Understanding Crop Year Price Changes in Estimating PLC Payments

By: Carl Zulauf, Professor, Ohio State University,  2014

Overview

The 2014 farm bill provides a choice between a Price Loss Coverage (PLC) program and an Agricultural Risk Coverage (ARC) program.  The choice is not a 1 year decision; it is a 5-year decision.  This post therefore examines one potential price behavior that may occur over multiple crop years.  It suggests a simple method for estimating PLC payments.  Results of this study should be used as an illustration of the strategic thinking that needs to occur regarding this 5-year decision. Click here to read entire article

 

 

 

 

 

The Likelihood of Positive Economic Returns from Value-added Calf Management Practices

Source: Eric A. DeVuyst (Oklahoma State University) and Brian Williams (Mississippi State University).

Programs such as the Oklahoma Quality Beef Network (OQBN) promote feeder cattle preconditioning programs such as Vac-45 as value-added.  But just how much value is added and how likely is a producer to realize added value?  Research on OQBN and other vac-45 programs consistently show sale price premiums from value-added programs, but little is available on the net economic returns from these practices and how likely a producer is to earn positive returns from adopting value-added practices.  We recently completed a research study to look at these issues.  Using data collected from 16 different Oklahoma sales, including OQBN and non-value-added sales from fall 2010, we estimated the premiums from various individual and bundles of value-added practices.  These premiums are reported in table 1 below.  Sale price premiums are net of price slide effects.  In our study, a 487# steer sold for $116.89/cwt.  If preconditioned for 45 days with 2#/day weight gain, the steer would weigh 529# and sell for $113.98/cwt plus premiums for value-added practices.  Premiums range from $4.86/cwt for weaning + vaccinating to $12.46/cwt for participation in a vac-45 program with third-party verification.

We next assigned costs to each practice and bundle of practices including labor, death loss, supplies and medical, feed, and certification costs.  We then computed the estimated average economic return to each practice and bundle of practices.  These estimates are reported in table 2.  Returns ($/head) range from $20.32/head for vaccination alone to $69.16/head for certified vac-45 participation.

We next estimated the probability that a producer would receive positive returns from engaging in various practices.  One of the most frequent reasons that producers give for not adopting value-added practices is a perception that only a few large producers with established reputations receive premiums and that the little guy cannot compete.  So, our analysis addresses this issue. Using the 2010 sale data, our estimates of the probability of receiving positive returns from these practices are reported in table 2.  These probabilities or likelihoods range from about 60% for weaned+vaccinated to about 79% for participation in a vac-45 program.

We conclude that producers are likely to see positive economic returns from value-added practices with vac-45 participation generating the largest average return of about $69/head with about 79% of participants receiving net returns greater than $0. Producers interested in learning more should visit the OQBN website at http://www.oqbn.okstate.edu/.  For details on the study and the statistical methods used, visit the full article at http://ageconsearch.umn.edu/bitstream/163228/2/jaae651.pdf

Table 1. Estimated sale price premiums from value-added practices

Practice(s)

Sale price premium ($/cwt)

45 days weaned

$5.23

Vaccination

$6.79

Dehorn/polled

$5.26

Wean+vaccinate

$4.86

Wean+vac+dehorn

$8.78

Certified vac-45

$12.46

 

Table 2. Estimated economic returns from value-added practices and likelihood of positive economic returns

Practice(s)

Net return ($/head)

Likelihood of positive economic return

45 days weaned

$35.44

61.2%

Vaccination

$20.32

61.4%

Dehorn/polled

$23.35

56.3%

Wean+vaccinate

$28.86

60.4%

Wean+vac+dehorn

$41.84

67.2%

Certified vac-45

$69.16

79.3%

 

(*Adapted with permission by Brian Roe from DeVuyst and Williams, Master Cattleman Quarterly, June 2013)

Outlook on Hispanic Labor

By: Francisco A. Espinoza

An Opening Word

Both producers and labor look for a good season and good profits.  If everyone feels rewarded, successful, and happy at the end of the season, most likely their outlook for the coming year is also going to be positive. Growers will plant again and workers will head north, returning for another profitable season.  But there is no guarantee.  Every year brings potential for good and bad. And there are some indicators for the 2014 season.

Traditional Choice of State

Hispanic farm labor decides where to work for the season not much differently than anyone else seeking employment.  Chief considerations revolve around earning potential, work conditions, and community amenities providing for good housing, family needs, and local services.  Of course, details differentiate between a local Ohio resident and a migrating family, but here are some factors Hispanic labor utilizes in choosing which state they will travel to each season:

  1. Potential for profits:  Simple. Workers look for states where they can make money.
  2. Crop Calendar:  States/employers that offer an extended season of work, either through a single employer or several across the state, will attract workers, who do not want to spend their profits and time on traveling expenses and inconveniences.
  3. Historical contact:  Labor will return as long as their experiences with employer/state/region have been positive.  If so, no surprise that families sometimes have returned for generations.
  4. Good work environment and conditions: These include issues of safety and division of work.
  5. Familiar crops and work:  Workers will choose what they do best, and most profitably. Some even specialize, perhaps looking only to pickles as the best economic choice.

Spring Trip to Florida

March 2014, staff from Ohio’s Teaching & Mentoring Communities (TMC), providers of Migrant Head Start, traveled to Florida to meet with a Head Start agency serving farmworker families, some of which work seasonally in Ohio.  TMC wanted to address the decreasing numbers of children and families participating in Ohio Migrant Head Start, looking toward the coming 2014 season.  Their contact with migrant families revealed some indicators of concern for traveling north.

 Comprehensive Immigration Reform (CIR), unsurprisingly, was of chief concern.  A high percentage of labor is reported as undocumented and, therefore, unauthorized to work.  The risk of apprehension and deportation while traveling, or even while working up north, causes labor to hesitate in deciding.  States with proven enforcement, like Alabama and Georgia, are seen as barriers to travel.  Workers would like to have Florida issue some form of license ID that would allow them to drive north legally. Also basic to worker consideration is the cost of travel, such as gasoline prices. Overall, lack of CIR is the greatest concern for Hispanic migrant labor.

Implications for Ohio

Early planting of specialty crops and some greenhouse activity calls for labor. With spring conditions finally opening up the season, recruitment of farm labor intensifies.  Though it is still too early to make a definitive determination of labor availability, planting season has arrived.  With it will come some serious questions for producers.  Is the farm labor contractor (FLC) having success recruiting workers. Will emphasis be on hiring more local/seasonal labor to mix with the migrant workforce.  If there is a decrease in Florida workers, is a return to recruiting Texas workers called for. Were there enough workers for planting, and will there be enough for harvesting.  The end of May and certainly mid-June should provide a clear picture of labor availability for the 2014 season.

A Closing Word

The mid-term Congressional elections can greatly affect CIR and the availability of labor.  Will there be any movement for reform, or will it be kicked down the road.

Cash Rent Survey Data – National Agricultural Statistics Service (NASS) vs. Land Grant Surveys – Why The Differences?

By: Barry Ward, Assistant Professor, The Ohio State University Department of Agricultural, Environmental and Development Economics; Ohio State University Extension Leader, Production Business Management

Unprecedented profitability in grain farming in the U.S. has led to an escalation in cash rental rates. Landowners and farmers have found it increasingly hard to agree on an equitable cash rent as crop prices and input costs have experienced significant volatility over the last several years. Cash lease rates aren’t public knowledge and don’t have a public clearinghouse such as a futures exchange which means information on rates is often sketchy. Farmers with full yield and profit information are often reluctant to share this information with the landowner for fear of rent escalation. Landowners knowing there is significant value in “fringe benefits” that farmers provide (snow clearing, rock removal, fence-row maintenance, tiling, etc.. ) may be reluctant to recognize this value in the negotiation process. Farmer: “I’m only paying $125 per acre for a similar farm” or landowner: “my neighbor is getting $200 per acre for land that isn’t near the quality of mine” are often part of the discourse as landowners and tenant farmers negotiate for an equitable lease amount.

Rent surveys are conducted by NASS and many Land Grant Universities in an attempt to provide decision-makers baseline data. NASS has conducted surveys since 2008, surveying farmers regarding cash rental rates they presently pay on farms they rent. These survey data are summarized and published as an average cash rent by county.

http://nass.usda.gov/Statistics_by_State/Ohio/Publications/County_Estimates/index.asp

Many Land Grant Universities conduct land rental surveys by surveying professionals serving the agricultural industry by asking them their opinion of the level of cash rental rates and land values. These professionals include agricultural lenders, rural appraisers, professional farm managers, extension professionals, and others. These survey data are summarized and published as averages by land production class and by region.

Ohio Cropland Values and Cash Rents:

http://ohioline.osu.edu/ae-fact/pdf/western-ohio-cropland-values-and-cash-rents-2012-13-AEDE-15-13.pdf

Indiana Farmland Markets in 2013

http://www.agecon.purdue.edu/extension/pubs/paer/pdf/PAER8_2013.pdf

NASS survey results typically yield lower rents than Land Grant University survey results for average land production class. Two issues likely drive the differences in these survey results. First, survey questions from the two separate surveys are not the same. NASS cash rent surveys ask respondents to report the total cash rent paid and total acreage of cash rented land. Land grant surveys ask respondents to indicate average cash rents for each land production class for recently rented parcels. This difference may lead land grant survey respondents to return results that are indicative of marginal cash rents as they are asked to provide data for recently rented parcels. The NASS survey effort does not stipulate that the returned information be from recently rented parcels and may reflect lower rental rates from long-standing rental agreements and/or non-arms-length rental agreements.

The second major difference between these two surveys is that they survey different populations. The NASS cash rent survey effort surveys farmers while most land grant universities survey agricultural professionals.

Although these survey efforts often do yield different results, both sources of data can be useful as both landowners and farmers negotiate for an equitable and sustainable cash rental rate.