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Alternate FSA’s Lending Programs for Beginning Minority Farmers

According to the latest national agricultural census (2017), minority farmers account for 9% of the country’s population of beginning farmers.  Asian and Hispanic Americans register the two largest shares of beginning farmers at 40.23 and 36.33 percent, respectively, of their group’s population.  Compared to other minority farmers and their White peers, farmers of Asian and Hispanic origins are usually 5 years younger than the average 60-year old American farmer and operate significantly much larger and more profitable businesses.

The need for more new entrepreneurial activities in farming is well known, as the sector confronts an aging farmer population and business succession issues.  External financing is crucial to beginning operations, and access to credit has been a perennial concern among budding entrepreneurs unable to compete well with established firms in their loan applications.  After all, regular lenders’ loan approval decisions are not primarily based on business potentials but instead rely more heavily on concrete historical indicators, such as business and credit track records that start-up firms naturally do not have.

Beginning minority farmers can find financial support from USDA’s Farm Service Agency (FSA) through its loan programs designed to cater to their situations – one targeted towards the socially disadvantaged and another for beginning farmers. Consistent with its overriding mission to be the “lender of first opportunity”, FSA’s credit risk assessment policies deviate from commercial/private lending industry norms and may resolve the start-up borrowers’ otherwise limited access to credit.  Notably, FSA’s lending policy explicitly excludes the following in ascertaining “unacceptable credit history:” (1) any foreclosure, judgment, bankruptcy, or delinquent payment caused by temporary circumstances and beyond borrower’s control; (2) isolated instances of late payments that do not indicate an overall delinquency pattern; and (3) lack or absence of a history of credit transactions. Thus, as FSA opens its doors with such provisions, farms operated by beginning minorities can have a greater chance at overcoming start-up hurdles and building flourishing businesses.

Selected Revenue and Income Statistics, By Farmers’ Ethnic/Racial Group

Source: 2017 U.S. Census of Agriculture, National Agricultural Statistics Service

Recommended citation format: Escalante, Cesar L. “Alternate FSA’s Lending Programs for Beginning Minority Farmers“. Southern Ag Today 2(9.3). February 23, 2022. Permalink

February 23, 2022
Record High Cattle on Feed Expected

USDA’s February Cattle on Feed (COF) report will be released on Friday, February 25^th.  It’s expected to show a record number of cattle on feed in feedlots with 1,000 or more head.  The combination of fewer marketings than the year before and large placements should leave COF at 100.8 percent of the 12.106 million head on feed last February.

Feedlot marketings should be about 2.7 percent below last year.  Given that there was one more slaughter day in January 2022 than 2021 that is a relatively low rate of daily average marketings.  Placements are expected to be about 98.9 percent of last year.  That would be a relatively large number of cattle placed.  Large placements could be driven by continued movement from drought-affected winter grazing and large sales from the Northern Plains.  Rising fed cattle prices likely encouraged placements also.  About 21,000 fewer feeder cattle were imported from Mexico in January 2022 than the year before, but about 9,000 more were imported from Canada.

Large placements would indicate another month of pulling feeder cattle supplies forward.  While the result is more cattle on feed today, it also means fewer feeder cattle available later in the year.  The expected tighter supplies of calves and feeders are fueling optimism for much higher calf prices later this year.

Recommended citation format: Anderson, David. “Record High Cattle on Feed Expected“. Southern Ag Today 2(9.2). February 22, 2022. Permalink

February 22, 2022
Soybean Meal and Oil Stocks Supportive for High Soybean Prices

Soybean prices have maintained their bullish momentum into 2022. The March soybean futures contract closed at $15.52 ¼ on February 15, which is up $2.03 ¼ since the start of the year. Numerous factors have propelled prices higher, including drought in South America, global economic recovery, and very strong domestic crush margins. United States domestic soybean crush has been at a record pace and the current crush margin, well above $2.00/bushel, will continue to support domestic soybean prices. Additionally, the current global reserves of soybean’s two primary products – soybean meal and soybean oil – are also very supportive of soybean prices. The three largest producers of soybeans are Brazil, the United States, and Argentina. The largest importer of soybeans is China; however, the rest of the world (ROW) maintains a substantial portion of soybean meal stocks – 46.7% in 2021/22 (Figure 1) and soybean oil 40.4% in 2021/22 (Figure 2).

Since the 2019/20 marketing year, global soybean meal stocks have decreased from 14.54 million metric tons (MMT) to 12.27 MMT, a 15.6% decline in two years. The decrease in soybean meal stocks is largely attributed to declines in Argentina (16.4%) and ROW (27.2%) (Figure 1). Over the same time, global soybean meal consumption has increased from 240.5 MMT to 247.5 MMT. Increasing meal demand and lower meal stocks will continue to support soybean meal and soybean prices.

Figure 1. Global Soybean Meal Stocks by Country, 2006/07-2021/22

Data Source: USDA FAS

Similar to soybean meal, soybean oil also has lower stocks compared to recent years. USDA projects global soybean oil stocks at 3.719 MMT, down 22.4% compared to the 2019/20 marketing year (Figure 2). Soybean oil stocks have dropped 50.6% for Argentina, 34.2% for ROW, and 23.1% for China. Global soybean oil consumption has increased from 57.2 MMT, in the 2019/20 marketing year, to 60.2 MMT projected for the 2021/22 marketing year. Lower soybean oil stocks and increased demand will continue to support high soybean oil and soybean prices.

Figure 2. Global Soybean Oil Stocks by Country, 2006/07-2021/22

Data Source: USDA FAS

A great deal of uncertainty continues to be prevalent in the soybean complex. However, there are numerous reasons to be cautiously optimistic that high soybean prices will continue in 2022. Low stocks of soybean oil and meal are one of the factors that will be supportive for soybean prices.

References

U.S. Department of Agriculture Foreign Agriculture Services (USDA FAS). 2022. Production, Supply, and Distribution (PSD). Accessed online at: https://apps.fas.usda.gov/psdonline/app/index.html#/app/home

Recommended citation format: Smith, S. Aaron. “Soybean Meal and Oil Stocks Supportive for High Soybean Prices“. Southern Ag Today 2(9.1). February 21, 2022. Permalink

February 21, 2022
Foreign Ownership of Agricultural Land in the United States

Congress enacted the Agricultural Foreign Investment Disclosure Act of 1978 (AFIDA) to establish a nationwide scheme for collecting information on foreign investments in U.S. agricultural land. Under AFIDA, certain foreign investors are required to disclose their acquisitions and holdings in farm, ranch, and forestland to the United States Department of Agriculture (USDA). This data collected by USDA is compiled into an annual report to demonstrate the effect foreign holdings have on family farms and rural communities.

Recently, USDA published its latest AFIDA report, which provides data on foreign landholdings through December 31, 2020. According to the report, foreign persons hold an interest in almost 37.6 million acres of private U.S. agricultural land, an increase of 2.4 million acres from 2019. Since 2015, foreign investments have increased an average of 2.2 million acres per year.

The increased agricultural landholdings of foreign investors has become a growing concern for a few state legislatures. Over the past year, states such as Missouri, Indiana, Texas, and Alabama have considered legislation that would restrict foreign investments and ownership of agricultural land within the boundaries of their state. This is not a new concept, however, as ownership of agricultural land by foreign persons or entities has been an issue that traces to the origins of the U.S.

Today, approximately thirteen states specifically forbid or limit nonresident aliens foreign business and corporations, and foreign governments form acquiring or owning an interest in agricultural land within their state. However, state laws vary widely, and some states restrict only certain purchases while allowing for at least some level of foreign ownership of agricultural land. In response to the recently reported AFIDA data, more states may begin considering legislation aimed at limiting or restricting foreign investments in their states’ agricultural land.

Citations:

U.S. Department of Agriculture, Farm Service Agency. Foreign Holdings of U.S. Agricultural Land. Accessed February 10, 2022. https://www.fsa.usda.gov/Assets/USDA-FSA-Public/usdafiles/EPAS/PDF/2020_afida_annual_report.pdf.

Recommended citation format: Brown, Micha. “Foreign Ownership of Agricultural Land in the United States“. Southern Ag Today 2(8.5). February 18, 2022. Permalink

February 18, 2022
Should I Buy STAX?

As we’ve traveled throughout the Southern United States over the past two months, one of the questions we’ve most often been asked is whether a producer should purchase a Stacked Income Protection Plan (STAX) insurance policy for the 2022 crop year.  While we would never presume to know what’s best for a producer – because we are neither on the hook for paying the premiums nor do we know a particular producer’s financial situation or appetite for risk – we have been encouraging producers to take a very close look at STAX and to exhaust that option before considering any other alternatives.  Generally speaking, area-wide policies like STAX can serve as an effective complement to an individual crop insurance policy. With prices at their current levels, that option arguably becomes even more important.

            STAX was first authorized under the 2014 Farm Bill.  It was retained in the Bipartisan Budget Act of 2018 and the 2018 Farm Bill, but both bills required producers to choose between (1) Price Loss Coverage (PLC) or Agriculture Risk Coverage (ARC) and (2) STAX.  Any farm (FSA Farm Number) with seed cotton base enrolled in ARC or PLC is ineligible for STAX.  As a result, most producers we talk to are currently trying to choose between ARC (particularly ARC County, or ARC-CO) and STAX.

            While there are a number of factors that must be taken into consideration – for example, how much seed cotton base do you have on your farm and do you plan to plant that farm to cotton – in the example that follows we attempt to draw some comparisons between ARC-CO and STAX.  For those parts of the cotton belt with February 28^th sales closing dates (including the Arkansas, Georgia, and Mississippi counties in the example below), the projected price for crop insurance has been set at $1.02/lb with a 0.22 volatility factor (which is used to establish crop insurance premiums).  While the Texas and Oklahoma counties have a March 15th sales closing date and are still undergoing price discovery, the analysis that follows uses the same price assumptions.  The analysis also assumes that the maximum amount of STAX is being purchased, including a 20% coverage level with a 120% protection factor.  If a producer has an underlying crop insurance coverage level above 70%, then the STAX coverage would be reduced.

            Table 1 below illustrates the maximum possible ARC-CO payment rate in the event of sufficient price and/or yield losses.  It illustrates the same for STAX, but it also includes the estimated premiums paid for STAX coverage.  The last column compares maximum possible net indemnities from STAX to the maximum possible ARC-CO payments.  As noted below, in every case, STAX provides more than TWICE the coverage of ARC-CO (even after accounting for premiums).  Naturally, if both prices and yields end up hitting their average levels, then neither ARC-CO nor STAX will pay, and the producer will be left paying the STAX premium.  As a result, there is no clear-cut answer to the question above, but it is abundantly clear that the amount of protection a producer can secure under STAX vastly exceeds that offered by ARC-CO.  Finally, while we provide estimates in this article for purposes of illustrating options for you to consider, nothing can substitute for discussing these options with your crop insurance agent.

Table 1: Comparing ARC-CO and STAX in the Counties with the Largest Number of Planted Acres in the 5 Largest Southern Cotton States

*The maximum possible [net] indemnity can go up if harvest price exceeds the price at planting.  There is no additional premium paid by the producer in that case.

Recommended citation format: Fischer, Bart L., and Joe Outlaw. “Should I Buy Stax?” Southern Ag Today 2(8.4). February 17, 2022. Permalink

February 17, 2022