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  • Leveling the Playing Field for U.S. Agricultural Producers

    Leveling the Playing Field for U.S. Agricultural Producers

    Those who know little about production agriculture will often ask us why we have a farm safety net in the United States. While there are several justifications to choose from, one of the most notable is that farm policy is designed to help level the playing field for U.S. agricultural producers in the global marketplace. In this article, we illustrate the case of rice.

    Rice is an important part of the U.S. agricultural economy, particularly in the South where a number of local communities are highly dependent on the rice industry. Despite its importance, U.S. rice production accounted for just 1.2% of global rice production over the past 5 years. Consequently, the price received by U.S. producers is very much a function of market and political dynamics originating in the rest of the world. 

    In April 2015, the U.S. International Trade Commission (USITC) reported on the global competitiveness of the U.S. rice industry, concluding that the global rice market was “characterized by significant government intervention in both imports and exports.” One of the most notable serial offenders is India, deploying a cadre of input subsidies and minimum support prices that support their growers to the detriment of producers around the world.  In 2020, our own analysis concluded that U.S. rice and wheat farmers were facing almost $600 million per year in lost sales due to the trade-distorting domestic support policies that were being utilized by India (that number rose to $850 million per year in a 2022 update). In February 2024, Rep. Jason Smith, the Chairman of the House Committee on Ways and Means asked USITC to again investigate the global competitiveness of U.S. rice producers. While we won’t prejudge the outcome of their investigation, we can’t help but note that India’s rice exports more than doubled from 2015/16 (when the last USITC report was written) to 2021/22.  

    The bottom line is that producers in other markets have significant, government-sponsored benefits that advantage their rice producers over U.S. rice producers. All of this helps to explain why 2022/23 marked the lowest level for U.S. rice exports since 1985/86 (Figure 1). While previous Southern Ag Today articles have explored the temporary reprieve resulting from India’s recent export ban (see here and here), the eventual return to status quo will inevitably result in lower prices for producers around the world, including in the United States. 

    All of this serves as yet another reminder of the importance of the farm safety net in leveling the playing field for America’s agricultural producers. It also magnifies the importance of updating the farm safety net in the next farm bill to ensure that it is reflective of the risks currently being faced by America’s agricultural producers.  

    Figure 1. U.S. Rice Exports from 1985/86 to 2022/23.

    Source: Production, Supply and Distribution (PSD) Data, USDA-FAS

    Fischer, Bart L., and Joe Outlaw. “Leveling the Playing Field for U.S. Agricultural Producers.” Southern Ag Today 4(15.4). April 11, 2024. Permalink

  • 2024 Prospective Plantings for Southern Ag Today States

    2024 Prospective Plantings for Southern Ag Today States

    The United States Department of Agriculture’s (USDA) National Agricultural Statistics Service (NASS) released its annual Prospective Plantings report on March 28, 2024.  This report typically isn’t as exciting as college basketball’s March Madness, but the Prospective Plantings report does supply estimates of acreage that affects the agricultural markets and provides the basis for numerous discussions for the upcoming growing season. 

    What does the 2024 Prospective Plantings report show for the Southern Ag Today States? The following tables show the prospective planting acreage for the Southeastern states, with the 2023 planted acres and the predicted 2024 acres (and 2024 acres as a percentage of the 2023 acres). The states are listed in rank from most to least 2024 acres.

    Table 1 indicates the corn acres that are projected for the Southeastern states. Oklahoma is the only southern state that shows an increase in 2024 corn acres while Arkansas and Mississippi are predicted to plant about 25% fewer acres. While the Southeastern states are expected to plant about 10% of the U.S. corn acres, this is 27.67% of the reduction in U.S.2024 corn acres. While some of the lost corn acres in the Southeast are shifted to soybean and cotton, there are some acres that are not reflected in the 2024 major crop plantings.

    Overall, the U.S. is predicted to plant 90 million acres in 2024. This is five percent lower than 2023 acres and slightly lower than industry expectations, resulting in a sixteen-cent rally for December 2024 corn futures prices.

    Table 1.  2023 Acres and Prospective Plantings for 2024, Corn (1,000 acres) 
     
    2023    		2024 Prospective
    Acres% of 2023
    Texas2,5002,10084
    Kentucky1,6001,55097
    Tennessee94093099
    N. Carolina95089094
    Arkansas85062073
    Mississippi79059075
    Louisiana70056080
    Virginia49547095
    Georgia48541085
    Oklahoma390400103
    Alabama33031094
    S. Carolina36530082
    Florida908089
    U.S.94,64190,03695

    Upland Cotton prospective plantings are included in Table 2. U.S. Cotton acres are expected to be four percent higher than in 2023. Half of the Southeastern states have double-digit percentage increases, and the remaining states are near the previous year’s cotton acres.

    Table 2. 2023 Acres and Prospective Plantings for 2024, Upland Cotton (1,000 acres) 
     
    2023    		2024 Prospective
    Acres% of 2023
    Texas5,5505,50099
    Georgia1,1101,10099
    Arkansas510540106
    Mississippi400500125
    Oklahoma420500119
    Alabama380430113
    N. Carolina380390103
    Tennessee265300113
    S. Carolina210240114
    Louisiana120140117
    Florida8990101
    Virginia818099
    U.S.10,08310,470104

    Peanut acres are shown in Table 3. Overall, peanut acres across the nation are predicted to remain the same as in 2023. South Carolina and Mississippi have the highest percentage increase in acres, while Texas and Virginia have largest percentage peanut decrease in acres. 

    Table 3. 2023 Acres and Prospective Plantings for 2024, Peanut (1,000 acres) 
     
    2023    		2024 Prospective
    Acres% of 2023
    Georgia775820106
    Alabama175180103
    Florida160170106
    Texas22516071
    N. Carolina12412097
    S. Carolina7785110
    Arkansas3535100
    Virginia292483
    Mississippi1820111
    Oklahoma161594
    U.S.1,6451,651100

    Table 4 illustrates that soybean acres for 2024 is up three percent in the U.S.  Oklahoma has the largest increase in predicted acres, with Texas losing the largest percentage of acres in 2024.

    Table 4. 2023 Acres and Prospective Plantings for 2024, Soybean (1,000 acres) 
     20232024 Prospective
    Acres% of 2023
    Arkansas2,9803,100104
    Mississippi2,1802,250103
    Kentucky1,8301,950107
    N. Carolina1,6401,650101
    Tennessee1,6001,650103
    Louisiana1,0301,150112
    Virginia580630109
    Oklahoma460550120
    S. Carolina39535089
    Alabama35032091
    Georgia160160100
    Texas12510080
    U.S.83,60086,510103

    It should be noted that that these are only intended plantings, and the actual acreage will vary from these estimates. Weather, commodity prices, input prices, and availability will have an impact on the acres that get planted.

    Source: https://downloads.usda.library.cornell.edu/usda-esmis/files/x633f100h/31980870j/fj237r16t/pspl0324.pdf

    Runge, Max. “2024 Prospective Plantings for Southern Ag Today States.” Southern Ag Today 4(15.3). April 10, 2024. Permalink

  • Prospective Plantings, Feed Prices and Implications for Feeder Cattle Markets

    Prospective Plantings, Feed Prices and Implications for Feeder Cattle Markets

    Input prices have been a major topic of discussion over the last couple of years. As I write this, we are enjoying some extremely high cattle prices. But those high prices have been at least somewhat offset by increases in production costs. This has been true of feed, fertilizer, fuel, machinery, labor and many other inputs. On the heels of USDA’s Prospective Plantings report, it seemed to be a good time to discuss recent trends in feed prices and the impact they have on feeder cattle values. 

    For some recent perspective, the US average corn price per bushel is tracked in the figure below from January 2020 through February 2024. It’s easy to see the low-price levels during COVID, price levels exceeding $7 per bushel during 2022, and the significant price decreases seen through the 2023 season. Corn tends to be the market leader and trends in corn price are typically representative of other feedstuffs.  Corn prices have changed dramatically over the last year and will likely continue to do so in the coming months.

    The demand for feeder cattle is derived from the demand for fed cattle. Anything that impacts the profitability of finishing cattle impacts the value of feeders. So, feeder cattle values are heavily impacted by the cost of taking those feeder cattle through finishing and feed prices are the most significant cost of doing that. I am also showing projected cost of gain from Kansas State University’s Focus on Feedlots monthly reports in the second chart. Note how closely projected cost of gain follows corn price per bushel. As corn price rises and feedlot cost of gain increases, this gets reflected in lower feeder cattle values – feedlots cannot pay as much for feeders. As corn prices decrease, lower feedlot cost of gain leads to higher feeder cattle values as feedlots place feeders in the lower cost environment. While there are a large number of factors behind the strength of feeder cattle prices over the last year, lower feed prices have been part of story. 

    Finishing costs also impact value of gain on feeder cattle, which is reflected in the market through value differences across cattle at different weights. When finishing costs are high, feedlots tend to bid less aggressively on smaller calves and lean towards placing heavier feeder cattle. This tends to result in higher prices for heavy feeders relative to calves. This is sometimes described as a tightening, or narrowing, of price slides. As this happens, the value of pounds that are added prior to feedlot placement increases, and more incentive is created for cow-calf and growing operations to sell heavier feeder cattle. As feed prices have fallen recently, this incentive has also changed a bit. By no means am I suggesting that incentives to sell larger feeders don’t exist, but I do think the value of gain on feeder cattle has decreased from where it was this time last spring.

    Coming full-circle, planting intentions impact feeder cattle markets because they impact the supply of feedstuffs and that has feed price implications. Late March’s Prospective Plantings report suggested a significant shift was expected with nearly a 5% decrease in corn acreage from 2023. The report also projected a 6.3 million acre decrease in prospective plantings of all principal crops, which would seem to suggest there is potential for more acreage to be planted in 2024. CME© corn futures rose in response to the report on Thursday but were down a bit at the time of this writing. In reality, this is just the beginning and actual planted acreage will respond to this information, and many other factors, this spring. But it definitely suggests the potential exists for tighter corn supplies later in the year. USDA’s Prospective Plantings report can be found at https://downloads.usda.library.cornell.edu/usda-esmis/files/x633f100h/31980870j/fj237r16t/pspl0324.pdf.

    Burdine, Kenny. “Prospective Plantings, Feed Prices and Implications for Feeder Cattle Markets.” Southern Ag Today 4(15.2). April 9, 2024. Permalink

  • Corn and Cotton Prevented Planting Decisions 

    Corn and Cotton Prevented Planting Decisions 

    From 2019 to 2023, 4.6 million corn acres and 1.4 million cotton acres in the 13-state southeast region were prevented from planting (Table 1; USDA-FSA).

    Table 1. Corn and Cotton Prevented Planted Acres for 13 Southern States, 2019-2023

    Source: USDA Farm Service Agency Crop Acreage Data

    Prevented planting is a provision covered by the United States (US) Federal Crop Insurance Program that compensates producers for losses from delayed planting or not being able to plant an eligible crop within that crop’s region-specific planting period. Under the prevented planting provision, revenue protection (RP), revenue protection with harvest price exclusion (RP-HPE), and yield protection (YP) crop insurance pay producers an indemnity if they are impeded from planting an insured crop by a designated final planting date, or within any applicable late planting period.[1] If a producer – who purchased a qualifying policy – is unable to plant by the final planting date, there are four options: 

    1. Plant the insured crop in the late planting period with reduced insurance. For most crops, the production guarantee[2] decreases one percent per day, for each day of delay after the final plant date until the crop is planted or the end of the late planting period. Late planting periods vary by crop and area.

    2. Take the prevented planting payment, based on the applicable prevented planting factor, and leave ground fallow or plant a summer cover crop after the late planting period. Summer cover crops cannot be harvested or grazed before November 1. 

    3. Receive 35% of the prevented planting payment for the original crop and switch to an uninsured second crop.

    4. Forgo the prevented planting payment for the first crop and plant an insured second crop.

    Figure 2. Corn Prevented Planting Decision Tool Results

    Source: University of Tennessee Prevented Planting Decision Aid
    Projected results are dependent on user specified variables and are displayed for educational purposes only. Actual results may vary based on market conditions and individual circumstances. 

    The tool depicted in Figure 2 charts the average net returns across all four prevented planting options, aiding producers in their prevented planting decisions.  Projected net returns are operation specific and will change by commodity market prices, planting costs, average production history (APH), coverage level, and insurance premium costs. Changing each variable to fit an operation allows producers to quantify the impacts of each prevented plant decision.  

    The example in Figure 2 depicts a corn-soybean prevented plant scenario where taking 35% of the full prevented planting payment and planting uninsured soybeans provides the highest projected net returns from June 4th to July 2nd (yellow line in figure 2). After July 2nd, taking the full prevented planting payment provides higher net returns due to the yield losses from later season beans (blue line in Figure 2). It is worth noting that planting an uninsured second crop and taking 35% of the full prevented planting payment is a riskier decision than taking the full prevented planting payment. Regardless of date, planting insured beans or late planted corn are projected lower net return decisions in this scenario. Net returns by day of year are based on Tennessee data and may vary between states. 

    Prevented planting decisions can have large financial impacts on crop producer profitability. In our scenario, late planted corn could even result in a net loss. The prevented plant decision can be quantified by utilizing a prevented planting decision tool to maximize net returns at the farm level. 

    [1]The final planting date is the last day to plant an insured crop and be eligible for full coverage. The late planting period begins the day after the final planting date and ends 25 days after the final planting date. Final and late planting periods vary by crop and region.

    [2] The production guarantee is the guaranteed revenue or yield offered by the crop insurance policy. For an RP policy, the guarantee is calculated by multiplying the insurance price by actual production history (APH) yield, which is a 4-to-10-year trend adjusted average yield used for future crop insurance purchases, by insurance coverage level.

    References

    University of Tennessee Prevented Planting Decision Aid. Available at https://arec.tennessee.edu/prevented-planting-decision-aids/  

    University of Tennessee Field Crop Budgets. 2024. Accessed at: https://arec.tennessee.edu/extension/budgets/

    USDA Farm Service Agency Crop Acreage Data. 2019-2023. Accessed at https://www.fsa.usda.gov/news-room/efoia/electronic-reading-room/frequently-requested-information/crop-acreage-data/index

    USDA Risk Management Agency. Prevented Planting Insurance Provisions Flood. Accessed at: https://www.rma.usda.gov/en/Fact-Sheets/National-Fact-Sheets/Prevented-Planting-Insurance-Provisions-Flood

    USDA Risk Management Agency. Prevented Planting Insurance Provisions Drought. Accessed at: https://www.rma.usda.gov/en/Fact-Sheets/National-Fact-Sheets/Prevented-Planting-Insurance-Provisions-Drought

    USDA Risk Management Agency. Prevented Planting. Accessed at: https://www.rma.usda.gov/en/Topics/Prevented-Planting

    Duncan, Hence, Chris Boyer, and Aaron Smith. “Corn and Cotton Prevented Planting Decisions.” Southern Ag Today 4(15.1). April 8, 2024. Permalink

  • What is the Principal Agent problem, and should I be concerned about it in my local cooperative?

    What is the Principal Agent problem, and should I be concerned about it in my local cooperative?

    Cooperative manager groups, comprising the boards and managers, play a pivotal role in the success of cooperatives. However, what if their management performance deteriorates as a result of the Principal-Agent (PA) problem? The principal-agent problem highlights the inherent dilemma that emerges when an individual or entity (the principal) entrusts tasks or decisions to another party (the agent), who may prioritize their own interests over fulfilling the principal’s objectives, often stemming from information imbalances.

    Should we be concerned about the possible PA problem in our local cooperatives? The short answer is “yes.” In fact, many existing studies have pointed out that cooperatives’ relationships between manager groups (the boards & managers) and members are actually more vulnerable than investor-oriented firms (IOFs). This is because while shareholders of IOFs can continuously monitor their management groups’ performance via external information, such as stock exchanges, cooperatives do not have a market for their equity, which hinders their members from monitoring the actions of their manager groups. 

    Furthermore, the lack of monitoring from coop members may not only lead to a moral hazard where managers incentivize themselves, but might also intensify the adverse relationship between the boards and managers if they already had a hostile relationship. A recent study (Seo et al., in press) suggested some possible instances of internal governance issues and structural characteristics that may lead to such hostile relationships between the boards and managers. For example, the managers of agricultural cooperatives, who are also members of their cooperatives, tend to experience increased conflict despite the high level of loyalty towards their organizations. Because becoming a board member does not necessarily require board candidates to have accredited business management skills, the board of directors’ management knowledge, such as understanding of governance management or sector of supply chains, is often questioned (Park et al, 2019). In this situation, conflict may arise due to the board’s lack of perceived knowledge if board members attempt to over-manage managers’ boundaries. Moreover, if non-member board members, who potentially lack knowledge of their cooperative’s sector in the supply chain, influence cooperatives’ investment decisions, then conflict may arise in a similar way. This is why many existing studies emphasize the importance of cooperative board leadership training.

    Though the PA problem is pervasive across almost every firm, existing studies have suggested some possible factors that alleviate the PA problem in cooperatives. Some potential solutions include enhancing social capital (trust), building favorable conditions that enhance the relationship between principals and agents, providing appropriate incentives for agents, and creating elaborate contract structures (i.e. laws and sophisticated contracts lead to human behaviors). Using one or more of these measures is recommended to create “anti-PA problem” environments in local cooperatives to prevent possible management performance loss and maximize manager groups’ performance.

    References

    Seo et al. 2024. Managers, Boards, and the Principal-Agent Problem in Cooperatives: A Survey 

    of  Cooperative Managers in Texas. Accepted for publication in the Journal of Cooperatives on 30th. January, 2024.

    Park et al. 2019. A Framework for Training and Assessment of the 21st Century Cooperative. 

    Western Economics Forum. Volume 17,Issue Number 2. https://ageconsearch.umn.edu/record/298048/

    Seo, Frank. “What is the Principal Agent problem, and should I be concerned about it in my local cooperative?” Southern Ag Today 4(14.5). April 5, 2024. Permalink