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Animal Ag in the “Farm, Food and National Security Act of 2024”

The Farm Bill proposal by Rep. Glenn “G,T.” Thompson has made it through the initial markup and passed through the House Agricultural Committee. While there is still a long road between now and what is ultimately enacted, there are a few provisions in the proposed bill of particular interest to folks in animal agriculture.

One proposed provision would prohibit states from setting conditions for sale on products derived from “covered livestock” that are different than those imposed by the state where the animal was raised.  As a reminder, the US Supreme Court recently ruled that states do have the ability to set sales restrictions, allowing California to enforce Proposition 12.  If this proposal is enacted, it would prohibit California (and Massachusetts) from enforcing their current sales restrictions.  Additionally, it would prevent other states (such as New York, which is considering a similar bill), from enforcing any in the future.  Note, however, that the definition of “covered livestock” in the farm bill proposal specifically excludes laying hens.  In other words, the provisions of Prop 12 covering pork and veal products would not be enforceable, but the provisions requiring cage free egg production would be.  Similarly, other states that have passed or are considering laws requiring specified types of production methods for egg laying hens could still enforce those requirements.

Another proposed provision would create a pilot program allowing some custom exempt facilities to sell meat products directly to consumers.  “Custom exempt” does not require continuous inspection by a FSIS or state inspector during the slaughter process.  Currently, “custom exempt” meat cannot be sold, and is instead only available for consumption by the owner of the living animal.  More information on that here.  The proposal would allow participating custom exempt plants or customers who have animals processed at a custom exempt plant to sell the meat to the public, conditioned on the meat not being re-sold past the original buyer.  This pilot program would operate until 2029.

The Farm Bill is still a moving target, and provisions may look very different when/if they are ultimately passed. However, both of these provisions would both have a significant impact for livestock producers and should be watched carefully during the process.

Rumley , Elizabeth. “Animal Ag in the “Farm, Food and National Security Act of 2024”. Southern Ag Today 4(25.5). June 21, 2024. Permalink

June 21, 2024

Government Incentives for Agricultural Generational Transfer?

A transition plan outlines the process of transferring an agricultural operation from one generation to the next and includes details regarding transfer of both management (succession plan) and assets (estate plan). Surveys and anecdotal evidence report low success rates for farm transitions and argue inadequate transfer plans or lack of a transfer plan explain the low success rates of agricultural operation survival, despite most producers’ desire to keep their farm or ranch in one piece and in the family. Transition planning is difficult for many reasons, both logistical (requires time and resources such as accounting and/or legal help) and psychological (brings up thoughts of mortality and often involves tough decisions and conversations); therefore, producers tend to delay planning altogether.

We surveyed U.S. ranchers regarding plans to transition their ranch to the next generation and received a total of 148 responses, mostly from Texas (66.9%) producers. Survey participants shared information about their operational structure, family dynamics, and details of their ranch transition plans or roadblocks preventing them from developing a plan. Less than 40% of survey participants have a transition plan in place.

Chi-square tests for independence revealed relationships between some characteristics and the presence of a transition plan. Results indicate a positive relationship between operational structure and succession planning, i.e., producers who have put in time and effort to organize their operation beyond a sole proprietorship are more likely to have a succession plan. Results also indicate age and net worth each have a positive relationship with succession planning – we observed an increasing percent of respondents with a succession plan as net worth increased, until net worth reached $15,000,000.

Survey participants answered open-ended questions regarding their transition plans and roadblocks to planning – responses are summarized in Table 1. Operational longevity in agriculture depends on the ability of farms and ranches to survive from one generation to the next. Since evidence shows this process has proven difficult for producers, is there a role for the government to play in incentivizing the generational transfer of agricultural operations?

Table 1. Survey Results – Transition Planning Themes and Roadblocks

Transition Planning Themes	Roadblocks to Transition Planning
Utilizing a trust to protect and transfer control of assets	Resistance from senior generation
Plans to transfer ranch assets and management to on-farm heirs and personal assets of off-farm heirs	Lack of time or making time to plan
Utilizing an LLC, corporation, or partnership to facilitate lifetime transfer of operation	Lack of knowledge/education in transition planning
Utilizing an LLC, corporation, or partnership to create membership agreements and set restrictions	Finding professional legal/accounting help
Lifetime, or inter vivos, transfer of shares (or interest) in the operation to heirs, whether purchased or gifted to the upcoming generation	Legal fees
	Equitably dividing assets between on-farm and off-farm heirs
	Lack of a successor
	Difficulty managing lots of owners
	Difficult family dynamics/communication
	Difficult land or asset structure
	Estate tax considerations

Graff, Natalie. “Is there a role for the government in incentivizing the generational transfer of agricultural operations?” Southern Ag Today 4(25.4). June 20, 2024. Permalink

June 20, 2024

Incorporating Conservation Practices into Leases

An increasingly important decision facing farmers is incorporating conservation and ecosystem services into their production activities. U.S. state and federal agencies, market-based entities, and non-governmental organizations are all developing programs that modify how food and fiber are produced with respect to environmental concerns. Local soil and water conservation districts and the USDA Natural Resources Conservation Service provide cost share for specific conservation activities. One of the roadblocks to ecosystem service contracts and conservation practices is involving both landowners and tenants on land that might be eligible for the programs offered. Many ecosystem and conservation services contracts have longer terms than the underlying lease on the land. Most require the landowner to agree to the contract but then the tenant is responsible for complying with the contract provisions. This situation requires landowners and tenants to successfully navigate the negotiation of incorporating conservation practices into their farmland leases.

To help farmers and landowners augment a traditional lease, we suggest a four-step process: 1) understand objectives; 2) explore opportunities; 3) communicate; and 4) document the agreement.

Understand objectives. Both landowners and tenants have various objectives in farming a piece of land. Landowners have objectives as diverse as profit maximizing to recreational enjoyment to improving the environment. Tenants also have various objectives – including making a profit, efficient use of existing assets, and family lifestyle. However, the first, and often only, objective discussed is the financial objective. Both landowner and tenant approach the other with the goal of settling on a rental rate that satisfies both. Because conservation has implications for the long-term value of the land, it is easier for the tenant to assume the landowner might value a lease change that involves conservation activities. Therefore, the tenant can merge financial goals (maintaining long-term investment) with conservation goals.

Explore Opportunities. Conservation activities are site-specific. A conservation plan for one field may not be appropriate for an adjacent field for numerous reasons. Exploring opportunities is a transaction cost. Transaction costs include education about alternatives, investigation into sources of assistance, obtaining a viable conservation plan, and estimating the cost of enacting the conservation plan. The party most interested in modifying the lease is likely the one who will need to incur the bulk of the transaction costs. These expenses may occur before communication with the other party begins.

Communicate. Success is enhanced by approaching the other party with a clear but flexible plan that acknowledges the other’s objectives and meets their educational needs. The act of beginning a conversation can reveal objectives and opportunities for meeting both party’s objectives. Communication takes time. The person receiving a request needs time to think about how it fits with his/her objectives. Often, a counterproposal is made that needs to be considered by the other party. Multiple discussions are common for all but the simplest changes. Even when a plan is agreed to, drawing up the final details and finding resources takes time. Waiting until lease renewal is due is not a good time to propose a change. Change needs to be proposed months before a lease renewal date so that neither party is rushed or rejects it outright for lack of time to think through the consequences.

Document the agreement. Incorporating conservation practices into leases is not common practice in the U.S., so there is a danger of not understanding what each party agreed to do. Documenting the agreement in a written lease prevents misunderstanding. Because conservation activities tend to span more than a single year, the lease agreement may move from an annual lease to a multiple-year lease. Some ecosystems services programs (e.g. carbon credits) may go directly to the landowner, therefore rental rates need to be adjusted to incentivize the farmer to implement the practice on lease ground. For example, in the first year or two, when cover crops are planted, the landowner might reduce rent by a fixed dollar amount with the agreement that it will rise back to a more customary rate in year three. The same effect can be obtained by the landowner agreeing to pay for part of the expense of planting cover crops for years one and two but ceasing to pay after that. This way of incentivizing cover crops involves agreeing upon both the rental discount (or payment) amount and the number of years. These types of agreements need to be in writing so that they are not forgotten or become a point of disagreement in the future.

For more details see Massey and Hefley (2023) available at: https://extension.missouri.edu/publications/g421

Taylor, Mykel, and Ray Massey. “Incorporating Conservation Practices into Leases.” Southern Ag Today 4(25.3). June 19, 2024. Permalink

June 19, 2024
A Cattle On Feed Preview

USDA’s next cattle on feed report is to be released on Friday, June 21^st.  This one is coming out against a backdrop of rising fed cattle prices, higher Choice beef cutout values, and beef production that is slightly larger than last year.  It’s going to be an interesting report because it should continue to show declining numbers of cattle in feedlots and indicate falling beef supplies in coming months.

Market analysts who publish pre-report estimates generally expect May feedlot placements to be smaller than those last May.  The range of estimates runs from placements down 5 percent to up 1 percent (I’m the analyst who is down 5 percent on placements).  USDA reports that the number of feeder cattle going through auctions, video and internet sales, and direct sales were down 4.8 percent compared to those last May.  The number of feeder cattle in May reported as part of the CME feeder cattle index was down 19.5 percent compared to a year ago.  Contrasting those data points, feeder cattle imports from Mexico were about 30,000 head larger than last year.

Feedlot marketings should be about even with a year ago.  Daily steer and heifer slaughter during May was 100.4 percent of last May, with the same number of work days in the month.  Continued near record dressed weights of those cattle marketed, largely due to longer feeding periods, is adding to beef production.

Combining placements and marketings should leave the number of cattle in feedlots on June 1 about 1.7 percent smaller than last year.  June 1 should mark the second straight month of smaller cattle inventories.  The number of cattle on feed for longer than 120 days should continue to decline, as well.  Shrinking cattle inventories will begin to cut into beef production in coming months limiting the impact of heavier weights on supplies.  On balance, fewer cattle on feed will keep pressure on for higher cattle and calf prices.

Anderson, David. “A Cattle On Feed Preview.” Southern Ag Today 4(25.2). June 18, 2024. Permalink

June 18, 2024
June WASDE Report Projects Increases to Wheat Prices, Decreases to Cotton Prices

USDA released its latest World Agricultural Supply and Demand Estimates (WASDE) on June 12^th. This report follows the first set of estimates for the 2024/2025 crop marketing year that were released in May. This month’s report continues to use the March Prospective Plantings report as the basis for estimated acreage. As a result, there were no changes to the production or price projections for most crops, with wheat and cotton the exceptions as shown in table 1.

Table 1: WASDE Estimated and Projected Prices 5 by Crop and Marketing Year

Cotton’s 2024/2025 marketing year average price is a projected $0.70/lb., which represents a $0.04/lb. decrease from last month’s projection. This change was driven by a 0.45 milllion bale increase in the estimated cotton stocks at the start of the marketing year, bringing estimated stocks up to 2.85 million bales. The revision to beginning stocks was due to a halfmillion bale reduction in expected U.S. cotton exports during the 2023/2024 marketing year. While global demand for cotton remains strong, U.S. cotton export sales have been slower than expected amid tight supplies, and Brazil is expected to overtake the U.S. as the top cotton exporter for 2023/2024. If realized, this would mark the first time since the 1992/1993 marketing year that the U.S. would not be the world’s top cotton exporter. As a result of reduced exports, U.S. cotton stocks are projected to increase to 4.1 million bales at the end of the 2024/2025 marketing year.

On the other hand, the projected 2024/2025 marketing year U.S. wheat price increased by $0.50 to $6.50/bu. This price increase is due to a 25 million bushel increase in projected exports this coming marketing year, in spite of a slight increase in projected U.S. wheat yields and soft harvest-time prices in the United States. The increase in U.S. exports follows a 1% decrease in projected global wheat production because of yield reductions for major wheat exporters Russia, Ukraine, and the European Union. The decreased global yield projections were driven by dry weather in Russia and Ukraine, late-season frosts in Russia, and excessive precipitation in France.

Looking ahead, we should expect to see more significant changes in next month’s WASDE report. On June 28^th, USDA is scheduled to release the Acreage report, which will likely result in adjustments to acreage planted and harvested estimates for most row crops. These updated acreage estimates will affect projected production and be taken into account in the July WASDE report.

References

Biram, Hunter, and Ryan Loy. “May WASDE Projects Higher Supplies and Lower Prices Again in 2024.” Southern Ag Today 4(20.1). May 13, 2024. Available at: http://southernagtoday.org/may-wasde-projects-higher-supplies-and-lower-prices-again-in-2024/

USDA-NASS. World Agricultural Supply and Demand Estimates. June 12, 2024. Available at: https://www.usda.gov/oce/commodity/wasde/wasde0624.pdf

USDA-FAS. Cotton: World Markets and Trade. June 12, 2024. Available at: https://downloads.usda.library.cornell.edu/usda-esmis/files/kp78gg36g/xk81m8188/xs55p371r/Cotton.pdf

Sawadgo, Wendiam. “June WASDE Report Projects Increases to Wheat Prices, Decreases to Cotton Prices.” Southern Ag Today 4(25.1). June 17, 2024. Permalink

June 17, 2024