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  • China’s imports of U.S. Beef continue to increase. But how does the U.S. compare to other competing countries?

    China’s imports of U.S. Beef continue to increase. But how does the U.S. compare to other competing countries?

    In a previous article, I highlighted that China’s demand for beef is breaking records and imports have increased to unprecedented levels in recent years. Since 2010, Chinese beef imports increased from about $100 million to nearly $16.6 billion by 2022 (nearly a 16,000% increase), making China the world’s largest beef importing country (Trade Data Monitor®, 2023; UN Comtrade, 2022). In years past, beef was not a major protein source in China, but economic growth and exposure to western diets has increased beef awareness. Due to several factors (higher incomes, health awareness, protein shortages due to African swine fever), Chinese consumers have diversified their diets away from pork, the traditional animal protein. Beef demand is outstripping supply in China, resulting in rising imports. As mentioned in the previous article, U.S. beef exports to China have significantly increased as a result. But how does the U.S. compare to other beef exporting countries in the Chinese market?

    Figure 1 shows the value (in billions) of China’s beef imports by major exporting source: Argentina, Australia, Brazil, New Zealand, Uruguay, United States, and Rest of World. Rest of World is an aggregation of all other countries. Note that Chinese imports of U.S. beef products in 2022 were $1.7 billion, making China a leading destination market for the U.S. From the Chinese perspective, however, this was about 10% of China’s total imports, making the U.S. China’s 4th leading supplier ahead of Australia ($1.5 billion, 9%) and New Zealand ($1.4 billion, 8%). The figure shows that South American countries are more dominant in the Chinese market (Argentina – $2.5 billion, 15%; Uruguay – $1.8 billion, 11%). This is especially true for Brazil. In 2022, China imported nearly $7.0 billion of beef products from Brazil. No other country comes close (40% of China’s beef imports). What’s interesting is that both Brazilian and U.S. beef were banned in China due to animal disease issues (e.g., FMD, BSE). While the U.S. recovery since 2017 has been noteworthy, Brazil’s recovery since 2014 has been quite extraordinary.

    Figure 1. Chinese beef and beef product imports by exporting source: 2010-2022

    Source: Trade Data Monitor®

    References

    UN Comtrade (2022). UN Comtrade Database. https://comtrade.un.org/

    Trade Data Monitor (2023). https://www.tradedatamonitor.com/

    Muhammad, Andrew. China Emerges as a Leading Destination for U.S. Beef Exports. Southern Ag Today 2(49.4). December 1, 2022. https://southernagtoday.org/2022/12/china-emerges-as-a-leading-destination-for-u-s-beef-exports/

    Author: Andrew Muhammad

    Professor and Blasingame Chair of Excellence

    The University of Tennessee

    Muhammad, Andrew. “China’s imports of U.S. beef continue to increase. But how does the U.S. compare to other competing countries?” Southern Ag Today 3(2.4). January 12, 2023. Permalink

  • Managing for Foundation Traits in Beef Cows

    Managing for Foundation Traits in Beef Cows

    The beginning of the year marks the start of female and bull buying decisions for producers in the southern states. Whether a producer is selecting for Continental, British, American, or a combo of the three, this publication serves as a reminder of the foundation traits to manage for this buying season. Foundation Traits refer to Stayability, Fertility, Structural Soundness, Udder Quality, Disposition, Adaptability and Maintenance, and Index Selection. Selecting cattle based on these traits can increase the likelihood of the operation being profitable in the short and long term. Below is a description of three of these traits. 

    Stayability: a cow’s ability to remain in the herd past its “break-even” point is determined by multiple traits. The all-encompassing phenotype that is recorded by many breed associations is called Stayability (STAY). Stayability measures the likelihood that a bull’s daughters will remain in the herd long enough (typically 6 years old) to recoup their development and maintenance costs if they breed on time.

    Fertility: In concert with Stayability, maintaining fertile females and keeping daughters out of bulls that are fertile is critical to the herd’s profitability. Failing to rebreed is the most common reason cows are culled from herds. That said, a surprising number of cows
    get a second chance when open. The extra feed and variable costs required to maintain that cow will hinder the profitability of the operation if it stays in the herd. When a cow misses a calf, it does not become profitable until year 7 or 8, depending upon calf prices. If a cow misses twice, it does not become profitable until year 11. Thus, while it is possible for cows that miss a calf to be profitable, it takes more years to realize that profit, which makes fertility a critical financial driver. 

    Structural Soundness: Cattle must have good feet and leg structure to graze, travel, and breed, and the discomfort of poor feet and leg structure reduces the time they spend grazing or drinking. Besides directly impacting performance, it creates animal welfare issues. Hoof trimming and other management interventions may prolong an unsound cow’s productive life, but these are likely to incur costs and significant additional labor. Figure 1 displays scores for foot, claw, and side leg. 

    Figure 1. Phenotype scoring scales for foot angle (top), claw set (middle), and side leg profile (bottom). A score of 5 is the most desirable for all three scores.

    Image courtesy American Simmental Association

    The impacts of foundation traits on cowherds reach far beyond making a producer’s life easier. Many of these traits have direct costs that impact the bottom line, while others add labor. This additional labor often is confused with convenience, but its actual financial cost is often undervalued or completely ignored. A producer’s time is worth something! Depending upon a producer’s breeding and calving seasons, the cost of spending additional time or incurring additional variable costs affects the operation’s profitability and efficiency. A more in-depth description of the foundation traits can be found here.

    Martinez, Charley, Troy Rowan, and Justin Rhinehart. “Managing for Foundation Traits in Beef Cows.” Southern Ag Today 3(2.3). January 11, 2023. Permalink

  • A Very (Very) Early Look at Post-Drought Herd Rebuilding

    A Very (Very) Early Look at Post-Drought Herd Rebuilding

    The average of various ENSO (El Niño and the Southern Oscillation) models suggest a trend out of La Niña conditions and toward neutral conditions through the spring and into El Niño territory by the May-June-July quarter. Where La Niña typically brings drought to the Southern Plains and other parts of the South, neutral to El Niño conditions are associated with average and above average rainfall. The combination of increasing calf values and the potential for improved rainfall through the summer has some ranchers considering restocking strategies from drought-induced culling. 

    We’re still very early in the decision-making process of whether to grow a herd and in some cases, there may not be replacement cows available that naturally fit your environment. However, it’s worth beginning to think about what cows are a financial fit for your operation so that you can take advantage of opportunities and avoid overpriced replacements when the market takes off. 

    Let’s take a look at various replacements offered around Texas in the month of December. Using Texas A&M AgriLife Extension’s Cow Bid Price estimator, forecast of price, and forecasts of expected cow costs for the area we’ve estimated Net Present Value (NPV) of the investment in these replacements and what a rough break-even bid would be. 

    We can see several trends in the data. First, the ratio of number of calves produced by the cow to price paid for the cow is a critical component. The Table below looks at 2 cows that differ by stage of pregnancy, weight, purchase price, and number of calves expected to produce over her remaining life.  The number of calves to produce in her expected life is key, but don’t forget her value as a cull cow.  Often the cull cow value is a major part of the cow’s income producing life.  It’s also important to note that though the last cow on the list is the cheapest, in this case, she represents a negative NPV. However, were she roughly $100 less expensive she would net a profit in the next year and likely generate additional cash flow as a cull. 

    There are thousands of combinations and considerations when making the decision to restock a herd. The key is to use your data to evaluate your own business. There is the potential that the $1,100 cow is a steal, but in other cases, she could steal from you, and if we return to the $3,000 replacement market the need to run the numbers will become all the more important. 

    Author: Justin Benavidez

    Assistant Professor and Extension Economist

    justin.benavidez@ag.tamu.edu

    Benavidez, Justin. “A Very (Very) Early Look at Post-Drought Herd Rebuilding.” Southern Ag Today 3(2.2). January 10, 2023. Permalink

  • The Peanut-Cotton Price Relationship

    The Peanut-Cotton Price Relationship

    Peanut production in the U.S. can be described as having a symbiotic relationship with cotton production as the two crops are produced in rotation throughout the southeastern states.  This can create a competitive environment between these crops, with prices a key factor in determining the number of acres to plant in a given year.  Since the peanut quota system was eliminated with the Farm Security and Rural Investment Act of 2002, peanut prices have been determined through market transactions with the first buyers of farmer stock peanuts, in what can be described as a highly concentrated market.  Alternatively, there is more transparency and price data available for cotton with the existence of a futures market.

    Figure 1 shows the relationship between peanut and cotton marketing year average (MYA) prices from 2003 to 2021. The unusually high peanut prices in 2011 and 2012 are from weather-related supply issues.  While there is not a strong trend in the data due to some of the notable outliers, a visual inspection of Figure 1 highlights the positive relationship between these two commodity prices.  For example, when cotton prices have been above 75 cents per pound, peanut prices have been above $450 per ton.  

    Figure 1. Peanut and Cotton Price Relationship: 2003-2021 Marketing Year Averages

    A recent Southern Ag Today article, Navigating the “Winter” in Cotton Farming in 2023, projects an optimistic 2023 futures price for cotton to be 80-85 cents per pound.  Current December 2023 cotton futures prices have been hovering around 80 cents per pound.  At this futures price for cotton, history would suggest a peanut price between $450 and $500 per ton.  

    While this can give farmers a good first estimate of expected prices it must be acknowledged that there can be significant deviation from this range as other factors may affect the price of one commodity that do not move the other prices in the same fashion.  For example, within the range of $450 to $500 per ton for peanuts, the cotton price ranged from a low of $0.478/lb in 2008 to a high of $0.914/lb in 2021.eanut

    Author: Adam Rabinowitz

    Assistant Professor & Extension Specialist 

    adam.rabinowitz@auburn.edu

    Rabinowitz, Adam. “The Peanut-Cotton Price Relationship.” Southern Ag Today 3(2.1). January 9, 2023. Permalink

  • Hydroponic Agriculture and Insurance Coverage

    Hydroponic Agriculture and Insurance Coverage

    When one thinks of crops, insurance, and risk, one may think of traditional crop insurance. The case of Three Rivers Hydroponics, LLC v. Florists’ Mutual Insurance Company,[1] decided by the United States District Court of the Western District of Pennsylvania in 2021, illustrates a “business package” insurance policy application to a fast-growing area of agriculture: hydroponic agriculture.[2]

                In the Three Rivers Hydroponics case, the insured was engaged in the business of growing organic basil through a hydroponic ozone system.[3] The ozone system treated and disinfected water utilized for crop production.[4] On June 30, 2014, the ozone system caught fire, and the crop soon failed thereafter.[5] Eventually, the insured lost its business.[6]

                The insured’s business package insurance policy in the case included an Equipment Breakdown Boiler and Machinery Coverage endorsement, in which the insurer agreed to pay for a loss caused by an “Accident” to “covered equipment.”[7] An “Accident” was defined in the policy as a “mechanical breakdown.”[8] Thus, the insured could only recover under the policy if the ozone system had a mechanical breakdown.

                The insured contended that the ozone system failed due to an issue with the ORP controller.[9] Two engineering experts of the Defendant concluded that only the ozone generator sustained damage in the fire and that complete replacement of the system was unnecessary.[10] The insurer issued a payment for replacement of the ozone generator but denied the claim for mechanical breakdown.[11]

                The insured filed a breach of contract claim as well as bad faith claim against the insurer.[12] In examining these claims, the Court noted that whether mechanical breakdown of the ozone system occurred is a “highly technical” matter.[13] However, the insured did not produce any expert testimony of an engineer who opined on whether a mechanical breakdown of the system occurred.[14] Thus, the Court found that the insured did not meet its burden to produce admissible evidence to establish a prima facie case that coverage existed and granted summary judgment to the insurer on the insured’s breach of contract claim.[15] In addition, the Court also granted summary judgment to the insurer on the insured’s bad faith claim as the Court found that the insurer “conducted a substantial, thorough, and timely investigation” as a matter of law.[16]

                The Three Rivers Hydroponics case exemplifies a sometimes overlooked area in agricultural law – the significance of expert testimony in cases involving more technical matters.

    Nothing in this article is intended to create an attorney-client relationship and does not constitute legal advice.

    [1] See Three Rivers Hydroponics, LLC v. Florists’ Mutual Insurance Company, No. 2:15-cv-00809, 2021 WL 6133304 (W.D. Pa. Dec. 29, 2021).

    [2] See Hydroponics, United States Department of Agriculture National Agriculture Library (2022), available at: https://www.nal.usda.gov/farms-and-agricultural-production-systems/hydroponics

    [3] See Three Rivers Hydroponics, LLC V. Florists’ Mutual Insurance Company, 2021 WL 6133304 at *1.

    [4] Id.

    [5] Id.

    [6] Id.

    [7] Id. at *2.

    [8] Id. at *2.

    [9] Id. at *3.

    [10] Id. at *3-7.

    [11] Id. at *7.

    [12] Id. at *1.

    [13] Id. at *10.

    [14] Id. at *10.

    [15] Id. at *15.

    [16] Id. at *16.

    Marzen, Chad. “Hydroponic Agriculture and Insurance Coverage.” Southern Ag Today 3(1.5). January 6, 2023. Permalink