The year 2023 marks another unique year in terms of prolonged high inflation and high interest rates. The series of interest rate hikes raised concerns, especially when Silicon Valley Bank went defunct earlier this year, and other regional banks experienced liquidity problems. With these inflation rates and interest rate hikes affecting the broad economy, how does the agricultural lending condition look?
The most recent survey of commercial banks from the Kansas City Fed shows that the average agricultural operating loan interest rate exceeded 8 percent from the first quarter of 2023, and the farmland loan interest rate also nearly reached 8 percent. Loans issued from commercial banks closely follow the movement of the effective federal funds rate. As the federal funds rate increase slowed in the last two quarters, the increase in agricultural loan interest rates also slowed down.
Source: Kansas City Fed, FRED
Loan interest rates from the Farm Service Agency (FSA) showed a unique pattern in the last few months. Throughout 2022, loan interest rates from the FSA increased with the increase in the federal funds rate. However, FSA started to lower interest rates from the first quarter of 2023. In fact, as of August 2023, the FSA loan interest rates – both the operating loans and farmland loans – are lower than the federal funds rate. This rare occurrence is expected to go away eventually, but the FSA is indeed providing very favorable rates as of today.Of course, if the higher interest rates result in increased borrower default or general economic decline, the Fed will slow down the interest rate hikes. Currently, delinquency rates on commercial bank loans still remain at a historical low. Similar findings are shown for agricultural loan default rates. While there has been a slight uptick in default loans in the Farm Credit System, the default rate is still lower than the five- or ten-year average. Default rates from commercial banks also remain at a relatively low level.
Source: FDIC, FCA
It is expected that these interest rates will still increase in the second half of 2023. With the Fed aiming for a 2 percent inflation rate, the effective federal funds rate is expected to reach 5.4 percent to 5.6 percent. This will again have an impact on agricultural loan interest rates in the foreseeable future. High interest rates, combined with lower farm income forecasts in 2023 and 2024, will be the adverse factor for stagnant farmland value in 2023 and 2024.
At conferences, field days, and producer meetings throughout the Spring and Summer, many producers have often asked, “When will this market bust, and start a downward trend?” Answering this one question isn’t simple. There are various factors that impact the prices across the beef supply chain. One indicator of future price trends throughout the beef supply chain is the Boxed Beef Cutout Value. The boxed beef cutout represents the estimated gross value of a beef carcass based on prices paid for individual beef items (primal cuts) derived from a beef carcass. Essentially, as consumers pay for beef items derived primal cuts (i.e. steaks from the rib primal) in conjunction with expected seasonal demand, retailers, and food service entities purchase primals or boxes of specific cuts that translate into the price and value seen in the boxed beef value.
Figure 1 displays the weekly Choice boxed beef cutout value. The red line denotes the 5-year average from 2017-2021, the dotted blue line is last year’s (2022) weekly values, and the orange dashed line this year’s weekly values up through 8/25/2023. Through 2023, the cutout value has been above last year and the 5-year average. The low of $265.82/cwt was in early February. Since then, the weekly value trended up and peaked at $339.93/cwt in mid-June. Through the rest of the summer, the cutout decreased in value from the peak but has remained between $300-$320/cwt. The 5-year trend and 2022 cutout values remained relatively steady during the remaining months of the calendar year. If 2023 follows trend, then the value is expected to remain above the previous year and the 5-year average.
Other factors impact this value, such as fed cattle supply, which are currently tight given the most recent cattle on feed report. The amount of beef grading Prime, Choice, and Select affects relative supplies of each grade even though total beef supplies are tighter. Given that the national herd is still currently in liquidation mode, fed cattle supply is going to get even tighter over the next couple of years. When looking at the boxed beef value, there are few market signals indicating that it will be decreasing anytime soon, so when answering the question at the beginning of this article, my answer is, “not any time soon”.
Figure 1. Weekly Boxed Beef Cutout Value
Data Source: USDA-AMS, Livestock Marketing Information Center
Martinez, Charley. “A Check-in on Boxed Beef Cutout Value.” Southern Ag Today 3(36.2). September 5, 2023. Permalink
When we talk about wheat production in the south, we often think of the top wheat planting states of Texas and Oklahoma. Yet, in the last two years, with drought plaguing the Southern Plains, wheat production in other southern states has played an important role in the overall supply of U.S. wheat[1]. In 2022, winter wheat production in the south accounted for 20% of total U.S. winter wheat production. That increased to 23% in 2023.
This relationship was highlighted in USDA’s August Crop Production Agricultural Statistics Board Briefing on August 11, 2023. Updated yield information for the 2023 winter wheat crop showed record wheat yields in eight states, five of them in the south: Kentucky, Maryland, North Carolina, Tennessee, and Virginia.
Compared to 2022, U.S. winter wheat production in 2023 is up 124 million bushels with an additional 2.036 million acres harvested. Of these numbers, the south accounts for 55 million bushels (45% of the increase in U.S. production) on an increase in harvested acres of 1.015 million (50% of the increase in U.S. harvested area). Strong crop insurance prices and favorable futures market offerings supported an increase in U.S. wheat acres in 2023 compared to 2022. The Risk Management Agency’s (RMA) base insurance contract price for soft winter wheat increased from $7.14 in 2022 to $8.40 in 2023. For hard winter wheat, the price increase was from $7.08 to $8.79 (USDA, RMA, 2023).
Outstanding yields in southern states outside of Texas and Oklahoma drove the production increase in 2023. Production was 139 million bushels, up 24 million bushels from 2022. Harvested acres in these states were up from 1.630 million to 1.845 million acres, an increase of 215,000. This is a 21% increase in production on a 13% increase in harvested acres.
Wheat production numbers struggled again in 2023 in Oklahoma and Texas. While harvested acres in Oklahoma were up 100,000 in 2023 compared to 2022, the average yield per acre was down 1.0 bushel to 27.0, the lowest average reported by USDA for wheat states in the August Crop Production report. Wheat planted acres in Texas increased sharply in 2023 (5.3 million to 6.7 million, the highest in over 30 years) but the area harvested was only 30% of the planted total. In a normal year, about half of the wheat acres planted in Texas are harvested for grain.
In the last five years, compared to production in Texas and Oklahoma, winter wheat production from Arkansas, Kentucky, Maryland, Mississippi, North Carolina, Tennessee, and Virginia, has increased from about 75 million bushels, just over 40% of that produced in Texas and Oklahoma, to over 130 million bushels, on par with Texas and Oklahoma production (Figure 1 and Figure 2).
Figure 1. Wheat production in the south: Texas and Oklahoma compared to other southern states (Arkansas, Kentucky, Maryland, Mississippi, North Carolina, Tennessee, and Virginia)
Source: USDA, NASS
Figure 2. Wheat production in the south, 2023, million bushels
Source: USDA, NASS
The south is well suited for wheat production in that the longer growing season in the region allows for planting wheat after traditional spring planted crops like soybeans and then back to spring crops the following year without missing a growing season or disrupting rotations.
This is not to say that wheat produced in one region of the south can always substitute for the other. Texas and Oklahoma produce primarily hard red winter wheat while soft red winter wheat is the dominant class in the rest of the south. Each has particular baking and milling characteristics that make it well suited for particular uses and products. But in terms of overall U.S. wheat production, and the influence that number has on prices, the south as a whole plays an important role.
Wheat is a crop with a relatively high yield potential in the south. This becomes especially important to the U.S. wheat supply when drought impacts other major producing wheat states. In addition, wheat in rotation with other crops can aid in controlling weeds, disease, and insects. Wheat can serve as a cover crop to improve soil health and in many areas, can be double cropped for added income potential. All important issues for southern agriculture.
[1] Southern wheat production includes these states reported by USDA in the August Crop Production report: Arkansas, Kentucky, Maryland, Mississippi, North Carolina, Oklahoma, Tennessee, Texas, and Virginia.
Citizens across the nation feel increasingly removed from our system of governance. Even at the local level, they may wish to be engaged but may feel they need more time and resources to help resolve local issues. In addition, people often believe they need more information to offer a knowledgeable opinion about what should be done to improve their community. To address these fractures in democratic governance, Florida Agricultural and Mechanical University and the University of Florida partnered to develop the Community Voices, Informed Choices (CIVIC) program. CIVIC prepares Extension faculty to help communities address challenging community issues through deliberative discussions. It complements other Extension programs by creating a platform for community members to learn about and discuss community issues they care about but cannot solve individually.
To date, CIVIC has delivered at least 18 in-person or virtual deliberative forums. Unfortunately, the COVID-19 pandemic significantly impacted our ability to recruit participants, so although participation has been limited, the small groups have generated meaningful conversations that have led to important outcomes. For example, in a discussion on water quality in the Indian River Lagoon, the discussion pivoted from environmental health to human health. From there, a partnership was formed with a nearby organization researching fish toxicity, and a youth fishing clinic was held to raise awareness of water quality issues and collect fish for their research. CIVIC will soon pilot deliberative discussions on food security in three locations around the state, and a climate change issue guide is being developed.
Fall is right around the corner, and for many of us that means baking goodies with pecans. Pecans are native to the Southern region of the US, particularly along the Mississippi River flood plain. In 2022, Georgia was the top producer of improved varieties of pecans, contributing almost 43% of the US value of production[1]. Native pecans are a much smaller portion of total US pecan production. Oklahoma was the top producer of native varieties of pecans, contributing 72% of the US value of production1.
Pecan producers, like other agricultural sectors, have been faced with rising input costs in the last 3 years. Pests, diseases, and predation are big challenges in pecan production, and the costs of managing those challenges are forcing producers to make hard management decisions. Native pecan grove owners have been particularly hard hit since their groves also have lower yields as compared to improved pecan varieties. This, along with higher maintenance costs for existing trees, leads to issues for those hoping to draw a profit from their pecan harvest. Higher input costs open producers to greater risks when it comes to price and yield declines. Insurance exists to help cover essential costs should a disaster event happen.
Whether a producer is involved in managing a native pecan grove or an improved pecan orchard, the risks for each can be equally damaging to profitability. Insurance can be combined with disaster programs in many cases in extreme events. There are many risks that affect the health and yield of a pecan operation; however, some of the main factors are listed below:
Freeze – An early fall freeze prior to shuck split can reduce yields. Shucks may be frozen and incapable of opening to release the pecans.
Drought – Oklahoma has been in a drought for several years. This can stunt the growth of trees, trigger nut drop, and cause yield reductions for 3-5 years.
Insects – The pecan weevil and other pests can be controlled with approved pesticides and maintenance practices. View additional fact sheets for more information here.
Disease – Make sure to spray fungicides at the proper rate and time for maximum effectiveness.
Predation – Utilize various methods including sound deterrents, trapping, or hunting for multiple species, and make sure to pick up harvested nuts as quickly as possible to reduce loss.
Pecans are considered to be a specialty crop which means they are not eligible for commodity safety net programs like Agricultural Risk Coverage and Price Loss Coverage. Pecan producers are primarily dependent on crop insurance, disaster programs like the Tree Assistance Program (TAP), and more traditional risk management like operation diversification. USDA RMA offers a variety of insurance coverage plans for specialty crop producers. How much insurance a farm will need is determined, in part, by the level of costs that are “essential” in any given year. This will vary widely from farm to farm. An improved pecan farm that does its own processing and sells directly to retail will have quite different risks and costs of production than a native pecan farm selling primarily wholesale.
In Oklahoma, pecans can be insured if the grove or orchard is at least one acre and the insured trees have produced a minimum production, which is: 600 pounds in one of the last 4 years for improved variety pecans in irrigated orchards, and 300 pounds in one of the last 4 years for native pecans or improved variety pecans without irrigation. The Pecan Revenue Insurance product covers unfavorable weather, declines in market prices, irrigation failure, fire, insects, disease, and other acts of God. If you are interested in Pecan Revenue Insurance, ask your neighbors about nearby crop insurance agents that offer that coverage.
Pecan Revenue Insurance can provide a needed safety net in the event of a significant weather event. As shown in the figure, the 2018 drought which was severe for Southwestern pecan producers, in particular, resulted in insurance payouts to help cover production costs. Similarly, Pecan Revenue Insurance meant the difference in paying the bills for producers in Oklahoma that were impacted by drought in 2022. As an example of how the insurance product might work, consider an improved variety pecan operation based in Northeast Oklahoma. Starting with an estimated production cost for 2023 of $1,546 per acre for a producer that has irrigated, improved pecan groves and sells in the premium market. In a year where the weather cooperates and prices are reasonable (not the best but not the worst), the producer might make a net profit of $506/acre. However, what about a drought year that reduces yield by 26% and prices remain around the same level? That producer could experience a 163% reduction in net returns or a net loss of $800 per acre. What if they purchase Pecan Revenue Insurance? In this particular scenario, the producer has a cost of insurance that reduces the net return per acre in a typical year to $369/acre; however, in a drought year, the producer experiences a shallower financial loss (132% reduction in net returns).
Risk management for specialty crop producers has come up in several of the 2023 farm bill listening sessions. Supply chain disruptions and restaurant closures hit the pecan sector in 2020, followed by severe weather events that impacted regional production. It takes years for pecan groves to recover from tree damage or to establish replacement trees. Risk management is individual to a farm, and insurance may play a role in that overall risk management plan. For more information on Pecan Revenue Insurance in your local area, contact your local crop insurance agent.
Data sources: (1) United States Department of Agriculture National Agricultural Statistics Service, Pecan Production Utilized (QuickStats). (2) United States Department of Agriculture Risk Management Agency, Summary of Business by Crop; all pecan insurance product indemnities, but the primary insurance product purchased is Pecan Revenue Insurance.
[1] USDA NASS Pecan Production Report https://downloads.usda.library.cornell.edu/usda-esmis/files/5425kg32f/n5840623x/ww72cn927/pecnpr23.pdf
