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  • Lamb And Mutton Production Shrinks This Year 

    Lamb And Mutton Production Shrinks This Year 

    Lamb and mutton production has followed the usual historical pattern this year, hitting a peak in Spring and increasing from Summer lows this Fall. Production peaked at the end of the first quarter, outpacing 2022 numbers. Then, production declined, reaching a low in July. In recent weeks production has exceeded that of 2022.  You’ll notice the sharp production decline in the chart indicating the Thanksgiving shortened work week.

    From January to November 2023, federally inspected (FI) lamb and mutton production totaled 102.1 million pounds. This represents a 2.7 percent drop compared to the same period of 2022. Despite that production decline, the number of sheep and lambs slaughtered jumped 3.4 percent, from 1.38 to 1.63 million head. Weight is the crux of the matter. Average FI live weight declined by 6.3 percent. Over the abovementioned period, the average sheep and lamb live weight dropped from 132.7 to 124.3 pounds. Likewise, dressed weight has decreased, on average, by 6%. Lighter weights reflect more, lighter hair sheep, lambs going to non-traditional markets at lighter slaughter weights, and likely fewer fed in feedlots this year.

    Total supplies include imports and cold storage stocks. The cold storage reached 26.1 million pounds in October, 9 percent less than the same month in 2022. Lamb and mutton imports plummeted 17.4 percent so far this year. From January to September 2023, the U.S. imported 174 million pounds. The country brought in 211 million pounds during the same period last year.

    Live lamb prices collapsed midway through 2022 and have spent most of this year trying to recover.  By mid-year 2023 lamb prices had recovered to exceed those of 2022. After that, national negotiated live prices have hovered at around $200 per cwt.  Even though prices have begun to decline in recent weeks, tighter overall supplies from domestic production, reduced imports, and less in cold storage have boosted prices above year ago levels.

    There appears to be renewed interest in lamb production in the South, based on questions some of us livestock economists here at SAT receive.  Price recovery should continue that interest over time and provide a boost to those who have started production.

    Clemets Daglia Calil, Yuri. “Lamb And Mutton Production Shrinks This Year.” Southern Ag Today 3(48.2). November 28, 2023. Permalink

  • Bridging the Price Risk Gap

    Bridging the Price Risk Gap

    At the end of the calendar year, many producers prepay for inputs to reduce taxes and potentially avoid higher prices in the spring. To prevent the risk of profit margin reductions (from a decline in commodity prices), producers may want to consider obtaining downside price protection for a portion of their anticipated 2024 production at the same time as inputs are purchased. One strategy is purchasing put options on the yield required to pay for the input purchased, and carrying the put option position until the projected crop insurance price is determined.

    Table 1 shows a simple budget for Tennessee corn production (target yield of 180 bu/acre), and the number of bushels of production required to cover the specified expense at different corn prices. This is computed as the cost of the production input per acre divided by the harvest price.  For example, a fertilizer expense of $181.80/acre would require 40.4 bu/acre to cover the fertilizer expense at a corn price of $4.50/bu, 38.3 bu/acre at a corn price of $4.75/bu, or 36.4 bu/acre at a corn price of $5.00/bu. A producer can mitigate financial risk by using put options to cover the amount of production needed to cover that input cost, thus bridging the price risk gap until crop insurance prices and revenue protection are determined. 

    A producer with 260 acres of corn, seeking to set a futures price floor at $4.75/bu and provide sufficient price protection on the bushels needed to pay the fertilizer expense, could purchase two put options (5,000 bushels each covering 260 acres x 38.3 bu/acre = 9,958 bushels). On November 21st a $5.20 December 2024 corn put option could be purchased for 45 cents, setting a $4.75 futures floor. The put option could be carried until March 1, at which time projected crop insurance prices are established and revenue protection for the upcoming crop are determined. At that time, the option purchaser can evaluate the price protection their crop insurance provides and decide to maintain the put option position or exit. If the December corn futures contract is below $4.75, the purchaser can maintain the put option position for additional price protection or exercise the option for a financial gain. If the December corn contract is above $4.75, the purchaser can maintain the position or exit the put option position and recoup a portion of the premium based on the time value remaining.  

    Producers should examine times during the year when they are exposed to price and financial risk and seek strategies to mitigate those risks. Using put options can be an effective tool to remove some price risk when prepaying for fertilizer, and other inputs, until crop insurance prices and revenue protection are determined. 

    Table 1. Tennessee Corn Budget for 2024 and Number of Bushels to Cover a Specified Expense at Three Corn Prices

    References:

    Barchart.com. December 2024 Corn Options Prices. Accessed at:  https://www.barchart.com/futures/quotes/ZCZ24/options   University of Tennessee Field Crop Budgets – https://arec.tennessee.edu/extension/budgets/

  • Leading Change in Your Cooperative

    Leading Change in Your Cooperative

    Organizations, particularly agricultural cooperatives, are facing changes from all directions. As legacy cooperatives retire managers and directors, and potential succession prospects take the reins, changing times are knocking on the door requiring greater leadership skill. Now more than ever, powerful macroeconomic forces are pushing businesses to reduce costs, improve quality of products and services, find new opportunities for growth, and increase productivity to avert catastrophic change. Change is inevitable and how leaders address this change will define what the outcome will be. Will they succeed in adapting or fail by ignoring it?

    To overcome organizational change, it is incumbent upon leaders to develop a plan thoughtfully and carefully with realistic expectations. Failure to do so may lead to frustrated employees, wasted resources and disappointing results. Whenever people are forced to adjust to a new paradigm, the organization runs the risk of chaos. Therefore, leaders should roll out improvement plans in a committed and orderly fashion that avoids several errors. 

    According to John Kotter, leadership expert and Harvard Business School Professor, there are eight errors organizations commonly make in trying to transform their businesses effectively to meet imminent change. What many leaders overlook is the fact that change can be good. Change can transform us, and force organizations to reassess their purpose by reengineering, strategizing, and reorganizing. Although it is common for cooperative members and employees to experience a certain amount of pain with organizational change, good leadership can temper feelings of uncertainty and rescue the organization from a downward spiral into uplifting renewal.

     Identifying eight common errors help leaders understand where leading and managing change can go awry. Each mistake obstructs a path forward and slows the process of positive change. Common errors in leading change are:

    1. Allowing too much complacency – lacks urgency and fails to achieve objectives.
    2. Failure to create a strong guiding coalition – top to bottom “Buy-in” is required.
    3. Underestimating the power of vision – vital role in helping direct, align and inspire actions.
    4. Under communicating the vision – It must be credible communication and a lot of it!
    5. Permitting obstacles to block the vision – proclaiming failure is not an option.
    6. Failing to create short-term wins – real transformation takes time. Be patient, celebrate baby steps.
    7. Declaring victory too soon – Changes need to sink into the organization’s culture. New and innovative approaches are fragile, so reinforce them frequently. Communicate the milestones but keep eyes on the end goal.
    8. Neglecting to anchor the change into the organization’s culture – Until new behaviors are rooted in the organization’s shared values, they are always subject to falling back to old ways. Anchoring means building the change into the next generation of management and leadership.

    None of these leadership mistakes would be that costly in a slower moving and less competitive and complicated world. Handling changes quickly is not imperative in a relatively stable economy or controlled environment. But the problem for most organizations today is that stability is no longer the norm. And most experts agree that over the next few decades the business environment will be more volatile than most of us want to believe or deal with. Change is inevitable, but errors in leading change are not. With awareness and skill, leaders can guide their organizations by instituting mitigation efforts designed to embrace the change and meet it head on. Agricultural cooperatives have met the needs of many over the years by offering consistent and reliable services. But if they are to survive change, leadership must drive the process forward in a socially and economically healthy way. Leading change means that “change” will not deter progress. And when it raises its ugly head, change will not dismantle a business model that does so good for so many. 

    References:

    Kotter, J.P. (2012). Leading Change. Harvard Business Review Press. Boston: MA

    Friend, Diane. “Leading Change in Your Cooperative.” Southern Ag Today 3(47.5). November 24, 2023. Permalink

  • Historic Research Yields Modern Solutions

    Historic Research Yields Modern Solutions

    The Land Grant University System has a historic tradition of the combined missions of teaching, research, and extension.  In fact, Southern Ag Today was born out of a collaboration of Extension Economists across the Southern region.  The Old Rotation at Auburn, is a great example of Land Grant history and continued relevance.  As cited from the National Register of Historic Places, January 14, 1988:

     The Old Rotation. 

    Established in 1896 by Professor J.F. Duggar, the Old Rotation at Auburn University is: 

    • The oldest, continuous cotton experiment in the U.S.
    • The 3rd oldest continuous field crop experiment in the U.S.
    • The 1st experiment to demonstrate the benefits of rotating cotton with other crops to improve yields and utilize nitrogen-restoring legumes in a cotton-production system. It continues to document the long-term effect of these rotations in the same soil.

    The Old Rotation has had 128 years of cotton planted in the same soil and provides valuable insight into cover crops and crop rotation, and one of the original objectives of utilizing legume cover crops is significant today.

    Table 1 shows yields from 1896 through 2023 from plot # 6 and plot # 8  (there are a total of 13 plots with different treatments). Plot # 6 has been planted to continuous cotton with no additional Nitrogen (N) fertilizer and no cover crop.  Plot # 8 was also planted in continuous cotton with no added N, but included a winter legume cover crop consisting of crimson clover and hairy vetch.  The plots have otherwise been treated the same over the research period.  It is also important to note that these are non-irrigated plots; there are years with very low or no yields; and the yields have increased significantly due to improved management practices and genetics. 

    The yield difference over the last 100 years is clear and substantial.  However, the yields between 1896 and 1921 were virtually the same, so it took some time for the net benefit of the practice to accumulate.  Much has changed about cotton production in 128 years, but the history of The Old Rotation suggests the reasonable conclusion that good soil and fertility management (or the lack of) is a long term game.    

    With more emphasis on improving soil health and reducing fertilizer costs in the Southern region, looking at long term research helps to provide solutions.

    More information about the Old Rotation can be found at: https://agriculture.auburn.edu/research/cses/the-old-rotation/

    Runge, Max. “Historic Research Yields Modern Solutions.” Southern Ag Today 3(47.3). November 22, 2023. Permalink

  • It’s Turkey Time!

    It’s Turkey Time!

    We might not think much about turkey prices and production much of the year, until now.  Thanksgiving is when turkey gets all the center of the plate attention.  Record high turkey prices raised a lot of eyebrows last year.  High Pathogenic Avian Influenza (HPAI) cut supplies leading to higher prices.  The unexpected HPAI impact was on top of reduced production driven by a lack of profitable production.  

    Those record high prices spurred production increases in 2023.  Halfway through November, turkey production is 5.5 billion pounds, up 4 percent from the same period last year.  It’s worth pointing out that while production is higher than last year, third quarter production is the smallest since 2015 (not counting last year) which was the last time we had a major HPAI outbreak.  Production for 2023 will be higher than last year but is still likely to be the second smallest production year since 2000.

    Prices have responded to increased production by falling dramatically.  Frozen tom turkeys weighing 16-24 pounds were $0.88 per pound, 50 percent lower than last year in mid-November.  Smaller frozen hens were 44 percent lower than last year.  Fresh whole birds are normally higher priced than frozen birds.  Fresh hens were $1.47 per pound in mid-November compared to $1.88 last year. 

    USDA reports retail turkey prices featured or on special at more than 29,000 retail, grocery stores around the country.  Turkey item specials normally ramp up right before Thanksgiving and this year is the same with 72.5 percent of stores reporting some feature on a turkey item.  That is compared to 56.3 percent of stores last week.  Featuring is a little slower than last year when 86 percent of stores had some feature.  USDA defines specials as a sale with some kind of “no price” or a buy one, get one free special.  Twelve percent of stores had a special advertised this year compared to only 4 percent last year.  So, while there are slightly fewer features, there are more buy one, get one free specials this year.  Grocery stores often use turkeys to boost sales throughout the store, so, you may pay a lot less for your turkey than quoted wholesale prices.  

    Us livestock economists at SAT have a lot to be thankful for this year.  We hope you have a great Thanksgiving!

    Anderson, David. “It’s Turkey Time!” Southern Ag Today 3(47.2). November 21, 2023. Permalink