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  • Are We Robbing Peter’s Heifers?

    Are We Robbing Peter’s Heifers?

    USDA is scheduled to release the August Cattle on Feed report this coming Friday, so this is a good opportunity to look at some pre-report estimates.  

    I think placements will be the most interesting number in the report.  A couple of years of a shrinking cow herd leads us to fewer feeders to place. However, drought in some major cattle areas, falling feed costs, profitable feeding returns, more cattle imported from Mexico compared to a year ago, and high feeder heifer prices may cause placements to not be down as much as we might expect. My estimate of placements is 96 percent of a year ago (down 4 percent).  I am on the high end of placements among the market analysts who publish estimates ahead of the report.  

    Placements are where the most uncertainty lies.  The number of heifers placed in feedlots are a large source of this uncertainty.  Heifers can be held back to enter the cow herd or they can be sold to go on feed.  Currently, high calf prices and expectations of even higher record prices in the future should eventually begin to encourage producers to hold back heifers to enter the cow herd.  But, high current calf prices also encourage ranchers to take the money and sell heifers now as feeders.  Examining cattle auction prices suggests that, in some cases, feeder heifer prices are higher than prices of animals designated as replacement heifers and bred cow prices.  There is certainly anecdotal evidence of some producers selling heifers they had intended to keep because current prices were too good to pass up.  

    The number of heifers on feed is reported quarterly and was in last month’s Cattle on Feed report.  It indicated that the number of heifers on feed was equal to the same quarter of last year while fewer steers were on feed.  We’ll get another quarterly report of heifers on feed in the October Cattle on Feed report. 

    Based on steer and heifer slaughter, July marketings from feedlots with more than 1,000 head should be about 5.4 percent lower than a year ago.  Combined with fewer placements, this leaves the number of cattle on feed at about 98.5 percent of a year ago.  Some more data this Fall will shed some light on how much we are “robbing Peter to pay Paul” by using heifers to boost near term beef production at the expense of future production.

  • The Fast Two Minutes in Crop Markets

    The Fast Two Minutes in Crop Markets

    The Kentucky Derby is always fun to watch – lots of anticipation, a big build up, and you are never sure what is going to happen. A similar pleasure for many commodity market analysts is to watch the futures markets react on USDA report release dates. What commodities will break out? Which commodities will be the day’s winners and losers? Fortunes can change in seconds. August 11th was an interesting day for USDA report watchers. The USDA released Crop Production and WASDE reports at 11 am CST and FSA Crop Acreage Data at 12 pm CST.   The 11 am release precipitated soybean markets increasing 10.75 cents (Figure 1); cotton markets increasing 1.92 cents (Figure 2); and corn markets increasing 0.25 cents, before moving up 0.75, down 2.5, up 2.75, down 2.25, and down 1.25 cents in the next five minutes (1-minute intervals) (Figure 3).

    Figure 1. November soybean futures chart on August 11, 2023, in 1-minute intervals (CST)

    * Close is the ending value for the one-minute interval.

    Figure 2. December cotton futures chart on August 11, 2023, in 1-minute intervals (CST)

    * Close is the ending value for the one-minute interval.

    Figure 3. December corn futures chart on August 11, 2023, in 1-minute intervals (CST)

    * Close is the ending value for the one-minute interval.

    The movement in December cotton futures price is the easiest to explain. A projected average national upland cotton yield of 773 lbs/acre and harvested acres of 8.51 million, resulted in a projected decline in US production of 2.51 million bales and lowered ending stocks 700,000 bales compared to last month. Additionally, foreign stocks decreased 2.22 million bales. The result was December cotton, opened at 9:00 am at 85.1 cents and closed the day at 87.8 cents.  

    November soybean futures also received a report bump in prices but were unable to hold the majority of the initial price gains. Soybean prices reacted positively to the 1.1 bu/acre reduction in national average yield and the 55-million-bushel decline in US ending stocks. However, conspicuously absent from USDA estimates were modifications to Brazil and Argentina production, exports, and domestic use. A lack of modifications to South America likely assisted in the reduction of prices throughout the rest of the trading day.

    As mentioned above, December corn futures had a more muddled reaction. US national average yield was within pre-report expectations at 175.1 bu/acre. Compared to last month, US ending stocks were down 60 million bushels and foreign ending stocks were down 62 million bushels. US feed and residual use, exports, and food, seed & industrial use decreased a combined 95 million bushels. The national average yield created some consternation in markets. This was USDA’s first survey-based yield estimate for 2023.  There remains a great deal of uncertainty due to the uneven distribution of drought geographically and over time during the growing season. As of August 8th, 49% of corn production was in drought, however extreme or exceptional drought was limited to 6% of the production area. The national average corn yield remains an enigma, and that is reflected in Friday’s market movements.

    References and Resources

    Barchart.com. https://www.barchart.com/futures/grains?viewName=main

    USDA Agriculture in Drought. https://www.usda.gov/sites/default/files/documents/AgInDrought.pdf

    USDA FSA Crop Acreage Data. https://www.fsa.usda.gov/news-room/efoia/electronic-reading-room/frequently-requested-information/crop-acreage-data/index

    USDA Crop Production Report: https://downloads.usda.library.cornell.edu/usda-esmis/files/tm70mv177/2227p6419/w3764r31w/crop0823.pdf

    USDA WASDE Report: https://www.usda.gov/oce/commodity/wasde/wasde0823.pdf

    Smith, Aaron. “The Fast Two Minutes in Crop Markets.” Southern Ag Today 3(33.1). August 14, 2023. Permalink

  • Farmers Win Regulatory Takings Case for Managed-Flooding Impacts

    Farmers Win Regulatory Takings Case for Managed-Flooding Impacts

    In Ideker Farms, Inc. v. US, after years of litigation, farmers prevailed in their claims that the U.S. Army Corps of Engineers’ (Corps) recurring flooding of their land was a compensable regulatory taking.  Specifically, the U.S. Court of Appeals for the Federal Circuit decided that recurring flooding was a “permanent flowage easement,” and the farmers deserved compensation for lower land values and some crop losses.

    Beginning in 1944, federal law authorized dams to be constructed on the Missouri River (River) and opened the former floodplain to agriculture.  However, by the 1980s, flood control led to habitat impacts, the listing of several endangered species, subsequent lawsuits, and a new 2004 Corps management plan.  In effect, the Corps: (1) elevated fish and wildlife conservation to be on par with flood control objectives; and (2) allowed periodic flooding, starting in 2007.  

    By 2014, hundreds of farmers adjacent to the River sued, alleging the flooding was a regulatory taking under the Fifth Amendment of the U.S. Constitution.  The Fifth Amendment provides that no private property will be taken for public use without just compensation.  

    The court held that the farmers’ land-value “baseline” was the period of flood control (from the 1940s to 2004) rather than when floods were common (pre-1940). This determination meant farmers could be compensated for the investments they made while protected from flooding.  A pre-1940 baseline would have meant minimal farmer losses.  

    Relatedly, the court held “a reasonable property owner” would expect flood-control goals from the 1940s Laws to continue.  Thus, new expectations from the 2004 management plan were caused by Congress’ “separate, intervening obligations” from the Endangered Species Act.  This means farmers did not have unreasonable expectations for continued flood control.  The court agreed with the lower court that the flooding was a permanent flowage easement that created a compensable taking.  The court disagreed with the lower court that crops and other personal property destroyed by the flooding were compensable.  For mature crops, farmers would be limited to the market value of the crop.  For immature crops, the farmer would be limited to the probable yield of the crop at harvest had the crop not been destroyed.  This decision potentially creates more avenues for the protection of property rights in flood control damage cases.  Time will tell how the Federal Court of Claims and U.S. Court of Appeals for the Federal Circuit will utilize this decision in future cases.  

    Sources: Ideker Farms, Inc. v. US., 71 F.4th 964 (Fed. Cir. 2023).

    Duke, Joshua M., and Paul Goeringer. “Farmers Win Regulatory Takings Case for Managed-Flooding Impacts.” Southern Ag Today 3(32.5). August 11, 2023. Permalink

  • A Quick Look at Brazil’s Efforts to Outpace the U.S. as Leading Corn Exporter

    A Quick Look at Brazil’s Efforts to Outpace the U.S. as Leading Corn Exporter

    Ribera (2023) showed Brazil challenging the U.S. as the top corn exporter. Here, I explore this competition dynamic a little further. Figure 1 shows that most U.S. and Brazilian exports occur at different times of the year. U.S. corn predominates in the first half of the year and Brazilian corn in the second half. In the soybean market, the opposite occurs. I added soybean to the analysis because Brazil has two corn crop seasons yearly. The first one competes with soybeans for land.  

    Figure 1 – Corn and Soybean Exports: U.S. vs. Brazil

    Figure 2 – Corn and Soybean Prices

    Sources for Fig.1 and 2: USDA/FAS-GATS (2023) provides the U.S. value and volume. MAPA-Agrostat (2023) provides the Brazilian value and volume. Prices are the ratio of value over volume. The bars show the harvest season for each crop and country, according to USDA/FAS -IPAD (2023). Green bars correspond to harvest season in Brazil. Red bars account for harvest season in the U.S. For Brazilian corn, the light green bar indicates the first crop, and dark green the second crop.  

    Companhia Nacional de Abastecimento CONAB (2023) estimated 317.6 M. tons of all grain produced in Brazil for the 2022/2023 crop season. Soybeans and corn make up 88.9% of this total. However, the static storage capacity is only 192.4 M. tons. As a result, there is a total deficit of 125.2 M. tons. Figure 3 shows corn and soybean surpassing the static storage capacity. Indeed, the installed capacity can handle only 68% of the current year’s soybean and corn production.

    Figure 3 – Static Storage Capacity versus Soybean and Corn Production

    Source: CONAB (2023). The corn and soybean production for 2023 is an estimated value. 

    The storage capacity geographical distribution could be more convenient. The Midwest states, the leading producers, can store approximately 50% of the soybean and corn they harvest. Furthermore, only 15.5% of static storage capacity is within farms. As a result, most farmers need to sell soybeans or corn even if prices are not attractive. This intensified selling increases the downward pressure on prices. Such behavior may help explain the price differences in Figure 2. So, the lack of storage capacity may lead Brazil to a pyrrhic victory – champion of volume, but with lower prices.

    References

    CONAB (2023). Retrieved from: https://www.conab.gov.br/

    MAPA-Agrostat (2023). Retrieved from: https://indicadores.agricultura.gov.br/agrostat/index.htm

    Ribera, Luis. “Brazil Challenging U.S. Corn Export Top Spot.” Southern Ag Today 3(4.4). January 26, 2023.

    USDA/FAS-GATS (2023). Retrieved from: https://apps.fas.usda.gov/gats/default.aspxUSDA/FAS -IPAD (2023). Retrieved from: https://ipad.fas.usda.gov/ogamaps/cropcalendar.aspx

  • The Rise of Irrigated Soybeans in Arkansas  

    The Rise of Irrigated Soybeans in Arkansas  

    Arkansas has experienced a significant expansion in irrigated cropland since the beginning of the 1980s. From Census year 1982 to Census year 2017, irrigated harvested cropland acres grew from 2.022 million acres to 4.848 million acres, respectively, representing an increase of +2.826 million acres (USDA, NASS, 2023a). The majority of this increase in irrigated cropland acres (approximately 75% of the increase) was due to the expansion of irrigated soybean area. 

    Figure 1 presents Arkansas soybean harvested acres split into all acres, non-irrigated acres, and irrigated acres for the years 1979 – 2018. All soybean harvested acres (non-irrigated + irrigated) dropped from a record level of 5.15 million acres in 1979 to 3.20 million acres in 1988 and thereafter remained relatively level for the state at 3.21 million acres. Non-irrigated acres dropped steeply from 4.80 million acres in 1979 to 0.51 million acres in 2018, while irrigated acres expanded from 0.35 million acres in 1979 to 2.71 million acres in 2018. It is obvious that most expansion in irrigated soybean acres was the result of converting non-irrigated acres to irrigated acres. Every county in eastern Arkansas experienced an increase in irrigated soybean area during this time, but counties experiencing the greatest expansion were those bordering the Mississippi River, where ample water from lateral river recharge of the underground aquifer allowed for greater transition of non-irrigated area to irrigated area (Gautam and Watkins, 2021). 

    A major factor for the upward trend in irrigated soybean acres in Arkansas is the increased world demand for soybeans, particularly in China. Increased world demand for soybeans has increased the value of soybeans relative to other crops grown in the state, such as rice and cotton. However, a more fundamental and straightforward reason for expanded irrigated acres is more consistent yields under irrigation relative to non-irrigation. Figure 2 presents detrended soybean yields for Arkansas non-irrigated soybeans versus irrigated soybeans from 1979–2018. Yields have been detrended to remove the influence of technological advancement over time. Yields were 12.6 bushels per acre greater on average under irrigation compared to non-irrigation. Also, variation around the irrigated soybean mean, which represents yield variation due to weather, is considerably narrower relative to variation around the non-irrigated soybean mean. Thus irrigation makes soybean yields more stable relative to yields under non-irrigation. 

    The phenomenon of expanded irrigated soybean area was not isolated to Arkansas alone. Other locations in the Mid-South also experienced significant irrigated soybean area expansion during the same timeframe. Changes in both irrigated acres and irrigated soybean acres from Census year 1982 to Census year 2017 are presented for locations in the Mid-South. All Mid-South locations in Table 1 receive most irrigation water from the Mississippi River Valley alluvial aquifer. Irrigated soybeans account for approximately 69% of increased irrigated area expansion in this region. Arkansas experienced the largest expansion in soybean area (75% of increased irrigated area) but all locations experienced significant expansion as well.

    Preliminary evidence indicates that irrigated soybean acres may be leveling off in many parts of Arkansas, particularly in counties farther removed from the Mississippi River, where groundwater is more limiting. However, expansion in irrigated acres appears to continue in counties bordering the Mississippi River. A closer evaluation needs to be conducted to verify these preliminary findings.

    Source: USDA-NASS, Quick-Stats. https://quickstats.nass.usda.gov/
    Source: Derived from USDA-NASS, Quick-Stats. https://quickstats.nass.usda.gov/
    Table 1. Change in Irrigated Acres and Irrigated Soybean Acres (Census Years 1982 to 2017) for Mid-South Locations.
     Change Category Arkansas MississippiNortheast LouisianaSoutheast MissouriTotal Change
    Change in Irrigated Acres2,826,3971,381,386490,458957,1885,655,429
    Change in Irrigated Soybean Acres2,108,158952,742293,230538,8363,892,966
    Irrigated Soybean Expansion (%)74.6%69.0%59.8%56.3%68.8%
    Source: Derived from USDA-NASS Census of Agriculture data. 

    References and Resources

    Gautam, T.K. and K. B. Watkins. 2021. Irrigated Acreage Change and Groundwater Status in Eastern Arkansas. Journal of the American Society of Farm Managers and Rural Appraisers 2021. https://higherlogicdownload.s3.amazonaws.com/ASFMRA/aeb240ec-5d8f-447f-80ff-3c90f13db621/UploadedImages/Journal/2021Journal_ASFMRA_HR.pdf

    USDA-NASS (2023a). United States Department of Agriculture, National Agricultural Statistics Service, Census of Agriculture. https://www.nass.usda.gov/Publications/AgCensus/2017/Full_Report/Census_by_State/Arkansas/index.php

    USDA-NASS (2023b). United States Department of Agriculture, Quick-Stats. https://quickstats.nass.usda.gov/

    Watkins, Brad. “The Rise of Irrigated Soybeans in Arkansas.” Southern Ag Today 3(32.3). August 9, 2023. Permalink