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  • Debt Relief for Certain Farmers & Ranchers

    Debt Relief for Certain Farmers & Ranchers

    On March 11, 2021, President Biden signed the American Rescue Plan (ARP) Act of 2021 into law.  Section 1005 of the act required the Secretary to make payments to socially disadvantaged farmers or ranchers “in an amount up to 120 percent of the outstanding indebtedness” of eligible producers for both direct and guaranteed loans administered by various USDA agencies.[1]  While USDA immediately went to work implementing the provisions, multiple lawsuits were filed – alleging that the provision was unconstitutional because it violates the Due Process Clause of the Fifth Amendment – and 3 courts have issued injunctions prohibiting USDA from issuing any payments, loan assistance, or debt relief pursuant to Section 1005.[2]  According to USDA, the injunctions “do not prohibit FSA from completing administrative actions leading up to payments, including providing payment notifications to potentially eligible borrowers.”[3]  At the time of passage, the Congressional Budget Office (CBO) estimated the provision would cost $3.98 billion over the next 10 years.[4]

                In the meantime, the Build Back Better Act (BBB) of 2021 – which passed the House on November 19, 2021 – sought to remedy the concerns raised about Section 1005 in the American Rescue Plan.  Specifically, Section 12101 of the BBB amends Section 1005 of ARP, in part, by changing the focus of the debt relief to “economically distressed borrowers” with eligibility tied to eight (8) broad criteria ranging from debt delinquency metrics to whether the farm or ranch was headquartered in a county with a poverty rate of 20 percent or greater.[5]  With the presumably expanded list of eligible borrowers, CBO estimated that the provision would cost $6.647 billion over the next 10 years.[6]  Due, in part, to the price tag of the overall bill, the BBB has languished in the Senate for the last several months.

                Last week, Senators Schumer and Manchin announced a joint agreement to add various provisions from the BBB – via the Inflation Reduction Act of 2022 – to the FY2022 Budget Reconciliation Bill.[7]  In our review of the draft legislation posted last week, it does not appear that debt relief for farmers and ranchers was included.  While Congressional leaders may have plans for including debt relief in another legislative vehicle, unless and until they do – or unless and until the courts rule on the pending cases or lift the existing injunctions – potentially eligible farmers and ranchers will have to keep waiting.  

    [1] https://www.congress.gov/117/plaws/publ2/PLAW-117publ2.pdf

    [2] See Holman v. Vilsack, 21-1085-STA-jay, Order Granting Motion for Preliminary Injunction (July 8, 2021); Miller v. Vilsack, 4:21-cv-00595-O, Order (July 1, 2021); Wynn v. Vilsack, 3:21-cv-00514-MMH-JRK, Order (June 23, 2021). 

    [3] https://www.farmers.gov/loans/american-rescue-plan

    [4] https://www.cbo.gov/system/files/2021-03/Estimated_Budgetary_Effects_of_hr1319_detailed_tables.xlsx

    [5] https://www.congress.gov/congressional-record/volume-167/issue-201/house-section/article/H6375-4

    [6] https://www.cbo.gov/system/files/2021-11/hr5376_title_I_Agriculture.xlsx

    [7] https://www.democrats.senate.gov/inflation-reduction-act-of-2022

    Fischer, Bart, and Tiffany Dowell-Lashmet. “Debt Relief for Certain Farmers & Ranchers.” Southern Ag Today 2(32.4). August 4, 2022. Permalink

  • Profitability of Cover Crops

    Profitability of Cover Crops

    Research into cover cropping has shown some benefits to soil health and conservation. However, adoption of cover cropping has been relatively low due in part to uncertainty about its profitability. When considering whether to adopt this practice it is important to understand the associated costs.

                Seed and planting cost make up the bulk of additional costs of cover cropping. Table 1 shows examples of the cost of planting various cover crops from prices obtained in Mississippi. Seed costs range from $18.00/ac for oats to $43.80/ac for Austrian winter peas. Planting costs are estimated at $11.68/ac including direct expenses as well as indirect equipment costs (estimates derived from the Mississippi State Enterprise Budgets assuming a 20’ grain drill). Total costs of cover cropping range from $29.68/ac to $55.48/ac. Your costs will vary depending on local conditions, seeding rates, and equipment.  In some cases, an additional herbicide application is also needed to terminate the cover crop.

    Table 1. Costs of Cover Cropping

    CropSeed Cost $/lbSeeding Rate lb/acreSeeding Cost $/acPlanting Cost $/acCover Crop Costs $/ac
    Austrian winter pea0.736043.8011.6855.48
    Crimson Clover1.802036.0011.6847.68
    Cereal Rye0.396023.4011.6835.08
    Tillage radish2.40819.2011.6830.88
    Oats0.365018.0011.6829.68
    Rye+Clover (89/11 Mix)0.455022.3611.6834.04

    For cover cropping to be profitable there needs to be a positive yield benefit to offset the added costs. However, research has shown that cover cropping may have no effect on yield or in some cases decrease yield. The impact on yield is highly dependent on which crop is being grown. Spencer et al. (2021) found that Austrian winter pea and cereal rye decreased corn yield by 37 and 45%, respectively, in the first year of implementing cover crops. In subsequent years there was no significant differences in yield found. But, net returns were significantly reduced in 2 out of the 4 years examined. Bryant et al. (2020) found that, relative to reduced tillage-subsoiling, a cereal rye cover crop had no impact on soybean yield but a radish cover crop reduced soybean yield by 12%. However, these results are atypical for what is usually observed in soybeans under cover cropping. Regardless, the lack of a positive yield response led to lower net returns under both the cereal rye and radish cover crops in that study. Lastly, Denton et al. (2021) found no yield response from cover cropping in cotton. This led to lower net returns of $20.34/ac to $124.64/ac under cover cropping. These studies show why cover cropping may not be profitable in the Mid-South.

    One way to help alleviate the lack of profitability would be to secure Environmental Quality Incentives Program (EQIP) payments. As shown in Table 2, payments vary from state-to-state and by cover crop. Producers are only eligible for payments on land that is not currently under cover cropping. There are also limitations on payment amounts and duration. More information on your specific state’s EQIP payments can be found at: https://www.nrcs.usda.gov/wps/portal/nrcs/detailfull/national/programs/financial/?cid=nrcseprd1328426

    Table 2. Environmental Quality Incentives Program Payments for Cover Cropping 2021

    AlabamaArkansasLouisianaMississippiOklahomaTennesseeTexas
    Practice EQIP Payments $/acEQIP Payments $/acEQIP Payments $/acEQIP Payments $/acEQIP Payments $/acEQIP Payments $/acEQIP Payments $/ac
    Cover Crop-Basic
    (Organic and Non-organic)    		$52.36$50.22$50.05$51.73$48.60$52.14$33.74
    Cover Crop-Multiple Species (Organic and Non-organic)$64.02$61.75$61.71$63.26$60.25$63.79$41.51

    The results discussed here may differ from what is found on your farm. When deciding whether to adopt cover cropping it is important to test if the practice is profitable on a small area first. Once it is determined if it is profitable for you then larger scale adoption can be implemented. Your local NRCS office can also help with additional information about obtaining EQIP payments.

    References

    Bryant, C.J., Krutz, L.J., Reynolds, D., Locke, M., Golden, B.R., Irby, T., Steinriede, R., Spencer, G.D., Mills, B.E., & Wood, W. (2020) Conservation Soybean Production Systems in the Mid-Southern USA: II. Replacing Subsoiling with Cover Crops. Crop, Forage & Turfgrass Management. http://dx.doi.org/10.1002/cft2.20058

    Denton, S.D., Dodds, D.M., Krutz, L.J., Varco, J.J., Gore, J., Mills, B.E., & Raper, T.B. (2021). Impact of Cover Crop Species on Soil Physical Properties, Cotton Yield, and Profitability. Journal of Cotton Science. 25:68-78.

    Spencer, G.D., Krutz, L.J., Locke, M., Gholson, D., Bryant, C., Mills, B.E., Henry, W., & Golden, B. (2021) Corn productivity and profitability in raised, stale seedbed systems with and without cover crops. Crop, Forage & Turfgrass Management. http://dx.doi.org/10.1002/cft2.20142

    Mills, Brian. “Profitability of Cover Cropping“. Southern Ag Today 2(32.3). August 3, 2022. Permalink

  • PRF Adoption Rate to Mitigate Drought Impact

    PRF Adoption Rate to Mitigate Drought Impact

    This summer’s drought is affecting a large part of the western half of the South, producing unfortunate losses for many ranchers and farmers in our area. The most affected States are Texas, Oklahoma, Arkansas, Louisiana, Mississippi, and Tennessee within the Southern Region. The last U.S. Drought Monitor reported that 92% of this area is abnormally dry, and about 64% is in severe drought.

    U.S. Drought Monitor – South Region. July 26, 2022.

    Unfortunately, droughts always have a negative financial and economic effect on our business. The USDA’s Pasture, Rangeland, and Forage Insurance (PRF) has shown to be an essential tool to support ranchers during these times. PRF showed a positive net benefit, indemnities over premiums, in many cases. Still, most importantly, it generated significant payments in drought years when needed most.

    USDA created the Pasture, Rangeland, Forage (PRF) insurance program in 2007 as a tool for livestock and forage producers to reduce the risk of forage loss associated with lower precipitation. The program is available in 48 states and policies covered over 247 million acres in 2022. In southern states, the adoption of this program has nearly doubled since 2007. During the program’s first year, the total enrolled acres in this area was 20.8 million. Producers from these states have insured about 41 million acres for 2022.

    Ranchers in Texas and Oklahoma have adopted the PRF insurance most quickly within the Southern region and are better prepared when compared to the 2011 drought. The percentage of enrolled acres of total ​​pasture and rangeland in Texas and Oklahoma is 36% and 18%, respectively. The rest of the southern states had an adoption rate between 1 and 4% over their total grassland and rangeland. Texas has 71% more acres enrolled in the PRF program than in 2011, while Oklahoma has almost 990% more.

    PRF Enrolled Acres as a Percent of Total Grassland Pasture and Rangeland in Selected Southern States.

    Comparison of PRF Coverage in 2011 Compared to 2022 for Selected Southern States

    Abello, Francisco “Pancho”. “PRF Adoption Rate to Mitigate Drought Impact“. Southern Ag Today 2(32.2). August 2, 2022. Permalink

  • More Volatile Cotton Prices

    More Volatile Cotton Prices

    Since mid-May, ICE cotton futures have witnessed an historic short-term collapse (see this article https://southernagtoday.org/2022/07/what-is-behind-the-recent-cotton-futures-market-plunge/ ).  In the two-month period between May 16 and July 14, the December ’22 contract fell over 49 cents.  In the last 40 years, there have only been six December cotton contracts with more than that total level of change, measuring from the contract high to the contract low.  The reason for the price decline has been attributed in the farm press and industry newsletters as “demand destruction” which is probably intended to mean both 1) a lower quantity demanded at the formerly high prices, and 2) an inward shift in demand in response to recessionary expectations.

    Besides the major downward trend of this price movement, it is also associated with high volatility.  By volatility, I mean that prices are gyrating more variably and more quickly.  Historical volatility is a measure of the spread or risk of price movements over a defined period.  Figure 1 shows historical volatility in ICE December cotton futures during the period March through Mid-May.  The underlying measure of dispersion used in Figure 1 is the standard deviation of December futures settlements.

    Contributing to the high volatility of the December ’22 contract were the strong price moves higher and lower, including many limit up and limit down moves.  Figure 1 indicates that the volatility of the December ’22 prices is approaching that of the notable price rally of 2010-11, which then reverted to more normal prices, a pattern that economists call “mean reversion”.  Like 2010-11, the current price movements will likely become smoother and less volatile, but perhaps not until the post-harvest season.  (Note: the 2010-11 price spike was triggered by a global supply shortage that was several years in the making.  In contrast, the 2021-22 price spike appears more demand driven.) 

    The plunge in cotton futures represents a lost opportunity for growers with unsold or unhedged production this year.  The contribution of high volatility also increases the costs of marketing since more variable price moves increase the costs of hedging for growers or merchants.  The experience of high volatility in 2022 should serve as a reminder to growers about the riskiness of cotton price movements.  

    Source:  Historical ICE Cotton futures price settlement data obtained from www.barchart.com. 

    Robinson, John. “More Volatile Cotton Prices“. Southern Ag Today 2(32.1). August 1, 2022. Permalink

  • Sysco Becomes Latest Beef Packer Antitrust Claimant

    Sysco Becomes Latest Beef Packer Antitrust Claimant

    In 2019, a series of class-action lawsuits were filed against JBS, National Beef Packing, Tyson, and Cargill, commonly known as “The Big Four” packers on behalf of direct purchasers, producers, and indirect purchasers as separate classes seeking class certification. These suits allege that The Big Four violated the Sherman Act, the main federal law protecting free market competition and prohibiting restraint on interstate commerce. In addition, these suits alleged violations of 25 different states’ antitrust laws and 21 states’ consumer protection laws totaling 48 claims in a single suit. The suits alleged that The Big Four have a tight oligarchy for both slaughter capacity and processed beef sales and that The Big Four conspired to artificially deflate the beef supply and drive up the cost of boxed beef. The suits also name a market forecasting service, Agri Stats, as a defendant. In 2021, JBS settled with the direct purchaser class only, for $52.5M, agreeing to provide “extensive cooperation” to plaintiffs in proving their claims against the other defendants. 

    In June and July of 2022, Sysco Corporation, along with other grocers and food distributors, filed similar lawsuits against The Big Four, alleging violations of the Sherman Act and conspiracy to artificially deflate cattle market prices while simultaneously causing boxed beef prices to soar. Sysco’s complaints quote a former employee witness who purported to have first-hand knowledge of the alleged conspiracies. 

    A search of public access court records shows 11 associated cases to Sysco’s suit against The Big Four. Two of the cases have already consolidated multiple suits with similar claims. As the U.S. Department of Justice continues its investigation of these allegations quietly, the litigation is heating up. The Defendants publicly and vigorously deny the allegations, and all testified before Congress in April of 2022, unequivocally denying any conspiracy as alleged between them. There’s a lot of smoke around this issue, and time will tell if it’s a smoke screen or an inferno. For now, the larger agriculture community is following closely as the poultry and swine industries wait in the wings. 

    Friedel, Jennifer. “Sysco Becomes Latest Beef Packer Antitrust Claimant“. Southern Ag Today 2(31.5). July 29, 2022. Permalink