& Policy Update Graphic owner: UKZN SAEES: school website
April 24, 2018 Volume 18, Issue 4 Edited by Will Snell and Phyllis Mattox
FEATURED ARTICLES Cow-Calf Profitability Expectations for Spring 2018 - Kenny Burdine - Greg Halich Maximizing Value: Spring Application of Broiler Litter for Grain Crop Production - Jordan Shockley Thoughts on the 2018 Tobacco Season - Will Snell KFBM Crop Farms Show Improvement - Jerry Pierce Dealing with Farm Stress - Laura Powers Trade Debate with China – Implications for Ky. Agriculture - Will Snell
COW-CALF PROFITABILITY EXPECTATIONS FOR SPRING 2018 (FALL CALVING HERD) Spring is the time of year when fall calving cow-calf operations wean their fall-born calves and summer stocker operators place calves into summer grazing programs. Last month, we wrote an article that examined the profitability outlook for a summer stocker operation, and the purpose of this article will be to examine the profitability of cow-calf operations that have recently sold, or will soon sell, their fall born calves. A very similar article was written last year that took this same basic approach, and overall profitability is very similar to where it was at that time. Table 1 summarizes estimated spring 2018 costs and returns to a traditional fall-calving cow-calf operation. Every operation is different, so producers should modify these estimates to fit their situation. Average weaning weight is assumed to be 550 lbs. and the steer / heifer average calf price is assumed to be $1.45 per pound. This price is based on the mid-April 2018 market, which actually decreased slightly from March. Weaning rate is assumed to be 90%, meaning that it is expected that a calf will be weaned and sold from 90% of the cows that are managed and exposed to a bull. This is a relatively high weaning rate as this analysis will generally assume a well-managed operation and reflects weather that is more favorable during the breeding and calving seasons for fall calving cows. Based on these assumptions, calf revenue per cow is $718. The pasture-stocking rate is assumed to be 2 acres per cow-calf unit and pasture maintenance costs are assumed to be relatively low. At $25 per acre, this would include one pasture clipping and seeding some legumes on a portion of the pasture acres each year. Producers who apply fertilizer to pasture ground would likely see much higher pasture maintenance costs, and these costs should be adjusted accordingly. Producers should also consider the stocking rates for their operation as this will vary greatly, especially for fall calving herds. Stocking rate impacts the number of grazing days and winter feeding days for the operation, which has large implications for costs on a per cow basis. The primary cost difference between a fall-calving herd and a spring-calving herd is winter feed. Since fall calving cows are lactating during the winter, their nutrient requirements are higher when stored feed is typically fed. For the initial purposes of this analysis, fall calving cows are assumed to consume 2.5 tons of hay through the winter and that hay is valued at $90 per ton. This hay value is considerably above “market” price in most areas, but is high due to the greater hay quality needs of fall calving cows. In some settings, fall calving cows may be fed lower quality hay, in which case weaning weights (and revenues per cow) would be lower. An alternative strategy for some operations might be to feed lower quality hay and supplement cows during the winter. If this is done, both the cost of the supplemental feed and the additional feeding labor should be considered. Regardless, winter nutrient needs are higher for fall calving cows, and this comes at an additional cost. Mineral cost is set at $35 per cow, veterinary / medicine costs $25, trucking costs $10, machinery costs $20 (primarily for feeding hay since this does not include machinery for hay production or pasture clipping as they are included in those respective costs), and other costs $25. Marketing costs are assumed to be $30 per cow, but larger operations may market cattle in larger groups and pay lower commission rates. Breeding stock depreciation is a key cost that is often overlooked. Breeding stock depreciate just like any other asset on the farm. For example, if the “typical” cow entered the herd as a bred heifer valued at $1,700 and her expected cull value was $700, then she would depreciate $1,000 over her productive lifetime. If we assume a typical cow has 8 productive years, then annual cow depreciation is $125 using a straight-line depreciation method. This is the assumption made in this PAGE 2will vary across farms. When buying bred replacement heifers, analysis, but the actual depreciation this cost is obvious. With farm-raised replacements, this cost should be the revenue foregone if the heifer had been sold with the other calves, plus all expenses incurred (feed, breeding, pasture rent, etc.) to reach the same stage as a purchased bred heifer. Continued on page 2
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Finally, breeding costs are assumed to beOF $40THE perTAX cow CUTS and are one JOBS of theACT mostON misunderstood costs on a cow-calf operation. EFFECTS AND FARM BUSINESSES Breeding cost on a per cow basis should include annual depreciation of the bull and bull maintenance costs, spread across the number cows services. For example, if a bull22, is purchased for $3,500Department and sold two years later for Revenue $2,500, the bull depreciated The Tax of Cuts andheJobs Act was passed December 2017. The Treasury and the Internal Service must now $500 each year. Then, if his maintenance costs were $500 per year (feed, pasture, vet / med, etc.), his ownerships costs are $1,000 interpret the law and write the regulations. Most provisions will affect farm businesses beginning this year. Below are some of the per year. If that bull covers 25 cows, breeding cost per cow is $40. A similar approach can be used for AI, but producers should be changes that affect farmers most. careful to include multiple rounds of AI for some cows and the ownership costs of a cleanup bull, if one is used. Breeding costs per cow may beWithholding much higher for many operations as these assumptions are likely conservative. Employee With lower tax rates Federal income tax withholding from employee paychecks have dropped. The Treasury has released new Note that based on our assumptions, total expenses per cow are roughly $585 and revenues per cow are $718. So, estimated return withholding tables for employers. The new withholding rates are effective immediately and must be in use no later than February to land, labor, capital, and management is $133 per cow managed. This is very similar to our estimates for spring 2017. At first 15, 2018. glance, this return can be misleading, so some additional discussion is warranted. A number of costs were intentionally not included in this analysis because they vary greatly across operations. Notice that no value is placed on the time spent working and managing 1031 Like-Kind Exchange the operation, no depreciation on facilities, equipment, fences, or other capital items is included, and no interest (opportunity cost) is Like-kind exchange is repealed for equipment and livestock. It is limited to real property that is not held primarily for sale. Thus, all charged on any capital investments including land, facilities, and the cattle themselves. Therefore, the return needs to be thought of “trades” of equipment will be treated as a sale of one asset reported on Form 4797 and purchase of another asset subject to as a return to the operator’s time, equipment, facilities, land, and capital. depreciation and cost recovery. As one thinks about quantifying these additional costs, it likely makes sense to start with land. Cow-calf operators should at least Depreciation and Cost Recovery cover the rental potential of that pasture ground. Similarly, there is a great deal of capital investment on a cow-calf operation in Most farm property uses thethat 200% declining balance andFinally, a half-year convention. Theshould amount of depreciation is they facilities, fencing, andnow equipment should be considered. a cow-calf operator expect some returnallowed to the time weighted to earlier years. New machinery and equipment has a shorter, five-year recovery period. New means that original spend managing the operation. This might be best illustrated by using a simple, bare-bones illustration. At a relatively low land ownership begins withacre, taxpayer. Usedrepresent machineryanother and equipment still in has the longer cost seven-year recovery. rental rate of $30 per this would $60 per cow opportunity given the two acres per cow stocking rate. A similarly low $50 per cow estimate for depreciation and interest on equipment, fencing, facilities, etc. (this would not include hay Section 179asExpensing equipment hay is valued at market price in the analysis) and $30 value for the operator’s labor and management, would suggest The return maximum amount thatlabor, can beand deducted is $1 million. This deduction to phase at $2.5 million in likely depreciable that to land, capital, management would need to be $140begins per cow. Again,out these numbers are low and purchases. variable across operations, but thinking through them is important to understanding current cow-calf profitability. Put simply, wellmanaged fall calving herds are likely covering cash costs and breeding stock depreciation right now, but are not likely receiving Bonus Depreciation anything but minimal returns to the their capital investment, labor, and management. Business may write off 100% of most business investments for assets placed in service through 2022. The bonus amount is reduced by 20% each year beginning 2023 until bonus depreciation is eliminated in 2027. This applies to purchases after September 27, 2017. The deduction now includes used equipment, not just new purchases.
Table 1: Estimated Returns to Fall Calving Cow-calf Operation: Spring 2018
Interest Payments Net interest expense inRevenues excess of 30% of the business’ adjusted taxable income is disallowed. Farming businesses may elect out by choosing to use longer Steer depreciation period orLbs. more. A business / Heifer on Calfproperty Averagewith a 10-year recovery 550 $1.45 is exempt $798 from the disallowance if average annual gross receipts for the prior three-tax year period exceeds $25 million. Average gross revenue for Discount for Open Cows 10% open $80 2016 commercial grain farms was $1.1 million, so most Kentucky will be exempt. Total Revenues per Cow $718 Net Operating Loss (NOL) Expenses Net Operating Losses may no longer be carried back and applied to offset prior year taxes. The NOL carries forward indefinitely, Pasture Maintenance 2.0 acres $25.00 during $50 the year is limited to rather than the old 20-year rule. A farm NOL may qualify for a two-year carryback. Any NOL deduction 2.5 tons $90.00 $225 80% of taxable income Hay for that year. Mineral Domestic Production Activities Deduction (DPAD) Vet DPAD is repealed for tax years beginning after December 31, 2017. Breeding
$35 $25 $40
Marketing $30 20% Business Deduction Machinery $20rules seem to be A 20% Business Deduction may apply to income passed through an entity or earned by a sole proprietor. The complicated. The deduction applies to Taxable Income, not Adjusted Gross, as did the DPAD. A last-minute$10 addition to the law Trucking allowed the deduction to be passed through from cooperatives. However, the wording apparently gives a greater advantage to Breeding Stock Depreciation $125 those who sell through a co-op. Lawmakers are trying to address this unintended consequence. Other $25 Total Expenses per Cow
$585
Return to Land, Labor, and Capital
$133
Continued on page 3
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It is likely that the two most variable factors impacting cow-calf profitability are calf prices and hay / winter feed costs. So, Table 2 shows estimated returns to this same fall calving cow-calf operation given a range of winter feed costs and calf prices. Note that the center of the table, which represents a steer / heifer average price of $1.45 and hay costs of $225 per cow, perfectly matches the detailed budget shown in Table 1. From there, calf prices are increased and decreased by $0.10 and $0.20 per lb. Winter feed costs are increased and decreased by $50 per cow in Table 2. This captures a wider range of hay costs, winter feeding days, or other nutritional approaches employed by the cow-calf operator. For example, at 2.5 tons per cow through the winter, a $50 increase in winter feed cost would value hay $20 higher per ton and a $50 decrease in winter feed costs would value hay at $20 less per ton. Producers should consider where their operation likely lies on Table 2 to better estimate their likely profit levels in this environment. Both Tables 1 and 2 should help producers understand current returns to a fall calving cow-calf operation.
Table 2: Estimated Returns to Fall Calving Cow-Calf Operation given Winter Feed Costs and Calf Prices: Spring 2018 Avg. Steer/Heifer Price, 550 lbs. Winter Feed Costs
$1.25
$1.35
$1.45
$1.55
$1.65
$175 $225 $275
$84
$133
$183
$232
$282
$34
$83
$133
$182
$232
-$16
$33
$83
$132
$182
Note: Returns above are returns to land, labor, and capital based on the same assumptions used in Table 1.
Much like last year, it appears that fall-calving herds are likely covering their cash costs and breeding stock depreciation. However, each operator should also consider what return they need to adequately compensate them for their investment in land, capital (including depreciation), labor, and management. For example, if a producer felt that they needed a minimum of $140 return to compensate them for their time and investment as was previously discussed, our initial estimates in Table 1 suggest that we are not reaching that level. Once enough producers start to feel this way, we will start to see herd liquidation in response to unsustainable profit levels over time. In the meantime, cow-calf operations should work to better understand their cost structure and what calf prices should be to reach their profit goals. This will help them determine their best strategy as they make longterm decisions about their cowherds.
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MAXIMIZING VALUE: SPRING APPLICATION OF BROILER LITTER FOR GRAIN CROP PRODUCTION Spring is here and grain producers across the state are gearing up for planting. One of the many decisions producers have to make before planting is in regard to their nutrient management plan. Broiler litter provides a great opportunity as a complete fertilizer and is being produced and used throughout the state in grain production. However, the value of broiler litter can vary greatly depending on the management practices, nutrient content of the litter, soil test data, and commercial fertilizer prices. Spring application of broiler litter maximizes plant available nitrogen resulting in the maximum economic value of broiler litter. As mentioned in previous issues, the average nutrient content of a ton of broiler litter in Kentucky (as received) is 50 lbs. of nitrogen, 56 lbs. of phosphorous, and 47 lbs. of potassium. In addition to three macronutrients, broiler litter contains other beneficial elements such as micronutrients (zinc and copper), other secondary macronutrients (calcium, magnesium, and sulfur), and organic matter which are difficult to quantify in value. For this analysis, the three primary macronutrients (N, P 2O5, and K2O) will be used to determine the value of broiler litter. If your soil test recommendations supported the application of broiler litter and you applied or plan on applying this spring, that is equivalent to 40% commercial nitrogen, 80% commercial phosphorous and 100% commercial potassium per ton of broiler litter (as received). Therefore, the nutrients that would be available to the crop from an average ton of broiler litter in Kentucky would be 20 lbs. of nitrogen, 45 lbs. of phosphorous, and 47 lbs. of potassium. With current fertilizer prices of $491/ton for anhydrous ($0.30/lb. N), $457/ton for DAP ($0.38/lb. P2O5) and $329/ton for potash ($0.27/lb. K2O), the average expected value of broiler litter is $38/ton. This value will vary day to day depending on the price of commercial fertilizer. In addition, this is using the average nutrient content of broiler litter. Each load of broiler litter can vary in nutrient content and should be measured to include into the overall nutrient management plan and supplemented with commercial fertilizer as needed. Incorporating (disking or rain) broiler litter after application this spring can increase the commercial nitrogen equivalent by reducing nitrogen loss into the air by ammonia volatilization but depends on the time between incorporation and application. Rainfall of ½ inch can reduce loss by moving nitrogen through the soil but too much rainfall can cause runoff or leaching. If incorporated 2 days or less after application, commercial nitrogen equivalent increases to 60% resulting in an increase in the value of broiler litter to $40/ton. Commercial nitrogen equivalents decreases 5% for every 2 days incorporation is delayed due to ammonia volatilization (3-4 days = 55% commercial N equivalent & $39/ton value; 5-6 days = 50% commercial N equivalent $39/ton value). If you wait over 7 days, the value of broiler litter is similar to if you did not incorporate ($38/ton). If you are in a no-till system and applying broiler litter, it is not recommended to incorporate broiler litter just to gain the extra value. Since the value of broiler litter is dynamic and always changing, a decision tool is available so grain producers can enter soil test data, nutrient content of measured litter, commercial fertilizer prices, and management practices to determine the value of broiler litter. Look for the “Economic Value of Poultry Litter: Grain Cropsâ€? on my website: (http://www.uky.edu/Ag/AgEcon/shockley_jordan.php).
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THOUGHTS ON THE 2018 TOBACCO SEASON Look for additional concentration in Kentucky’s tobacco industry for 2018. For individual growers, burley contract volume ranged from a small percentage increase to total contract elimination. In aggregate, burley contract volume is likely down around 15% for the upcoming growing season. Burley contract volume fell due to anticipated continual decline in U.S. cigarette production (down 9.1% in 2017 – the largest annual decline since 2009), slumping leaf exports (down 19.2% in 2017), and increased utilization of imported leaf (now likely exceeding 60% of total burley use by U.S. cigarette manufacturers). USDA’s planting intentions, released on March 30, 2018, revealed that U.S. burley growers planned to harvest 72,900 acres in 2018 – 11% lower than the year before. However, the USDA survey was conducted in early March, prior to most company’s contract announcements. A 15% drop in “official” U.S. burley acres would generate a crop in the neighborhood of 140 million pounds, which still may be 15 to 20 million pounds more than current market demand. However, the official U.S. burley acres reported by USDA last year seemed on the high side and consequently the expected surplus may not be as large as indicated above. Nevertheless, market conditions are calling for a smaller U.S. burley crop in 2018. Contract price schedules also varied considerably by company with some companies increasing top grades by two to five cents per pound, while one major buyer kept contract prices constant, with some smaller purchasers actually lowering prices. Based on the weighted contract price schedules below for the largest buyers, a crop graded 30% #1s and 70% #2s across all companies would average $1.99/lb. in 2018 versus $1.96/lb. evolving from the 2017 crop price schedules. According to USDA, the 2018 U.S. burley crop averaged $1.95/lb., 3 cents higher than the 2016 crop, but still below the pre-buyout price of nearly $2.00/lb. in 2004.
As always, burley returns are extremely variable based on assumed yields and labor expenses. H2A wage rates for Kentucky for 2018 increased to $11.19/hr. compared to $10.92/hr. last year. Housing, travel, workers comp, and other fees must be taken into consideration for those employing this legal seasonal workforce to determine the total hired labor wage rate, which is likely approaching $15.00/hr. Assuming an average burley price of $1.95/lb., 150 hours of hired labor, coupled with relatively flat nonlabor input costs, generates the following net returns for the 2018 crop to compensate for a producer’s own labor, management, and land under different wage and yield scenarios (see table below). Given these assumptions, improved yields and labor efficiency will once again be critical to generate a profitable burley crop in 2018.
2018 Burley Net Returns to Land and Operator Labor and Management For Various Yields and Total Hired Labor Wage Rates 1/ Yield 1750 lbs./acre 2000 lbs./acre 2250 lbs./acre 2500 lbs./acre 2750 lbs./acre
$10/hr. $0.04 $0.28 $0.46 $0.61 $0.66
$12.50/hr. -$0.18 $0.09 $0.29 $0.46 $0.52
$15/hr. -$0.40 -$0.10 $0.12 $0.31 $0.38
1/ Based on an average burley market price of $1.95/lb. and 150 hours of hired labor/acre. The 2018 burley budget can be accessed at http://www.uky.edu/ag/agecon/pubs/exttobbudget201857.xls Continued on page 6
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Dark air cured acres were projected by the USDA planting intentions report to be 13% lower, while dark fire-cured acres were relatively flat, despite one major buyer cutting contract volume in excess of 10%. Overall, dark tobacco production is being constrained by a slowing in the growth in domestic smokeless tobacco consumption, with U.S. consumer sales of snuff relatively flat in 2017. Like burley, look for dark tobacco prices to remain relatively flat for the 2018 crop. Unlike burley, dark tobacco prices are 20 to 30 cents/lb. higher than pre-buyout prices.
KFBM CROP FARMS SHOW IMPROVEMENT Preliminary data from crop farms participating in the Kentucky Farm Business Management (KFBM) indicate some financial improvement in 2017 compared to 2016. Highlights include the following.
Net Farm Income was $200,356 in 2017 compared to $68,746 in 2016. Management Returns were positive for the first time since 2013 at $15,488. Average Working Capital totaled $713,350 in 2017, up more than $100,000 from previous year. Current ratio was 1.74:1 compared to 1.62 for 2016. The average crop farm included $7.6 million in assets for 2017. Net Worth was $5.3 million, up about $200,000 from 2016. Debt-to-Asset Ratio was 31%, up slightly from 30%.
While much of the improvement was due to farm managers reducing cost and restructuring balance sheets, generally increased yields and fairly stable prices helped tremendously this past crop year. The data come from analysis of farms participating in the Kentucky Farm Business Management program completed by March 1 each year. The Final Analysis will be available by early June. For more information, see the Quick Links at http://www.uky.edu/Ag/KFBM/.
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DEALING WITH FARM STRESS Everyone has stress. In good times and in bad, situations arise that will create stress. Farming is certainly no different. In fact, given that so much of the farm business is determined by “Mother Nature” and is outside of human control, farming is a naturally stressful occupation. Stress in farming can arise through a variety of means: financial, production, labor, and other forms. Having a well-stocked toolbox of methods to deal with stress is that much more important. Bob Milligan, noted leader in farm labor issues, tells us that we must be “brutally honest in assessing the financial stress of the farm business”. (LearningEdge Monthly, April 2018). When times are good and farm prices are up, it is easy to look at that checking account and see those nice balances. We don’t dread the sound of a ringing phone because debt collectors are not on the other end and our lenders are friendly. When prices are down and debts are up, we tend to want to avoid any information that tells us the condition of the bank account. We fear what we may see, so we may have a tendency to avoid it. However, it is in those more difficult times that it is most important to examine the farm business (and family living expenses) and think more carefully about the return on every single dollar spent. As Dr. Milligan states, “the clarity of knowing the financial status of the farm and the corresponding ability to focus on the necessary next steps should reduce the stress.” A part of the process for examining the farm business is to engage someone not emotionally attached to the farm. When we are personally involved in a business or project, we may be at risk of losing true objectivity. We may be too headstrong to look at alternatives within the business. We may be too focused on what we want to be true, as opposed to the reality of the situation. Involving a qualified advisor (and the willingness to listen to that advisor) can help the farm business owner identify options that he/she may not have otherwise considered. Choosing the right advisor for you is critical. You must be able to be honest and give that person the full story. The advisor must be willing to give you bad news if that is necessary. Although bad news may be difficult to accept, once we understand the adverse condition we can then examine the options and deal with the situation. When we face difficult situations, we must divide the circumstances between those we can control and those things we cannot control. We can then focus our energy on what we can control. In farming, we cannot control the weather, but we can control which varieties we plant and what fungicides and pesticides we can use. We cannot control grain and livestock prices. However, we can work with a marketing advisor to develop marketing strategies. We cannot control input prices. However, we can work with our farm business management specialists to compile and analyze our financial statements, perform enterprise analysis to determine break-even prices, and examine our family living expenditures. When we focus our efforts on those things that we can control, we become less stressed about things over which we have no control. Understanding and accepting that stress is truly a part of life will go a long way in dealing with stress. Having the right team around you is an important component in collecting and organizing information to make decisions and to put those decisions into action.
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TRADE DEBATE WITH CHINA – IMPLICATIONS FOR KENTUCKY AGRICULTURE In the February Economic and Policy Update Newsletter (http://www.uky.edu/Ag/AgEcon/pubs/extBluesheet12.pdf), we looked at the importance of Canadian and Mexican markets for U.S. and KY agriculture in the midst of on-going NAFTA trade renegotiation. In this issue, let’s examine the significance of the Chinese market for U.S. agriculture given all the recent trade debate between the world’s largest two economies. China generally rivals Canada as the United States’ largest agricultural trading partner. Last year, the U.S. exported $24 billion of ag and ag-related products to China, representing around 15% of U.S. global ag trade. Soybeans dominate the U.S. ag trade to China, accounting for over half of total ag exports to China, nearly 60% of global U.S. soybean exports, and over 30% of the total value of the crop. Trade tensions between the two global superpowers have been well reported by the media in the past several months as the Trump administration attempts to address trade imbalances and intellectual property issues with China. Earlier this month, China announced plans to impose a 25% tariff on U.S. soybeans and U.S. pork along with assessing duties on other U.S. agricultural products including corn, cotton, wheat, sorghum, tobacco, dried distillers grain (DDGs), beef, fruit, nuts, wines, and nearly 100 other U.S. products shipped to China, ranging from aircraft to bourbon, in retaliation to the United States’ trade actions against China.1 Soybeans are an important product for the Chinese market, used as feed for their massive pork industry and for cooking oil. China consumes around 30% of the world soybeans, but only produces around 3 to 4% of world production, resulting in China being the world’s largest soybean importer. A recent Purdue University study estimated at a 10% tariff on U.S. soybeans would eliminate 1/3 of U.S. soybean exports to China, while a 30% tariff would cause U.S. soybean exports to that nation to fall by 71%. The U.S. price would face significant downward pressures in the short-run, but the study indicates that as the market adjusts, a 10 to 30% Chinese tariff on U.S. beans would result in a 2 to 5% drop in the U.S. farm price. (https://www.purdue.edu/newsroom/releases/2018/Q1/study-u.s.-soybean-production,-exports-would-fall-if-chinaimposes-tariffs.html). A University of Illinois study released last week projected that the tariff would cause a 7% price decline for U.S. soybeans in the immediate future ($9.70/bu. in 2017 vs $9.00/bu. for 2019-2021) which also could reduce the price of other crops as acres adjust and depress land values, resulting in additional financial stress on already vulnerable U.S. grain farms. (http://farmdocdaily.illinois.edu/2018/04/impacts-of-chinese-soybean-tariffs.html) Given that China simply can’t replace U.S. soybeans with domestic production, the question becomes can the Chinese market source enough beans from alternative export markets to offset potential reductions in U.S. soybeans? Brazil and Argentina are the likely options, but with limitations. This would force the U.S. to discover alternative export markets for soybeans and/or be forced to accept lower prices to move the surplus grain into the international market. While the 25% tariff on U.S. beans entering China has not been implemented yet, other markets (primarily Europe) have been increasing their purchases of U.S. soybeans recently, providing some short-term stability to U.S. soybean prices. China is also the world’s largest pork consumer. While China accounts for over 10% of U.S. pork exports, China produced 97% of their own pork last year. Consequently, the Chinese can easily replace the relatively small volume of U.S. pork with other suppliers such as Canada and the European Union. ____________________________ 1 In addition, China recently placed a 179% tariff on U.S. Sorghum entering China in response to alleged dumping practices by the United States. China accounts for over 80% of U.S. sorghum exports.
Continued on page 9
PAGE 9 So how does all this potentially impact Kentucky agriculture? USDA’s Foreign Agricultural Service (FAS) trade data reveals that Kentucky ag exports to China totaled $125.8 million in 2017. However as indicated in the February Economic and Policy Update Newsletter, FAS data measures exports based upon the final origin of movement of the product to the international market. Thus, Louisiana receives export credit for Kentucky soybeans shipped from New Orleans ports. Applying USDA’s Economic Research Service (ERS) state export data (which measures exports based on location of original production) with the percentage of each U.S. commodity exported would indicate that Kentucky soybeans shipped to China totaled around $300 million in 2017 – or about 15% of Kentucky’s $2.1 billion of ag commodity exports. Besides soybeans, other extremely important Kentucky products for the Chinese market are forestry products, which amounted to $105 million in 2017 – about 1/3 of the Commonwealth’s global forestry trade. While relatively small (less than $10 million of sales annually), Kentucky feeds and distilled spirits industries have exhibited significant growth in the Chinese market in recent years. Kentucky’s other ag exports to China are very minor. The beef and equine sectors are hopeful that recent actions to reopen the U.S. beef and equine markets to China will provide a boost to Kentucky ag exports. The trade data reveal that China accounted for 16.7% of U.S. tobacco exports in 2017, but almost all of this was flue-cured tobacco given that the Chinese cigarette market consists of primarily flue-cured blends. Obviously, this is raising a lot of concern in North Carolina where the Chinese tobacco market is their number one ag export destination, accounting for nearly 20% of their crop.
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College of Agriculture, Food and Environment Department of Agricultural Economics 315 Charles E. Barnhart Bldg. Lexington, KY 40546-0276 Phone: 859-257-7288 Fax: 859-257-7290
Economic & Policy Update View all issues online at http://www.uky.edu/Ag/AgEcon/extbluesheet.php
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