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  • Input Price and Availability is Influencing 2022 Planting Intentions

    Input Price and Availability is Influencing 2022 Planting Intentions

    Historically, the harvest futures price from December 1 to March 31 can be a key predictor of planted acreage for spring crops. From 2010 to 2021, the monthly average futures price from December 1 to March 31 for soybeans (SX) divided by corn (CZ) has been 2.39, and corn (CZ) divided by cotton (CTZ) has been 5.85. A soybean-to-corn price ratio below 2.39 would tend to favor planting corn over soybeans and a corn-to-cotton price ratio above 5.85 would favor corn over cotton (Figure 1). So, with relative prices favoring corn and cotton, should we expect a reduction in soybean acres in 2022? Maybe not. 

    Figure 1. December 1 to March 31 monthly average futures closing price ratio for the harvest contract (December = Corn; Soybeans = November; and Cotton = December), 2010-2022*

    Commodity price ratios may not dictate producer decisions on what to plant in 2022. Instead, input cost and availability may be the driving force. High input crops, like cotton and corn, are at a disadvantage compared to lower input crops like soybeans and sorghum. High input prices reduce profit margins, and potential lower input availability increases production risk. 

    Using fertilizer as an example, retail prices (Figures 2 & 3), are up 62-176% compared to last November. To put this in context, from 2010 to 2020 for the Mississippi Portal Region, USDA ERS estimates the cost of fertilizer to be 4.49 times more expensive for an acre of corn than for an acre of soybeans and 2.64 times more expensive for an acre of cotton compared to an acre of soybeans. As such, a doubling in fertilizer prices can add $100-150 or more per acre to producer’s production costs for corn, whereas for soybeans, fertilizer costs may only go up $20-35 per acre with a doubling of fertilizer prices. Producers will need to estimate profitability and risk for each commodity when making planting decisions. 

    Figure 2. Select weekly fertilizer prices November 2019 to November 2021

    Figure 3. Select weekly fertilizer prices November 2019 to November 2021

    Currently, the availability and cost of inputs for the 2022 crop is a major concern for producers. This is likely to continue well into 2022. Producers who purchase inputs in winter 2021/22 at high prices should strongly consider mitigating downside commodity price risk to avoid potentially catastrophic financial outcomes — inputs purchased at high prices combined with the potential sale of commodities at substantially lower prices (than are currently offered). Controlling input costs and managing output price risk this winter will be key to set the foundation for a successful 2022 crop year for midsouth producers.  
     
    References:
    Barchart.com. 2021. https://www.barchart.com/futures/grains and https://www.barchart.com/futures/quotes/CT*0/futures-prices?viewName=main (Accessed December 1, 2021).
    Dehlinger, K. and Russ Quinn. 2021. “DTN Retail Fertilizer Trends.” https://www.dtnpf.com/agriculture/web/ag/crops/article/2021/11/10/nitrogen-fertilizer-prices-shatter-1 and https://www.dtnpf.com/agriculture/web/ag/crops/article/2021/12/01/nitrogen-fertilizer-prices-end-2021(Accessed December 1, 2021).
    U.S. Department of Agriculture Economic Research Service (USDA-ERS). “Commodity Costs and Returns.” https://www.ers.usda.gov/data-products/commodity-costs-and-returns/ (Accessed December 1, 2021).

    Smith, Aaron. “Input Price and Availability is Influencing 2022 Planting Intentions“. Southern Ag Today 2(3.1). January 10, 2022. Permalink

  • The COVID Effect and Southeast Consumers’ Plant Purchasing Behavior

    The COVID Effect and Southeast Consumers’ Plant Purchasing Behavior

    The COVID-19 pandemic drastically changed the retail environment. Due to safety concerns, lockdowns, social distancing protocols, and other actions to minimize disease spread, consumers shifted from buying plants through traditional brick and mortar stores to online and curbside pickup options. Online plant purchases increased the most for mass merchandisers and box stores. Conversely, curbside pick-up increased the most for independent garden centers, followed by box stores. Customers who increased their online plant purchases were less likely to revert to their pre-pandemic buying behaviors after the pandemic while curbside pick-up customers were more likely to revert to their pre-pandemic buying behaviors. Several factors likely contributed to these results. First, online plant sales provide several benefits including increased convenience and accessibility, especially for consumers who do not live near the retail outlet. Additionally, as customers gained experience with online plant shopping, their confidence in receiving a high-quality product likely increased. As a result, e-commerce may be an attractive sales option for some firms, especially if they saw a strong increase during the pandemic. Secondly, curbside pick-up shoppers likely live near the retail store, so accessibility is not an issue. These individuals may also value the plant shopping experience meaning they perceive the retail environment positively and want to be physically present to shop for plants. 

    Rihn, Alicia. “The COVID Effect and Southeast Consumers’ Plant Purchasing Behavior“. Southern Ag Today 2(2.5). January 7, 2022. Permalink

  • 2022 Farm Safety Net Decisions

    2022 Farm Safety Net Decisions

    For the 2022 crop year, producers will have several decisions to make over the next few months.  For example, the U.S. Department of Agriculture’s Farm Service Agency (FSA) has announced that producers will have until March 15, 2022, to make their Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) elections and enrollments for the 2022 crop year.  In addition, many of the sales closing dates for crop insurance for spring-planted crops are rapidly approaching.

    For the ARC-County (ARC-CO) and PLC decision, the Agricultural & Food Policy Center (AFPC) at Texas A&M University provides a decision tool to evaluate the trade-offs between the two programs on a crop-by-crop and farm-by-farm basis.  AFPC also offers a spreadsheet calculator for producers who are considering ARC-Individual (ARC-IC).  Given the current price outlook – where producers may expect to receive little (or no) assistance from ARC and PLC – it arguably makes the crop insurance coverage decisions even more important.  

    To that end, we offer the following “rules of thumb” for you to consider as you make farm safety net decisions for the 2022 crop year:

    • Similar to the 2021 crop year, ARC and PLC are less likely to pay.  That’s okay!  Most producers tell us they would rather get their income from the market than the government anyway. 
    • Rather than focusing on expected ARC/PLC payments (when neither may trigger), consider instead where you are most vulnerable.  Is it lower prices due to trade disruptions or slow economic recovery?  Is it lower yields due to persistent drought?
    • Talk to your crop insurance agent to make sure you’ve evaluated all yield enhancement options (e.g., Yield Exclusion) and unit structures.
    • With current price elections on crop insurance, perhaps now is the time to focus more on adding area-wide tools like the Stacked Income Protection Plan (STAX) for upland cotton, the Supplemental Coverage Option (SCO), and the Enhanced Coverage Option (ECO).
      • You can have STAX on a farm if the seed cotton base on the farm is not enrolled in ARC/PLC.
      • You can purchase SCO for a crop on a farm as long as it’s not enrolled in ARC.
      • You can purchase ECO on the farm regardless of ARC/PLC enrollment.
    • At a minimum, on farms with little (or no) seed cotton base, be sure to take a close look at area-wide policies like STAX.  
    • If your APH is relatively higher than the county average yields, then be sure to compare STAX against both SCO and ECO.  Because of the 10% limitation in ARC, you may find SCO to be a more attractive alternative (and PLC can be utilized as well, providing some downside price protection, even if you do not expect to need it).

    Fischer, Bart, and J. Marc Raulston. “2022 Farm Safety Net Decisions“. Southern Ag Today 2(2.4). January 6, 2022. Permalink

  • Southern Timber Market Update

    Southern Timber Market Update

    Lumber prices have been on a roller coaster since the pandemic. They skyrocketed to a record high in May 2021, about quadruple the pre-pandemic five-year average prices, retreated swiftly over the summer, and started to surge again since mid-September. Lumber prices have made headlines and even been addressed by the Federal Reserve Chair. The South is often considered the wood basket of the country because of its significant role in wood supply. People would naturally think that southern timber prices increase dramatically as lumber prices soar because sawmills use timber as raw material to produce lumber. Timber prices and lumber prices are even used interchangeably by some news reporters. However, lumber and timber products are governed by different demand and supply factors. 

    Despite the marked rise in lumber prices, timber prices in the South have barely increased in the past two years until recently. According to TimberMart-South (TMS), the average southern sawtimber price (nominal) hovered around $23-25/ton from 2010 to 2020, compared with $37/ton in 2007. The southern timber market was among the hardest hit by the 2008-2009 economic recession. Roundwood harvest in the South dropped more than 30% compared to the peak in 2007 and timber prices declined more than 40%. Most mills curtailed their production. Some less efficient mills closed permanently. Trees continue to grow vigorously no matter what is going on in the economy. As a result, a significant volume of sawtimber has been accumulated on the stump over the past decade.  Although demand for timber products has gradually improved with improvement in the housing market, the amply supply of standing timber has put constant downward pressure on timber prices in the region. 

    Fortunately, landowners have started to see a gradual increase in timber prices in 2021. Timber prices across the South averaged at $26.24/ton in the third quarter, a 15% increase year-over-year. In some parts of the region (e.g., South Georgia, Florida, and East Alabama), the prices could be more than $45/ton due to strong demand from local sawmills. Record high lumber prices and continued improvement in the housing market support investment in sawmills. Softwood lumber production capacity in the South has increased 2.9 billion board feet (bbf) from 2017 to 2020, an increase of 16%. Newly announced greenfield construction and existing mill expansion suggest that the capacity could increase by another 3.0 bbf by 2023 (TMS). Canadian firms account for most of the increase mainly due to the high timber costs in Western Canada. This is good news for private forest landowners in the South since the increased demand is likely to translate into higher timber prices. 

    Whether the recent rise in timber prices can be sustained largely depends on factors from the demand side. Positive signs include a stable growth in single-family housing starts, continued increase in home improvement and repair expenditures, sawmill capacity expansion, and recovery in log exports. Additionally, the U.S. Department of Commerce recently announced that it will double the tariffs on Canadian softwood lumber to 17.9%. This may push U.S. domestic lumber prices even higher but may also accelerate the pace of Canadian firms’ investment in southern lumber mills. Overall, standing timber prices are expected to hold their recent strength in the near term. However, supply chain disruptions and labor shortage in the logging, transportation, and sawmilling sectors add uncertainties to the market. 

    Li, Yanshu. “Southern Timber Market Update“. Southern Ag Today 2(2.3). January 5, 2022. Permalink

  • Calf Prices Start the New Year Higher

    Calf Prices Start the New Year Higher

    Maybe we’re starting the new year on a high note with calf prices higher.  Lighter weight steer calves in the Southern Plains topped $200 per cwt at the end of 2021.  5-600 pound steers were over $180 and heavier feeders were over $160.  All of those prices were at least 10 percent higher than at the end of 2020.  Markets across the country were above a year ago along with those in the Southern Plains.

    Expectations are for higher calf prices in 2022 than in 2021.  The continuing contraction in beef cow numbers means fewer calves for sale later in the year.  Tighter supplies combined with good demand means higher prices.

    High feed costs will create some management choices this year.  Fine tuning fertilizer needs this year may pay off.  Targeting hay quality to cow needs could cut costs.  The area of the country in drought has been expanding across the South.  Some planning ahead for drought management strategies might include culling earlier, reviewing stocking rates, reserving some pasture for later needs, or even buying some feed ahead.  

    On balance, the new year brings a bunch of reasons for optimism, in spite of higher costs.  The higher prices to start the year promises more to come later.  Best wishes to you in the new year!  

    Anderson, David. “Calf Prices Start the New Year Higher“. Southern Ag Today 2(2.2). January 4, 2022. Permalink