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 USDA Risk Management Agency (RMA) in June announced changes to the Livestock Risk Management Protection (LRP) insurance program. The changes became effective July 1. LRP, available for feeder cattle, fed cattle, swine, and lambs, is designed to insure against price declines. Producers can purchase a variety of coverage levels and insurance periods to match their operations and marketing timetables. When actual prices fall below the coverage price an indemnity for the difference is paid.
No sector of Nebraska agriculture was hit harder by COVID-19 than the ethanol sector. People working from home and stay-at-home orders meant less travel, less gasoline sales, and less ethanol sales. Scott Irwin, an agricultural economist at the University of Illinois, reports gasoline use this year dropped 48 percent compared to last year between March 13 and April 3. Ethanol use also dropped 48 percent, the only difference being the bottom in ethanol use came two weeks after the bottom in gasoline use.
The Platte Institute and the Nebraska Farm Bureau released a joint policy brief examining the economic disruptions from COVID-19 on Nebraska’s agriculture sector. The brief details the challenges the industry faced prior to and during the one-two punch brought on by the pandemic, as well as the ongoing uncertainties agriculture faces in its wake.
Figure 2. Acres in Nebraska Burned by Wildfires
Source: Nebraska drought fuels wildfires; state vulnerable to ‘megafire’, Nancy Gaardner, Omaha World Herald, September 21, 2020.
“Yield gain of grains and cereals has exceeded global population since the early 1990s, and oil crops’ yield gain started outpacing population growth starting in the late 1990s. It’s no wonder that there has not been a scarcity price premium in these crop categories. Now, even without increasing acreage, production will exceed population growth by 50% driven just by yield gain in cereals and grains. The poor prices for crop producers reflect this supply and demand dynamic.” Which style of eating will the developing world follow? Food for Thought, Michael Swanson, Wells Fargo Chief Agricultural Economist.
The Trump administration on Friday announced another round of federal assistance payments for farmers and ranchers who continue to face market disruptions and costs due to COVID-19, Coronavirus Food Assistance Program 2 (CFAP 2). The payments, up to $14 billion, are in addition to the first round of CFAP payments and will go to producers of crops, livestock, dairy, and other commodities. Signup for the CFAP 2 begins Sept. 21 and runs through Dec. 11. Additional information and application forms can be found at www.farmers.gov/cfap.
Like clockwork, U.S. agriculture every year runs a trade surplus with the rest-of-the-world, meaning the U.S. sells more agricultural goods to the rest-of-the-world than it imports. However, this year the clock is taking a licking and is struggling to keep ticking. Through the first seven months of the year, the U.S. is running an agricultural trade deficit of $3.5 billion. U.S. exports of agricultural goods are off 3 percent, or $2.7 billion; imports are up 1 percent, or $0.9 billion.
The cattle and beef industry contribute tens of billions of dollars to Nebraska’s economy each year. The industry also comprises one of the most complex and amazing set of markets in the world. A calf is born in the Nebraska sandhills, and 2-3 years later a steak ends up on a plate in South Korea.
“Nebraska now counts more people who are 75 or older than those who are under 5 years old for the first time in history.” Don Walton, Lincoln Journal Star, Aug. 24, 2020.
For the second consecutive year Cuming County almost scored a “hat trick” for the highest average cash rental rates on irrigated, dryland, and pasture ground. Cuming County led the state in average cash rents on irrigated and dryland ground last year and did so again this year with rents of $291/acre and $243/acre, respectively. Both rates were off slightly compared to last year. However, Cuming County’s shot at the hat trick veered wide of the goal when its average rents on pasture failed to rank among the top three counties. Like last year, Wayne County had the state’s highest average cash rent on pasture at $86/acre, $5 higher than last year. The data comes from the USDA National Agricultural Statistics Service.
The USDA rental data covers multiple years so changes in cash rents over time can be tracked. Trends can provide insights into the underlying agricultural economy. The maps below show the changes in rents for pasture, dryland, and irrigated land between 2017 and 2020. Please note comparisons could not be made for every county due to the unavailability of data for both years.
“According to our reckoning, an American wearing a mask for a day is helping prevent a fall in GDP of $56.14. Not bad for something that you can buy for about 50 cents apiece.” The Economist, Cloth of gold, August 22, 2020.
The challenges facing agricultural producers grow every year. Price volatility, new technologies, external market shocks, global economic disruptions, trade disputes, production challenges, policy changes, and more can affect farm and ranch bottom lines. Farmers and ranchers must manage the risks posed by these challenges to remain economically viable. Helping producers manage, adapt, and overcome these risks is the mission of the Extension Risk Management Education (ERME) program.
“I hear a lot of buzzing, ya know it sound like my little honey bee,” sang Muddy Waters in the blues song “Honey Bee” written by Waters and Bumble Bee Slim. Muddy would be hearing less buzzing in Nebraska this year according to the USDA National Agricultural Statistics Service (NASS).
U.S. farm output tripled between 1948 and 2017, growing at an average annual rate of 1.53 percent according to the USDA Economic Research Service (ERS). Output growth comes from two sources: employing more inputs (i.e. plant more acres); or productivity growth, achieving greater output from the inputs employed (greater yield per acre). ERS researchers attribute the farm output growth to the latter. Agriculture’s producing more output from the inputs employed.
“The demand for hair generally exceeds supply, fueling an almost constant sense of scarcity,” Emma Tarlo quoted in The Economist on Nigeria’s insatiable demand for hair. Nigeria imported more than 3,600 tonnes of hair in 2018 including human, animal, and synthetic. Hair from everywhere, The Economist, August 15th, 2020.
The closings in March of restaurants, hotels, bars, and schools had profound impacts on food consumption. Prior to COVID, over 50 percent of the food consumed in the U.S. was sold for consumption outside the home. The rapid COVID induced closings created major snafus up and down supply chains as the chains are unique and distinct for the hotel, restaurant, and institutional food sector (HRI) versus the retail grocery sector.
Farm loan delinquency rates have been creeping higher since 2014 when the farm economic struggles began. According to Kansas City Federal Reserve Bank farm loan performance data, the delinquency rate in the fourth quarter of 2019 for non-real estate loans was 2.12 percent, up from 1.77 percent for the same quarter the prior year. But while the increase is concerning, it’s important to put the recent uptick in context.
Research by Brain Coffey at Kansas State University shows hedging cattle can allow feeders to more accurately predict the final price they will receive. Coffey used price and basis data in Kansas over a ten-year period (January 2010-June 2020) to compare price outcomes on fed cattle with and without hedging assuming hedges were placed as soon as the cattle were put on feed.
Tidbits is unable to provide updated crop progress reports this week due to vacation schedules. Updated crop progress reports will resume next week.
“Soaring public debt and dysfunctional government sow doubt in corners of the financial world that the dollar is a smart long-run bet. And whispers, suggesting that the day of the dollar’s eclipse by the euro or the yuan looms, grow louder from time to time.” Free exchange: change for the dollar, The Economist, August 8th, 2020.
The USDA National Agricultural Statistics Service (NASS) released its August crop production forecasts last week based on August 1 conditions. Nationally, corn production is forecast at 15.3 billion bushels, a record high, up 12 percent from 2019. Soybean production is forecast at 4.42 billion bushels, up 25 percent. Of course, the forecasts were compiled prior to the “derecho” pummeling Iowa and other areas of the corn belt last week.
Figure 4. Year-to-Date Performance, Various Commodities
Source: Wall Street Journal, August 14, 2020.
“It was just time for an update. Now the technology we can operate this new pivot from our phone and we can adjust the variable rate as far as much water to put on. Fifty-one years of improvements in technology is why we decided to semi-retire the old one and put up a new one,” Terry Beller, quoted in the Columbus Telegram, on his decision to replace Pivot #5, one of the first Zimmatic center pivot systems manufactured by Lindsay Corporation in 1969. Tried and true pivot enter retirement, Molly Hunter, Aug. 8, Columbus Telegram, 2020.