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.
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
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.
Often in agricultural policy we find that well intentioned policies designed to solve a problem often have unintended consequences. A good example of this is the U.S. ethanol industry.
Since the 1970s the U.S. government has implemented a variety of policies aimed at increasing the use of gasohol that later became known as ethanol. There were a variety of tax credits offered to blenders in an attempt to increase the use of ethanol in motor fuels. One of the major boosts to biofuels came in 1996 when California announced it was banning Methyl tertiary-butyl ether (MTBE) as an oxygenate in motor fuels by 2003. This change brought to light the need for a replacement oxygenate that ethanol was touted as being able to fill. However the most significant boost for the ethanol industry came from the Energy Policy Act of 2005 (EPA of 2005) and the Energy Independence and Security Act of 2007 (EISA of 2007) both aiming to increase U.S. energy independence. The EPA of 2005 mandated increasing levels of biofuels (ethanol and biodiesel) that had to be blended into the nation’s fuel supply each year from 4 billion gallons in 2006 up to 7.5 billion gallons by 2012. Overnight this effectively created a demand for biofuels and therefore corn leading to a significant price increase (Figure 1). The EISA of 2007 increased the mandate each year to 36 billion gallons by 2022 (15 billion gallons of corn ethanol and 21 billion gallons of other renewable fuels). Corn prices continued an upward trend spiking during the midwest drought of 2012.
At the same time all of this was happening in the U.S., the rising corn prices were seen not just by producers in the U.S. but by producers around the world. Spurred on by prices that were now profitable, producers increased their corn production. This created an unintended consequence of incentivizing corn production and exports by several countries who had previously not been significant competitors – namely Brazil and Ukraine (Figure 2). Prior to the 1990s, the U.S. was the unrivaled corn exporter in the world with only Argentina with significant corn exports. Now, Argentina, Brazil and Ukraine (prior to being attacked by Russia) are all major exporters of corn who compete with U.S. producers.
Figure 1. U.S. Marketing Year Average Corn Price, 1980 to 2021
Source: USDA-NASS.
Figure 2. Corn Exports by Major Exporting Countries, 1980 to 2021
Source: USDA. Found at https://apps.fas.usda.gov/psdonline/app/index.html#/app/home
As high path avian influenza (HPAI) spreads rapidly across the U.S., the on-farm financial ramification of an infection in a commercial poultry flock can be catastrophic. This article is a follow-up to the recent Southern Ag Today article posted on March 29th, 2022, titled “The Cost of Avian Influenza to the Southeastern Broiler Industry.” That article highlights that as of March 21st, 2022, there were 11,901,888 commercial birds destroyed due to HPAI. Fifteen days later, that number has nearly doubled (22,851,072 as of April 5th, 2022). While the continued outbreaks of HPAI have been mainly in commercial turkey and layer flocks, commercial broiler flocks are not immune to outbreaks.
Understanding the financial implications of contracting HPAI in a commercial broiler flock is critical and will hopefully highlight the importance of strict adherence to biosecurity measures. While the federal government provides financial aid to a grower for depopulation, cleaning and disinfecting, indemnity payments are only for the birds infected with HPAI. It is important to note that the contract grower is not guaranteed 100% of the indemnity payment, as a portion can be distributed to the owner/integrator. There is also no financial assistance provided for future loss of production while the contaminated area is cleared of the virus. This timeframe could last more than 120 days and has lasting financial implications. For example, the HPAI outbreak in a 12-house broiler operation in Kentucky in early February 2022 is not expected to receive new placements until August 2022. A +120-day loss of operation could mean the producer loses income associated with 2-3 broiler flocks but still has the expenses of maintaining the facilities and making any payments on debts related to the operation. With the lack of financial support from the federal government for future losses and no private insurance options, the farm-level financial impact of contracting HPAI is significant.
We examined the financial impact of contracting HPAI in a standard four broiler house (43 ft. x 600 ft.) operation in Kentucky with 32,300 broilers per house, a 56-day grow-out period, and 17 days to clean between flocks. The loss in net farm income from contracting HPAI was $46,512, $97,658, and $158,348 for the loss of one, two, and three flocks, respectively. This loss in net farm income could also be interpreted as the on-farm equity required to self-insure the operation from HPAI. Therefore, early adoption of biosecurity measures is imperative as a financial risk mitigation method for a disease outbreak like HPAI. Producers should also consider how they would manage this type of risk, should they be forced to deal with it.
