Cattle Market Notes: Week Ending Aug 29, 2014

Cash Cattle:

Cash fed cattle prices perked up just a bit this week. The five-area live and dressed steer prices were $154.56 and $242.98, respectively, up $1.74 and $1.13. Negotiated sale volumes continue to be on the light side with cattle in the Southern Plains registering a $2-$3 increase. There have not been enough cash trades in the Northern Plains to call a trend (through Thursday).

Reported Mississippi feeder steer and steer calf prices were mostly steady across all auction markets for the week. All heifers were down about $5-$15 with heavy weight heifers experiencing the larger decline. Cull cows and bulls were mostly steady. Feeders in Oklahoma City’s auction were steady to $1 lower and calves limited in volume but mostly higher.

[ … For Livestock Prices and Production data and trends CLICK HERE … ]

Futures:

Despite the bearish Cattle on Feed report, live and feeder cattle futures roared out of the gates on Monday. Markets took a pause on Wednesday and fell back. Beef prices were reported lower, cash markets had yet to develop, and there was likely some profit taking be certain market participants. This was short lived as prices bounced back the remainder of the week on strong export news and a continued sense of positive general economics news (including the S&P 500 index moving above the 2,000 point level).

Corn futures moved lower compared with the previous Friday’s close. The big crop seems to get bigger by the day adding pressure. Overall, prices seem to be steadying out compared to the steeper drops earlier in the summer.

Beef:

Wholesale Choice boxed beef prices continued to drop this week. Choice boxes averaged $247.75, down $4.21. Select boxes ended the week at an average of $236.96, down $5.85.

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

Farm Bill 2014: Dairy Program sign-up to begin September 2, 2014

The USDA has announced in a press conference Thursday morning that sign-ups for the new Dairy Margin Protection Program (MPP) will begin next week. Producers can begin signing up at their local FSA office beginning on September 2 and must sign up by November 28, 2014 to be covered for the 2015 production year. Future years will have a sign-up period from July 1 to September 30, and if the deadline is missed there will be no future opportunities to sign up for that year. One additional stipulation is that once a producer signs up, he/she will be enrolled until December 2018 when the program is set to end.

The Margin Protection Program is a safety net program that pays out when the actual dairy margins fall below a producer selected coverage level and is open to all dairy operations, regardless of size. There is a $100 administration fee due upon sign-up, and producers can choose a coverage level that guarantees a margin of between $4.00/cwt and $8.00/cwt. Producers can also choose to cover between 25% and 90% of their production history. Producers can choose a coverage level annually during the sign-up period, and the premium payment is due upon signing up. When signing up for the first time, two forms must be filled out. One form will establish the farm’s production history, while the second form will establish the coverage level and the amount of production covered.

Overall, the program appears to be a great, low-cost safety net for diary producers. Producers electing coverage for a $4.00 margin will pay only a $100 administration fee, with the premiums rising as coverage levels increase. The FSA has a very useful online resource to help producers select a coverage level at www.fsa.usda.gov/mpptool. An additional breakdown of what we knew about the MPP prior to Thursday morning’s press release can be found here. We will also be posting additional resources in the coming days to further break down the new Margin Protection Program and help producers determine the coverage level that will be best for them.

Cattle Market Notes: Week Ending Aug 22, 2014

Cash Cattle:

Cash price maintained last week’s momentum and fell this week. However, the decline was less steep. The five-area live and dressed steer prices were $152.82 and $241.85, respectively, down $1.92 and $1.84. Most trading across the region took place on Thursday, with cash prices at $152-$153 and dressed prices were at $240.50-$242. A few live prices ticked higher on Friday in Nebraska at $155.

Reported Mississippi feeder steer prices were steady to $4 lower, while feeder heifers were mixed. Calves ranged from $2 higher to $6 lower. Cull cows and bulls were steady $3 higher. Feeders in Oklahoma City’s auction were steady to $4 higher and calves were $4-$6 higher.

[ … For Livestock Prices and Production data and trends CLICK HERE … ]

Futures:

Fed and feeder futures ended the week sharply lower. Continued pressure from the demand side lingered this week as the spiral remains in place. Adding to the pressure was a strengthening in the value of the U.S. dollar versus other currencies. This makes our goods more expensive and therefore pushes the price of beef even higher to our trading partners. A rally was taking place late in the week as general economic conditions were stronger pushing equities higher (which typically translates into improved consumer sentiment). The week ended with the monthly Cattle on Feed report from USDA. The report does not bode well for continued strength as all numbers were worse than predicted. For more detail on the report CLICK HERE.

Corn futures ended the week about five cents lower. It is “crop tour” time as many media outlets and analyst are soaking up the windshield checking on the crop across the Corn Belt. Early reports are varied with respect to the quality and yield potential but there remains an expectation of a record yield and crop in the U.S.

Beef:

Wholesale Choice boxed beef prices steadily slid all week. Choice boxes averaged $251.96, down $5.39. Select boxes ended the week at an average of $242.81, down $7.44.

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

August Cattle on Feed Report Summary

The United States Department of Agriculture’s National Agricultural Statistics Service (USDA, NASS) released their monthly Cattle on Feed report Friday afternoon (August 22). The report revealed that 9.837 million head of cattle were in U.S. feedlots with a capacity of 1,000 head or larger on August 1, 2014. Placements into feedlots during the month of July totaled 1.560 million head while marketings during the same month totaled 1.787 million head.

[ … For detailed numbers and charts CLICK HERE … ]

Placements totaled 1.560 million head, a decrease of 7.4% from July 2013 and a 16.7% decrease from the five-year average from 2009 to 2013 and now the smallest July placement on record since the data began in 1996. The average of analysts’ expectations called for a decrease of 9.1% from the July 2013 number and the range of expectations ran from -13.7% to -5.0%. The running total of monthly placements for 2014 total 12.050 million head (thru July), 1.2% lower than the same time frame last year and 2.6% below the average cumulative total from 2009 to 2013. Once again, in the face of high prices (but a month that included a dip in price that took two weeks to recover) placements were limited as a result of fewer available cattle. The drop and subsequent recovery during the month may have been enough for some producers to sell sooner than planned.

Placements of cattle under 600 pounds were higher compared to 2013 in Kansas, Nebraska, and Texas. The typical cost of gain for feedlots has declined dramatically over the past few months as corn prices have sunk. This has made placing lightweight calves much more competitive relative to trying to obtain that gain through grazing and a large driver in this increase. The implications of this increase may be felt in the coming months when those current lightweight calves would have placed as “regular” weight feeders (placed at roughly 750 pounds).

Cattle marketed in July totaled 1.787 million head, down 9.3% versus last year and down 7.3% compared to the average from 2009 to 2013. Like placements, this marketings number is now the smallest on record for the month of July. Pre-report expectations called for marketings to come in at a 8.3% drop and the lowest guess called for a drop of 9.0% so the reported number was even below that.

The total number of cattle in feedlots with 1,000 head or larger capacity totaled 9.837 million head, down 1.9% versus August 2013 and 3.1% lower than the five-year average.  Despite the larger than expected placements and smaller marketings the number of cattle on feed remained within the narrow range of pre-report expectations, but still on the high side. Pre-report analysts looked for a drop of 2.4% on average with the highest guess calling for a 1.7% drop. This is likely due to a fairly significant revision for July 2013 placements which left the reported number very near the pre-report average.

The report will most likely be viewed as bearish and send prices falling when markets re-open Monday. While the “pre-revision” placements number largely matched the average of pre-report expectations this will likely not be considered since marketings were outside the range of expectations and the total inventories were higher than expected. Deferred live cattle futures contract months could be under pressure given the higher year-over-year lightweight cattle placements. On the flip side, deferred feeder futures could be higher since these cattle will not be available for sale in the coming months.

A break down on the numbers can be found at this link: http://goo.gl/1M4YXv

What does your dog doo in the cemetery?

The Dispatch reports that the city of Starkville is struggling with how to handle dog waste in the city’s cemeteries.

Starkville aldermen will let the city’s informal cemetery board decide recommendations on how to curb a growing trend of irresponsible pet owners not cleaning up their animals’ waste after the board took no action on the matter Tuesday.

Several residents spoke out against an increasing amount of students that take their dogs to University Drive’s Oddfellows and Brush Arbor cemeteries and allow them to relieve themselves without properly disposing of the waste. A full list of cemetery board members was not available from city staff as the group is comprised of lot owners and is independent of Starkville’s bureaucracy, but aldermen Tuesday said the committee is split between banning pets from those areas or installing new waste receptacles and signage outlining park rules.

This is a great local example of how to handle a negative externality – when one person’s actions have an unintended negative effect on others. Other examples of actions that create negative externalities might be smoking in public, ringing cowbells at a football game, or a factory polluting the air or water. Here, dog waste is both unpleasant in and of itself for cemetery visitors, but many also believe it is disrespectful in the first place to relieve one’s dog in a cemetery.

In environmental economics, we often teach that a good way to deal with externalities is to make the externality-creating action more expensive. This discourages people from engaging in the action. For example, you could increase the tax on cigarettes, or impose a fine on polluting factories if you wanted to discourage smoking or pollution.

In this case, you could charge dog-owners who don’t pick up after their pet. But it would actually be very difficult to enforce such a policy because it would cost a lot to consistently monitor the cemeteries to see if people don’t pick up their pet’s waste. (Is that how we’d want police officers spending their time, for example?) This pet waste problem is actually a very similar problem to littering – you see signs on the highway about fines imposed for littering, right? But let me ask you: how many of you have ever been fined – or have known someone who has been fined – for littering? I’m going to guess not many of you.

In fact, the littering laws are more enforced by social norms than the threat of fines. That is, parents tell their children not to litter, or friends give their friends who litter scornful looks, or you see an anti-littering television ad or billboard, etc. Changing social norms can be a more efficient way of enforcing policies in which it is difficult or very costly to impose more traditional enforcement mechanisms such as fines or taxes.

So if our goal is to discourage people from not picking up their pet’s waste in the cemeteries, changing social norms might be the way to go. By putting up signs in the cemeteries, people become aware that not picking up pet waste is an undesirable behavior. Also, if pet owners see other pet owners properly disposing of pet waste, they get a signal about what is socially (un)acceptable. So I like the idea of putting up signs. There might also be a fine imposed for violators as well – but, like the littering example, this fine will be of more value as a signal about undesirable behavior than as an actual punishment imposed. But I also like the idea of putting in more trash receptacles in the area – this makes it cheaper to engage in the desired behavior (properly disposing of waste).

Economists teach that people respond to incentives and we usually focus on financial incentives. But social incentives have been shown to be effective in many situations as well. So the next time you see someone who doesn’t properly dispose of pet waste, you might try politely pointing them in the direction of the nearest trash can.

Have Land Values and Cash Rents Finally Stabilized?

8th federal reserve district

The Federal Reserve branch located in St. Louis representing the 8th Federal Reserve District, recently published the results of its quarterly survey on agricultural credit conditions and general financial status for the 2nd quarter of 2014.

Quality Farm Land:

Overall, quality farm land values appear to have leveled off, or declined slightly, with a current value per acre of farmland across the 8th district of $5,473/acre.  The survey shows land down modestly (0.5%) from quarter 1 of 2014 and down 3.5% from where land values were in the 2nd quarter of 2013.  A large share of survey respondents expect quality farm ground to continue to decline in price over the remainder of 2014.

Pastureland:

The 2nd quarter 2014 survey found the average sales price of pastureland across the district to be $2,313/acre.  This price is down 7.5% from quarter 1 of 2014 and down 2.5% from the 2nd quarter of 2013.  Like quality farm ground, expectations form survey respondents are that pastureland will decline further in the next quarter of 2014.

Cash Rents:

Despite the modest drop in the sales price of quality farm ground, cash rents increased from quarter 1 to quarter 2 of 2014 by 4.8% yielding an average rental rate of $191/acre.  At the same, time rent for pasture land fell modestly from $62/acre to $59/acre.  Overall, cash rental rates for the 2nd quarter of 2014 were higher than rental rates during the same period a year ago for quality farm ground, and slightly higher for pasture ground in the 2nd quarter of 2014 relative to the 2nd quarter of 2013.

There appears to be no consensus among those surveyed as to the direction of cash rental rates on quality farm ground for the remaining quarters of 2014. However, most believe that rental rates for pastureland will increase overall in the coming months.

 

 

Five things you need to know about County-triggered Shallow Loss Programs

 

The Supplemental Coverage Option (SCO), Stacked Income Protection Program (STAX) insurance and county Agricultural Risk Coverage (ARC) programs in the new farm bill are novel risk protection products.  All three cover a band of shallow losses and leave the producer exposed to more severe losses unless otherwise protected by crop insurance or by some other means.  Shallow loss programs are new, but most people understand the concept of layering risk protection.  What is less clear is how well people can evaluate county- versus farm-triggered programs. County-triggered programs are not new.  They have been around for decades in the form of area coverage insurance. This type of insurance is currently known as Area Risk Protection Insurance (ARPI) and was formerly called the Group Risk Plan (GRP) and Group Risk Income Protection (GRIP).  ARPI is a county-triggered alternative to farm-triggered insurance whereas STAX, SCO, and ARC are supplements to farm-triggered insurance (e.g., Yield Protection and Revenue Protection).  Over the years we have probably studied and evaluated area risk protection products as much as anybody.  So here are a few pointers.

 

  1. For an area triggered program to exist, county yields must be estimated and reported.  In the past ARPI programs have been based solely on NASS county yield estimates.  A historical series is used to predict expected yield and an actual yield is necessary to determine actual yield (or revenue) shortfalls in the insured year.  NASS does not report county yields for every commodity in every county.  They are unlikely to report in counties where the commodity is grown on relatively few acres and/or where few farms produce the commodity.  To increase the availability of STAX and SCO it is likely that RMA will, at least in some crops/areas, use aggregated yield reports from farm-triggered crop insurance policies to construct county yields.  It is less clear what FSA will use for ARC calculations.  The bottom line is no county yield equals no program.
  2. Risk protection from area products all depends on correlation.  Correlation is a statistical concept that simply means, two variables are related to each other rather than independent.  For area shallow loss programs, this may be translated to, “To what degree does county revenue go up (or down) when my farm revenue goes up (or down).  What we find is that this relationship is driven by the farm-county yield relationship.  Typically county yield and farm yield move up and down together, but not perfectly.  Further we find wide differences across farms in the relationship between farm yield and county yield.  Think of a farm using typical production practices on the predominant soil type in the center of a county versus a farm using an atypical practice on a less common soil type at the edge of the county.  The correlation of farm-county yields will likely be less for the atypical farm and a county triggered program will provide poorer risk protection.  Some have suggested that with the availability of county-triggered shallow loss products, growers should reduce the coverage level on their underlying farm-triggered insurance. Before making this decision growers should think very carefully about how correlated their yields are with the county yield.  Likewise, a number of shallow loss “decision aids” are becoming available and more will likely follow.  Growers should determine whether these decision aids allow for differences across farms in the correlation between farm yield and county yield. Ideally they would also help in measuring that correlation. Unfortunately, this is not that easy to do and many of the decision aids we have seen implicitly assume that farm-yield and county-yield are independent.  Growers should be aware that any decision aid that does not adequately address correlation is likely to provide erroneous guidance on decisions about shallow loss programs.
  3. What is not very important is whether your average yield is higher or lower than the county average.  With both farm-triggered crop insurance products and county-triggered shallow loss programs, payments occur when the realized percentage shortfall exceeds the percentage deductible. The percentage deductible is just 100% minus the coverage level (thus a crop insurance policy with a 75% coverage level has a 25% deductible). The percentage shortfall and percentage deductible are both calculated relative to the expected yield or revenue. For county-triggered programs it doesn’t really matter whether your excepted farm yield is higher or lower than the expected county yield. What matters is how closely the percentage shortfall on your farm matches with the percentage shortfall at the county level. If the county experiences a 25% revenue shortfall and your farm also experiences a 25% revenue shortfall then the county-triggered program should do a nice job of covering your losses.  However, if your revenue falls 25% but the county revenue only falls 15% you will not be fully covered.
  4. County yields are less variable than the average variability of farms in the county. This is the result of the county yield being an average of all the farms in a county.  Past research typically finds the average farm is about 30% riskier than the county in which it resides.  What does this mean for STAX, SCO, and ARC?  It means that, all else equal, a layer of county-triggered coverage will pay less than the same layer of farm-triggered coverage for the typical farm. This is actually the motivation behind the scale option in ARPI and STAX products.
  5. Get ready for differing USDA estimates of county yields.  FSA, RMA, and NASS may each use different data and different procedures for estimating realized county yields.  Thus, it is quite possible that these various USDA agencies will generate different estimates of the realized county yield in a given year and these different estimates will be used to determine payments for different programs.  If that seems strange, know that the 2014 Farm Bill did not define how these county yields would be developed.   Good luck to the USDA officials who have to explain the differences.     

 

 

 

 

 

Crop Market Update: August 19, 2014

The USDA lowered U.S. corn condition ratings from 73% good or excellent to 72%, but many analysts agree that the current conditions suggest even higher yields than the USDA is currently reporting. Mississippi corn conditions continue to look good with 74% of the crop rated in good or excellent condition compared to 67% a year ago. The U.S. corn crop entering is entering the dough stage quicker than a year ago with 70% this year compared to 49% last year and a 5-year average of 63%. Corn denting is slightly behind normal with 22% of the U.S. crop denting compared to a 5-year average of 27%. Mississippi’s corn crop is maturing earlier than a year ago, but behind the 5-year average with 60% of the crop maturing this week compared to 51% a year ago and a 5-year average of 74%. In other news, the first acreage report from the FSA was released Friday. FSA’s estimated corn acreage is 83.32 million acres compared to 83.84 reported in the June 30 acreage report. Mississippi has 463,060 acres reported to FSA compared to 520,000 reported in the June 30 acreage report. It should be noted, however, that this is FSA’s first acreage report of the year, and the numbers will likely be updated in the coming months as more data comes in. The U.S. corn crop has 1.54 million prevented acres reported and Mississippi has 93,295 prevented corn acres. This year’s numbers are much lower than a year ago when there were 3.41 million prevented acres reported in August 2013 for the U.S. corn crop and 259,715 prevented corn acres for Mississippi. Corn markets have leveled off for about the last three weeks with crop conditions remaining relatively steady and no major shocks or surprises occurring that would cause movement in either direction.

The U.S. soybean crop progress continues to trend slightly ahead of average with 83% of the crop setting pods compared to an average of 79%. The soybean crop is also maintaining its favorable condition with 73% of the U.S. crop rated in good or excellent condition, up slightly from a week ago and higher than the 62% reported a year ago. Mississippi’s soybean crop is also in better condition than a year ago with 79% of the crop rated in good or excellent condition. Although the crop is in good condition, soybean progress in Mississippi is behind normal with 85% of the state’s soybeans setting pods and 2% of the crop dropping leaves. This compared to an average of 95% of the crop setting pods at this time of the year and 11% dropping leaves. U.S. soybean acreage reported to FSA so far this year is estimated to be 79.25 million acres compared to 84.06 million acres reported in the June 30 acreage report, however as with corn, these numbers are likely to increase as FSA receives more data. There are 827,131 prevented soybean acres reported for the U.S. crop and 10,589 acres prevented acres reported for Mississippi’s soybean crop. This year’s prevented U.S. soybean acres are nearly half of what was reported in the August 2013 FSA report and Mississippi’s prevented acres are about 50% lower.

Winter wheat harvest is in the books, and spring wheat producers have begun their harvest with 17% of the spring crop now in the bins. Wheat futures have leveled off over the last few weeks, but good production numbers from the spring crop are limiting the upside to prices.

For more detail on crop futures and Mississippi local cash prices click here. Detailed information on crop progress can be found here.

Renewable energy, birds, and Apple, inc.

I knew wind turbines kill birds, but it appears solar energy can as well. From NBC News:

Workers at a state-of-the-art solar plant in the Mojave Desert have a name for birds that fly through the plant’s concentrated sun rays — “streamers,” for the smoke plume from birds that ignite in midair. Federal wildlife investigators who visited the BrightSource Energy plant last year reported an average of one “streamer” every two minutes.They’re urging California officials to halt the operator’s application to build a still-bigger version until the extent of the deaths is assessed. Annual estimates range from a low of about a thousand by BrightSource to 28,000 by an expert for the Center for Biological Diversity environmental group.

Sheesh. You try to avoid one negative externality and another pops right up to take its place. 

The link to the article also contains a video about how Apple, Inc. is using 100% renewable energy. Now why do you think they’d try to do that???

Cattle Market Notes: Week Ending Aug 15, 2014

Cash Cattle:

Not surprisingly, feeders tried to stay on the sidelines this week as prices tumbled on the futures market and in cash bids as well. The few negotiated trades that did take place were lower. The five-area live and dressed steer prices were, respectively, was $154.74 and $243.69, down $6.01 and $9.78. Too few trades took place in Texas to make a call on price. Kansas trade was called at $155 and $243.50 for live and dressed. Nebraska sales were at $156 and $244 on Thursday. Western Cornbelt cattle traded at $154 for live and $240-$243 for dressed on Wednesday.

Reported Mississippi feeder steer prices were mostly even, steer calves were steady to $5 lower. Feeder heifers in Mississippi were $7 lower and heifer calves were steady. Cull cows and bulls were $3 lower to $4 higher. Feeder steers in Oklahoma City’s auction were $6-$10 lower (heavy feeders $2-$5 lower) and calves were $10-$20 lower.

[ … For Livestock Prices and Production data and trends CLICK HERE … ]

Futures:

Fed and feeder futures ended the week mostly steady with the previous Friday’s close, but the week involved more drama. Most contracts for both live and feeder cattle attempted a rally on Monday but could not sustain the momentum and fell off until Friday. On Tuesday, USDA’s World Ag Outlook Board reported that beef production would be higher in the third quarter of this year but lower overall in 2014 and 2015. Even so, prices tumbled as the spiraling vortex of cash and futures presented itself (futures pushed cash lower, which then pressured futures, and so on!). Macro-economic news for the week was mostly muddled but equity markets trended higher through the week and this finally filtered into cattle futures on Friday.

Corn futures were provided a boost on Tuesday when USDA’s World Ag Outlook Board and National Ag Statistics Service reported their monthly forecast of corn yield and production. The reports indicated that the corn crop may be 14.032 billion bushels and yield could be 167.4 bushels per acre. Both were less than the average of analysts expectations of 14.253 and 170.1, respectively. The reported yield was even lower than the smallest expectation. Even though most expect the USDA number to continue to rise (not surprisingly, USDA is cautious with these forecast especially since this is the first to include preliminary field level results) the news pushed prices higher. For more detail on the report check out Dr. Brian William’s commentary HERE.

Beef:

Wholesale Choice boxed beef prices slid during the week, taking a significant dip on Wednesday . Choice boxes averaged $257.35, down $4.91. Select boxes ended the week at an average of $250.25, down $5.51.

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