Harvesting the Headlines: Week Ending March 3
Between the 24/7 demands of running an agricultural operation and the blinding pace of our world today, there is little time to sift through all the headlines. The good news is that you no longer have to!
Our goal is to point you to some of the most important headlines in agriculture, so you can stay informed on the forces shaping your livelihoods.
To save you time, here are the week's top links and news items:
1. From FBN: Forecasting 2023 Farmland Values: Will U.S. Land Prices Decrease This Year?
How will the increase in interest rates, inflation, and farm income affect land values going forward?
FBN's data science team identified two main variables that correlate well with farmland values; when combined, the correlation is even stronger.
Aggregate Farmer Savings captures the effect of farmers saving their income, and it has a lag effect. Last year this measure increased.
The Real Mortgage Rate reflects borrowing incentive and alternative expected returns. This measure decreased in the last year.
The changes in these two measures suggest that additional increases in farmland values can be expected.
2. Farm Debt Concentration and Repayment
This link takes a look at which farms hold the majority of farm debt and their ability to repay that debt.
The three largest segments of farms account for 22% of all farms and 80% of farm debt.
So, a small share of farm businesses hold a disproportionate share of the sector debt.
The debt repayment capacity utilization ratio considers how much of a farm’s annual debt repayment capacity is being utilized.
Despite accounting for the majority of sector debt and having higher payments, the repayment burden of larger farms is not as burdensome as it initially seems.
3. RP vs. RP-HPE Insurance Decision: Premium, Cash Flow, and Forward Contracting
This link explores the decision between RP, crop revenue insurance, and RP-HPE, crop revenue insurance without the harvest price option (HPO).
RP-HPE has a lower premium and thus a lower cash outflow for premiums since it does not have HPO. The premium subsidy however favors RP as does forward selling.
This analysis suggests RP is a better insurance choice than RP-HPE for farmers who have sold or expect to sell before harvest more than 10% of corn and soybean production
If forward selling is less than 10%, RP-HPE may be an option to consider.
The analysis completed prompts a policy question, “Would an insurance product specifically designed for forward selling risk be a better option than RP?”
4. Soybeans Not 'Bidding' for Acres Because They Don't Have To
As planting season approaches, many farmers are paying attention to soybean-to-corn price ratio for an indication of which crop will produce higher levels of profitability.
Based on expected crop insurance prices, the soybean-to-corn price ratio is historically low at only 2.31-to-1, which suggests that soybeans are underpriced.
However, a major reason for this is the relatively high price of fertilizer. When fertilizer prices are relatively high, corn must bid aggressively in the "Battle of Acres."
One potential reason the soybean-to-corn price ratio may be low in 2023 is that the soybean market can already feel assured of ample acreage.
The key to the acreage battle will be the price of fertilizer. The price of fertilizer can be volatile, especially with the current geopolitical situation.
5. Supreme Court May Soon Announce Prop 12 Decision; Here's Why All Producers Should Care
The California law being challenged bans the sale of pork within the state unless pregnant pigs are allowed a specific amount of space.
The measure was approved with more than 68% of the vote as part of a 2018 ballot initiative known as Proposition 12.
Farm groups say the measure violates the "dormant commerce clause", a doctrine that says the U.S. Constitution limits the power of states to regulate commerce outside their borders.
If the Court rules in favor of California, the legislation will open a door to a much larger arena of regulatory authority.
If this happens, it would potentially allow each state to set its own standards on any and all products that come across state lines.
Get in touch
If you have any links you'd like to share or have any questions, please contact Travis Carlstrom, Sr. Ag Credit Analyst at FBN.
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