Southern Ag Today

Blog

  • Locally Raised Meats: Cooperatives Needed

    Locally Raised Meats: Cooperatives Needed

    As a result of COVID-19 grocery store shortages, federal and state governments are investing in local food systems with meat processing high on the list. However, once local meat processing bottlenecks have been relieved, additional obstacles will need to be overcome. Clemson surveys of consumers and restaurants in 2020 and 2021 reveal that additional obstacles for increasing local meat sales are availability, price, and inconsistent quality1.

    A lack of availability points out that there are not enough sales outlets for local meats and purchasing local meats is often inconvenient for potential customers. For instance, most local meat consumers visit a farmers’ market once a month2 yet shop at a grocery store 2-3 times per week3. Even the most dedicated local food consumer sources less than 50% of their groceries from local producers4. For local meats to grow long-term, producers must work together to supply grocery stores and restaurants while addressing the remaining issues of quality inconsistency and price.

    One of the best ways for farmers to work together is to form a cooperative or similar collaborative business arrangement. Through collaborative business arrangements, local meat producers can adopt quality guidelines, provide a consistent supply to more sales outlets, and operate at a more efficient scale (possibly becoming more price-competitive). In short, business collaborations will give local meat producers a shot at gaining and maintaining a competitive position in the market.

    For more information about cooperatives and collaborative business formation, contact a land grant university or cooperative development center in your region. Contact information for USDA rural cooperative development centers can be found at this link:

    https://www.rd.usda.gov/sites/default/files/cooperative_development_centers_february2022.xlsx

    References

    1. Richards, S. (2021). National Restaurant Buyer Survey Results. Clemson University (Unpublished report). Copy in possession of the first author.
    2. Richards, S. (2020). Local Meat Consumer Survey Results. Clemson University (Unpublished report for Berkeley Electric Cooperative and the South Carolina Cattlemens’ Association). Copy in possession of the first author.
    3. Ver Ploeg, M., Larimore, E., & Wilde, P. (2017). The Influence of Food Store Access on Grocery Shopping and Food Spending. ers.usda.gov
    4. Cicatiello, C. (2020). Alternative food shoppers and the “quantity dilemma”: a study on the determinants of their purchases at alternative markets. Agricultural and Food Economics, 8(1). https://doi.org/10.1186/s40100-020-00160-6

    Richards, Steve. “Locally Raised Meats: Cooperatives Needed“. Southern Ag Today 2(11.5). March 11, 2022. Permalink

  • Trade Implications of Russia’s Invasion of Ukraine

    Trade Implications of Russia’s Invasion of Ukraine

    The Russian invasion of Ukraine has impacted financial and energy markets, as well as agricultural markets, increasing price volatility for major commodities.  Russia and Ukraine are not major markets for US agricultural exports, ranking 56th and 80th, respectively.  Before 2014, when Russia invaded Crimea, US exports of agricultural products ranged between $1.2 to $1.7 billion annually.  Afterwards, US agricultural exports to Russia have been around $250 million annually, with animal products (e.g., beef, poultry) taking the largest hit (USDA, 2022).  Moreover, neither Russia nor Ukraine are major exporters of agricultural products to the US; the US ranks 55th and 53rd, respectively.  That said, both Russia and Ukraine are major players in the international wheat and corn markets.  In 2020, Russia was the largest wheat exporter reaching almost $8 billion, while Ukraine was fifth with almost $3.6 billion in wheat exports.  Moreover, Ukraine is the fourth largest corn exporter reaching almost $5 billion, while Russia is the 11th with $400 million in 2020 (UN Comtrade, 2022).  Since Russia and Ukraine’s marketing year ends at the end of May, the impacts of the Russian invasion on their wheat and corn exports this marketing year could be minimal. On the other hand, it is unknown the extent of infrastructure damage for hauling and shipping, or the impact of shipping restrictions in the Black Sea that could slow down or increase the cost of trade.  Finally, Russia accounts for 14 percent of the world’s nitrogenous fertilizer exports and is the leading supplier of urea to the US. Additionally, Russia and Belarus accounts for about 20 percent of US potash imports (USDA, 2022). The sanctions again Russia and Belarus (for supporting the Russian invasion) could hurt US agricultural producers as they are already experiencing record high fertilizer prices.

    UN Comtrade (2022). https://comtrade.un.org/
    U.S. Department of Agriculture (USDA) (2022). Global Agricultural Trade System. Foreign Agricultural Service. https://apps.fas.usda.gov/gats/default.aspx
     

    Figure 1. Top Wheat Exporting Countries: 2020

    Source: United Nations Comtrade Database, 2022

    Figure 2. Top Corn Exporting Countries: 2020

    Source: United Nations Comtrade Database, 2022

    Ribera, Luis, and Andrew Muhammad. “Trade Implications of Russia’s Invasion of Ukraine.” Southern Ag Today 2(11.4). March 10, 2022. Permalink

  • How much will the cost of custom operations go up this year?

    How much will the cost of custom operations go up this year?

    Determining what to pay or charge for custom rates is a challenge in normal years. There is very little publicly available data on custom rates, and though many universities publish surveys of custom operation rates, they usually aren’t updated every year. 

    This year, rapidly rising input costs will likely compound the already challenging process of agreeing on what to pay for custom operations. However, we can estimate approximately how much we expect custom rates to increase based on the change in costs for two critical inputs: fuel and labor. Combined, these two inputs represent approximately 25% of the cost of field operations during an average year, with overhead (repairs, maintenance, depreciation, transportation, etc.) representing the other 75%. 

    Restructuring the economy post-COVID-19, supply chain disruptions, and mass movement of workers around the country all led to rapidly rising wages in 2021. The Bureau of Labor Statistics (BLS) reports that the cost of employment rose approximately 4.5% across the board and approximately 4.3% for farming occupations in 2021. Surveys of private firms suggest they are planning for wages to rise 3% to 5% in 2022; a nominal increase that does not keep up with the current rate of inflation, meaning that real wages would be down. On its own, a 5% increase in wages would represent a 1% change in the cost of custom operations to maintain profit margins, on average. 

    As recently as December 2021, the Energy Information Administration (EIA) forecast a modest increase in the average annual cost of WTI Crude from $68/barrel in 2021 to $73/barrel in 2022. However, cash WTI Crude is currently trading at $115/barrel. The recent war in Ukraine and Russia’s role in the global energy market led to a two-week spike in the price of WTI Crude, up from $90/barrel to $115/barrel. If prices remain at approximately $115/barrel, (many economists assume it will get more expensive before it gets less expensive) it will represent a 70% increase in the cost of crude over the 2021 average price. On its own, a 70% increase in the cost of fuel represents a roughly 10% increase in the cost of custom operations on average. 

    The table below shows the expected change in the cost of custom operations as a function of different WTI Crude values. The February EIA Short Term Outlook (which was published prior to the Russian invasion of Ukraine) placed the 95% confidence bounds on 2022 forecasted average price of WTI Crude at $40/barrel and $60/barrel. The cost of fuel and labor account for a different percentage of each custom operation’s cost, so the change in the cost of fuel impacts each category differently. If the cost of fuel remains at $115/barrel and wages do increase 5% year over year, we can expect all custom operations to cost 10% more than in 2021, with the cost of grain harvest up 10%, the cost of tillage up 12%, the cost of planting up 8%, the cost of chemical and fertilizer application up 6%, the cost of forage harvest up 19%, and the cost of hay baling up 12%. If you don’t utilize custom operators, you may also view these figures as the expected increase in cost to conduct these operations yourself. 

    Change in Cost of Custom Operations, 2021-2022, based on Different WTI Crude Prices and 5% Wage Increase 

    Price of WTI Crude ($/Barrel)$40$109$115$123$160
    % Change in WTI Crude, 2021 Average – 2022 F-41%60%70%80%135%
    Change in Cost, All Custom Operations Average-5.80%9%10%12%19%
    Change in Cost, 2021 – 2022 
    Price of WTI Crude ($/Barrel)$40$109$115$123$160
    Grain Harvest-5%8%10%11%17%
    Tillage-7%10%12%14%22%
    Planting-4%7%8%9%14%
    Chemical/Fertilizer Application-3%5%6%7%11%
    Forage Harvest (Haying/Silage Chopping)-11%17%19%22%36%
    Hay Baling-6%10%12%13%21%

    Benavidez, Justin. “How much will the cost of custom operations go up this year?“. Southern Ag Today 2(11.3). March 9, 2022. Permalink

  • Higher Feed Costs for Livestock Producers

    Higher Feed Costs for Livestock Producers

    The Russian invasion of Ukraine has led to far-reaching impacts on commodity markets across the globe. In particular, oil and grain prices have surged which contributes to increases in the cost of production throughout livestock supply chains. Feeder cattle futures prices have dropped roughly $10 per CWT since mid-February depending on the contract (though prices were higher in Monday trading).

     Near term corn prices have jumped by around a dollar per bushel in the past few weeks. As shown in the chart above, the May 2022 CME corn futures contract closed last week at $7.50 per bushel. Higher corn prices generally put pressure on feeder cattle prices since feeder cattle and corn are two primary inputs into producing fed cattle. Poultry and hog producers of course also feel the brunt of higher feed prices. Corn futures contracts expiring further in the future have also increased though not by the same magnitude. For example, the December 2022 CME corn futures contract closed last week at $6.30 which is up about $0.40 above mid-February.

     Cattle prices are caught in the broader uncertainty and market volatility. Many input prices were already high compared to recent years. The severity and length of time that higher feed costs will persist are key questions without good answers. Feed costs (among other inputs) will be higher in the near term. Planting season is just around the corner in the U.S. and the amount of corn planted will be important for supply and price forecasts. 

    Maples, Josh. “Higher Feed Costs for Livestock Producers“. Southern Ag Today 2(11.2). March 8, 2022. Permalink

  • U.S. Cotton Planted Acres

    U.S. Cotton Planted Acres

    Production and supply of a crop is a critical component for the market outlook for every marketing year.  For the cotton crop, U.S. planted acreage outcome is a major part of the global cotton production and supply.

    Grower surveys are one common method for predicting cotton planted acreage. One of the earliest publicly available grower planting intentions surveys is measured in December by Cotton Grower magazine and published in early January.  Similarly, the National Cotton Council measures grower intentions in the weeks before and after New Year’s Day and publishes the result in February.  In 2022, these two surveys measured 12.5 million and 12.0 million planted acres of U.S. all cotton (upland and Pima combined), respectively.  USDA will subsequently measure grower planting intentions in March, and then survey planted acreage in June.

    A second approach to predicting cotton plantings is by focusing on the relative price of competing crops.  In the eastern half of the Cotton Belt, cotton competes largely with corn, soybeans, and peanuts.   In the Southern Plains region, the major alternatives are corn, sorghum, and wheat-fallow.  A simple method for predicting cotton plantings is, for example, matching the ratio of new crop corn and cotton future prices to U.S. cotton plantings (Figure 1). So far, the Dec’22 CBOT corn/Dec’22 ICE cotton futures price ratio has been ranging between 5.7 and 5.9 during the first quarter of 2022.  Assuming the price ratio stays at that level, history suggests an outcome of between 12 and 13 million planted acres of U.S. all cotton (see Figure 1). This is similar to the early surveys of growers.

    Note that the dryer-than-normal conditions in the central and western Cotton Belt, along with an insurance price above $1.00 per pound, could add 500,000 to 1,000,000 planted acres in the Southern Plains region, albeit with uncertainty in the abandoned acres at the end of the season due to possible drought impacts.

    Assuming 13 million planted acres in the U.S. with an average/higher abandonment (20%) and 10-year average yield (850 lbs), the U.S. would produce over 18 million bales of cotton in 2022, with over 21 million bales of supply.  Assuming U.S. domestic spinning is 2.6 million bales and U.S. exports are 15 million bales, the result could be another year of U.S. ending stocks around four million bales.  That year-over-year change in ending stocks would be considered price neutral.  This year that suggests that new crop futures prices may be fundamentally supported at historically high levels, with weather market speculation providing additional upside volatility.

    Figure 1. Ratio of December Corn/Cotton Futures and All Cotton Planted Acreage in the United States

    Note: Author calculations based on future prices that are the three-month average in the first quarter every year for each crop. The number above the dot in this figure represents each year from 2001 to 2021.

    Robinson, John. “U.S. Cotton Planted Acres“. Southern Ag Today 2(11.1). March 7, 2022. Permalink