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  • Job Market Behavior During Pandemic Times

    Job Market Behavior During Pandemic Times

    Labor markets remain strong despite predictions by some economists that the country may be heading into a recession. After a substantial increase in unemployment due to the lockdowns imposed at the onset of the pandemic, there has been a strong recovery in the demand for workers. At the same time, the availability of labor has been reduced as a result of increased government benefits, ongoing fear of contracting COVID, substantial reductions in immigration, an increase in people’s savings, career moves (and transitions to self-employment), and early retirement of older workers (Mitchell et al., 2021). The combination of strong demand for labor and a reduction in the supply of workers has led to shortages across the board, including in agricultural industries that are heavily reliant on labor like specialty crops.

    The number of unemployed persons per vacancy since 2007 is shown in Figure 1. In the last fifteen years, the peak of unemployment was experienced in 2008 (during the Great Recession). Back then, there were almost seven people competing for every available job. In May of 2020, about two months after the start of the pandemic closures, the ratio was five people for every job. The latest data point (May of 2022) evinces that, two years after the onset of the pandemic, the ratio went down to 0.5. In other words, there is currently half a person available for every job posted or, equivalently, there are two open jobs for each unemployed worker!

    Economic theory predicts that all else equal, whenever there is a shortage of a good or service, its price goes up. The cost of worker hours offered to the market is captured by total compensation, which includes salaries and wages, health and retirement benefits, and other monetary and nonmonetary incentives. Total compensation for civilian workers went up by 1.4% for the three-month period ending in March 2022 (first quarter), and by 4.5% for the twelve-month period spanning March of 2021 to March of 2022. Increases in wage rates, coupled with supply chain and other disruptions, have impacted all sectors of the economy, giving rise to inflationary conditions. In response, the central bank has started to increase interest rates (and thus borrowing costs) to cool down the economy. The effect of these changes on the labor markets will be seen in the following months.


    Figure 1. Number of Unemployed Individuals Per Job Opening, U.S., May 2007 – May 2022

    Source: News Release, Bureau of Labor Statistics, U.S. Department of Labor. Data are seasonally adjusted. Information accessed online on 7/7/2022.

    Figure 2. Three-month Total Compensation Percentage Change, U.S., 2017-2022

    Source: News Release, Bureau of Labor Statistics, U.S. Department of Labor. Data are seasonally adjusted and correspond to civilian worker. Information accessed online on 7/7/2022.

    References

    Mitchell, Josh; Weber, Lauren; and Chaney, Sarah. (2021). Wall Street Journal, Eastern edition; New York, N.Y. Article published the 15 of October of 2021.

    Gutierrez-Li, Alejandro. “Job Market Behavior During Pandemic Times“. Southern Ag Today 2(33.5). August 12, 2022. Permalink

  • How Important is the Phillippines for U.S. Agricultural Trade?

    How Important is the Phillippines for U.S. Agricultural Trade?

    Last month (July 2022), the Foreign Agricultural Service of USDA led a trade mission to the Philippines that included representatives from nearly 30 agribusinesses and farm organizations and 10 state departments of agriculture. The primary purpose of the mission was to help expand agricultural trade, increase collaboration on key issues impacting agriculture in both countries, and strengthen Philippine food security. The trade mission highlights the importance of the Philippines for U.S. agriculture. In 2021, U.S. agricultural exports to the Philippines totaled $3.6 billion making it the 7th largest foreign destination for U.S. agriculture. Most of these exports were from the Western United States ($2.5 billion in 2021) primarily comprised of wheat, dairy, and soybean meal. 

    The Philippines is not as important for agricultural export sales in the U.S. South ($508 million in 2021) (See Table 1), ranking 31st among destination markets for the region. However, for certain agricultural commodities, the Philippines is very important (USDA, 2022). The major agricultural exports to the Philippines originating from southern states are reported in Figure 1. In 2021, poultry and related products were the leading agricultural export at more than $140 million. This was a significant increase above 2020 during the height of the pandemic. The next leading exports, soybean meal and pork, were valued at $132 million and $59 million, respectively. For all these products, the Philippines was the 7thlargest destination market for the U.S. South.

    Table 1. U.S. agricultural exports to the Philippines, total and by region: 2018-2021

    2018201920202021
    $ million$ million$ million$ million
    Total U.S.$3,089.7$3,004.2$3,215.5$3,554.3
    U.S. Region
    West2,114.82,207.62,502.72,524.5
    South517.1375.6285.6508.4
    Midwest385.8351.5357.2437.7
    Northwest72.169.470.083.7
     
    Source: USDA, Foreign Agricultural Service, Global Agricultural Trade System (GATS) (2022)

    Figure 1. Top U.S. exports to the Philippines from the Southern U.S.

    Note: The Southern U.S. includes the following: Alabama, Arkansas, Delaware, District of Columbia, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, and West Virginia.
    Source: USDA, Foreign Agricultural Service, Global Agricultural Trade System (GATS) (2022)

    Although the Philippines is important for U.S. agricultural trade, there is no trade agreement between the two countries. While this trade mission was an important step in the right direction, MOUs and unofficial promises are not substitutes for official trade liberalization policy. The Philippines is a founding member of the Association of Southeast Asian Nations (ASEAN), which is a political and economic union of 10 member states in Southeast Asia that includes important U.S. trading partners like Vietnam, Indonesia, Singapore, and Thailand. Other than Singapore, the U.S. has no trade agreements with ASEAN countries. This is important because non-tariff barriers (NTM’s) in ASEAN have progressed slowly. NTMs on agri-food trade in ASEAN’s priority sectors rose from 434 measures in 2000 to 1,192 measures in 2010 and to 2,181 measures in 2019, with sanitary and phytosanitary (SPS) measures making up the largest component of NTMs, accounting for about half of total measures (Suvannaphakdy and Kevin, 2021). Officially addressing these NTM’s could increase U.S. and regional agricultural exports to ASEAN countries including the Philippines.

    References

    Suvannaphakdy, Sithanonxay and Neo Guo Wei Kevin. 2021. “Why ASEAN Needs to Reduce Its Non-Tariff Measures on Agri-Food Imports.” The Diplomat (July 02, 2021).

    US. Department of Agriculture. 2022. Global Agricultural Trade System (GATS). Foreign Agricultural Service, Washington, DC.

    Muhammad, Andrew. “How important is the Philippines for U.S Agricultural Trade?” Southern Ag Today 2(33.4). August 11, 2022. Permalink

  • Supply Seasonality of Specialty Crops in the United States

    Supply Seasonality of Specialty Crops in the United States

    The rise of income levels, increased availability of nutritional information, and the pursuit of a healthier lifestyle have generated a shift in the preferences of American consumers over the past few decades. This has led to a steady supply of specialty crops throughout the year to meet a growing and more sophisticated consumer demand. However, due to seasonal patterns and specialization in the production of fresh fruits and vegetables, it is necessary to rely on imports from different regions of the world to provide U.S. customers with a more stable supply and less volatile prices of these products.

    A selected group of fruits and vegetables (i.e., tomatoes, peppers, onions, apples, avocados, grapes, berries, and citrus) was considered to analyze their annual patterns of domestic supply, as well as their corresponding prices and imports from both the Northern and Southern Hemispheres of the continent. On average, between 2015-2019, the annual domestic production of these crops targeting the fresh market represented a total economic value of $11.37 billion, and an additional $11.74 billion were imported each year (USDA-NASS, USDA-FAS). The data used consisted of monthly imports from 2015 to 2019 obtained from USDA-FAS and monthly movements of local produce from all domestic districts (excluding imports and exports) obtained from USDA-AMS. For prices we used the corresponding USDA-AMS monthly average prices at Terminal Markets (wholesale prices). Weighted averages were used to combine subcategories within a crop to reflect a common unit of measure.

    The overall supply and observed price throughout the year of the selected crops are presented in Figure 1. Note that for some crops there is strong seasonality in their domestic supply, with peaks in different months depending on the crop analyzed. Avocados and berries have a peak of domestic production during summer, while grapes, apples and citrus show a steady increase of production from fall. For most of the analyzed crops, the imports from different regions are required to maintain a stable and sufficient supply through the year. Imports from North America (i.e., Mexico and Canada) are the main source of fresh vegetables and fruits when local production is insufficient to meet the domestic demand. North America’s imports are particularly important for tomatoes, avocados, and peppers. For some other crops such as grapes and citrus, the imports from South America play an important role in maintaining produce availability and price stability during the year. The prices for each crop show an expected pattern according to the total supply of those products and to some demand considerations. Particularly, relatively higher prices are observed during the off-season of local produce.  

    The market information summarized in this article could be used by local specialty crop producers and retailers to identify fundamental patterns in the availability of fresh fruits and vegetables and determine the existence of price effects derived from variations in the overall supply. This information could also help local growers design better production and marketing strategies aimed to reduce marketing risk by aligning production decisions with more favorable market conditions.

    Figure 1. Supply and Price Seasonality of Selected Specialty Crops, Average 2015-2019

    Source: USDA FAS, USDA AMS

    Villavicencio, Xavier, and Samuel Zapata. “Supply Seasonality of Specialty Crops in the United States.” Southern Ag Today 2(33.3). August 10, 2022. Permalink

  • Drought is Sending More Cows to Market

    Drought is Sending More Cows to Market

    The July Cattle Inventory report confirmed another year of herd liquidation. July beef cow inventory totaled 30.4 million, down 2 percent from the previous year. It also appears that very few are looking to expand their herds with replacement heifers down 3.5 percent. With the July numbers in hand, everyone’s attention will turn to the second half of 2022 and the January Cattle inventory report.

    This summer, drought conditions have intensified in the Southeastern U.S., impacting forage production. According to the most recent USDA Crop Progress Report, 21% of pasture is in poor or very poor condition in the Southeast. In Arkansas, conditions are much worse, with 75% of pastures in poor or very poor condition. The Southern Plains are also in extreme drought. The USDA Crop Progress report shows that 68 percent of pasture is in poor or very poor condition.

    Many producers are deciding between feeding hay now or culling cows. The auction data confirms high volumes of cull cows and bulls coming to market. The table provides July cull cow and bull auction volumes for Arkansas, Missouri, and Oklahoma. July cull cow and bull volume in Arkansas totaled 4,455 head, up 37.2 percent year over year. Volumes were 83.8 percent and 105.3 percent higher in Missouri and Oklahoma, respectively.

    July Slaughter Cattle (Cows and Bulls) Auction Receipts

    StateJul-22Jul-21% Chg. Y/Y
    Arkansas4,4553,24637.2%
    Missouri15,7948,59383.8%
    Oklahoma12,3966,038105.3%

    Large volumes of cull cows have pushed beef cow slaughter even higher. The graph shows cumulative beef cow slaughter for the first 29 weeks of the year. Currently, beef cow slaughter is at its highest in the last 30 years, totaling 2.21 million head. Based on the January 2022 beef cow inventory estimate, we slaughtered 7.3 percent of the herd. Based on current slaughter totals, we could see the January 2023 beef cow inventory decline at least 3 percent, the largest decline since the mid-1980s.   

    Mitchell, James. “Drought is Sending More Cows to Market“. Southern Ag Today 2(33.2). August 9, 2022. Permalink

  • July Volatility in November Soybean Futures Prices

    July Volatility in November Soybean Futures Prices

    The change in the November soybean futures price from the market open on July 1 to market close on August 1 was down $0.56/bu. However, the open-to-close change does not capture the volatility that occurred in July 2022. The trading range for the month (contract high-low) was $2.01/bu, with 11 out of 21 trading days having moves of greater than (+/-) 25 cents (Table 1). Volatility reflects uncertainty regarding drought/production, geopolitics, trade, the global economy, and many other factors. Futures markets reflect the opinion of market participants on factors affecting current and future supply, demand, and prices. Market participants, including producers, merchandisers, end users, and speculators, will weigh factors differently; however, at any point in time, the futures market can be deemed as the best guess of future value as indicated by trades for various contract months.  The constant flow of new information causes markets to move continuously. 

    As mentioned above, numerous factors have attributed to the dramatic price swings in soybean markets. However, one factor that will be watched closely moving forward is the change in the CME crush margin and the allocation of soybean value embedded in soybean meal and soybean oil. Crush margins can provide producers with valuable information regarding the drivers of demand for soybeans and soybean futures market prices. The CME crush margin is defined as:

    CME Crush Margin = [(Price of Soybean Meal ($/short ton) x 0.022) + (Price of Soybean Oil (¢/lb) x 11)] – Price of Soybeans ($/bu)

    In 2022, the value of the September soybean CME crush margin had ranged from $1.38/bu to $2.26/bu, with an average of $1.80/bu. The CME crush margin on August 1 was $2.18/bu, near the top of the 2022 range indicating a rebound in the June low and a strong incentive for more crush (Figure 1). When the CME crush margin peaked on April 27, the percent of value embedded in a bushel of soybeans was 52% meal and 49% oil. In other words, oil was leading the charge for soybean value (the value of a bushel of soybeans attributed to oil and meal has ranged from 60:40 to 50:50 in 2022). Now, as of August 1, that ratio has moved to 58:42 indicating meal is providing a greater influence on soybean value. 

    Both soybean oil and meal have provided strong influence in soybean markets this year and demand for both products remains strong. Strong demand and shrinking USDA 2022/23 U.S. ending stock numbers (230 million bushels in the July WASDE) will continue to support soybean prices. Bearish influences, economic growth and geopolitical tensions, primarily with China, are still present in the market, but demand continues to be a positive factor supporting soybean prices.

    Table 1. November Soybean Futures Price July 1 – August 1, 2022

    Figure 1. Percent of Soybean Value Attributed to Meal and Oil Compared to CME Cush Margin (September Contracts)

    References and Resources

    Barchart.com. Accessed at: https://www.barchart.com/futures/grains?viewName=mainCME Group. Soybean Crush Reference Guide: https://www.cmegroup.com/education/files/soybean-crush-reference-guide.pdf

    Smith, S. Aaron. “July Volatility in November Soybean Futures Prices“. Southern Ag Today 2(33.1). August 8, 2022. Permalink