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 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.
Grand staircases, grand pianos, grandma and grandpa, the Grand Tetons, and now, the “grand compromise.” The grand compromise, LB 1107, advanced to the second stage of debate last week on a strong vote. As such, it appears the package may have the legislative horses to cross the finish line. The package combines elements of property tax relief, business incentives, and potential funding for the NExT project at the University of Nebraska Medical Center—thus, the nickname.
Last week Tidbits checked in on the U.S. economy and its prospects for the remainder of the year. This week, Tidbits examines Nebraska’s economy and the broader rural economy. The ebb and flow of Nebraska’s economy in recent months has mirrored the national economy, although the changes have been less severe.
The phrase “the market is broken” has been used repeatedly in recent months to describe various markets following the COVID-19 outbreak. Often it has been used by persons caught on the wrong side of market changes. The market didn’t produce the desired outcome and the blame is assessed to a broken market. When economists think of broken markets, they think differently.
“For years, many small farmers have tried to find new ways to make a living beyond selling crops alone. . . Whether it’s uploading drone footage of sun-dappled farmland (“land porn for wistful cubicle dwellers”) or slow-motion videos of geese, some farmers have found they can earn more by streaming snippets of rural life to a growing online audience.” New York Times, The Morning, August 7, 2020.
The question is often asked why the U.S. both imports and exports beef. Intuitively, it seems it would make more sense to neither import or export beef and have U.S. production supply U.S. demand. After all, imports and exports of beef as a share of production are roughly the same.
Not that confirmation was needed, but data released last week confirmed the U.S. economy is now in a COVID-19 induced recession. An economic recession is typically defined as two consecutive quarters of economic decline, generally measured by declines in gross domestic product (GDP).
Corn prices received by Nebraska producers are determined by global supply and demand conditions. A factor which influences both supply and demand is the value of the dollar. Figures 2 and 3 come from The Van Trump Report, distributed daily by Kevin Van Trump.
"The study of economy usually shows us that the best time for purchase was last year." Woody Allen.
The USDA Agricultural Marketing Service (AMS) issued a report last week with the sexy title, “Boxed Beef & Fed Cattle Price Spread Investigation Report.” Don’t let the titillating title distract (although it makes economists drool), the report undertakes a thorough examination of the price movements in the boxed beef and fed cattle markets following the fire at the Tyson facility in Holcomb last year and the COVID-19 outbreak this year.
Total support to agriculture averaged $619 billion per year between 2017-19 across both rich and emerging countries. This nugget of information comes from a report by the Organization for Economic Cooperation and Development (OECD), an organization of 37 rich countries, on agricultural policy in 54 countries across the globe.
When people think about technology and agriculture, thoughts typically turn to precision agriculture, variable rate technology, data gathering and analysis, genetics, or other technologies related to crop or livestock production. Few people would think of how technology might disrupt land markets. That has now changed.
“Alan Krueger, the late author of ‘Rockonomics’, an economist’s guide to the music industry, calculated that in America the biggest four promoters were responsible for more than two-thirds of concert revenues in 2017, up from less than a quarter in 1995.” Schumpeter: Raising live music from the dead, The Economist, June 27th, 2020.
Relations between the U.S. and China have grown increasingly edgy in recent months. Recent events in Hong Kong have contributed to the edginess. Hong Kong is an important market for U.S. beef. Figure 1, created by the Dept. of Agricultural Economics at Kansas State University shows that since 2014, U.S. beef exports to Hong Kong have exceeded 14 percent of total U.S. beef exports on a carcass weight basis.
The USDA June 30 crop acreage report surprised many in agriculture with a lower estimate of planted corn acres than expected. The reduced planted acreage sparked a rally in an otherwise dreary corn market. Unfortunately, the rally was short-lived as good growing conditions pushed prices lower again last week.
Figure 2. Percentage of World Economies in Recession
“Researchers at Harvard believe the rates of business closures are likely to be even higher. They estimated that nearly 110,000 small businesses across the country had decided to shut down permanently between early March and early May. It could take up to a year before government officials know the true toll. Small businesses account for 44% of all U.S. economic activity, according to the S.B.A., and closures on such an immense scale could devastate the country’s economic growth.” The Van Trump Report, July 15, 2020, Kevin Van Trump quoting a story from New York Times.