Southern Ag Today

Blog

  • China Emerges as a Leading Destination for U.S. Beef Exports

    China Emerges as a Leading Destination for U.S. Beef Exports

    China’s demand for beef is breaking records and imports have increased to unprecedented levels in recent years. Since 2010, Chinese beef imports (carcasses and muscle cuts) increased from less than $100 million to nearly $12.5 billion by 2021 (14,000% increase), making China the world’s largest beef importing country (UN Comtrade, 2022). In years past, beef was not a major protein source in China, but economic growth and exposer 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 (Muhammad et al. 2022). Beef demand is outstripping supply in China, resulting in rising imports. Consequently, U.S. beef exports to China have increased to record levels.

    It was not that long ago that the Chinese government banned U.S. beef after the discovery of bovine spongiform encephalopathy (BSE) in 2003. Almost 14 years later (May 2017), the China government reopened its market to U.S. beef, but not without restrictions. In January 2020, however, the United States and China signed the Phase One Trade Agreement, where China expanded the scope of beef products imported, eliminated age restrictions on slaughtered cattle, and recognized the U.S. beef traceability system. As a result, U.S. beef exports to China significantly grew. Since 2017, U.S. beef exports to China grew from $31 million to $1.6 billion in 2021, an increase of 4,800% increase (Hanzel 2021; USDA, FAS 2022).

    Figure 1 shows the volume in metric tons (MT) of U.S. beef and beef product exports to major destination markets: Japan, Mexico, South Korea, Hong Kong, Canada, Taiwan, and China. In 2017, when the Chinese market was reopened to U.S. beef, sales to China were less than 3,000 MT and a fraction of sales to other major markets. In 2021, however, China became the 4th largest destination for U.S. beef and beef product exports (191 thousand MT), behind Japan (318 thousand MT), South Korea (277 thousand), and Mexico (201 thousand). Year-to-date exports in 2022 suggest that China will be the 3rd leading destination, and possibly the 2nd leading destination if this trend continues. Note that exports in 2022 to all major destinations except China have either decreased (Japan, Mexico, and Hong Kong) or remained relatively the same when compared to last year. Exports to China, however, increased to 192 thousand MT as of September 2022, a 39% increase when compared to the previous year. At this rate, U.S. beef exports to China will be on par with South Korea and Japan.

    Figure 1. U.S. beef and beef product exports by major destination country: 2017-2022

    Source: USDA, Foreign Agricultural Service, Global Agricultural Trade System (GATS) (2022)

    References

    Hanzel, M. (2021). Beef – New to China Market Product Report. 2021. Report Number: CH2021-0016. U.S. Department of Agriculture, Foreign Agricultural Service.

    Muhammad, A., C. Valdes, K. DeLong, and C. Grebitus (2022) “The Rise of Beef Demand in China: How Competitive is U.S. Beef when compared to Brazil and Other Major Exporters?” Arizona Food Industry Journal, Dec. 2022 (forthcoming)

    U.S. Department of Agriculture, Foreign Agricultural Service (2022). Global Agricultural Trade System (GATS). https://apps.fas.usda.gov/GATS/default.aspx

    Author: Andrew Muhammad

    Professor and Blasingame Chair of Excellence

    amuhamm4@utk.edu

    Muhammad, Andrew . “China Emerges as a Leading Destination for U.S. Beef Exports.” Southern Ag Today 2(49.4). December 1, 2022. Permalink

  • Current Non-Real Estate Farm Debt

    Current Non-Real Estate Farm Debt

    Through 2022, the ag sector in the Southern Ag Today (SAT) states has sustained periods of drought, volatile prices in respective markets, and interest rate hikes. As mentioned in a previous article (Martinez and Ferguson 2022), it is crucial to know where agriculture debt is in our SAT states during these unusual times. This article covers the latest commercial bank reports from the U.S. commercial quarterly performance reports. As a refresher, these reports highlight agricultural loans and the loans’ status (on time or late). Figure 1 displays the total loan volume (yellow line) and total loan volume for all three late type volumes (30-89 days late, 90+ days late, Non-Accrual) for the last seven quarters. The totals are for all the Southern Ag Today States. 

    Through the third quarter of 2022, non-accrual loans and 90+ days late have continued downward trends. Non-accrual loan volume continued to decrease and is down 65% from a year ago. While 90+ days late loans stayed relatively steady. A real positive sign is seen in the total debt volume for loans that are 30-89 days late. The total volume of debt in this category is down $4 billion compared to a year ago. These are positive signals that bad loan debt load hasn’t increased during this turbulent year. All three late and bad loan types continue to show signs of good debt health for the SAT states, and this is reinforced by the total loan volume being approximately unchanged from a year ago.   

    As producers navigate through this environment, the current status of commercial ag debt appears healthy and even improving. In the coming months, it is essential that producers are mindful of their working capital, and they should continue the positive strategies that they have implemented thus far. 

    References

    Martinez, Charley, and Haylee Ferguson. “Current Non-Real Estate Farm Debt.” Southern Ag Today 2(30.3). July 20, 2022. Permalink

    Martinez, Charley, and Haylee Ferguson. “Current Non-Real Estate Farm Debt.” Southern Ag Today 2(49.3). November 30, 2022. Permalink

  • High Hog and Pork Prices This Year

    High Hog and Pork Prices This Year

    We have been negligent here at Southern Ag Today in not adequately covering the hog and pork market, but today we are going to make up a little for that oversight.  Southern states had about 19 percent of the U.S. breeding hog inventory on December 1, 2021.  USDA’s next annual inventory report will be released on December 23, 2022.  While more hogs are produced in the Corn Belt, the South is known for pork, whether whole hog bbq, ribs, or country hams from iconic producers.  

    For the year, pork production is about 2.2 percent below last year.  Production is on pace for about 27.2 billion pounds which would be the least since 2018.  The September USDA quarterly national inventory report indicated about 0.7 percent fewer breeding hogs and farrowings which likely means a smaller pig crop and fewer market hogs in 2023.  

    While hog prices in 2022 have been higher than in 2021 for most of the year, they have not translated to enough profitability to generate expansion.  Several factors have combined to limit production.  High feed costs have cut into returns, as they have in the rest of livestock production.  Animal disease and difficulties with sow mortality have cut production and increased costs.  Higher facility production costs have reduced expected investment profits.  Higher anticipated future costs and uncertainty due to Proposition 12 has also been cited as a reason for restrained production. 

    On the pork side, wholesale ham prices have been significantly higher than last year since June.  Strong ham exports, high turkey prices with hams as a potential substitute, and fewer hams in cold storage have pushed prices higher.  Belly prices, while exhibiting their typical volatility, have been lower than last year since April.  In October, 40.2 million pounds of bellies were in cold storage compared to only 11.6 million pounds the year before.  

    Tight supplies and likely high prices will be the ongoing story in the hog and pork market for most of 2023.  Any increase in production will be delayed until late in the year, at best.

    Data Source:  USDA-AMS
    Livestock Marketing Information Center

    Author: David Anderson

    Professor and Extension Economist Livestock and Food Products Marketing, Dairy, Policy

    danderson@tamu.edu

    Anderson, David. “High Hog And Pork Prices This Year.” Southern Ag Today 2(49.2). November 29, 2022. Permalink

  • Risk Management Considerations for the 2023 Growing Season

    Risk Management Considerations for the 2023 Growing Season

    The risk faced by producers in the 2022 growing season was unprecedented. As farmers were in the field preparing to plant their crop, Russia invaded Ukraine fueling uncertainty across the world and in agricultural input markets. A few months later, rain fell across the midsouth causing a great deal of yield losses stemming from late planting and prevented planting (Figure 1). Of the $1.4 billion in rain-related losses across the U.S., $0.4 billion were primarily in the midsouth states (USDA-RMA, 2022). In the summer, drought struck the entire United States which resulted in significant crop losses in Texas, Oklahoma, and parts of the east coast (Figure 2). Of the $3.9 billion in total drought-related losses across the U.S., $2.4 billion were in the southeast (USDA-RMA, 2022).

    In addition to the production losses stemming directly from weather, many farmers experienced indirect price losses stemming from the low water levels in the Mississippi River. These price losses at the local grain elevator came in the form of extremely weak basis during arguably the most unfortunate time: harvest. During the usual harvest window, basis, or the local cash price less the relevant futures price, fell from about 40 over to 125 under (Figure 3). Once the river levels increased, basis strengthened to about 50 over and has stayed relatively consistent at this level even though most new crop delivery from the 2022 harvest is finished. However, farmers with on-farm grain storage may want to take advantage of the strong basis and deliver either grain from the 2021 old crop or newly stored grain from the 2022 new crop.

    While measuring crop yield losses generally occurs throughout the growing season, USDA-RMA harvest prices are determined in the months of August through November depending on the state and crop. In the southeast, the harvest price was greater than the projected price, except for cotton and a few soybean exceptions (Figure 4). While corn, sorghum, and rice experienced a 10-21 percent increase in the harvest price relative to the projected price, cotton experienced between a 20-21 percent decrease in the harvest price over the projected price. Harvest prices for soybeans experienced between a 4 percent decrease and a 5 percent increase over the projected price. 

    Using the information on production losses and finalized harvest prices, it is useful to consider options to managing risk in the 2023 growing season. One option is to construct a marketing plan by pricing bushels and inputs which will reduce uncertainty revolving around tight margins (Maples, 2022). Another option is to begin considering alternative plans for crop insurance. The product which comprises most insured acres is Revenue Protection (RP) crop insurance which insures against price and production risks, both of which have been prominent in the 2022 growing season. RP provides one layer of protection against low prices and another layer of protection against crop losses which is best represented by the 2022 cotton crop characterized by significant yield and price losses. Another option is to use both strategies jointly which will allow a producer to be more aggressive in pricing bushels to be delivered at a later specified date (Biram et al., 2022). Using forward contracting in addition to RP crop insurance will provide one layer of price protection in the cash market, another layer of protection in the futures market, and third layer of protection from yield losses resulting from drought and early-season rains. 

    While the southeast saw a relatively quiet hurricane season, excess rainfall and drought still caused significant yield losses across the southeast and caused some farmers to lose out on cash prices at a critical time. Having a risk management plan which covers multiple layers of protection will help provide financial certainty greater peace of mind.

    Figure 1. Rain-Related Losses as a Percentage of Total Liability (2022)

    Figure 2. Drought-Related Losses as a Percentage of Total Liability (2022)

    Figure 3. Daily Soybean Basis (ZSX) at Helena, Arkansas (2018-2022) (September 17th through November 14th)

    Source: USDA-AMS MyMarketNews Data Query (2022)

    Figure 4. Percent Changes in Projected Prices and Harvest Prices

    USDA-RMA, 2022

    References

    Biram, H.D., J.D. Anderson, S. Stiles, and A.M. McKenzie. “Risk Management Tools and     Strategies for Arkansas Corn and Soybean Producers: Implications of Mississippi River          Transport Disruptions.” Fryar Price Risk Management Center of Excellence. Technical Report No. FC-2022-05. October 2022. (Link)

    Maples, Will. “Considerations for Developing a Pre-Harvest Marketing Plan.” Southern Ag Today 2(47.1). November 14, 2022. (Link) 

    Cause of Loss Historical Data Files | USDA Risk Management Agency. November 21, 2022. (Link)

    Report-Arkansas Daily Grain Bids | MARS. November 21, 2022. (Link)

    Author: Hunter Biram

    Assistant Professor

    hbiram@uada.edu

    Biram, Hunter. “Risk Management Considerations for the 2023 Growing Season.” Southern Ag Today 2(49.1). November 28, 2022. Permalink

  • Conservation Easements: Subdivision Considerations in Farm Succession Planning

    Conservation Easements: Subdivision Considerations in Farm Succession Planning

    Agricultural conservation easements (ACES) – given their perpetual and restrictive nature – are considered the best tool for protecting valuable agricultural soils from non-farm residential and commercial development. While ACES are also considered helpful in farm succession planning due to cash and tax – and often emotional – benefits, their principal feature – a restriction of future subdivision – may have frustrating consequences on an equal division of estate value and desired future development. While the outright restriction on subdivision is the default position in most ACE deeds, pathways exist in federal and state policy to preplan subdivision for the distribution of family lands to heirs to avoid co-tenancy while ensuring the resulting parcels are protected. Once a blanket restriction on subdivision is granted, however, it is tough – if at all – to undo.

    Given the need for consolidation of management over tracts used in farming and forestry, it is generally undesirable to have multiple co-tenants on a single parcel, mainly when one “heir” is farming and one or more (usually siblings) are not, which can frustrate long-term decision-making and use of the land as collateral for loans. While parcel partition usually is available to a real property co-tenant under a state law proceeding, the conservation easement likely frustrates any judicial order of partition “in kind” (i.e., physical subdivision), resulting in a sale of the parcel as a whole.

    Most agricultural conservation easement deeds receiving federal monies are based on a common template language provided by NRCS, which must include specific language to conform to public policy goals associated with the monies and tax benefits (among these being a blanket prescription against subdivision). However, the NRCS deed guidance provides sample language to contemplate the present or future subdivision of a parcel, and it is critical to ensure this option remains open from the outset of the application process (the NRCS manual provides criteria for consideration and acceptance of future subdivisions, including allocation of impervious surface ratios among subdivided parcels). Additionally, state laws and funding policies may contemplate future subdivisions. For example, North Carolina’s state ACE purchase fund – the NC Agricultural Development and Farmland Preservation Trust Fund – allows future subdivision provided no parcel is less than 20 acres, and North Carolina’s ACE authorization statute restricts such subdivisions to no more than three parcels).

    How a request for future subdivisions impacts a particular project application’s ranking is unclear. Still, pre-planning is critical for those wishing to protect a large parcel while allowing a future subdivision among family members. For more detailed information on this topic, a draft paper is in development.

    Author: Robert Andrew Branan, JD

    Assistant Extension Professor, Agricultural and Resource Economics

    rabrana2@ncsu.edufarmlaw.ces.ncsu.edu

    Brannon, Robert Andrew. “Conservation Easements: Subdivision Considerations in Farm Succession Planning.” Southern Ag Today 2(48.5). November 25, 2022. Permalink