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Demand for Raising Reference Prices Not Hidden Very Well

Recently we were emailed a publication regarding the lack of progress on the farm bill that really gave us pause.  As is normally the case, we agree with much of the article; however, one specific sentence (below) in the conclusions cannot go unaddressed.

“Farm Bill reauthorization has failed to launch; it is the hidden demand for increasing reference prices, not matched by any actual proposals and shielded from public scrutiny, that blocks any potential for progress.”

There are two problems with this sentence.  First, the demand for higher reference prices isn’t really “hidden.”  Last year the House and Senate Agriculture Committees held multiple hearings and listening sessions regarding what producers want in the next farm bill.  The hearings that focused on Title I of the farm bill were on April 26^th in the House of Representatives and May 2^nd in the Senate.

In the House hearing, of the nine witnesses representing covered commodities that receive safety net protection from ARC (Agriculture Risk Coverage) and PLC (Price Loss Coverage) for their crops, only three didn’t explicitly ask for higher statutory reference prices in the next farm bill (USA Dry Pea and Lentil Council, U.S. Canola Association and National Corn Growers Association (NCGA)).  However, the NCGA witness asked to “strengthen the Price Loss Coverage (PLC) effective reference price ‘escalator’” which would cost money and result in higher reference prices for corn.  Thus 7 out of 9 wanted higher reference prices.

In the Senate hearing, there were seven witnesses representing covered commodities that receive safety net protection from ARC and PLC.  Six of the seven explicitly asked for higher reference prices with the NCGA witness again asking to strengthen the PLC effective reference price escalator. In other words, seven out of seven witnesses from national groups asked to increase the reference price for their commodity.

The second problem with the statement is this notion that the demand for higher reference prices is “not matched by any proposals and shielded from public scrutiny.”  At this point, the agricultural committees are at the mercy of House and Senate leadership who have provided little to no additional funds for developing the next farm bill.  Committee leadership and staff have been left to “find” savings from other areas of the farm bill to fund higher reference prices.  Thus far, it appears none of the sources of funds found to fund reference price increases have been acceptable to their counterparts across the aisle.  If anything is responsible for the failure of farm bill reauthorization to launch, it is that impasse. As for higher reference prices, the demand is abundantly apparent. Once the impasse is broken, only then will the stage be set for fulsome discussions on the extent to which the reference prices can be raised.

Outlaw, Joe, Bart L. Fischer, and Katelyn Klawinsky. “Demand for Raising Reference Prices Not Hidden Very Well.” Southern Ag Today 4(9.4). February 29, 2024. Permalink

February 29, 2024

Using the Share Rent Equivalent Model to Determine Farmland Value

Every year, the Farm Service Agency (FSA) national office reviews the Soil Rental Rates used for the Conservation Reserve Program (CRP). The FSA has recently announced that county-average rental rates will be updated based on the 2023 National Agricultural Statistics Service (NASS) Cash Rent Survey results for dryland rent estimates. When considering the prevalent farm lease arrangements and production practices, NASS survey results may not provide accurate estimates. This results in a county-average rental rate that does not reflect typical rent paid in a county. For example, Figure 1 highlights the percentage change in proposed CRP rental rates in Arkansas between 2023 and 2024, where negative values represent counties facing lower CRP rental rates than in 2023.

Figure 1. Percentage Change in Stated CRP Rental Rates This figure provides the year-over-year percentage change in stated CRP rental rates in Arkansas between 2024 and 2023. (Source: USDA-FSA, 2023)

Several acceptable models can be used to address rental discrepancies or determine an alternative rate. One such method approved by the FSA is the “Share Rent Equivalent Model.” The model intends to infer cash rents in situations (e.g., counties) where share leases predominate available data or where share leasing is the rule rather than the exception. Acceptable supporting data sources for the model include an average of the most recent three years of yield data, including NASS county yields. When NASS yields are unavailable, RMA T-yields can be substituted.

Arkansas counties are an example, though this model applies to any county in the southeast region of the United States. Given the prevalence of 20% and 25% share leases found in the southeast region and the limited amount of non-irrigated crop production, the model incorporates county-specific production practices and lease structures that more accurately reflect the soil value and environmental benefits of the CRP program. Table 1 utilizes the “Share Rent Equivalent Model” to determine an alternative cash rent for 20% and 25% share leases under a wheat/soybean double cropping system for Arkansas County, Arkansas.

Table 1. Share Rent Equivalent Model for Wheat/Soybean Production, Arkansas County

Crop	Winter Wheat	Non-Irrigated Soybeans	Winter Wheat	Non-Irrigated Soybeans
Share Rent (%)	25%	25%	20%	20%
RMA T-Yield (bu/ac) (2020-2022 avg.)	63	41	63	41
RMA 2023 Harvest Price	$6.60	$12.84	$6.60	$12.84
Cash Rent Equivalent ($/acre)	$103.95	$131.61	$83.16	$105.29
Total Cash Rent Equivalent ($/acre)	$235.56		$188.45

Note: Share Rent (%) * RMA T-Yield * RMA 2023 Harvest Price = Cash Rent Equivalent.
Total Cash Rent Equivalent = Cash Rent Equivalent (Winter Wheat) + Cash Rent Equivalent (Soybeans).

The results in Table 1 more closely resemble non-irrigated cash rents in the representative county, particularly in the current commodity market environment for grains. Figure 2 is a map of alternative CRP rental rates derived from the “Share Rent Equivalent Model” for 20% crop-share arrangements in predominate agricultural counties in Arkansas. Furthermore, the model’s accuracy is determined by calculating the percentage change between the 2023 effective CRP rental rate and the alternative 2024 CRP rates from the model. Figure 3 maps this percentage change for each county in Arkansas. According to Figure 3, our estimates are only marginally higher than what was stated in 2023. Therefore, we can conclude that the “Share Rent Equivalent Model” reflects existing CRP rental rates more accurately than the survey-based approach. Work with your local FSA office to determine if the Share Rent Equivalent model more accurately reflects cash rent in your county.

Figure 2. Share Rent Equivalent CRP Rental Rates at 20% Crop Share (2024) This figure provides the per acre share rent equivalent CRP rental rates under a 20% crop share. (Source: USDA-FSA, 2023)

Figure 3. Percentage Difference in the Share Rent Equivalent at 20% and Stated CRP Rental Rate This figure shows the percentage difference in the 2024 share rent equivalent and the 2023 stated CRP rental rate. (Source: USDA-FSA, 2023)

References

USDA-FSA. (2024, January). 2023 ARC-County Benchmark Yields and Revenues as of January 5, 2024. Retrieved January 31, 2024, from https://www.fsa.usda.gov/programs-and-services/arcplc_program/arcplc-program-data/index.

USDA-FSA. (2022, October). 2022 ARC-County Benchmark Yields and Revenues as of October 31, 2023. Retrieved December 20, 2023, from https://www.fsa.usda.gov/programs-and-services/arcplc_program/arcplc-program-data/index.

USDA-FSA. (2023, December). Provisional County-Average Rental Rates to Determine CRP SRR’s for FY 2024. Retrieved January 30, 2024, from https://www.fsa.usda.gov/Internet/FSA_Notice/crp_1012.pdf.

USDA-NASS. (2022, August). Arkansas Cash Rents County Estimates. Retrieved December 20, 2023, from https://www.nass.usda.gov/Statistics_by_State/Arkansas/Publications/County_Estimates/2021-2022/22_AR_cash.pdf.

USDA-RMA. (2023). USDA-RMA Actuarial Data Master.

Loy, Ryan, and Hunter Biram. “Using the Share Rent Equivalent Model to Determine Farmland Value.” Southern Ag Today 4(9.3). February 28, 2024. Permalink

February 28, 2024

Heifers on Feed and Feedlot Demographics

Last Friday, the USDA released its monthly cattle on feed (COF) report. While some COF categories/numbers are reported consistently each month, the USDA also sprinkles in unique quarterly and annual numbers in these monthly reports. Last week’s report included two items that were unique, “Cattle on Feed by Class on 1,000+ Capacity Feedlots and Quarter – States and United States: 2023”, and “Feedlots, Inventory, and Marketings by Size of Feedlot – United States: 2022 and 2023”.

The Cattle on Feed by Class on 1,000+ Capacity Feedlots and Quarter data offers insights that are more in-depth than January 1 estimates. It shows the quarterly estimations of heifers and heifer calves, by major fed cattle state, by quarter. On October 1, 2023, there was a total of 4.64 million females on feed. Two weeks ago, Southern Ag Today highlighted the reduced number of heifers being retained as replacements (Griffith, 2024). Figure 1 contains the number of heifers on feed for each quarter of 2023, by state. In Oklahoma, the reports indicate that females on feed were decreasing until the last quarter (October 1). In Texas, quarter 2 (April 1), peaked in terms of number of females in all fed states but also with most females on feed in 2023, then maintained throughout the last two quarters of the year. The number of heifers on feed are historically large.  While the January 1, 2024, number of heifers on feed are not reported by state, more heifers were reported on feed on January 1, 2024 (4.735 million head) compared to January 1, 2023 (4.66 million head).

Figure 1. Heifer and Heifer Calves on Feed by Class on 1,000+ Capacity Feedlots and Quarter (Source: USDA)

Figure 2 contains the number of feedlots by head capacity (over 1,000 head) in 2022 and 2023.  The cattle on feed report only includes feedlots with 1,000 or more head on feed.  The February cattle on feed report and the annual cattle inventory report provide some insight into the number of head on feed in smaller feedyards.  Feedlots with fewer that 1,000 head decreased in number from 24,000 in 2022 to 23,000 in 2023.  While those smaller yards had a few more head on feed than the year before, their total marketings in 2023 declined 4.5 percent in 2023 compared to 2022.

Figure 2. Feedlots by Size of Feedlot – United States: 2022 and 2023 (Source: USDA)

The total number of feedlots decreased from 26,093 in 2022, to 25,103 in 2023.  Tighter feeder cattle supplies might be expected to reduce the number of feedyards.  The feedlots with capacities of 1,000-1,999, 8,000-15,999, 16,000-23,999, and 32,000-49,999 increased in total numbers compared to the previous year. Whereas feedlots with capacities of 2,000-3,999, 24,000-31,999, and 50,000 and over decreased in total numbers compared to the prior year.

Tighter feeder cattle supplies, made even tighter by herd expansion, over the next few years will likely stress feedlots numbers. Although the long-term trend of feeding a larger percentage of total cattle for longer periods of time will help.

Martinez, Charley. “Heifers on Feed and Feedlot Demographics.” Southern Ag Today 4(9.2). February 27, 2024. Permalink

February 27, 2024
USDA Outlook Forum and Planted Acres

On February 15-16, 2024, the USDA held its 100^th Annual Agricultural Outlook Forum. During the forum, USDA revealed its outlook for the domestic agricultural economy and trade for 2024. The outlook included 2024/25 crop year supply and demand projections for grains, oilseed, and cotton. USDA is forecasting lower prices for most major crops this year and growing export competition. Complete outlook reports by commodity can be found at AOF Commodity Outlooks | USDA. An important projection provided at the Outlook Forum is planted acres for major row crops as it serves as an early data point for markets to consider. This article examines planted acreage projections and what they might mean as we look ahead to the March USDA-NASS Prospective Plantings report, which is a comprehensive survey of producer planting intentions and provides a more accurate pre-planting picture of the upcoming year.

During the USDA Outlook Forum, 2024/25 corn planted acreage was projected at 91.0 million, and soybean planted acreage at 87.5 million. If realized, this would mean 3.6 million fewer acres of corn and 3.9 million more acres of soybeans than last year. Corn acreage is expected to be reduced due to declining prices and elevated production costs. While production costs are lower than the previous year, lower corn prices will result in tighter margins. Domestic crush demand in the United States largely drives the increase in soybean acreage, even though exports are expected to face continued pressure from South American competition. Planted cotton acreage is projected to be 11.0 million acres, compared to 10.3 million acres last year. The relative prices of cotton versus corn and soybeans indicate that cotton is more competitive this year than last.

The Outlook Forum projections rely on model estimates and do not include a survey of producers. The USDA’s first survey of producer planting intentions will be conducted in early March and released on March 28^th in the Prospective Plantings report. Figures 1-3 compare the Outlook Forum predictions and the historic Prospective Plantings reports for corn, soybeans, and cotton. Based on an average of the past ten years, the USDA Outlook Forum has done a decent job predicting acreage compared to the Prospective Plantings report. On average, corn planted acres were under-predicted by 290,000 acres, soybeans by 200,000, and cotton by 115,000. In some individual years, corn and soybeans have experienced significant differences. For example, in 2022, the Outlook Forum over-predicted corn acres by 2.5 million acres and under-predicted soybeans by 3 million. Interestingly, the 2024/25 projections match the Outlook Forum projections for corn and soybeans in 2023. Even though the Outlook Forum projection was the same as the Prospective Plantings report for soybeans in 2023, the final panted acres still ended up being 3.9 million less. These projections are preliminary, and market and environmental conditions going forward can change producer planting intentions. Producers should closely monitor these conditions when making marketing decisions over the next month.

Maples, William E., and Spencer J. Sanderson. “USDA Outlook Forum and Planted Acres.” Southern Ag Today 4(9.1). February 26, 2024. Permalink

February 26, 2024
Confronting Legal Deserts in Rural America

Unlike urban areas with a plethora of law offices and legal aid organizations, rural communities often lack the necessary infrastructure to provide essential legal support. This gap can leave individuals without the means to address crucial legal issues, ranging from family matters to property disputes. A “rural legal desert” refers to areas where residents face significant challenges in accessing legal services and representation.

We recently collected firm-level data from 2014-2021 from more than 350,000 law offices (Figure 1), together with socio-demographic data for 3,108 counties in the continental U.S., to statistically quantify the scope of the rural legal desert problem and shed light on potential solutions. Additionally, we examined the implications of limited rural legal representation on various societal factors, including rural poverty, economic development, and social equity.

Figure 1: Legal Employees Per 1,000 Individuals (2021)

Notes: Figure shows the number of legal employees per 1,000 residents for each U.S. county as of calendar year 2021. Data underlying this figure are obtained from Data Axle (2022).

Assessing the Problem: We found that—when evaluated on the basis of legal employees per capita—urban communities have approximately 150% greater access to legal services than those in rural areas (Figure 2). According to our data, Arkansas, Mississippi, and New Mexico are among the states where the problem is most severe. Worsening the situation, this trend is escalating over time: legal practices are becoming more concentrated in densely populated cities rather than being dispersed across both urban and rural areas.

Figure 2: Access to Legal Services Across the Rural-Urban Continuum (2021)

Notes: Figure shows the average (mean) number of legal employees per 1,000 residents for counties at each point along the USDA Rural-Urban Continuum Code. As shown in the Figure, the most urban U.S. counties have approximately 4.89 legal employees per 1,000 residents, whereas counties in the four most-rural categories have (respectively) 1.82, 2.36, 1.48, and 2.14 legal employees per 1,000 residents. Legal employee data for this figure are obtained from Data Axle (2022), and county Rural-Urban Continuum Codes are obtained from the USDA Atlas for Rural and Small-Town America.

Even among rural communities, our analysis highlights a stark inequality with respect to legal access. We found that poorer rural communities have significantly less access to legal services than comparable rural areas with higher per capita incomes. Further, communities with larger shares of minority ethnic groups also experience statistically inferior coverage of legal services compared to areas with predominantly white, non-Hispanic populations. This social-inequality barrier to rural legal access is most substantial for Native and Black Americans, but also exists for Latinos.

Bridging the Justice Gap: Our findings highlight the need for targeted policy interventions and innovative solutions to address the rural lawyer shortage. One policy intervention that appears to have been successful is Project Rural Practice (PRP) established by the South Dakota Legislature in 2013. The PRP program provides incentive payments to attorneys who commit to serving five continuous years of practice in an eligible rural county. This program improved legal representation in rural South Dakota, both relative to rural areas of Iowa and relative to urban areas of South Dakota evaluated over the same time period.

Final Thoughts: Recognizing the unique legal challenges faced by rural areas is a necessary step in the move towards a more equitable and inclusive justice system that ensures equal access to justice for all individuals, regardless of their geographic location.

Schaefer, K. Aleks, and Andrew Van Leuven. “Confronting Legal Deserts in Rural America.” Southern Ag Today 4(8.5). February 23, 2024. Permalink

February 23, 2024