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  • Increased Participation in Weather-Related Crop Insurance Program

    Increased Participation in Weather-Related Crop Insurance Program

    Rainfall distribution throughout the growing season is of particular importance to rainfed farming systems. For instance, significant variations in forage yields are associated with changes in annual precipitation patterns. To protect against uncertain precipitation levels, livestock and forage producers have adopted climate risk management strategies that include short- and long-term adjustments in forage supply and demand, and the adoption of weather-related crop insurance programs.

    The Pasture, Rangeland, Forage (PRF) is a pilot insurance program created in 2007 as a tool to mitigate the risk of forage loss associated with the lack of precipitation. Compared to traditional crop insurance options, the PRF program is an index-based insurance, in which indemnity payments are not based on actual precipitation or forage production, but on projected deviations from historical precipitation levels. Currently, the PRF insurance program is available in 48 states, and is one of the top crop insurance programs in the country in terms of the number of acres enrolled (Figure 1). Since its launch, the number of participating acres in the PRF program has increased by 771% from 24.5M acres in 2007 to 247.8M acres in 2022. This rapid growth could be attributed to the reduced number of insurance options for forage producers, changes in program provisions, and severe drought conditions observed during this period. In contrast, 10.8M cotton acres, 36.6M wheat acres, 78.9M soybeans acres, and 83.0M corn acres were enrolled in different crop insurance programs in 2021.

    Figure 1. Insured Acres by Selected Crops

    Source: USDA RMA

    Texas, Arizona, Nevada, New Mexico, and Utah are the top participating states in the PRF insurance program (Figure 2). In 2022, these five states represent about two-thirds or 63.7% of all participating acres in the country. Namely, 34.7M acres are enrolled in Texas, 36.5M acres in Arizona, 37.9M acres in Nevada, 27.0M acres in New Mexico, and 21.8M acres in Utah. As rainfall uncertainty intensifies, participating in the PRF program could be an effective strategy for livestock and forage producers to mitigate production risk and to increase farm income.

    Figure 2. PRF Insured Acres by State

    Source: USDA RMA

    Zapata, Samuel. “Increased Participation in Weather-Related Crop Insurance Program“. Southern Ag Today 2(24.3). June 8, 2022. Permalink

  • Large Cow Culling, Calf Prices Diving

    Large Cow Culling, Calf Prices Diving

    Beef cow culling has been an important story this year and SAT has discussed it a couple of times, but last week beef cow slaughter topped 80 thousand head for the first time since 2012, making it worth looking at again.  So far in 2022, beef cow slaughter is 15 percent higher than the same period in 2021. This is equal to approximately 200 thousand more head of beef cows processed this year. Beef cow slaughter averaged about 65 thousand head per week in 2021, but is averaging about 75 thousand head per week in 2022.

     
    Drought, higher feed and other input costs, and stronger cull cow prices continue to be the likely reasons behind the increase. Looking at the regional slaughter data, it appears that beef cow slaughter has increased more in areas with drought. Beef cow slaughter in Region 6 (AR, LA, NM, OK, and TX) is up 30 percent over 2021 and region 7 (IA, KS, MO, & NE) is up 29 percent. However, beef slaughter is also about 20 percent higher in Region 4 (AL, FL, GA, KY, MS, NC, SC & TN) where drought has not been an issue.  Beef cow slaughter continues to indicate contraction of the U.S. beef cow herd in 2022. 

    Lightweight calf prices have dropped dramatically in recent weeks, responding to high feed costs and lower fed cattle futures prices.  In the Southern Plains, calf prices have fallen by more than the normal early summer seasonal decline and may reflect some more drought forced sales.  Heavy weight steers in the South have declined more than those in the Southern Plains, likely impacted by increased hauling costs as diesel fuel prices hit record highs.    

    Anderson, David. “Large Cow Culling, Calf Prices Diving“. Southern Ag Today 2(24.2). June 7, 2022. Permalink

  • Soybean Acerage Higher in Southern States with Increased Price Outlook

    Soybean Acerage Higher in Southern States with Increased Price Outlook

    In 2022, soybean planted acreage is estimated to increase 9% in the southern United States (U.S.) with a total planted acreage of 14.76 million acres. Southern states are estimated to account for about 16% of the total soybean acreage planted in the U.S. in 2022. Table 1 shows the past five-year history of soybean acreage by state. In 2022, Arkansas is expected to lead leads the southern states at 3.25 million acres, followed by Mississippi at 2.35 million acres. All southern states, except for Oklahoma and South Carolina, are expected to increase acreage in 2022, when compared to 2021.  Soybean acreage in the south has substantially rebounded since 2019, when acreage was reduced due to low prices influenced by the US-China trade war. Soybean acreage across the south in 2022 is up 26 percent compared to 2019.

    The observed increase in soybean acreage is influenced by a positive price outlook. On May 12th, USDA released their monthly World Agricultural Supply and Demand Estimate (WASDE) report. The May WASDE provided the first USDA projections for the 2022/23 marketing year for soybeans (and other crops). In this report, USDA projects the national average farm price for soybeans in 2022/23 to be $14.40/bushel. If realized, this price would match the record high achieved in 2012. The positive price outlook is supported by higher exports and domestic crushing on the demand side, compared to 2021. The supply side calls for higher production due to increased acreage, which increases estimated ending stocks to 310 million bushels. However, with a stocks-to-use ratio of 6.76 percent, the overall market environment is supportive of higher soybean prices. 

    Even with the positive price outlook, it’s important for producers to have a marketing plan in place to take advantage of the current high prices in the market. The new crop soybean Nov’22 futures has been trending higher since January 12th, with a closing price of $15.12/bushel as of May 25th. While prices are currently high, we continue to see considerable price volatility and producers should familiarize themselves with available tools to mitigate price risk. Available tools for price risk mitigation include forward cash sells on portions of expected production or hedging using the futures market. Another tool to consider is forward pricing with options which was covered in a recent Southern Ag Today article by Dr. John Robinson with an application to cotton markets (Forward Pricing with Options on ICE Cotton Futures – Southern Ag Today).

    Table 1. Soybean Planted Acreage in U.S. Southern States, 2018-2022 (1,000 acres) 

    State20182019202020212022*
    Alabama345265280310350
    Arkansas3,2702,6502,8203,0403,250
    Georgia145100100140170
    Kentucky1,9501,7001,8501,8502,000
    Louisiana 1,3408901,0501,0801,200
    Mississippi2,2301,6602,0902,2202,350
    North Carolina1,6501,5401,6001,6501,800
    Oklahoma640465560580560
    South Carolina390335310395390
    Tennessee1,7001,4001,6501,5501,850
    Texas17580120110160
    Virginia 600570570600680
    Total 14,43511,65513,00013,52514,760
    * Estimate as of March 31, 2022 Prospective Plantings report.
    Source: USDA-NASS

    Maples, William E. . “Soybean Acreage Higher in Southern States with Increased Price Outlook“. Southern Ag Today 2(24.1). June 6, 2022. Permalink

  • Verbal Farm Tenancy Protection in the South

    Verbal Farm Tenancy Protection in the South

    When one inherits or purchases an interest in open farmland – particularly between March and November in the South – chances are someone is growing crops or pasturing livestock on it. Often, there is no written agreement between landowner and farmer. Statistically we know that the majority of farm tenancies renew annually (ERS, 2016), which may support anecdotal observations that verbal farm tenancies are common. Such “handshake” agreements provide no written record of the bargain struck between landowner and farmer as to rent and term. For farmers working multiple parcels with different owners, keeping the bargains straight may pose a challenge. As land changes hands between owners due to inheritance or sale, questions emerge including the farmer’s rights to crops and fixtures, the apportionment of rent between successive owners, and circumstances of renewal. 

    Given the relative vulnerability of the farmer in this equation, states’ landlord-tenant policies have evolved to provide farmer access rights through the harvesting and sale of their crop and its profits – known as emblements – in the event a landowner or successor tries to move them off and bar access. All southern states have some form of farm tenancy laws, varying in their specificity and determination of tenant rights. Such statutes may supply length of term (e.g. South Carolina) and prescribe termination notice periods required to prevent automatic renewals, often of one month or greater (e.g. Mississippi). Some laws allow a landowner to terminate a tenancy before planting, as in Alabama. The status of improvements – called trade fixtures – placed by the farmer can also come into question, and Georgiaprovides that any items on the parcel at the close of term become property of the landowner. Most such laws ensure payment of rent with a priority lien on crops in favor of the landowner. At the moment, there is no comprehensive source locating and describing farm tenancy laws for the southern states, however, this article serves as a summary of issues such laws might address, using North Carolina as an example. To locate your state’s farm tenancy law, try the search terms “farm” or “agriculture”, “tenant” or “tenancy”, and “[state] Code.”

    Regardless of statutory protections, farm tenancy disputes require verbal sworn testimony in court to resolve, and otherwise require judicial interpretation of vague statutory language, so resolving disputes can be costly. Better practice dictates some form of writing to clarify the issues described above. Though farm leases can be a lengthy treatment of rights and responsibilities, or very short statement of place, rent and term, they serve as the clarifying record of the bargain which likely reduces disputes and expense to both landlords and farm tenants.

    Brannon, Robert Andrew. “Verbal Farm Tenancy Protections in the South“. Southern Ag Today 2(23.5). June 3, 2022. Permalink

  • The Imminent Menace of Sanitary Barriers in International Trade

    The Imminent Menace of Sanitary Barriers in International Trade

    Animal disease outbreaks have severe economic consequences, especially for international trade. A recent example was the identification of two atypical cases of bovine spongiform encephalopathy (BSE) in Brazil in early September 2021. Although Brazil’s BSE status did not change within the World Organization for Animal Health, severe sanitary restrictions interrupted Brazilian beef trade. Egypt and Saudi Arabia halted beef imports from Brazil for two weeks. China and Hong Kong, which account for about 60% of Brazil’s beef exports, suspended beef imports from Brazil for more than three months. In the month following the notification of the BSE cases, international shipments of Brazilian beef were 49% lower compared to the same period in 2020. Consequently, domestic prices of live animals decreased by 8% in September, and 11.8% in October 2021, leading to the most unfavorable cattle market conditions in Brazil since 2000.

    As in the case of Brazil, identification of animal disease is an imminent risk for the U.S., simply because diseases can be difficult to control and have widespread consequences. This risk is demonstrated by the current outbreak of avian influenza in the U.S., which has affected 24 states so far and led to restrictions on American poultry products imported by Canada, Mexico, and China. The extent of the economic damage from this current outbreak is still unknown.

    Countries that are major exporters of animal products, such as the U.S., are substantially impaired by sanitary barriers when animal disease outbreaks occur. Trade diversion to other suppliers can cause significant export market losses, as observed during the 2000’s after the BSE outbreak in the U.S. Animal disease events in Brazil and the U.S. highlight the importance of understanding risks within agricultural systems in terms of the direct impact of disease on animal health and food safety, as well as the amplified international trade impacts.

    Figure 1. Monthly Beef Exports and Cattle Price Index in Brazil in 2021

    Source: ComexStat. 2022. Brazilian Ministry of Development, Industry and Foreign Trade; and Center for Advanced Studies on Applied Economics (Cepea). 2022. University of Sao Paulo. 
    Links: http://comexstat.mdic.gov.br/pt/home; https://www.cepea.esalq.usp.br/en/indicator/cattle.aspx

    Menezes, Tais and Amanda Countryman. “The Imminent Menace of Sanitary Barriers in International Trade.” Southern Ag Today 2(23.4). June 2, 2022. Permalink