“Out to Pasture” March 2019

UPCOMING EVENTS

Woodford County 184 Beasley Drive Versailles, KY 40383-8992 (859) 873-4601 Fax: (859) 873-8936 woodford.ca.uky.edu

GENERAL

ACROSS THE AGENT’S DESK

Mar 18 – Burley Tobacco Growers Coop Annual Meeting and GAP Training; 9 am Fayette Co. Ext. Office; Lexington, KY

Mar 20 – Novel Tall Fescue Renovation Workshop; 8:30 am-5 pm CDT, Central Presbyterian Church; Princeton, KY

Mar 21 – Mid-South Stocker Conference; 8 am-5 pm CDT, Quality Inn; Clarksville, TN

Mar 28 –Winter Feeding Field Day; 10 am-1 pm, Eden Shale Farm; Owenton, KY

Apr 2 – Industrial Hemp Production Meeting; 9 am-11 am, Fayette Co. Extension Office; Lexington, KY

Apr 9 – Woodford County Extension Council Meeting; Noon, Woodford Co. Extension Office; Versailles, KY

While it seems like we haven’t seemed to catch a break with the consistent rainfall, we have at least had a couple of days of sunshine to allow us some time in the field. Pastures have been the primary concern for

most of us, and now is the best time of the spring to be seeding these cool season grasses. As we have remained wet in many areas, I have been recommending Italian type annual

ryegrass as a good temporary filler for pastures this spring. The Italian type annual ryegrass will persist a little longer into summer, and should not put up a seedhead during the summer as opposed to the “true” Westerwold type of annual ryegrass. Ryegrass will also germinate

at a much shallower depth than many of our other grasses as well, so broadcasting and cultipacking can provide a good seedbed. This will then allow us to no-till some perennial grasses in later this fall during a more optimum time for them. Here’s to hopefully a little drier spring!

As winter extension meetings occur across Kentucky and the nation, the conversation has often steered to the topic of industrial hemp as farmers, and other agribusinesses inquire about an emerging crop in the midst of an overall struggling farm economy. This environment is creating enthusiasm and perceived opportunities for the crop. Although the crop has been produced and marketed for thousands of years, the revitalized hemp market presently contains many new economic opportunities and a wide variety of consumer products, coupled with political, regulatory and marketing challenges and uncertainties for hemp producers, processors, manufacturers, retailers, input suppliers, and consumers. Some of these uncertainties have been addressed by the enactment of the 2018 farm bill, which included language to remove industrial hemp from the controlled substance list, enables hemp farmers to be eligible for federal crop insurance, and allows hemp researchers to apply for competitive federal grants. Despite legislative approval and expanding product sales, regulatory risks still prevail which complicates the long-term outlook for hemp. In reality, the “economics” of hemp is complex. Economists are challenged in evaluating this crop’s economic potential given an alleged 50,000+ uses for this crop from different parts of the plant, various production methods, an unpredictable policy and regulatory environment, and at least in the short-run, limited market and farm-level data. This article will provide some general “macro” economic issues related to the crop. We will present some farm-level budget and financial analyses in next month’s issue to assist farmers in making

Economists’ Viewpoints Surrounding the Hemp Boom: Part 1 Source: Dr. Will Snell, Dr. Tyler Mark, Jonathan Shepherd; UK Agricultural Economics

production and investment decisions related to this crop.

What We Do Know

While many unknowns surround the economics of hemp, three definitive statements can be made about the evolving hemp industry:

Hemp can be used as an input for thousands of consumer products.

Sales of a wide variety of hemp products in the U.S. and worldwide represent a small portion of consumer goods, but have been growing at a relatively brisk pace in recent years (see charts)

Global production of hemp has declined considerably since the 1950s, but has been rebounding over the past decade in response to growing consumer demand for hemp products, policy changes, infrastructure/business investment, and improved production practices.

While hemp can be used as an input to produce thousands of items, ultimately, businesses contemplating using hemp in their products must find hemp cost competitive with other competing inputs such as synthetic or other natural fibers, alternative oils, and other dietary/health supplements and therapeutic compounds. For farmers, hemp must be profitable relative to other potential crops and agricultural enterprises and competitive with hemp imported from competing countries. Demand for hemp will be shaped by the utility consumers receive from purchasing hemp products, which includes perceived health and environmental benefits, subject to price levels for hemp products and income constraints.

Hemp is Part of a Global Market

Hemp is produced worldwide in more than 30 countries. Historically, China and Europe have been major players, but over the past two decades, Canada has become a significant player (primarily grain) with the U.S. being its largest customer. Production (and prices) in the Canadian market have been very volatile over the past 20 years with approved production licenses ranging from less than 50,000 acres in 2016 to nearly 140,000 acres in 2017, to reportedly less than 100,000 acres in 2018. Currently, in the U.S., over 40 states have legislation that have approved production of industrial hemp,

with most adjusting to the requirements laid out in the 2018 Farm Bill. Even Alaska has an approved industrial hemp program. U.S. hemp acres have increased from just a few hundred during the early years of the new hemp era in 2014-2015 (primarily Colorado and Kentucky), to over 25,000 acres in 2017, to more than 78,000 acres in 2018. The Kentucky Department of Agriculture approved slightly over 42,000 acres for 2019, consisting of 1,035 farmers and more than 100 processors. This compares to 6,700 planted acres in 2018, comprised of 210 approved growers and 72 approved processors. Based on history, look for Kentucky hemp planted acres to top 20,000 in 2019, with U.S. hemp acreage easily exceeding 100,000 acres. Despite its production and marketing challenges, some Kentucky farmers have done well during the early years of hemp production, others have had complete/significant crop failures due primarily to weed pressures, while others have had to wait for one, two or more years to receive full payment for their crops. Following the reintroduction of hemp back into the U.S. market after the 2014 Farm Bill most of the early production centered around the hemp grain and fiber markets where returns were anticipated to compete with other homogeneous grain (corn, soybeans, and wheat) markets. Ultimately in this type of marketing environment, short term profits encourage additional supplies that will eventually lead to lower prices and ultimately generating a competitive rate of return, resulting in only the lowest cost producers/areas remaining in business. The emergence of the CBD market has been sort of a game-changer. CBD currently offers a much higher economic return for hemp producers, but also possess more volatile financial, policy, and regulatory risk than markets for hemp fiber and grain. Likewise, lucrative short-run profits that may exist during the early years of this emerging industry will likely lure additional supply across the U.S. and globally, which will diminish future profit potential and commoditize the market, unless additional barriers to entry for this market are created. A critical question for the foreseeable future will be can anticipated demand for hemp-derived products continue to outpace expected

GENERAL (CONTINUED)

GENERAL (CONTINUED)

large increases in hemp production in the United States and globally? Undoubtedly, competition from Canada and Europe (with established infrastructure, management expertise, and markets), and China (with access to lower wages and lower regulatory standards) will provide competition for U.S. hemp farmers, processors, and associated companies. With more than 40 U.S. states currently positioning themselves for this quickly emerging market, it is not practical to expect (unless product demand grows substantially) that the market can sustain viable hemp production in every state. Hemp processors will not likely locate in every state and considering transportation costs (especially for fiber) and access to markets, technology may dictate that production will ultimately be concentrated in relatively few states where hemp can be grown at the lowest cost of production and transported shorter distances for processing. This suggests that states that can entice processors, manufacturers and infrastructure to locate in their state based on a strong research base of knowledge, an interested and willing/educated grower pool with lowest cost of production for desired quality characteristics requested, along with support from local and state governments, will likely enhance their chances for success in this emerging industry. Significant price volatility will likely evolve, depending on the supply/demand balance. Plus, with limited access to inputs (e.g., seed, chemicals, labor, specialized equipment) and management expertise slowly evolving, growers can anticipate continued yield variability. Consequently, growers are encouraged to incorporate a wide range of prices and yields over multiple years in their budgeting analysis as the expansion of acres and companies is expected to put downward pressure on prices in future years. With any emerging industry, investors of all types will attempt to capitalize on potential market opportunities promising large economic returns. History reveals that some will succeed, while many others will fail. Thus, growers should thoroughly investigate potential buyers to evaluate if they possess sound and sustainable business plans/strategies along with examining up-front investment demands, production requirements, and payment details. Additionally, it might also be advisable to consider alternative market structures, such as vertically-integrated production models to share risk among buyers and sellers and allow buyers greater control over input, use and production practices to control the quantity and quality of a highly-regulated crop.

Access to credit may remain a challenge in the near term as lending institutions will likely require some production history with established hemp returns or other forms of collateral in making lending decisions. Although subsidized federal crop insurance is mandated in the farm bill for hemp, it is unclear when products will become available, given a lack of production history. Without any safety net for this crop and the infancy of the industry, producers need to understand and be willing to lose their investment in the crop if it fails, the processor goes out of business, or the policy environment changes. If these are not risks the producer is willing to accept or does not have the financial ability to absorb, then hemp may not be the right crop for their operation until these conditions are ameliorated or become more stable. Despite all these market and policy/regulatory challenges and uncertainties, Kentucky does have some significant advantages compared to other states thanks to foresight and aggressiveness of many Kentucky policymakers, businesses, and farm leaders. Some of these advantages include:

getting into the game early to better understand and improve upon many of the production challenges facing this crop.

developing some of the best production research programs of any state with our land-grant and regional university hemp research programs,

attracting early/significant investment dollars among hemp businesses/processors into Kentucky

developing a model administrative oversight program (i.e., the Kentucky Department of Agriculture) that other states are trying to duplicate,

possessing existing tobacco production experience and infrastructure (barns and equipment) that is adaptable to some hemp production models, which gives Kentucky an advantage over other non-tobacco states. Tobacco companies are investing in the hemp industry and considering the utilization of existing tobacco growers as their grower base.

BEEF CATTLE

Join Us for a Winter Feeding Field Day The Kentucky Beef Network will be hosting a field day looking at different winter feeding structures at the Eden Shale Farm in Owen County on March 28. With the wet conditions that persisted throughout the winter of 2018-2019, we should be able to see some real differences in different feeding structures. There will be a van leaving the Woodford County Extension Office at 8:30am for the field day. We expect to return at approximately 2:00pm. Please RSVP to the Woodford County Extension Service at 873-4601 by March 26 if you plan on riding in the van.

Bull Buying Tips Source: Dr. Darrh Bullock; UK Beef Cattle Specialist We are rapidly approaching bull buying season in Kentucky so there are few basics I would like to share. The genetics in the bull you are buying now will have a huge impact on your herd immediately and could linger for years to come if you keep replacements from him. For this reason it is important to get this decision right. For commercial cattlemen, the first suggestion is to evaluate your crossbreeding program and make sure you are taking full advantage of heterosis (hybrid vigor). If your cow herd is made up of predominantly one breed then you might consider introducing a second breed and start a rotation system with those breeds. This can improve the productivity of your herd by greater than 10% with no additional costs. I am not an economist, but I think I am safe to say that should pay for itself! For more information on crossbreeding please see factsheet: ASC-168 (http://www2.ca.uky.edu/agcomm/pubs/asc/asc168/asc168.pdf) Once you have decided on a breed the next decision is determining which bull within that breed is best for you. This should be guided by how you plan to market

his calves, whether or not you will be keeping replacements, whether or not you will be breeding him to first-calf heifers and what level of management you have on your farm. If keeping replacements then you have to focus on both production traits to fit your market and maternal traits the bull will pass on to his daughters. The best tool for making decisions about production traits is Expected Progeny Differences (EPD). Focus on the traits that can put money in your pocket (weaning weight) or potentially take money out of your pocket (calving ease). The level of emphasis to put on each trait depends on your management and market, but in most cases extremes should be avoided. For more information on EPDs and how to use them in selection please see factsheets: ASC-141 (http://www2.ca.uky.edu/agcomm/pubs/asc/asc141/asc141.pdf) ASC-165 (http://www2.ca.uky.edu/agcomm/pubs/asc/asc165/asc165.pdf) ASC-211 (http://www2.ca.uky.edu/agcomm/pubs/asc/asc211/asc211.pdf) Selecting a bull can be time consuming and represent a significant cost, so take your time, do your homework and buy the bull that is right for your farm and your management. Does 2019 Mark the End of Beef Herd Expansion? Source: Dr. Kenny Burdine; UK Livestock Marketing Specialist After some delay due to the federal government shutdown, USDA released their January 1 estimates for cattle inventory on February 28th. At the national level, beef cow numbers were estimated to have grown by 1% from 2018. This is a lower rate than was seen last year, but growth nonetheless. Going back to 2014, the beef cow herd has grown by almost 10%. Heifer retention estimates provide further evidence that herd growth is slowing as the number of heifers held for beef cow replacement was down by 3%. My preferred way to consider heifer retention is to look at it as a percentage of beef cow inventory. Based on these most recent estimates, heifer retention is running at 18.7% of beef cow inventory, which is slightly above the average going back to 1973 (see figure 1). Figure 1 really illustrates how high heifer retention was during the 2015-2017 time period, running above 20% in each of those three years. When one considers recent cow slaughter volume, and the likely age of this cow herd, it is my opinion that this level of heifer retention is probably about at replacement level for the current level of beef cow inventory.

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BEEF CATTLE (CONTINUED)

Figure 1: Jan 1 Beef Heifer Retention as a % of Beef Cow Inventory (1973 to 2019)

Source: USDA-NASS, Livestock Marketing Information

Center, Author Calculations Last year’s report was a bit of an oddity as total cat-tle-on-feed numbers were estimated to be up 7% from 2017. Much of this was due to poor winter grazing conditions, which led to unusually high feed-lot placements in fall 2017. The 2% increase in cat-tle-on-feed seen in the 2019 estimate is largely in-line with the increase in the size of the 2018 calf crop. There was also a sizeable increase (+27%) in cattle grazing small grains in Kansas, Oklahoma, and Texas, which serves as a gauge of winter graz-ing programs. While this percent increase looks in-credibly high, it is really just a return to normal, after the huge drop last winter. It is also interesting to look at Kentucky beef cattle numbers as compared to the national average. USDA estimated Kentucky beef cow inventory down 1.5% from 2018, placing our cowherd at just over 1 million head. There is no question that calf prices have not encouraged expansion in Kentucky, but I really feel like weather challenges are the primary factor behind this decrease. It was a very challeng-ing fall / early winter and we also know that things haven’t improved since January 1st. I would not be at all surprised to see more cows move if weather conditions improve and cull cow prices increase this spring. Thinking ahead, I expect US beef cow inventory to remain pretty stable during 2019. Obviously, weath-er can completely change this and some will argue that cow-calf returns are too low and producers should be running fewer cows. I can’t argue with this logic, other than to say that producer profit percep-tion drives inventory decisions and we are still see-ing growth in a lot of major cattle producing states. Texas, Oklahoma, Nebraska, South Dakota, and Kansas, (five of the top seven cow-calf states in the US) saw increases in beef cow numbers during

2018. My guess would be that expansion will slow in these areas and some liquidation will be seen in oth-er areas such that the size of the cowherd is roughly the same when the 2020 estimates come out. The USDA report is summarized in table 1 and the full report can be accessed at: https://downloads.usda.library.cornell.edu/usda-esmis/files/h702q636h/765377121/bc386r54d/catl0219.pdf

Table 1: USDA January 1, 2019 Cattle Inventory Estimates

Source: NASS, USDA

2018

(1,000 hd)

2019

(1,000 hd)

2019 as %

of 2018

All Cattle and Calves

94,298.0 94,759.7 100

Cows and Heifers That Have Calved

40,898.3 41,119.1 101

Beef Cows 31,466.2 31,765.7 101

Milk Cows 9,432.1 9,353.4 99

Heifers 500 Pounds and Over

20,217.8 20,230.0 100

For Beef Cow Replacement

6,108.2 5,924.9 97

For Milk Cow Replacement

4,768.3 4,701.5 99

Other Heifers 9,341.3 9,603.6 103

Steers 500 Pounds and Over

16,528.2 16,632.7 101

Bulls 500 Pounds and Over

2,252.3 2,263.0 100

Calves Under 500 Pounds

14,401.4 14,514.9 101

Cattle on Feed 14,146.0 14,370.9 102

2017

(1,000 hd)

2018

(1,000 hd)

2018 as %

of 2017

Calf Crop 35,758.2 36,402.7 102

GRAIN CROPS

2019 Revenue Protection Safety Net for Corn and Soybeans Source: Dr. Todd Davis; UK Grain Marketing Specialist

The closing prices of the December 2019 corn and November 2019 soybeans futures contract during February provide the initial price guarantee used in crop insurance. As of February 19, 2019, the projected prices for corn and soybeans are $4.01 and $9.55 per bushel, respectively. If realized, the 2019 price

guarantees are $0.05 higher and $0.61 lower from the 2018 price guarantees for corn and soybeans, respectively.

Figure 1 compares the expected crop insurance guarantees for corn and soybeans compared to the budgeted total variable costs and cash rent for each crop. Unlike 2017 and 2018, corn will likely have a better safety net than soybeans this year. Given the budget assumptions, corn revenue protection insurance guarantee at the 75% coverage would have a deficit of $44/acre while coverage at the 80% level would be $13/acre below budgeted variable costs and cash rent.

As managers consider the coverage levels purchased for 2019, first take stock of the farm business’s financial strength and the availability of working

capital to absorb a loss. If the farm’s working capital is limited, managers may want to consider increasing coverage to protect the farm’s ability to cash flow this fall if there is a yield loss or lower prices. Managers planning to sell grain at harvest should consider risk management tools to lock in a price before harvest.

Another large U.S. corn and soybean crop in 2019 will contribute to lower fall prices and create profitability and cash flow challenges. The analysis in Figure 1 assumes APH yields of 185 and 55 bushels, respectively, for corn and soybeans. Total variable costs are budgeted at $409 per acre for corn and $267 per acre for

soybeans. Rent is assumed to be $185 per acre for both crops.

(Figure 1. Revenue Protection Insurance Guaranteed Revenue for 2019 Corn and

Soybeans Compared to Total Variable Costs and Cash Rent.)

Renewing Farm Tags Benefits Youth Ag Programs Since 2012, Kentucky farmers have had the option to make a $10 voluntary donation when they purchase or renew their farm license plate. Commissioner of Agriculture, Ryan Quarles, will again equally divide the amount raised among 4-H, FFA and Kentucky Proud. As an individual that makes the voluntary donation for your farm vehicle, you help our ag youth programs grow strong leaders for tomorrow, advance agricultural education in Kentucky, and promote Ken-tucky farm products. Farmers can make the donation of $10 when renewing their farm license plates at the county clerk’s office in March. With more than 184,000 farm plates bought or renewed each year in Kentucky, the commissioner’s action can generate significant funds to support these three outstanding programs. Half of the 4-H and FFA portions of the Ag Tag donation from Woodford County stay in Woodford County, funding pro-grams and activities that teach children and teens about leadership, citizenship, science and technology, communica-tions, public speaking, agriculture, and more. The other half of those portions help fund state level programs and pro-vide more leadership development opportunities for our youth. Making the $10 donation on each farm license plate at renewal is an excellent opportunity for our agricultural communi-ty to support the youth of our community and help fund the programs that can make a lasting difference in their lives.

TRY THIS DELICIOUS RECIPE

Equipment Location

(4) No-till drills Southern States

(2) No-till drills Woodford Feed

(2) Tubeline bale wrappers Woodford Feed

Chain Harrow Woodford Feed

The Woodford County Conservation District has the following equipment for rent. Please contact the

location of equipment for availability.

WC CONSERVATION DISTRICT

Free Soil Testing

Free soil test vouchers are available at the Woodford County Conservation Office to be redeemed when soil samples are submitted through the

Woodford County Extension Service. Up to 20 free soil tests are available per farm or homeowner. This program runs through June 30, 2019, or until the funds are depleted.

Woodford County Extension Service Equipment

Grain Moisture Meter

Liquid pH Meter

Sprayer Calibrator

Grain Test Weight Meter

Hay Probes

Soil Probes

Please contact the Extension Office, 873-4601, for details and availability.

Electrical Conductivity (EC) Meter

Hay Moisture Tester

Walk-behind BCS tractor - Attachments include: 3 foot plastic layer with drip tape applicator, single rotary plow and 30 inch tiller

Raised Bed Plastic Mulch Layer - Model 2400 lays 4 foot wide plastic and adjustable 3 to 5 inch bed height (requires 30-hp and 4-wheel drive)

Portable Livestock Scales

Black Skillet Beef with Greens and Red Potatoes Ingredients 1 pound beef (top round) 1 tablespoon paprika 1 1/2 teaspoons oregano 1/2 teaspoon chili powder 1/4 teaspoon garlic powder 1/4 teaspoon black pepper 1/8 teaspoon red pepper 1/8 teaspoon mustard (dry) 8 potatoes (red-skinned, halved) 3 cups onions (finely chopped) 2 cups beef broth 2 garlic cloves (large, minced) 2 carrots (large, peeled, cut into very thin 2 1/2 inch strips) 4 cups kale (1 bunch) non-stick cooking spray Directions 1. Partially freeze beef. Thinly slice across the grain into long strips 1/8 inch thick and 3 inches wide. 2. Combine paprika, oregano, chili powder, garlic powder, black pepper, red pepper, and dry mustard. Coat strips of meat with the spice mixture. 3. Spray a large heavy skillet nonstick cooking spray. Preheat pan over high heat. 4. Add meat; cook, stirring for 5 minutes. 5. Add potatoes, onion, broth, and garlic. Cook covered, over medium heat for 20 minutes. 6. Stir in carrots, lay greens over top and cook, covered, until carrots are tender, about 15 minutes. 7. Serve in large serving bowl, with crusty bread for dunking.

Sincerely,

Adam Probst, County Extension Agent for Agriculture and Natural Resources

Email: adam.probst@uky.edu