Welcome to Agriculture Economic Tidbits, a weekly e-newsletter (emailed Mondays) for farmer and rancher members of Nebraska Farm Bureau. Agriculture Economics Tidbits will provide you with timely tidbits of economic information and policy analysis focused on Nebraska’s largest industry, agriculture, and its key players, Nebraska’s farmers and ranchers. The newsletter will break down global and national economic trends and what they mean for Nebraska agriculture, stay abreast of latest market movements, and provide the latest results from Farm Bureau research on current policy issues like property taxes, school funding, farm programs and international trade—all with the goal of helping you maintain a viable farming or ranching operation.
The COVID-19 induced shutdown of several beef processing plants last year forced many industry participants to scrutinize resiliency and capacity issues within the industry. Prior to COVID-19, the processing sector was operating at or near capacity, one reason the shutdown created such havoc in the markets. Research has shown livestock prices are sensitive to levels of capacity utilization. A model developed by agricultural economists at Kansas State and Iowa State Universities estimated that each 1 percent increase in national beef packing plant utilization corresponded to a 1.32 percent reduction in fed cattle prices. In other words, an increase in the utilization of capacity results in lower prices for cattle as the packers have less capacity to process cattle and thus, less demand for cattle.
Projections for U.S. economic growth for the rest of 2021 have turned increasingly positive over the past few months. At the March meeting of the Federal Open Markets Committees (FOMC), the Federal Reserve’s monetary policy making group, the group revised its estimated real gross domestic product (GDP) growth rate to 6.5 percent, more than 2 percentage points above the December growth projection of 4.2 percent. The FOMC also estimated an annual unemployment rate of 4.5 percent and inflation rate of 2.4 percent.
“It’s already known that 2020 was the deadliest year in U.S. history, with deaths topping 3 million for the first time.” US life expectancy plunges by most since World War II, Marilynn Marchione, Associated Press, Omaha World Herald, February 21, 2021.
Farmers will be venturing into fields to plant this year’s crop within the next week or two. On que, the USDA-NASS last week released its estimates of prospective plantings. If the estimates hold, Nebraska farmers will plant a record number of acres to principal crops.
Last month, Tidbits reported on potential trouble for Nebraska corn producers in Mexico’s corn market. A decree by the Mexican government requires the phase-out of the use of genetically modified (GMO) corn for human consumption by no later than January 31, 2024. At the time, it was unclear whether the decree applied to corn imported by Mexico and used in livestock feed. Nearly all of Nebraska’s corn exports to Mexico are used in livestock feed.
A Tidbits article last week discussed the relationship between returns to farmland and inflation and reported on average returns to farmland in 32 agriculture-predominate states. The question naturally arises—how do returns to Nebraska farmland compare with other agriculture-predominate states? Fortunately, the University of Illinois TIAA Center’s historical data on farmland returns includes Nebraska.
“Nearly all American households (98.4%) purchased meat in 2020 (IRI), and 43% of Americans now buy more meat than before the pandemic - primarily because they are preparing more meals at home.” Meat purchases and confidence at record highs, BEEF Magazine, March 24, 2021.
Beef Cattle: Nebraska feedlots with greater than 1,000 head capacity held 2.61 million cattle on March 1, up 4 percent compared to last year (Figure 1). Nebraska remains the second-largest cattle feeding state behind Texas. Texas, Nebraska, and Kansas collectively contain 66 percent of the nation’s on-feed cattle inventory.
Anxiety over inflation has crept into musings by economists, market observers, and the media. The uneasiness stems from conditions seemingly fertile for an inflation spike. Consumers are sitting on piles of cash, presumably itching to spend when they can. Congress recently passed another stimulus package, sending another $400 billion directly to consumers in the form of stimulus checks adding to the cash on hand.
“A new study by the personal finance website Finder.com says Americans collectively spent $21.6 billion on drunk purchases over the past 12 months. That’s down considerably from the past three years. That's nearly 52% less than the previous year's $44.9 billion.” The Van Trump Report, Kevin Van Trump, March 18, 2021
The recent surge in fertilizer prices has caught farmers’ attention if recent inquiries from farmers and reports by Nebraska Farm Bureau board members are any indication. Fertilizer prices across the board have moved markedly higher since the beginning of the year. According to DTN, anhydrous ammonia prices are up 19 percent over the past month, urea ammonium nitrate (UAN) prices are up 21-26 percent depending on the formulation (Figure 1), urea prices are up 7 percent, and potash is up 6 percent. In fact, DTN reports the UAN28 price is above the $300/ton level for the first time since September 2015. Fertilizer costs account for roughly 15 percent of total cash farm costs in the U.S., so higher prices are bound to get farmers’ attention.
Meat cases in Philippine retail stores were missing pork recently according to The Economist magazine when retailers refused to stock it in protest of a 60-day price cap imposed by the government. Pork, a staple in the country, is in short supply due to the African Swine Fever (ASF). As a result, prices of pork have soared causing a spike in inflation. Inflation in the Philippines hit a 2-year high of 4.2 percent in January.
U.S. personal income continues to move higher despite the ongoing economic disruptions and unemployment caused by COVID-19. Real disposable personal income (inflation adjusted) was up 11.4 percent in January compared to December (Figure 2). Personal income consists of total earnings due to wages, investments, and other ventures. Spikes in personal income are evident in March of last year and January of this year due to the stimulus payments provided in the COVID-19 assistance packages.
“US National Debt has crossed above $28 trillion for the first time, increasing $4.6 trillion over the last year. As a percentage of economic output (GDP), our national debt has never been higher, steadily increasing over the past 40 years from 31% in 1980 to 130% today…Why is the ratio going up? Simply put: we have been borrowing at a faster rate than the economy is growing—for a long time.” 28 Trillion and Counting, Charlie Bilello, March 3, 2021.
Preliminary numbers from the University of Nebraska Department of Agricultural Economics' annual real estate survey show the average market value for agricultural land in Nebraska increased 6 percent over the past year (Figure 1). This marks the second consecutive year the survey reported higher land values—the average value was up 3 percent last year. The average land value this year is $2,895 per acre, 13 percent below the 2014 high of $3,315 per acre.
A webinar sponsored by Nebraska Farm Bureau on February 10, which focused on Nebraska’s agricultural economy, provided the opportunity to poll Nebraska producers on questions inquiring minds want to know—current financial conditions, planting intentions, and this year’s calf crop. Roughly 100 people participated on the webinar and the number of respondents ranged from 19-41 depending on the question. While the poll was non-scientific, it provided a peek into producers’ thinking in February entering the 2021 planting and calving seasons.
The USDA’s National Agricultural Statistics Service estimates the value of Nebraska’s 2020 crops is $11.9 billion, up 22 percent from 2019. The value of corn production is expected to total $7.61 billion, up 21 percent from the previous marketing year, and the value of soybean production is expected to be $3.18 billion, up 36 percent. The marketing year for both crops runs from September 1 to August 31. Nebraska’s average corn price is projected to be $0.73 per bushel higher compared to last year while the average soybean price is projected to be $2.53 per bushel higher.
Figure 5. Historial & Projected U.S. Export Shares
Source: USDA, Economic Research Service, USDA Agricultural Projections to 2030.
“Working with producers through the years, I’ve learned many of us are infected with a very costly disease. I call it egonomics. . . I’ve asked many producers why this is, and they usually respond they want their operation to be bigger so it will make more money. But I don’t really think that it’s at all. It’s all about self-worth.” Wesley Tucker, Business Basics: Want more cattle? Limit grazing cows, boost forage production and add stockers. BEEF Daily, March 10, 2021.
U.S. beef and veal exports in 2020 were down 2.3 percent compared to 2019. In comparison, U.S. beef imports were up 9.3 percent. The result—the U.S. had a trade deficit in beef where imports outpaced exports. In raw numbers, the U.S. imported 3.34 billion pounds and exported 2.96 billion pounds.
Trouble could be afoot for Nebraska corn exports to Mexico. On December 31, Mexico published a decree requiring the phase-out of the use of glyphosate and genetically modified (GMO) corn for human consumption. GMO corn is to be phased out no later than January 31, 2024.
The French farm ministry announced late last year it will give financial aid to farmers who agree to halt the use of glyphosate on their farms. The aid will consist of a tax credit of 2,500 euros ($3,030) to farmers who apply and agree to cease use of glyphosate in 2021 and 2022.
“...I’m a professional economist which means I only have to be right 50 percent of the time to keep my job.” Bruce Sherrick, Farmland Markets and Macroeconomic Conditions webinar, University of Illinois, Department of Agricultural and Consumer Economics, December 15, 2020.
Soil health, carbon sequestration, regenerative agriculture, sustainability—all terms being bandied about with increasing frequency regarding agriculture and its role in combating climate change. Some of the increased focus is due to the election of President Biden and his priority of addressing climate change.
A few years ago, a farmer testifying at the Legislature on a property tax bill commented that property taxes aren’t paid with dirt. His point being it takes revenue generated from the land to pay property taxes and ownership of land doesn’t, in and of itself, demonstrate an ability to pay taxes.
“A recent analysis by one of us found that Nebraska has been subject to the fourth-highest increase in the burden of federal regulation since 1997. These costs hit low-income Nebraskans hardest, leading to higher prices for goods, and an estimated 850 fewer jobs each year, 34,000 more people living in poverty, and a 4% increase in income inequality in the state.” Seize chance for regulation reform, James Broughel and Colin O’Reill, Midland Voices, Omaha World Herald, February 21, 2021.