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  • Department of Labor Finalizes New H-2A Regulations

    Department of Labor Finalizes New H-2A Regulations

    Labor is in high demand for agriculture in the United States (“U.S.”) and the H-2A visa program is an important component of this critical issue. Over the last few years, there has been a growing interest in amending regulations related to the H-2A program. On September 15, 2023, DOL issued a notice of proposed rulemaking in the Federal Register to amend its regulations governing the H-2A visa program. The proposed rule went through a sixty-day comment period, and now DOL released its final rule.

    The H-2A program is a visa program for temporary and seasonal agricultural workers authorized through the Immigration and Nationality Act. The purpose of this program is to meet the U.S. agricultural labor needs by allowing employers to employ temporary foreign workers. To qualify for the program, an employer must “offer a job that is of a temporary or seasonal nature, demonstrate that there are not enough U.S. workers who are able, willing, qualified, and available to do the temporary work, show that employing H-2A workers will not adversely affect the wages and working conditions of similarly employed U.S. workers, and submit a single valid temporary labor certification from the U.S. Department of Labor with the H-2A petition”. U.S Citizenship and Immigration Services, H-2A Temporary Agricultural Workers.

    On April 26, 2024, DOL announced it had finalized its “Improving Protections for Workers in Temporary Agricultural Employment in the United States” rule. The purpose of the rule, as laid out by DOL, is to promote employer accountability and to “ensure farmworkers employed through the H-2A program are treated fairly, have a voice in their workplace, and are able to perform their work safely.” DOL adopted most of the provisions in the proposed rule as they were proposed and modified or added other provisions. The final rule addresses multiple areas – increasing protections for workers who advocate for better working conditions, creating new or clarifying existing definitions critical to the H-2A program, and measures related to transparency in the H-2A program.

    The final rule adopted the proposed provisions that will add protections for workers who self-organize to change working conditions. Under the final rule, employees will be protected from intimidation, threats, restraint, coercion, or any forms of discrimination for self-organization. Additionally, the final rule adopted the proposed provision preventing employers from restricting employees from granting access to their living quarters, common areas, and outdoor spaces to guests during nonproductive times. Under the final rule, employers would be able to impose reasonable restrictions on access to living quarters, common areas, and outdoor spaces, for worker safety or enjoyment of housing.

    The proposed rule clarified that an H-2A worker may be terminated for cause, for failing to meet productivity standards or failing to comply with employer policies or rules. The final rule adopted this provision and added an additional reason employers may terminate a worker for cause. Under the final rule, an employer may also terminate an H-2A worker for “failing to satisfactorily perform job duties in accordance with reasonable expectations based on criteria listed in the job offer.” The proposed rule outlined six criteria that must be satisfied for an employer to terminate an employee for cause, and the final rule adopted the following five criteria:

    1. “The employee has been informed (in a language understood by the worker) of the policy, rule, or productivity standard, or reasonably should have known of the policy, rule, or productivity standard;
    2. Compliance with the policy, rule, or performance expectation is within the workers’ control;
    3. The policy, rule, or performance expectation is reasonable and applied consistently to the employer’s H-2A workers and workers in corresponding employment; 
    4. The employer undertakes a fair and objective investigation into the job performance or misconduct; and
    5. The employer corrects the worker’s performance or behavior using progressive discipline, which is a system of graduated and reasonable responses to an employee’s failure to satisfactorily perform job duties or comply with employer policies or rules.”

    Lastly, the proposed rule and now the final rule seeks to provide transparency on the wages paid to H-2A employees. First, the proposed rule would require that employers disclose applicable rates in the job order, including any piece rate or the highest applicable hourly rate. This provision was adopted in the final rule. Additionally, the final rule adds a minor change to the proposed provision that requires employers to pay workers daily during a delay. The change adds that employers must pay employees for minor delays, which are identified in the final rule as less than fourteen days. Under the final rule, if the employer does not notify the employee or state workforce agency of a delay within the required timeframe, the employer must pay the highest hourly wage under the offered wage rate regulations. Lastly, the final rule adds provisions amending the job orders and wage rates for herding and range livestock jobs. Under the final rule, all applicable rates of pay must be included in the job order and employers may prorate the wage rate in specified circumstances. 

    The rule went into effect on June 28, 2024. However, only applications for H-2A employer certifications submitted to DOL on or after Aug. 29, 2024, will be processed according to the new rules.

    Capaldo, Samantha. “Department of Labor Finalizes New H-2A Regulations.” Southern Ag Today 4(29.5). July 19, 2024. Permalink

  • Trade Policy Also Important in Next Farm Bill

    Trade Policy Also Important in Next Farm Bill

    The importance of strengthening the commodity provisions in the next farm bill has been discussed on multiple Thursdays in Southern Ag Today.  The steady decline in the U.S. share of exports of major commodities (Figure 1) along with projected prices and the realities of high input costs are expected to exacerbate the current cost-price squeeze producers are enduring.  In addition to meaningful enhancements in commodity programs, many stakeholders are calling for increased funding for trade promotion programs that stimulate the demand for and reduce barriers to imports of U.S. products, specifically, the Foreign Market Development Program (FMD) and the Market Access Program (MAP).  

    Both programs help to develop foreign markets for agricultural commodities.  MAP offers cost-sharing for a variety of consumer-oriented activities designed to increase demand for U.S. agricultural commodities.  The FMD program partners with organizations that represent the broader agricultural industry with projects that aim to reduce trade barriers and expand export opportunities by identifying new markets or uses for a commodity or improving processing capabilities. 

    The last increase in FMD and MAP trade promotion programs was included in the 2002 Farm Bill with MAP at $200 million and FMD at $34.5 million.  Thus far in this farm bill process, the bill passed by the House Agriculture Committee on May 24th (the Farm, Food, and National Security Act of 2024) as well as the Senate Republican-drafted farm bill framework, would double MAP and FMD funding.  While farm bills tend to focus on commodity programs, market development activities are also important because they can stimulate demand for U.S. agricultural products, helping all of U.S. agriculture in the process.


    Outlaw, Joe, and Bart L. Fischer. “Trade Policy Also Important in Next Farm Bill.Southern Ag Today 4(29.4). July 18, 2024. Permalink


  • Using Risk Preference to Inform Crop Insurance Decision-Making

    Using Risk Preference to Inform Crop Insurance Decision-Making

    Crop Insurance decisions are closely tied to farmer’s risk preferences. Each producer faces different circumstances and has a different risk tolerance. Some producers prioritize revenue stability and opt for higher coverage levels and choose optional units for more targeted coverage. Conversely, others may be able to tolerate more risk and choose lower coverage levels or utilize basic or enterprise units in exchange for lower premiums. Crop insurance decisions can be overwhelming as the full suite of protection also involves choices on the FSA programs (ARC or PLC), crop insurance product, unit structure, and coverage level. Each of these choices need to made taking into account producer risk preference. 

    In discussing the effects of risk on crop insurance decisions, we use an online application, “Crop Insurance Decision Maker, ” which can be found here. A set of example results for Christian County, Kentucky, can be seen in Figure 1. In our case example, we look at insurance on non-irrigated corn acreage using enterprise units. The case example illustrates that as the coverage level increases, average net revenues increase. Among the three main crop insurance products (YP, RP, RP-HPE), Revenue Protection (RP) consistently yields the highest net revenues, followed by Yield Protection (YP) and then Revenue Protection with a Harvest Price Exclusion (RP-HPE). This suggests that on the example farm, higher levels of coverage generally lead to better average net revenues ($/acre), with RP providing the most significant benefit. 

    The fact that average net revenue increases with coverage level may seem counterintuitive but is evidence of the effect of a reduction in the actuarially fair insurance premium. To discuss this point, we use Figure 2, which compares the net revenue distributions for Christian County, Kentucky, utilizing no crop insurance and a 75% RP plan utilizing Enterprise Units. Figure 2 indicates that with no crop insurance, a producer faces a 20% chance of net revenues less than zero which is the downside risk a producer wants to minimize or eliminate. Conversely, the 75% coverage level in this example eliminates the downside risk of negative net revenues while slightly reducing the likelihood of larger returns. Due to the protection offered, net income increases on average. That is, the downside risk reduction outweighs the reduction in the upside potential driven by the producer paid premium.

    Our comparisons in Figure 1 and Figure 2 should be considered for each insurance decision. Net revenue probabilities change each time a crop insurance product, unit structure, or FSA program is changed. Each producer needs to determine their risk preference as under-insuring could leave the producer vulnerable to losses. Still, over-insuring could limit net income in years when indemnities are not triggered. The “Crop Insurance Decision Maker” aims to make these choices easier. It is important to note that the effects of each crop insurance decision change by county depending upon premiums, and the results for Christian County, Kentucky, may not hold for your operation.

    Figure 1: Crop Insurance Decision Maker Web Application Output

    Figure 2: Net Revenue Distribution for No Insurance VS a 75% Revenue Protection Plan using Enterprise Units

    References

    Biram, Hunter D., et al. “Mitigating price and yield risk using revenue protection and agriculture risk coverage.” Journal of Agricultural and Applied Economics 54.2 (2022): 319-333.

    Maples, William E., et al. “Impact of government programs on producer demand for hedging.” Applied Economic Perspectives and Policy 44.3 (2022): 1126-1138.


    Serrano, Enil, Grant Gardner, and Hunter Biram. “Using Risk Preference to Inform Crop Insurance Decision-Making.Southern Ag Today 4(29.3). July 17, 2024. Permalink

  • Retail Meat Prices Ease a Little

    Retail Meat Prices Ease a Little

    Nestled down in the bowels of the Consumer Price Index (CPI) data that is released each month is the retail price of beef, pork, and chicken.  Each have reached record highs at some point in the last couple of years adding to overall food price inflation.  The latest CPI data for meats indicated some stabilization or decline in meat prices.  

    First off, it’s worth remembering what this data represents.  It is the price of various cuts of beef, pork, and chicken reported from grocery stores during the second week of the month.  The data does not include special features, sales, in store coupons, or customer loyalty card discounts.  As a grocery store price, it does not include meat prices at restaurants. 

    Meat prices (and production for that matter) exhibit a considerable amount of seasonality.  Both supply and demand factors contribute to price seasonality.  For example, on the supply side, pork production tends to peak in the Fall after hitting its seasonal lows in Summer.  Tighter supplies in the Summer would suggest that prices should peak in Summer.  But, on the demand side, individual cuts may peak at different times of the year, for example, hams at the holidays or grilling season favorites.  Economists often compare the most current price to those of last year at the same time, simply to account for normal seasonality of prices.  But, for many consumers thinking about inflation a more useful comparison might be to last month or the last couple of months to account for the trend in prices.

    The latest data represents June prices across the U.S.  The Choice beef price in June was $8.119 per pound, less than 1 cent per pound higher than May.  So far this year, Choice beef prices peaked in April at $8.151 per pound.  Compared to a year ago, beef prices were about 2 cents lower per pound.  Pork prices totaled $4.88 per pound in June compared to $4.919 per pound in May and $4.684 per pound in June of last year.  Chicken prices are reported in two ways: as a whole, fresh bird retail price or as a composite price made up of various cuts.  The composite retail price was $2.403 per pound in June compared to $2.44 in May and $2.504 in June 2023.  

    On the whole, the latest retail meat price data indicates some easing of meat price inflation in June.  Some recent falling cutout values for beef and pork related to more production of both relative to last year could be part of the reason for lower prices.  Some consumer push back against high prices could have pressured prices lower as well.  Retail prices the rest of the year will be affected by reduced beef supplies and more pork and poultry.


    Anderson, David. “Retail Meat Prices Ease a Little.Southern Ag Today 4(29.2). July 16, 2024. Permalink

  • The Net Short Hedge Fund Position in ICE Cotton Futures

    The Net Short Hedge Fund Position in ICE Cotton Futures

    Hedge funds or “managed money” refers to financial client money that is invested in commodity futures, stocks, bonds, and other investments. Figure 1 shows varying levels of hedge fund investment in ICE cotton futures over the last ten years, either positioned as bullish net longs (i.e., upward pointing green areas) or bearish net shorts (i.e., downward pointing green areas).  In contrast, the blue colored graphed area of Figure 1 reflects the more stable, long-only positioning of index funds. The latter tend to buy and hold nearby futures contracts, and then roll forward as those contracts mature.

    Statistically, net long/short positioning of hedge funds is directly associated with higher/lower ICE cotton futures. Past statistical modeling indicates that a 1.9-cent decline in the most active cotton futures price was expected for every 10,000-contract decrease (or increase) in the hedge fund net long (net short) position (https://www.farmprogress.com/cotton/cotton-spin-hedge-funds-revisited ).  Looking at the most recent price decline, the hedge fund net long position peaked at 73,230 contracts on February 27, 2024, when nearby ICE cotton futures settled at 98.80 cents per pound.  This net long position changed to a 51,442 net short position, a total change of 124,672 contracts and associated with a 72.76-cent settlement on June 18 in nearby ICE cotton futures.  The previous statistical relationship implies that 23.56 cents of the total 26.04 cent decline in nearby ICE cotton futures is associated with bearish hedge fund adjustment, all other things being equal. 

    How long will the current net short position last?  Figure 1 highlights that net short positioning is less frequent than net long positioning.  Over the ten years graphed in Figure 1, only 156 weekly observations involved net short positioning while 370 weekly observations involved net long positioning.  Practically speaking, speculating on the size of an establishing, growing crop during the summer is a bit of a risky gamble.  This dynamic may encourage caution on the part of short speculators during the growing season.  Such behavior could also be the basis of a short covering rally in the event of reduced acreage expectations, bad weather, or negative production scenarios.  Short covering is where hedge fund managers buy back their outright short speculative positions as a result of changing (i.e., more bullish) expectations and/or pre-set buy stop orders.  The liquidation of a large net short position can thus lead to a cascade of buying, referred to as a short covering rally.


    Robinson, John. “The Net Short Hedge Fund Position in ICE Cotton Futures.Southern Ag Today 4(29.1). July 15, 2024. Permalink