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  • Negotiated Fed Cattle Sales Decline in 2022

    Negotiated Fed Cattle Sales Decline in 2022

    Since the 2019 fire at the Tyson plant in Holcomb, Kansas a lot of attention has been given to the volume of fed cattle traded through different transaction types, largely due to concerns over price discovery. 

    Fed cattle sales are categorized into two types; negotiated and non-negotiated sales. Negotiated transactions are sales made in the cash or spot market, and include negotiated cash sales and negotiated grid sales. Non-negotiated transactions are sales in which at least the base price is not negotiated in the time immediately preceding the transaction. Non-negotiated transaction types include formula sales, forward contract sales, and grid sales. 

    A major difference between the two is that negotiated sales contribute to price discovery, while non-negotiated sales do not. Price discovery is the result of an interaction (bid and ask) between buyers and sellers. The base price for a non-negotiated sale is often based on negotiated prices in the time period immediately preceding the sale, but the sales themselves do not contribute to price discovery. 

    Negotiated trade volumes as a share of total trades have declined in 2022 when compared to both 2021 and the previous five year average, regardless of region. Though negotiated trade as a share of total trade remains high in regions like Iowa-Minnesota and low in regions like Texas-Oklahoma-New Mexico, the share of total transactions that are negotiated has dropped across the board. Interestingly, this trend is not coupled with lower fed cattle prices, as slaughter cattle prices have remained higher than 2021 and the previous five year average through 2022, and have been relatively stable.  

    Benavidez, Justin. “Negotiated Fed Cattle Sales Decline in 2022“. Southern Ag Today 2(42.2). October 11, 2022. Permalink

  • U.S. Sorghum-Corn Premium Prices Fell Sharply During this Quarter

    U.S. Sorghum-Corn Premium Prices Fell Sharply During this Quarter

    On average, sorghum prices received by U.S. farmers have followed corn prices, albeit generally at a discount compared to corn over the last 20 years. However, since May 2020, sorghum prices have paid a significant premium over corn (Figure 1). An increase in export demand improved the U.S. sorghum-over-corn premiums from an average discount of $0.14/bu from 2014-19 to an average premium of $0.44/bu for 2020-21. The U.S.-China Phase One Trade Agreement (U.S. sorghum exports are not subject to tariff-rate quotas, like corn), the recovery of the Chinese swine sector, and high corn prices that supported high exports of U.S. sorghum to China were considered the causes for the change in sorghum/corn price ratios.

    Figure 1: Sorghum Minus Corn Price Received by U.S. Farmers

    Unexpectedly, sorghum premiums over corn declined sharply during the second quarter of 2022. In July 2022, the average sorghum price received by U.S. farmers was at a discount of $1.70/bu compared to corn. The sorghum/corn ratio dropped to 0.76. 

    Many factors are contributing to the decline. In the past, years with strong exports of sorghum have been associated with higher sorghum premiums over corn. According to the USDA Foreign Agricultural Service (FAS), estimated sorghum exports for the 2022/23 marketing year have been reduced by 2.4 million metric tons (MT) compared to the previous marketing year (5 million MT in 2022/23 compared to 7.4 million MT in 2021/22). 

    Historically, the U.S. has been the world’s leading sorghum exporter, accounting for 73% of all international exports in the last 30 years. For the 2021/22 marketing year, U.S. sorghum exports represented 61% of world exports. Considering current USDA estimated exports, U.S. sorghum exports will only represent 51.4% of world exports for the 2022/23 marketing year. 

    China, the primary buyer of U.S. and worldwide sorghum is projected to cut its imports this season due to lower feed grain demand expectations. Total coarse grain imports from China are expected to decrease by 15% in 2022/23. The USDA estimated a reduction in China’s sorghum imports of 2.4 million MT (23.8%). During 2020/21, China imported 94% of total U.S. sorghum exports and about 85.5% of world sorghum exports. 

    In addition, sorghum production in the U.S. has been severely affected by drought, significantly reducing the amount of sorghum available to be exported. In fact, USDA estimates a reduction of 43.7% in U.S. production for 2022 compared to the 2021 season. Estimated yields and harvested acreage are 23% and 17% lower than last season, respectively. Ending stocks are estimated to drop back to 2020-21 levels of 0.517 million MT.  

    High sorghum discounts over corn generally result in a retraction of the planting area in the next growing season. FAPRI’s August Baseline Update for U.S. Agriculture Markets estimates 8% less sorghum planting area than last season. FAPRI estimates 5.8 million acres in the 2023/24 season, within the historic planting range before the 21/22 and 22/23 seasons. 

    References

    USDA Foreign Agricultural Service, Production, Supply, and Distribution. https://apps.fas.usda.gov/psdonline/app/index.html#/app/advQuery

    FAPRI, Baseline Update for U.S. Agricultural Markets https://www.fapri.missouri.edu/wp-content/uploads/2022/08/2022-Baseline-Outlook-August-Update.pdf

    Abello, Francisco “Pancho”. “U.S. Sorghum-Corn Premium Prices Sharply Fell During this Quarter“. Southern Ag Today 2(42.1). October 10, 2022. Permalink

  • USDA’s Text Message Bioengineered Food Disclosure Regulation Determined Unlawful

    USDA’s Text Message Bioengineered Food Disclosure Regulation Determined Unlawful

    As of January 1, 2022, most foods that contain bioengineered ingredients—some of which are grown or processed in the southern United States—are required to carry a disclosure that informs consumers that the food contains bioengineered ingredients. According to USDA’s regulations, food manufacturers and producers can make this disclosure by either (1) including a statement on the package, (2) including USDA’s bioengineered symbol on the package, (3) including an electronic or digital link on the package that allows consumers to read the disclosure online, or (4) including a number on the package that when texted provides consumers with the disclosure via text message. To learn more about the Bioengineered Food Disclosure Standard, click here.

    When directing USDA to create these regulations, Congress required USDA to “provide additional and comparable options to access the bioengineering disclosure” if USDA determines “that consumers, while shopping, would not have sufficient access to the bioengineering disclosure through electronic or digital disclosure methods.” 7 U.S.C. § 1639(c)(4). Because of this provision, USDA conducted a study that found that many consumers, while shopping, would have difficulty accessing the internet. Therefore, USDA included the fourth text message disclosure option as the additional and comparable option to the third electronic disclosure option. 

    Among other things, the plaintiffs in Natural Grocers v. Vilsack, 3:20-cv-05151-JD (N.D. Cal. 2022), argued that USDA acted arbitrarily and capriciously in deciding to include the fourth text message option as the additional and comparable option. The court agreed and found that the “text message option merely provided a fourth disclosure option that regulated entities can select instead of the electronic disclosure method.” As a result, the court remanded the text message disclosure regulation, but without vacatur. This means that until USDA updates the regulations, food manufacturers and producers can still choose to include the electronic or text message disclosures as a method to disclose bioengineered ingredients. 

    Caracciolo, Jana. “USDA’s Text Message Bioengineered Food Disclosure Regulation Determined Unlawful”. Southern Ag Today 2(41.5). October 7, 2022.

  • ERS Report Shows that U.S. Free Trade Agreements (FTAs) Benefit Developing Countries

    ERS Report Shows that U.S. Free Trade Agreements (FTAs) Benefit Developing Countries

    The United States has 14 free trade agreements (FTAs) across 20 countries, the majority of which are in lower- or middle-income countries. Overall, FTAs increase trade, lower prices for consumers, and provide export opportunities for producers. As such, FTAs are usually described as beneficial to both the U.S. and partner countries. However, gains from FTAs are not always shared equally. As noted in the report, developing countries might hesitate to join an FTA with a developed country if they believe that their industries are less competitive. That is, an FTA can expose firms in the developing country to more efficient producers in developed countries, resulting in decreased sales and firm closures in the developing country. The ERS report examines whether developing countries with FTAs with the United States benefited in terms of increased trade (exports) and macroeconomic indicators before and after agreement implementation. In this article, we focus solely on their results for total agricultural exports from developing countries.

    Figure 1 shows the agricultural export growth rate by U.S. FTA partner, 5 years prior to and after the agreement entered into force. Note that the figure also includes developed countries (e.g., Australia, Canada) for comparison purposes. The figure shows that Mexico’s total agricultural exports were shrinking by an average of 1.5% percent in the years prior to the North American Free Trade Agreement (NAFTA) but grew by an average of 13.6% in the years following the agreement. As the figure shows, many developing countries experienced relatively faster growth in total agricultural exports in the post-FTA period (Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Jordan, Mexico, Oman, Panama, Peru, and Singapore). However, several countries experienced slowing agricultural export growth (Morocco and Nicaragua), which could also indicate that resources in these countries were diverted to be used more efficiently in other sectors of the economy. Overall, the share of U.S. imports from developing FTA partner countries rose from 21.6 percent in 1989 to 31.4 percent in 2020.

    Figure 1. Total agricultural export growth by U.S. free trade agreement (FTA) partner, 5 years pre- and post-agreement.

    Notes: Reprinted from Ajewole et al. (2022).
    Source: USDA, Economic Research Service calculation using data from Trade Data Monitor®.

    For more information:

    Ajewole, Kayode, Jayson Beckman, Adam Gerval, William Johnson, Stephen Morgan, and Ethan Sabala. September 2022. Do Free Trade Agreements Benefit Developing Countries? An Examination of U.S. Agreements. Report Number EIB-240. U.S. Department of Agriculture, Economic Research Service. https://www.ers.usda.gov/publications/pub-details?pubid=104854

    Muhammad, Andrew. “ERS Report Shows that U.S. Free Trade Agreements (FTAs) Benefit Developing Countries“. Southern Ag Today 2(41.4). October 6, 2022. Permalink

  • Carbon Program Opportunities for Woodland Owners in the Southeast

    Carbon Program Opportunities for Woodland Owners in the Southeast

    Forest-based carbon programs are gaining momentum and offer opportunities for woodland owners in the Southeast to receive payment for sequestering carbon. While many carbon programs in agriculture have focused on generating carbon credits in row crop production, most verified carbon credits in global registries were generated from forest-based carbon projects. However, family forest owners have had limited access to such programs until now. Across the Southeast, there is an average of 16.5 million acres of forest land per state, of which an average of 85% is privately owned. Figures 1 and 2 illustrate total forest land and the percent privately owned for each state in the Southeast. Offering carbon programs to family forest owners provides ample opportunities to generate carbon credits from previously untapped resources. Two forest-based carbon programs of interest to woodland owners are The Natural Capital Exchange (NCX) and the Family Forest Carbon Program (FFCP). NCX and FFCP programs differ in a number of ways, including contract length and forest management approaches. For example, NCX offers a one-year harvest deferment contract, while FFCP is a long-term contract that pays for implementing forest management practices. Before enrolling, it is crucial to understand the differences between the two programs. Visit their respective websites for more information. Furthermore, ask questions, read the fine print, and consult with a lawyer to ensure the carbon program is right for you.  

    Figure 1. Total forest land by state in the Southeast

    Source: USDA Forest Service

    Figure 2. Percent of forest land privately owned by state in the Southeast 

    Source: USDA Forest Service

    Shockley, Jordan. “Carbon Program Opportunities for Woodland Owners in the Southeast“. Southern Ag Today 2(41.3). October 5, 2022. Permalink