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  • ARC/PLC Sign-up Deadline Just Days Away

    ARC/PLC Sign-up Deadline Just Days Away

    Producers have until March 15th to make their sign-up elections (agriculture risk coverage (ARC) or price loss coverage (PLC)) with FSA and enroll for the 2023 crop year. Based on the number of calls we have been receiving, relatively high but volatile commodity prices for many of the covered commodities have at least a few producers confused as to what would be the best choice to make. Unlike in many previous years, based on price forecasts for the 2023 marketing year average prices, there appears to be very little chance that the safety net for many of the major Southern commodities will trigger support based on price alone. Except for peanuts, marketing year average prices are projected to be well above reference prices used to calculate PLC payments. In other words, if the price projections come true, there would be no payments for the 2023 crop (Table 1).  

    This is the reason for many of the calls we receive. The caller usually says they are going to select ARC since it covers both price and yield. While this makes sense, it just isn’t that easy. With respect to price, ARC and PLC are counter-cyclical safety net programs. They were developed to provide little to no support when marketing year average prices are high, with support increasing as prices move lower year to year. Since ARC is a revenue program, there is protection against both low prices and low yields or some combination of low prices and low yields. 

    It is easy to see that a projected $6.80/bushel price for corn for the 2023 crop, for example, is well above the $3.70/bushel reference price, which means there is almost no way a PLC payment would be triggered for corn. But the same holds for ARC as well. Under ARC, the 2023 benchmark price for corn is $3.98/bushel. This is calculated taking the last 5 years of prices from the 2017 marketing year to the 2021 marketing year and calculating an Olympic average (dropping the high ($6.00) and low ($3.70) and averaging the remaining three years ($3.70, $3.70 and $4.53). Using yield data for Autauga County, Alabama, indicates a 2023 benchmark yield for corn of 174.70 bushels. That means the benchmark revenue is $3.98 * 174.70 or $695.31 per acre. Multiplying by 0.86 gets you to a guaranteed revenue for 2023 of $597.97. Without a yield loss, 2023 corn marketing year average prices would have to fall below $3.42/bushel for ARC to trigger payments for Autauga County, Alabama, corn producers. Using a 25% yield reduction (131 bushels/acre instead of 174.7) would require a corn price lower than $4.56/bushel to trigger an ARC payment for this year. That is still well below the $6.80/bushel that is projected for this crop year. 

    So, what should you do?  We aren’t in the business of telling you exactly what to do because frankly we don’t know what will end up being the best choice. We do have a decision aid available at www.afpc.tamu.edu where you can input your info, and it will show you expected payments under as many different price scenarios as you want to look at. We also have students who will input your information for you and call you to discuss results. All you need to do is call (979) 845-5913 and ask for decision aid help.   

    With ARC and PLC unlikely to trigger, your crop insurance decisions take on even more importance. You may also want to look at tools like the Supplemental Coverage Option (SCO) or the new Enhanced Coverage Option (ECO), both of which provide area-wide coverage for part of the deductible not covered by your underlying policy. Importantly, you must choose between ARC and SCO – you can’t have both.

    Hopefully we have given you something to think about as you consider your signup decisions.  We wish you luck, and don’t hesitate to call for assistance. 

    Table 1.  USDA 2023 Effective Reference Prices and Marketing Year Average Price Forecasts for Select Southern Commodities. 

    Commodity2023 Effective
    Reference Price    		2023 Marketing Year
    Average Price
    Wheat ($/bu)$5.50$9.20
    Peanuts ($/lb)$0.2675$0.265
    Corn ($/bu)$3.70$6.80
    Grain Sorghum ($/bu)$3.95$6.65
    Soybeans ($/bu)$8.40$14.00
    Seed Cotton ($/lb)$0.3670$0.4645
    Long Grain Rice ($/cwt)$14.00$16.50
  • Social and Business Implications of the 2023 Increase in Adverse Effect Wage Rates

    Social and Business Implications of the 2023 Increase in Adverse Effect Wage Rates

    In 2023, the adverse effect wage rate (AEWR), which is the reference minimum hiring rate for H-2A workers, increased by 2.66 to 15.47 percent in all U.S. states (except Alaska). Florida registered the highest annual increase, with incremental rates in six other states exceeding 10 percent (Table 1).  

    There are two possible explanations for these 2023 AEWR growth differentials across states. First, sharp spikes in 2023 AEWRs may be associated with lower historical AEWR growth trends. From 2019 to 2022, AEWRs in states with the ten highest 2023 AEWR increases grew annually by only about 3 percent, while states with the ten smallest 2023 AEWR change registered an average growth of almost 6 percent. Figure 1 shows that these two trends are negatively correlated, thus supporting the contention that larger 2023 AEWR increases may have been designed to make up for lower annual AEWR growth rates from 2019 to 2022.

    The other explanation revolves around gaps between AEWRs and livable wage levels in 2022. Livable wage, calculated by the World Population Review, measures the amount of income that can adequately cover basic family needs.  In this analysis, a gap exists when AEWR is less than the livable wage per hour (LWH), indicating that AEWR could not adequately satisfy all basic needs; a surplus exists when AEWR exceeds LWH.   Based on the summary in Table 1, all Top 10 states have AEWR-LWH gaps in 2022 as their ratios are below 100%.  In contrast, five of the bottom ten states registered AEWR-LWH surpluses in 2022.  Figure 2 plots the relationship between these two trends, where a no-gap demarcation line is drawn at the 100% level to distinguish surplus (above 100%) and gap (below 100%) situations. 

    From a business standpoint, stark increases in 2023 AEWRs may cause potentially harmful economic effects on labor-intensive, H-2A-dependent segments of each state’s agricultural industry. These are serious concerns, especially for states where H-2A workers account for a larger proportion of their annual hired farm labor complement. Last year, H-2A workers in Georgia and Florida comprised 62.88 and 55.31 percent of their hired farm labor force.     Notably, Florida and Georgia had the two highest annual AEWR increases in 2023. 

    From a social standpoint, there will always be pressure to correct gaps between actual and livable wages.  At the same time, it is important to understand the broader impacts of such corrective measures.  One-time (abrupt) sharp increases in AEWRs may fix one problem but create a challenge elsewhere.  Alternatively, corrective adjustments implemented in tranches, or gradually over time, could avoid the development of large living wage gaps while allowing farm businesses to make gradual strategic adjustments in preparation for additional costs.

    Table 1. Relating 2023 AEWR Increases to Annual AEWR Growth and Livable Wage-AEWR Gaps Among States with Ten Highest and Ten lowest 2023 AEWR Growth Rates

    STATE (RANK of 2023 AEWR Increase)2022-2023 INCREASEAEWR ANNUAL CHANGE
    (2019-2022)    		LIVABLE WAGE GAP (AEWR/LWH)2022 AEWR-LWH GAP RANK
    Worst (#1) to Best (#49)
    Florida (1)15.47%3.36%70.35%6
    Georgia (2)14.01%2.53%68.63%4
    South Carolina (2)14.01%2.53%54.52%1
    Alabama  (2)14.01%2.53%54.80%2
    Minnesota (5)12.82%4.33%89.15%25
    Wisconsin (5)12.82%4.33%79.23%13
    Michigan (5)12.82%4.33%69.90%5
    Louisiana (8)9.80%3.21%78.25%12
    Mississippi (8)9.80%3.21%60.53%3
    Arkansas (8)9.80%3.21%77.09%9
    South Dakota  (40)5.22%4.63%101.42%43
    Nevada (41)4.88%5.89%95.64%37
    Utah (41)4.88%5.89%93.86%34
    Colorado (41)4.88%5.89%102.16%44
    Hawaii (44)4.29%3.96%102.22%45
    Washington (45) 3.22%5.03%110.26%48
    Oregon (45)3.22%5.03%106.29%47
    West Virginia (47)2.66%6.10%93.54%33
    Tennessee (47)2.66%6.10%90.37%28
    Kentucky (47)2.66%6.10%88.98%24

    Figure 1.  2023 AEWR Increases and Average Annual AEWR Growth (2019-2022), All U.S. States

    Figure 2.  2023 AEWR Increases and 2022 AEWR-Livable Wage Ratio, All U.S. States

    Escalante, Cesar L. “Social and Business Implications of the 2023 Increase in Adverse Effect Wage Rates.” Southern Ag Today 3(9.3). March 1, 2023. Permalink

  • Peak Meat

    Peak Meat

    The U.S. hit “peak meat” production in 2022 totaling 107 billion pounds, a record for meat production that includes beef, pork, chicken, turkey, lamb, and veal.  Even though there are cycles in beef production and seasonal patterns in demand and supply, meat production has trended upward over the long-term.  However, meat production should decline in 2023 and again in 2024 due mostly to supply challenges.  

    Record meat production last year was driven by increases in beef and chicken production while pork and turkey declined.  The beef production increase was due to reduced heifer retention and increased beef cow culling brought on by drought and cost increases relative to cattle prices.  Broiler production surged as high chicken prices fueled profits.  Pork production declined about 2.5 percent to 27 billion pounds brought on by animal disease pressures and sow productivity issues.  Turkey production was reduced by Highly Pathogenic Avian Influenza (HPAI). 

    While each species has its own circumstances that affected production, there are some common reasons for less production.  First is feed costs.  High feed costs reduce profits for producers and that leads to less production.  Other production costs like fuel, building costs, and higher interest rates also lead to less production.  Drought conditions have hurt cattle and beef production.

    In 2023, total meat production is expected to decline about 1 percent, to about 105.9 billion pounds.  Beef production is expected to fall by about 5 percent.  Pork production is expected to decline slightly (less than 1 percent).  Broiler production may show a small increase over 2022.  Turkey production is likely to increase by close to 3 percent as it recovers from HPAI and high prices should deliver some profits.  Total meat production is likely to decline again in 2024 as increases in broiler production are not enough to offset declining beef production.  

    So, was last year the peak of meat production for many years to come?  Not likely.  Drought recovery, declining feed prices, and easing disease pressures will boost meat profits and production in the future.

    Anderson, David. “Peak Meat.” Southern Ag Today 3(9.2). February 28, 2023. Permalink

  • One Last Thought on Revenue Insurance for Rice in 2023

    One Last Thought on Revenue Insurance for Rice in 2023

    Monthly average Rough Rice futures prices broke $16/cwt in March 2022 and have remained well above this price (Barchart.com, 2023). In fact, the monthly average has not been at this level since July 2013, when the monthly average closing price was $16.04/cwt. This spike in prices is most likely driven by the lowest global ending stocks reported in five marketing years due to below trend production in 2022/2023 with a steady increase in consumption since the 2015/2016 marketing year (USDA-FAS, 2023). These historically high rice prices provide an opportunity to lock in higher revenue guarantees for Revenue Protection (RP) crop insurance to help manage downside price risk, which is likely if global production bounces back to trend in the upcoming marketing year.

    RP is a risk management tool administered by USDA’s Risk Management Agency (RMA) and provides an indemnity when farm-level revenue for a crop falls below a revenue guarantee. The revenue guarantee is found by taking the product of the farm-level yield expectation given by the actual production history (APH), the projected price determined by USDA-RMA, and the coverage level chosen. The projected price is a 30-day average (prior to planting)[1] of the harvest-month futures contract for a given commodity, which in this case is November Rough Rice (ZRX). USDA-RMA completed the projected price discovery period on February 14th for long-grain rice producing states in the South with a February 28th sales closing date and has determined the 2023 projected price for long grain rice to be $16.90/cwt (i.e. $7.61/bu[2]). This price is $2.40/cwt (i.e. $1.08/bu) higher than last year’s projected price of $14.50/cwt ($6.53/bu).

    As noted above, revenue guarantees depend on the farm-level APH, projected price, and the chosen coverage level. I illustrate the increase in the RP revenue guarantee for long-grain rice producing states using states in the Mississippi Delta, but the impact is generally applicable across southern states with a February 28th sales closing date. Figure 1 shows the year-over-year changes in the revenue guarantees for the 75% coverage level in 2023 relative to 2022 and assumes the APH yield is equal to the Reference Yield which USDA-RMA provides at the county-level. RP revenue guarantees in the Mississippi Delta are expected to increase by more than $100/ac in most counties and by more than $150/ac in a few others. 

    It is not too late for farmers to contact their crop insurance agent to discuss enrolling their rice in RP insurance. The amount of coverage chosen largely depends on each farm’s financial condition and each farmer’s risk tolerance, but 75% tends to be the most popular coverage level chosen. The deadline to enroll is tomorrow, February 28th.

    References

    Barchart.com. November Rice Historical Monthly Average Closing Prices. Accessed via API.

    USDA – Foreign Agricultural Service (FAS). Production, Supply, and Distribution Online. https://apps.fas.usda.gov/psdonline/app/index.html#/app/home

    USDA – Risk Management Agency (RMA). Actuarial Data Master. https://pubfs-rma.fpac.usda.gov/pub/References/actuarial_data_master/

    USDA – Risk Management Agency (RMA). Commodity Exchange Price Provisions (CEPP). https://www.rma.usda.gov/Policy-and-Procedure/Insurance-Plans/Commodity-Exchange-Price-Provisions-CEPP

    USDA – Risk Management Agency (RMA). Price Discovery. https://prodwebnlb.rma.usda.gov/apps/PriceDiscovery

    [1] The projected price discovery period depends on the sales closing date. For states with a February 28th sales closing date, the projected price discovery period is January 15 – February 14 (USDA-RMA CEPP, 2023). Therefore, the projected price will be the average of the daily closing prices for ZRX over January 15 – February 14.

    [2] One can find the dollars per bushel price of the Rough Rice futures contract, priced in dollars per hundredweight, by dividing the futures price by 2.22.

    Biram, Hunter. “One Last Thought on Revenue Insurance for Rice.” Southern Ag Today 3(9.1). February 27, 2023. Permalink

  • State Foreign Ownership Proposals

    State Foreign Ownership Proposals

    In January 2023, the United States Department of Agriculture (USDA”) published its latest report of information collected under the Agricultural Foreign Investment Disclosure Act (AFIDA) of 1978, which provides data on foreign U.S. landholdings through December 31, 2021. Under AFIDA, certain foreign persons are required to disclose their ownership interests and investments in farm, ranch, and forestland to USDA. According to the report, foreign persons hold an interest in over 40 million acres of private U.S. agricultural land, an increase of 2.4 million acres from 2020. From 2011 through 2021, foreign ownership in private U.S. farmland has increased 35.7%.

    This increase of foreign agricultural landholdings has become a growing concern for the majority of state legislatures. In the past two years or so, the issue of restricting foreign ownership and investments in privately held agricultural land emerged or reemerged in at least twenty-six states. Currently, there are approximately fourteen states that specifically forbid or limit nonresident aliens, foreign business entities, and/or foreign governments from acquiring or owning an interest in farmland within their state.

    Additionally, several other states have introduced bills that take their own approach to restricting foreign acquisitions of farmland and real property. Some states have proposed measures that would restrict foreign ownership in not only agricultural land, but all real property located within their state. Of the states that have considered restrictions within the previous two years, Indiana is currently the only state to enact a foreign ownership law during that time period. With the majority of states considering proposals that seek to restrict foreign interests in farmland, other states may begin to consider the issue of prohibiting or limiting foreign purchases and ownership of land within their state.

    Brown, Micah. “State Foreign Ownership Proposals.” Southern Ag Today 3(8.5). February 24, 2023. Permalink