FARE Blog

Food, Agriculture, and Resource Economics

The Costs to Agriculture from Recent Trade Disputes: A Georgia Perspective

By Gopinath Munisamy, Yangxuan Liu, and Adam Rabinowitz

Click here to download the PDF version of this blog post.

American agricultural and food producers have been caught in the middle of ongoing trade disputes between the United States and some of its major trade partners. Most trade partners – China, Mexico, Canada, and others – facing tariffs from the United States have chosen to retaliate against American agricultural exports.

Last year, American agriculture lost overseas markets and revenues, some of which have been partly compensated by the Trade Mitigation Programs and exports to new sources. However, as the U.S. – China trade dispute gets reignited in May 2019, American agriculture faces several critical challenges, including 1) whether U.S. agriculture can recover from the original and continued loss of overseas markets; 2) will the tit-for-tat tariffs cloud the prospects for new markets for American agriculture; 3) how can American agriculture compete with its non-agricultural sectors for labor and capital/credit; and 4) whether the recent rise in farm wages and a decline in farm solvency ratios point to farm financial stress.

Munisamy, Liu, Rabinowitz, and Dorfman recently released an article, entitled “The Costs to Agriculture from Recent Trade Disputes: A Georgia Perspective”. This article shares insights on the impact of the ongoing trade disputes on American and Georgia agriculture and on emerging farm financial stress. Detailed discussions on cotton, pecans, peanuts and broiler meat are included in the article. Agricultural and food producers nationwide have faced the direct effects of retaliatory tariffs, but changes in market prices alone may not fully capture the losses seen in crops that Georgia has large national shares in the production of, notably cotton, peanuts, and pecans. The search and adjustment costs for new and smaller markets may be reflected in a weakening local basis and an average national price for compensation will likely understate Georgia’s loss.

Trade issues are compounding the financial stress already present in the agricultural production sector.  Nationally, the farm debt-to-equity ratio forecasted for 2019 is the highest of the past decade. At a time when many Georgia farmers are in tough financial conditions following several hurricanes, macroeconomic factors, especially the appreciation of the U.S. dollar, and a trade war add to the financial pain being felt by many producers. Georgia may actually be in a more vulnerable position than the average for American farmers.

American agriculture appears to be buffeted by uncertain markets for products and inputs, and the marginal damage from the latest round of tariffs is likely to be significantly higher than the historical average. Whether the resolution of trade disputes will restore not only the original market access but also the foregone growth in American exports during the dispute remains an open question.

Federal Disaster Aid Package Becomes Law

by Adam N. Rabinowitz

On June 6, 2019, the disaster aid package (officially known as H.R. 2157, “Additional Supplemental Appropriations for Disaster Relief Act, 2019.”) was signed into law.  The bill contains substantial money that will aid Georgia in the recovery from Hurricane Michael, as well as addressing other disasters throughout the U.S. during calendar years 2018 and 2019, including Hurricane Florence, other hurricanes, floods, tornadoes, typhoons, volcanic activity, snowstorms, and wildfires.  I have outlined below key highlights of the legislation directly relevant to Georgia agricultural producers.

  • A total of $3 billion has been allocated to losses of crops (including milk, on-farm stored commodities, crops prevented from planting in 2019, and harvested adulterated wine grapes), trees, bushes, and vines.
  • Block grants will be provided to states for forest restoration, poultry, and livestock losses.
  • Tree assistance payments are to be made to eligible orchardists or nursery tree growers of pecan trees with a tree mortality rate that exceeds 7.5% (adjusted for normal mortality) and is less than 15% (adjusted for normal mortality) for losses incurred from January 1, 2018 and December 31, 2018.
  • Not more than $7 million for agricultural producers whose Whole Farm Revenue Protection indemnity payments were reduced following 2018 crop year losses due to state authorized disaster assistance programs.
  • Crops eligible for Federal Crop Insurance or Noninsured Crop Disaster Assistance Program (NAP) are limited to payments not to exceed 90% of the loss for those that obtained either of these policies. For producers that did not obtain available crop insurance or NAP, payments are limited to 70% of the loss.  The expected value of the crop is defined as the greater of the projected price or the harvest price.
  • Additional allocations were made for the Emergency Forest Restoration Program ($480 million), Emergency Conservation Program ($558 million), Emergency Watershed Protection Program ($435 million), and rural community facilities programs ($150 million).

Keep in mind that dollar figures included here are not allocations only for Georgia but are for all producers throughout the nation that are eligible for aid.  It is expected that the crop losses will be managed through the Farm Service Agency (FSA) using the Wildfires and Hurricanes Indemnity Program (WHIP) in the same fashion as was applied in 2018 for Hurricane Irma, with the exception of the increased payment limits to 90% and 70% for insured and uninsured acres, respectively.  The signup process and payment dates are not known at this time.  More information is forthcoming.

First Look at the Farm Bill Title I for Row Crops: Agriculture Improvement Act of 2018

By Yangxuan Liu* and Adam N. Rabinowitz*

Download the PDF version of the factsheet.

On December 11, 2018, the U.S. Senate passed the Agriculture Improvement Act of 2018 (2018 Farm Bill).  The U.S. House Representatives passed the same version on December 12, 2018.  The President of the United States is expected to sign the bill into law on December 20, 2018.  The 2018 Farm Bill continues programs for Title I commodities from the 2014 Farm Bill: the Agriculture Risk Coverage (ARC) program, the Price Loss Coverage (PLC) program, and the Marketing Assistance Loans (MAL) program with Loan Deficiency Payments (LDP).  Below we have identified some major changes in the new farm bill for easy reference.

  • The election between ARC/PLC is one of the key changes for Title I commodities in the 2018 Farm Bill. The initial election will be in 2019 for the 2019 and 2020 crop years. Beginning with the 2021 crop year, producers are allowed to change their ARC/PLC program elections annually.
  • A new effective reference price and updated PLC program yields are created for covered commodities.
  • The statutory PLC reference prices for Title I commodities remain the same as in the 2014 Farm Bill with seed cotton added. The effective reference price permits the reference price to increase up to 115% of the statutory reference price.
  • At the sole discretion of the owner of a farm, the owner shall have a 1-time opportunity to update the PLC payment yield, on a covered-commodity-by-covered-commodity basis. The payment yield is used in calculating the PLC payment for each covered commodity for which the PLC election is made.
  • In the case of seed cotton, for the purposes of determining the average yield per planted acre, the average yield for seed cotton per planted acre shall be equal to 2.4 times the average yield for upland cotton per planted acre.
  • Beginning in 2019, ARC-CO (ARC-County) payments will be based on the physical location of the farm, with farms that cross multiple counties being prorated into each county.
  • When calculating the benchmark revenue for ARC-CO, the effective reference price will be used as part of the calculation for the 5-year Olympic average price when the effective reference price is higher than the marketing year average price. In addition, the 5-year Olympic average yield will use either the county average yield or 80% of the county transitional yield, whichever is higher for that year.
  • Loan rates for the MAL program have increased for most commodities, except peanuts. Peanuts maintain the $355/ton loan rate and cotton will have a factor to limit year-to-year variability.
  • Payment limits are still $125,000, with a separate payment limit for peanuts. First cousins, nieces, and nephews are going to be included in the family members eligible for payments.
  • Unassigned base will remain unassigned and not be eligible for payments.
  • Adjusted Gross Income limits remain at $900,000 per person or legal entity.

 

*These authors contributed equally to this post.

Information on Disaster Assistance Programs

By Adam N. Rabinowitz

Click here for a PDF version of this post.

Last week Hurricane Michael ripped through the heart of Georgia agriculture, devastating the southwest region and destroying a significant amount of our farmers’ hard work.  While government programs can never fully replace the loss, there are a number of resources that are available to help farmers recover from disasters.  Some general tips and good practices include:

  • Collect documentation! Prior to starting any cleanup activity, make sure to take pictures of damage and losses that have occurred.
  • If you have crop insurance, contact your crop insurance agent to report losses or damages. It is important to do this before starting any cleanup activities so that everything can be documented properly.   Furthermore, farmers need to notify their crop insurance agent within 72 hours of discovery of a loss.  Beyond that, farmers should make sure that a signed written notice is provided within 15 days of the loss.
  • If you have noninsured crop disaster assistance or are eligible for other disaster assistance programs, contact the local FSA office. It is important to do this before starting any cleanup activities so that everything can be documented properly and a waiver can be issued prior to cleanup.

Important Disaster Resources

The USDA has a disaster website for Hurricane Michael that can be accessed at: https://www.usda.gov/topics/disaster/storms.  At that link there is information on FEMA and other disaster programs.  There is also a more direct resource related to agriculture that can be accessed at: https://www.farmers.gov/recover.  Some of the disaster assistance programs potentially applicable to hurricane losses include:

More information about each of these programs can be found at the above websites.  In addition, there have been some specific disaster related questions which are answered below.

  • What is the next step(s) after receiving crop damage? (reporting claims, documentation, etc.)

Depending on the program, contact either your crop insurance agent or local FSA office.  Make sure to take pictures of the damage and do not burn any debris.  An adjuster or FSA representative will need to survey the damage, thus it is important to wait before starting any cleanup until this has happened or permission to cleanup has been granted.

Keep in mind certain crop insurance deadlines.  Notice to your crop insurance agent must occur before abandoning a crop within 72 hours of a loss.  A written notice needs to be signed within 15 days of loss.

In addition to documenting the damage and loss, keep track of expenses related to cleanup.  It is advisable to keep records of all activities related to the disaster.

  • Do farmers have to pick the crop (in certain situations)? (requesting an appraisal, pros/cons of picking vs. taking the appraisal)

This is a difficult question that depends on individual circumstances.  Some issues that need to be considered is whether there is any salvage value of the crop and the quality of anything that can still be harvested.  If it is a good crop then it should be harvested.  The farmers crop insurance agent can help make a determination of how to proceed.

  • If you don’t pick the crop, how bad will it hurt the established yield?

If there is crop available to pick and you choose not to then it will count against the loss.

  • What if a farmer has an FSA loan on a structure that was damaged?

Contact the local FSA office immediately to report this damage.

  • What additional disaster relief may become available and when?

After many natural disasters that result in widespread damage there are often additional programs that become available to aid with agricultural losses.  This, however, is not guaranteed and it does take time before they are available as they require a special appropriation from the U.S. Congress and signature of the President.  One such example is the 2017 Wildfires and Hurricanes Indemnity Program (WHIP) that covered losses from Hurricane Irma that caused widespread damage in September 2017.  Allocation for that program was not made until February 9, 2018 as part of the Bipartisan Budget Act of 2018.  Sign up for that program did not begin until July 16, 2018.

While a special allocation may not be immediately available, it is important to document losses and to communicate to your legislators in a way that illustrates the impact that Hurricane Michael has had on your farming operation.  This information will help drive policy decisions and additional allocations that may become available.

 

Disclaimer

The information provided in this document is not a specific recommendation.  Producers should make disaster assistance decisions in consultation with their crop insurance agent local Farm Service Agency or other government entity responsible for program administration.

 

What Farmers Need to Know about Crop Insurance and Prevented Planting

by Adam N. Rabinowitz and Yangxuan Liu

Southern Georgia has seen a lot of rain during the month of May.  The table below shows the precipitation and number of rainy days in 2018 compared to the average from 2015-2017 for four selected areas in southern GA.  Precipitation in 2018 has been, on average, more than twice that of the previous three years.  The number of rainy days has also been more than twice the previous three-year average.

Southern Georgia Rainfall Data for May 1 through May 29  
2018 2015-2017 Average
  Precip. (in) # Rainy days   Precip. (in) # Rainy days
Tifton 6.91 14 2.02 6.33
Camilla 5.16 13 3.26 5.33
Midville 6.74 14 2.98 7.00
Plains 7.11 14   2.94 6.33
Source: http://weather.uga.edu

Subsequently, planting issues have occurred for farmers who typically plant cotton and peanuts during the month of May.  According to the USDA National Agricultural Statistics Service, only 65% of cotton and 73% of peanuts have been planted through May 27th.  This compares to an average of 72% for cotton and 81% for peanuts for the similar period during 2015-2017.  With saturated fields and more rain in the forecast, farmers need to start thinking about whether all their intended plantings will occur following sound agricultural practices.  It is also important to think about how this relates to their crop insurance policy, planting deadlines, and prevented planting eligibility for 2018.

Over 90% of Georgia peanut and cotton farmers typically select some form of crop insurance coverage.  Included in this coverage is a prevented planting provision that provides payments when extreme weather conditions prevent expected plantings by the final planting date or during the late planting period.  The USDA Risk Management Agency (RMA) announces the final and late planting dates, which vary by crop, coverage type, and county.  The table below identifies the final planting date and the end of the late planting period for peanuts and cotton in GA.  Coverage during the late planting period is reduced by 1% for each day after the final planting date, up to the end of the late planting period.

Peanut Revenue & Yield Protection
Final Planting Date End of Late Planting Period Date Counties
5/31/2018 6/10/2018 Jefferson, Johnson, Laurens, Montgomery, Richmond, Treutlen, Washington, Wilkinson
6/5/2018 6/15/2018 All other counties
Source: USDA Risk Management Agency
Cotton Revenue & Yield Protection
Final Planting Date End of Late Planting Period Date Counties
5/25/2018 6/4/2018 Bartow, Chattooga, Elbert, Floyd, Franklin, Gordon, Hart, Henry, McDuffie, Monroe, Morgan, Oconee, Polk, Spalding, Walton, Warren
6/5/2018 6/15/2018 All other counties
* There is a special provision starting in 2018, which will allow for coverage of Upland Cotton planted five days after the end of the late planting period.  If Upland Cotton is planted during that five-day period, it is not eligible for prevented planting.
Source: USDA Risk Management Agency

If planting by these deadlines is not possible, it is important that farmers maintain proper records that document the cause.  Keep in mind that planting decisions must be based on sound agronomic and crop management practices.  If it appears that it will be difficult to finish planting by the final planting date or during the late planting period, farmers should contact their crop insurance agent and discuss their options.

A full publication is available (click here to download) that includes the above information, frequently asked questions, answers, and links to additional resources.

 

Publication: Surviving the Farm Economy Downturn

by Levi Russell

A new publication entitled “Surviving the Farm Economy Downturn” is now available online free of charge. The publication provides a general farm economy outlook as well as discussions of topics such as risk reduction, cost control, alternative crops, livestock sales during drought, crop insurance, ARC and PLC payment forecasts, stress and suicide, and other issues. Please follow the link below to check out essays on these and other topics:

https://afpc.tamu.edu/extension/resources/downturn-book/

Understanding Your Generic Base Conversion Options With the Seed Cotton Program

by Don Shurley and Adam N. Rabinowitz

We have developed a third publication in a series of fact sheets on the new seed cotton program. Included in this document is a little history of what happened with the 2014 farm bill that led to the development of the seed cotton program.  We provide an example of the decision process and identify things to think about when making the decision.

The PDF can be downloaded here.

MYA Prices and Calculating Payments with the Seed Cotton PLC

by Don Shurley and Adam N. Rabinowitz

This post presents a second fact sheet in a series of publications that briefly explain the basic workings of the new seed cotton program.

Effective with the 2018 crop, “seed cotton” is now a covered commodity under Title I of the 2014 farm bill and eligible for PLC (Price Loss Coverage) payments. For purposes of the legislation, “seed cotton” is unginned upland cotton—a combination of both cotton (lint) and cottonseed.

The linked document discusses:

  • Reference price and payments,
  • Marketing year average prices and how to calculate them,
  • What would have been the past 10 years had the seed cotton program been in place,
  • Payment yields, and
  • A payment calculator

Click on this link to access the factsheet.

 

The Bipartisan Budget Act of 2018: What Farmers and Landowners Need to Know about Cotton and Generic Base

by Don Shurley and Adam N. Rabinowitz

On the morning of February 9, 2018, the U.S. Congress passed budget legislation that included the designation of seed cotton as a covered commodity under the 2014 farm bill. The President has signed this legislation and it has become law. The document linked below highlights the critical components about the new cotton program and treatment of Generic Base.

The Bipartisan Budget Act of 2018

More information, including a decision aid, will be available soon at http://agecon.uga.edu/extension.

How big is this peanut crop?

by Adam N. Rabinowitz

The 2017 peanut harvest is well underway with over 70 percent of the Georgia crop dug and over 50 percent harvested.  While Hurricane Irma negatively impacted the cotton crop, there was no widespread negative impact on peanuts.  Both irrigated and dryland peanuts are looking good.

Peanut yields in Georgia and the rest of the peanut producing states will be up from last year with the big question being by how much and whether new records will be set.  USDA forecasts for the U.S. are for a yield of 4,257 pounds per acre with the GA yield at 4,700 pounds per acre, both of which would set new records.    With 1.9 million acres planted in the U.S. and 840 thousand acres planted in GA, this crop also has the potential to set a new record level of production.

A few questions have surfaced that are worth discussing as we wait for the harvest to be completed in the coming weeks.

  • Is there sufficient warehouse capacity to store the expected crop?
    As of mid-September there were 3.8 million tons of approved warehouse capacity in the U.S. with 1.9 million tons in GA.  At first look, this has the potential to create a shortage of warehouse space of about 118 thousand tons in the U.S. and about 12 thousand tons in GA.  However, expectations are that a worst case scenario would be a logistical issue and not a question of where to store these peanuts.  Coming into this harvest, warehouses have been basically empty and shellers are prepared to start moving the current crop through the system.  Combine that with a longer than typical planting season and the industry should have little problem in finding space for these peanuts.
  • What is the size of this crop going to do to market prices?
    This becomes a question of supply and demand.  Basic economics tells us that as the supply increases prices will be driven down.  There is little anyone can do to prevent the supply situation at this point, so one must look towards demand.  The industry needs to continue to look for opportunities to expand demand in order to maintain or increase prices.  We have seen domestic use of peanuts for food increase in recent years but there are few opportunities to impact consumer demand in a short period of time.  The greatest opportunity for finding a market for this crop is through increased exports.  Through August, total U.S. exports have been down compared to last year, and this is likely due to prices that increased late last year.  While it is likely that exports will pick up, there is little indication that it will be without a drop in price.  Right now the market is waiting to see how large this crop will be and that will determine how low the price will go to move this crop.  Even with exports forecast to increase from last year, the ending stock created by this crop is expected to reach the heights of 2012.  The industry needs to find a home for these peanuts as prices will be impacted until this surplus can be moved.

So the big question of course is whether the crop will meet these yield expectations.  We really won’t know until the harvest is complete but we can look at some of the historical USDA projections to get an idea of how accurate they have been in forecasting yields.

As can be seen in the figure above, the blue line represents the actual yield in GA and the orange line represents the October forecast yield released by the USDA.  This graph starts in 2006 which was when Georgia-06g was released.  This variety currently represents about 80 percent of the peanuts planted in GA.  We can see that every year, except the last two years, the USDA October forecast was less than the actual final yields.  Generally this would project a very favorable expectation on the USDA forecast model as typically underestimating yields.  There is further evidence of underestimating in 2012 when there was a big spike in yield such as is expected this year.  The two most recent years when the USDA overestimated yields were during a period of a downward trend from the peak.  It will be interesting to see what the final yield number is for 2017 and how that compares to the current forecast of 4,700 pounds per acre.  This is certainly a big spike in yield from our actual 2016 yield of 3,900 pounds per acre, but with no major crop and weather issues this year it might just be achievable.