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.
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).
“Ultimately, however, the amount of beef available to consumers results from the thousands of decisions made by cow-calf operators around the country over time – decisions regarding the number of cows they are able to support on their farms and the calves those cows produce.” Daily Livestock Report, Steiner Consulting Group, Vol. 19 No. 96, May 20, 2021.
Returns to farmland in Nebraska and other agriculture-predominate states provided by the University of Illinois TIIA Center were highlighted in Tidbits a few weeks. For its analysis, the TIAA Center used USDA data which aggregates all categories of agricultural land into a single statewide average value. Now, agricultural economists with the UNL Department of Agricultural Economics have analyzed returns specific to irrigated, dryland, and grazing land in Nebraska using data gathered through the department’s annual farm real estate market surveys between 1990 and 2020.
What does 2021 hold for net farm income in Nebraska? Dr. Brad Lubben, associate professor and extension policy specialist at the University of Nebraska-Lincoln, offers an answer. Using state-level data from the USDA Economic Research Service, Lubben projects state net farm income this year will be $5.75 billion (Figure 4), a slight increase over 2020 income, $5.68 billion. If realized, net income this year would be 158 percent higher relative to 2017 when it touched a recent low of $2.2 billion. Lubben attributes the boost in income to climbing crop receipts, estimated to be $11.1 billion in 2021. Livestock receipts are projected to equal $12.1 billion, up $1 billion from last year.
The USDA will host a series of three webinars about the Livestock Mandatory Reporting (LMR) program on three consecutive days in June. The free webinars will begin on Tuesday, June 8, and continue through Thursday, June 10, and will be held from 6:00 p.m. to 7:30 p.m. CDT.
Tidbits will not be distributed next Monday due to the Memorial Day Holiday. Have a great holiday weekend and enjoy the beginning of summer!
“Buy land, they’re not making it anymore.” Mark Twain.
Ninety percent of trade in U.S. agricultural products is domestic, flowing between states. Producers, traders, and agri-businesses know weather can change these cross-border flows. They’ve experienced first-hand the changes in flows of crops, hay, and livestock which occur when drought and floods hit. Three economists at the University of Illinois examined trade flows across state lines and the impacts weather can have in a paper entitled, U.S. Interstate Trade Will Mitigate the Negative Impact of Climate Change on Crop Profit.
Priced a new house lately? Sought a bid for a remodeling project? Gone to the lumber yard to purchase wood? If so, the surging price of lumber was plainly evident. Fortune reported in early May that according to Random Lengths, the price of lumber had risen 280 percent since the start of the COVID (Figure 2). CNN Business reported the National Home Builders Association estimated higher lumber prices have pushed the price of an average new single-family home $35,872 higher.
Figure 3. U.S. Food Spending
Source: USDA, Economic Research Service, using data from the Food Expenditure Series.
"To be 80 years old in this republic is to have lived through almost exactly one-third of its life...This makes an American 80-year old's finishing sprint especially fun, because it can be focused on this fact: To live a long life braided with the life of a nation conceived in liberty and dedicated to an imperishable proposition is simply delightful.” George Will, Washington Post columnist, Omaha World-Herald, May 9, 2021.
Two measures of economic conditions in rural America have reported significant positive gains, no doubt reflective of the improved financial conditions for crop producers. First, the Ag Economy Barometer, a nationwide measure of the health of the agricultural economy developed by the Purdue Center of Commercial Agriculture and the CME Group, reports an index of 178, near it’s all time high.