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  • Using Seasonal Precipitation Outlook Maps in PRF Planning

    Using Seasonal Precipitation Outlook Maps in PRF Planning

    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

    justin.benavidez@ag.tamu.edu

    Benavidez, Justin. “Using Seasonal Precipitation Outlook Maps in PRF Planning.” Southern Ag Today 2(47.3). November 16, 2022. Permalink

  • Retail Beef prices Lower, Pork Higher

    Retail Beef prices Lower, Pork Higher

    Beef, pork, and chicken prices are included in the consumer price index (CPI) released monthly.  Last week’s October CPI indicated meat prices going in opposite directions.  Two average retail beef prices are reported: Choice beef and the All Fresh beef.  The Choice beef price is an average beef price of USDA Choice quality grade.  The All Fresh includes fresh beef of any USDA grade.  The average retail pork price and broiler price are reported representing various cuts.

    The average retail Choice beef price was $7.42 per pound, down 6.1 percent from the record high of $7.90 per pound in October 2021.  Choice beef was also $0.18 per pound lower than in September.  The all fresh price declined to $7.25 per pound in October from $7.32 in September.  

    While beef prices have declined, pork and chicken prices have increased.  The October retail pork price was the highest on record.  The average retail pork price increased to $5.04 in October, up 4.7 cents per pound from September and 23 cents higher than a year ago.  The average broiler retail price declined almost 3 cents per pound from September, however chicken is still 34 cents per pound (22.3 percent) higher than a year ago.

    When thinking about demand, relative prices for competing meats are often of interest.  Beef has become less expensive relative to pork and chicken, even though beef continues to be more expensive in absolute terms. October’s pork price was the most expensive relative to beef since July 2014.  Chicken was relatively the most expensive relative to beef since December 2020.  Beef and chicken prices are likely to continue to decline as wholesale prices are well below a year ago and large supplies are available.  Pork prices will likely continue to increase due to tight supplies of pork.

    Author: David Anderson

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

    danderson@tamu.edu

    Anderson, David. “Retail Beef Prices Lower, Pork Higher.” Southern Ag Today 2(47.2). November 15, 2022. Permalink

  • Considerations for Developing a Pre-Harvest Marketing Plan

    Considerations for Developing a Pre-Harvest Marketing Plan

    The upcoming winter months provide an opportunity for row crop producers to review their marketing plans. A marketing plan is a valuable tool that helps producers manage emotions when making marketing decisions. A marketing plan is an outline of price, date, and quantity objectives used to generate a reasonable return given the existing market conditions. A producer should, in practice, have two separate marketing plans—a pre-harvest and post-harvest plan—as marketing decisions in both instances offer different challenges. This article will discuss developing pre-harvest plans.  A pre-harvest marketing plan allows producers to take advantage of the normally higher spring and summer prices as seen in Figure 1. When developing a pre-harvest plan, producers should consider some basic items.

    A common question when developing a pre-harvest marketing plan is how much should be sold. A good rule of thumb is to not sell more than crop insurance covers. For example, if a producer has an expected production of 100,000 bushels of corn protected by revenue protection insurance at the 75% coverage level, then the maximum amount that the producer should sell pre-harvest is 75,000 bushels. The amount of expected production a producer sells pre-harvest will be influenced by their risk tolerance level, with risk-averse producers making fewer sales. Once a producer has determined the amount of pre-harvest sales, they will want to split sales into smaller more manageable units of 1,000 or 5,000 bushels. Splitting sales into smaller units will provide the producer with greater flexibility in marketing decisions. 

    A pre-harvest marketing plan should also include price targets and sale dates for the smaller sales units mentioned above that will force the producer to be proactive about pricing. The most important price target is the minimum price target, which is the lowest price at which the producer would make a pre-harvest sale. A common suggestion is to set the minimum price at the cost of production. The maximum price target should be a realistic price, determined by historical price movements and data, that producers can sell for.  The maximum price is less important than the minimum price because as you will see below, sales dates will force a sale if the price is not reached. Sales units should then be split between price targets, varying between the minimum and maximum price, which reduces the price volatility faced by the producer and hence the volatility of expected income. 

    Along with a price target, each sale unit in the marketing plan should have a pre-determined sale date. The sale date implies if a price target for a sale is not reached by the sale date, the producer will still make the sale. When selecting sale dates, producers should consider the price seasonality of the commodity. Higher price targets should be coupled with sale dates that correspond to the time of year the commodity price is typically the highest. 

    The final important piece is knowing, understanding, and choosing the marketing tool that will be used to make the sale. Local elevators will offer a variety of contracts to sell grain, or producers can use various futures and options strategies. Producers should consider incorporating multiple tools into their marketing plan to protect against varying types of risks associated with the tools. We do not have room to address all the available tools here, but there have been multiple Southern Ag Today articles discussing available tools for the reader’s reference. (Fences Aren’t Just for Cattle | Southern Ag Today; Marketing Strategies if Producers Do Not Have Access to On-Farm Storage | Southern Ag Today; Managing the Price Risk Gap between December Corn Futures and Projected Crop Insurance Prices | Southern Ag Today).

    Figure 1. Average Percent Change in the Monthly National cash Price Relative to the January Price for Corn, Cotton, and Soybeans, 2010-2021

    Source: USDA-NASS Quickstats: USDA/NASS QuickStats Ad-hoc Query Tool
    Mississippi state university logo

    Author: William E. Maples

    Assistant Professor and Extension Economist 

    Department of Agricultural Economics, Mississippi State University 

    Email: will.maples@msstate.edu

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

  • Fresh Tomato Supply Chain: Challenges in Production & Marketing

    Fresh Tomato Supply Chain: Challenges in Production & Marketing

    Growers in Florida and California, where the majority of fresh tomatoes are grown in the U.S., continue to lose market share to Mexico (due in part to relatively higher U.S. farm labor wages and overlapping seasonal production) and Canada (greenhouse production), resulting in reduced numbers and consolidation among Florida’s growers (Fig. 1). Over the past two decades, shipping point prices reported by the USDA Agricultural Marketing Service are trending upward. Input prices are on the rise since 2020 due to global shocks such as the COVID-19 pandemic and Russia-Ukraine conflict, resulting in record high prices for phosphorus, nitrogen, potash, cardboard boxes and wooden pallets, and irrigation supplies.  Truck driver shortages remain the biggest challenge in distribution logistics, driven mainly by too few drivers and rising fuel costs. 

    Figure 1. Fresh tomatoes (field and hothouse): Supply and use, 1960 – 2020 (USDA-ERS)

    Fresh produce consumption trends are affected by food prices, food safety, and dietary concerns. In a survey of Southeastern U.S. tomato buyers, fresh produce consumers reported they are more concerned about the safety of U.S. foods relative to U.S. food price trends (Maples et al., 2018). Also, people are searching for food relationships in response to diet-related disease incidences in themselves and their family members (Thapaliya et al., 2017). Since 1996 (just after Canada, Mexico, and the U.S. signed the North American Free Trade Act), per capita availability of fresh tomatoes (field and greenhouse, domestic and imported sources) hovered between 16-17 pounds a year, up from about 11 lbs. per person in 1960. 

    The 2015–2020 Dietary Guidelines for American recommends an average adult may consume 2,000 calories per day, and suggest a well-balanced diet include two cups of fruit and 2.5 cups of vegetables. USDA food consumption surveys find that the average American falls far short, consuming only 0.9 (45% of recommended volumes) cups of fruit and 1.4 (56%) cups of vegetables per day. Are veggies really cost-prohibitive? Using the average vegetable price of $0.80 per cup and multiplying by the recommended 2.5 cups per day for a healthy diet, the cost of including vegetables in a healthy diet to equals $2.00 per day, about 20 percent of the average daily food cost of approximately $10 per person. Recently, the Bureau of Labor Statistics consumer price index (CPI) revealed that people are paying prices that are nearly double since 2000. 

    There is a need for improved understanding of the roles and dynamic interactions among fresh produce supply chain participants to improve industry coordination and competitiveness, expand U.S. market demand, and build in supply chain resiliency.

    Reference

    Maples, M.C.*, M.G. Interis, K.L. Morgan, and A. Harri. 2018. Consumer Willingness to Pay for Environmental Production Attributes of Fresh Tomatoes. Journal of Agricultural and Applied Economics 50(1): 1-21. 

    Stewart, H., and J. Hyman. August 2019. Fruit and Vegetable Prices. U.S. Department of Agriculture, Economic Research Service. Link: https://www.ers.usda.gov/data-products/fruit-and-vegetable-prices/

    Thapaliya, S.*, M.G. Interis, A. Collart, L. Walters, and K.L. Morgan. 2017. Are Consumer Health Concerns Influencing Direct-from-Producer Purchasing Decisions? Journal of Agricultural and Applied Economics 49(2): 211-231.

    U.S. Department of Agriculture and U.S. Department of Health and Human Services. December 2020. Dietary Guidelines for Americans, 2020-2025. 9th Edition. Link: DietaryGuidelines.gov

    U.S. Department of Agriculture, Economic Research Service. 1 April 2020. Based on data from various sources as documented on the Food Availability Data System home page. Link: USDA ERS – Food Availability (Per Capita) Data System

    U.S. Bureau of Labor Statistics. 2 August 2022. Consumer Price Index. Link: USDA ERS – Food Availability (Per Capita) Data System

    Author: Kimberly L. Morgan

    Associate Professor

    Author: Xiuri Cui

    Ph. D Candidate

    Author: Zhengfei Guan

    Assistant Professor

    Morgan, Kimberly L., Xiuri Cui, and Zhengfei Guan. “Fresh Tomato Supply Chain: Challenges in Production & Markets.” Southern Ag Today 2(46.5). November 11, 2022. Permalink

  • Correspondence of Rice Planted Acres to Safety Net Prices

    Correspondence of Rice Planted Acres to Safety Net Prices

    Over the past five years, the federal crop insurance program has become a more important part of the farm safety net – relative to ARC/PLC and the marketing loan.  There are several reasons for this, but the two most important are 1) higher commodity prices have made ARC/PLC and the marketing loan less likely to provide any benefits and 2) the crop insurance program uses the futures market to establish initial and harvest-time prices used in insurance calculations that are based on a monthly average of futures closing prices for a specified contract month.  When commodity prices are trending upward, like they have been over the past few years, crop insurance protection increases along with higher futures market prices.

    The correspondence, or lack thereof, of rice planted acres for four Southern rice growing states with the marketing year average price reported by USDA around October 1st of the year prior to planting and the projected insurance prices was evaluated over the 2016 to 2022 period.  The previous year’s marketing year average price was used to evaluate whether it was signaling for more or less acres for the next year.  The projected (initial) insurance price is determined just prior to planting.  The three states (Arkansas, Mississippi and Texas) that use the same futures contract to establish projected and harvest time prices are grouped together in the graphs followed by the graph for Louisiana.

    The graphs indicate both marketing year average prices and insurance projected prices are generally trending upward since 2017.  Planted acres for Arkansas and Mississippi and Louisiana do not exhibit an upward trend.  Producers in these states generally have multiple crop alternatives to rice that may be drawing acres away from rice based on the relative profitability of the alternatives to rice.  Texas producers generally have fewer viable alternatives to rice production, which appears to be revealed in the upward trend in planted acres.  Another consideration to keep in mind is that even though rice prices have increased over the past few years, generally speaking, prices still remain below the full cost of production for producers in Southern rice growing states, particularly when accounting for the deductible associated with insurance policies. 

    Outlaw, Joe, and Bart Fischer. “Correspondence of Rice Planted Acres to Safety Net Prices.” Southern Ag Today 2(46.4). November 10, 2022. Permalink