winter Hay Cost Per Cow Per Day

		Estimated Hay Cost Per Ton
		$60 per ton	$80 per ton	$100 per ton	$120 per ton
Storage and Feeding Losses	15%	$1.03	$1.38	$1.72	$2.06
	30%	$1.25	$1.67	$2.09	$2.51
	45%	$1.60	$2.13	$2.66	$3.19
Assumes 1300 lb cow consumes 2.25% BW per day

Burdine, Kenny. “Estimate and Manage Your Largest Cost as a Cow-calf Operator.” Southern Ag Today 3(45.3). November 8, 2023. Permalink

November 8, 2023

Understanding Basis When Managing Feeder Cattle Price Risk

Price risk management for beef cattle producers is an important tool in navigating cattle markets. As last week’s Southern Ag Today article on livestock marketing showed, many more producers are using Livestock Risk Protection (LRP) insurance, which correlates to program changes and a run up in cattle prices. LRP and many other price risk management tools, including futures and options contracts, mitigate futures price risk, however, it does not set the actual cash selling price for a producer. The difference between the cash price and the futures price is called basis. Basis varies from year to year, by time of year, location, weight class, and other factors.

Figure 1. Range of Basis Values for 500-600 lb Steers in Georgia and the Average Range of Feeder Cattle Futures Prices, 2018-2022

Source: LMIC using data from USDA-AMS and CME Group

LRP and other price risk management tools that lock in a futures price still leave the producer exposed to basis risk. Producers are often more comfortable with taking on basis risk because basis risk is generally much smaller than futures price risk. Figure 1 presents the average range of monthly basis values and feeder cattle futures prices by month over the last five years for 500-600 lb steer calves in Georgia. As seen in Figure 1, the range of futures prices is much larger than the average range of basis values. Data from other states show similar gaps between basis variability and feeder cattle futures price variability.

LRP, futures, options, and other price risk management tools provide protection from futures price changes but basis fluctuation may still affect the final cash selling price making it important to understand basis risk and to include it when making risk management decisions.

Secor, Will. “Understanding Basis When Managing Feeder Cattle Price Risk.” Southern Ag Today 3(45.2). November 7, 2023. Permalink

November 7, 2023
Corn and Soybean Yield Trends

With the US harvest concluding, markets will focus on South American weather forecasts and crop progress. For the 2023/24 marketing year, Brazil and Argentina are projected to account for 53% of global soybean production and 15% of global corn production. By comparison, the US produces 32% of the world’s corn and 28% of the world’s soybeans. Combined, these three countries dominate corn and soybean exports. The three countries account for 89% of soybean exports and 75% of corn exports. As such, production in these three countries has major implications for global prices. This article examines trendline corn and soybean yields for Argentina, Brazil, and the US.

Figure 1. Average Corn Yield by Country, 1977/78 to 2023/24

There are major differences between Argentina, Brazil, and US corn yields. Differences in corn yield can be partially explained by production practices, such as Brazil corn production occurring largely as a second crop after soybeans. For 2023/2024, US corn yield is projected at 173 bu/acre – 83% higher than the global average; Brazil at 90 bu/acre – 5% below the global average; and Argentina at 123 bu/acre – 31% above the global average (Figure 1). Trendline yields also reveal significant differences. Over the past 33 years, Argentina has added 1.92 bu/acre/year, the US has added 1.85 bu/acre/year, and Brazil has added 1.61 bu/acre/year. Since 2014/15, yields for all three countries have flattened substantially, with average increases of less than 0.25 bu/acre/year. Yield variation is also an important feature. Since 2000, Argentina corn yields have been substantially more volatile than Brazil or the US. Argentinian volatility may be partially attributed to a greater impact from extreme weather and economic instability in Argentina, creating greater challenges with input availability, cost, and utilization.

Figure 2. Average Soybean Yield by Country, 1977/78 to 2023/24

Soybean yields across the three countries are more uniform. Projected yields for 2023/2024 are 44 bu/acre, 53 bu/acre, and 50 bu/acre for Argentina, Brazil, and the US, respectively (Figure 2). Brazil has led the way with annual yield improvements, increasing trend line yield by an average of 0.69 bu/acre/year, followed by the US at 0.50 bu/acre/year, and Argentina at 0.29 bu/acre/year. Similar to corn, Argentina and US trend line yields have flattened in the past ten years; however, Brazil’s average yield gain has increased to 0.78 bushels per acre per year over the last decade. The variation in Argentina’s annual yields is significantly greater than that of Brazil or the US.

Yields (along with harvested acres) will be important in determining production in each country and potentially their share of the export market, particularly for soybeans, as a larger share of global production is concentrated in three countries. If yields are forecast below trendline it would be supportive of higher prices and vice versa. Changes in projected yield and production from USDA, CONAB (Companhia Nacional de Abastecimento, National Supply Company, Brazil), and private companies have the potential to influence market direction.

References and Resources

USDA Foreign Agricultural Service – Production, Supply and Distribution. https://apps.fas.usda.gov/psdonline/app/index.html#/app/advQuery

CONAB – https://www.conab.gov.br/

November 6, 2023
US Supreme Court Will Not Hear North Carolina “Ag Gag” Appeal

Last week, the United States Supreme Court denied a Petition for Certiorari filed by the State of North Carolina and the North Carolina Farm Bureau Federation seeking review of a decision striking down a portion of the state’s Property Protection Act, often called an “ag gag” law.

The law, passed in 2015, punishes “any person who intentionally gains access to the nonpublic areas of another’s premises and engages in an act that exceeds the person’s authority to enter.” Activities that “exceed” authority include (1) capturing, removing, or photographing employer data, records, or documents in order to breach the person’s duty of loyalty to the employer, (2) capturing images or sound occurring on the premises in order to breach the duty of loyalty to the employer, (3) placing an unintended camera or electronic surveillance device on the employer’s property to record images or data, and (4) committing an act that substantially interferes with the ownership or possession of real property.

The lawsuit was initially filed by People for the Ethical Treatment of Animals, the Animal Legal Defense Fund, and other animal rights groups who claim the law violates their First Amendment rights.  Earlier this year, the United States Court of Appeals for the Fourth Circuit held that the Property Protection Act was unconstitutional as applied to “newsgathering activities.”  As there will be no Supreme Court review, that decision will stand.

These “ag gag” laws have faced litigation around the country in an attempt to prohibit trespassing and falsifying information to gain access to agricultural facilities to conduct undercover surveillance.  To date, 11 states have passed some version of an “ag gag” statute.  The US Court of Appeals for the Eighth Circuit is considering whether to uphold a lower court decision striking down an Iowa law making it a crime to record video or audio on a “trespassed property.”  Portions or all of “ag gag” statutes have also been stricken as unconstitutional in Idaho, Kansas, Utah, and Wyoming.  The only statute to be challenged and fully upheld was Arkansas’ statute after a Motion to Dismiss was granted in the lawsuit challenging its constitutionality.

For a compilation of all “ag gag” statutes and legal challenges, click here.  To listen to a discussion of these statutes and legal challenges, click here.

United States Supreme Court Petition Information:  Stein v. PETA, 22-1150; North Carolina Farm Bureau Federation, Inc. v. PETA, 22-1148.

Lashmet, Tiffany. “US Supreme Court Will Not Hear North Carolina “Ag Gag” Appeal.” Southern Ag Today 3(44.5). November 3, 2023. Permalink

Photo by Jaxon Matthew Willis (Highpoint, NC): https://www.pexels.com/photo/aerial-photography-of-green-trees-and-body-of-water-13591082/

November 3, 2023