Ep. 3 The Disparity Between Agricultural Prices Paid and Received

00;00;07;28 – 00;00;12;11
RIley Smith
So, anyway, that’s what I had in mind for.

00;00;12;14 – 00;00;20;19
Dr. Ryan Loy
Oh, that sounds good to me. Now, that sounds great. And, I’m glad you had a happy fourth. And, we’re all glad to be back here. You know, Hunter and I are heading to the lake tomorrow.

00;00;20;24 – 00;00;21;13
RIley Smith
Are you really?

00;00;21;13 – 00;00;27;23
Dr. Ryan Loy
We are. We are for a few days, so that’ll be a good time. I’ve never been to Lake Wichita, so I’m excited to see it. And excited to see all.

00;00;27;27 – 00;00;29;11
RIley Smith
Wichita or Ouachita?

00;00;29;11 – 00;00;34;11
Dr. Ryan Loy
Yeah. See? Okay. See, that’s where my Oklahoma comes in. It’s. I thought it was Wichita, but it’s. What is it here.

00;00;34;11 – 00;00;35;11
RIley Smith
It’s Ouachita.

00;00;35;12 – 00;00;45;17
Dr. Ryan Loy
Ouachita. Okay! Yeah. Well yeah I’m used to saying Wichita even with the O. And so I was like, oh, well, now I sound ridiculous when I say it, but.

00;00;45;24 – 00;00;52;17
RIley Smith
I’m pretty sure I’m that it’s, the Quapaw Indians that lived in the nation.

00;00;52;17 – 00;00;54;05
Dr. Ryan Loy
Yep, yep, I believe so.

00;00;54;05 – 00;01;09;29
RIley Smith
But anyway. So good morning. Good morning. Welcome to your Morning Coffee and Ag Markets with your host, Riley Smith. We’re here in the studio today in little Rock. It’s a beautiful day. We finally got some rain. And I believe it’s pretty cool outside this morning.

00;01;10;02 – 00;01;22;17
Dr. Ryan Loy
It is, it is. And we got quite a bit of rain. I’ll tell you what, the, little creek that runs by our office here was, is packed full. I mean, it’s almost up to the road. Yesterday when I left work, it was pretty impressive how much rain we got. And so, yeah, the amount of.

00;01;22;17 – 00;01;38;10
RIley Smith
Time I didn’t check the rain gauge this morning. So I don’t know how much rain we got the other night. I know that we had a tornado warning about it. There was one that apparently touched down about three quarters of a mile down the road from us, but not good anyway, today. So we got Dr. Ryan Loy in the studio with us today.

00;01;38;12 – 00;01;39;08
RIley Smith
How are you doing?

00;01;39;08 – 00;01;40;15
Dr. Ryan Loy
Well, Riley, thank you for having me.

00;01;40;19 – 00;02;01;12
RIley Smith
Yeah, absolutely. Dr. Birams out this week. He’s doing some some meetings. and then the like. Doctor Ryan said that they’re going to be out on the light the end of this week. But we got him in here today and we’re going to our topic today is the disparity between crop prices received and input prices paid. So what’s the value of your dollar and what you’re receiving.

00;02;01;12 – 00;02;19;11
RIley Smith
So we’re going to talk about that a little bit today. And at the end of this podcast we’re going to have your market report with me. So we’ll be talking about the input prices and cash commodity prices for this week and the average on this date. So Doctor Loy, so I’m just going to let you talk about it for a little bit.

00;02;19;11 – 00;02;31;14
RIley Smith
Absolutely. And see where this goes, see what kind of questions are or that I can point out or pick out from, from this topic. so go ahead.

00;02;31;17 – 00;02;52;16
Dr. Ryan Loy
Of course. so to really kind of kick this off, it’s actually perfect timing. Today I had an article get released on, Southern AG today, which is a so as basically what it sounds like it’s a newsletter for southern agriculture. And so it’s all of the southern ag schools. We contribute to it. So anyway, my article on this topic came out this morning.

00;02;52;16 – 00;03;20;11
Dr. Ryan Loy
So it’s actually perfect timing. And so to really kind of understand this, what we’re looking at here in this article and the graphs that I’m going to refer to will be in the newsletter that goes along with this podcast as well. but what we’re looking at is the National Agricultural Statistics Service, Nass from the USDA. They release these indices and one of them is a crop price received indices, and the other one is an input price paid index.

00;03;20;11 – 00;03;49;08
Dr. Ryan Loy
And so both of those indices, basically what they do is they go out and say okay, when Nass goes out they say, here’s all the cash prices we have. Let’s put them into an index value. So what does an index value mean? And so what that means is basically they’ll index on a year. That’s pretty stable. So in this case it was 2011 2011 was good crop prices decent input prices, good net farm income in 2011.

00;03;49;11 – 00;04;12;27
Dr. Ryan Loy
And so they said, well, okay, that’s a decent year. Let’s use that as the base year. So what these indices are basically a basket of all the prices. That was received for crops in the U.S during a period of time, and it’s subject to that base year of 2011. So for example, 2011 on the index is 100%, meaning that that is what it costs in 2011, 100%.

00;04;12;27 – 00;04;38;13
Dr. Ryan Loy
Right? All of that basket of goods, it’s just 100%. But if you move a year in year into the future, two years into the future, the index change is based off that base year. So for example, the index year in in 20, I believe it was 2012 was actually 100, 102.8%. And so people look at that and say, well, what does that mean for me?

00;04;38;15 – 00;05;02;08
Dr. Ryan Loy
I don’t really understand why that’s important. It’s not in prices. Well, really, what it means is that if 2012 is 102.8% as far as the indices for the price received is concerned, that means that the crop price received in 2012, on average for the US was actually 2.8% higher than in 2011. So does that kind of make sense as to where we kind of are going with this at all?

00;05;02;08 – 00;05;23;26
Dr. Ryan Loy
Yeah okay. Okay. And so really what we’re looking at here is we’re comparing everything to 2011 and seeing how better or worse off we are compared to that time. And understanding these two indices in the spread between them. Meaning what’s the index value for the inputs that you put in and what’s the index value for the outputs that you’re getting paid for?

00;05;23;29 – 00;06;04;12
Dr. Ryan Loy
And how would those how is that spread impact the profitability at the farm? And so what we see is that the spread between these two indices really help us understand where farmers are getting price squeezed and how their profit margins are impacted. And really why this is an important topic right now is because we have so much farm income, instability from inflation pressures, high interest rates and several supply chain disruptions, you know, up to and including the Russian Ukraine war, the Panama and Suez Canal issues and so they’re forcing farmers to pay higher input costs while also receiving a lower dollar amount for the crop that they produce.

00;06;04;15 – 00;06;28;21
Dr. Ryan Loy
And so really the issue here is and again, these charts will be, linked in our newsletter. And so that way everybody can see what I’m referring to as I’m talking about it. What we see is that basically since 2013, when when we were writing the 2014 farm bill, the index for both of these, the input prices and the crop prices were almost equal.

00;06;28;28 – 00;06;37;02
Dr. Ryan Loy
They were equal. So meaning it was basically a one for one relationship, saying you put in one, one, one unit, you get out one put, you know, get in one unit.

00;06;37;06 – 00;06;39;12
RIley Smith
You’re actually getting the value. You’re actually getting output.

00;06;39;18 – 00;06;43;22
Dr. Ryan Loy
That’s right, that’s right. No more, no less. They were basically just about equal.

00;06;43;24 – 00;06;44;17
RIley Smith

00;06;44;19 – 00;07;09;23
Dr. Ryan Loy
But what we’ve seen since 2014 is that the spread between those has gotten wider. And what I mean by the spread is that input price index has increased dramatically since, 2011, while the crop prices received index has decreased dramatically, whereas they typically were kind of on top of each other, usually since 2014. Farm bill, we’ve seen just this wide spread.

00;07;09;25 – 00;07;31;02
Dr. Ryan Loy
And so what that means is, we’ve seen those widest gaps between 2014 and 2020. and really what this shows us is that in the issue here is that this is where most of our, farm safety net supports stemmed from, and so and rightfully so. Right. It was the time. This is what we do in this time.

00;07;31;04 – 00;07;56;18
Dr. Ryan Loy
But now we’re in a completely new environment. And so all that to say is that what we’ve seen here is that in this new environment, we are going to be faced with lower commodity prices, whether it’s Brazil coming up and taking our market share of other crops, you know, soybeans, corn, or it may be China not purchasing our corn because we have expensive dollars right now with high interest rates.

00;07;56;18 – 00;08;25;08
Dr. Ryan Loy
And maybe they’re going to go buy Brazil’s. And so what you see is us is we could quickly lose some market share there. If that continues. And if that continues, our crop prices will continue to get lower. At the same time, what we see is the input costs not decreasing at the same rate. And so another way to kind of look at this, these indices and the spread is not necessarily just the actual industry values themselves, but the percentage change from year to year.

00;08;25;11 – 00;08;54;29
Dr. Ryan Loy
So if we look at the exact same values and all we do now is look at what’s the percent change between 2011 and 2012. For example, as I mentioned earlier, in 2012 was a 102.8%. The percentage change from 2011 would have been 2.8%. That makes sense. Now, what we’ve seen with this percentage change is that we can use that percentage change to understand the volatility of crop output prices, the magnitude of changed as compared to the previous year.

00;08;55;02 – 00;09;36;28
Dr. Ryan Loy
And we can really have the key takeaway that looking at this graph, we can see that input prices are less volatile in terms of a year over year change. They’ve been extremely high the last few years, but they’ve been less volatile in terms of that year over year change than output prices. And so what we see is that that percentage change in crop output prices between 2023 and 2024 drops 13.8%, which means that between 2023 year and now, what we’ve seen is a 13.8% decrease in that index, meaning we’ve seen overall a 13.8% decrease in that basket of commodities, if that makes sense.

00;09;36;28 – 00;09;56;08
Dr. Ryan Loy
If the cost of those commodities we’ve seen that decrease. At the same time we have this widespread, it drops almost 14%, but that’s much larger than the percent decrease for that same time period for input prices. And that only dropped 1.38%.

00;09;56;13 – 00;10;24;29
RIley Smith
So so let me ask you a question. Because I’m sitting here, I’m trying to imagine this index and from an economic standpoint, and I’m going to try to put this in layman’s terms. So I gather that you’re not getting out what you’re putting in anymore. That’s right into the last in the last several years, from 2011 to now, it’s slowly has separated itself from the input and output.

00;10;25;02 – 00;10;39;24
Dr. Ryan Loy
That’s right. That’s exactly right. What we saw originally to your question and and I want to preface all my answers here real quick with this is on average, you know, so some people may have not have seen this, some people maybe have seen this to an extreme degree, but on average this is what we see.

00;10;39;27 – 00;10;46;03
RIley Smith
Your question. So from that point of view.

00;10;46;05 – 00;11;20;16
RIley Smith
Are we seeing you were talking about. And this is just where my mind goes because we talked you talked about like for an example Brazil buying up market shares and U.S. Corn, U.S. Beans. And in everybody pretty much knows that Brazil and Argentina are number one and two in corn and soybean production as far as production acres. So with that and then we also know that China has a huge their main bread and butter would be being crushing facilities.

00;11;20;16 – 00;11;48;08
RIley Smith
Right, right. So they buy up a huge portion of U.S. and Argentina, Brazil, soybeans for their crushing facilities. So now we’re talking about the supply and demand, right? Right. So are we basically losing that demand, which is dropping our output prices as far as now? We’re getting so much supply of it because there’s not near as much being bought.

00;11;48;11 – 00;12;08;15
RIley Smith
And then are we. And then yet our input prices, fertilizer, chemical, whatever you have may be it’s not it’s not necessarily rising. But to stay in the same saying than the same staying in the same spot. But we’re still dropping in that output price. So therefore the farmer is not getting out what he’s putting into it.

00;12;08;16 – 00;12;39;10
Dr. Ryan Loy
That’s right. And and so just to kind of answer that first part of the question, would Brazil and you know the to say it’s simply demand I don’t think is necessarily the answer because the countries that we get, they do have that demand. But there’s a lot of things working against us. Right. So at the beginning of this year, when crop prices were looking extremely low and they’re still looking very low, the issue with us in our country, with what we’re dealing with right now, is that we have high interest rates and high interest rates, make our money on the global scale more expensive.

00;12;39;12 – 00;12;43;00
Dr. Ryan Loy
So it takes more of that, that foreign currency to actually pay for it.

00;12;43;01 – 00;12;43;27
RIley Smith
Money cost more.

00;12;43;27 – 00;13;01;25
Dr. Ryan Loy
That’s right. Money cost more. So what ends up happening is that China and you know, you look at it and say, well, if I’m going to use this corn, for example, for feed for the pigs that they have over there, why would I buy expensive corn from us? If I can go to Brazil and they may actually have it on the market earlier than we would.

00;13;01;28 – 00;13;18;08
Dr. Ryan Loy
and so there’s, there’s that too, and there’s some political things in there as well, you know, the relationships between those countries. And so the demand question is not so much. It’s more of just a perfect storm of both low commodity prices and expensive money. Right now. And that’s really kind of the perfect storm of what’s going on.

00;13;18;10 – 00;13;36;09
Dr. Ryan Loy
You mentioned the input prices. And that’s exactly right. We saw high volatility in input prices month over month, even day over day when the Russian Ukraine war first started. What we’ve seen now is that yeah, they’re still very high because we still have supply chain disruptions. We still have high interest rates. We still have everything. Everything’s still expensive.

00;13;36;12 – 00;14;03;08
Dr. Ryan Loy
But we’ve seen it kind of taper off. And it’s not as volatile as these crop prices have now been. and so using that and looking at that, even if the year over year change for that index for inputs is decreasing, 1.3%, well, at the same time, our crop output prices are decreasing by 13%. So even if there is a decline, we’re declining more and what we actually get as far as our revenue is concerned.

00;14;03;14 – 00;14;04;08
Dr. Ryan Loy
So.

00;14;04;11 – 00;14;27;29
RIley Smith
So so from a producer standpoint, what what is what do they need to know about this. And and what could they do to maybe, I don’t know, reflect or help in their decision making as far as this goes, as far as their output being somewhat equivalent or getting closer to what that input is.

00;14;27;29 – 00;14;43;04
Dr. Ryan Loy
That’s right. And so, so what I would say a few things on the producer side, because I think the answer is kind of twofold, both producer and policy side of things. On the producer side, it’s going to be all about the timing of your booking. Pay attention to those markets. Pay attention when you’re booking your inputs. Pay attention.

00;14;43;04 – 00;15;04;19
Dr. Ryan Loy
Make sure that’s the low time of the year, the lowest time of the year you can get. You can get it and I would say just use any much of historical data receipts. You have to see when that price goes to lowest and get it, then book it. Then and then as far as on the commodity side, that would be a function of, you know, marketing your crop, right?

00;15;04;19 – 00;15;23;03
Dr. Ryan Loy
Don’t just rely on the cash market, right market ahead of time. Market a portion of your crop year mark a portion of your crop, you know, in a different time. Those sorts of things help a lot. now, of course, you get into kind of if you have debt, you have operating loans. It’s a little bit more difficult to do that sometimes if you have to get money quick.

00;15;23;06 – 00;15;47;17
Dr. Ryan Loy
But that’s a different topic for a different day. But the other answer would be on the policy side of things. Now, this is just a kind of very, biased, approach to what I think that the main conclusion is from this article that we will put in our newsletter is that if input and crop and output prices continue on the trajectory, they’re on an improved farm safety net.

00;15;47;19 – 00;16;06;29
Dr. Ryan Loy
And I don’t know what that would look like and I don’t it’s not my job to comment on that, but it will be warranted. An improved farm safety net is at least warranted. and we all know that this will be at the forefront of every producer’s mind with the ongoing farm bill debates into 2024.

00;16;07;01 – 00;16;17;03
RIley Smith
Well, that’s, that sounds like a pretty good piece of, of,

00;16;17;05 – 00;16;35;27
RIley Smith
That’s a pretty good piece of, information to know as far as what I can say. You know, I’m not a producer, but I want to say there’s producers out there that’s that that’s may have this question of why, you know, everybody, we all live in a daily life. So we’re all looking at how much the cost of living is now.

00;16;36;00 – 00;17;08;10
RIley Smith
And that certainly affects their cost of living, because if you’re paying, I know a couple of years ago when you really got super, super high and the fertilizer prices were sky high and people were screaming, hey, you know, you’re killing me, you’re killing me. You’re killing me because you’re they were purchasing extremely high fertilizer prices and applying it and then not getting the same value, cash value or even the futures options for their further commodity or for their corn or whatever you have.

00;17;08;13 – 00;17;35;26
RIley Smith
So I mean, definitely there’s people and I’m just speaking from assumption. There’s probably people out there that’s asking themselves, why is this happening? What is happening for this to happen for, for, for this input output price to be different. So from that standpoint, this is the end of our, end of our episode. We’re going to have, I’m going to be giving you the market report here pretty quick.

00;17;35;28 – 00;17;40;28
RIley Smith
So if you all stay with us.

00;17;41;00 – 00;18;14;10
RIley Smith
So anyway, that was a I certainly think that’s a great piece of information to know. I mean, from a producer standpoint. And this is just based on my assumption, you know, they need to they need to understand what the input, why the input prices aren’t showing that they’re significantly higher than the output, outcome or output prices, whatever you whatever you want to call it, it, it certainly I’m sure it’s raised questions just like we raise questions in our daily lives.

00;18;14;10 – 00;18;35;20
RIley Smith
Like why has gas prices so high? Why is grocery bills so high? Why is electric bills so high? I mean, daily life is is getting more and more expensive from an economic standpoint. And the value of the dollar don’t go to the same way. And I’m sure there’s a lot of people out there think some of the baby boomers, my dad is one and he’s going, gosh, he said.

00;18;35;20 – 00;19;02;09
RIley Smith
I remember when, you know, you’ve heard it all the time or oh yeah, they talk about how, you know, gas used to cost them a dollar a gallon or even cheaper, right? You know, my granddad used to talk about, you know, buying three cheeseburgers and the deal of fries at the dairy Queen for two nickels, right. Oh, you know, the value of the dollar is not what it was, but, certainly there’s there’s there’s producers out there going asking themselves why.

00;19;02;09 – 00;19;22;13
RIley Smith
And then next they’re like, well, I mean, they’re going to figure it out. They’re going to figure out how to make a living and how to move on with it. But at the same time, if there’s any kind of information that we can provide them to help them in that decision making, that’s what we’re here for. And what this podcast is for, right, is the outreach of, hey, you’re not alone.

00;19;22;14 – 00;19;34;17
RIley Smith
We’re not trying to help you with your farm. We’re trying to help you with your decision making for your farm. That’s right. So it’s all about analysis of decision making in the risk management portion of it. And that’s what we stand for here.

00;19;34;17 – 00;19;35;15
Dr. Ryan Loy
That’s right.

00;19;35;18 – 00;19;57;29
RIley Smith
So with that being said, I’m going to go into my market report this week about the input prices, for the state average of Arkansas earned a state average for the average, in the state of Arkansas, as well as the cash commodity prices. okay. So to end this episode, we’re going to give you your trivia question this week.

00;19;57;29 – 00;20;19;04
RIley Smith
And I know that you’re a big Billy Strings fan. So and for those who don’t know who that is, he is a bluegrass country artist. I’ve listened to him some. A lot of people probably have listened to his songs. phenomenal guitar player, but but Doctor Ryan, I know you’re a big fan of him. so I’ve come up with your trivia question for him this week.

00;20;19;07 – 00;20;22;03
RIley Smith
So what brand of guitar does Billy Strings play?

00;20;22;09 – 00;20;27;22
Dr. Ryan Loy
He plays a Thompson acoustic guitar, which is different because most people play the Marlin, but he’s a Thompson guy.

00;20;27;22 – 00;20;46;09
RIley Smith
And you would be correct that, he plays a Preston Thompson guitar. So impressive stuff. It is impressive. So with that being said, thank you. Hey guys. Wanted to come on here. Thank you again for joining another episode of Morning Coffee and Ag Markets. Before you go, here’s your market update for the week for the state of Arkansas.

00;20;46;10 – 00;21;22;08
RIley Smith
So here’s your futures, commodity price for the state. this being all corn, rice, soybeans, cotton, wheat and peanuts. September 2024 delivery month. delivery contract price is at $4.04 per bushel. A month ago was at $4.40. Is down $0.36. Year ago was $5.58. Down dollars $.54. Rice September 24th, $14.79 per bushel a month ago is at $15.56, down $0.77 a year ago $15.93, down dollars $0.14.

00;21;22;10 – 00;22;10;11
RIley Smith
Soybeans November 20th for $10.64 per bushel, month ago was $11.31, down $0.67 a year ago, $14.20, down $3.56. Cotton December 24th, $0.69 per pound, month ago was $0.73, down $0.04 a year ago, $0.87, down $0.18. Wheat July 25th. This being the new crop for next year, which is 2025, $6.06 per bushel a month ago was a $6.27, down $0.21 year ago, $7.88 down $1.82 peanuts U.S weekly average is at $542 per ton.

00;22;10;14 – 00;22;46;15
RIley Smith
A month ago it at $478 Down 64 or up $64 a year ago was at $544 per ton, down $2. Now for your input prices, Urea at $492.50 per ton, 32-0-0 UAN at $398.50 per ton. DAP $817.50 per ton. Potash is at $493.50 per ton, AG Lime at $60 per ton, and your diesel futures price this week at $2.71 per gallon.

00;22;46;17 – 00;23;08;24
RIley Smith
The Mississippi River level at Memphis, Tennessee current levels at 12.2ft year ago was at 0.51ft. So wanted to thank y’all again. y’all join us next week as I’ll be talking about historical input prices, on a set of data that we’ve had from 2010 all the way up to current day last year. We’re, going to be doing some analysis on that.

00;23;08;24 – 00;23;19;17
RIley Smith
So, hopefully we’ll be bringing you some good stuff, but y’all enjoy the rest of your morning. Enjoy the rest of your coffee. have a great rest of your work week, and we’ll catch you on the flip flop. Bye bye. Now.