The US is the largest agricultural exporter in the world reaching almost $150 billion in 2020 and the Southeastern ports are very important to get those commodities overseas. In 2020, a total of $62.3 billion were exported through the ports in Alabama, Florida, Georgia, Louisiana, Mississippi, North Carolina, South Carolina, Texas, and Virginia. Louisiana led the way with $25.6 billion in agricultural exports and its top five commodities exported were soybeans, corn, soybean cake, wheat, and DDG. Exports from Florida and Texas ports seem to be the most diverse as their top five commodities exported accounted for 23.5 and 38.4 percent, respectively. On the other hand, exports through Louisiana and Alabama ports seem to be more concentrated as their top five commodities accounted for 89.5 and 85.7 percent total ag exports, respectively. The most common crops exported by these ports were cotton and soybeans, while the most common meats were frozen chicken and frozen pork.
The emergence of developing carbon markets and programs aimed at the agriculture sector have provided farmers with the opportunity to receive payments for adopting management practices that reduce greenhouse gas emissions. The United States Environmental Protection Agency (EPA) estimates that over half of the greenhouse gases emitted in the agriculture sector come from soil management (Figure 1). Therefore, most carbon programs in the agricultural sector provide payments to farmers who generate carbon credits by adopting no-till or conservation tillage practices or cover crops. The majority of current carbon programs require the concept of additionality; meaning they will only pay for new (added) carbon-sequestering practices. Therefore, if you were an early adopter of conservation practices like no-till or cover crops and are standard practices on your farm, today you are not eligible to enroll those acres in most carbon programs. Current contracts offer farmers a range from $15-$20 per ton of carbon sequestered, but capacity to sequester (tons/acre) and the conservation practices adopted will vary by individual farm. It is essential to understand the costs and risks of implementing new practices and critically compare those to the potential benefits before enrolling in any carbon market program. Furthermore, due to the complexity and nuances of current carbon market programs, it is recommended you seek legal advice before entering into any contract.
Figure 1. Percent of U.S. greenhouse gas emissions from agriculture activities (source: U.S. EPA Inventory of Greenhouse Gas Emissions)
Fall is here and cow prices have begun to decline from their summer seasonal highs. Cull cow prices in the Southern Plains that hit $64 mid-year have given back about 22 percent of that price as of last week. Over the last five years, cow prices have declined by about one-third from mid-year to November.
Cow prices normally decline this time of the year because culling picks up across the country. Beef cow culling normally hits its annual peak in October-November each year. This year, beef cow slaughter remains well above last year (up 10 percent), likely encouraged by drought in the West. Dairy cow culling normally peaks in January-February and again late in the year. Beef and dairy cow sales, increasing at the same time in the Fall, combine to force lower cull prices.
A couple of good questions remain for the Fall. Did the surge in beef cow culling over the Summer pull ahead cow slaughter so there are fewer to go to market this Fall? Will high feed costs and struggling milk prices push more dairy cow culling? A long-used strategy has been to buy cows (or keep some cows) at depressed prices in the Fall to take advantage of seasonal price increases the next Spring. A smaller beef cow herd will likely support higher cow prices in 2022, but it will be important to consider high feed costs in this strategy.
Since March 2020, cotton futures prices have climbed from below 50 cents per pound to north of 95 cents. The current outlook for cotton prices remains bullish; however, prices are currently above the 90th percentile (89.02 cents; Figure 1) of the historic price range going back to January 2000. Cotton producers may want to consider removing some additional price risk – depending on production costs, current price protection levels, and year-to-date sales. Over 83% (15.5 million bales) of 2021 US cotton production is projected, by USDA, to be exported. As such, prices will be reactive to events overseas that can be unpredictable but potentially have dramatic ramifications domestically (for example, recent events with Evergrande). To manage price risk, producers have a vast array of marketing tools — cash sales, futures, options, forward contracts, marketing pools, and the USDA Loan Program. The effectiveness of the marketing tools will vary based on current market conditions.
In addition to price risk, there is still substantial production risk for many US producers, which needs to be considered when factoring how much production to price and the marketing tool utilized to mitigate risk. One marketing tool that producers may want to consider is buying December or March put options to set a futures price floor. Using put options allows producers to participate in upward movements in cotton futures while establishing a price floor on the protected production. Additionally, put options define the potential loss (the amount of the put premium), do not have margin calls, and do not require the physical delivery of cotton. For example, on September 13, 2021, a December 2021 put option with a 94-cent strike price could be purchased for 4.63 cents to establish an 89.37 cent futures price floor or a March put option with a 93-cent strike price could be purchased for 6.69 cents to establish an 86.31 futures floor (always check futures and options markets for updated premiums for different strike prices). Both options would secure a futures price above the 85th percentile of the historic price range in Figure 1. More complex option strategies can be considered to offset premium cost. Producers need to understand the risks and rewards for all strategies so working with a qualified professional is recommended. Current prices will result in profitable outcomes for many cotton producers; as such removing some price risk or protecting against the downside should be strongly considered.
Figure 1. Monthly Nearby Cotton Futures Prices, January 2000 to August 2021
