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  • What a Difference an Election Can Make

    What a Difference an Election Can Make

    I’m writing this somewhere over the Atlantic Ocean as I travel home from England.  I was there for the last several days at the invitation of the British Embassy in Washington, D.C., along with several U.S. agricultural officials, including Congressional staff and a handful of state secretaries, directors, and commissioners. The purpose was to learn about the agricultural industry in one of the most beautiful and storied countries on the planet, but it also provided a good opportunity to compare with current events unfolding at home. Not surprisingly, farmers and ranchers in both countries face a lot of the same challenges: enduring erratic weather; striking the right balance between conserving resources and growing food; and navigating unpredictable politics, just to name a few.

    With respect to the latter, both countries have recently gone through elections. This past summer in the general election in the U.K., the opposition Labour Party led by Keir Starmer – now Prime Minister – defeated the governing Conservative Party. The new government recently introduced a new inheritance tax proposal. While there are far more details (and nuance) than I have space to discuss today, the proposed changes will impose an inheritance tax of 20% on business and agricultural assets beyond £1 million (roughly $1.26 million at today’s exchange rates) beginning in April 2026. Much like in the United States, growth in land values and equipment costs have resulted in a situation where farms have significant net worth – at least on paper – but little liquidity.  In other words, producers have little ability to pay huge tax burdens when an operation is passed along to an heir. Proponents of the proposal will argue that any transfers to individuals more than seven years before death will continue to fall outside the scope of the new inheritance tax. However, producers will counter that death doesn’t respect the timeframes set by the government, and they will argue that the proposal stands to destroy the heritage their families have built – to say nothing of the eventual impact on food security. On Tuesday of this week, British farmers and ranchers descended on London to protest the new government’s proposal.

    While England is a long way from the United States, it’s not all that different from here. Throughout our own election season this Fall – and as part of the debate about how to pay for the now-defunct Build Back Better Act – a number of proposals were discussed to significantly change the taxation of unrealized capital gains and estate taxes in the United States. In June 2021, at the request of Rep. GT Thompson (R-PA) and Sen. John Boozman (R-AR), our team at the Agricultural and Food Policy Center (AFPC) authored a report that estimated the impact of two of these proposals, the Sensible Taxation and Equity Promotion Act and the For the 99.5 Percent Act. At the time, our analysis showed that a generational transfer under the two bills would impact 92 of AFPC’s 94 representative farms (increasing the average tax liability by $726,000 per farm) and 41 of 94 representative farms (increasing the average tax liability of $2.2 million per farm), respectively.

    While our election results this Fall very likely mean that agricultural producers in the United States won’t face a near-term change in the treatment of unrealized capital gains and estate taxes, the events unfolding “across the pond” are a very clear reminder that elections have consequences…and that policies (well-intentioned or not) often have unintended consequences.

    Fischer, Bart L. “What a Difference an Election Can Make.” Southern Ag Today 4(47.4). November 21, 2024. Permalink

  • Can Yield Upside Risk Eclipse Price Downside Risk Protection in ECO Crop Insurance?

    Can Yield Upside Risk Eclipse Price Downside Risk Protection in ECO Crop Insurance?

    Producers can keep track of their price risk protection through revenue insurance in a given growing season by comparing the Harvest (Fall) Price to the Projected (Spring) Price determined by USDA-RMA. In the broader picture of a marketing plan, revenue crop insurances provide a form of price guarantee at a premium expense similar to locking in a price guarantee using a put option contract (Biram and Smith, 2022). A previous article examined the price protection offered by Revenue Protection (RP), Supplemental Coverage Option (SCO), and Enhanced Coverage Option (ECO) crop insurance for corn and rice (Biram, 2023). That article only considered the change in prices and did not consider the potential change in yield. This article builds on the previous one by considering both the price and yield protection offered by ECO, and providing a snapshot of how changes in county yields can also trigger indemnities.

    ECO is an area-based crop insurance product and must be paired with farm-level insurance like Yield Protection (YP) or RP. The liability insured by ECO is calculated using the same parameters as RP (e.g., APH farm yield and futures prices) at coverage levels of 90% and 95%. The futures price used is based on the higher of the Projected Price and the Harvest Price determined by USDA-RMA. Unlike RP – which triggers indemnities based on farm-level losses –ECO triggers an indemnity based on county-wide losses and will trigger a full indemnity when county-level revenue losses fall to 86%.

    A county-level map is provided in Figure 1, which shows the extent that the final county yield can change relative to the expected county yield and still trigger an indemnity for corn that is equal to the producer paid premium (i.e., breakeven indemnity). In other words, this map answers the question of how much the county yield must change to trigger an indemnity that will at least cover the producer-paid premium. The producer premium was determined for RP at the 75% coverage level (RP-75) under optional units paired with ECO at the 95% coverage level (ECO-95) with the associated premium subsidy rate applied. Projected and Harvest Prices reported by the RMA Price Discovery Tool are used with theassociated price volatility. 

    As an example, a county shaded in the darkest green shows that the final county yield may increase at least 21-26% for an indemnity to trigger which covers the producer premium. This suggests the price decline in the futures market was severe enough to allow for yield upside risk that would offset indemnities triggered on price alone. Conversely, a county shaded in the darkest red indicates that the final county yield must decline at least 6-11% before a large enough indemnity to cover producer premium is triggered. This implies that the price decline was not severe enough to trigger an indemnity on price alone. Most counties have experienced severe enough price declines in corn that yield can increase in comparison to the expected yield and potentially obtain a net indemnity above zero (e.g., yellow and green shaded counties).

    A similar pattern exists for cotton and soybeans (Figures 2-3). Nearly all counties insuring cotton under ECO-95 and RP-75 allow for yield upside risk, or favorable potential, to determine an indemnity equal to producer premium with most counties allowing for 7-10% yield upside risk. The same story holds for soybeans with potential yield upside risk of 9-14% for most counties which indicates the extent of futures price declines for both cotton and soybeans in 2024. Rice is the exception with no counties allowing for yield upside potential in determining an indemnity equal to producer premium (Figure 4). This is expected given there was virtually no change (i.e., $0.002/lb) in the rough rice futures price between planting and harvest.

    This analysis shows that price risk protection, which does not require a crop insurance premium, could be provided through ECO-95 if yields do not increase by more than 5% across most counties. However, given the potential for record yields across most of the U.S., this potential may be largely eclipsed. While this yield upside could be beneficial, it only considers one half of the profit equation, gross revenue. Further, price declines, paired with elevated production expenses, have not been met by risk protection from other farm bill programs, such as Price Loss Coverage and Agriculture Risk Coverage. This underscores the lack of price risk mitigation provided by current farm policy tools and the need for an updated farm safety net.

    Figure 1. Percentage Change in County Yield for ECO-95 to Result in Zero Net Indemnity (Corn)

    This map shows the percentage change in the final county yield relative to the expected yield required to trigger an ECO indemnity that will be equal to producer paid premium. This assumes RP and ECO coverage levels of 75% and 95%, respectively. Click here for an interactive version of this map showing county-specific percentages.

    Figure 2. Percentage Change in County Yield for ECO-95 to Result in Zero Net Indemnity (Cotton)

    This map shows the percentage change in the final county yield relative to the expected yield required to trigger an ECO indemnity that will be equal to the producer paid premium. This assumes RP and ECO coverage levels of 75% and 95%, respectively. Click here for an interactive version of this map showing county-specific percentages.

    Figure 3. Percentage Change in County Yield for ECO-95 to Result in Zero Net Indemnity (Soybeans)

    This map shows the percentage change in the final county yield relative to the expected yield required to trigger an ECO indemnity that will be equal to the producer paid premium. This assumes RP and ECO coverage levels of 75% and 95%, respectively. Click here for an interactive version of this map showing county-specific percentages.

    Figure 4. Percentage Change in County Yield for ECO-95 to Result in Zero Net Indemnity (Rice)

    This map shows the percentage change in the final county yield relative to the expected yield required to trigger an ECO indemnity that will be equal to the producer paid premium. This assumes RP and ECO coverage levels of 75% and 95%, respectively. Click here for an interactive version of this map showing county-specific percentages.

    References

    Biram, Hunter, and S. Aaron Smith. “The Option to Augment the Crop Insurance Price Floor“. Southern Ag Today 2(35.1). August 22, 2022. Permalink

    Biram, Hunter. “Comparing the Harvest Price and Projected Price in Revenue Protection Crop Insurance for Rice and Corn.” Southern Ag Today 3(35.1). August 28, 2023. Permalink

    Biram, Hunter. “Can Yield Upside Risk Eclipse Price Downside Risk Protection in ECO Crop Insurance?” Southern Ag Today 4(47.3). November 20, 2024. Permalink

  • A Look at the Hog Market

    A Look at the Hog Market

    The Fall is often an interesting time to look at hog and pork markets because production typically increases seasonally, and prices decline.  Holiday ham demand usually kicks in to partially offset supply driven lower prices.  This year has some notable differences happening.

    The hog industry has had a 7-month run of profits according to Iowa State University’s estimated farrow-to-finish returns.  Profits have been generated by much lower feed costs in recent months.  But, those profits are following huge financial losses in 15 of the preceding 17 months.  Losses have led to a reduction in the breeding herd and in sows farrowing.  USDA’s September 1 hogs and pigs report indicated the smallest breeding herd since 2016.  About 18 percent of the nation’s breeding herd are in the South.  June through August farrowings were estimated to be the smallest since 2013.  Only increasing numbers of pigs per litter, hitting 11.72 in the third quarter of the year, supported slaughter numbers.  Over the last month hog slaughter and pork production have been almost equal to a year ago.

    While pork production has increased seasonally this Fall, supplies appear to be tightening compared to a year ago.  Hog prices are enjoying a counter-seasonal increase.  Iowa-Southern Minnesota barrow and gilt carcass prices have increased from about $75 per cwt to $84 per cwt over the last month.  The cutout is up about $7 per cwt over the same time.  Wholesale prices are higher for pork bellies, trimmings, ribs, and hams.  Bellies are up about $30 per cwt over the last month to $2.02 per pound.  They were $1.24 per pound a year ago. Trimmed pork spareribs hit $1.75 per pound last week compared to $1.18 a year ago.  

    In the meantime, more retail pork features and specials are occurring compared to a year ago.  Retail prices for boneless hams are a little higher than a year ago while bone-in hams are a little cheaper than a year ago in the week leading up to Thanksgiving according to USDA’s retail price report. 

    It’s going to take some sustained higher hog and pork prices to boost profitability enough to increase production in the coming year.  It’s likely that higher pork prices are ahead for 2025.

    Anderson, David. “A Look at the Hog Market.” Southern Ag Today 4(47.2). November 19, 2024. Permalink

  • Profitability According to Farmers

    Profitability According to Farmers

    On October 10th, Joe Outlaw, Bart Fischer, and Natalie Graff’s SAT article of the day highlighted the need to understand USDA’s net farm income projection. They noted that while the overall projection for farms across the country is down slightly, that masks the commodity-specific variability, where most crop farmers are losing money, and many livestock producers are relatively better off. 
     
    In a time of low commodity prices, we often look at economic indicators to help us pin down the extent of the problem. Another approach is to talk to farmers directly about the economic conditions and document their thoughts. This qualitative data gives a much richer description of the issues that underlie the downturn in economic conditions. In July and August of 2024, we held 11 focus groups in Alabama with 115 farmers, producers, growers, agribusiness owners and employees, agricultural processors and manufacturers, and agricultural lenders. The focus groups were intentionally representative of the agricultural commodities produced in the southeast. The goal of the focus groups was to gather their perspectives on agriculture and economic development in Alabama. In the process, we heard an earful about profitability overall and many of the driving factors that affect profitability in the state and region. 
     
    One focus group participant stated, “I think the biggest thing is profitability is the leading factor in growing most anything. If it’s not worth doing, you know, why are you going to spend the resources and all your energy just to be at a breakeven point or just barely pay the bills? You know what I’m saying? I think that’s figuring out how to become more profitable, whether it be a niche market or something like that. But I think that’s the main driver.” This sentiment was echoed across all the focus groups. Participants’ central concern for the agricultural sector was profitability. They identified a myriad of factors that contribute to their concerns, and the most common are listed below:
     
    Rising input costs and decreasing commodity prices
    Participants noted that the high cost of production coupled with low commodity prices for row crops and lack of markets for catfish, fruit, and vegetables affects the overall profitability of agriculture. Livestock producers discussed the increase in input costs eating away at profits. The inverted relationship between input prices and commodity prices and the subsequent impact on profitability is a critical stressor for farmers.
     
     
    Equipment costs are skyrocketing with inflation
    Participants remarked that the high cost of specific, necessary equipment limits them from diversifying crops as their equipment purchases tie them to particular commodities. The inability to easily diversify crops causes significant stress when specific commodity prices plummet, and producers have to make decisions regarding equipment sunk costs and expected future profitability.
     
    Increasing transportation costs and freight charges
    This sentiment was shared by producers across commodities indifferent to the mode of transportation. The escalation in costs related to shipping commodities has had a negative impact on the profitability of producers already impacted by low commodity prices.
     
    Rising farmland values and rental rates
    Participants emphasized the growth in metro areas in the southeastern U.S. and the resulting increase in land values. This has caused the growing inability to find land to purchase or rent that is economically viable for a farming operation. While expenses related to land are existing concerns now for profitability, focus group participants expect land values to continue to increase and have an even greater impact on profitability in the future.
     
    Labor availability and costs
    Participants discussed the (un)availability and high cost of labor, particularly for labor-intensive operations such as poultry, fruit, vegetable, nursery, and greenhouse production. Regardless of commodity, though, all producers stated that labor issues directly impacted profitability.
     
    These issues all affect profitability, and while some will improve with upswings in commodity prices, others are systematically affecting the profitability of the ag sector. Documentation of these issues is the first step in informing decision-makers of what is unique about agriculture and how those in the industry perceive the likelihood of continuing their operations with the next generation of producers.

    References:
     
    Outlaw, J., B. Fischer, and N. Graff. USDA Farm Income Projections… Misused and Abused. Thursday, October 10, 2024. Available at: https://southernagtoday.org/2024/10/10/usda-farm-income-projections-misused-and-abused/

    Russel, Kelli, and Mykel Taylor. “Profitability According to Farmers.” Southern Ag Today 4(47.1). November 18, 2024. Permalink


     

  • Urban Agriculture in the South: Addressing Food Insecurity and Social Inequality through Community Gardens

    Urban Agriculture in the South: Addressing Food Insecurity and Social Inequality through Community Gardens

    With the trend of increasing urbanization, Urban Agriculture (UA) has emerged as a key strategy to address challenges like food insecurity and social inequality in urban development. The COVID-19 pandemic underscored the importance of UA by exposing weaknesses in the food supply chain and emphasizing the need for local food security (Clark et al., 2021). Community gardens, a common and impactful form of UA, provide spaces for residents to grow fresh produce in the community while offering environmental and economic benefits (Guitart et al., 2012; Kirby et al., 2021). In 2009, the U.S. Department of Agriculture (USDA) initiated the “People’s Garden” program to connect gardens across the U.S. that produce local food to address food insecurity and bring people together in their communities. Community gardens have become central to UA policies to enhance food security and environmental sustainability, particularly in low-income urban neighborhoods.

    The need for such initiatives can be critical in the southern U.S., where food insecurity levels are significantly higher than in other regions. For example, although the South has less than half (45%) of the country’s total counties, it disproportionately represents areas with high food insecurity. Specifically, 84% of counties that experience high rates of food insecurity are located in the South (Feeding America, 2024). Community gardens and other UA efforts could play an essential role in alleviating food insecurity in these areas. The density of existing community gardens varies widely by region (Figure 1). Based on self-reported data from the American Community Garden Association, the Northeast has 7.8 community gardens per 1,000 square miles (green bar), while the South has fewer than 2 per 1,000 square miles (turquoise bar).


    Figure 1: Distribution of Community Gardens by Region

    Data source: American Community Garden Association https://www.communitygarden.org/garden

    However, there is growing interest in developing urban gardens in the South, particularly in Texas. For instance, Dallas was recently selected by the USDA as one of 17 cities for urban agriculture investment. The Houston Health Department recently launched the “Get Moving Houston Urban Gardens” initiative to promote healthy eating. Houston currently has over 160 community gardens, mostly in lower-income communities. While community gardens offer many benefits and can help address food insecurity and social inequality—especially in low-income, minority communities in the South—careful planning is essential to ensure these communities fully benefit.

    There are important challenges to address when establishing community gardens in low-income, minority communities. First, it is essential to understand residents’ preferences for community gardens in these neighborhoods. Some studies indicate that the culture surrounding local and healthy food from UA is often associated with communities that have higher education levels and incomes (Bellemare and Dusoruth, 2021), while others find no significant differences in preferences for community gardens across income and racial groups (Li & Long, 2024). This variability highlights the need for community-specific assessments to tailor UA initiatives. Engaging residents in planning ensures that the gardens align with the needs of the neighborhood, promoting greater utilization and sustainability. Second, the impact of community gardens on these communities requires further examination. While these gardens can improve access to fresh food and green space, they may also contribute to rising property values (Voicu and Been, 2008), attracting more affluent households and potentially leading to gentrification and displacement of existing residents. Therefore, it is important for city planners to balance the benefits of community gardens with proactive measures to mitigate the potential displacement risks.

    Reference:

    Bellemare, M. F., & Dusoruth, V. (2021). Who participates in urban agriculture? An empirical analysis. Applied Economic Perspectives and Policy, 43(1), 430-442.

    Clark, J. K., Conley, B., & Raja, S. (2021). Essential, fragile, and invisible community food infrastructure: The role of urban governments in the United States. Food Policy, 103, 102014.

    Feeding America. (2024.). Map the Meal Gap: Executive Summary. Feeding America. Retrieved October 25, 2024, from https://www.feedingamerica.org/research/map-the-meal-gap/overall-executive-summary

    Guitart, D., Pickering, C., & Byrne, J. (2012). Past results and future directions in urban community gardens research. Urban forestry & urban greening, 11(4), 364-373.

    Kirby, C. K., Specht, K., Fox-Kämper, R., Hawes, J. K., Cohen, N., Caputo, S., … & Blythe, C. (2021). Differences in motivations and social impacts across urban agriculture types: Case studies in Europe and the US. Landscape and Urban Planning, 212, 104110.

    Li, L., & Long, D. (2024). Who values urban community gardens and how much?. Food Policy, 126, 102649.

    Voicu, I., & Been, V. (2008). The effect of community gardens on neighboring property values. Real Estate Economics, 36(2), 241-283.

    Li, Liqing. “Urban Agriculture in the South: Addressing Food Insecurity and Social Inequality through Community Gardens.” Southern Ag Today 4(46.5). November 15, 2024. Permalink