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  • Corn Price Prospects When We Start the Year with a 2-Billion-Bushel Carryover

    Corn Price Prospects When We Start the Year with a 2-Billion-Bushel Carryover

    USDA’s supply and demand balance sheet for U.S. corn has a feature not seen in the corn market since the beginning of the 2019 growing season: carryover from the previous crop exceeding 2 billion bushels. That level of beginning stocks has a significant price moderating effect. In inflation adjusted 2023 dollars, the season average farm price has not been higher than $4.33 per bushel in the three years since 2006 during which beginning stocks exceeded 2 billion bushels. 

    Figure 1. Corn beginning stocks and that season’s average real cash farm price ($2023)

    Source: USDA, WASDE

    With a 2024 average yield of 180 bushels per acre (trend line estimate), planted acres could decline from about 95 million in 2023 to just over 87 million in 2024, and the total supply of corn from one season to the next would be little changed. 

    Table 1. 2023 U.S. corn supply forecast and 2024 alternative projection

    SeasonUSDA November 2023 Forecast 2024 Alternative ProjectionChange
    Planted, mil ac94.987.9-7.0
    Harvested, mil ac87.180.3-6.8
    % Harvested91.891.3-0.5%
    Yield, bu/ac174.91805.1
        
     Million bushels
    Beginning Stocks1,3612,156795
    Production15,23414,445-789
    Imports25250
    Total Supply16,62116,6265

    Of course, supply is only one side of the balance sheet. Lower corn prices could stimulate increased corn use.  But planted acreage above 87 million would also significantly augment the corn supply.  In the recently released long-term projections, USDA projects planted corn acreage in 2024 at 91.0 million, a yield of 181.0 bushels per acre, and ending stocks (beginning stocks for the 2025 growing season) of 2.616 billion bushels, the most since 1988 (USDA, 2023).

    We are just closing the bin door on the final bushels of the 2023 corn crop, but it is not too early to evaluate pricing opportunities for the 2024 corn crop given projections (what might happen) and forecasts (what we expect to happen) around acres, yield, and use. 

    References

    USDA, Office of the Chief Economist, World Agricultural Supply and Demand Estimates, November 9, 2023. USDA. Long-term Agricultural Baseline Projections, November 7, 2023, available online at https://www.usda.gov/oce/commodity-markets/baseline

    Welch, J. Mark. “Corn Price Prospects When We Start the Year with a 2-Billion-Bushel Carryover.” Southern Ag Today 3(47.1). November 20, 2023. Permalink

  • What Is Driving Native Plant Sales?

    What Is Driving Native Plant Sales?

    In the U.S., native plants are defined as being present prior to European settlement and “have evolved and occur naturally in a particular region, ecosystem, and habitat” (U.S. Forest Service, 2023). As a result, native plants are often associated with numerous ecological and production benefits, including reduced inputs (fertilizer, irrigation, pesticides), improved biodiversity, increased pollinator foraging and habitat sources, and so forth. When considering the ornamental plant market, native plant sales and demand have increased. Consumers are actively seeking them in the garden center and will drive further distances to shop at native plant retailers. What makes these products so interesting to customers? In 2022, we addressed this question using an online survey of 2,066 U.S. consumers. 

    Most of the sample (58%) had purchased native plants in the previous year, 25% had not purchased native plants, and 17% did not know if they had purchased native plants. Of those participants who did not purchase native plants, their uncertainty was primarily driven by seeking other plant attributes (e.g., aesthetics, care requirements, availability), followed by lack of familiarity and knowledge. Regarding the motivations behind purchasing native plants, many of the motivations focused on ecological benefits or aesthetic preferences (Table 1). The largest portion of the sample indicated that benefiting pollinators was the primary reason they purchased native plants. For several years, consumers have identified pollinator friendly promotions as one of the top important benefits of plants (behind aesthetics and quality) that influences their purchasing behavior. Complementing the previous plantings/gardens was second, followed by natural habitat restoration, aesthetics, and wildlife benefits. Motivations that were selected less frequently were related to marketing (recommendations, availability, media exposure, social media) and solving problem areas in the landscape (water gardens, difficult planting sites).

    Table 1. U.S. Consumer Motivations to Purchase Native Plants in 2022 (n=2066)

    Consumers are also actively seeking native plants using different retail outlets than those traditionally used by gardeners. Historically, home improvement centers have dominated the ornamental plant retail market, followed by mass merchandisers, garden centers, and hardware stores (Whitinger and Cohen, 2021). These are still the primary players when considering ornamental plants in general. However, when purchasing native plants, participants indicated they frequent stores that specialize in ornamental plant sales. Specifically, they seek native plants at single-location retail garden centers the most, followed by directly from nurseries or greenhouses, home improvement centers, multiple-location garden centers, and then mass merchandisers. This may indicate that they view native plants as niche products and need to visit specialty stores to find natives and have a wider selection of products. Industry trends have identified an uptick in sales from these outlets relative to years past (Whitinger and Cohen, 2021). 

    Moving forward, as consumers are spending their money on items (including plants) that they perceive as more sustainable, focusing on production methods and products that meet those needs will be increasingly important. There is also an opportunity to improve traffic to retail garden centers through promoting the availability of these products to the end consumer.

    References:

    Whitinger, D. and P. Cohen. 2021. National Gardening Survey 2021 Edition: A Comprehensive Study of Consumer Gardening Practices, Trends, and Product Sales. National Gardening Association. 

    U.S. Forest Service. 2023. What Are Native Plant Materials? Available online at https://www.fs.usda.gov/wildflowers/Native_Plant_Materials/whatare.shtml, accessed 20 August, 2023.

    Acknowledgements: Funding for the project was provided by the Horticulture Research Institute (HRI). Its contents are solely the responsibility of the authors and do not necessarily represent the views of HRI. Collaborators include Ariana Torres (Purdue Univ.), Sue Barton (Univ. of Delaware), and Bridget Behe (Michigan State Univ.).

    Photo by Hassan OUAJBIR: https://www.pexels.com/photo/woman-wearing-blue-dress-holding-flower-pot-2232566/

    Rihn, Alicia . “What Is Driving Native Plant Sales?” Southern Ag Today 3(46.5). November 17, 2023. Permalink

  • Implications of Reverting to Dairy Policy in the 1948 Farm Bill

    Implications of Reverting to Dairy Policy in the 1948 Farm Bill

    Title II of the Agricultural Adjustment Act of 1948 (herein referred to as “the act”), allowed the Secretary of Agriculture to, “Support the prices of whole milk, butterfat, and the products of such commodity… at a level not in excess of 90 per centum not less than 75 per centum of the parity prices.” To achieve this, the act gave the secretary the legal authority to support dairy prices, “Through loans on, or purchases of, the products of milk and butterfat.” To conduct the purchases or loans of dairy commodities, the Secretary of Agriculture was legally authorized to make the purchases of butter or cheese through the Commodity Credit Corporation (CCC). Under the legal framework in the Agricultural Adjustment Act of 1948, the dairy provisions are permanent law, although they have been regularly suspended by subsequent farm bills. 

    Parity prices are prices received by farmers for agricultural commodities that ensure a level of farm income to cover the costs of production and provide a living wage (7 U.S.C. §§ 608c-659, 1933). The idea behind parity prices originated in the Agricultural Adjustment Act of 1933 in response to the low commodity prices farmers experienced during the Great Depression.  To calculate parity prices, the U.S. Department of Agriculture (USDA) used agricultural prices from 1910 to 1914, the Golden Age of Agriculture, since the industry generally regarded these prices as fair during this time. One of the commodities designed to receive a parity price was milk, which was spurred by the Wisconsin milk strike and subsequent cheese plant bombings. Parity prices reflect the purchasing power from 1909-1914 but in today’s prices. 

    Although the dairy parity price is no longer used in the current dairy pricing scheme in the U.S., it is still reported monthly in the USDA price report due to federal mandates in existing legislation (USDA-NASS, 2011). In September 2023, the USDA Agricultural Prices Report indicated an all-milk (across all classes) parity price of $67.40 per hundredweight (USDA-NASS, 2023).  The actual price received by producers in September 2023 ($21.00 per cwt) was approximately 30% of parity. Milk prices by percent parity are shown in Table 1. Under the act, the secretary has the legal authority to set the parity price, which becomes the new price floor. The new price in turn is supported through dairy foods commodity purchases by the CCC.   

    Table 1. Parity milk price. 
    Pricing factor Price ($)
    Parity Price167.40
    90%60.66
    30%221.00
    Income above market price39.66
    1Reported by NASS 2Current market price 

    Policy Implication Discussion 

    If Congress fails to extend the farm bill between now and the end of the year, concerns will grow about a potential return to permanent law after the first of the year.  Although many dairy farmers would be thrilled to receive an all-milk price of $60.66 cwt, there are a few long-term implications that need to be considered before celebrating a high milk price. 

    • Undoubtedly, the price of milk paid by consumers would increase significantly. Historically, milk was considered an inelastic food product; therefore, even as the price of milk increased, there was little effect on the quantity consumers demanded (Schröck, 2012). However, some economists have observed that milk is no longer as inelastic as once believed. This begs the question: even if the lowest-priced milk in the grocery store went above $4.00 per gallon, how would consumers respond? 
    • If milk consumption were to decline, there would subsequently be a ripple effect that would decrease the amount of milk processed into fluid milk and other dairy foods. Therefore, in a market where there is already an oversupply of milk, this could potentially increase this issue even further. 

    References 

    Schröck, R. (2012). The organic milk market in Germany is maturing: A demand system analysis of organic and conventional fresh milk segmented by consumer groups. Agribusiness, 28(3), 274-292.

    USDA-National Agricultural Statistics Service. (2023, September 29). Agricultural Prices. Economics, Statistics, and Market Information Center. https://downloads.usda.library.cornell.edu/usda-esmis/files/c821gj76b/p5549b47m/6108ww46v/agpr0923.pdf

    USDA-National Agricultural Statistics Service. (2011). Price Program. USDA-National Agricultural Statistics Service. https://www.nass.usda.gov/Surveys/Guide_to_NASS_Surveys/Prices/Price_Program_Methodology_v11_03092015.pdf

    Myers, Jack, and Hunter Biram. “Implications of Reverting to Dairy Policy in the 1948 Farm Bill.” Southern Ag Today 3(46.4). November 16, 2023. Permalink

  • The Economics of Artificial Insemination

    The Economics of Artificial Insemination

    Artificial Insemination (AI) is a useful tool that cattle producers can use to help their operation. It offers many advantages to natural service that may benefit even small producers. One major advantage of this technology is that it allows access to superior genetics at a reduced cost compared to natural service. A producer can get access to top-of-the-line genetics without having to spend thousands of dollars on a top-of-the-line bull. AI also allows for more selective breeding where a producer can select for increased calving ease, milk production, heavier weaning weights, etc. This technology has been shown to improve conception rates and shorten the calving interval (Anderson & Deaton 2003; Rodgers et al., 2012). This means that AI can be used to increase a producer’s cow herd genetics through replacement heifers. They can also increase herd uniformity, which could lead to better group marketing opportunities and higher prices received.

    Despite these benefits, adoption of AI has been relatively low, with only 11.6% of beef cattle operations using this technology. However, like with many technologies, larger producers were more likely to use this technology, with 29.4% of operations with 200 or more head using AI compared to 8.7% of operations with only 1-49 head (USDA APHIS 2017). The major barrier to adopting AI is the increased management and labor requirements. An AI program is going to take significantly more work than natural service. It also has added costs of drugs, semen, and requires additional handling facilities. Furthermore, there are some knowledge barriers that producers need to overcome to use AI effectively.

    The question then is, does AI pay? In typical economist fashion, the answer is: it depends. The factors that impact the profitability of AI are:

    1. Herd Size
      1. Larger herds tend to see more profit benefit from AI. 
    2. Cow-to-bull ratio
      1. A lower cow-to-bull ratio will produce higher returns to switching to AI.
    3. How are the calves marketed?
      1. The more premium for better genetics, performance, and uniformity you can capture, the better off you will be with AI.
    4. How much is your time worth?
      1. The more valuable your time, the more expensive the increased management and labor costs become, and AI becomes less profitable.
      1. AI programs will vary in labor intensity. 

    As with any farm decision, the most economical choice is not going to be the same for everyone. It is important to evaluate your options to determine what is best for your farm. One way to do this is to construct a partial budget. A partial budget is a way of evaluating two different decisions to determine which will be more profitable. It does this by comparing the associated costs and revenues of a choice with the associated costs and revenues of another choice. It only looks at the difference between the two options. For example, it can be used to compare the returns and costs of AI to that of natural service, as seen in Table 1. In this example, a herd with 115 head would increase net returns by $9.87/exposed cow by switching to AI. This is dependent on several factors, including the price received for the cattle, the costs of the drugs, semen, technician, and labor, and the price of the cull bull maintenance and sale. For a more detailed explanation of the numbers and assumptions used in Table 1 please see: http://extension.msstate.edu/publications/economic-impact-artificial-insemination-vs-natural-mating-for-beef-cattle-herds. Also, it should be noted that improved herd genetics is going to have benefits over time. This means that the value of AI likely increases when considering more years. But it is important to do these comparisons yourself to determine if AI is right for you. 

    References

    Anderson, L., & Deaton, P. (2003). Economics of estrus synchronization and artificial insemination. Proc., Beef Improvement Fed, 15-19.

    Karisch, B. (2020). Economic Impact of Artificial Insemination vs. Natural Mating for Beef Cattle Herds. Mississippi State University Extension P2486. Available at: http://extension.msstate.edu/publications/economic-impact-artificial-insemination-vs-natural-mating-for-beef-cattle-herds

    Rodgers, J. C., Bird, S. L., Larson, J. E., Dilorenzo, N., Dahlen, C. R., DiCostanzo, A., & Lamb, G.C. (2012). An economic evaluation of estrous synchronization and timed artificial insemination in suckled beef cows, Journal of Animal Science, Volume 90, Issue 11, 4055–4062, https://doi.org/10.2527/jas.2011-4836

    USDA APHIS. (2017). Beef 2017. Available at: https://www.aphis.usda.gov/animal_health/nahms/beefcowcalf/downloads/beef2017/Beef2017_dr_PartI.pdf

    Picture by Tara Winstead. TN

  • A Charlie Brown Christmas for Cattle Prices

    A Charlie Brown Christmas for Cattle Prices

    Cattle markets finished October on a weak note with the CME Feeder Cattle Index around $237 per hundredweight. This price represents a $17 per hundredweight decline compared to the peak value, which occurred in September. However, the decline in prices is not the worst of it. The worst of it was that many cattle producers missed out on the opportunity to hedge cattle to be sold in the fourth quarter of 2023 and the first eight months of 2024 and will likely receive lower prices.

    Traders and market participants clearly had high expectations for feeder cattle as can be seen in Figure 1 with most contracts finding their life of contract high in September. Most contracts are $20 to $30 off their contract high as of this writing with more weakness evident in the market. Despite a favorable opportunity to hedge the sale of cattle in September and early October, not all hope is lost. One could easily compare the Christmas tree in A Charlie Brown Christmas with cattle market prices, but most would look at it from the glass half empty perspective instead of the glass half full perspective. One could certainly sulk in the losses and the missed hedging opportunities, but one must remember that markets are still alive just like the Christmas tree Charlie Brown chose. This means there are opportunities for gains in the current market.

    The first aspect to consider is that feeder cattle futures are still offering a favorable price to hedge the sale of feeder cattle through most of 2024. If a profitable price can be achieved with current futures prices, it could still be a wise move to secure those profits. If there is concern of missing out on larger profits if the market price strengthens, then there are strategies using put and call options to capitalize on a stronger market. The primary objective is to be an active marketer instead of passive.

    Figure 1. Daily feeder cattle futures close price by contract month.

    Griffith, Andrew P. “A Charlie Brown Christmas for Cattle Prices.” Southern Ag Today 3(46.2). November 14, 2023. Permalink