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  • Shipping Container Disruptions Cause Considerable Export Losses for Southern Ports

    Shipping Container Disruptions Cause Considerable Export Losses for Southern Ports

    The coronavirus pandemic had significant consequences for the U.S. economy, prompting the federal government to help households through stimulus payments. Coupled with deferred consumer spending, these payments created additional demand for durable goods, satisfied by a considerable expansion of imports from Asia. At the same time, U.S. ports suffer from infrastructure constraints, resulting in an unprecedented supply chain bottleneck in Fall 2021. In addition, because of increasing freight rates from Asia to the U.S., it became more lucrative for shipping companies to export empty containers instead of filling them with agricultural products. This development had adverse consequences for U.S. containerized agricultural exports from Southern ports.

    Figure 1 shows estimated containerized agricultural export losses from May 2021 to January 2022 and across product groups for Southern ports. The counterfactual export losses for Southern ports were comparably low between June and August 2021, amounting to an average of $94 million per month. However, the adverse impact tripled to $343 million in September 2021, and the next three months saw a further increase in export losses. Although a slight decrease is observable in December 2021 and January 2022, the export losses remained elevated at $490 million per month.

    The estimated export losses vary widely across agricultural product groups. Panel (B) shows that containerized cereals and dairy exports were above the counterfactual level, experiencing trade gains of $258 and $48 million, respectively. In contrast, meat products saw the most extensive exports losses, amounting to $640 million between May 2021 and January 2022. Containerized animal food exports trailed closely behind, experiencing export losses of about $400 million. Fat and oil products were also disrupted, recording a reduction in containerized trade by $310 million, followed by oilseeds ($282 million) and beverage products ($207 million). Comparatively, vegetables and fruit & nuts saw more minor trade destruction, down about $147 million in total.

    Our counterfactual estimates show that Southern agricultural exporters faced considerable difficulties due to container shipping disruptions in 2021. Although U.S. policymakers spearheaded several initiatives to resolve port congestion and container shortages, our estimates show that these initiatives failed to ease supply chain disruptions in the short run. To reduce port congestion, the Biden administration decided in November 2021 to extend the operation hours of U.S. ports. In addition, the Bipartisan Infrastructure Deal was passed in the same month, promising to expand port infrastructure, which could benefit U.S. agricultural exporters, but these investments will take time to materialize.

    Figure 1. Agricultural Export Losses for Southern ports between May 2021 and January 2022

    (A) Containerized Agricultural Export Losses by Month

    (B) Containerized Export Losses

    Note. Estimates based on trade data and empirical approach by Steinbach (2022).

    See: https://doi.org/10.1016/j.econlet.2022.110392

    *Sandro Steinbach, Corresponding Author, Agricultural and Resource Economics, University of Connecticut, phone: 860-486-2836, email: sandro.steinbach@uconn.edu; Xiting Zhuang, Agricultural and Resource Economics, University of Connecticut, email: xiting.zhuang@uconn.edu. This work was supported by the National Institute of Food and Agriculture through the Agriculture and Food Research Initiative Award 2019-67023-29343. Any opinions, findings, conclusions, or recommendations expressed in this paper are those of the authors and do not necessarily reflect the views of the United States Department of Agriculture. We are thankful to seminar participants of the 2022 USDA ERS Brownbag Seminar for comments on an earlier version of this paper.

    Steinbach, Sandro, and Xiting Zhuang. “Shipping Container Disruptions Cause Considerable Export Losses for Southern Ports.” Southern Ag Today 2(17.4). April 21, 2022. Permalink

  • Examining the Used Combine Market

    Examining the Used Combine Market

    Buying and selling equipment is an important aspect of row crop production. Combine purchasing and resale represent one of the largest decisions row crop operators must make. These decisions can impact the overall profitability of an operation. Used combine prices continue to rise as ongoing supply chain issues ripple through the economy. While rising costs are not limited to the pandemic era, it’s clear the lack of new combines, parts delays for older combines, increasing crop prices, and increasing fuel costs continue to be factors that impact equipment prices. 

    Pre-pandemic data suggested that the average price of a combine by age sold at auction has a wider dispersion for newer combines and 2018 prices were lower than 2017. Further breakdowns of the data found little variation in average prices of older combines while finding a larger spread as the machine became newer. These averages can be seen in the graph below. With the use of auction data from Machinery Pete, factors that impact these prices are examined and used to help farmers make more informed decisions about buying machinery. Some factors are common knowledge to most farmers, such as higher prices for certain manufacturers, locations, machinery conditions, and precision equipment. The data suggest a year in age on a combine would decrease its value by just under 10%, while 1000 hours would decrease the value by around 2%.  Interestingly, we also found that the statistical connection between age and value was stronger (more important) than that of hours and value.  Presumably meaning that the market is less consistent in terms of discounts/premiums for hours used, while the age of the combine was more critical in determining value. 

    As for the post-pandemic market, farmers looking to buy or sell used machinery should consider the following suggestions. When buying a combine, farmers can expect lower sales prices through consignment sales. While farmers selling used machines should list their combines through either on-farm sales or online sales. For farmers only willing to purchase certain brands or models, their searches will need to be extended beyond their local region, but expect an even higher price than in previous years. For farmers looking for potential machinery savings, consider a combine that is older than 3 years of age and be careful not to overpay for low hours. 

    Source: Machinery Pete Auction Data of Combines Sold in the US and Canada between 2015 and 2018.

    Data Link: Machinery Pete Auction Data

    Ellis, Robert, and Tyler Mark. “Examining the Used Combine Market.” Southern Ag Today 2(17.3). April 20, 2022. Permalink

  • Beef Cow Slaughter Continues to Run High

    Beef Cow Slaughter Continues to Run High

    The culling of beef cows was a major reason why the size of the beef herd decreased during 2021 as beef cow slaughter was up by almost 9% from 2020 levels. A frustrating calf market and drought in much of the US led to herd reductions as a lot of cows were sent to market. Year-over-year, the increase amounted to almost 300 thousand cows, which was roughly 1% of the US beef cow herd. 

    While calf prices have been higher in the first three months of 2022, a large portion of the US remains in significant drought. Most significantly for the cattle sector, drought moved into the Southern Plains during the fall of 2021 and has seemed to intensify over the last several months. The chart below shows beef cow slaughter for 2022 (blue line), which has been running well ahead of 2021 (dotted line). Year-to-date, beef cow slaughter has been over 16% higher, but it is worth noting the very low slaughter week last year as a result of the February 2021 ice storm. But, even taking that week out of the comparison, harvest levels are still more than 13% higher so far this year.

    Beef heifer retention was lower coming into 2022, which suggests continued contraction in beef cow numbers. It is still early in the year, but beef cow slaughter through the first few weeks of March points to another year of heavy culling. The combination of dry weather and strong cull cow prices is likely to keep cows moving and encourage producers to pull the trigger a little sooner on those cows as they approach the end of their productive lives. This is definitely something to watch as we move through the current year.

    Burdine, Kenny. “Beef Cow Slaughter Continues to Run High“. Southern Ag Today 2(17.2). April 19, 2022. Permalink

  • World Wheat Supplies in Response to Russia’s Invasion of Ukraine

    World Wheat Supplies in Response to Russia’s Invasion of Ukraine

    World wheat supplies are tight, and Russia’s invasion of Ukraine puts at risk a significant portion of the world’s wheat supply. World wheat ending stocks in the 2021/22 marketing year are estimated at 278 mmt, the lowest since 2016/17 (263 mmt) (USDA, FAS, PSD, 2022).  In the current marketing year, Russia is expected to account for about 10 percent of global wheat production (75.16 mmt) and 16 percent of global wheat exports (33.00 mmt) (Figure 1). Ukraine’s wheat production is about four percent of the world total (33.00 mmt) and its 19.00 mmt of exports is 10 percent of the world total. 

    With its control of the Black Sea, Russia has the ability to continue exporting grain in the midst of this conflict. One impact of economic sanctions may be to change the normal allocation of Russia’s wheat exports. But with strong global demand and Russian wheat priced competitively in global markets, it seems unlikely that total Russian wheat exports will fall substantially.  

    Ukraine’s ports have been closed since the first day of fighting and the Ukrainian government has banned some grain exports to ensure domestic food supplies.  The 2022 wheat crop is at risk not only in active conflict zones but more broadly due to shortages of equipment, fuel, fertilizer, and labor. Where harvest is possible,  it is safe to assume infrastructure damage (e.g., storage, roads, rail, ports) will impact the movement of agricultural products from field to international markets.    

    What is the worlds’ capacity to make up for the loss of wheat exports from Ukraine, which average about 18 mmt, just below the current marketing year’s 19 mmt? In addition, the global wheat trade has increased 11 mmt over the last five years.  In the short-term, exports have increased significantly from Argentina, Australia, the EU, India, and Brazil (Figure 1).  In the 2021/22 marketing year, Argentina’s exports are up 2 mmt from its most recent five-year average. Australia is projected to export an additional 12 mmt. Exports from the EU are up 5 mmt. India’s wheat exports are up 8 mmt compared to its 5-year average and Brazil’s wheat exports are up 2 mmt.  These combine for an increase of 28 mmt.  

    Major wheat exporters whose sales are down in 2021/22, compared to the 5-year average, are the U.S. and Canada. Both had significantly smaller spring wheat crops in 2021.  U.S. wheat exports are down 5 mmt and Canada’s sales down 8 mmt.  A return to normal would add 13 mmt to world wheat exports in 2022/23.  

    All wheat acres in the U.S. for 2022 are up about 700,000 from 2021 to 47.4 million (USDA, Prospective Plantings, 2022).  Across the South, wheat acres increased in Alabama (+3%), Arkansas (+5%), Kentucky (+6%), Mississippi (+5%), North Carolina (+16%), Tennessee (+5%), and Virginia (+22%).  Wheat acres were unchanged in Oklahoma and Texas.  Acres were down in Georgia (-5%), Maryland (-12%), and South Carolina (-4%).  

    Further complicating the wheat market, drought conditions in the U.S. Southern High Plains look to decrease winter wheat yields and increase unharvested acres in this region. For U.S. and Canadian wheat production to increase and augment exportable supplies, favorable growing conditions are needed for the upcoming spring wheat crop. 

    While the loss of Ukraine’s wheat crop in 2022 would have a significant impact on world wheat supplies, high commodity prices are providing incentives for agricultural producers around the world to plant more acres.  However, the loss of Ukraine’s production amplifies the importance of production disruptions in other wheat producing regions, should issues occur. Longer-term production will certainly increase as weather and crop input availability and affordability allow. 

    Figure 1. World Wheat Exports, average 2016/17-2020/21 and 2021/22 (million metric tons)

    Source: USDA, World Agricultural Supply and Demand Estimates and FAS, PS&D

    References

    USDA, Foreign Agricultural Service, Production, Supply and Distribution, accessed April 12, 2022, https://apps.fas.usda.gov/psdonline/app/index.html#/app/advQuery.

    USDA, Prospective Plantings, March 31, 2022

    USDA, World Agricultural Supply and Demand Estimates, April 9, 2022

    Welch, J. Mark. “World Wheat Supplies in Response to Russia’s Invasion of Ukraine“. Southern Ag Today 2(17.1). April 18, 2022. Permalink

  • Overtime for the Agricultural Industry

    Overtime for the Agricultural Industry

    The Fair Labor Standards Act (“FLSA”) does not require that employees who are employed in agriculture receive the federal overtime payment of time and one-half their regular rates for hours worked more than 40 hours per week. However, states are free to enact their own regulations that mandate overtime requirements for agricultural workers. So far six states have taken that step and implemented their own requirements. The majority of the states mandating overtime for farmworkers are doing so on a schedule to build up to the final hours’ requirement. 

    For example, California started to phase in an overtime requirement for agricultural workers in 2019. In 2019, California required that people employed in an agricultural occupation could not be employed more than nine and one-half hours or work more than 55 hours in a workweek without receiving overtime compensation. In 2020, the hours in a day decreased to 9, and the hours in a week were reduced to 50 for overtime compensation. Each year the hours decrease until the final overtime requirements are in place. As of January 1, 2022, in California, it is required that any agricultural employee working more than 8 hours a day or more than 40 hours a week receive overtime compensation. Additionally, like several other states, California has a slightly different schedule for small employers (25 or fewer employees), giving them more time to implement these changes.

    Most recently, the New York Farm Laborers Wage Board voted to decrease the overtime threshold for agricultural workers from 60 to 40 hours. This change will be phased-in over a ten-year period, reducing by four hours on a biannual basis. Oregon is also in the process of passing a bill into law that would also require agricultural workers to receive overtime. House Bill 4002 passed both the Oregon House and Senate in early March of 2022 and is awaiting the governor’s signature. This would make Oregon the seventh state to require agricultural workers to receive overtime compensation.

    Mikolajczyk, Samantha. “Overtime for the Agricultural Industry“. Southern Ag Today 2(16.5). April 15, 2022. Permalink