Projected Prices for Crop Insurance Are Sharply Lower for 2014

Recently released prices that are used by the Risk Management Agency of USDA to establish crop insurance protection levels for major crops in Mississippi are sharply lower for the coming crop year. Projected prices for conventional rice production are 11.5% below last year at $13.90 per hundredweight. The projected price for upland cotton is $.78 per pound, down 3.7% from 2013. Projected prices for conventional corn production declined the most, dropping from $5.82 per bushel to $4.53 per bushel, a decline of 22.2%. Soybean projected prices declined 14.6%, to $11.14 per bushel.

The sales closing date for crop insurance in Mississippi for most row crops and rice is February 28.

Lemurs: fierce, friendly, ninjas?

My favorite part of this article is the three lemur photos. You do not want to mess with that first lemur! But the second lemur looks like someone you might feel comfortable taking home to meet your mother. The third looks like a ninja jumping off a rooftop.

Madagascar’s lemurs – the world’s most threatened primate – could be saved from extinction by eco-tourism, conservationists say.

The big-eyed fluffy creatures are unique to the island but their numbers have declined dramatically in recent years.

Now researchers have unveiled a survival plan that combines tourism with increased conservation efforts.

Political turmoil has enveloped Madagascar following a coup in 2009. As a result of the instability, illegal logging has increased on the island, a source of valuable rosewood and ebony trees.

Due to a lack of environmental policing, the habitat of the lemurs has been under constant threat and the primates are now one of the most endangered groups of vertebrates on the planet.

The team propose that cashing in on Madagascar’s unique lemur “brand” would help the animals and poor rural communities.

Dr Christoph Schwitzer from the Bristol Zoological Society has been working in Madagascar for more than a decade. He said that tourists had still been flocking to the island, despite the political instability.

“There’s always a trade-off between the destruction caused by too many tourists and the money they bring to the country that can be used for wildlife conservation,” he told theBBC’s Science in Action programme.

“This balance for Madagascar is still very positive for conservation and it’s a long way until it may tip over.”

I don’t like that last quote. It sounds like it means something, but, when you think about it, its meaning is totally unclear. What does it mean for a balance to tip over? Anyway…

Conservationists point to eco-tourism in Rwanda and Uganda where visitors are willing to pay a premium to observe endangered mountain gorillas in their natural habitat.

Other aspects of a new three-year emergency action plan include increasing the number of long-term research field stations and building up conservation programmes.

These could help reduce another threat to lemurs, the illegal hunting of the primates for bushmeat.

Managing forests for multiple uses is an interesting problem studied by many environmental economists. This article mentions 3 benefits of Madagascar forests: it’s valuable (1) for its trees (rosewood and ebony), (2) for its habitat for lemurs for tourism, and (3) for its habitat for lemurs so they can be hunted for bushmeat. In general forests are often also valuable for things like nature tourism (people like to go for walks in forests, for example, even if there aren’t lemurs), their help in maintaining the health of aquifers, and for acting as a carbon sink.

In this case, the lemur is highly threatened. In economics we learn that people’s preferences tend to exhibit diminishing marginal utility. For example, that first slice of pizza you eat is really delicious, the third slice is good, but you don’t get as much enjoyment out of it as the first, and the sixth slice might even make you feel sick if you eat it. One implication of diminishing marginal utility is that we tend to value something more when we have less of it. Since lemurs are  highly threatened, we’d tend to assume that we are willing to incur a greater cost, for example in forgone profits from harvesting and selling timber, than if lemurs were more abundant.

I just recently saw a preview for a Disney movie (documentary narrated by Morgan Freeman) coming out later this year in IMAX theaters about lemurs. They look hilariously entertaining.

Cotton Market Update

The holiday shortened week was active with futures starting out on Tuesday up roughly 40 points across 2014 contract months, then fell hard on Wednesday before rebounding a bit on Friday. A stronger U.S. dollar has dampened export sales, the driving force behind the recent bullishness in the market. Despite still being ahead of schedule with exports, the recent increased costs to U.S. trading partners as a result of the more expensive U.S. dollar has added pressure.

News out of Washington, D.C. from USDA’s Outlook Forum pegged total cotton plantings at 11.5 million acres for 2014, above the recent industry estimate of 11.3 million in early February and higher than the industry average January estimate of 11.0 million. So, the trend appears to be a slight increase in cotton acres as decision time approaches for producers. Lower corn prices have likely led to the shift, despite cotton’s roller coaster start to 2014.

A quick look back at how these three crops compare price-wise (and how acreage is allocated) is depicted in the two figures here. Both depict the price ratios of Soybeans-vs-Corn, Corn-vs-Cotton (scaled by one-half), and Soybeans-vs-Cotton (scaled by one-fourth) during the month of February. The first also shows U.S. acreage changes compared to 2000, while the second shows Mississippi acreage changes compared to 2000. As cotton became more attractive leading up to planting in 2011 (as seen by the dip in the red and green lines), a shift to more acres for cotton is seen (although still lower than 2000, both U.S. and Mississippi acres increased).

Also in the figures are the current February price ratios for the three crops. Despite corn’s fall, soybeans appear to be the current winner in the acreage battle. The Soybean-vs-Corn ratio is near 3.0 (i.e., soybean price is roughly three times the price of corn). The Soybean-vs-Cotton ratio has actually moved in favor of beans as well. It is currently near 15.75 meaning soybean price ($/bu) is almost 16 times the price of cotton($/lb); however in the chart it is depicted at almost 4, but keep in mind this ratio is scaled by one-fourth (4 times 4 equals 16). The Corn-vs-Cotton ratio has dropped significantly, implying cotton prices have become more attractive when compared to corn.

Crop P Ratio v US Acres Crop P Ratio v MS Acres

Cattle Market Notes: Week Ending Feb 21, 2014

Cash Cattle:

Cash cattle and beef prices improved. The five-area live fed steer price ended Friday at $142, up 1 cent per hundredweight from last Friday, while dressed steers were at $230, up $7. In the Texas Panhandle and Southwest Kansas live sales were at $145. In Nebraska, most live sales were from $144-$145 and dressed cattle were from $230-$231. Similar results were reported in the Western Cornbelt with live and dressed at $144-$145 and $230, respectively.

Oklahoma City finally returned to normal this week with total receipts at 10,562 compared to last week’s 3,687. Feeder steers were called steady to $2 higher and feeder heifers were steady. All calves were $5-$7 higher. Mississippi auction markets, calves were mostly steady, while feeder steers were about $3 higher and feeder heifers were $5-$6 higher. Cull cows were about $4 higher and bulls were steady to higher.

Futures:

Live cattle futures ended the week mostly steady, with the front month (February) contract posting the only noticeable gains. The week was cut short by one day since markets were closed Monday for President’s day. Tuesday all contracts showed the most strength as the turnaround in boxed beef prices and positive sentiment in equities provided upward momentum. The dip in wholesale boxed beef coupled with weakness in the housing market brought about pressure to close the week. After markets closed, USDA reported that 10.8 million head of cattle were in feedlots with 1,000 head or more captivity on February 1, 2014, a drop of 3% but higher than the 10.6 million that was expected. For more on the report click HERE.

Corn prices were higher this week. Prices worked their way up until Friday when weakness in exports surfaced. Nevertheless, exports have been positive through the start of the calendar year. Ethanol blending is also providing support to the market. USDA began releasing outlook information this week as well. Dr. Williams has more on that HERE.

Beef:

Beef prices finally found a way to stop the hemorrhaging and this week posted gains of $4.15 and $2.79, respectively, for Choice, at $212.98, and Select, at $210.69. The momentum built through Thursday before sliding lower on Friday.

[For Livestock Prices and Production Information CLICK HERE.]

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

February Cattle on Feed Report Recap

USDA’s National Agricultural Statistics Service released their monthly Cattle on Feed report Friday (Feb 21). The report revealed that 10.760 million head of cattle were in feedlots with a capacity of 1,000 head or more on February 1, 2014. This represents a 2.8% decline from last year and a 5.1% decline from the average from 2009 to 2013, while expectations called for an inventory of 10.627 million head. February 1’s total number of cattle on feed marked a month-over-month increase of 170,000 head, whereas a decline is typically experienced (12,800 head average decline from January to February, 2009 to 2013).

[For detailed numbers click HERE]

Total placements into feedlots during January totaled 2.029 million head, an increase of 8.6% versus last year and 9.3% higher than the average from 2009 to 2013. Analyst had expected an increase of 2.8% (average of 12 analysts) with the highest expectation looking for an increase of 7.1%. So, total placements exceeded the high end of the range of expectations by 27,300 head.

Breaking down the January placements reveals that for the major feeding states (Kansas, Nebraska, and Texas), Nebraska marked the most significant increase (up 17.2% from last year), while Kansas and Texas were up 2.4% and 5.2%, respectively. For the remaining individual states that report placements, six of the nine had year-over-year increases, with three of those showing more than a 25% increase. Placements were up for every weight group compared to last year. More interestingly, though, when compared to the five-year average from 2009  to 2013, 800 pound and higher placements were up 27.3% and 600 pound and under placements were 10.3% higher, while the middle weight groups (600 to 800 pound) placements were mostly steady.

Cattle marketed totaled 1.788 million head, down 4.3% versus last year but only down 0.4% compared to the average from 2009 to 2013. The average of expectations was  a year-over-year drop of 4.8%, so the actual reported value was rather close. As inventories have fallen in recent months cattle sold out of these feedlots must also fall.

In conclusion, the large increase in heavy placements will likely add pressure to nearby prices (currently the April and June futures contract months), while the bump in light weight placements should pressure more deferred prices (six to eight months out). Inventories are still smaller than what was an already deflated supply last February, but the month-over-month increase does raise concern. Nevertheless, available beef supplies should continue to dwindle.

What valuation economists are up to these days…

Yesterday, a departmental research associate, Joonghyun Hwang, and I traveled to Orange Beach, AL for an annual meeting of economists who specialize in non-market valuation, which is the process of estimating the dollar value of environmental things that aren’t generally sold in markets (nice views, clean lakes, etc.). I really enjoy this meeting every year because there are a lot of good researchers there exchanging a lot of good ideas, which helps everyone improve his or her economic research.

The meeting has attendees from all over the U.S., so there are a wide variety of topics covered. Here are some of the applied topics:

  1. Invasive species
  2. Risk of wildfires
  3. Stormwater management
  4. Tillage practices and carbon offsets
  5. Valuation of ecosystem services
  6. Endangered species
  7. Algal blooms
  8. Public land management

Economic research is often conducted on two levels. On the first level, the researcher has to answer a real-world question on a particular topic (e.g. from the list above). This research question generally might be of interest to non-economists like the general public or policy makers. On the second level, the researcher tries to answer a research question that will actually improve our ability to conduct the research itself. This research is generally of interest only to other economists who conduct similar types of research. For example, a researcher might conduct a study in which she uses variability in housing prices and proximity to a brownfield site (a place where urban development has led to environmental contamination) in order to estimate the value of cleaning up the brownfield site. This is called hedonic pricing analysis. In the same study though, the researcher might also investigate a detail of hedonic pricing analysis that’s of interest only to others who use that research approach.  Here’s some examples of topics on this “second level” of research from the conference:

  1. Spatial issues, and how they affect value estimates.
  2. Objective risk versus subjective risk perceptions and their effect on value estimates.
  3. Survey question format and how it affects responses.
  4. Peoples’ tradeoffs between making voluntary money donations and voluntary donations of their time and effort.
  5. The effect of choice experiment design on people’s propensity to support public goods provision.
  6. How people make tradeoffs over time (i.e. discounting).

Overall it was a very good meeting, as usual, and I learned a lot. Joonghyun and I made presentations on our own research, in which Dr. Dan Petrolia is also involved. You can see the full agenda here.

USDA Forum Begins to Shape 2014 Crop Outlook

After a couple weeks of slow news for the crop markets, the outlook for the 2014 crop is beginning to take shape. The USDA released the weekly export sales report this morning, with corn exports falling around 691,400 metric tons. That is down 50% from the 4-week average. The USDA’s Agricultural Outlook Forum has been taking place the last two days and has given us some early projections for this year’s crops. National corn yields are projected to increase to 165.3 bu/acre and although planted acres will likely be lower, total production is expected to break last year’s record. Corn futures are down slightly on the day, but are still up about nine cents on the week. Current USDA price projections for corn are around $3.90 for the 2014/15 season. A record soybean yield of 45.2 bushels per acre is expected to result in a major boost in ending stocks at 285 million bushels compared to 150 million bushels for the 2013/14 crop year. The season average soybean price is projected by the USDA to be around $9.65/bu. Soybeans are up on the day despite weekly exports of 86,300 metric tons, the lowest weekly total of the year.

Growth in Overall Farm Wealth Expected to Slow in 2014

The latest forecast from the USDA Economic Research Service predicts a slowdown in the growth of overall farm wealth in 2014.  Expectations are that overall farm debt will increase 2.3% while farm assets are expected to rise 2.4% yielding a net increase of 0.1%.  This level of wealth generation in the agricultural sector is much lower than the 1.5% growth that ag. has enjoyed over the last 10 years.  The decline in asset growth stems primarily from a decline in the growth in land values around the country, brought about by a slowdown in accumulation of agricultural land, and an expected decline in commodity prices.

Despite the slowdown in asset value growth, financial solvency is expected to continue its improvement moving to a national average debt-asset ratio of 10.5 in 2014 which is down from a modest spike of 11.8 in 2010, and the lowest it has been in about 60 years.

debttoequity

However, solvency  measured using the debt-to-asset ratio is subject to change  should land price fall.

Cattle Market Notes: Week Ending Feb 14, 2014

Cash Cattle:

Cash prices were mixed this week on limited cash sales. The five-area market price ended Friday at $141.99 and $223, respectively for live and dressed. Kansas was the only region to report any noticeable cash trade at $142 live.

Oklahoma City continues to suffer from the winter weather as trade volume was limited again. Feeder cattle traded steady to $2 higher and calves were too limited to call a trend but generally higher. In Mississippi auction markets this week, calves were mostly steady, while feeders were steady to $4 lower.

Futures Prices:

Live cattle futures ended the week ended the week steady to mildly higher and feeder contracts were roughy $2 higher. Cattle futures remain under pressure from weakness in the cash and beef markets. Strength in equities lifted prices as traders typically tie these to beef demand.

Corn futures were mixed with nearby contracts higher while deferred contracts were lower. This week’s supply and demand report (released Monday) showed fewer bushels available than expected, however markets reacted in the opposite regard. The report is summarized here (link). Exports, however, remain above current forecasted levels.

Beef:

Wholesale boxed beef was weak once again. The weekly average Choice price was $208.83, down $7.47, Select averaged $207.90, down $7.45. With both down about equally the Choice-Select spread was mostly unchanged at $0.92.

Livestock and Feedstuff Price and Production Information is available at: link

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

Saving the Natural Monopoly on Water

From the Texas Tribune: Witchita Falls, TX, along with other Texas cities, imposed an outdoor watering ban in order to conserve water during recent drought conditions. The result? Not enough revenue to cover the costs of operating and maintaining the city’s water infrastructure.

Even though the 100,000 residents of this northwest Texas city have substantially cut their water use, their dry lawns may no longer continue to save them money on their water bills. Instead, they will be asked to pay more; the city lost $4.5 million in water sales last year because of the conservation efforts.

Water utilities are what’s known as a natural monopoly in economics jargon.  This means that it’s more economically efficient to have a single provider of the good (here, water) than to have many providers of the good, which is normally more economically efficient. On the other hand, most people know that monopolies tend to charge high prices which lead to high profits and low consumer surplus (i.e. monopolies tend to be bad for consumers). Because of this problem, water utilities are regulated so that they cannot charge prices that are “too high” and thereby restricting their profits to be relatively small. Why is this? Because water is considered a necessity, so most policy-makers agree that everyone should have access to a reasonable amount of safe water.

When a drought occurs, a common policy is to implement a restriction on outdoor water usage because, of all uses of water by typical households, it’s considered the least necessary (relative to bathing, cooking, cleaning, etc.). In the case of Witchita Falls, the restriction resulted in insufficient revenue to support the water utility so it is now considering raising water rates.

Fort Worth’s goal, like that of many other cities in Texas, is to change its rate structure to avoid such ups and downs. Today, about 17 percent of the utility’s revenue comes from fixed monthly charges that all water customers pay regardless of how much they use; by 2018, Gugliuzza said, 25 percent of its revenue will come from such charges. Dockery said Wichita Falls is considering a similar transition.

Still, the changes will be hard to swallow politically. Consumers have underpaid for water for decades, said Sharlene Leurig, a program director at Ceres, a nonprofit sustainability advocacy group with which many Texas cities have consulted on water rate structures.

One pricing policy that is often suggested by economists but which isn’t always adopted is known as a two-tier pricing strategy. Under this strategy, all water consumers are guaranteed a certain amount of water for free or at a very low cost so that they can meet their basic human needs such as cooking and bathing.  Water consumed beyond that level is charged at a much higher rate (closer to or even above the true marginal cost of providing the water).  The idea is that this water is more likely to be used for less necessary purposes such as watering the lawn or washing the car. The water utility earns a profit on water consumed at the higher rate in order to make up for losses earned on providing water for basic human needs.