We are approaching the end of 2022 and are getting a more complete picture of beef cow and heifer slaughter and its implications for future supplies. Through October, heifer slaughter is up about 5 percent (402k head) and beef cow slaughter is up 13 percent (375k head) as compared to a year ago. The bulk of the increase in national beef cow slaughter has occurred in the South with beef cow slaughter across the two Southern regions being 271k head higher than a year ago. In particular, beef cow slaughter in Region 6 (AR, LA, NM, OK & TX) is up nearly 30 percent.
Shown in the chart is a regression trend line that was estimated by the Livestock Marketing Information Center (LMIC) using the relationship between beef cow/heifer slaughter and the prior year’s inventory. Or put differently, it is how many cows and heifers were processed this year as compared to how many beef cows we started with. The numbers on the bottom axis (0.32 to 0.48) are proportions. A proportion of 0.4 means that beef cow and heifer slaughter was 40% of the starting beef cow inventory that year. The numbers on the left axis show the annual change in beef cow inventory. A change equal to 1 would mean no change, 1.02 is a 2% increase, and 0.98 means a 2% decline. Using 2014 as an example, the graph shows that cow/heifer slaughter during 2014 was about 41% of the beef cow inventory on January 1, 2014, and the beef cow herd declined just over 2% that year.
2022 is shaping up to be an exceptional year. The orange square on the graph for 2022 represents an estimate for 2022 that assumes the remaining slaughter weeks in 2022 are similar to year-ago levels. In that scenario, the proportion of beef cows and heifers slaughtered would be about 47%. Using this analysis, that would suggest a decline in beef cow numbers somewhere around the 4% to 5% during 2022 which would be levels not seen since 1985-86. Given that most of the beef cow slaughter increase has occurred in the South, it seems likely that cow inventories in these states could decline even more than the national decline.
Author: Josh Maples
Assistant Professor, Livestock, Production Economics, Commodity Marketing
Producers face the challenge of when to sell or manage price risk during the growing season. Each growing season is different, but part of marketing and risk management is examining past data to improve the likelihood of making a decision that will increase the selling price received. Prices react to numerous factors. This article examines corn futures prices for years with above and below trendline national average yields. From 1980 to 2021, trendline yields have increased nearly two bushels per acre per year (Figure 1). In recent years, corn trendline yields have flattened, increasing less than one bushel per acre per year from 2013 to 2022. In general, actual national average yields above trendline indicate a mostly agreeable production year whereas below trendline yields indicate more widespread production challenges.
Figure 1. NASS Estimated National Average Corn Yield and Linear National Trendline Yield, 1980-2022.
Data Source: USDA NASS
What does trendline yield tell us about how corn futures prices react during and after the production year? Using the 1980-2021 trendline from 2010 to 2021, in years with annual estimated yields above trendline yields, December futures prices, on average, peak in May and June and decrease to a harvest low in September (Figure 2). In years with below trendline yields, the December futures price, on average, establishes a low in May / June before peaking in October (Figure 2). This time period coincides with when new crop production estimates, such as the USDA WASDE in May, are released. New crop estimates contribute to movements in the futures market as information is revealed and estimates are refined. Intuitively price movements in Figure 2 makes sense—lower yields contribute to prices increasing and higher yields contribute to declines in prices (all else being equal). Based on Figure 2, prices tend to break higher or lower in June / July, this is due to a greater likelihood of knowing whether the production year (or yield) has been mostly beneficial or has presented challenges to corn producers in the United States.
Figure 2. Monthly Average Daily Closing Price for the December Futures Contract in Years with Above and Below Trendline Yields, 2010-2021
*Below trendline years included 2010, 2011, 2012, 2013, 2019, and 2020. Above trend line yields occurred in 2014, 2015, 2016, 2017, 2018, 2021. Data Source: Barchart
Moving outside of the preharvest through harvest interval, from 2010-2021, average March futures prices moved the same direction regardless of whether national average estimated yields were above or below trendline (Figure 3). On average, futures prices increased monthly from December through March. Years with below trendline yields had greater increases from December to March than years with above trendline yield.
As mentioned above, all years are unique in the challenges that producers and markets face. So, how has 2022 compared to averages? Currently, USDA projects 2022 national average corn yield at 5.8 bushels per acre below the 1980-2021 trendline yield of 178.1 bushels per acre (2.4 bushels per acre below the 2013-2021 trendline). In 2022, monthly average closing prices for the December contract peaked in May, established a low in July before rebounding in the Fall (Figure 4). The spike in May can be partially attributed to the challenging start to the 2022 production year when national average planting progress was two to three weeks behind normal levels. The slow start to the corn production season combined with persistent drought later in the summer caused prices to rebound in the Fall. There are two key takeaways from this basic analysis: 1) producers need to be aware of factors affecting national yield (production) estimates and incorporate it in to price risk management decisions; and 2) while each year is unique, examining price trends for years with comparable yields can help inform producers’ decisions in corn futures markets.
Figure 3. Average Monthly Futures price for the March Contract from December to March following a production year with above or below trendline yield, 2010-2021 crop years
*Below trendline years included 2010, 2011, 2012, 2013, 2019, and 2020. Above trend line yields occurred in 2014, 2015, 2016, 2017, 2018, 2021. Data Source: Barchart
Figure 4. Monthly Average Daily Closing Price for the December Futures Contract, 2022
U.S. Department of Agriculture – National Agricultural Statistics Service (USDA-NASS). Quick Stats. Available on-line at: https://quickstats.nass.usda.gov/
Over the past few months, two potential class action lawsuits have been filed in South Carolina and Georgia by former poultry growers for Amick Farms and Perdue Farms, claiming that growers are not independent contractors as stated in their contracts but employees. In the lawsuits, the former growers claim that both companies miscategorized growers and failed to pay growers a minimum wage and overtime. The cases are Diaz v. Amick Farms, LLC, No. 5:22-CV-01246, and Parker v. Perdue Farms, Inc., No. 5:22-cv-00268-TES.
Class action lawsuits allow the judicial system to manage lawsuits that could potentially be unmanageable. Cases would become unwieldy if each potential class member were to bring a lawsuit. In class actions, the class members must share common questions of law or fact, with proposed claims or defenses typical for each member. At the same time, class actions require that the size of the potential class makes it impractical for all the members to join in and that the class representatives can adequately protect the interests of the entire class.
In both lawsuits, the former growers claim that the poultry companies miscategorized the growers as independent contractors and that growers should be treated as employees. As employees, the growers are entitled to be paid the minimum wage required under federal law. At the same time, one of the lawsuits argues that the growers are entitled to overtime pay for all work over 40 hours per week. The growers claim that the tournament system used to compensate growers did not provide a wage above the minimum wage for hours worked by the growers. Additional claims were filed, but for now, these are the ones we are focusing on.
It will be interesting to watch if these lawsuits are certified as a class action lawsuit and which federal district court will be given jurisdiction over the class action suit. All this could happen in 2023, and poultry growers should continue to keep an eye on this litigation.
The Mississippi River provides the United States with a competitive advantage in the export of bulk agricultural commodities. This advantage in transportation costs allows U.S. commodities, including corn and soybeans, to better compete for market share with the product of other countries. Disruption of shipping on the Mississippi River can occur as a result of a variety of circumstances. Various events, particularly hurricanes, have previously suspended barge traffic on the Lower Mississippi River. While the Army Corps of Engineers is charged with maintaining the navigability of the Lower Mississippi River, the possibility of longer-term disruptions resulting from an avulsion of the Mississippi River at the Old River Control Structure has been considered by Lazard and Kennedy (2020).
The recent drought conditions have limited the shipment of agricultural commodities on the Lower Mississippi River due to draft limitations. The Ports of South Louisiana typically service over 55,000 barge shipments and 4,000 ocean-going vessels annually. The disruption of river commerce will force producers to consider shipping commodities using more costly alternative modes of transportation. Assuming the Mississippi River to be the most cost-efficient method of transporting soybeans, other modes of transportation to meet global demands will increase total transportation costs.
The immediate impact on agricultural exports can be seen through decreased barge traffic and increased barge rates. According to the U.S. Army Corps of Engineers, barge tows that are typically comprised of 36 barges are limited to 25 barges due to the decreased water levels (Kennedy, 2022) which significantly restricts the flow of grain to the Gulf. In addition, the USDA’s Grain Transportation Report (2022) indicated that the St. Louis barge rate for the week of November 8, 2022 was 145 percent higher than the previous year and 128 percent higher than the 3-year average.
As shown in Figure 1, nearly half of U.S. bulk agricultural exports flow through the Lower Mississippi River and the Ports of South Louisiana. The highest export volumes have occurred from October through January, particularly for the New Orleans Customs District (NOCD). The current drought conditions and resulting restrictions on barge traffic on the Lower Mississippi river will have significant implications for the U.S. agricultural sector. In addition to other supply chain issues that have existed, increased barge rates and decreased river capacity resulting from the abnormally low Mississippi River levels come at the time for peak export opportunity based on historic export data. Depending on the duration of the current drought conditions, these factors will likely combine to put downward pressure on the domestic prices of bulk agricultural export commodities.
Figure 1. U.S. Total and New Orleans Customs District (NOCD) Bulk Agricultural Exports by Month, Five Year Average in Million Metric Tons.
Source: USDA-FAS (2022). Global Agricultural Trade System (GATS), accessed at https://apps.fas.usda.gov/GATS/on November 16, 2022.
Lazard, P.M., and P.L. Kennedy (2020). Trouble at Old River: The Impact of a Mississippi River Avulsion on U.S. Soybean Exports. Journal of Food Distribution Research, 51(3): 1-5.
Author: P. Lynn Kennedy, Ph.D.
Crescent City Tigers Alumni Professor &
Department Head Agricultural Economics & Agribusiness
The deadline for Pasture, Rangeland, and Forage (PRF) signup on December 1st is coming up quickly. Whether you’ve had plenty of rain this year or are in a severe drought, it’s worth visiting with your crop insurance agent to review your PRF coverage. You may know PRF by its other name, ‘rainfall insurance’, a good name for a product that insures you against lower precipitation. You can find details on PRF’s structure, coverage options, premiums, and more here.
A key component of PRF coverage is selecting the correct interval(s), two-month periods through the year for which you will establish coverage against lower-than-average rainfall. There are many ways to choose the appropriate intervals and the share of coverage you intend to allocate to each. One tool is the National Oceanic and Atmospheric Administration’s (NOAA’s) Seasonal Color Outlook Maps.
These maps express expectations for precipitation in terms of the chance that precipitation is above or below historic normal for the period; they aren’t necessarily indications of how much more or less precipitation to expect. For example, the map below represents expectations for the January to March quarter of 2023. You can see that forecasts for all of Texas and Florida, along with portions of coastal states from Louisiana, up to North Carolina, suggest a 33-50% chance of precipitation being ‘Below Normal’ for these months. The same forecasts for parts of Kentucky, Arkansas, and Tennessee suggest a 33-40% chance of ‘Above Normal’ precipitation. Other maps detailing later 2023 forecast similar expectations through the April-May-June period, when La Nina conditions are forecast to break and ‘Normal’ precipitation conditions are expected to return to the south.
Using these maps together across a year may be a good place to start picking intervals to allocate coverage. Though these maps can’t necessarily tell you what share of precipitation to insure, they can indicate the intervals more likely than others to see ‘Below Normal’ precipitation, precisely the metric indemnities from PRF are based. Consider southeastern Georgia. The map below suggests a 50% chance of ‘Below Normal’ precipitation from January to March. Corresponding maps on NOAA’s website show Equal Chances (corresponding to roughly ‘Normal’ precipitation) beginning in March and holding throughout the year. Keeping in mind that PRF indemnities are based on actual rainfall compared to historical averages, these maps suggest that a producer may consider weighting a greater share of their coverage to the first quarter of 2023 compared to the last three quarters of 2023.
There are plenty of other considerations to make when allocating coverage. This is just one simple tool to consider when assessing your options. You can find the NOAA Seasonal Precipitation Outlook maps here, and if you have more questions on PRF coverage, visit your USDA certified crop insurance provider or your local Extension faculty about your options.
Author: Justin Benavidez
Assistant Professor – Management Economist, District 1
