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Brazil Challenging U.S. Corn Export Top Spot

The U.S. has been the top corn exporter for a long time averaging around 45 percent of the world corn exports since 2000 with a high of 67 percent in 2005 (Figure 1). The one exception since the turn of the century was in 2012; the most severe drought since the 1950s reduced corn production by over 13 percent in the largest producing states. On the other hand, Brazil has increased its corn exports rapidly through the years securing the number two spot. Brazil’s participation in the corn export market is quite remarkable. In 2000, corn exports from Brazil accounted for only 8.2 percent of the world total and reached its lowest volume of exports in 2004 with less than one percent. Brazil bounced back after claiming the top spot in 2012 and challenged the United States. Currently, Brazil exports reached 47 million metric tons compared to 48.9 million metric tons for the United States, accounting for 26.4 and 27.4 percent of total world corn exports, respectively.

The top world corn importers are EU, China, Mexico, Japan, and South Korea accounting for 47.2 percent (Figure 2). Similar to Brazil in the exporting market, China’s rise as a major corn importer is remarkable. China had nearly zero corn imports from 2000 to 2008, then gradually increased its share reaching around five percent in 2011, 2014, and 2019, and finally exploding as a top market for corn in 2020 and 2021. Currently, China occupies the number two spot between the EU and Mexico. U.S. corn exports to China earlier this month were around 70 percent shorter than at the same point in the previous two years. On the other hand, Brazil corn shipments to China last month reached over one million metric tons and is on track to repeat the same amount this month. Although Brazil exports to China seem to be coming at the expense of the United States, China’s continued purchases are a good sign for the world corn market.

Figure 1. Major World Exporters of Corn, MY 2012/13 – MY 2022/23

Source: Production, Supply, and Distribution (PS&D); USDA-FAS

Figure 2. Major World Importers of Corn, MY 2012/13 – MY 2022/23

Source: Production, Supply, and Distribution (PS&D); USDA-FAS

Author: Luis A. Ribera

Professor and Director

Center for North American Studies

Texas A&M University

Ribera, Luis. “Brazil Challenging U.S. Corn Export Top Spot.” Southern Ag Today 3(4.4). January 26, 2023. Permalink

January 26, 2023
Income Averaging: An underutilized tax management strategy available to farms and commercial fisherman

The following information is for educational purposes. Each situation is unique, and it is strongly encouraged to utilize tax and legal professionals about this topic and others.

Income Averaging is a tax management tool that can be used by many farmers and commercial fishermen. It has been underutilized for some time but can provide benefits in many cases by reducing tax liability, depending on the facts and circumstances of the taxpayer. Income Averaging can also be used for capital gains, benefiting dairy and beef cow/calf producers who regularly cull their raised breeding livestock.

The name of the tax management strategy is a bit misleading; it is not a true averaging of a farm’s income but allows for the utilization of potential unused lower-income tax brackets found within the three previous tax base years. Income Averaging uses the 1040F, Schedule J. Not all income can utilize this method, so the first thing that must be determined is which income is eligible to be averaged. This is known as electable income. Once the electable income is determined, you must specify the amount of income to be elected. The elected income then must be divided by three, and that value applied to each of the three base years.

Utilizing Income Averaging, Schedule J does not affect the amount of income subject to income taxes owed. Furthermore, it does not affect Self-Employed Tax (Social Security, Medicare, etc.).

The chart below illustrates the following example. In this example, the Eli Willy Ranch, Eli is married and files a joint return. In 2019, Eli had a farm income of $72,000, in 2020 income of $65,000, in 2021 income of $70,000, and 2022 income of $110,000. Eli’s 2022 Federal Tax liability would be $15,405, not including Self-Employment Tax. But using the Income Averaging option, Eli’s Federal Tax liability would be $9,160, a savings of $6,250.

In many cases, even if the use of Income Averaging does not create tax liability savings, it may be advantageous to utilize Income Averaging to create a “hole” in the current tax year so that it can be used in future years with the hopes of higher income.

Please work with a trusted tax and or legal advisor about whether your situation can gain an advantage using Income Averaging.

For additional farm tax publications and information, please visit ruraltax.org and IRS Publication 225, the Farmer’s Tax Guide.

Author: Dr. Adam Kantrovich

Extension Specialist, Clemson University.

akantro@clemson.edu

January 25, 2023
The Interesting Part of the Cattle on Feed Report

I think the most interesting number in USDA’s latest Cattle on Feed report (released Friday January 20^th) was the quarterly number of heifers on feed.  The report indicated 4.65 million heifers were on feed on January 1, down 25,000 head from January 1, 2022.  The quarterly data breaks out the number of heifers and steers on feed and is released in January, April, July, and October.  When comparing to the same quarter of the prior year, it was the first quarter since July 1, 2021 that registered a decline in the number of heifers in feedlots.  That slightly fewer heifers are on feed than last year does not indicate a movement toward herd rebuilding, but it may indicate that there are fewer heifers to place as total cattle numbers decline.  Compared to January 1, 2022, steers on feed were down 4.5 percent compared to the 0.5 percent decline in heifers.

Of the total cattle inventory on feed, 39.8 percent were heifers, the largest percentage since 2001.  Heifers as a percent of cattle on feed exceeded 40 percent in 2000 and 2001 which was another period of cow herd contraction.  This quarterly data began in 1996.

The headline numbers were not much different than expected.  Marketings were down 6.1 percent, placements down 8 percent, and total cattle on feed were down 2.9 percent.

Author: David Anderson

Professor and Extension Economist Livestock and Food Products Marketing, Dairy, Policy

Anderson, David. “The Interesting Part of the Cattle on Feed Report.” Southern Ag Today 3(4.2). January 24, 2023. Permalink

January 24, 2023
Trading Ranges and Volatility for November Soybean and December Corn Futures Prices

The 2021 and 2022 corn and soybean harvest futures prices for November and December had increased trading ranges (Figures 1 and 2). November 2022 soybean futures, from November 1, 2021, to contract expiration, had a trading range of $3.81 ($12.02 to $15.81; Figure 1). December 2022 corn futures, from December 1, 2021, to contract expiration, had a trading range of $2.23 ($5.43 to $7.66; Figure 2). Tight U.S. stocks, the Russia-Ukraine conflict, global inflation, supply chain disruptions, and drought in the U.S. and South America have propelled prices higher but have also increased volatility. In 2021 and 2022, the November soybean contract had 45 and 74 trading days, respectively, with a 20-cent up or down move. For the previous five years, the November soybean contract had a total of 64 days with a 20-cent up or down move. Similarly, the 2021 and 2022 December contracts had 49 and 65 trading days, respectively, with moves of 10 cents up or down. The previous five years had a total of 54 trading days with a 10-cent move.

Figure 1. November Soybean Futures Contract Price from November 1 to Expiration, 2010-2023*

Data Source: Barchart
* November 1, 2022, to January 19, 2023

Data Source: Barchart
* December 1, 2022, to January 19, 2023

What will 2023 bring for soybean and corn futures prices and how should this affect producers marketing and risk management decisions? As of January 19, the 2023 average daily closing futures prices for corn and soybean harvest contracts were near the top of the 2010-2022 price range – November soybeans averaged $13.89 and December corn averaged $5.98. As such, it would be reasonable to think that prices have more downside risk than upside potential, but this will be largely determined by weather. Additionally, there remains a tremendous amount of uncertainty in the global economy, geopolitics, and U.S. and global production for the 2023 crop year. It is likely that volatility will continue in corn and soybean futures markets.

What should producers do? Protecting against downside risk seems logical given current market conditions. This can be accomplished using numerous marketing tools (futures, contracts, options, etc.). Put options provide an opportunity to establish a futures price floor. There are several strategies that producers can consider – at-the-money put options, out-of-the money put options, or a combination of put and call options to reduce premium expense. Each producer will have different risk tolerances, so there is no one size fits all approach. The key is to evaluate strategies and choose the one that makes the most sense for your individual circumstances. A simple example of an out-of-the money put option strategy (current December corn futures are trading at $6.00) is:

Buy a $5.50 December Put Option for 27 cents setting a $5.23 futures floor. This removes 87% ($5.23/$6.00) of the futures price risk, while leaving the upside open and the flexibility to set basis at a later date.

For producers interested in learning more about using futures and options to manage risk in grain and oilseed markets, the CME group has a self-study guide that explains several strategies. The current uncertainty and volatility in corn and soybean futures markets necessitates downside price protection. Producers should evaluate strategies that can remove price risk for the 2023 crop.

References

Barchart.com. December Corn and November Soybean Historical Daily Closing Prices. Accessed at: https://www.barchart.com/futures/quotes/ZCZ23/historical-download and https://www.barchart.com/futures/quotes/ZSX23/historical-download

CME Group. 2019. Self-Study Guide to Hedging with Grain and Oilseed Futures and Options Accessed at: https://www.cmegroup.com/trading/agricultural/files/pm255_self-study-guide_hedging_en_2019.pdf

Author: S. Aaron Smith

Associate Professor and Extension Economist

University of Tennessee Institute of Agriculture

Smith, Aaron. “Trading Ranges and Volatility for November Soybean and December Corn Futures Prices.” Southern Ag Today 3(4.1). January 23, 2023. Permalink

January 23, 2023
Adverse Effect Wage Rates of H-2A Workers Increase in 2023

The H-2A visa program is an option that allows American growers to hire foreign agricultural workers. In the context of persistent farm labor shortages, the number of certified H-2A positions has experienced a rapid growth in the last two decades. Three states in the Southeast (Florida, Georgia, and North Carolina) and two on the West Coast (California and Washington) received more certified H-2A positions in 2022 (Figure 1). Except for Georgia, there was an increase in the amount of H-2A certified positions in the top 10 states using this program.

The demand for H-2A workers has remained strong despite continued incremental increases in their minimum compensation levels. Employers of H-2A workers need to pay at least the highest of a minimum wage known as the Adverse Effect Wage Rate (AEWR), the prevailing wage, the prevailing piece wage, the wage agreed upon a collective bargain, or the federal or state minimum wage (Osti et al., 2019).

AEWRs vary by state but are generally set to a level above the minimum wage. The AEWRs are calculated as the average hourly earnings of non-supervisory field and livestock workers in each state in the previous year. The values are determined through surveys conducted by the U.S. Department of Agriculture (called the Farm Labor Surveys) during January and April (published in May) and July and October (published in November). The information released each November includes annual data based on quarterly estimates of employment and wages (Gutierrez-Li, 2022).

In 2023, California has the highest rate, $18.65/hour, while states in the Southeast (Louisiana, Arkansas, Mississippi, Georgia, Alabama, and South Carolina) have the lowest AEWR, $13.67/hour (Figure 2). Overall, all southern states have AEWRs below the national average AEWR of $16.14/hour. However, most of the southeastern states experienced double-digit raises in AEWRs compared to 2022. Florida had the largest wage increase, as the hourly AEWR went up 15.47% (from $12.41 to $14.33/hour) followed by Alabama, Georgia, and South Carolina where wages grew by 14%. In contrast, AEWRs increased by less than three percent in West Virginia, Tennessee, and Kentucky rising from $13.89 to $14.26 an hour. On average, AEWRs climbed 7.5% nationwide.

The inflation rate in 2022 was approximately 6.5%, slightly below the average increase in AEWRs, suggesting that real wages for H-2A workers will be higher in some states (but lower in others). For growers of labor-intensive agricultural commodities employing large numbers of H-2A workers (like sweet potatoes, Christmas trees, fruits, and vegetables where labor represents at least a third of total costs), the increases in AEWRs could translate into significantly higher wage expenses. The final effect on farmers’ profit margins will depend on whether the prices of the products they sell grow enough to compensate for the rise in labor and other input costs.

Figure 1. Change in the Number of H-2A Positions Certified in Top H-2A Demanding States

Source: American Farm Bureau Federation with data from the Bureau of Labor Statistics. Data available up to the end of September of 2022.

Figure 2. 2023 H-2A Adverse Effect Wage Rates

Source: U.S. Department of Labor.

References

Adverse effect wage rates. (2022). Employment and Training Administration. US Department of Labor. Available online at: https://www.dol.gov/agencies/eta/foreign-labor/wages/adverse-effect-wage-rates

Gutierrez-Li, A. (2021). The H-2A visa program: addressing farm labor scarcity in North Carolina. NC State Economist. North Carolina State University.

Osti, S., Bampasidou, M., & Fannin, J. M. (2019). Labor-Intensive Multiple Cropping Systems and the H-2A Program. Choices, 34(1), 1-6.

Author: Alejandro Gutierrez-Li

Assistant Professor and Extension Economist

North Carolina State University

Gutierrez-Li, Alejandro. “Adverse Effect Wage Rates of H-2A Workers Increase in 2023.” Southern Ag Today 3(3.5). January 20, 2023. Permalink

January 20, 2023