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  • Less Corn, More Soybeans, Cotton, and Wheat Projected to be Planted in 2022

    Less Corn, More Soybeans, Cotton, and Wheat Projected to be Planted in 2022

    Table 1. Projected Planted Area (‘000 of Acres) 

     202020212022
    Soybeans83,35487,19590,955
    Corn90,65293,35789,490
    Other67,26165,24365,095
    Wheat (all)44,45046,70347,351
    Cotton (all)12,09211,22012,234
    Sorghum5,8807,3056,205
    Rice (all)3,0362,5322,452
    Peanuts1,6631,5851,571
    Total310,407317,161317,375

    Data Source: USDA, Prospective Planting Report

    On Thursday March 31, USDA released the Prospective Plantings report. Nationally, principal crop acres planted were projected at 317.375 million, up 214,000 acres compared to last year. Corn acres were projected at 89.490 million, down 3.867 million compared to last year. Soybean acres were projected at 90.955 million acres, up 3.76 million acres compared to last year. Cotton acres were projected up 1.015 million acres at 12.234 million acres. All wheat acres were projected at 47.351 million acres, up 648,000 compared to last year. Compared to projections released in February at the USDA Outlook Forum, March projections were for 2.51 million fewer acres of corn, 466,000 fewer acres of cotton, 2.955 million more acres of soybeans, and 649,000 fewer acres of wheat. 

    The change in projected acres planted from February to March estimates were not surprising considering price trends in February and concerns over high fertilizer prices. On December 1st, the 2022 harvest soybean-to-corn futures price ratio was 2.21 — a price that would historically favor planting corn over soybeans. By February 15th, the ratio had moved to 2.45 – a price ratio that would normally be neutral to favoring soybeans. From a cost of production standpoint, higher fertilizer prices create an input cost disadvantage for planting corn, , thus a ratio of 2.45 would definitely favor planting soybeans.  

    Markets reacted to the Prospective Plantings report mostly as expected with harvest contracts for corn up 27 ¾ cents, soybeans down 49 ¾ cents, cotton down 1.16 cents, and Chicago wheat down 21 cents. Moving forward, many producers likely have a good idea regarding what they are going to plant.  Weather is the wild card that could shift acres. However, the price ratio moved in favor of corn after the Prospective Plantings report was released.  The soybean-to-corn harvest futures price ratio on April 5th was 2.06 — strongly favoring corn. Will we see an increase in corn acres planted? The next USDA acreage estimate will be the June 30 Acreage report.

    References and Resources:

    USDA – National Agricultural Statistics Service (NASS). Prospective Plantings report. Accessed at: https://usda.library.cornell.edu/concern/publications/x633f100h

    USDA – Office of the Chief Economist. Agricultural Outlook Forum. Accessed at: https://www.usda.gov/oce/ag-outlook-forum/2022-commodity-outlooks

    Barchart.com. Accessed at: https://www.barchart.com/futures/grains?viewName=main

    Smith, Aaron. “Less Corn, More Soybeans, Cotton, and Wheat Projected to be Planted in 2022″. Southern Ag Today 2(16.1). April 11, 2022. Premalink

  • What Are Right-to-Farm Laws?

    What Are Right-to-Farm Laws?

    Agricultural operations often cause dust and odors which could impact neighbors and bring nuisance claims.  All 50 states have a right-to-farm law on the books, providing a nuisance defense for agricultural operations.  This defense varies from state to state, but each state’s law operates to provide a defense in situations when a party is claiming the farm is a nuisance.

    What is a nuisance? A nuisance is a condition or situation impacting another person’s use and enjoyment of property. Let’s say, for example, that a grain producer applies nutrients to a field neighboring a residence. The neighbors might not be able to use their property immediately after the producer applies the nutrients due to the smell. This could be a potential nuisance because the neighbors have lost the use and enjoyment of their property.

    A right-to-farm law operates to provide a defense to the agricultural operation when facing nuisance lawsuits.  To use the defense, the agricultural operation must meet their state’s statutory requirements, which vary from state to state.  In several states, for example, the farming operation would need to either preexist the non-agricultural uses in the area or at least be in operation for a set period. In many states, the operation must also comply with other federal, state, or even local laws, such as environmental laws or local zoning ordinances.

    The right-to-farm law defense can be a powerful tool to protect a farming operation, but an operation needs to qualify for the defense.  The National Ag Law Center has compiled all of the state right-to-farm laws: https://nationalaglawcenter.org/state-compilations/right-to-farm/.

    Goeringer, Paul. “What Are Right-to-Farm Laws?”. Southern Ag Today 2(15.5). April 8, 2022. Permalink

  • The Future for Cotton

    Cotton is a key crop for Southern agriculture and, like many other commodities in the South, is heavily export dependent. Unlike other commodities, we reimport a lot of cotton in the form of textiles which makes export demand more closely tied with U.S. import demand for finished goods. With economic and geopolitical uncertainty abound, some reflection on the cotton market and its risk exposure is helpful in long-term planning.

    Cotton is a global commodity.  While the U.S. is a major export supplier to the world, there are many other major growers. A drought in the High Plains of Texas has implications for U.S. total output but may not drastically change cotton prices. Brazil, India, China, Australia, and Africa all impact price as well and so global events (and weather) are key factors in the observed market price.

    Geopolitical concerns. China has been a key buyer of U.S. cotton but China’s strategic interests may not align with the U.S. over time. Cotton has been proactive at finding other buyers (Bangladesh and Vietnam for example), which is a good thing. The war in Ukraine indirectly impacts cotton through fertilizer and chemical prices and dislocations in prices in other competing commodities. So geopolitical concerns drive policy and prices but so far cotton has been ahead of the curve.

    Long-term projections. Long-term projections are often not worth much and in the case of this year the projections in Figure 1 were made before the Ukraine invasion. The story? Not much reason to expect a lot of change from the long-term average. The reality? There is a lot of uncertainty about geopolitical and weather events that will result in price volatility. Future relations with China are the one variable that gives cotton the most heartburn, but our supply chains are slowly adjusting to the new global reality.

    Figure 1. Long-term Baseline Projections

    Source: International Center for Agricultural Competitiveness, Texas Tech University, 2022 Baseline Projections.
    Note: Estimates were prepared before the Ukraine invasion.

    Hudson, Darren. “The Future for Cotton“. Southern Ag Today 2(15.4). April 7, 2022. Permalink

  • Too Many Dollars Chasing Too Few Goods

    Too Many Dollars Chasing Too Few Goods

    After years of stable and low inflation and an almost unprecedented stretch of steady economic growth, our economy is now experiencing the highest inflation we’ve seen in over 30 years.  No doubt you have seen Jerome Powell, Chair of the Federal Reserve System Board of Governors commenting on actions taken to curb inflation.  With recent inflation running in the neighborhood of 8% as measured by the Consumer Price Index (CPI), response by the Federal Reserve (Fed) will continue to be front page news and will be critical to economic conditions moving forward.  In that light, I thought a brief overview of the players, tools, and terms might be helpful. 

    Inflation most simply defined is a general rise in prices of all things, including consumer goods, manufacturing goods, and labor.  The simple cause has been described as “too many dollars chasing too few goods.”  Right now, we have that problem from both sides.  Goods and labor are both in short supply, while there is an abundance of consumer demand and government spending (dollars eager to be spent).  Limited supplies of goods and labor push up prices and wages.  Higher prices and an abundance of dollars effectively lowers the value of each dollar.  Inflation is mostly problematic because it happens in “spits and spurts” with some prices rising faster than others creating winners and losers, instability, and economic uncertainty.  Uncertainty drags down consumer confidence, business investment confidence, and therefore economic growth.  The scary part about inflation is its ability to gain momentum as a vicious cycle or a self-fulfilling prophecy.  As people and businesses adjust to rising prices, they often do so by raising other prices to compensate for the increased expense.  People’s expectations also play a huge role.  If everyone expects inflation over the next year or two, their business negotiations and price setting choices will reflect their expectations and some portion of inflation can be blamed on the fact that people “thought” we would have inflation. 

    The Federal Reserve System is our country’s central bank responsible for managing, among other things, our currency, or the money supply.  From the Fed website, their purpose is providing “…the nation with a safe, flexible, and stable monetary and financial system.”  They have a few tools in their belt to manage the money supply, influence the value of the dollar, and keep a check on inflation.  In a recession or slow-moving economy, a central bank may push monetary policies described as expansionary or accommodative.  In other words, they are doing things to stimulate activity such as business investment, employment, and consumer purchasing.  In our current situation, to fight inflation the Fed has started actions to tighten the money supply, or what is called contractionary policy.

    By far, the tool you will hear the most about is what the Fed is doing with short term interest rates.  The Fed sets a target range for the Fed Funds Rate, which is the interest rate banks pay to borrow overnight funds.  As a benchmark, the Fed Funds Rate establishes the availability of money and influences other short term cash markets.  When inflation is driving down the value of the dollar, the Fed will increase interest rates to make borrowing more expensive, slowing down the supply of money to increase or support the value of the dollar.  Since the onset of the pandemic, the Fed Funds Rate sat on a range of 0.00% – 0.25%.  On March 17, 2022, the Fed bumped the range up a quarter of a percent to 0.25%-0.50%.  The have also announced their intention to continue increasing the rates steadily throughout the coming year.  They will often signal their future actions to avoid surprising financial markets, instill confidence, and dampen inflation expectations. 

    Open market operations refer the Fed buying and selling of treasury securities.  The buying or selling of short-term securities are moves used to help achieve the targeted Fed Funds Rate.  The Fed may also buy and sell longer term assets, such as 10-year Treasury Notes.  In either case, Fed purchases pump money into the system and the Fed holds the security as an asset.  On the other hand, if the Fed is fighting inflation, they may sell securities and park the cash on their balance sheet to effectively reduce the supply of money floating around in the economy with the intent to make each dollar more valuable.    

    On the surface the problem seems basic.  When there are too many dollars as we have now, you take some money out of the system.  In reality, the system is incredibly complex and drives much more like a barge than a sports car with the Fed nudging the money supply, interest rates, and the economy in one direction or another.

    Klose, Steven, and George Knapek. “Too many Dollars Chasing Too Few Goods.” Southern Ag Today 2(15.3). April 6, 2022. Permalink

  • March Cattle on Feed Sets a Record

    March Cattle on Feed Sets a Record

    The latest Cattle on Feed report was released last Friday and reported a record high level of cattle in feedlots for any March. The March 1st total of 12.16 million head was up 1.4 percent above a year ago and is the highest total since the data series began in 1996. Placements during February 2022 totaled 1.85 million head which is 9.3 percent above placements during February 2021. It is important to note that February 2021 was unique because of the major winter storm that affected cattle markets and limited cattle transportation among many other impacts. 

    The biggest percentage increase in placements was seen in cattle weighing 800-899 pounds. Placements of this category were up 12.5 percent compared to a year ago. However, other weight groups were also up sharply with the less than 600 pound group being the smallest increase but still up 7.5 percent above year ago. The 600-699 group was up 10.2 percent and the 700-799 group was up 8.6 percent. Marketings of fed cattle during February totaled 1.83 million head. This was nearly 5 percent above February 2021 which included the winter storm. 

    Dry conditions in many grazing areas likely contributed to some feeder cattle being placed sooner than normal. Looking ahead, the expectation of tighter supplies is still looming, but it is not clear exactly how or when those tighter supplies will be reflected in feedlot totals. Drought concerns remain a critical factor overhanging the cattle sector.

    Maples, Josh. “March Cattle on Feed Sets a Record“. Southern Ag Today 2(15.2). April 5, 2022. Permalink