Drugs and Deforestation

What happens when it becomes more costly to conduct narcotics-trafficking operations in Mexico due to a government crackdown?

A new report says that drug smuggling in Central America is rapidly increasing rates of deforestation.

Remote forests in Honduras and Guatemala are being cut down to facilitate landing strips for the transportation of narcotics.

The scientists believe the influx of drug cash encourages ranchers, timber traffickers and oil palm growers to expand their activities.

But according to the researchers, the importance of the area as a route for trafficking has increased significantly over the past seven years after acrackdown on the narcotics trade in Mexico.

This prompted drug traders to move their operations into more remote areas in countries like Honduras, Guatemala and Nicaragua.

Source: BBC News

Answer: You move operations elsewhere. Unfortunate but true.

2014 Farm Bill: Nearing Completion

Late Monday evening (Jan 27) the conference committee of the U.S. House of Representative and the Senate finalized the Agricultural Act of 2014 putting the new farm bill on its path to approval. The House passed the bill today (Jan 29) by a vote of 251-166.  The Senate may vote tomorrow.  Much of the bill will go into effect in the near future.

As has been expected, the new legislation will abandon the long-standing direct payments. Also, the Average Crop Revenue Election and Counter-Cyclical programs that were introduced, respectively, in the 2008 and 2002 bills will transition to Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC). The marketing loan program will likely remain unchanged. Cotton will utilize its own program, Stacked Income Protection Plan (STAX).

Producers and/or landowners will face many decisions with the new legislation. First, base acres could have the option to be reallocated and yields can be updated. Second, producers must choose either ARC or PLC for all non-cotton base. With the ARC program, producers will then have the option to choose coverage at their individual farm level or at the county level. The PLC option can be combined with a supplemental layer of coverage, called Supplemental Coverage Option (SCO). However, SCO can be added without opting into PLC, but SCO cannot be combined with ARC.

ARC will be delivered by the Farm Service Agency (FSA) and, again, will trigger at either the farm or county level, depending on the producer’s decision. The county and farm level ARC will both kick in when the farm’s revenue declines 14% from a pre-calculated benchmark revenue. The benchmark revenue, for both options, is the five-year Olympic average[1] yield times the five-year average marketing year price. The county-triggered program will be commodity specific, use county yields and will be paid on 85% of base acres. The farm-level program will aggregate across all program crops, use farm yields, and will be paid on 65% of a producer’s base acres.

The PLC program will also be delivered by FSA and looks very similar to the previous Counter-Cyclical program. Each commodity (corn, peanuts, long and medium grain rice, grain sorghum, soybeans, and wheat — not cotton) has a set reference price and when the market year average price for each individual commodity falls below the reference price, the program will trigger. The program covers 85% of a producer’s base acres.

The STAX plan for cotton will provide an area based level of protection (i.e., county level) and will be delivered by the Risk Management Agency (RMA). Cotton producers electing STAX must pay a premium (similar to crop insurance). Like ARC, the STAX program is revenue based and will kick in when county level cotton revenues decline 10% below a county level benchmark (which is the five-year Olympic average[1] yield times the crop insurance spring time price). The program will continue to cover revenue losses from 10% to 30% below the benchmark and, even though yield and price are county level, the acres stem from the producer’s individual election.

SCO is available as a stand-alone program or can be coupled with PLC. It requires a premium, much like insurance, and provides coverage when revenue losses are 14% below the county level benchmark and will continue to cover losses until crop insurance kicks in.

So, none of these are easily digestible and, once elected, must be maintained for the life of the bill (currently slated to be in place for five years). As a result, a number of important decisions will need to be made. We are currently building an in-depth program that will cover these and other issues that are in the bill. As noted, the Senate will follow shortly thereafter. Once a final piece of legislation is known, look for this educational program to begin.

[1] An olympic average drops the highest and lowest values over the given time period. So, a five-year olympic average will discard the highest and lowest values over the five-year period thus giving an average over the three middle years.

Post written by John Michael Riley and Keith Coble

Cattle Market Notes: Week Ending Jan 24, 2014

For Livestock Prices and Production Information CLICK HERE.

Cash Cattle:

Cash cattle and beef prices remain on their upward trajection. The five-area fed steer price ended Friday at $148.75 and $238.86, respectively for live and dressed, up $6.36 and $11.59 compared to last Friday. In the Southern Plains, live cattle were about $5 higher at $147 on Wednesday. In Nebraska, live and dressed cattle sold at $150 and $240, respectively. Western Cornbelt trade took place on Wednesday at $143.50-$149 for live and $235-$242 for dressed.

Steer and heifer calves in Oklahoma City were steady, feeder steers were steady to $2 lower, and feeder heifers were $1-$3 lower. In Mississippi auction markets steer calves were mostly steady, heifer calves were mixed, feeder steers $2-$10 higher, and heifers were $3-$5 lower. Cull cows were $1 lower to $1 higher, cull bulls were steady to $5 lower, and replacements were higher.

Futures:

The nearby February once again contract took advantage of the direction in the cash cattle and beef markets, moving higher by $5.80. More deferred contracts continue to have a wait a see attitude, but still picking up about $1 on the week. On Friday, the USDA, NASS released their monthly Cattle on Feed report. The report revealed that 10.593 million head of cattle were in feedlots with 1,000 head or larger capacity on January 1, 2014, down 5.4% from last year. Placements of cattle during December were 1.0% higher than last year. Both were a tad above expectations so the report was mildly bearish and expect the market to react accordingly on Monday. More detail about the report can be found here.

Corn were higher this week. Prices slowly inched up as the week progressed. It was a very slow news week (and holiday shortened week too).

Beef:

Like cash cattle, wholesale boxed beef was much higher this week. Choice boxed beef finished with a weekly average of $238.43, up $13.81. Select averaged $236.44, up $14.27. With Select continuing to gain on Choice the spread between the two has narrowed to $1.99.

Note: all cattle and beef prices are quoted in dollars per hundredweight and corn prices are quoted in dollars per bushel, unless stated otherwise.

January Cattle on Feed Report Recap

The United States Department of Agriculture Released their monthly Cattle on Feed report Friday afternoon (Jan 24).The report revealed that 10.593 million head of cattle were in feedlots with 1,000 head or larger capacity on January 1, 2014, down 5.4% from last year and the lowest January 1st number since the series started in 1996. Analysts were expecting the on feed number to be down 6.0%. The on feed number is 6.7% below the January average from 2009 to 2013.

Placements during December totaled 1.681 million head, up 1.0% from December 2012 and up 1.3% from the prior five0year average. Pre-report expectations were looking for a 1.9% drop from last year’s number but the highest guess was a 2.1% increase so the reported value was within the range of expectations.

Marketings during December did little to help the inventory number coming in at 1.736 million head, down 0.5% from one year ago and down 1.1% from the five-year average. (Important to keep in mind that as placements drop due to the tightening supplies of feeder cattle, marketings must come down as well.) Pre-report expectations called for a 2.2% increase in year-over-year marketings.

So, the report was bearish given that placements were above expectations and marketings were below them. The on feed number continues to be indicative of the tight cattle supplies but was slightly higher than year ago levels due to the larger than expected in-flow of cattle and the smaller than expected out-flow.

Summary of the Cattle on Feed report:

Pre-report Estimates:

(1,000 head)

vs. 2012

vs. 5-Yr Avg

Average

Range

Placed in Dec

1,681

1.0%

1.3%

-1.9%

-8.6%

2.1%
Marketed in Dec

1,736

-0.5%

-1.1%

2.2%

-2.3%

4.5%
On Feed, Jan 1

10,593

-5.4%

-6.7%

-6.0%

-7.5%

-5.3%

Placements by state and weight:

AZ

CA

CO

ID

IA

KS

NE

< 600 lbs.

N/A

N/A

14.3%

N/A

N/A

0.0%

14.3%

600-699 lbs.

N/A

N/A

14.3%

N/A

N/A

-10.0%

11.1%

700-799 lbs.

N/A

N/A

0.0%

N/A

N/A

4.8%

-13.6%

800+ lbs.

N/A

N/A

0.0%

N/A

N/A

0.0%

8.3%

TOTAL

-3.4%

18.0%

7.1%

23.1%

17.1%

-1.4%

3.8%

OK

SD

TX

WA

Other [1]

U.S.

< 600 lbs.

N/A

N/A

-20.0%

N/A

12.5%

-2.0%

600-699 lbs.

N/A

N/A

-10.0%

N/A

11.1%

1.2%

700-799 lbs.

N/A

N/A

15.4%

N/A

18.8%

3.2%

800+ lbs.

N/A

N/A

-10.0%

N/A

6.3%

2.7%

TOTAL

-17.3%

26.5%

-10.8%

36.0%

8.9%

1.0%

[1] Individual weight categories include states that are N/A

Is beef production as inefficient as some lead us to believe?

A recent article in The Economist takes a look at livestock and meat production from an environmental point of view. One of the conclusions that the article makes is that cattle need to be managed more intensively and feed should be switched to grains rather than grass to improve efficiency:

Among the lessons of the research is that white meat wins out over red for environmental reasons as well as health ones. It takes 2kg of feed to produce 1kg of chicken; 3kg for 1kg of pork. The ratio for lamb is between four and six to one; for beef, between five and 20 to one.

Even without switching between types of protein, there is scope for big productivity gains in South and South-East Asia, Africa and the Middle East, where 45-80% of pig and chicken farms are smallholdings. In America and Europe 70-98% are run at industrial scale. A cow in America or Europe eats 75-300kg of hay and other dry matter per kilo of protein; in Africa, which has the largest number of traditional pastoralists, she needs 500kg or more. On the dry rangelands of Ethiopia and South Sudan, the figure is up to 2,000kg.

Switching from pastoralism to feeding cattle with grain would dramatically improve efficiency.

This switchover would also reduce the damaging build-up of nitrogen and phosphorus in soil, since intensive methods turn the nutrient in feed into meat more efficiently. And it would slash greenhouse-gas emissions. Cattle on dry rangelands produce 100 times as much per unit of meat as cattle in America or Europe. Three-quarters of the total comes from cattle, for 59m tonnes of beef a year. Poultry and pigs produce 10%—for four times as much meat.

Industrial-scale livestock farming can encourage the spread of diseases that humans share with animals. And animals may suffer in factory farms (though they bear a big burden of endemic diseases in pastoral systems). Such downsides are cited by environmentalists who would prefer less factory farming and more traditional pastoralism. But efficient livestock farming makes better use of scarce basic resources—and is far better for the planet.

But are resources really being used inefficiently? Yes, grain will grow cattle more quickly and efficiently on a pound-for-pound basis than grass, but it is not always the most efficient resource allocation, particularly for young calves and breeding females. Often times, a combination of grass and grain diets at different stages of production is the most efficient means of beef production. For example, in the U.S. cattle are typically on a grass diet for the first several months before being transitioned to a grain-based diet.

Cattle are unique in that they are ruminants. They have the ability to turn tough, dry, fibrous grasses into a usable feed source; something that poultry or hogs cannot do. This allows cattle producers to utilize grassland to produce food for human consumption. Much of the grazing land is unsuitable for grain production. For example, it is difficult, if not impossible to grow corn in parts of the Nebraska Sandhills or the West Texas Plains, but grass grows just fine. There are many other grassland areas across the U.S. and globally that are too wet, too dry, too rocky, or too steep to produce crops, but cattle are able to thrive. In those cases, grazing cattle, when managed properly, really is the most efficient (and environmentally friendly) resource allocation. As more drought resistant grain varieties are developed, efficiency may be improved by growing and feeding additional grain to livestock, but until then grazing will remain the most efficient use of those areas.

The Cheapest Way to Skin a Cat

BBC News reports on a study arguing that pollution targets in the European Union are not strict enough:

A study confirming a link between atmospheric pollution and heart-attack risk strengthens the EU case for tougher clean-air targets, experts say.

Research in the BMJ looking at long-term data for 100,000 people in five European countries found evidence of harm, even at permitted concentrations.

Experts stressed that the risk to an individual was still relatively small.

And some argued the results were not conclusive as they did not take account of previous exposure to higher levels.

All this seems fine, but the next paragraph struck me:

Other factors, such as smoking or having high blood pressure, contribute more to a person’s risk of heart attack than pollution from traffic fumes and industry, they say.

It may well be that smoking and high blood pressure contribute more to the risk of a heart attack than local pollution, but this paragraph seems to imply that the “some experts” are saying we shouldn’t work on cutting down pollution and instead should be more concerned about battling smoking and high blood pressure. (And I’m not saying this is what the experts are saying, it’s just the impression that the paragraph gives the reader.)

In environmental economics we learn about cost-effectiveness analysis.  Cost-effectiveness analysis is used to determine the least-cost way to achieve some goal.  So, for example, if we want to reduce the risk of heart attack, we might put resources into discouraging smoking (anti-smoking campaigns), battling high blood pressure (anti-salt campaigns?), lowering local pollution (emissions taxes), or other strategies. We then try to determine how much we should invest in each strategy to reach a given goal (e.g. lowering the risk of heart disease by 10%) in the cheapest – that is, most cost-effective – way.

So, even though smoking and high blood pressure lead to a greater risk of heart attack than local pollution, it may yet be that, for a given reduction in the risk of a heart attack, it is more cost-effective to put our efforts into battling local pollution. Whether it is actually more or less cost-effective is another issue – I don’t know the answer because I haven’t studied the issue.  But unfortunately, while the article cites experts from environmental and respiratory medicine, it does not cite the views of any economists who have studied the issue.

That’s how an environmental economist would think about this issue…

 

 

 

 

 

Cattle Market Notes: Week Ending Jan 17, 2014

For Livestock Prices and Production Information CLICK HERE.

Cash Cattle:

The hot streak continues for cattle and beef prices. The five-area fed steer price ended Friday at $142.39 and $227.27, respectively for live and dressed, up $2.91 and $5.79 compared to last Friday. In the Southern Plains, live cattle were about $3 higher at $142 on Wednesday. In Nebraska, live and dressed cattle sold at $142 (on Thursday) and $226-$229 (on Wednesday), respectively. Western Cornbelt trade took place on Wednesday at $139-$142 for live and $225-$227 for dressed.

Steer and heifer calves in Oklahoma City were steady to $3 higher, feeder steers were steady to $1 lower, and feeder heifers were steady to $2 higher. In Mississippi auction markets steer calves were $2-$7 lower, heifer calves were mostly steady, feeder steers and heifers were $5 higher. Cull cows were $2 lower, cull bulls were $3 higher, and replacements were lower.

Futures:

The nearby February contract took advantage of the direction in the cash cattle and beef markets, moving higher by $3.65. As the contract month moved further out the gains weakened, implying the market is in a “wait and see” mode. This is not surprising given the record breaking pace. I suspect deferred contracts want to see how demand holds up as these prices move to the retail meat case. Feeder future gains were less dramatic despite a drop in corn prices.

Corn futures were a few pennies per bushel lower this week. Dr. Williams has some comments here. I will add that pressure also came about from lower ethanol production and, more importantly, last Friday’s supply/demand report. The report pushed the market higher which led many to send grain to the market. It has been known that producers were holding their corn in storage as a result of the drop in prices. It appears they saw an opportunity and jumped in.

Beef:

Like cash cattle, wholesale boxed beef was much higher this week. Choice boxed beef finished with a weekly average of $224.62, up $14.62. Select averaged $222.17, up $15.64.

Note: all cattle and beef prices are quoted in dollars per hundredweight and corn prices are quoted in dollars per bushel, unless stated otherwise.

MS State Economist Projects Continued Growth

Dr. Darrin Webb, Mississippi State Economist and MSU Agricultural Economics alumnus, presented the 2014 Legislative Economic Briefing on January 14. This briefing provided some welcome highlights to the economic situation for the state. In short, the Mississippi economy is growing, but mainly in terms of jobs (income growth continues to be relatively slow). The Index of Coincident Indicators has risen fairly steadily since January 2012 and the November 2013 index was slightly above its pre-recession levels.

However, employment growth has been relatively strong with a 1.71% increase from 2012-2013 (the U.S. growth in the same time frame was 1.6%) and 53 of the state’s 82 counties experienced some job growth. Overall, Mississippi gained almost 19,000 jobs with the largest growth sectors being professional services, construction, and leisure and hospitality. The manufacturing work week length experienced an increase in mid-2011 and has remained higher than pre-recession levels.

However, income growth has not fared as well. While year-over-year percentage growth in real personal income less transfer payments has remained positive since the 4th quarter of 2011, this growth is experiencing declines. Likewise, the growth in real state income tax withholdings has fallen and Mississippi ranks 44th in the growth of wage and salary disbursements.

The University Research Center projects that real output for the state will continue to grow through 201, but at slower rates than were seen in the early 1990s. Much of the recent growth has been due to low-wage and temporary jobs, but it is anticipated that Mississippi should improve as the national economy improves and that the state is on track to reach the revised 2014 estimates.

Dr. Webb’s complete presentation can be viewed at http://www.mississippi.edu/urc/downloads/presentations/Legislative%20Economic%20Briefing%20-%20Online%20Copy.pdf.

Grain Market Update: January 17, 2014

It has been a slow news week for most commodities following last Friday’s WASDE report. Corn futures have slowly declined over the course of the week after jumping 20 cents in response to last Friday’s WASDE report. Early acreage estimates for the 2014 crop have begun to flow in, with Informa estimating about 93.3 million acres. That would be a 2 million acres decline from last year’s corn crop. Soybeans have had a good week following news of significant export sales at the beginning of the week. Informa has also released estimates of soybean acres for the 2014/15 crop year. They are expecting 81.6 million acres of soybeans this year compared to 76.5 million acres last year. Soybeans will likely be taking acres from both corn and wheat. Demand remains strong for both corn and soybeans, but favorable weather in South America has kept markets from rallying much.

Economic development through the lens of an environmental economist

From the NY Times, a natural gas company in New Jersey that proposed constructing a pipeline through the protected Pinelands, has had its proposal rejected.

The decision dealt a defeat to Gov.Chris Christie, whose administration vigorously lobbied for the pipeline, saying it was an important economic development tool for southern New Jersey. The Pinelands sit atop a shallow, trillions-of-gallons-large aquifer that serves millions of residents. There are 17 species of plants that are found there but nowhere else, said Jeff Tittel, director of the New Jersey Sierra Club, an environmental group.

Dan Lockwood, a spokesman for the gas company, told The A.P. on Friday that it was studying its options.

“We’re disappointed, particularly for our customers in Cape May County,” Mr. Lockwood said.

The gas company said that, in addition to providing a cleaner fuel source to the power plant, the new pipeline would provide a second transmission vehicle for natural gas to thousands of customers in Atlantic and Cape May Counties.

The article doesn’t mention whether any environmental economists provided input for either party.  Here, the benefits of the pipeline are presumably the increased producer and consumer surplus in the natural gas market. The costs of the pipeline include the disruption to the Pinelands, which are valued for their role in aquifer regeneration and rare plant species (among other benefits not mentioned in the article).

In environmental economics, we would carefully compare the benefits of the proposed pipeline to the costs of the proposed pipeline to determine whether it is a good idea (from an economic point of view).  Environmental economists specialize in estimating benefits of those hard-to-value environmental services (like aquifer regeneration and rare species support) we get from Pinelands and other natural habits.

People not trained to think like an (environmental) economist might consider the surplus generated in the natural gas market but might fail to consider the costs of the environmental disruption when deciding whether to support the pipeline.