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  • New Record High Cattle Prices

    New Record High Cattle Prices

    The fed cattle market hit some new record highs last week with fed steers pushing $200 per cwt in Northern Plains markets.  The weekly average fed steer price for the week ending June 30th was $198.09 per cwt.  This price represented a negotiated, live, weighted average price across quality grades.  The comparable price in the Texas-Oklahoma market last week was lower at $190.19 per cwt.  

    Beyond the record high fed cattle price, the widening price difference between the Southern and Northern fed cattle markets is very interesting.  Last week’s Northern-Southern price spread was $7.90 per cwt.  It was $10.11 per cwt two weeks ago, the largest difference of the year.  This large price spread has really developed over the last couple of years.  The price difference has a large seasonal component with the price difference peaking in the May-July time period.  Prior to 2022, a price difference greater than $4 per cwt was rare.  The average price difference from 2015 through 2021 was $0.20 per cwt.  That average has grown to $0.96 during 2022-2024.  The range of price differences has grown from about $6 per cwt to over $12 per cwt.

    Several factors likely contribute to larger swings in regional price differences.  One may be simply varying relative supplies versus packer needs in each region.  Another contributor is the mathematical calculation of the average price across grades.  The Southern Plains average price includes head in lots 35-65 percent Choice compared to no lots with cattle in that category for the Nebraska prices which pulls down the Texas-Oklahoma average price.  So, there may be a USDA quality grade component to the price difference.  

    Record high fed cattle prices are supporting calf and feeder prices across the South.  As fed cattle supplies further tighten, new record high prices will be recorded.  The widening price difference regionally in fed cattle may have some implications for Southern feeder cattle and calf markets.  Many of our cattle in the mid-South go to feedlots in Nebraska while feeders from the deep South often head to Texas or Oklahoma yards.  Regional calf and feeder prices may begin to be affected by changing premiums in the regional fed market.

    Anderson, David. “New Record High Cattle Prices.” Southern Ag Today 4(27.2). July 2, 2024. Permalink

  • Changes to Planted Acreage for Southern Crops in the June Acreage Report

    Changes to Planted Acreage for Southern Crops in the June Acreage Report

    On Friday June 28th the USDA released its annual Acreage report. The report estimates planted acreage of principal crops based on producer surveys conducted in the first two weeks of June. Nationally, principal acres planted were estimated at 315.177 million acres, up 1.866 million acres compared to the March Prospective Plantings report and 4.424 million acres lower than last year (Table 1). Southern states accounted for 22.8% of principal crop acreage. The largest negative and positive percent change (highlighted in Red and Black in the tables below) in principal crop acreage compared to the March Prospective Plantings report, in the southern states, were Oklahoma -5% and South Carolina +8%. Tables 2-7 show acreage changes, by state, compared to last year and the March Prospective Plantings report for corn, wheat, rice, soybean, peanuts, and cotton. 

    Corn acres planted were estimated at 91.475 million acres nationally, with the southern states accounting for 10.1% of planted acres. National corn acres were higher than most pre-report predictions and 1.4 million acres greater than the March Prospective Plantings report. Corn futures prices declined 13 to 16 ½ cents for the day. In the southern states, South Carolina had the largest increase, compared to the March report, adding 80,000 acres (+27%), while Louisiana and Tennessee had 9% decreases in planted acres. Nationally, the report indicated that corn left to be planted was 3.36 million acres.

    All wheat planted acres were estimated at 47.24 million, down 258,000 acres compared to the March estimate. Revisions in acres were made for Alabama (-15,000 acres), Arkansas (+5,000), Georgia (-25,000 acres), South Carolina (-5,000 acres), Texas (-200,000 acres), and Virginia (-5,000 acres). Chicago wheat futures were down 4 ½ to 6 ¼ cents for the day, and Hard Red Wheat futures were down 4 ½ to 10 ½ cents.

    Southern states account for 75% of rice production nationally, with Arkansas the largest producer. Rice acres planted were unchanged in Texas and Mississippi, declined 30,000 acres in Arkansas and increased 30,000 acres in Louisiana.  

    Soybean acres were estimated at 86.1 million, down 410,000 acres compared to the March estimate – slightly lower than pre-report estimates. Soybean futures closed down ¾ to 2 ¾ cents for the day. In the southern states, planted acreage was reduced 10,000 acres compared to March, with reductions for Arkansas, North Carolina, and Oklahoma and increases for Alabama, Kentucky, Louisiana, South Carolina, and Tennessee. The report indicated that soybeans left to be planted were 12.8 million acres.

    Peanut acreage increased 7% (106,000 acres) compared to the March report. Increased planted acres in Texas, North Carolina, Georgia, and Mississippi were only partially offset by a small reduction in Alabama.

    Upland cotton acres were estimated at 11.488 million, nearly 1 million acres higher than the March estimate and pre-report forecasts. Cotton futures closed 1.63 to 2.21 cents per pound lower for the day. Texas planted acreage increased 890,000 acres compared to the March report, contributing by far the most to the change in national acreage. Arkansas had the largest percentage increase at +24%.

    Overall, the report provided bearish news for several markets that had already experienced substantial price declines this growing season. Moving forward, prices will continue to react to weather and revisions to planted/harvested acreage estimates.

    References and Resources

    Barchart.com. Daily futures prices. Accessed at: https://www.barchart.com/futures/grains?viewName=main

    USDA National Agricultural Statistics Service (NASS). June 28, 2024. Acreage Report. Accessed at https://usda.library.cornell.edu/concern/publications/j098zb09z

    USDA National Agricultural Statistics Service (NASS). March 28, 2024. Prospective Plantings Report. Accessed at https://usda.library.cornell.edu/concern/publications/x633f100h

  • Transitioning to Organic in the South

    Transitioning to Organic in the South

    Some people say that growing organically requires a different mindset. Receiving a price premium particularly when demand is high guarantees increased earnings, but many producers shifting to organic put environmental stewardship and personal values at the top of the list. Between 2017 and 2022, the US experienced a notable surge in the organic agriculture sector, with the Census of Agriculture showing increases (about 32%) in organic product sales. However, the number of organic operations dropped from 18,166 to 17,321 (about 5%). 

    Growing organic in the South has its own challenges; high pest pressure, high humidity and a region prone to extreme temperatures. As such, organic operations in the South tend to be smaller but are still important contributors to the sector. A closer look at the Census of Agriculture reveals some important changes in organic production for row crops and specialty crops. Arkansas, Georgia, North Carolina and Kentucky about doubled sales, Texas and Florida went up by 50%, and states like Louisiana where organic agriculture does not have a big economic footprint still reported a 12% growth. South Carolina and Texas were the only Southern states reporting a growing number of organic operations.

    Another challenge that organic producers face is the USDA certification process. Transitioning to organic requires familiarizing yourself with the certification process and regulations of the USDA National Organic Program (NOP). The recent Census of Agriculture revealed a decrease in the farms with acres transitioning to NOP. Though the numbers may be discouraging, it is worth considering the level of responses the Census received which was low particularly in some states.

    Figure 1: Number of farms with acreage transitioning into USDA NOP

    It will be interesting to see how producers will respond to the changing production landscape in the near future. As USDA works in amending organic production standards and with the demand for differentiated products continuing to grow will USDA provide more support to organic production? As of now we have seen increased funding in organic production through grants, funding towards development of organic markets under the Organic Market Development Grant program and this is the fourth year that USDA provides cost share assistance for organic certification. Certified organic producers and handlers who have paid certification fees during the 2024 program years may apply for reimbursement of the incurred costs up to 75%. The application deadline is October 31, 2024. For more information see link below: https://www.fsa.usda.gov/Assets/USDA-FSA-Public/usdafiles/organic-certification-cost-share-program/pdf/2024/fsa_occsp_fact_sheet.pdf

    Bampasidou, Maria, and Juna Dylce. “Transitioning to Organic in the South.” Southern Ag Today 4(26.5). June 28, 2024. Permalink

  • Understanding the Growing U.S. Agricultural Trade Deficit: The Fall in Exports

    Understanding the Growing U.S. Agricultural Trade Deficit: The Fall in Exports

    The recent (May 2024) trade outlook report published by the Economic Research Service and Foreign Agricultural Service – agencies of the U.S. Department of Agriculture (USDA) – is projecting the highest agricultural trade deficit on record for fiscal year (FY) 2024 (October – September). The FY2024 forecast have U.S. agricultural exports at $170.5 billion, unchanged from the February forecasts, but imports at $202.5 billion, up from the previous forecast of $201.0 billion. If these projections hold true, the resulting trade deficit would be a record $32 billion. To put this in context, U.S. agricultural exports have far exceeded imports in past years. It is only in recent years that U.S. agricultural trade became more balanced. FY2023 was the first year the U.S. experience a significant agricultural trade deficit ($16.7 billion), which is half the projected deficit for FY2024 (Kaufman et al., 2024). Given concerns about the rising trade deficit in U.S. agricultural trade, we plan to discuss this issue in a series of articles focused on explaining recent export declines, rising imports, and the status of U.S. agricultural trade based on the most recent data in 2024. In this article, we explore the export side of the rising trade deficit.

    Figure 1 shows U.S. agricultural exports in quantity terms and the unit value (reflecting average prices) from 2010 – 2023. Note that exports, measured in million metric tons (MMT), reached a record high of 230 MMT in 2021. The unit-value in 2021 was $769/MT, resulting in a total value of $177 billion. While exports decreased the following year to around 216 MMT, prices increased significantly that year resulting in record exports in value terms ($196 billion in 2022). Prices, on average, remained relatively steady in 2023, but there was a significant volume decline in 2023 to 190 MMT. The figure shows that exports volume has been trending downward for the last three years. While U.S. agricultural export volumes decreased by 17.5% from 2021 to 2023, total export value only fell by 1.4% over the same period due to significant higher prices in 2022 and 2023 (USDA, 2024). 

    What is the reason for the decline in exports since peaking in 2021? Table 1 shows the percentage change in U.S. agricultural export volumes between 2021 and 2023 by major destination country or region. China was our leading agricultural export market in 2021, accounting for 26.4% of the total export volume that year. The next highest country, Mexico, only accounted for 17.4%. During the period 2021-2023, U.S. agricultural exports to China decreased by 30.9%. Other noted declines include exports to Southeast Asia/ASEAN (‑14.2%), Japan (‑26.6%), South Korea (‑34.6%), Taiwan (‑17.9%), and Guatemala (‑22.2%).

    As far as product, U.S. corn exports to China fell 70% in 2023 when compared to 2021, down from record export levels. Exports of other coarse grains were down 34% and wheat was down 57% during this period. U.S. ethanol exports to China were down nearly 100% in 2023 when compared to 2021 (USDA, 2024). Although exports were also down in other countries (e.g., U.S. corn exports down by 72% in South Korea), declining exports to China explain the major share of the overall decline in U.S. agricultural exports in recent years.

    Figure 1. U.S. Agricultural Export Volume and Unit-Value: 2010-2023

    Source: U.S. Department of Agriculture (USDA, 2024).

    Table 1. Percentage Change in U.S. Agricultural Export Volumes by Major Destination Market

    % Change
     2021-2023
    World Total-17.5%
    China-30.9%
    Mexico1.0%
    ASEAN-14.2%
    Japan-26.6%
    Canada-6.3%
    EU-2725.0%
    Colombia0.1%
    South Korea-34.6%
    Taiwan-17.9%
    Guatemala-22.2%
    Source: U.S. Department of Agriculture (USDA, 2024).

    For more information

    Kaufman, James, Hui Jiang, Bart Kenner, Angelica Williams, and Adam Gerval. (2024). Outlook for U.S. Agricultural Trade: May 2024. Report AES-128. U.S. Department of Agriculture. https://www.ers.usda.gov/publications/pub-details/?pubid=109252

    U.S. Department of Agriculture (USDA). 2024. Global Agricultural Trade System (GATS). Foreign Agricultural Service. https://apps.fas.usda.gov/gats/default.aspx

    Muhammad, Andrew, and Md Deluair Hossen. “Understanding the Growing U.S. Agricultural Trade Deficit: The Fall in Exports.” Southern Ag Today 4(26.4). June 27, 2024. Permalink

  • Liquidity and Working Capital a Priority

    Liquidity and Working Capital a Priority

    Agricultural lenders listed liquidity and working capital as their top concern for producers this crop year, according to a survey conducted by the American Bankers Association and Farmer Mac last August. This is likely an indicator that lenders are seeing the outlook for lower commodity prices while at the same time retaining elevated input costs, including interest rates on operating notes. Because of the nature of agriculture, where there are months when cash outflows exceed inflows during the growing season, liquidity and working capital should be a priority every year, regardless of market outlook.

    Liquidity is a producer’s ability to meet their cash financial obligations as they become due. Working capital is a measure of liquidity that measures how much current assets exceed current liabilities. 

    Current assets and current liabilities are found on the balance sheet. Current assets include cash and other assets that can be converted to cash relatively quickly, while current liabilities include any debts that are due within a year or less. Some examples of current assets include cash, inventories of crops, market livestock, livestock products and supplies, accounts receivables, prepaid expenses, marketable stocks and bonds, and the cash value of life insurance. All of these can be quickly converted to cash to pay any debts that come due. Current liabilities are debts or obligations that must be paid within a year’s time or less, including accounts payable to merchants and suppliers, current notes payable and the current payments required on long-term notes payable to lending institutions.

    Liquidity, by definition, is related to cash flow. In agriculture, a pro forma cash flow statement is a great tool to estimate cash flows and working capital balances for the upcoming crop year, providing an idea of the approximate timing and size of inflows and outflows. Of course, it is difficult to truly predict the future. As a result, producers need to have an appropriate amount of working capital on hand to provide flexibility in meeting uncertain cash flows. 

    An example of this occurred during the planting season this year. The weather was unusually wet in some areas this past month, leading to saturated soils that caused seedling damage. Some producers had to make the decision to replant some of their fields. Those who had the working capital available were able to afford this unexpected cash outflow. Liquid reserves, by means of working capital, are necessary for the sustainable operation of the farm business every year.

    Sources/Resources:

    Fall 2023 Agricultural Lender Survey Results. (Nov 6, 2023). The American Bankers Association and Farmer Mac survey conducted August 2023. https://www.aba.com/-/media/documents/reference-and-guides/2023-ag-lending-survey-report.pdf Obtained online Jun 10, 2024.

    Smith, Amanda R. “Liquidity and Working Capital a Priority.” Southern Ag Today 4(26.3). June 26, 2024. Permalink