Wednesday October 11 Ag News

High prices but narrow margins?
Alfredo DiCostanzo, Nebraska Beef Systems Extension Educator

Looking back at late November of 2014, when the negotiated fed steer price reached an all-time high, $172.06/cwt, makes one wonder why—today, at fed steer prices at least $10/cwt higher, margins are still narrow.  A 1,550-lb fed steer is worth $155 more today than one finished in late November 2014.  

While cattle placed against current live cattle marketing might have a wider margin for profit, cattle placed October of 2023 will have a narrower margin of profit even at Live Cattle Futures in the low $190’s.  Why?

Although US cattle inventories declined, and one factor effecting this decline, widespread drought, is also a factor this time, cattle feeding margins are not as wide as in the previous period of low cattle inventories.  

Much has changed since 2014!  

Although labor rates are subject to many nuances, using a standardized report such as the ISU Custom Rate Survey should reflect relative conditions prevailing in the field.  Hourly wages reported for farm work in the 2015 ISU Custom Rate Survey averaged $14.20 while the survey indicated that average hourly wages were $21.75 in 2023.  This is an increase of $1 per hour in wages for every year since 2016.  If it takes one individual to feed and manage 1,000 head of cattle (installed capacity), and that individual works 2,000 hours per year, labor cost for each 1,000 head of cattle (installed capacity) increased $15,100 ($15/head or $0.04 per head daily) during that time.  

Interest rates have been hiked by the Federal Reserve since early 2022 to slow down the economy to reduce inflation thus preventing a recession.  The effects of higher interest rates on operating costs are significant.  As feeder calf prices increase, in response to smaller supplies, the amount of money needed to purchase a feeder calf has increased further compounding the effects of higher interest rates.  A $1,000 loan amortized over six months at 4.5% carries $26 of interest while a $1,500 loan amortized over the same period at 8.5% carries $75 of interest: a difference of nearly $50.

Other changes in petroleum production and distribution, adopted to change our reliance on fossil fuels, are affecting cattle feeding margins.  A gallon of diesel fuel cost $3.80 in September of 2014 while it cost $4.50 in September of 2023.  If one assumes that one hour of operation by most diesel engines in tractors or other equipment in the feedlot burns four gallons of diesel, then the cost of each operating hour in the feedlot increased $2.80.  Making a broad assumption that each labor hour in the feedlot is represented by one fuel-burning hour, yearly fuel costs increased $5,600 or $5.60 per head of installed capacity ($0.015 per head daily).  

Lastly, but not least, corn grain prices surged from $3.77/bu in 2014 to $6.90/bu in 2022 and are now closer to $5.00/bu.  If we assume that it takes about 50 bushels to finish a steer, then the cost of feeding a steer increased $60 since the last time fed cattle prices were high.

If we assume a 210-day feeding period, and apply the estimates above to current labor, interest rates and feed costs, we account for $122 of the $155 difference (78%) in value between a steer marketed in 2023 and one marketed in 2014.  

What does this mean to the cattle feeder?  

In the short term, protecting assets from risk has become a primary focus of managing feedlots.  What are the needs of cattle as we get into winter?  Do we have all the bedding we need?  What can be done to prevent death in cattle during the first 60 days on feed or the last 90 days on feed?

Margins can also be improved by increasing the value of the product.  Extra value may be found in cattle of high quality that might return greater gross revenue if marketed through the grid.   

In the long term, interest rates may fall again.  We hope this happens soon!  

However, labor cost and scarcity of labor is not going away.  Concurrently, if stubborn policies continue to discourage fossil fuel use, fuel prices may never return to levels previously seen.

This is one reason to dislike broad statements like:  “This is a new normal”.



YEUTTER INSTITUTE OFFERS INSIGHTS ON BOOSTING AG BIOTECH INNOVATION

Agricultural biotechnology can play a key role in meeting growing global food demand if a series of regulatory, policy and public education challenges are strategically addressed, says a new report from a roundtable of experts convened by the Clayton Yeutter Institute of International Trade and Finance.

The report recommends streamlining redundant U.S. regulatory protocols, as well as emphasizing clarity and uniformity in countries’ regulations on sanitary and phytosanitary trade issues. International trade agreements should include agricultural biotech provisions, and science-based outreach is needed to boost public understanding of safe technologies such as gene-edited crops.

Participants in the Yeutter Institute project included high-level government officials from the current and previous presidential administrations, farmers, plus academics and practitioners in plant genetics, agricultural sciences, economics and law. The Yeutter Institute is part of the University of Nebraska–Lincoln’s Institute of Agriculture and Natural Resources.

Global population is on course to reach 9.3 billion by 2050, up from the current 8.1 billion, and ag biotech innovation is crucial to increase crop yields. But, the report says, “the U.S. regulatory process threatens to hold up innovation” because the “cumbersome regulatory structure can result in duplicative reviews and is a costly burden on innovators.”

U.S. officials can help, the report recommends, by streamlining and coordinating the redundant regulatory processes for ag biotech conducted separately by the U.S. Department of Agriculture, Food and Drug Administration, and Environmental Protection Agency.

The Yeutter Institute has begun preliminary briefings with Capitol Hill staff in Washington, D.C., about the group’s findings and will share with trade professionals and other interested groups, as well.

“Convening people who bring a variety of experiences and perspectives to trade policy discussions is core to the Yeutter Institute mission, and that is what we did with this project,” said Jill O’Donnell, Haggart-Work Director of the Yeutter Institute. “It’s important for policymakers to hear from a broad spectrum of voices as they make decisions, and that includes voices representing various aspects of the agriculture industry, as well as those from the Midwest.”

The document also underscores the need to remove trade impediments to be competitive globally. China has launched an initiative to dominate agricultural seed technology and innovation, and the Chinese government has put up roadblocks to approving U.S.-developed seeds in favor of domestic seed development, the report says.

Countries can use the World Trade Organization’s international agreement on sanitary and phytosanitary issues as a baseline to set uniform, science-based standards. Such a step, the report notes, would reduce complexity and complication in global agricultural trade, especially helping developing nations as they work to expand their ag export opportunities.

“The days of (free trade agreements) are not necessarily over forever, but in agriculture, we need transparency and science-based regulatory approaches as much as we need traditional market access,” the report says. Such an approach “is especially advantageous for developing countries that face a more acute need to improve their own productivity to feed their people.”

The report explains that gene editing for crops is an extension, at an accelerated pace, of trait-focused crop breeding used for millennia. “Gene-editing techniques can be a shortcut to a breeding process that occurs naturally,” the report says. “It’s a scientific way to introduce genetic variability, which farmers have been doing for decades. In fact, plant breeding dates back thousands of years to when people first domesticated wild plants.”

In the mid-20th century, Iowa agronomist Norman Borlaug devoted hundreds of hours to the meticulous breeding of wheat varieties and won international plaudits, including a Nobel Prize, for the resulting landmark improvements in crop yields. Modern gene editing for crops uses the same basic scientific method but at a far more efficient pace, the report notes. Such innovation is vital, the report says, to boost crop yields adequate to meet the world’s growing food demand.

Outreach efforts that explain the safety and importance of these scientific techniques are needed to enable further innovation, the report notes.

 

Nebraska application deadline for CSP, EQIP is Nov. 17

Nebraska farmers and ranchers interested in popular conservation programs have until Nov. 17 to submit their initial paperwork.

The Conservation Stewardship Program (CSP) and Environmental Quality Incentives Program (EQIP) provide financial and technical assistance to producers who are interested in implementing conservation practices while maintaining agricultural production. In 2022, 1,167 CSP and EQIP contracts advanced conservation across more than one million acres of Nebraska.

“This year, both programs will receive increased funding from the Inflation Reduction Act,” said Kalee Olson, policy associate for the Center for Rural Affairs. This is great news for producers, as more contracts will be offered than in past years.”

Administered by the U.S. Department of Agriculture’s Natural Resources Conservation Service (NRCS), both programs are designed to conserve natural resources, protect water quality, and improve soil health. However, CSP and EQIP differ in ways that are important to consider.

CSP contracts last five years and ask producers to implement multiple practices across their operations. Applicants must demonstrate they are currently engaged in conservation and be willing to implement additional practices.

EQIP contracts are typically one to three years, and are designed to address a particular resource concern with a single practice or project, such as reducing erosion through the use of cover crops. The program also offers assistance for structural practices, such as fencing for rotational grazing.

“The voluntary design of CSP and EQIP allows producers to select practices that meet the unique needs of their operations, whether they are in crop production or manage livestock,” Olson said.

Producers interested in applying for either program should contact their local NRCS office as soon as possible. A list of local offices can be found at nrcs.usda.gov/contact/find-a-service-center.



UNL Center for Ag Profitability Upcoming Webinars

Nebraska and U.S. Farm Income Update and Outlook
October 12 - Noon-1 p.m. CDT     
With: Brad Lubben, Associate Professor and Extension Policy Specialist, University of Nebraska-Lincoln; and Scott Brown, Associate Professor and Interim Director of the Rural and Farm Finance Policy Analysis Center, University of Missouri.

U.S. farm income reached new heights in 2022 before declining in 2023, while Nebraska's net farm income rebounded in 2023, driven by rising livestock prices. Crop receipts are expected to drop in 2023 due to lower prices, despite a production boost. Rising production costs challenge profit margins, but 2023's strong farm income highlights Nebraska's agricultural resilience. This webinar will dive into these insights and more on the evolving trends in farm income.

Join us for an analysis of the latest farm income situation, along with an outlook for what’s ahead, presented by the Center for Agricultural Profitability at the University of Nebraska and the Rural and Farm Finance (RaFF) Center at the University of Missouri.


Harvesting Insights: Understanding and Utilizing Yield Monitor Data
October 19 - Noon-1 p.m. CDT     
With Joe Luck, Professor of Biological Systems Engineering, Precision Agriculture Engineer, Associate Director of the Eastern Nebraska Research, Extension and Education Center (ENREEC), University of Nebraska-Lincoln.

This webinar will delve into the intricacies of working with harvest yield monitor data straight from the combine. It will guide participants on how to access yield data, the necessary software requirements, and crucial quality control checks to ensure accurate data representation. It will also explore advanced options for yield data analysis and the development of prescriptive measures to optimize farming practices.


Family Harmony Through Transition Planning
October 26 - Noon-1 p.m. CDT     
With: Lisa Quist, Regional Vice President, Land As Your Legacy

According to census data, 70% of U.S. farmland will transfer to the next generation in the next 20 years, but today many families struggle to keep those farm operations in the family.

When it comes to transition planning, there is a close relationship between how well a family communicates and the probability of success. Good communication provides a good foundation to work from. It helps define what the issues are; it can validate or invalidate assumptions; and it minimizes misunderstanding, clarifies expectations, and develops understanding. It is critical to discover the expectations of all family members as each individual needs to think about and share with the others what they would like to see happen regarding the future ownership and management of the business. Family and business decisions should not be based on assumptions.

Lisa Quist will share with us tips for successful communication and best practices which can help make the transition of our farms and ranches smoother, with the end goal of all the children still celebrating holidays together after the transition has taken place.

Lisa Quist is the Central Regional Vice President for Nationwide’s Land As Your Legacy® program, a division of the Nationwide Retirement Institute®. Along with her team in Ohio, Lisa helps farmers, ranchers and other ag business owners build transition plans with the goal of keeping their family’s operation intact and suited to transition to the next generation.

This webinar is presented in partnership with the Nebraska Women in Agriculture program.


Register for any of these webinars here: https://cap.unl.edu/webinars.  



IDALS Encourages Vigilance Against Highly Pathogenic Avian Influenza

The Iowa Department of Agriculture and Land Stewardship is strongly encouraging poultry producers and those with backyard birds to be especially vigilant about the signs and symptoms of Highly Pathogenic Avian Influenza (HPAI) and to practice the highest levels of biosecurity around their birds.

Recent cases of HPAI were confirmed in South Dakota and Minnesota this month and the destructive virus continues to actively circulate within the wild bird population. With fall migration underway, Iowa’s poultry producers and those with backyard flocks should remain on high alert.

“Unfortunately, Highly Pathogenic Avian Influenza continues to be an active threat to our state’s turkey producers, egg layers, and backyard flocks. We encourage everyone to remain vigilant, review their biosecurity plans and ensure they are fully implemented,” said Iowa Secretary of Agriculture Mike Naig. “Prevention of disease is always our goal, but should we face new cases, our team at the Iowa Department of Agriculture and Land Stewardship, working jointly with USDA and industry partners, is ready to swiftly respond.”

Commercial and backyard flock owners should prevent contact between their birds and wild birds. Sick birds or unusual deaths among birds should be immediately reported to state or federal officials. Biosecurity resources and best practices are available on the Iowa Department of Agriculture and Land Stewardship website. If producers suspect signs of HPAI in their flocks, they should contact their veterinarian immediately. Possible cases must also be reported to the Iowa Department of Agriculture and Land Stewardship at (515) 281-5305.

According to the U.S. Centers for Disease Control and Prevention, the recent HPAI detections in birds do not present a public health concern. It remains safe to eat poultry products. As a reminder, consumers should always utilize the proper handling and cooking of eggs and poultry products, including cooking to an internal temperature of 165˚F.

About HPAI
HPAI is a highly contagious viral disease affecting bird populations. HPAI can travel in wild birds without those birds appearing sick, but is often fatal to domestic bird populations, including chickens and turkeys. The virus can spread through the droppings or the nasal discharge of an infected bird, both of which can contaminate dust and soil.

Signs of HPAI may include:
•           Sudden increase in bird deaths without any clinical signs
•           Lethargy and/or lack of energy and appetite
•           Decrease in egg production
•           Soft, thin-shelled and/or misshapen eggs
•           Swelling of the head, eyelids, comb, wattles, and hocks
•           Purple/blue discoloration of the wattles, comb, and legs
•           Difficulty breathing
•           Coughing, sneezing, and/or nasal discharge (runny nose)
•           Stumbling and/or falling down
•           Diarrhea

Iowa’s last reported case of HPAI was reported in a backyard flock in Chickasaw County on March 14, 2023. Since the first case was reported in Iowa on March 1, 2022, Iowa has had a total of 32 cases affecting over 15.92 million birds. Nationwide, since the start of the outbreak, there have been 845 cases in 47 states affecting 59.02 million birds. In total, this is the single largest foreign animal disease outbreak in United States history.



Meat Short Courses Offer Hands-on Learning for Industry Workers

Meat processors and those with an interest in learning more about the meat handling industry can improve their skills during several short courses offered by the Meats Lab at Iowa State University.

Eight courses are planned, beginning with the Basic Sausage Short Course, Nov. 14-16, followed by the Cured Meat Short Course Jan. 16-18, 2024; Fresh Pork Processing Short Course Feb. 6-8;  the spring HACCP Workshop March 26-28, and a Dry and Semi-Dry Sausage Short Course, April 9-11.

During the summer of 2024, classes continue with the Sausage and Processed Meats Course July 15-19; and the Fresh Beef Processing Short Course Sept. 10-12. The HACCP class will be offered again Oct. 1-3, 2024.

“These courses provide important training for the industry and tend to fill up quickly,” said Terry Houser, extension meat specialist with Iowa State University Extension and Outreach. “Last year, more than 800 people participated in our courses, where they received hands-on education and instruction by experts in the industry.”

Speakers vary depending on the session, but include a mix of Iowa State staff and faculty, experts from the Iowa Department of Agriculture and Land Stewardship, as well as the private industry.

Participants come from across Iowa, as well as other states and other countries.

The upcoming Basic Sausage Short Course will focus on the beginning principals of sausage-making involved with fresh sausage production, smoked sausage and also fermented sausage.

Registration for this class is open through Nov. 7, with a reduced rate for those who register by Oct. 24.

Houser said he continues to see new interest in the meat industry, whether it’s new entrepreneurs or those who have taken over existing meat businesses and seek training. He’s also seeing new demand for certain meat products, including dried sausages and snack sticks.

The Meats Laboratory allows class participants to witness all meat processing steps, from slaughter to packaging.

All courses and registration deadlines can be viewed by visiting the Iowa State University Meat Science Short Course web page. Houser said registration is limited for some courses, in order to provide adequate hands-on learning opportunities.

Most courses are offered annually, and the HACCP is offered twice annually. If you miss an event or registration is full, check back the following year for more opportunities.

For more information, Terry Houser can be reached at 515-294-7434 or thouser@iastate.edu.  



Consumers Interested in What Their Animal Protein Consumes: Survey Reveals Consumer Purchasing Behaviors

As consumers continue to be conscientious about their food choices, a new survey from the United Soybean Board reveals valuable insights into consumer preferences and purchasing attitudes for animal protein, particularly pork products. According to the survey, 70% of respondents say that animal diet is extremely or very important to them when purchasing meat, up from 51% in 2019.

Meat consumers who prefer soy-fed meat say it offers better health, higher quality, greater nutrition and better taste. This research confirms that consumers desire to know more about their meat choices, such as what poultry and livestock consume. When it comes to soybean meal, this nutritional package of protein, the amino acids that make it up, and energy concentration continues to be the standard for all other plant protein feedstuffs.

“It’s no secret that for poultry, livestock and seafood, U.S. soybean meal is an excellent source of nutrients including protein, which is why we grow our own soybeans to feed the pigs on our farm,” said Carla Schultz, checkoff farmer-leader and soybean and pig farmer from Michigan. “Highlighting consumer preference for pork products raised on a high-quality diet presents a real opportunity. Showing that soy is a favored feed ingredient among consumers adds value for our half-million U.S. soybean farmers,” Schultz shared on a recent Supermarket Perimeter webinar.

Other key takeaways from the survey include:
    Consumers are buying pork more regularly, with 41% purchasing pork at least weekly — up from 37% in 2019. Additionally, 30% of millennial meat consumers say they buy pork two to three times a week.
    Three out of four consumers (77%) are more likely to purchase meat if it’s raised and fed by U.S. farmers. Even higher than that, the majority of consumers (88%) are more likely to purchase meat from animals born, bred and raised in the U.S.  
    Nearly all U.S. consumers (96%) pay some attention to food labels. Knowing the animal was raised humanely and fed a nutritious diet are the leading food labels for trustworthy meat brands.
    Sixty-five percent (65%) of consumers are more likely to purchase meat if it’s not fed synthetic ingredients, which bodes well for U.S. soybean meal as a natural ingredient.

“It's inspiring to see the growing support for inclusive label transparency rather than exclusive marketing tactics,” said Wendy Vlieks, vice president of communications for USB. “This emphasizes the pivotal role of factual information on food labels across the food industry, where informed choices directly influence consumer behavior.”

Insights from the survey will help inform the checkoff’s communications investments and messaging to key consumers. In September, U.S. Soy and grocery chain Giant Eagle launched a collaboration to promote soy-fed pork to its customers. The checkoff has also partnered with Coborn’s and other large Midwestern retail chains on similar efforts. The goal is to show that consumers seek and may pay more for pork that’s fed sustainably grown U.S. soy meal.

USB commissioned global market research firm Reputation Leaders to survey more than 2,000 U.S. adults online spanning 30% Baby Boomers, 26% Gen X, 31% Millennials and 14% Gen Z.



MEDGENE SIGNS AGREEMENTS WITH USDA TO DEVELOP PLATFORM VACCINES FOR FOREIGN ANIMAL DISEASES

Important cooperative agreements were recently signed between the USDA's Agricultural Research Service (USDA-ARS) and Medgene, an animal health company that produces highly-targeted platform vaccines.  The agreements are designed to apply Medgene's proprietary platform vaccine technologies against two well-known foreign animal diseases:  Nipah Virus and Rift Valley Fever.

In the case of Nipah Virus, a highly fatal disease currently affecting swine in Southeast Asia, the agreement is to test Medgene's platform vaccines developed on its proprietary baculovirus protein expression system.  The Rift Valley Fever agreement is to develop an assay to measure the antibody activity of Medgene's platform vaccines in order to differentiate an infected animal from a vaccinated animal.  This assay is especially important to international trade as it helps ensure that diseased animals are not being released into unaffected populations.  Rift Valley Fever is also a highly fatal disease that originated in Africa and affects livestock.

Dr. Alan Young, immunologist and Chief Technology Officer of Medgene, explained the significance of these agreements.  "Foreign animal diseases are monitored very closely for many reasons.  As important as American agriculture is to the world, we must be prepared to address these and other diseases now.  These projects with USDA-ARS will be a solid step forward in protecting against foreign animal disease outbreaks in the U.S."

These projects are part of the Biologics Development Module (BDM) at USDA's National Bio and Agro-Defense Facility (NBAF), which aims to create collaborations that will enhance and expedite the transition of research to veterinary-medical products.

"The mission of NBAF is to protect the United States food supply and agricultural economy from threats presented by emerging, transboundary and zoonotic animal diseases," BDM Director Mr. Steven Witte said.  "Collaborations like the current ones with Medgene allow us to carry out our mission while we complete the stand up of our laboratory facilities at NBAF.  Medgene is an important partner in our fight against transboundary animal diseases."

The ultimate goal of the collaboration between USDA-ARS and Medgene is to develop and maintain preparedness for foreign animal disease outbreaks within the U.S.

Mark Luecke, Chief Executive Officer of Medgene, added, "We are pleased that the USDA has recognized the importance of our platform vaccine technologies in protecting U.S. livestock producers and our human population from potentially zoonotic foreign animals diseases.  Given the significant number of recent incidents of coronaviruses and influenza viruses, we must collaborate to continue to improve our preparedness.  Medgene's USDA-approved platform vaccine technologies and USDA-NBAF's testing capabilities represent a world-class collaboration for these and other disease threats."

Work has begun on both agreements with an expectation of completion in 2024.



Undergraduate Students Encouraged to Apply for Beef Industry Scholarship
 
The National Cattlemen’s Foundation (NCF) is now accepting applications for the 2024 CME Group Beef Industry Scholarship. Ten scholarships of $1,500 each will be awarded to outstanding students pursuing careers in the beef industry. 

Introduced in 1989 and sponsored by CME Group, the scholarship identifies and encourages talented students who play a vital role in the future of food production. Students studying education, communication, production, research or other areas related to the beef industry are eligible to apply for the annual scholarship program.

“We are proud of our long-standing collaboration with the National Cattlemen’s Foundation and NCBA to help advance education opportunities for hardworking students,” said Derek Sammann, CME Group’s senior managing director and global head of commodities, options and international markets. “The CME Group Beef Industry Scholarship program offers valuable risk management skills to our next generation of food producers, which represent a critical part of the global economy.”

Eligible applicants must be a graduating high school senior or full-time undergraduate student enrolled at a two- or four-year institution. The application process includes submitting a one-page letter expressing career goals related to the beef industry, a 750-word essay describing an issue in the beef industry and offering solutions to this problem and two letters of recommendation. The applicant or a family member must be a member of the National Cattlemen’s Beef Association. 

The application deadline is Nov. 10, 2023, at midnight Central Time. For more information and to apply, visit www.nationalcattlemensfoundation.org. Scholarship winners will be announced during CattleCon24, January 31-February 2, in Orlando. 



CoBank Quarterly: High Interest Rates, Strong U.S. Dollar Taking an Oversized Toll on Agricultural and Rural Economies   

The combination of high interest rates and a strong U.S. dollar is beginning to take a disproportionate toll on rural industries like agriculture, forest products, mining and manufacturing. Most international transactions are still conducted in dollars, and a strong dollar makes U.S. exports more expensive and imports cheaper. That disproportionally hurts the backbone of the rural economy, according to a new quarterly report from CoBank’s Knowledge Exchange.

While the U.S. economy is outperforming expectations, the rest of the world—Europe and China in particular—has fallen short. As a result of the U.S. economic position relative to other countries, the dollar has gotten much stronger than previously anticipated. The expectation that interest rates will remain high for the foreseeable future has also contributed to the strengthening dollar.

“The challenge for agriculture and other rural industries that rely heavily on global markets is their export partners simply can’t afford to buy U.S. products,” said Rob Fox, director of CoBank’s Knowledge Exchange. “When you combine the loss of exports with a general slowdown in the U.S. economy, it’s a double whammy for many businesses operating in rural America.”

The disruptive geopolitical and economic events in recent years resulted in the historically irregular situation where commodity prices and the dollar were both moving upward in tandem. But those events are now fading as market drivers. The fundamental inverse relationship between the broad array of commodities and the dollar has largely returned.

Farm Bill negotiations will take a back seat while the House of Representatives attempts to select a new speaker and Congress works to pass its annual appropriations bills before the Continuing Resolution expires on Nov. 17. The most likely outcome is an agreement by year-end to extend the current Farm Bill by a few months or up to a year or more.

Grains, Farm Supply & Biofuels
Historically low water levels on the Mississippi River are limiting grain movement heading into peak fall harvest season. Higher barge rates on the river are pressuring interior basis values for corn and soybeans. The combination of a strong U.S. dollar and robust export competition from Brazil and Russia are creating major headwinds for the U.S. grain and oilseed export program. Winter wheat planting is underway in the U.S. with acreage expected to be down slightly as prices languish below expected breakeven costs of production.

Fertilizer prices continued to weaken in the third quarter. Anhydrous ammonia and potash prices fell 30% and 15%, respectively. Prices for natural gas, used as a both feedstock and production input, dropped by about 7%. The fall fertilizer application season should be reasonably normal for regions that are seeing an orderly harvest. While the outlook for the 2024-25 planting season is cloudy, less fertilizer usage is expected as acres shift from corn to soybeans.

Fuel ethanol production was very strong during the third quarter, averaging 16.1 billion gallons compared to 15.4 billion during the second quarter of 2023. A strong summer travel season and attractive fuel ethanol prices were the key demand drivers. Profitability was also favorable, exceeding 50 cents per gallon vs. 20 cents per gallon in the year ago period. Renewable diesel and other biofuel capacity continues to grow, having increased by 26% or 800 million gallons since January 2023.

Animal Protein & Dairy
Limited supplies of market-ready cattle suppressed beef availability throughout the third quarter. USDA estimates total U.S. beef output will be down 5% in 2023 and expects an additional 7% decline in 2024. Tight supplies continued to churn the wholesale beef market. The composite boxed beef cutout climbed to record highs in June and July, averaging a 16% premium year-over-year for the quarter. But with fed cattle prices up 30% compared to last year, packer margins came under pressure. Despite the rising price environment, consumer demand for beef has remained steadfast.

The U.S. Supreme Court decision to uphold California’s Proposition 12 spurred a rally in the pork market. Pork cutout values increased 41% from May-July, countering weak prices earlier in the year. Hog prices also rallied, with nearby hog futures climbing 36% from late May through early August. With production rising and seasonal interest fading, markets have since cooled. USDA’s latest hogs and pigs report suggests that while the industry is making efficiency gains, production levels will continue to teeter on meager profit expectations.

Chicken markets were tepid at the beginning of the third quarter. Breast meat values were unseasonably low and wings hovered around $1 per pound. While elevated consumer price points may have contributed to soft disappearance, the burden of elevated surplus was difficult to offload. Severe margin compression combined with high input costs caused some producers to reconsider longer-term production goals. Any growth will be limited given the announcements of six plant closures this year.

Strong cheese production and slowing dairy exports combined to pull Class III milk prices down to a paltry $13.77 per cwt. by midsummer. With ample cheese and strong milk production, Midwest spot loads of Class III milk bottomed out much lower than the five-year average. Faced with low milk prices and high feed costs, dairy farmers sent more cows to slaughter to take advantage of record-high beef prices. Futures markets indicate that the final quarter of the year could be much better, with projected Class III milk prices at $17.30 per cwt. The biggest wild card for milk prices is China, the world’s leading dairy-product importer, which is facing an economic downturn.

Cotton, Rice, Sugar & Specialty Crops
Ongoing drought stymied cotton production in Texas, which typically accounts for roughly one-third of total U.S production. USDA is expecting U.S. cotton production will drop 9.2% year-over-year, landing at its lowest level in 10 years. Export demand has been lethargic as the strong U.S. dollar and slowing global economy diminish sales. Heading into the fourth quarter, outstanding export sales of all U.S. upland cotton were down 23% year-over-year. The tug-of-war between shrinking supply and slowing demand has left cotton prices adrift in a narrow trading range.

India’s export ban on white rice shocked world rice markets in July. Asian rice prices quickly climbed to a 12-year high. World buyers raced to secure supplies from other major exporters like Thailand, Vietnam and Pakistan. However, the price response in the U.S. has been muted with domestic rice production making a major recovery from last year’s small harvest. With much of India’s exportable rice inventory now offline, new export business has materialized for U.S. exporters.

Extreme drought and heat in Louisiana and Texas severely crimped harvest expectations for two of the largest sugarcane producers in the U.S. Yields in the region are expected to fall to the lowest level in 16 years. USDA dropped its national sugarcane production forecast to 3.758 million short tons raw value, down 8% year-over-year. Sugarbeet harvest is expected to climb as key growing states have benefited from ideal growing conditions. So far, a slowing economy has had little impact on total sugar consumption in the U.S.

U.S. imports of fruit and berries shrank to 915,000 tons in July, a 15.2% drop versus the previous month However, fruit imports are well on track to continue their decades-long trend of steady annual increases, led by Mexico, Guatemala and Costa Rica. USDA has revised down expectations of imports of fresh vegetables, largely due to hurricanes impacting growers in Mexico's western and north-central regions. In 2022, Mexico supplied 51% of fresh fruit imports and 69% of fresh vegetable imports into the U.S. (by value).

Food & Beverage
Inflation-adjusted annual food spending hit a record high in 2022, according to USDA. The increase follows a trend dating back 25 years, with the number increasing 70% from 1997-2022. Current food spending trends reflect a continued consumer interest in eating experiences that save time and money. Those behaviors are expected to continue and intensify as heightened inflation and difficult economic conditions persist. Frozen products are especially well-positioned to capitalize on consumers’ desire for convenience and cost savings. However, inflated prices still appear to be taking a considerable toll on each segment of the frozen case.
 
Power, Water & Communications
U.S. crude oil prices increased 30% in the third quarter, with WTI futures rising from $71 at the start of July to $95 by the end of September. And while the post-pandemic, post-Russian invasion market had already breached the $100 per barrel threshold in early 2022, the 2023 rally is different. High prices this time around are marked by an important re-ordering in global supply, intransigent producers and a global economy that simply won’t slow down. Without greater demand side destruction, transportation costs are likely to remain elevated through 2024.

Telecommunication companies are continuing the aggressive pursuit of fiber network assets. Competition to capture the first-mover advantage for fiber-to-the-home service is intensifying. Studies have shown that first-to-market fiber providers in rural and underserved markets garner the majority of the market share and typically see less competition. Gaining access to capital quickly can make the difference in being the first market entrant. That is leading operators to get creative in their approach to raising capital, with some issuing bonds backed by their existing fiber networks and customer contracts.