The Consolidated Appropriations Act, 2023 (P.L. 117-328) was signed into law by President Biden on December 29, 2022. Among other things, the $1.7 trillion bill funds the federal government for fiscal year 2023. The package also included $250 million in support for rice producers, a key priority of Senator John Boozman (R-AR), Ranking Member of the Senate Committee on Agriculture, Nutrition, and Forestry.
The Agricultural & Food Policy Center at Texas A&M University maintains almost 100 representative farms across 30 different states which serve as a basis on which to conduct policy analysis at the request of Congress. In a May 2022 report requested by Sen. Boozman, we highlighted that the 15 representative rice farms maintained by AFPC faced the largest drop in net cash farm income in 2022 of all 64 representative crop farms maintained by AFPC – a reduction of $880,000 per farm or $442 per acre.
In the case of rice, AFPC has consistently reported that rice growers have faced the harshest financial outlook over the last several years. Rice producers, in particular, received very little support from ad hoc aid packages like the Market Facilitation Program (MFP) and the Coronavirus Food Assistance Program (CFAP). These problems are compounded by trading partners like India whose minimum support prices and input subsidies cause significant harm to U.S. rice producers, contributing to a nearly 40-year low in U.S. rice exports this year. Relatively flat prices and high input costs further exacerbated an already tenuous situation for U.S. rice producers in 2022.
The $250 million – all of which USDA is required to spend – is for one-time payments for U.S. rice producers for the 2022 crop. The payment is based on (1) a rate of not less than 2 cents per pound multiplied by (2) the producer’s actual production history (i.e., crop insurance APH) multiplied by (3) all of the producer’s planted (or prevented planted) rice acres in 2022. A separate payment limit applies, consistent with the limit imposed for WHIP+ (i.e., $250,000 if 75 percent or more of the average adjusted gross income of the person or legal entity is average adjusted gross farm income).
Importantly, nothing is final until USDA announces the official details of the program. In the meantime, our colleagues at the University of Arkansas have put together a helpful FAQ document that answers several key questions.
Crop insurance is a widely adopted risk management tool for producers. Depending on a producer’s insurance plan, crop insurance can protect against losses due to yield or revenue. For cotton producers, if they select a crop insurance policy to protect them against the losses for revenue, several insurance plans are available, including Area Revenue Protection, Revenue Protection, and Stacked Income Protection Plan. For each of these insurance plans, producers have the choice of selecting the plan with the harvest price exclusion (HPE) option. The default choices for these crop insurance options are without HPE, in which indemnity payment is determined by crop yield and the higher value among the projected price and the harvest price for the insured year. If producers choose the insurance options with HPE, indemnity payments are determined by crop yield and only the projected price.
The projected price serves as the minimum guarantee for cotton prices when calculating the crop insurance indemnity. With the default plan, the guarantee will go up if the harvested price is higher than the projected price. Discovery periods for projected and harvest prices for cotton differ among states and locations. For example, in Georgia, the cotton projected price is based on the average price for the December futures contract from January 15 to February 14 each year, and the harvest price is based on the average price for the December futures contract during October each year. For the insurance plans with HPE, because the price to calculate indemnity is only based on the projected price, HPE policies usually have lower premium costs for producers. A commonly asked question by producers is which option to select, with or without HPE.
Figure 1 illustrates the ratio of the projected price and harvest price for cotton from 2011 to 2022 in Georgia. Cotton harvest prices exceeded projected prices only in 4 years out of the past 12 years. A high price ratio between the harvest and projected prices was observed in 2021, largely due to high volatility in the cotton market that year. This figure can provide some information when deciding whether to select or not to select HPE. For 2023, farmers should consider the risk and consult with their insurance agents for insurance choices. When making the insurance choices to protect their revenue, producers should consider the chances of whether the harvest price would exceed the projected price and whether the additional costs of premium paying for the protection for harvest price fit their risk management goals. If producers anticipate higher harvest prices for this year’s cotton crop than the projected price and can bear the additional premium costs, purchasing the default plan without HPE would be an option.
Figure 1. The ratio of harvest price (HP) to projected price (PP) for cotton insurance plans from 2011 to 2022 in Georgia. A higher than one ratio indicates harvest price is higher than the projected price. Source: U.S. Department of Agriculture, Risk Management Agency.
Friday brings USDA’s first cattle on feed report of the year and will lead us to the cattle inventory report to be released on January 31st. This article takes a look at some expectations for the cattle on feed report.
All three categories, December marketings, placements, and the January 1 number of cattle on feed are expected to be smaller than last year. Feedlot marketings are expected to be about 5.5 percent smaller than last year. Marketings are highly influenced by the number of slaughter days in the month. Slaughter days are the number of days in the month minus holidays and weekend days. December 2022 had the same number of days, 21, as December 2021. That implies a lower daily rate of marketings. It’s likely that they were reduced by some winter storms and falling packer margins.
Feedlot placements, or the number of cattle placed into feedlots, in December is expected to be about 10 percent smaller than last December. Several sets of data are relevant to the number of cattle going on feed. USDA reports weekly data on feeder receipts, or sales, at auction markets, internet and video sales, and direct sales. It is not a complete accounting of all sales each week. It was 36 percent smaller than December 2021. The number of feeder cattle reported on the CME index was about 10.5 percent smaller than December 2021. About the same number of feeder cattle were imported from Mexico as last year.
Fewer cattle marketings and placements leaves about 3.5 percent fewer cattle on feed to start this year compared to last year. Fewer cattle on feed would continue the trend of shrinking numbers. It will lead to less beef production and likely higher cattle prices this year. One of the interesting numbers to look at in this report will be the estimate of the number of heifers on feed as of January 1. Heifers have been a growing percent of all cattle on feed as the cow herd has been reduced.
Author: David Anderson
Professor and Extension Economist Livestock and Food Products Marketing, Dairy, Policy
Since the fall of 2020, grain prices have risen significantly (Figure 1). Production shortfalls in the U.S. (derecho windstorm in August 2020 and drought in 2022), drought in South America, increasing feed demand in China, followed by Russia’s invasion of Ukraine, pushed cash grain prices, in many cases, to near record highs. Late in 2022, cash prices were back down to pre-Russian invasion levels, but still historically high.
Price forecasts for the 2023 crops will rightly focus much attention on planting intentions and yield prospects. High prices in the U.S. and globally provide market incentives for farmers to increase production.
But the other side of the supply and demand balance sheet deserves attention as well. Looking at the 2022/23 marketing year corn market in the U.S., feed and residual use and fuel use are the two largest use categories, 5.3 billion and 5.275 billion bushels, respectively. Next are exports at 2.075 billion bushels (Figure 2). Market conditions point to increased production in 2023, but what about use?
For the feed use category, data from USDA shows a decline in Grain Consuming Animal Units (poultry, pork, and cattle) over the last several years (USDA, ERS 2022). Gasoline demand, the foundation of ethanol use, is dampened by newer vehicles that use fuel more efficiently, or, in a growing segment of the automobile industry, do not use any gasoline at all (EIA, 2022). Export demand is impacted by the availability of exportable grain supplies from other major production areas, the value of the dollar, and global economic growth prospects. Grain use can go down when incomes and GDP slow down or decline. Global economic growth prospects will be slowed by the continued turmoil of the Russian invasion of Ukraine, broad inflation pressures, and lingering COVID pandemic effects (IMF, 2022).
Early season grain budgets for 2023 show high prices and high input costs resulting in tight margins for farmers in many production areas. An increase in grain supplies in 2023 relative to use could result in lower prices that squeeze these margins even more as we head into summer and fall.
Figure 1. Texas Cash Corn, Cash Sorghum, and Cash Wheat, Weekly, July 2020 to December 2022
Figure 2. U.S. Corn Use, 2005/06-2022/23
References
Energy Information Administration. “This Week in Petroleum”, available online at https://www.eia.gov/.
International Monetary Fund. “World Economic Outlook Report October 2022”, available online at https://www.imf.org/en/Home.
For well more than a decade, every year has brought a new wave of WOTUS uncertainty. At all but the stroke of midnight to close out 2022, the EPA announced the final revised WOTUS rule which is set to take effect this spring, 60 days after publication in the Federal Register. If headlines about WOTUS over the past decade have confused you, fear not. You’re not alone. The two steps forward – one step back progression of the hunt for WOTUS clarity follows a switchback trail of previous and current administrations. Despite this brand-new rule, the uncertainly might not be over just yet.
Since the inception of the modern-day Clean Water Act (“CWA”), enforcement agencies and citizens alike have been seeking to define “water of the United States” in an effort to determine where federal jurisdiction of a body of water begins and ends under the CWA. Sparing the dirty details, there have been four WOTUS eras worthy of mention here.
First, commonly referred to as the “Pre-2015 Rule,” the WOTUS rule in place since the 1980s was constructed through regulation and the implementation of key agency memoranda shaped by seminal judicial opinions.[1] The second era of mention began in 2015, when the EPA and Army Corps of Engineers (the “Corps”) issued a new rule, also known as the “Clean Water Rule” which was broader in application and was simultaneously praised as a long-overdue revision of the WOTUS rule, and also criticized as a gross overreach of authority. Due in part to legal challenges, the EPA and the Corps delayed implementation of the 2015 Clean Water Rule until 2020. Meanwhile, in 2019, the Trump administration repealed the 2015 Clean Water Rule and in 2020, proposed yet another new WOTUS rule, the “Navigable Waters Protection Rule,” or “NWPR,” the third mentionable WOTUS era.
The NWPR reversed course from the 2015 Rule, narrowing the scope of WOTUS and federal jurisdiction under the CWA by setting forth four categories of waters falling under CWA jurisdiction which included territorial seas, traditionally navigable waters and interstate waters; tributaries and lakes, ponds, impoundments directly or indirectly contributing surface water to traditionally navigable waters; and wetlands adjacent to these. Once again, litigation quickly took center stage. The NWPR was short-lived as President Biden’s administration sought to provide a workable, more stable definition of WOTUS and nix the never-ending uncertainty that has plagued the CWA since its inception.
The fourth and current era officially began on December 30, 2022, when the EPA and the Corps finalized the latest WOTUS rule. Under the new final rule, using the Pre-2015 Rule as a foundation, tributaries and impoundments as well as wetlands adjacent to traditionally navigable water that are either “relatively permanent” or have a “significant nexus” to traditionally navigable waters will fall under the CWA’s jurisdiction. The new rule sets forth that its “relatively permanent standard” refers to “relatively permanent, standing or continuously flowing waters” connected to traditionally navigable waters or waters with a “continuous surface connection to such relatively permanent waters.” The rule also defines a “significant nexus” as where waters “either alone or in combination with similarly situated waters in the region, significantly affect the chemical, physical, or biological integrity of traditional navigable waters, the territorial seas, or interstate waters.” Finally, the new rule states that “adjacent wetlands” are those which have a “continuous surface connection to a relatively permanent, standing or continuously flowing water” connected to traditionally navigable waters “or must either alone or in combination with similarly situated waters significantly affect the chemical, physical, or biological integrity” of traditionally navigable waters, territorial seas or interstate waters.[2]WOTUS clarity, in large part, hinges on these defined terms and the ability of these terms to be readily identified and applied.
In its release of the new rule, the EPA also published a “Fact Sheet for the Agricultural Community” which sets forth the agricultural exemptions from CWA jurisdiction and specific exclusions in the final rule. Among the exemptions are “normal farming, silviculture, and ranching activities” with examples listed; construction of farm or stock ponds or irrigation ditches and maintenance of drainage ditches; and construction or maintenance of farm roads in accordance with best management practices. Prior converted cropland also remains excluded from the final rule so long as it is available for agricultural commodity production, such as crop production, haying, grazing, agroforestry, or idling land for conservation uses.[3]
Currently, the nation awaits the Supreme Court’s decision in Sackett v. EPA, wherein the Supreme Court is asked to determine the proper test for determining which wetlands constitute WOTUS. The Supreme Court is expected to announce its decision early this spring. The anticipated ruling has the potential to affect the latest WOTUS final rule and send the EPA and Corps back to the writing room or alternatively, to affirm the appropriateness of the new rule as written. For today, a new WOTUS rule reigns. Time will tell whether the hunt for WOTUS clarity is over or whether litigation, both new and old, will keep WOTUS in the trenches
[1] See SWANCC v. U.S. Army Corps of Engineers, 531 US 159 (2001), and Rapanos v. U.S., 547 US 715 (2006).
[2] EPA, Pre-Publication Final Rule Notice: Revised Definition of ‘Waters of the United States.’” 6560-50-P (December 2022) pp. 9-10.
[3] EPA, “Final Rule: Revised Definition of ‘Waters of the United States’ Fact Sheet for the Agricultural Community December 2022.”
