The latest estimates for meat trade were recently released by USDA ERS. These estimates include export and import data across many different meats including beef, pork, and broilers during the month of August. This article highlights beef export data as each sector is on track for record or near-record export totals in 2021.
Beef exports set a record at 325 million pounds during August and were 21 percent higher than in August 2020. Japan was the largest volume destination for beef exports during August followed by South Korea and China. The year-over-year increases in beef exports to China have been large throughout 2021 as shown in the chart above. Exports to Hong Kong have declined. Combined, year-to-date beef exports to China and Hong Kong are 163 percent above 2020 levels.
Pork exports during August were about the same as during August 2020. However, there were big shifts in volumes to particular destinations. Pork exports to China (the third largest volume destination) during August were 49 percent lower than during August 2020. However, exports to Mexico were 50 percent higher which offset the declines to China. Mexico was the largest volume destination during August followed by Japan.
Broiler exports were up 5.5 percent above August 2020. The biggest increases were in exports to Mexico (up 22 percent) and Cuba (up 80 percent) from August 2020. These countries were the top two exportdestinations during August.
Soybean value is derived from two products: oil and meal. In general, a 60-pound bushel of soybeans produces 48 pounds of soybean meal and 11 pounds of soybean oil with 1 pound of processing waste. To estimate crush margin, the following calculations can be used:
Soybean meal value ($/bu) = Soybean meal price ($/ton)/2,000 x 48 lb/bu[1]
Soybean oil value ($/bu) = Soybean oil price (cents/lb)/100 x 11 lb/bu
The crush margin is an estimate of gross margin for a soybean processor and can be used as an indicator of profitability. Figure 1 depicts the monthly nearby soybean futures price and the monthly crush margin. Since January 2006, the average futures market crush margin has been $1.46/bu with a minimum of $0.90 and a maximum of $3.18. As of October 13, 2021, the crush margin was $2.08 indicating an above average gross margin or an incentive to crush (this may be partially diminished due to increased costs to operate soybean crush facilities due to COVID-19 and labor/logistical issues).
But what is driving this incentive? Looking at the data shows that the percent of value derived from meal and oil changed in April 2021. For the first three months of 2021, soybean meal was 65% of the soybean value, the same as the January 2006 to October 2021 average. However, since April this ratio has moved in favor of oil with the October 2021 estimate of 54% of soybean value attributed to meal and 46% to oil (Figure 2). There are two primary reasons for increased soybean oil value. First, increased vegetable oil demand and lower stocks are causing the number of global days-on-hand (stocks divided by daily average consumption) to drop from 41.7 days in the 2020/21 marketing year to 38.5 days projected for the 2021/22 marketing year. The second factor is current and potential demand for biodiesel derived from soybean oil. Energy prices have risen dramatically this year, and the federal government has emphasized continued development of biodiesel as a renewable fuel.
So, what does this tell us about prices? Soybean meal futures prices have declined since the start of the year, dropping from $417.60/ton in January 2021 to $312.90/ton in October 2021. Conversely, soybean oil futures have increased from 44.62 cents/lb to 58.62 cents/lb. Over the same time, soybean futures have dropped from $13.70/bu to $11.88/bu. While strong demand for soybean oil has helped support soybean prices, it is likely that soybean meal will drive prices and gross returns to farmers moving forward. As such, even if soybean oil prices continue to strengthen, the soybean meal market will likely need to establish a floor (or increase in value) for soybean prices to resume a strong upward trend.
Figure 1. Monthly Nearby Soybean Futures Contract Price and Crush margin, January 2006 to October 2021 (Calculated based on futures data from: barchart.com)
Figure 2. Meal and Oil Value per bushel of Soybeans, January 2006 to October 2021 (Calculated based on futures data from: barchart.com)
[1] There are two common approaches to estimating the quantity of soybean meal: (1) the one depicted above, 48 lbs of soybean meal at (44% protein) or (2) 44 lbs of soybean meal (48% protein), which is used by CME group.
Private companies are approaching farmers and forest landowners about entering into carbon contracts, generating a lot of interest. Carbon contracts are voluntary agreements that landowners can enter into promising to use certain practices such as limited/no-till farming, planting cover crops, or forego the harvesting of mature timber and then paying the farmer for sequestered carbon. Contracts are difficult to come by and typically contain confidentiality clauses; however, there are some common elements that landowners should be aware of before signing.
The length of the contracts can vary substantially. I have read contracts that range from one year to ten years in length, and some may be longer. One contract required the storage of carbon in the field for the next one hundred years. Ensure that you can comply with the contract for the entire life of the agreement.
To measure the carbon sequestered, the landowner often has to grant the other party access to the property to take those measurements.
Payments, and payment mechanisms, can vary substantially. For example, some contracts pay for certain practices, such $3 per acre for no-till farming, while other contracts pay based on the tons of carbon sequestered, typically around $15-$20 per ton, but this can vary as well.
Read the definitions section carefully, as words may not mean what you think they mean.
Many contracts pay only for the carbon sequestered and allow the other party to sell off other environmental benefits, such as water quality credits. Unfortunately, some of the contracts do not have a mechanism to enable the landowner to realize any gain from the sale of other environmental benefits, so make sure that your contract allows you to profit from all potential environmental benefits.
If approached with a carbon contract, read it carefully, make sure that it makes financial sense to adopt the practices you will be required to follow, and consult with a knowledgeable attorney before signing.
Producers across the United States benefited from the Coronavirus Food Assistance Program (CFAP) 1.0 and CFAP 2.0 programs aimed at providing assistance for losses due to the COVID-19 pandemic. CFAP 1.0 provided more than $10 billion in payments on over 600,000 applications. CFAP 2.0 provided almost $14 billion in payments along with top-up payments for acreage based commodities totaling another $4.8 billion from over 900,000 approved applications.
CFAP 2.0 provided broader coverage than the CFAP 1.0 program that limited eligibility to only those crops experiencing a 5 percent decline while focusing on unsold inventories from 2019, left out HRW wheat, and only protected livestock inventories on the farm as of January 15th, 2020.
CFAP 2.0 was widely accessed by producers across the South with the 13 southern states accounting for $3.7 billion or nearly 27 percent of the payments. Soybeans, cattle, and sales commodities were the highest commodity categories in four states each, while corn was the highest in Kentucky. Sales commodities include specialty crops, aquaculture, nursery crops and floriculture, and other commodities not included in the price trigger and flat-rate payment categories.
From 1995-2020, available products and program changes have dramatically shifted the profile of crop insurance products used by Southern ag producers. In that time, producers in 13 Southern states have typically covered around 40 to 45 million combined acres across 7 major commodities.
In 1995, over 45 million acres across the South were covered by a limited offering of yield only type products. Two products covered almost 91% of insured acres. Catastrophic coverage (50% yield and 55% price) carried nearly 30 million acres with another 12.35 million under 65% APH. As revenue products [Revenue Assurance, Crop Revenue Coverage, and Revenue Protection (RP)] were developed and incentive structures evolved, producers (and in no small part, their lenders) have come to rely heavily on revenue protection at higher buy-up levels. By 2007, 50% of the acres were covered by a revenue type product, and by 2020 that share had grown to over 80%. Two coverage levels, 70% RP and 75% RP, dominate all other product types/levels, accounting for over half of the acres (24.7 of 44.9 million acres) covered in 2020.
Southern Crop Acres Insured by Product Type/Level
Source: USDA, Risk Management Agency Summary of Business. Total annual acres covered across 13 Southern states (AL, AR, FL, GA, KY, LA, MS, NC, OK, SC, TN, TX, and VA) for 7 crops (Corn, Cotton, Grain Sorghum, Peanuts, Rice, Soybeans, and Wheat). Yield Coverage includes: APH, YP, and PNT. Revenue Coverage includes: CRC, RA, RP, and RPHPE
