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U.S. Whiskey Exports Remain Strong as Ag Exports are Expected to Decline Overall

When considering U.S. agricultural exports, we often think about major bulk commodities like soybeans, corn, and cotton, as well as animal products such as beef, pork, poultry, and dairy. Rarely do we consider whiskey (which includes bourbon, whiskey, rye whiskey), despite distilled spirits being a major U.S. export, listed as an official agricultural category by both the U.S. Department of Agriculture (USDA) and the World Trade Organization (WTO), and despite the sectors use of corn, barley, and rye as primary inputs for production. In the recent Outlook for U.S. Agricultural Trade published by USDA, U.S. agricultural exports in fiscal year (FY) 2023 are projected to decrease to $181.0 billion, which is significantly lower than exports in FY 2022 ($196.4 billion), primarily driven by expected decreases in corn, wheat, beef, and poultry exports (USDA, ERS, 2023). In spite of this expected decline overall, U.S. whiskey exports should increase, as evidenced by exports as of April 2023.

Figure 1 shows U.S. whiskey exports in FY 2023 (as of April, October-April) versus FY 2022. Note that whiskey exports in FY 2023 are significantly higher both in terms of value and volume. As of this April, U.S. whiskey exports were valued at $1.1 billion, which is a 73% increase when compared to exports during the same period in FY2022 ($637 million). In terms of volume, exports during this period were 25% higher in FY 2023 (118 million proof liters) when compared to FY 2022 (94 million proof liters). Given the relatively lower increase in volume, the overall increase in due to higher prices. This could be due to inflation as well as increased sales of higher quality products. Note that the average unit value in FY 2022 (October – April) was $6.75 per liter, but this increased to $9.34 per liter in FY 2023. The overall increase is mostly driven by exports from Tennessee (up 125% increase). Tennessee accounted for over 70% of total U.S. exports this fiscal year. As far as destination markets, most of this increase was due to higher sales to the EU27, including a more than 400% increase in exports to the Netherlands. The U.S. also experienced significantly higher sales in Australia and the U.A.E. (USDA, FAS, 2023).

Figure 1. U.S. Whiskey Exports: 2022 and 2023 Year-to-Date (fiscal year – October-April)

Source: USDA, FAS (2023)

References

U.S. Department of Agriculture (USDA, ERS). 2023. Outlook for U.S. Agricultural Trade. Economic Research Service, Washington, DC. https://www.ers.usda.gov/topics/international-markets-u-s-trade/u-s-agricultural-trade/outlook-for-u-s-agricultural-trade/

U.S. Department of Agriculture (USDA, FAS). 2023. Global Agricultural Trade System (GATS). Foreign Agricultural Service, Washington, DC.

Muhammad, Andrew. “U.S. Whiskey Exports Remain Strong as Ag Exports are Expected to Decline Overall.” Southern Ag Today 3(26.4). June 29, 2023. Permalink

June 29, 2023
New Rules for the Calculation of H-2A Workers’ Wages
In the last several decades, the United States has seen a continuous decline in the supply of domestic farmworkers. Economic and population growth, as well as consumer preferences, have led to an increase in the demand for hand-harvested products. As a result of the strong demand for labor-intensive agricultural commodities and the limited availability of US-born farmworkers, the H-2A program has experienced rapid growth since the first visas were issued in the 90s (Gutierrez-Li, 2021). This legal avenue allows US employers to bring farmworkers for fixed periods of time on a seasonal basis.

While the H-2A program has worked as a lifeline to many US farmers who otherwise would have gone out of business, it has been criticized by some agricultural groups as costly and overly bureaucratic. Based on the program’s rules, US employers are obligated to pay for transportation from the country of origin of workers (and within the United States), compensation insurance, housing, and wages. Wages are perhaps the main source of controversy. According to the law, employers must pay their H-2A workers at least the highest of (Osti et al., 2019):
1. a minimum wage known as the Adverse Effect Wage Rate (AEWR)
2. the prevailing wage
3. the prevailing piece wage
4. the wage agreed upon a collective bargain or
5. the federal or state minimum wage
The AEWR condition is supposed to ensure that employing a foreign worker will not negatively affect the compensation of similarly qualified individuals working in related jobs. The wages differ by state and are generally set to a level above the minimum wage. All AEWRs were previously determined by surveys conducted by the US Department of Agriculture.

On February 28, 2023, the US Department of Labor (DOL) published a final rule that modifies how much H-2A workers need to be paid. The changes became effective on March 30, 2023. Specifically, the government agency introduced a new methodology for the calculation of the hourly wages of some H-2A workers. Under the previous methodology, which dates back to 2010, there were 50 different AEWRs (one per state, Figure 1). With the new rules, there could be multiple hourly wages paid to H-2A workers in each state. According to the new methodology, the DOL will continue to calculate the AEWRs for field and livestock occupations based on the US Department of Agriculture Farm Labor Surveys (FLS) whenever such information is reported. However, if the FLS does not report wages in a state or region, the DOL will instead use data from the Occupational Employment and Wage Statistics (OEWS) surveys from the US Bureau of Labor Statistics to set a statewide AEWR for workers of other categories.

Field and livestock workers include individuals who “plant, tend, pack, and harvest field crops, fruits, vegetables, nursery and greenhouse crops, or other crops” or “tend livestock, milk cows, or care for poultry,” including those who “operate farm machinery while engaged in these activities.” The Standard Occupational Classification codes (SOCs) and titles associated with these workers are: 45-2041 (Graders and Sorters, Agricultural Products), 45-2091 (Agricultural Equipment Operators), 45-2092 (Farmworkers and Laborers, Crop, Nursery, and Greenhouse), 45-2093 (Farmworkers, Farm, Ranch, and Aquacultural Animals), 53-7064 (Packers and Packagers, Hand), and 45-2099 (Agricultural Workers, All Other) (Department of Labor, 2023). For all other occupations, the DOL will set a statewide annual average hourly wage based on OEWS data. Additionally, if a job includes multiple tasks (thereby giving room for it to involve multiple occupations), the highest wage rate will be chosen.

It is too early to determine whether the new methodology will achieve the goal (of the government) of paying fairer wages to H-2A workers performing tasks that require more training or skills like van or truck driving. However, the new rule has already faced strong opposition from farming groups (Agriculture Workforce Coalition, 2023), which sued under the argument that it will make the H-2A program more costly and cumbersome than it already is. It remains to be seen how easy it will be for the government to classify workers’ occupations in practice and if employers will strategically classify workers to affect the wages they pay.

Figure 1. 2023 H-2A Adverse Effect Wage Rates

Source: U.S. Department of Labor.

References

American Workforce Coalition. (2023). Letter to the House and Senate.

Gutierrez-Li, A. (2021). The H-2A Visa Program: Addressing Farm Labor Scarcity in North Carolina. NC State Economist. North Carolina State University.

Osti, S., Bampasidou, M., & Fannin, J. M. (2019). Labor-Intensive Multiple Cropping Systems and the H-2A Program. Choices, 34(1), 1-6.

US Department of Labor. (2023). 2023 H-2A Adverse Effect Wage Rate (AEWR) Final Rule FAQs. Office of Foreign Labor Certification.

Gutierrez-Li, Alejandro. “New Rules for the Calculation of H-2A Workers’ Wages.” Southern Ag Today 3(26.3). June 28, 2023. Permalink
June 28, 2023
Surprisingly Big Placements in the June Cattle on Feed Report

The latest Cattle on Feed report was released on Friday by USDA-NASS. June 1 total cattle on feed for feedlots with capacity of 1,000 or more head was estimated at 11.55 million head which was 2.9 percent below June 1, 2022. This marked the ninth consecutive month that total cattle on feed was lower than the same month of the previous year.

The biggest surprise from this report was the larger than expected placements of cattle into feedlots during May which were estimated at 1.96 million head. Placements were 4.6 percent (86,000 head) above May 2022 totals which was above the pre-report average expectation of a 1.7 percent increase. This was the largest May placements total since 2020.

Placements were higher across all weight classes except for the 900-999 pound group which was down 2.3 percent. Placements of cattle weighing less than 600 pounds were up 4.1 percent, 600-699 pounds up 9.3 percent, 700-799 pounds up 3.2 percent, 800-899 pounds up 6.5 percent, and over 1,000 pounds up 6.7 percent.

Looking at regional placements, most of the overall increase was driven by Nebraska where placements were 13.9 percent higher than last May, and placements were up double digits in all weight categories. Drought almost certainly was a factor in the larger Nebraska placements. Placements in Texas were interesting because of the contrast between light and heavy weight placements. Texas placements of under 600 pound cattle were up 7.1 percent (10,000 head) while placements over 800 pounds were down 8.7 percent (10,000 head) as compared to May 2022.

Cattle marketings were reported at 1.95 million head which is 1.8 percent above a year ago. This was slightly higher than expected pre-report but within the range of expectations.

Looking ahead, it will be interesting to watch where cattle on feed numbers go during the summer months. Cattle on feed numbers typically decline in the summer and reach their seasonal low point around August before beginning to expand again for the Fall. Just how low that low-point is this year, and the percentage of heifers, will be informative for discussions on cattle and beef supplies.

Maples, Josh. “Surprisingly Big Placements in the June Cattle on Feed Report.” Southern Ag Today 3(26.2). June 27, 2023. Permalink

June 27, 2023
Interest Rates and Grain Storage

For the 2023/24 marketing year, higher interest rates will negatively impact producers’ costs for holding grain in storage, especially for producers utilizing operating loans. This article expands on the recent Smith and Johnson Southern Ag Today article to examine operating loan interest costs of storing grains at different interest rates and lengths of time and how to calculate operating loan interest costs when grain is stored. The article also provides charts to depict the change in operating loan interest cost of storing corn, soybeans, and wheat. For example, an increase in interest rate from 4% to 8% will increase the storage costs of corn stored for five months by 112.5% or $0.09/bushel.

The Federal Reserve began increasing the Federal Funds rate in February 2022 to combat inflation. When the Federal Reserve raises the Federal Funds rate, the prime rate increases. The prime rate is used as a reference interest rate for many types of loans, including operating, term, and credit card loans. On May 4, 2023, the prime rate reached 8.25%, the highest since 2006/07. Higher interest rates impact every aspect of a farming operation, including marketing strategies, especially producers using operating loans to hold grain in storage. Typically, operating loans are variable interest rate, meaning they are not fixed but increase when the prime rate changes; however, some lenders have started offering fixed-rate operating loans to provide customers with cost certainty. Operating loans are used to pay for inputs until grain can be sold and the operating loan paid back. There is an interest cost for holding grain in storage compared to selling at harvest and paying down operating loans. Grain in storage typically allows producers to increase profit through marketing strategies which utilize market or basis carry. However, the operating loan interest costs need to be accounted for when interest rates are elevated.

The operating loan interest cost on a dollar-per-bushel basis can be calculated by multiplying the harvest price by the interest rate and dividing the number of months the crop is stored by 12. For example, a producer that holds corn harvested in October until March (5 months), has an operating loan interest rate of 8% and is expecting a harvest price of $5.00/bushel would have operating loan interest costs of storage of $5.00 × 0.08 × (5/12).

Figures 1, 2, and 3 show the impact of the number of months of storage and interest rates on corn, soybeans, and SRW wheat operating loan storage costs. Harvest prices are assumed to be $5.00/bu for corn, $12.00/bu for soybeans, and $6.00/bu for SRW wheat. The storage costs increase the longer grain is stored. Additionally, costs increase as the price of the commodity increase, i.e., interest costs are higher for soybeans than corn or SRW wheat.

The table at the bottom of each chart can be used to estimate increased operating loan interest costs for grain held in storage due to climbing interest rates. Following our previous example, if corn is harvested in October for March delivery (5 months) and the interest rate is 4%, operating loan interest costs of storage for $5 corn would have been $0.08/bu. When the rate increases to 8%, closer to current rates, the operating loan interest costs of storage are $0.17 per bushel. This result indicates an increased operating loan interest cost of $0.09/bu ($0.17 minus $0.08), a 112.5% increase due to a 4% increase in interest rates.

In conclusion, high-interest rates increase the storage costs for producers holding grain via an operating loan, affecting each operation’s bottom line and potentially negating the price benefits of storage. Storage costs are rising with interest rates and should be accounted for in your grain marketing decisions.

Figure 1: Impact of Interest Rates Increases on Corn Storage Costs

Figure 2: Impact of Interest Rate Increases on Soybean Storage Costs

Figure 3: Impact of Interest Rate Increases on SRW Wheat Storage Costs

References

Smith, Aaron, and William “Bill” Johnson. “The Impact of Interest Rates and Basis on Net Cash Price for Corn.” Southern Ag Today 3(23.1). June 5, 2023.

Gardner, Grant. “Interest Rates and Grain Storage.” Southern Ag Today 3(26.1). June 26, 2023. Permalink

June 26, 2023
What to Know About Employing Minors in the Summer and Beyond

Lifelong lessons in work ethic are often learned as a kid bailing hay on hot summer days. It’s summer, the kids are out of school, and many are looking for summer jobs. It’s a good time to take inventory of the measures agricultural operators need to take to keep minors safe and stay in compliance with state and federal child labor laws. In addition to the federal child labor laws discussed herein, there are likely additional state laws that should be fully explored and familiarized prior to employing a minor in an agricultural operation.

When hiring youth to assist with farm chores, there are various factors that can affect what duties a minor may or may not legally perform. Prudent operators would certainly never intentionally assign dangerous farm tasks to minors. However, what the law considers “hazardous” may vary from even the most reasonable operators’ idea of dangerous. For instance, the law very specifically addresses whether a minor may assist with, or even ride on a tractor. Other common tasks such as feeding bulls, checking on calving cows, and spraying weeds or spreading fertilizer may or may not be permissible, depending on a number of factors.

The duties that a minor may perform on an agricultural operation varies depending upon their age. Under the Fair Labor Standards Act (“FLSA”), children under the age of 12 must have parental consent to work on a small farm (as defined by FLSA) and are exempt from federal minimum wage provisions. Children the age of 12 or 13 may work with parental consent or where the child’s guardian is also employed. If 14 years of age, a minor may work without parental consent but only in non-hazardous agricultural jobs. Once a minor reaches the age of 16, they may perform any farm job including those deemed hazardous by the Secretary of Labor. Minors that are 16 or older may also work at any time, including during school hours, while youth under age 16 may only work outside of regular public school hours, even if home schooled, unless employed by their parents or guardian. There are also limitations on the number of hours minors may work, depending upon their age and whether school is in session in the local public school district.

The Secretary of Labor has identified 11 categories of duties deemed “hazardous” that minors under the age of 16 may not perform. Those range from operating a tractor with over 20 PTO horsepower to entering a pen or yard with male breeding stock or with pigs or cows that have recently given birth, to handling agricultural chemicals which include the word “danger” or “poison” with skull and crossbones or “warning” on the label. A full list of these hazardous activities as well as other federal laws regarding the employment of minors in agriculture, can be found in the U.S. Department of Labor’s (“DOL”) Child Labor Bulletin 102. Exemptions to these hazardous activity prohibitions may apply to minors employed by their parents or enrolled in certain formal training or vocational programs.

While federal law does not require a work permit for minors employed in agriculture, some states may require one. The DOL maintains a comparison of federal and state requirements of child labor laws that is searchable by state here. However, even where not required, it may be prudent to request a state issued age certification in order to protect employers from unintentional violations of the federal age requirements.

There may be no better place to learn the value of hard work than a farm or ranch. When providing opportunities to minors, be prudent, ensure you’re in compliance, and keep our youth safe. Don’t forget to keep the lemonade flowing.

Friedel, Jen. “What to Know About Employing Minors in the Summer and Beyond.” Southern Ag Today 3(25.5). June 23, 2023. Permalink

Photo by Stephen Andrews

June 23, 2023