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  • Proposed Safety Net Choice Could Add Risk to Farmers

    Proposed Safety Net Choice Could Add Risk to Farmers

    In a January 17th Dear Colleague letter, Senator Debbie Stabenow (D-MI), Chairwoman of the Senate Committee on Agriculture, Nutrition, and Forestry, outlined her proposal for strengthening the farm safety net in the 2024 Farm Bill (found here). The proposal centered around five key principles:

    • programs must be targeted to active farmers;
    • we need to provide farmers choices and flexibility;
    • assistance should be timely;
    • we need to expand the reach of programs to help more farmers; and
    • we need to address the emerging risks farmers face.

    Since the letter was released, considerable attention has been paid to the comments she offered about crop insurance and providing producers expanded safety net choices.  Part of the proposal reads as follows: 

    “The 2018 Farm Bill provided cotton farmers with a choice between the traditional base acre programs and a highly-subsidized and streamlined area-based crop insurance policy. The next Farm Bill should give a similar option to all commodities.”

    There is a considerable amount of detail about the evolution of the cotton program – from removing lint as a covered commodity to adding seed cotton as a covered commodity – that is not contained in the letter.  In this article, I walk through the history to provide more context.  

    First, to resolve the decade-long WTO Brazil cotton dispute (which involved, among other things, the U.S. Government having to pay the Brazilians $147 million per year in cash to fend off retaliation), cotton industry leadership suggested removing cotton as a covered commodity for Title I commodity programs (PLC and ARC) and modifying the marketing assistance loan.  Second, in lieu of ARC/PLC, the 2014 Farm Bill provided cotton producers an industry-proposed area-wide insurance program, the Stacked Income Protection Plan (STAX).  The premium subsidy for STAX was 80%, higher than the 65% subsidy authorized for the Supplemental Coverage Option (SCO) that is available for all crops. Third, upland cotton producers were provided Cotton Transition Assistance Payments (CTAP) for 2014 to aid in the transition to STAX.  

    STAX protection was deemed insufficient to protect cotton producers from collapsing prices, so cotton ginning cost share (CGCS) payments were provided for the 2015 and 2016 crop years. Ultimately, the Bipartisan Budget Act of 2018 restored ARC and PLC protection to cotton producers by adding seed cotton as a covered commodity.  While STAX was still available to seed cotton producers, they could not enroll their seed cotton base in ARC/PLC and still purchase STAX on the farm in the same year – they were required to decide between the two options.  

    Requiring producers to make the choice between ARC/PLC and STAX was a political compromise required at the time to get cotton added back to the farm bill.  While there is certainly merit to expanding STAX to other crops – or simply improving SCO and the Enhanced Coverage Option (ECO) that are already available to all crops – I would argue that now is the time to eliminate the requirement altogether (rather than expanding it to other crops).  While there has long been a prohibition between the purchase of SCO and ARC – because both offer area-wide coverage and they are very similar in design – there is little justification for requiring producers to choose between PLC and area-wide coverage, both of which serve vastly different safety net functions.

    To illustrate the challenges presented by such a choice, consider the following for cotton.  Figure 1 indicates the share of annual upland cotton insurance liability covered by STAX and the share of policies sold.  Producers initially utilized STAX; however, after a few years of unsatisfactory results, the share of liability covered and policies sold declined.  In 2019, when producers actually began a crop year with a choice of ARC/PLC or STAX, the percent of liability covered by STAX, as well as the share of upland cotton policies sold, was relatively low as marketing year average prices (MYAP) were low (Figure 2).  After that, due to Reference Prices not keeping up with input costs (and due to a relatively higher initial insurance price), seed cotton producers moved back to STAX in 2021, 2022 and 2023, with STAX still accounting for just 20% of the policies sold. 

    As for the 2024 growing season – with futures prices currently below the cost of production for most growers – growers must now choose between (1) an ineffective ARC/PLC with Reference Prices that have not kept up with inflation or (2) STAX, which can certainly help, but at most will partially offset significant losses they are almost guaranteed to face (absent well-above-expected prices or yields). In other words, growers are faced with two poor options.

    After nearly 40 years of working on farm policy, it seems clear to me that there is a need for both (1) improving Reference Prices in Title 1 and (2) improving area-wide coverage in crop insurance, particularly since the two were designed to work in tandem.  It certainly isn’t clear that expanding the choice that was forced on cotton producers to everyone else without higher reference prices is much of a choice.

    Figure 1.  STAX Share of Cotton Crop Insurance Liability and Policies Sold.

    Figure 2.  Historic Cotton Prices.

    Outlaw, Joe L. “Proposed Safety Net Choice Could Add Risk to Farmers.” Southern Ag Today 4(5.4). February 1, 2024. Permalink

  • Foreign Investment in U.S. Agricultural Land: Leasing vs. Owning

    Foreign Investment in U.S. Agricultural Land: Leasing vs. Owning

    We have written previously about foreign investment in U.S. ag land (found here). That article stated that there is currently no federal law that prohibits the ownership of private agricultural land by foreign persons or entities. The federal government’s only involvement is monitoring land acquisitions and recording information on those purchases through the passage of the Agricultural Foreign Investment Disclosure Act of 1978 (AFIDA). Under AFIDA, qualifying foreign entities who buy or sell an interest in agricultural land are required to report the transaction within 90 days of acquiring the land or face a monetary penalty.

    Foreign ownership or leasing of U.S. agricultural land increased by 2.4 million acres in 2020 (USDA- FSA 2021). However, that acreage represents a relatively small proportion of the overall base of U.S. farmland and timberland. The total amount of U.S. cropland, pasture, and forest with foreign ownership or leasing interest in 2020 was 37.6 million acres, which represents about 2.9% of all privately held U.S. agricultural land. It is worth noting that AFIDA requires reporting of ownership and partial ownership in U.S.agricultural land by a foreign investor, as well as leaseholds of 10 years or more. In other words, foreign investments in U.S. land covered by AFIDA include both foreign ownership and leasing. Current AFIDA regulations exempt foreign investors from the reporting requirement if their lease of agricultural land is less than 10 years. As of 2020, over half of the transactions by foreign buyers holding U.S. agricultural land are via long-term leases, covering more than 30% of acres held by foreign entities and reported under AFIDA. For the past decade (2011 to 2020), that trend has shifted and long-term leases are even more important, as they account for 60% of the growth in foreign controlled acres and more than 70% of all transactions reported under AFIDA.

    In 2020, 62% of foreign land investments in acres reported under AFIDA, which includes cropland, pasture, and forest, fell into the category of ownership, while 32% fell into the long-term lease category. The remaining 6% of land investments include the land categories of life estates, trust beneficiary, partially owned, and purchase contracts. This growth in leasing relative to ownership over the past 10 years manifests in the cropland category more than in the pasture, forest, or other agricultural land classifications. Figure 1a shows that foreign-owned agricultural land represents the majority of all foreign-held U.S. agricultural land. However, figure 1b, which measures only the cropland category of land, shows the percentage of cropland owned versus leased. The balance of owned versus leased prior to 2013 was majority owned, but after 2013 the majority of foreign interest in U.S. cropland was leased. By 2020, ownership accounted for 26% of foreign land holdings of U.S. cropland, while 71% fell under long-term (greater than 10 years) leases. In other words, most additional foreign acquisitions of U.S. cropland in recent years have been through long-term leases, which more than tripled from 2010 to 2020. Foreign-held forestland, on the other hand, does not follow this pattern—ownership accounts for 89% of foreign holdings, and long-term leases account for 4% of all forestland held by foreign entities, with the residual percentage falling in the other categories mentioned previously. 

    The overall trend in cropland acquisition by foreign entities using long-term leases rather than ownership suggests possible different motivations for cropland relative to pasture or forestland. Buyer or lessor intentions, however, are not included in the data collected by AFIDA.

    Figure 1. Cumulative foreign interest in U.S. agricultural land and cropland, 2000–2020.

    For more information on this topic please see:

    Mykel R. Taylor, Wendong Zhang, and Festus Attah. 2023. “Foreign Interests in U.S. Agricultural Lands: The Missing Conversations about Leasing.” Forthcoming at Choices Magazine. Available at https://www.card.iastate.edu/products/publications/pdf/23pb40.pdf

    Taylor, Mykel, Wending Zhang, and Festus Attah. “Foreign Investment in U.S. Agricultural Land: Leasing vs. Owning.” Southern Ag Today 4(5.3). January 31, 2024. Permalink

  • Higher Cattle and Beef Prices

    Higher Cattle and Beef Prices

    After almost a full month into the new year, cattle prices and wholesale beef values are up across the board.  

    Steer calf prices across the South and Southern Plains have kicked off the year higher.  Steers weighing 5-600 pounds have increased from $246 per cwt in early January to $254 nearing the end of the month.  In the Southern Plains, the same weight calves hit $300 per cwt, up from $284 to begin the year.  In both market areas, prices are 40 percent higher than they were at this time in 2023.  It’s worth remembering that prices in early 2023 had not yet experienced the sharp increase, that came mid-year, so we are comparing against a low base but, prices have advanced from December 2023.  Prices for these weight steers do tend to increase seasonally from the first of the year through March but, these price increases represent a much more than normal seasonal increase.

    Heavier feeder steers across the South have increased at a more modest pace, up about 3-4 percent during January.  Higher prices buck the normal seasonal pattern of 7-800 pound steer prices that typically decline through March.  Heavy feeder prices are typically pressured by increased sales of cattle that have finished grazing wheat pasture.  

    Fed cattle have climbed a few dollars, finishing last week at about $174 per cwt.  Fed cattle prices do tend to increase in the Spring seasonally, but  it’s a little early for a Spring rally.  There are about 2 percent more cattle on feed than last year, and those increased numbers may limit some price increase.  Good consumer demand in the presence of retailers who have purchased less beef for future delivery than last year could set the stage for an even better price rally.

    On the beef side, the Choice beef cutout value hit over $300 per cwt last week, that’s up over $20 per cwt since the year began.  The increase appears to be led by chucks and rounds and ground beef.  

    January shows a promising start for cattle prices this year.  Fewer calves, cattle, and beef production has set the stage for even higher prices later in the year. 

    Preview – on Wednesday afternoon USDA will release its annual Cattle inventory report.  Next week’s SAT will focus on what stood out from the report to our livestock economists in the South.

  • A Way-Too-Early Soybean-to-Corn Price Ratio Analysis: Price Implications and Planting Decisions

    A Way-Too-Early Soybean-to-Corn Price Ratio Analysis: Price Implications and Planting Decisions

    In the March 13, 2023, Southern Ag Today article, Mark Welch discussed the soybean-to-corn price ratio and its implications for 2023 planting decisions. This article uses the same methods to examine the ratio and its impacts on 2024/25 new crop prices in the next few months, prior to USDA’s Ag Outlook Forum, which releases the first crop estimates for the 2024/25 marketing year and could have an impact on nearby futures prices. It additionally gives a way-too-early projection on corn/soybean acreage for next year. 

    At last year’s Ag Outlook Forum on February 23, 2023, USDA projected an extra million acres of corn for 2023. This forecast resulted in a drop in the May Corn Futures price by nearly $0.37 in the four days following the report. As we progressed through the marketing year, corn acreage continued to increase, pushing the corn price lower and lower. The near-record acreage and high yields resulted in record corn production in 2023. As U.S. producers typically follow a corn/soybean rotation, this raises the question of whether the United States is primed for expanded soybean acreage in 2024. If the USDA projects expanded soybean acreage at this year’s Ag Outlook Forum, similar price declines to 2023 corn futures could occur in soybeans in 2024. 

    Another indicator for soybean acreage is the soybean-to-corn price ratio, which is the November soybean futures price divided by the December corn futures price. Typically, a ratio higher than 2.5 results in soybean acreage closer to the number of corn acres. On the contrary, a ratio lower than 2.5 indicates that there will be a larger amount of corn acreage in the United States. Figure 1 shows the corn/soybean ratio on January 15 plotted against the difference in corn and soybean acres, described here as excess corn acreage. The past ten years of ratios on January 15 explain nearly 35% of the variation in excess corn acreage (corn acreage typically exceeds soybean acreage with the exception of 2018). Current ratios indicate that we will have more soybean acreage than last year; however, the simple estimation in this study does not account for other factors that affect corn and soybean prices, such as fertilizer prices and previously planted acreage. Considering both of these factors, the number of soybean acres is still likely to expand due to planted acreage, but how much expansion occurs remains a question.

    This simple analysis indicates we could have 6.6 million more corn acres than soybeans in the United States compared to 11 million acres last year. Depending on how things play out, the Ag Outlook Forum reports released February 15-16 could greatly impact soybean prices, which should be kept in mind when marketing old crops in the near future. Soybean prices have been falling lately, and corn prices have yet to rebound. It remains possible that corn will try to buy some acres back in the near future, pushing corn futures slightly higher as soybean prices decline. 

    Sources

    Barchart.com. Historical Corn and Soybean Futures Charts. Accessed January 17, 2024.

    USDA, NASS Quickstats, accessed January 17, 2024.

    Welch, Mark. “The Soybean to Corn Price Ratio as a Guide to Farmers’ Planting Decisions.” Southern Ag Today 3(11.1). March 13, 2023. Permalink

    Gardner, Grant. “A Way-Too-Early Soybean-to-Corn Price Ratio Analysis: Price Implications and Planting.” Southern Ag Today 4(5.1). January 29, 2024. Permalink

  • USDA Finalizes Rule on Organic Livestock and Poultry Standards

    USDA Finalizes Rule on Organic Livestock and Poultry Standards

    On November 2, 2023, USDA published the final rule to amend organic livestock and poultry production standards. According to USDA, the purpose of the final rule is to “clarify aspects of the existing USDA organic regulations that are not interpreted or enforced in a consistent manner” and to “better assure consumers that organic livestock products meet a consistent standard, as intended by the Organic Foods Production Act.”

    The final rule amends livestock care and production practices. In the updated livestock care and production standard section, USDA provided a list of prohibited physical alterations for both avian and mammalian species. The rule affirms that treatment of animal with a synthetic substance not on the approved list or with a non-synthetic substance on the prohibited list would cause the animal to lose its organic status. The rule further affirms that producers may not withhold treatment from an animal even if the animal would lose its organic status.

    The final rule also separates the existing living conditions standard into two distinct sections – living conditions for mammalian species, which includes honeybees, and living conditions for avian species. For the mammalian living condition standard, producers must provide enough space for animals to lie down, stand up, and fully stretch their limbs and allow animals to express normal behavioral patterns over a twenty-four-hour period. Additionally, the final rule outlines when mammalian animals may be housed individually or must be housed in groups. Further, the final rule clarifies that animals may be temporarily confined for breeding, but they may not be confined to observe estrus or to confirm pregnancy. For avian species, the final rule describes the requirements for indoor and outdoor spaces, providing producers with two options for calculating the amount of space needed. Lastly the avian living conditions section prohibits total confinement of birds but also provides a list of circumstances that allow for temporary confinement. 

    Additionally, the final rule creates a standard for transportation and slaughter. Producers are required to ensure organic animals are clearly identified as organic during transport and the identity must be able to be traced for the duration of transport. Producers must also have procedures in place to address emergency problems like livestock escaping. The new section requires modes of transportation to have season-appropriate ventilation and bedding appropriate for the species and mode of transportation. Lastly, the new section reiterates that organic producers must follow all Food Safety Inspection Service laws, regulations, and directives. 

    Most operations must comply with the new requirements by January 2, 2025, which is one year after the effective date of the rule. However, there are limited exceptions for some avian, broiler, and layer operations. Current certified organic producers will be required to comply with these new regulations to remain certified. Producers seeking to become certified organic will also be required to comply with these new regulations. 

    For more resources on the National Organic Program, click here.

    Capaldo, Samantha. “USDA Finalizes Rule on Organic Livestock and Poultry Standards.” Southern Ag Today 4(4.5). January 26, 2024. Permalink