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  • Inputs Up Sharply; Makes Planning More Important Than Ever

    Inputs Up Sharply; Makes Planning More Important Than Ever

    As harvest finishes up during the month of November, farms can assess how they fared for the year, and more importantly, make plans for next year. Compared to this time last year, farm inputs are up sharply; meaning planning for the 2022 crop year is more important than ever to be sure risks are managed.

    Taking a look at year over year changes in fertilizer and energy prices in the southeastern United States, one can see a dramatic increase. Data on average weekly prices for common fertilizers show an increase in the price of DAP by 75%, UAN by 91%, and Potash by 107%. Farm diesel is up 73% and LP is up 85%. Given the cold weather season hasn’t really started yet, energy prices are expected to stay up. Given demand for fertilizers is up while supply concerns exist, there is no indication that fertilizer prices will soften either. Other inputs like machinery and equipment, labor, and chemicals are also expected to be up.

    What does this mean for the farmer? Margins will be tighter next year. Farmers will need to know their cost of production to help manage their risks. Using enterprise budgets can help estimate cost of production. Fortunately, university Extension agricultural economists develop enterprise budgets each year as a guide for farmers to modify to reflect their specific production practices. After farmers calculate an estimate of their costs, they can determine the breakeven price and yield needed for their crop to cover those costs.

    Year over Year Prices for Energy Inputs in the Southeast, Nov. 6, 2020, to Nov. 5, 2021

    Chart Source: Author compiled with data from USDA Market News with State Departments of Agriculture from Alabama, North Carolina, and South Carolina

    USDA-AL Dept of Ag Market News, Montgomery, AL, www.ams.usda.gov/mnreports/MG_GR210.txt

    South Carolina Dept of Ag-USDA Market News, Columbia, SC, www.ams.usda.gov/mnreports/CO_GR210.txt 
    North Carolina Dept of Ag-USDA Market News Service, Raleigh, NC, www.ams.usda.gov/mnreports/ra_gr210.txt

    Smith, Amanda. “Inputs Up Sharply; Makes Planning More Important Than Ever.” Southern Ag Today 1(47.3). November 14, 2021. Permalink

  • More Cattle Heading to Feedlots

    More Cattle Heading to Feedlots

    USDA’s November Cattle on Feed report comes out Friday, November 19th.  The report is expected to indicate that about 3.6 percent more cattle were placed on feed in October than last October.  Placements usually increase in the Fall to a peak in October.  The South is a major calf producing region supplying feeder cattle to feedlots throughout cattle feeding country.  On average, over the last few years, 73,726 cattle have entered Texas from Southern states in October.  That data is from the Texas Animal Health Commission and represents non-breeding cattle in-shipments to the state with a veterinary certificate.  It does not mean that all those cattle went directly to feedyards and it is likely an undercount of all cattle coming into Texas.  Drought in some parts of the country and higher fed cattle prices are supporting placements.

    Feedyard marketings are expected to be below last October by about 4.2 percent but, the decline in marketings is due to one less working, or slaughter, day in October 2021 versus October 2020.  Daily average marketings should be about the same as a year ago.  The combination of marketings and placements leaves the number of cattle on feed on November 1st at 99.9 percent of last year.  

    A lot of factors are at work in determining Southern calf prices, like higher fuel costs for trucking, higher fertilizer prices, and higher hay prices. Higher fed cattle prices are boosting the demand for calves and supporting prices.

    Anderson, David. “More Cattle Heading to Feedlots.” Southern Ag Today 1(47.2). November 16, 2021. Permalink

  • Did Speculative Money Cause the Recent Surge in Cotton Futures Prices?

    Did Speculative Money Cause the Recent Surge in Cotton Futures Prices?

    If you drive around the countryside in the Cotton Belt in October and November, you will encounter snow white cotton ready to be harvested. This is the busiest time of the year for cotton producers and when they receive the reward for a hard year’s work. For many producers, this year’s harvest combines good yields and good prices, which is rare for cotton producers.  

    The USDA Crop Progress report, released on November 8, 2021, indicated 98 percent of cotton bolls opened nationwide, with 55 percent of cotton acres harvested. Crop condition has remained steady this year, with greater than 60 percent of cotton rated in good-to-excellent condition since the end of July. The November 2021 USDA World Agricultural Supply and Demand Estimates (WASDE) report projected U.S. cotton production at 18.2 million bales this year, slightly over the U.S. cotton demand – 15.5 million bales of exports and 2.5 million bales of domestic mill use.  The U.S. ending stocks-to-use ratio is forecast at 18.9 percent for the 2021/22 marketing year, slightly above last season, but below each of the previous three years.  Globally, 2021 cotton production is projected at 121.8 million bales, which is 9.6 million bales greater than last year. World cotton mill use is projected slightly higher than production at 124.1 million bales, 3.2 million bales above last season, and the second largest on record.  

    Current supply and demand fundamentals support high cotton prices. However, it is hard for cotton supply and demand fundamentals to explain the recent price surge. Since the middle of September, cotton prices skyrocketed, with December Futures rising from the mid-90 cents per pound to a high of 121.67 cents per pound on November 2, 2021. If supply and demand fundamentals cannot explain the price increase, then what could be the cause of the recent price surge? 

    Historically, cotton prices tend to follow the stock market, with a rise in cotton prices when the stock market rises and a decline in cotton prices when the stock market drops. Cotton markets have been on an upward trajectory since April 2020, with a recovery of futures prices from the low 50 cents per pound to over 100 cents per pound starting in October 2021. In recent weeks, the stock market has been on a roller coaster ride (Figure 1). As money flows out of the stock market seeking the next opportunity for a short-term gain, other markets like cotton can experience an inflow of speculative money, pushing prices higher. This flow of money into cotton markets has pushed prices to levels that exceed those indicated by supply and demand fundamentals, creating a potential marketing opportunity for cotton producers. However, the flow of money in and out of cotton markets can also make prices unpredictable and volatile, thus making it difficult for producers to predict the direction of cotton prices. Speculative money could continue to push cotton prices higher; however, when speculative money leaves cotton markets, prices will fall sharply (possibly with a temporary correction below the price supported by global cotton supply and demand fundamentals). For now, producers may want to consider completing 2021 crop marketing at very robust price levels. 

    Figure 1. Cotton 2021 December Future Prices (Blue Area) and S&P 500 Index (Blue Line).

    Liu, Yangxuan. “Did Speculative Money Cause the Recent Surge in Cotton Futures Prices?” Southern Ag Today 1(47.1). November 15, 2021. Permalink

  • What’s in a Name? Standards of Identity for “Milk” & “Yogurt”

    What’s in a Name? Standards of Identity for “Milk” & “Yogurt”

    The Food and Drug Administration (“FDA”) is responsible for the labeling of dairy products, among other things.  In part, it regulates labels through the creation of “standards of identity,” which outline how specific words may be used.  FDA is given authority in the Federal Food Drug and Cosmetic Act (“FFDCA”) to enforce those standards.  Under the FFDCA, a food is misbranded if it is labeled using a word for which a standard of identity has been established, but the food does not match the requirements.  In these situations, FDA has a range of options from warning letters or a seizure of the mislabeled product up to fines or even criminal prosecution.

    In 2018, FDA asked for comments about the labeling of plant-based products with names of dairy foods.  They wanted to learn more about how consumers use them and how they understand terms such as “milk” or “yogurt” when included in the product names.    

    Since that time, FDA changed the standard of identity for “yogurt.”  As of this July, “yogurt” is limited to the food produced by culturing at least one “basic dairy ingredient” and any “optional dairy ingredients” along with a “characterizing bacterial culture.”  21 CFR § 131.200.  Based on that definition,  non-dairy alternatives will be excluded from using the word “yogurt.”  

    The recent change to the standard for yogurt is in contrast to the standard of identity for milk, which has been in place for decades.  “Milk” is “the lacteal secretion, practically free from colostrum, obtained by the complete milking of one or more healthy cows.” 21 CFR § 131.110.  Based on that definition standard, non-dairy substitutes should not be able to use the term. However, FDA has discretion to decide what standards to focus its enforcement resources on, and so far, the agency has not chosen to strictly enforce the standard of identity for milk. As a result, non-dairy substitutes made of almonds, soy, oats, or rice claim the “milk” label alongside the dairy variety. 

    FDA intends to submit a draft guidance for industry regarding the labeling of plant-based milk alternatives by the end of June 2022.  The guidance, along with any changes to the regulatory standard of identity, will be important in determining whether plant-based products may continue use the term “milk.”  Just as important for dairy producers, though, will be whether the FDA intends to enforce the standards as written, or allow continued expansion of the terms.   

    Rumley, Beth. “What’s in A Name? Standards of Identity for “Milk” & “Yogurt.” Southern Ag Today 1(46.5). November 12, 2021. Permalink

  • Global Fertilizer Market Affects U.S. Import Prices

    Global Fertilizer Market Affects U.S. Import Prices

    The recent spike in fertilizer prices will have a significant impact on U.S. crop production moving forward. The global fertilizer market had already been tightening before plants were forced to cut production given the rise in the cost of gas, a key feedstock (Larkin, 2021). In the U.S., this has resulted in a significant increase in fertilizer import prices. Over the last 5 years (2016-2020), U.S. fertilizer imports have averaged nearly $6 billion (around 25 million metric tons), accounting for a significant share of total fertilizer use in the U.S. (USDA-ERS, 2019).

    Most U.S. imports are either potassic fertilizer (potash) and nitrogenous fertilizer, as well as mixed fertilizers. Since 2017, potassic import prices have averaged less than $220 per metric ton (MT) but has increased to nearly $300/MT in recent months (August 2021), which is an increase of about 40% when compared to the average from 2017-2020. Nitrogenous fertilizer, which also averaged less than $220/MT over the last four to five years, is now more than $350/MT, an increase of about 71% when compared to 2017-2020. The price of imported mixed fertilizer has increased to nearly $700/MT, up 58% when compared to 2017-2020. Trends suggest that fertilizer import prices will continue to increase, resulting in significant economic strain for U.S. producers.

    U.S. fertilizer import prices significantly higher in 2021 due to global supply and demand issues

    Note: HS is the Harmonized System Classification, which is the nomenclature system used to track trade goods.
    Source: U.S. Department of Agriculture, Foreign Agricultural Service’s Global Agricultural Trade System (2021). https://apps.fas.usda.gov/GATS/default.aspx

    References

    Larkin, N. (October 15, 2021) Supply Lines Fertilizer Crisis Piles More Pressure on World’s Future Food Supply. Bloomberg. https://www.bloomberg.com/news/newsletters/2021-10-15/supply-chain-latest-warnings-mount-over-fertilizer-crisis

    U.S. Department of Agriculture, Economic Research Service (USDA-ERS) (2019). Fertilizer Use and Price. https://www.ers.usda.gov/data-products/fertilizer-use-and-price.aspx  

    Muhammad, Andrew. “Global Fertilizer Market Affects U.S. Import Prices.” Southern Ag Today 1(46.4). November 11, 2021. Permalink