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.
Agriculture, particularly meat production, is being intensely scrutinized over its environmental impacts due to concerns with climate change and carbon emissions. For example, frequent calls have been made for the elimination of meat from diets as a means to address climate change. The increased attention got Jayson Lusk, an agricultural economist with Purdue University, to thinking about the shift in meat consumption which has already occurred over time, from beef to chicken, and what the environmental impacts might be.
Property taxes continues to be a concern for farmers and ranchers and other property owners. Many factors like local budgets, assessed values, state aid amounts, and locally unique events all play a role in determining the amount of property taxes levied and changes over time. As a result, growth of property taxes vary across the state.
Crop producers face a multitude of decisions regarding marketing and hedging strategies and crop insurance coverages. Several unknowns—the harvest price, yield, production—complicate these decisions. Another complicating factor is the interaction between risk management tools and which ones might be appropriate for a given location and cropping practice.
Nebraska farmers planted fewer acres of corn this spring compared to last year and more acres of soybeans according to the USDA National Agricultural Statistics Service (NASS) crop acreage report released June 30. Nationally, the NASS estimates farmers planted 92.7 million acres to corn, 2 percent more than last year, and 87.6 million acres of soybeans, up 5 percent.
Producers Rod Christen and Robert Wareham noted fellow cattle producers could get better sleep with Livestock Risk Protection (LRP) insurance. Christen and Wareham made their comments during Nebraska Farm Bureau’s Inside Profitability Series webinar on June 30. Both mentioned that LRP helped them sleep at night knowing they were protected from downside price risk. Cattle prices can swing wildly, and when market shocks occur, it’s too late for producers to respond. LRP can help producers manage price risk.
Figure 4. Top Grocery Store Sales, 2020
Source: The Van Trump Report, Kevin Van Trump, July 12, 2021
“The market can stay irrational longer than you can stay solvent.” John Maynard Keynes
Total U.S. cattle imports were 3.5 percent greater in 2020 compared to 2019, equaling 2.1 million head (Figure 1). Imported cattle equaled 6.4 percent of total cattle slaughtered. Last year’s increase continued a trend since 2016 when imports equaled just over 1.7 million head. Since 2000, the record high was 2.5 million head in 2002. The most recent high occurred in 2014 at 2.36 million head imported. The trend in growing imports, though, may be broken this year. Through April of this year, imports are off 10 percent compared to last year.
A fire, pandemic, and cybersecurity attack have rocked cattle markets over the last two years. The risks inherent in cattle production are growing every day. Cattle prices can swing wildly, and when market shocks occur, it’s too late for producers to respond. The first of Nebraska Farm Bureau’s Inside Profitability Series is scheduled Wednesday, June 30, at noon (CDT) and will focus on price risks faced by cattle producers. The webinar will provide information on Livestock Risk Protection (LRP) insurance as a tool to manage price risk. LRP is designed to insure against declining market prices for both feeder and fed cattle.
The topic of school spending regularly surfaces during legislative debates on state aid to schools or proposals to reduce property taxes. Senators typically wrangle over whether additional spending caps should be part of any legislation. School spending garners the most attention because schools levy the most property taxes.
Consumer spending on food, both retail and foodservice, hit a record level in May of $133.3 billion according to the Daily Livestock Report (DLR). May’s monthly total was $8.4 billion greater than the previous record set in January 2020. Figure 4 shows retail and foodservice sales since 2017. The DLR reports May sales through foodservice were $67.3 billion, 71 percent higher than the previous year. Of course, last year’s sales were off drastically due to COVID. Still, foodservice sales in May were a record high at $67.3 billion. The DLR states higher traffic counts and price inflation contributed to the growth.
Tidbits is providing charts with updated crop progress reports each week. To view this week’s progress reports, click HERE.
“We’ve seen many absurd things in the past year, but this one may top them all. An Italian artist (Salvatore Gore) recently sold an invisible sculpture for over $18,000 saying, ‘you don’t see it but it exists; it is made of air and spirit.’ ” Charles Bilello, 6-Chart Saturday, June 12, 2021.
Proposals to change federal tax policy are being bandied about on both ends of Pennsylvania Avenue in Washington, D.C. Farmers and ranchers are especially leery of those proposing changes to capital gains taxes, particularly the proposals to repeal the stepped-up basis on inherited property. Taxes on capital gains are imposed when land, buildings, or breeding livestock is sold.
Figure 2. U.S. CPI and Core CPI
The USDA last week provided more information on the $12 billion in expanded assistance for producers through the Pandemic Assistance for Producers program announced in March. The additional assistance was part of the package passed by Congress in late 2020. The new USDA programs, designed to focus on filling gaps in previous rounds of assistance, include:
Price discovery in fed cattle markets is an ongoing concern among U.S. cattle producers. Concerns with price discovery in livestock markets, though, is not limited to the U.S. A recent article in the The Economist magazine reported the lack of price transparency in Somaliland camel markets is a growing concern too (Humponomics: Why camel traders are getting the hump, The Economist, May 13, 2021).
Continuing the topic of price discovery in cattle markets, the U.S. Senate Committee on Agriculture, Nutrition, and Forestry announced it will hold a hearing on Wednesday, June 23, examining markets, transparency, and prices from cattle producer to consumer. The hearing is scheduled to begin at 1:30 p.m. CDT. Sen. Deb Fischer of Nebraska serves on the committee and will take part in the hearing. As of this writing, the potential witnesses for the hearing will be Rabobank animal protein analyst Dustin Aherin; Kansas State University economist Glynn Tonsor; Mary Hendrickson of the University of Missouri, a rural sociologist who studies food systems; Kansas cattle producer Mark Gardiner; and South Dakota auctioneer Justin Tupper. More information can be found at: https://www.agriculture.senate.gov/newsroom.
“When we hedge with futures contracts (or any other type of contract), we need to remember that we are doing that to reduce our risk. Hedging is about risk management, which means that we will not be able to take advantage of higher prices in case the market goes up but we will be protected against lower prices in case the market goes down. There is no way to get around this trade-off.” Fabio Mattos, Assistant Professor, UNL Department of Agricultural Economics, The Wild Side of Commodity Markets: Hedging in Times of High Volatility, Cornhusker Economics, May 19, 2021.
The Legislature last year crafted a new wrinkle for taxpayers who pay property taxes and file Nebraska income taxes—a refundable income tax credit for property taxes paid to schools—and appropriated $125 million towards the credit to offset property taxes paid in 2020. Taxpayers who claimed the credit on their 2020 income tax filings saw a reduction in taxes equal to 6 percent of property taxes paid to schools.
A fire, pandemic, and cybersecurity attack have rocked cattle markets over the last two years. The risks inherent in cattle production are growing every day. Cattle prices can swing wildly, and when market shocks occur, it’s too late for producers to respond.
The first of Nebraska Farm Bureau’s Inside Profitability Series is scheduled June 30, at noon (CDT) and will focus on price risks faced by cattle producers. The webinar will provide information on Livestock Risk Protection (LRP) insurance as a tool to manage price risk. LRP is designed to insure against declining market prices for both feeder and fed cattle. Producers participating in the webinar will:
The federal crop insurance program remains a popular tool in crop producers’ risk management portfolio. Table 1 provides data on usage of crop insurance in Nebraska between 2007-2020 obtained from the Federal Crop Insurance Corporation (FCIC). Over the period, net acres covered ranged from 14.1 million acres in 2007 to 19.1 million acres in 2013. Clearly the 2012 drought motivated farmers to purchase more coverage in 2013.
As the U.S., especially California, moves to cut carbon emissions, renewable diesel is being eyed to meet the growing demand for low carbon fuels. The California Air Resources Board has stated that biodiesel and renewable diesel are the “biggest carbon cutting technologies from the transportation sector,” suggesting a bright future for renewable diesel in a low carbon environment.
“The most important thing [to recognize]”, says Malcolm Penn, who runs Future Horizons, a chip-industry consultancy, “is that shortages are a natural part of the industry.” Chipmaking, he says, is a good example of what economists call a ‘pork-cycle’ business, named for the regular swings between under- and over-supply first analyzed in American pork markets in the 1920s. As with pigs, the supply of chips cannot quickly react to changes in demand. Computer chips. Loading, please wait. The Economist, May 22nd, 2021.
The cyberattack on the world’s largest meat processor and subsequent shutdown of processing facilities coming on the heels of the attack on the gasoline pipeline a few weeks ago generated considerable attention in agricultural, national, and local media. Nebraska, being the largest beef processing state in the nation, was a focal point of the attention as JBS has beef processing facilities in Grand Island and Omaha, both of which were affected by the shutdown. JBS also owns Swift prepared foods facilities in Council Bluffs. JBS controls about 20 percent of the nation’s hog and cattle processing capacity.
U.S. exports of corn and soybeans were literally off the charts in the first quarter of this year compared to last year. The value of corn exports was up a whopping 141 percent while the value of soybean exports was up an eye-popping 116 percent. Figure 1 compares the yearly percentage changes in U.S. export values in 2019 (blue), 2020 (red), and the first quarter of 2021 (grey) for a few of Nebraska’s top export commodities. Animal feeds and wheat also showed strong gains in the first quarter of 2021 compared to last year, up 22 percent and 14 percent respectively.
The USDA Agricultural Marketing Service (AMS) each year compiles a report examining truck availability, use, and short-haul rates in the grain sector. Trucks play a vital role in transporting crops from fields to grain elevators, feedlots, ethanol plants, and other processors. Figure 2 shows the availability of grain trucks in 2019 and 2020 on a quarterly basis in the U.S. and North Central region compared to the prior 3-year average. Truck availability is measured on a scale from 1 to 5 (readily available to difficult to secure).