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.
“As people started nesting in response to the pandemic, they started undertaking all sorts of home renovation projects . . . At the same time, sawmills started shutting down and have only partially reopened because of social distancing concerns.” National Association of Home Builders chief economist Robert Dietz commenting on lumber prices increasing more than 160 percent adding about $16,000 to the cost of a new house. Van Trump Report, Kevin Van Trump, September 8, 2020.
Crop producers face a multitude of risks—drought, weeds, hail, disease, pests, labor resources, and financial are but a few. Price risk, though, might be distinct from other risks due to the many factors which can affect prices like international competition, economic growth, government policies, local demand situations, production hiccups, the value of the dollar, market psychology, and more. Futures, options, and marketing contracts are a few of the means utilized by producers to manage price risk. A recent report by the USDA Economic Research Service (ERS), Farm Use of Futures, Options, and Marketing Contracts, examined producers’ use of these three price risk management tools.
A couple weeks ago, Tidbits highlighted Nebraska’s cow/calf sector. This week Tidbits turns its focus to the state’s feedlot sector and how it compares to other states with large cattle feeding sectors. USDA’s November cattle on feed report showed Nebraska feedlots with greater than 1,000 head held 2.50 million cattle, third behind Texas with 2.91 million head and Kansas with 2.52 million.
“The pandemic has propelled government toward promiscuously picking economic winners and losers. As has been said, governments are not good at picking winners, but losers are good at picking governments.” George Will, The Washington Post, Oct. 23, 2020.
Last week’s World Agricultural Supply and Demand Estimates (WASDE) increased the price estimates for 2020/21 marketing year average farm prices. Corn prices are expected to average $4.00/bushel and soybean prices $10.40/bushel, increases of 40 cents and 60 cents respectively from the October estimates.
Nebraska producers are familiar with import tariffs—taxes imposed by an importing country on imported goods. Nebraska agricultural products often face tariffs when selling into foreign countries. Perhaps not as familiar to Nebraska producers is the concept of export taxes—taxes imposed by an exporting country on exports of a good. Countries impose export taxes to raise revenue for the government, regulate changes to foreign exchange reserves, or discourage exports to assure adequate supplies for its consumers.
Figure 2. Nebraska Drought Map, Nov. 12, 2020
Source: National Drought Mitigation Center, University of Nebraska-Lincoln
Fifteen Asian nations announced the formation of the Regional Comprehensive Economic Partnership (RCEP) over the weekend. RCEP is billed as the world’s largest trade agreement and includes China, Japan, South Korea, Australia, New Zealand, Vietnam, and other Asian countries. A spokesperson for Vietnam says the agreement will account for 30 percent of the global economy, 30 percent of the global population, and reach 2.2 billion consumers, according to Reuters. The United States is not included in the agreement. Organizers said RCEP is “creating a new trading structure in the region, enabling sustainable trade facilitation, revitalizing the supply chains disrupted by COVID-19 and assisting the post-pandemic recovery.”
“You wanna see social distancing? Loan somebody some money.” Picture of a road sign in The Van Trump Report, October 26, 2020.
Former Nebraska Farm Bureau President Bryce Neidig had a saying about elections, “The candidates you support are never as good as you think they’ll be. And the candidates you oppose are never as bad as you think they’ll be.” Neidig’s statement is apropos. Once elected, candidates often confront the reality of governing, the complexity of issues, unforeseen events, and the diversity of opinions. Thus, the reality of governing differs greatly from the campaign promises. Governing dictates a movement towards the middle and compromise—sausage making at its finest.
The resiliency of farmers and ranchers is unmatched. As evidence, the Purdue University-CME Group Ag Economy Barometer reached a record-high reading of 183 in October, a 27-point increase over September (Figure 1). The latest nationwide survey of 400 agricultural producers showed producer sentiment has improvided dramatically from a reading of 96 recorded earlier this year.
The national Extension Risk Management Education (ERME) Program and the USDA are collaborating to deliver a webinar for agricultural producers focused on livestock risk management. Recent developments and attention to livestock markets, price risk, and the need for better risk management have highlighted the challenges for livestock producers. The webinar is scheduled for Thursday, November 12, at 1:00-2:00 PM Central.
“Farmland loans declined less than 1%, but it was the first decrease during any quarter in more than 35 years.” Ag Lending Update: Second Quarter Commercial Bank Call Report Data; Federal Reserve Bank of Kansas City, October 2, 2020.
U.S. real gross domestic product (GDP) increased 33.1 percent in the third quarter according to the Bureau of Economic Analysis (Figure 1). The growth follows a decrease in the second quarter of 31.4 percent. Quarterly swings of this magnitude are unparalleled and provide confirmation of the stormy economic waters businesses are attempting to navigate with COVID-19. The contraction in GDP in the first two quarters had tipped the economy into a recession, but the third quarter upswing means the economy is no longer in a recession. In terms of actual dollars, GDP increased $1.64 trillion in the third quarter after losing $2.04 trillion in the second. While the third quarter rebound was extraordinary, it didn’t offset the COVID-19 induced decline in the second quarter. For the year, GDP remains 3.5 percent below its level entering 2020.
It begins with the state’s cow/calf sector. Without it, Nebraska’s cattle and beef industry wouldn’t play the prominent role it does in the state. For example, a recent economic impact study by the University of Nebraska-Lincoln (UNL) showed the state’s cattle industry (including dairy) contributed $4.3 billion to the state’s gross product. Nor would the industry play the prominent role it does nationally—fourth in number of beef cows; third in cattle on feed; and tops in beef processing. According to the USDA National Agricultural Statistics Service (NASS), as of January 1, Nebraska’s beef cows numbered 1.92 million head, roughly one cow for each Nebraskan. Only Texas, Oklahoma, and Missouri have greater numbers of cows (Figure 2). It’s probably a pretty sure bet, though, that these states can’t match Nebraska’s cow-to-citizen ratio.
Nebraska is the nation’s largest irrigated state with roughly 8.5 million acres of irrigated crop ground. As such, Nebraska is often at the forefront on the use of new technologies, management techniques, and conservation measures in utilizing this natural resource. The innovation includes unique marketing arrangements created by Natural Resources Districts (responsible for managing groundwater) and irrigation districts (responsible for distributing surface water) to move and allocate water amongst irrigators. However, when it comes to water markets, Nebraska doesn’t hold a candle to the second-largest irrigated state, California. And now California has taken another step forward with the creation of a futures market for water.
“The reality is, from what I can see, is that it’s not even a matter of everybody being in the same boat, but not everybody is even in the same lake. There’s a lot of difference when we move from one operation to the next.” Tina Barrett, Nebraska Farm Business, Inc., commenting on the widespread variability of financial performances among agricultural operations. The Financial State of Ag for Nebraska Producers, UNL Dept. of Agricultural Economics, Oct. 22, 2020 webinar.
Two weeks ago, Tidbits reported the USDA estimated net farm income statewide rose in 2019 reaching $4.2 billion. This week, the focus narrows to look at financial conditions at the operation level. Each year, the Nebraska Farm Business, Inc. (NFBI) issues a report detailing financial data of Nebraska agricultural operations who participate in its programs. The report paints a detailed picture of the financial status of Nebraska agricultural operations and the profitability of different enterprises on these operations. Tina Barrett, director of NFBI, shared the financial highlights from 2019 on a webinar sponsored by the UNL Dept. of Agricultural Economics. A recording of the webinar can be found at https://farm.unl.edu/financial-state-ag-nebraska-producers-102220-webinar and additional information can be found on the NFBI website at www.nfbi.net.
The property tax credit program was changed in 2017 to weight agricultural land more heavily relative to other property sectors for purposes of distribution. With the change, agricultural land is valued at 90 percent of market value for credit calculations. As a result, beginning in 2017, the Dept. of Revenue started reporting credit amounts distributed to agricultural and non-agricultural property in each county. This segregation allows tracking of credit dollars distributed to agricultural property over time.
“A recent study found big grocery stores today offer 80% more varieties of products than the average store did three decades ago.” Jobs(ii): Lay-offs, A second wave, The Economist, October 10, 2020.
University of Nebraska researchers have developed an index to measure growth and economic performance for rural regions in Nebraska. Dubbed the “Nebraska Thriving Index”, the measure tracks 47 measures which reflect economic growth and indicators of prosperity. The researchers divided Nebraska into eight regions and compared them to peer regions located in the northern plains.
Figure 1. Change in Real GDP by State (% Change Between Q1-Q2)
Source: The Van Trump Report, October 16, 2020.
While the use of water in crop production has been closely monitored and studied, few studies have examined the water productivity of livestock production. A report by researchers at the Nebraska’s Daughterty Water for Food Global Institute, Nebraska Water Productivity Report, fills this gap. The report seeks to assess the water productivity of livestock products and their water, energy, and carbon footprint. Water productivity (WP) is defined as the ratio of output to water used.
“Couple the declining population growth with technical innovation in agricultural production, and the world now has more agricultural products per person than ever before.” Which style of eating will the developing world follow? Food for Thought, Michael Swanson, Wells Fargo Chief Agricultural Economist.