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  • Wheat Production of Major Exporters in the Southern Hemisphere

    Wheat Production of Major Exporters in the Southern Hemisphere

    In the latest WASDE report, USDA projected lower world wheat production than last season. This lower projection was primarily a result of lower expected wheat production in Ukraine, although partially offset by higher spring wheat production in Canada. 

    The southern hemisphere represents 6-10% of annual global wheat production, 45-72 MMT over the past 10-years (USDA-PSD). The two dominant producers in the southern hemisphere are Australia and Argentina, contributing 75-82% of total southern hemisphere production. An increase in winter wheat acreage for the two main exporters from the southern hemisphere, Argentina and Australia, would have been expected given soaring prices. On the contrary, USDA projects lower wheat production for the upcoming 2022-23 season in Argentina and Australia (Graph 1) which are both coming from record high production levels in their previous seasons. The effect of La Niña and high production costs have reduced 2022-23 wheat projections, compared to last year’s records. 

    The lack of moisture in the soil has decreased planting progress in much of the Pampas region of Argentina. Total acreage projections have also decreased below USDA estimates (20 MT) during the last month (Rosario Stock Exchange). High production costs, high breakeven prices, high breakeven yields, and uncertainty in government policies discourage wheat planting in areas with a lack of moisture and higher production risk. According to the Rosario Stock Exchange, 2022-23 winter wheat planting projections decreased to 15.32 million acres (10% less than last season). Wheat estimated production in Argentina could reach 18.5 MT if assuming an average yield of 46 bu/acre. 

    The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) projects winter wheat production below last year in Australia. Weather conditions were reported favorable for wheat planting in most of the country. ABARES production projections are similar to the USDA’s (30 MT) and 16.5% lower than last season. High fertilizer prices have decreased yield projections for the next campaign, especially considering last season’s record high production of 36 MT. 

    High costs and non-favorable weather have primarily offset the influence of high prices to increase wheat production in the southern hemisphere this season, reduce the chances of increasing worldwide ending stocks, and support prices in the short term.

    Abello , Francisco Pancho . “Wheat Production of Major Exporters in the Southern Hemisphere“. Southern Ag Today 2(28.1). July 4, 2022. Permalink

  • On a Need-to-Know Basis: TXFED Online Training for Market Farmers

    On a Need-to-Know Basis: TXFED Online Training for Market Farmers

    We all want the information we need when we need it. We want it to be easy to find and easy to understand. And we want to know we can trust it. That’s not too much to ask for.

    The Texas Food Education & Discovery network (TXFED) aims to help local food producers and farmers markets to increase customers and sales and develop new market opportunities through online, on-demand training. Online courses provide content created by and for farmers & farmers market organizers, along with trusted organizations. 

    TXFED’s first 9 courses, available with closed captioning and Spanish subtitles, cover topics ranging from whether selling at a farmers market is right for your business and how to make money at a farmers market to using social media to promote your farm. Multi-course series provides opportunities for more in-depth learning. Several additional courses are in development. For a limited time, these courses are free.

    Thirteen collaborating organizations provide consistency in creating course outlines and content with input and additional videos and other content provided by more than 50 knowledgeable new farmers and farmers market organizers with different types of businesses and experiences relevant to each course. Courses are relatively short but include assessments, worksheets, and outside resources to help farmers put lessons to work. 

    TXFED is funded in part by a grant from the USDA Agricultural Marketing Service, Farmers Market Promotion Program. The program is led by the Texas Center for Local Food. Other educational collaborators include the Texas A&M AgriLife Extension Service, The University of Texas – Rio Grande Valley Texas Rural Cooperative Center, the National Center for Appropriate Technology, the Small Producers Initiative at Texas State University. Business and association collaborators include Farmshare Austin, the Farmers Market Coalition, the Farm & Ranch Freedom Alliance, Grow North Texas, Terra Preta Farm, Texas Farmers Market, Texas Organic Farmers & Gardeners Association, and Texas Small Farmer & Ranchers Community-Based Organization.

    Visit https://www.txfed.org/ to explore courses.

    Dudensing, Rebekka. “On a Need-to-Know Basis: TXFED Online Training for Market Farmers“. Southern Ag Today 2(27.5). July 1, 2022. Permalink

  • Understanding the New Safeguard Policy for U.S. Beef in Japan

    Understanding the New Safeguard Policy for U.S. Beef in Japan

    In 2021, beef and beef products were the third highest exports for the U.S. ($10.6 bill.), behind soybeans ($27.4 bill.) and corn ($18.7 bill.) (USDA, 2022a). A key trading partner for the U.S. beef sector is Japan ($2.4 bill. in 2021), which was the leading foreign market for U.S. beef by volume. Through existing trade agreements (e.g., U.S.-Japan Trade Agreement [USJTA], Comprehensive and Progressive Agreement for Trans-Pacific Partnership [CPTPP]), the U.S. and major competitors like Australia face lower beef tariffs in Japan relative to the Most Favored Nation (MFN) rate of 38.5%. The tariff rate for the U.S. and Australian beef in Japan (excluding offal and processed products) is currently 24.1% and is continually declining to 9% by 2033. However, both USJTA and CPTPP allow the Japanese government to increase tariffs on beef products when imports from the U.S. or CPTPP countries exceed a certain volume during a specified period. This specified volume is often referred to as a safeguard. In general, safeguard measures are used to limit excessive import growth by allowing governments to increase tariffs on a product when imports exceed a certain level during a specified period.

    U.S. beef faced a particularly restrictive safeguard in Japan of 242,000 metric tons (MT) when USJTA was enforced in 2020 and in 2021 (Japanese fiscal years: April-March). Japan’s beef safeguard for CPTPP countries was 625,400 MT during this period. The CPTPP safeguard was predominantly applied to Australian beef given Japan’s limited beef imports from other CPTPP countries, and unlike the U.S. safeguard, significantly higher than actual imports from all non-U.S. countries, let alone Australia (See Figure 1). This safeguard difference put U.S. beef at a significant disadvantage relative to Australian beef in the Japanese market because U.S. exports to Japan averaged more than 245,000 MT per year between 2017–2021. Thus, it was no surprise that the safeguard was triggered after the first year of USJTA’s enforcement, leading Japan to raise tariffs on U.S. beef to 38.5% for one month. Consequently, the U.S. government was able to negotiate a new three-trigger safeguard mechanism for U.S. beef in Japan this year. Moving forward, the Japanese government can increase tariffs on U.S. beef only if all the following occur: 1) Imports of U.S. beef exceed the USJTA beef safeguard; 2) The total volume of beef from the U.S. and original CPTPP countries exceed the CPTPP beef safeguard; and 3) imports of U.S. beef exceed imports from the previous year (USDA 2022b). The most important aspect of this change is that the U.S. and Australia are now essentially sharing the CPTPP safeguard. That is, even if Japan’s imports of U.S. beef increase and exceed the USJTA 2022 safeguard (246,900 MT), the Japanese government can raise tariffs on U.S. beef only if total beef imports from the U.S. and CPTPP countries exceed 637,200 MT (CPTPP safeguard for 2022), which is not likely to occur.

    Figure 1. Japan’s Beef Imports (2017 –2021) and Respective CPTPP and USJTA Safeguard Triggers for 2022

    Note: Data include fresh, chilled, and frozen beef (HS 0201 and HS 0202) since imports of offal and processed products do not count against the safeguard level. Years are Japanese fiscal years (April-March). Japan agreed to incrementally increase the safeguards each year. Hence, the slightly higher 2022 safeguards.
    Source: Imports: Trade Data Monitor® (2022); Safeguard information: Muhammad et al. (2021)

    References

    Muhammad, A., Griffith, A., Martinez, C., and Thompson, J. (2021). Safeguard Measures and US Beef Exports to Japan. UT Extension Publication W1023. https://ageconsearch.umn.edu/record/313523

    Trade Data Monitor® (2022). https://www.tradedatamonitor.com/

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

    U.S. Department of Agriculture (USDA), Foreign Agricultural Service (2022b). U.S., Japan Reach Deal on Beef Tariff Safeguard. FAS Press Release. https://www.fas.usda.gov/newsroom/us-japan-reach-deal-beef-tariff-safeguard

    Muhammad, Andrew, and Charley Martinez. “Understanding the New Safeguard Policy for U.S. Beef in Japan.” Southern Ag Today 2(27.4). June 30, 2022. Permalink

  • Can Solar Panels Improve Contract Farm Profitability?

    Can Solar Panels Improve Contract Farm Profitability?

    The cost of solar systems has been decreasing rapidly over the past 10 years, making it an attractive option for poultry growers across the U.S. seeking to counteract rising electricity costs. However, it is imperative that growers understand how a typical contract pays them back for their solar investment. The key points are how much electricity a system produces and the value of that electricity to the farm.

    Barring other restrictions, the maximum sized solar generation system utility companies typically allow a customer to install and connect to their grid is one with solar production capacity equal to the customer’s normal annual usage. Many solar installers will use this basic design logic to sell a customer a  large system  claiming they are going to offset 100% of the power bill. That claim will likely not be true for a poultry grower because the variable usage pattern of poultry production. The chart illustrates an example electric usage pattern of a poultry farm vs. the solar production potential of varying sized systems (100%, 50%, and 30% of annual usage). The highly variable usage pattern results in a lot of excess solar energy produced that is not being used by equipment on the farm but is put back on the grid. The realized value of the excess solar energy is highly variable across utility companies and for many growers in southeastern states, they will be compensated for it at rates much lower than retail. 

    To further examine how this scenario works out for contract poultry growers, a recent study was published in the Journal of American Society of Farm Managers and Rural Appraisers that examines how the variable power usage of broiler farms interacts with solar production and the resulting effect on the profitability of various solar system scenarios such as system size, location, and electricity rates. The study showed that under a simple net billing arrangement, where excess solar is valued at close to wholesale rates by the utility company, maximizing system size to match annual usage was not the most profitable, and in fact could be a losing proposition. The study also showed the impact of cost-share and tax credit incentives on profitability. The full study can be found here: https://higherlogicdownload.s3.amazonaws.com/ASFMRA/aeb240ec-5d8f-447f-80ff-3c90f13db621/UploadedImages/Journal/2022/SolarSystemProfitability_2022Journal.pdf

    The variable electricity usage pattern of poultry farms greatly affects the amount of lower valued excess solar energy a system produces (energy above the red line) compared to solar that directly offsets retail purchases (energy below the red line.) 

    Brothers, Dennis. “Can Solar Panels Improve Contract Poultry Farm Profitability?“. Southern Ag Today 2(27.3). June 29, 2022. Permalink

  • Hedging Opportunities for Managing Price Risk for Cattle

    Hedging Opportunities for Managing Price Risk for Cattle

    Uncertainty and volatility are dominating most commodity markets given the current environment, which includes increasing inflation and interest rates. Despite the cash price of many goods escalating rapidly, cash cattle prices have done no such thing as can be confirmed by the CME feeder cattle index and the 5-area weighted average price for live cattle. However, the futures market, options market, and Livestock Risk Protection insurance (LRP) have been offering several opportunities to hedge cattle prices at much higher prices than have been physically experienced for several months. For instance, the August feeder cattle contract has traded between $163.93 and $186.65 per hundredweight over the life of the contract. During that time, the August futures price has held a $10.53 to $27.29 per hundredweight premium to the CME Feeder cattle index. These premiums appear to encourage hedging cattle, but convergence has been an issue with cash prices and the futures market. This is where LRP has an advantage in that it is indemnified based on the CME feeder cattle index and the 5-area weighted average price for live cattle. Figure 1 illustrates the number of days the daily settlement price for each feeder cattle contract exceeded the final settlement price from 2015 through 2020. The point of this figure is that the futures market often offers opportunities to benefit from hedging.

    Figure 1. Number of days the daily settlement price of feeder cattle futures contracts exceeded the final contract close price during the life of the contract (2015-2020). (LMIC, 2021; Griffith and Boyer, 2022)

    Griffith, A.P., C.N. Boyer, I. Kane. 2022. Producer Focus Groups: Price Risk Management Contributions to Economic Sustainability in the Cattle Industry. University of Tennessee Extension publication. In Press.

    Livestock Marketing Information Center (LMIC). 2021. Historic CME Feeder Cattle Futures Prices.

    Griffith, Andrew P. . “Hedging Opportunities for Managing Price Risk for Cattle“. Southern Ag Today 2(27.2). June 28, 2022. Permalink