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  • What Might Climate Change Mean for U.S. Grain Exports?

    What Might Climate Change Mean for U.S. Grain Exports?

    Climate change represents a threat to future food security. There has been plenty of recent research on the effects of climate change on agricultural yields, productivity, and cropping decisions. In the agricultural trade domain, researchers have shown that trade can serve as a climate adaptation device, buffering the effects of shocks in importing regions where domestic agricultural systems are negatively affected by adverse weather shocks and climate change. But how will climate change affect the trade flows of exporting countries?

    This question is the focus of our recent working paper with co-authors Kjersti Nes and Dan Scheitrum. We assess the impacts of growing-season extreme weather events on agricultural trade outcomes in the short run, as well as the trade implications of long-run shifts in climate expectations and variability. Our analysis focuses on trade in three crops—corn, rice, and soybeans. Together, these crops account for approximately $12.4 billion in U.S. exports and about 50% of calorie consumption worldwide. 

    What did we find? 

    We find that—in the short-run—extreme weather events can be extremely disruptive to agricultural trade. A growing-season weather shock with about a 1-in-100-year odds reduces corn and rice exports by more than 60%. Figure 1 shows the average annual losses in U.S. corn and rice exports associated with weather variability, evaluated as a percentage of potential exports. (Note that soybean trade appears to be less sensitive to extreme weather events.) As shown in Figure 1, on average, the U.S. loses approximately 4% of potential corn exports and 8.5% of potential rice exports due to weather variability. A 10% increase in weather variability would increase these average losses to 6.5% for corn and 10.8% for rice. 

    In the long run, we find that climate change may have large impacts on U.S. grain exports, as production shifts to regions with more temperate climates, like Canada or Argentina. Figure 2 shows our estimates of the long-run impacts of climate change on U.S. grain exports under +2°C and +4°C climate change scenarios. Under a +2°C climate change scenario, U.S. corn exports are projected to fall by as much as 44%. Things may be even more bleak if warming temperatures are accompanied by an increase in climate variability. When we simulate the +2°C climate change scenario with a 15% increase in climate variance, U.S. corn exports are projected to fall by 50%. U.S. rice and soybean exports may be hit even harder than corn. 

    Figure 1: Short-Run Impacts of Weather Variability on U.S. Agricultural Exports

    Figure 2: Long-Run Impacts of Climate Change on U.S. Agricultural Exports

    Gammans, Matthew, and K. Aleks Schaefer. “What might climate change mean for U.S. grain exports?” Southern Ag Today 3(12.4). March 23, 2023. Permalink

    Photo by Guillaume Falco: https://www.pexels.com/photo/icebergs-2229887/

  • Loan Amortization

    Loan Amortization

    Long-term loans are a valuable financial tool that producers can use to purchase large capital investments, including farm equipment, land, or housing. These types of loans are typically paid off over a period of time lasting longer than one year. Long-term loan payments are made up of principal and interest. The principal is the original amount of money borrowed. Interest is set by the terms of the loan and accrues over the lifetime of the loan based on the interest rate, the principal balance remaining, and the length of the loan. 

    Loan amortization is the schedule for how payments will be made over the lifetime of the loan. The loan amortization schedule tells borrowers the beginning period loan balance, the regular payment, the amount of the payment that goes towards interest and the principal, and the remaining loan balance. A fixed payment schedule is the most common, where each payment is the same amount. 

    When considering securing a long-term loan, it is important to consider not just the monthly payments but the overall amount you will be paying over the lifetime of the loan. Since interest accrues on the loan, the amount you pay will be more than the initial loan amount. Table 1 is an example of a loan amortization schedule for a 5-year, $30,000 loan, with a 5% interest rate and payments made annually. In that example, the initial loan was $30,000, but total payments equaled $34,646.22. The loan amount, interest rate, and length of the loan can all have large impacts on how much you end up paying in total. A lower interest rate will decrease the overall amount paid, so it is important to search for a lender that will charge you the lowest interest rate. But, most lenders will likely offer a similar interest rate. A more effective way to reduce the total payment amount is to take a loan with a shorter payment schedule. This will increase the payment made each pay period but will reduce the total amount paid over the lifetime of the loan. Lastly, putting down a larger down payment and reducing the loan amount will also decrease the total amount paid. Since interest accrues based on the principal, a reduction in the loan amount will result in less interest accruing, and the total amount paid on the loan will decrease.            

    There are several tools available that can help you evaluate a loan and the total costs involved. Mississippi State University has a free loan amortization calculator Excel tool that can be found at: https://www.agecon.msstate.edu/whatwedo/budgets.php. The Farm Credit Services of America also has a free loan amortization calculator at: https://www.fcsamerica.com/products-services/digital-tools/loan-payment-calculator.Understanding how your loan payments are constructed and what factors impact total payments is essential in getting the right loan for your farm business. 

    Mills, Brian, and Kevin Kim. “Loan Amortization.” Southern Ag Today 3(12.3). March 22, 2023. Permalink

  • Beef Cow Culling Sharply Lower

    Beef Cow Culling Sharply Lower

    There are a lot of interesting things going on in livestock markets as we start Spring (at least by the calendar, if not the temperature).  Calf prices are sharply higher, corn prices are down a little, and hog prices and beef exports are struggling.  But, this week we’ll look at beef cow slaughter which is down sharply from earlier this year and compared to a year ago.

    From the first week of the year through the first week of March 621,900 beef cows have gone to packers.  That is 53,300 head fewer (down 7.9 percent) than the same period last year.  The 63,000 head sent to slaughter for the week ending March 4th was the smallest non-holiday week beef cattle slaughter since early April 2021. 

    Beef cow slaughter data is reported by USDA with states aggregated into regions.  Most Southern states are in Regions 4 and 6.  Region 4 includes the deep South from Mississippi to North Carolina and up to Kentucky.  Beef cow slaughter this year in region 4 is down 7.4 percent from last year.  Region 6 culling, which includes Texas, Arkansas, and Louisiana, is 10.1 percent smaller than last year.  It looks like culling in both regions has slowed even more over the last couple weeks.  One notable region is showing an increase in beef cow slaughter.  Region 7 includes Iowa, Kansas, Missouri, and Nebraska and slaughter is up 3.4 percent over last year.  Drought remains severe in Kansas and Nebraska according to the drought monitor.

    It is worth noting that beef cow slaughter normally declines seasonally a little from January into March and April.  This decline in slaughter this Spring is larger than normal.  

    Most everyone who follows the cattle market knows that large numbers of beef cows were sent to market in 2022 due to drought and low calf prices relative to costs.  One of the interesting questions for 2023 is whether cow culling slows down.  The answer, so far, appears to be “yes.”  

    Anderson, David. “Beef Cow Culling Sharply Lower.” Southern Ag Today 3(12.2). March 21, 2023. Permalink

  • Sensitivity of USDA’s Agricultural Outlook Forum Projections to Changes in Corn Exports

    Sensitivity of USDA’s Agricultural Outlook Forum Projections to Changes in Corn Exports

    Supply and demand projections for the upcoming 2023 crop year were released at the USDA’s Agricultural Outlook Forum on February 23. In the March 6th issue of Southern Ag Today, we looked at how close previous projections have been to final USDA estimates for corn, soybeans, and wheat. In this article, we expand upon missed projections and look at how changes in corn demand from the USDA’s projections could affect the stocks-to-use (STU) ratio and, thus, price. The simple analysis gives us insight into the supply and demand dynamics for the upcoming crop year. Specifically, we focus on changes in corn exports.  China, the largest importer of U.S. corn last year, cleared more Brazilian firms for corn export on March 6th to ease their dependence on U.S. imports (FAS, 2023; Samora, 2023). Additional access for Brazilian corn to China could reduce U.S. corn exports.

    STU is a fundamental indicator in commodity marketing as it compares commodity ending stocks to commodity demand. The impact of missed projections on STU provides insight into each commodity’s supply and demand dynamics. Plot A of Figure 1 shows the STU and marketing year average price for corn by year. The main takeaway from Plot A is that a higher STU indicates lower demand relative to supply and, thus, lower prices, whereas a lower STU shows higher demand relative to supply and higher prices. For example, in 2012, the drought impacted the supply of corn, resulting in lower STU and higher commodity prices. 

    Plot B of Figure 1 looks at the impact of missed export projections by the USDA on STU. In 2023, the USDA is projecting a 15% increase in corn exports from last year (USDA, 2023). Holding all the other USDA corn estimates constant and changing exports, we find that a 100-million-bushel miss-projection in corn exports would change corn STU by 0.39%. 

    As the Brazilian corn crop is projected to hit record numbers, increased Brazilian corn exports could negatively impact U.S. corn demand (Donley, 2023). In 2022, China imported 5.26 billion bushels of corn from the U.S. (FAS, 2023). If these numbers were cut by just 500 million bushels, causing the USDA to over-project exports, corn STU could be higher than 2018 levels when the average corn price was $3.61, assuming the other projections are unchanged. The current average corn price for 2023 is projected at $5.60. If exports are cut, and STU increases, the marketing year average corn price will likely be lower than projected. Changes in projected supply and demand will impact STU for corn, and consequently the marketing year average price. Producers and traders should be cognizant of projected changes in STU and use this information as one factor that could influence price expectations for the upcoming crop. 

    Figure 1. Price and Stocks-to-Use (STU) Ratio by Year and Impact of Missed Corn Exports Projections on STU

    Sources: 

    Donley, Arvin. “Brazil Expecting Record 2022-23 Corn Crop | World Grain.” World-Grain. Accessed March 14, 2023. https://www.world-grain.com/articles/17791-brazil-expecting-record-2022-23-corn-crop.

    Foreign Agricultural Service. “U.S. Corn Exports in 2022.” USDA Foreign Agricultural Service, March 8, 2023. https://www.fas.usda.gov/commodities/corn.

    Samora, Roberto. “BRAZIL SAYS 90 FIRMS CLEARED TO EXPORT CORN TO CHINA IN EARLY 2023.” Reuters, 2023. https://www.world-grain.com/articles/17924-us-ag-exports-expected-to-fall-in-2023.

    Smith, Aaron, and Grant Gardner. “February USDA Agricultural Outlook Forum Projections Compared to USDA Final Estimates.” Southern Ag Today 3(10.1). March 6, 2023. https://southernagtoday.org/2023/03/06/february-usda-agricultural-outlook-forum-projections-compared-to-usda-final-estimates/

    United States Department of Agriculture. “Grain and Oilseeds Outlook,” 2023. https://www.usda.gov/sites/default/files/documents/2023AOF-grains-oilseeds-outlook.pdf.

    Photo by Pixabay: https://www.pexels.com/photo/orange-corn-kernels-60507/

    Gardner, Grant, and Aaron Smith. “Sensitivity of USDA’s Agricultural Outlook Forum Projections to Changes in Corn Exports.” Southern Ag Today 3(12.1). March 20, 2023. Permalink

  • Value-Added Ag and Food Products

    Value-Added Ag and Food Products

    Value-Added agriculture is often promoted as a way for farmers to capture a larger share of the food dollar and as a means of rural economic development. Under USDA definitions, farmers capture the enhanced value from either processing or intrinsic characteristics of the product (e.g., organically or locally grown). However, non-farm entrepreneurs within the regional economy can also add value by using local commodities in their products.

    The table below provides an example of farm or non-farm entrepreneurs’ ability to capture a higher price and larger profit by processing locally-grown vegetables into salsa. The $1,000 in locally grown vegetables could be included in a jarred product worth almost $6,900. In the salsa scenario, sales and labor income are higher for both direct (entrepreneurs’) and community-wide impacts between businesses (indirect effects) and among households (induced effects). Labor income is double for the entrepreneur and triple for the community.

    If a farmer processes the vegetables, s/he creates the additional value and retains the additional profit—a traditional value-added paradigm. If another business purchases the local vegetables, that business lengthens its longer value chain relative to purchasing wholesale vegetables from outside the region. 

    Value-added presents promising opportunities to farmers, but it’s not for everyone. Only about 1.65% of US farms reported value-added product sales in the 2017 census of agriculture, and value-added sales were clustered among smaller farms. Farmers interested in value-added processing should consider the costs of labor (including their own), other inputs, and marketing and distribution when evaluating potential products.  

    Example Economic Impacts of Raw Vegetable Sales versus Value-added Salsa

    Table created by author based on IMPLAN data.

    Dudensing, Rebekka. “Value-Added Ag and Food Products.” Southern Ag Today 3(11.5). March 17, 2023. Permalink

    Photo by Kunal Murumkar Patil: https://www.pexels.com/photo/bowl-of-hot-mexican-salsa-among-composed-bright-ingredients-3846896/