The term inflation is commonly used to describe a general increase of prices. However, back in the mid-1800s where the term started to emerge in the literature, it was not in reference to something that happens to prices, but as something that happens to a paper currency. Back in those days “bank notes,” a private paper currency redeemable for a specific amount of metal, were becoming widely used. At times, banks did not have enough gold or silver to satisfy all of their claims, therefore, they “inflated” the number of bank notes in relation to the amount of metal they had. Therefore, inflation was the fall in value of paper currency or money due to an excessive issuance of paper currency or money. From March 2020 to February of 2022 the money supply in the US increased by 41.2 percent, or 20.6 percent per year, while average GDP growth over the same period of time was 3.7 percent (FRED, 2022). As a reference point, money supply over the last decade had increased an average 8.2 percent per year.
On the other hand, rapid changes in commodity prices are very common in agriculture and usually is due to supply shifts. Good weather, improved technology and political stability are some variables that shift supply to the right causing an increase in supply and a decrease in prices (Graph 1). On the other hand, bad weather, increase in input prices and political instability or war are variables that shift supply to the left causing a decrease in supply and an increase in prices (Graph 2). The Russia and Ukraine war has caused a supply shift to the left in many commodities such as wheat, corn, fertilizer, and oil, given that these two countries are major producers. Therefore, as quantity supplied of those commodities decreased, prices increased. However, these increased prices caused producers of those commodities around the world to react and produce more and now prices are on a downward trend. Also, demand for those commodities decreased contributing to the decrease in prices. These supply shifts happen very often in agricultural commodities without causing inflation to spike. In fact, Asian economies are experiencing normal levels of inflation as seen in the chart by The Economist.
Dr. Milton Friedman, winner of the 1976 Nobel Prize in Economic Sciences, stated back in 1963 that “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” Dr. Friedman was right then and still is now.
Bryan, Michael F., 1997. “On the Origin and Evolution of the Word Inflation,” Federal Reserve Bank of Cleveland, Economic Commentary, 10.15.1997.
Storage can be a valuable risk management and marketing tool for Southern corn producers. Storage allows producers to reduce harvest delays, avoid seasonal price lows, expand the marketing window, and harvest grain at higher moisture – if drying or aeration is available. There are two main options to store grain: grain bins or grain bags. This article provides an overview of the benefits, ownership costs, and operating costs for a grain bagging system.
Benefits
Labor continues to be a major challenge for agricultural producers. One of the primary benefits to using a bag system is the ability to reduce harvest labor requirements, particularly trucking. Storing corn at the edge of the field reduces the number of trucks required to keep combines running, avoids long lines at elevators and barge points, and distributes hauling to terminal markets during times of the year when labor is more readily available. Additionally, the ability to harvest a crop quickly reduces the risk of losses due to adverse weather. Extending the marketing interval allows producers to benefit from post-harvest price rallies. For example, in Memphis Tennessee, the ten-year average corn price was 70 cents higher in March/April compared to the harvest low. Mid-south producers that have cotton in their crop rotation can use bagging systems to modify annual storage availability, thus avoiding capital investment in permanent grain storage infrastructure when planted acreage varies year-to-year.
Ownership Costs
A bagging system requires capital investment in a loader, unloader, and tractor. This equipment is in addition to grain carts/trucks to transport grain from the combine to bagger. Purchase prices vary however many loaders can be obtained for less than $50,000. Bag unloaders will also cost around $50,000. Most operations will have access to a tractor that can be utilized in a bagging system, however this cost should also be included. Cost of ownership will vary for each operation; however, cost estimates should include capital recovery (depreciation + interest), taxes, insurance, and housing (TIH). For example, assuming an interest rate of 6.5% and TIH of 2.0% of the equipment value, estimated ownership costs for 100,000 bushels of storage is approximately 14 cents/bushel. Storing more bushels will distribute fixed costs lowering the ownership cost per bushel.
Operating Costs
Operating costs vary by system; however, producers should consider site preparation, purchase price of storage bags, labor (loading, unloading, and monitoring), insecticides, sensors, bag disposal, and machinery expenses (fuel, repair and maintenance). Additionally, producers should account for potential storage loss/risk. Wildlife damage, insect and rodent infestation, weather, and damage from humans present a risk for storage losses. Estimated operating costs based on the assumptions below in Table 1 are 17-22 cents per bushel. Costs are highly variable so producers are encouraged to estimate costs based on operation specific variables and assumptions.
Bagging systems may be a cost-effective method to store grain for Mid-south producers. Producers are encouraged to weigh the advantages and disadvantages of permanent storage (bin) and temporary storage (bag) systems to determine which system is best for their operation. Additionally, comparing ownership and operating costs with seasonal corn prices in your area will assist in determining if investment in storage is financially beneficial for your operation.
USDA released two cattle reports on Friday July 22nd – the Cattle on Feed and Cattle Inventory reports. Taken together, these reports paint a picture of a smaller cowherd and some future opportunities as supplies continue to tighten.
Cattle on Feed
Placements, marketings, and total cattle on feed were reported at 97.6, 102.0, and 100.4 percent of a year ago, respectively. For the fourth month in a row, placements were below a year ago. For the year, placements are ahead of last year, but the increase was all in February.
Placements were higher than a year ago by 15,000 and 10,000 head, in the two lightest weight categories, under 600 pounds and 600-699 pounds. All of the increase in light weight placements was reported in Texas. Based on anecdotal evidence of large runs of cattle after the 4th of July, placements in July may be larger than last year, at least in light-weight cattle.
In only two years, 2019 and 2001 (4.470 and 4.446 million head), were more heifers reported on feed on July 1 than this year (4.445 million head). The quarterly number of heifers on feed dovetails with the inventory report of fewer beef cows and replacement heifers held back.
Cattle Inventory
Beef cow numbers were reported 2.4 percent below July 1, 2021 in the mid-year Cattle inventory report. The most interesting number in the report, though, was the number of heifers held for beef cow replacement. Only 4.15 million heifers were held back which was the fewest since the data series began in 1973. The 4.15 million heifers equals 13.7 percent of the cowherd. As a percent of the cowherd, only the years of herd contraction 2001-2003, the 2011 drought year, and herd contraction in 2019 were smaller than this year. It’s worth noting that over the last 50 years, heifers held back as a percent of the cowherd has been declining. In general, we have fewer beef cows than in the early to mid-1970s requiring fewer replacements, but it also suggests more efficient beef cattle production.
The price of domestic raw cane sugar and the price of refined beet sugar both have direct implications for current United States (U.S.) sugar policy. Nearby futures settlement prices for raw cane sugar and a price range for wholesale Midwest refined beet sugar (free on board factory as quoted each week in Milling and Baking News) are considered the two primary mechanisms to evaluate sugar market dynamics. Figure 1 depicts monthly per pound sugar prices, which as of April 2022 were 42.00 cents for beet sugar and 36.66 cents for raw sugar. According to USDA Economic Research Service (ERS) data, the U.S. wholesale beet sugar price has ranged since 2008 between a low annual average of 28.84 cents a pound in 2012/13 and a high annual average of 55.81 cents a pound in 2010/11 (October-September fiscal year). Furthermore, the USDA ERS reports that U.S. raw sugar price has similarly ranged from a low annual average of 21.00 cents a pound in 2012/13 to a high annual average of 38.46 cents a pound in 2010/11.
Figure 1. U.S. Refined Beet Sugar and Raw Sugar Prices (cents per pound), 2008-2022.
Source: USDA ERS
Both U.S. beet sugar and raw cane sugar prices rose significantly from 2009 to 2012. A combination of tight domestic sugar supplies and announcements that the USDA would not allow for an increase in sugar imports prior to the end of the marketing year resulted in the raw sugar price in FY 2010 increasing 74% and the refined beet sugar price increasing by 50%. These price increases in the U.S. market occurred simultaneously as world sugar prices began to increase three-fold. The major sugar-exporting countries of India and Brazil reduced global supplies as adverse weather and prices for biofuels reduced exportable surplus in each country. Since U.S. sugar refiners import sugar under obligations of the sugar program, refiners had to compete against these higher prices that foreign supplies were receiving in the world market, hence increasing the domestic price paid to entice imports. However, the world sugar price fell from 30 cents per pound in 2011 to 23 cents in 2012 and then to 18 cents in 2013, lowering any supportive impact on U.S. sugar prices.
For the period 2008-2014, sugar imports from Mexico enjoyed virtually unhindered access to the U.S. domestic market via NAFTA. At its peak in 2013, sugar imports from Mexico came in over 2 million STRV, accounting for 66 percent of total U.S. imports for sugar. Consequently, increases in the amount of U.S. raw sugar supplies caused domestic raw sugar prices to decline. As a result of Mexico’s increased raw sugar shipments, sugar producers in the U.S. filed an anti-dumping and countervailing duty case of injury with both the U.S. Department of Commerce (DOC) and the U.S. International Trade Commission (ITC) in March 2014. According to ITC findings, there was determination that the U.S. sugar industry had sustained significant economic injury from Mexico’s action. With the ITC’s findings, both the U.S. and Mexico entered into a suspension agreement with the key constraint of limiting the supply of imported sugar from Mexico. Additionally, terms were put in place specifying both minimum price and maximum quantity requirements on Mexican sugar destined for the U.S. market.
Another issue of concern for the domestic sugar industry arose in 2016 when legislation was proposed that would require the display of genetically engineered ingredients on food labels. Perception from this proposed legislation induced an excess in beet sugar supply relative to the supply of cane sugar. This scenario brought about a contraction in the price spread between cane and beet sugar. With the ensuing price contraction for beet sugar, the sugar industry took advantage of large inventories in beet sugar as shown in Figure 2. With passage of legislation establishing national labeling guidelines for food products containing GMO ingredients, beet sugar deliveries began to increase thus drawing down extant beet sugar supplies to such an extent that by 2018 the historical margin between U.S. beet and cane sugar had been reestablished.
Figure 2. U.S. Sugar Inventories, by source.
Source: USDA ERS
Of the major events impacting domestic U.S. sugar prices, adverse weather events in October of 2019 played a significant role when flooding disrupted both the planting and harvesting of sugar beets. This disruption induced both a sudden and precipitous drop in U.S. beet sugar production, forcing many processors to declare force majeure. These actions caused refined beet sugars to increase by 26 percent per pound (35 cents per pound to 44 cents per pound) from September to November 2019. With improved crop conditions in FY 2021, prices retreated to settle around 36.5 cents per pound.
In comparison with other major agricultural commodity markets, domestic policies for world major sugar producers are more prevalent and play a greater role than is the case for other agricultural commodities. Since there is a greater level of variation in sugar policy from country to country, the retail price of sugar reflects this in the world futures contract price. According to USDA data, from 2009 to 2017, the average monthly world price for raw sugar averaged 19.23 cents per pound. For the period 2009 to 2017, sugar prices have experienced a fair amount of volatility ranging from a low of 13.42 cents per pound in 2015 to a period high of 28.42 cents per pound in 2011. Figure 3 illustrates the imported price that refiners in the U.S. paid for foreign raw sugar (including freight costs). In essence, when the import tariff on raw sugar (to include freight) is coupled with the world raw price, a price ceiling is established on the U.S. raw market. From Figure 3, the U.S. raw price (blue line) has approached the foreign landed price (grey line) as increases in the world raw price track appreciation in the domestic market.
Figure 3. Raw Sugar Prices (U.S. futures, World futures, and World futures sugar imported into U.S.)
Source: USDA ERS
References:
Sowell, Andrew R. and Ronald C. Lord. Sugar and Sweeteners Outlook, SSS-M-387, U.S. Department of Agriculture, Economic Research Service, November 17, 2020.
Farm tenants often make improvements to the farm they are leasing. Building or repairing sheds or barns are an example, as is a tenant purchasing and installing irrigation equipment. However, before doing so, tenants should consider the legal status of these investments. This issue is important as almost 40% of U.S. farmland is rented/leased (Figure 1).
Legally, property comes in two forms, real and personal. Real property is land and everything growing upon or attached to it. Personal property is essentially everything else. A fixture, however, is personal property that becomes real property by being incorporated into or attached to real property. Figure 2 provides an illustration of these concepts.
Whether an improvement qualifies as a fixture is important because fixtures are owned by the owner of the real property to which they become attached, regardless of who owned them before they were attached. Absent an agreement to the contrary, a landowner is entitled to keep fixtures at the end of a lease. Further, a tenant’s insurance may not cover a fixture, and if the landowner has a mortgage, the landlord’s lender may have a security interest in it, while the tenant’s lender may not.
Courts typically consider three factors when determining whether personal property has become a fixture. The first is whether the object is physically or constructively attached to real property. Constructive attachment occurs when the object comprises a necessary, integral, or working part of another object that is physically attached to real property. The second factor is whether the object is adapted to the use of real property. Thus, the more useful an article is to normal operations conducted on the property, the more likely it is to be considered a fixture. However, the most important of the three factors is whether there is evidence that the tenant intended to attach the object permanently. Courts are likely to presume such intent if removing the object would cause material injury to the real property or other fixtures. However, the best evidence of the parties’ intent is a provision in a written lease specifically stating who owns the improvement and what is to happen to it at the end of the lease. Tenants who make improvements without such language risk losing ownership and control of those improvements.
