Can D.C. Fix Ag Labor?

The struggle is real with the current U.S. labor shortage, and agriculture is certainly not excluded. The sector is feeling the squeeze, and legislators are pushing to reform the guest worker program to help.

The issue at hand: the current H-2A guest worker program is structured for seasonal, not year-round, help.

A proponent’s point: “Employers in Iowa — animal agriculture, agricultural processing — is not a seasonal business, and that’s what the H-2A program is for is seasonal workers,” Senator Chuck Grassley (R-IA) said. “So I hear from farmers and business(es) who just can’t find people to work.”

Today there are an estimated 2.5M farmworkers, about half of them undocumented. In March, the House passed the Farm Workforce Modernization Act of 2021, which provides mass amnesty without addressing the core labor issues. Republicans aren’t fond of the bill — and won’t approve it until Democrats secure the border.

Senator Grassley also argued the bill fails to address many of the shortfalls of H-2A. “This will involve expanding the program to cover year-round agricultural industries such as pork, dairy, and agricultural processing. It should also involve streamlining the program, reducing red tape and addressing the high cost of using the program.”

Where does it go from here? More debate on how to structure a bill that would address both worker legalization issues and solve the agricultural labor shortage.

Senators Take Aim at Corn Ethanol

Corn growers be like, “What just happened here?

A few short weeks after a bullish outlook on the future of ethanol, new legislation now has the corn industry feeling a little sheepish.

Refresher: Amid court setbacks less than a month ago that nixed year-round E15 sales and allowed more small refineries to apply ethanol blending exemptions, bipartisan legislators in key farm states introduced bills that would encourage higher ethanol blends. Things were looking up.

But this week, another group of senators has introduced legislation that seeks to fully eliminate the national ethanol blending mandate. We’re not in the Corn Belt anymore.

Citing a host of grievances, including the risk to good-paying oil refinery jobs, the bipartisan group did not mince words.

Senator soundbites:

  • “The federal government forcing Americans to buy billions of gallons of corn ethanol is terrible policy on many levels.” — Senator Pat Toomey (R-PA)
  • “The federal corn ethanol mandate no longer makes sense when better, lower-carbon alternatives exist.” — Senator Dianne Feinstein (D-CA)

Playin’ politics: The day the bill was introduced, the White House announced the administration would delay the annual review process that determines biofuel blending requirements for petro products.

Mum was the official word, but insiders noted the delay was due to President Biden’s political catch-22 that has him stuck between two key blue-collar constituencies: farmers and refinery workers.

Where this goes: Long-term decisions are a ways off, but NCGA President John Linder quickly responded, echoing what is likely on the minds of most corn growers: “This bill is ill-conceived and would have a devastating impact on air quality, the diversity of our energy supply, fuel prices, and rural economies.”

Unpacking Friday’s Antitrust News

Promoting competition is the name of the game for President Biden’s latest executive order signed last Friday. The order tackles competitive issues across 12 agencies with 72 initiatives.

Let’s just say there’s a lot to unpack here.

So what does this mean for agriculture?

One big change will be potential new rules under the Packers and Stockyards Act, which could help farmers bring and win claims, stop chicken processors from underpaying producers, and adopt anti-retaliation protections for farmers who speak out against bad practices.

Other hopeful outcomes include:

  • More accurate food labels that enable consumers to choose products made in the U.S. versus internationally.
  • Increased opportunities for farmers to access markets and receive a fair return.
  • Unraveling equipment-related restrictions on customers’ ability to use independent repair shops or DIY repairs.

And while we’re here… Ag Secretary Tom Vilsack also announced on Friday the USDA will invest $500M into new, small to medium-sized meat and poultry plants.

In other words, meat processor capacity is expanding, and so is the competition.

Soundbite: “It seems to me, in fairness, profit ought to go both ways,” Vilsack said about meatpackers making profits while cattle producers sell at a loss.

The ‘Right to Repair’ Is Here

Time to open the tool chest and hire an in-house mechanic.

Thanks to an executive order that will soon be signed by President Biden, farmers may be making fewer trips to the dealership for repairs.

The rundown: On Tuesday, The White House announced the president would soon be directing the Federal Trade Commission to establish new “right to repair” rules.

If implemented, farmers would likely have more options for repairing their own equipment.

A bit more context: Various equipment manufacturers essentially require some repairs to be completed at dealerships or authorized repair companies who use proprietary software, parts, and tools.

White House Press Secretary Jen Psaki stated new rules would increase competition in the industry and “give farmers the right to repair their own equipment how they like.”

But equipment manufacturers, most notably Deere & Company, responded.

A soundbite: “When customers buy from John Deere, they own the equipment and can choose to personally maintain or repair the product… John Deere does not support the right to modify embedded software due to risks associated with [safety], emissions compliance, and engine performance,”  noted a Deere & Co. company statement.

The green tractor folks stated they lead the industry in providing the tools and resources needed for repairs and maintenance. They also noted less than 2% of repairs require software updates, so a majority of repairs can be made by farmers themselves.

Where this goes: The details of the rules are still to be determined by the FTC. So change may be on the horizon, but hiring a new mechanic over the weekend may be a little premature.

The USDA’s Little Surprise Party…

The USDA pulled out the hats and noisemakers on Wednesday and threw a big surprise party with the release of the annual acreage report.

Pre-party suspense:
 Leading up to the big reveal, market analysts suspected the USDA would report an uptick in planted acreage compared to farmers’ intentions announced in the March report.

But as is typical in the annual June release, the USDA wanted to send partygoers home with a little taste of the unexpected.

By the numbers:

  • 92.7 million: estimated 2021 corn acres
  • 87.6 million: estimated 2021 soybean acres
  • 46.7 million: estimated 2021 wheat acres

All three crops were up by millions of acres compared to 2020. But corn and soybeans, typically the life of the party, shocked attendees as both were reported as being a million+ planted acres under market watchers’ predictions for this year.

The shockwave: When the lights came on, analysts sat wide-eyed and waited for the markets to respond.

And respond they did… like a bull in a china shop.

Lower acreage and grain stock estimates shot corn and soybean prices sky-high and left sellers reveling and celebrating Christmas in June. Corn futures closed 40 cents higher, its daily limit up, and soybean futures finished more than 90 cents higher. Whoa.

Where this goes: The status of grain stockpiles and the anticipated results of harvest season will likely cause more market volatility. However, long-term prices will likely be contingent upon one major factor: the weather.

Time will tell whether Mother Nature will be a gracious host or a disgruntled party crasher.

The Slippery Slope That Has Been WOTUS

Water debates in agriculture have been on a wild ride. And a new memo just out of the EPA is signaling more of the same.

During the Trump administration, the Navigable Waters Protection Rule removed federal oversight from several tributaries and waterways. Now, Biden’s team is suggesting a new flow – one that will repeal the rule.

First, a bit of a history lesson:

1972: The Clean Water Act was established to regulate discharges of pollutants in U.S. waterways.

2015: President Obama created the Clean Water Rule, or as many in agriculture know it, Waters of the United States (WOTUS), under the Clean Water Act. The rule included oversight by the federal government of minor streams and wetlands, which caused agricultural groups to question its clarity and how it would affect farmers and ranchers.

2019: The Trump administration formally repealed WOTUS, citing a major power grab by the federal government.

2020: The EPA and Army Corps of Engineers published the Navigable Waters Protection Rule, which helped define “waters of the U.S.” and provided a sigh of relief to farmers and ranchers.

Now that we’re caught up: Biden’s EPA said the changes by Trump caused “significant environmental degradation” – saying dry places like New Mexico and Arizona were especially under water with problems. One of the EPA’s concerns is the more than 300 development projects that may be polluting waterways in those states.

Tributary? More like Tribu-hairy: Now Biden wants to reverse the Navigable Waters Protection Rule, and farmers and ranchers are not here for it. The administrator of the EPA says they’re “committed to establishing a durable definition of ‘waters of the United States.’” A proposed new EPA rule could take effect later this year.

Ag Labor Is Out of Luck

Given the ‘help wanted’ signs we’re seeing everywhere, it’s no surprise that the ubiquitous labor shortage is squeezing the ag sector, too – with no signs of stopping.

The USDA’s 2021 Farm Labor quarterly report was published with April data, and it isn’t pretty.

Overall, farm wages were up by as much as 6% over 2020. 11% fewer farm workers were hired in the same period last year. And H-2A position requests are up five times since 2005 – and are being debated as the Farm Work Modernization Act moves to the Senate.

A soundbite:The fear of exposure to Covid-19, lack of childcare, several rounds of government checks, and unusually high unemployment benefits have kept many people out of the workplace,” Sarina Sharp, Daily Dairy Report analyst, summed up.

Wage wars: Farm operations are competing for labor across industries and ultimately paying their workers more. Specialty crop farms – think produce, nut and ornamental operations – make up 52% of all farmworkers and are paying over a dollar per hour more than they were at this time last year.

Field crop workers on the West Coast are bringing home the highest wage, and gross wages for those working with livestock are up 5%.

Timely tangent: Ganaz, a workforce management platform designed specifically for farmworkers, just earned $7 million in a Series A funding round. The company aims to modernize payroll, communication and other HR functions specifically for farm operations.

Biden’s Budget for Ag

Show me the money: Last week, President Joe Biden made it rain with the release of his fiscal 2022 budget – a $6 trillion request to Congress that outlines his spending priorities. That’s a lot of green.

Speaking of green: The proposal includes $27.9 billion in funding for the USDA, a 17% increase from 2021– with much of the focus on climate change:

  • $192 million to the Agricultural Research Service for work related to climate change and clean energy projects.
  • $40 million to the USDA’s regional climate hubs to help farmers and ranchers make changes for climate initiatives.

So, where’s the rest of the cash headed?

→ Broadband: $700 million toward access to quality broadband to rural residents through the ReConnect program.
 Nutrition: $6.7 billion for Special Supplemental Nutrition Program for Women, Infants, and Children (WIC).
→ Research: $4 billion for USDA’s research, education, and outreach programs.
→ Equity: $6 million increase to the USDA Office of Civil Rights and an additional $2 million for outreach and assistance for socially disadvantaged and veteran farmers and ranchers.

Great news is there are no proposed cuts to crop insurance or the Farm Bill.

Count on change: The tentative budget still needs to be approved by Congress, and it’s likely there’ll be some edits.

Need For Speed

The pork industry is doing all it can to avoid tapping on the processing brakes.

A federal district court ruling from late March will slow line speeds at pork processing plants on June 29 if left unchallenged. The court ruling came by way of the United Food and Commercial Workers Union, which cited worker safety as the reason for the ruling.

Pork producers are saying, “don’t slow our roll” because it would dramatically affect U.S. hog producers and especially hurt smaller producers – to the tune of more than $80 million in reduced income.

Really pork (g)rinding our gears. Iowa State University’s analysis shows the shift would cause a 2.5% loss in pork packing plant capacity and force plants to use more mandatory overtime.

Show me the data. Some plants have been operating with faster line speeds under a pilot project for years. They were processing 1,450 hogs per hour. The slower line speeds would max out at 1,106 hogs per hour. The Iowa State analysis predicts the fewer pigs going to market, the more backlog, which would drive prices down and hurt farmer profitability.

One example of that is at Seaboard Foods. They calculated that scaling back the line speeds would result in 126,000 excess market-weight hogs barreling out of the company’s production pipeline over the following ten months.

Where this goes: The National Pork Producers Council is urging USDA to intervene before the ruling takes effect at the end of June.

A Taxing Situation…

Yeah, the above is farmers everywhere reading deeper into proposed tax changes coming out of D.C over the past few weeks.

Senate Democrats have introduced a tax proposal poised to prevent the estate tax from dying out. The Sensible Taxation and Equity Promotion [STEP] Act would tax currently unrealized capital gains at death.

It’s a grim proposition for farmers, who account for 1.7% of current estate tax generation. The STEP Act would eliminate the stepped-up basis that heirs receive for property and include a $1 million per person exemption.

Translation: For all our fellow novice tax accountants out there, a stepped-up basis typically means big-time tax savings. Eliminate it, and Uncle Sam will be showing up at farm gates across the country looking for his fair share.

Under current law, heirs receive the stepped-up basis in an asset’s value, and after that, they pay capital gains tax only after they sell the asset and only on gains after the original owner’s death.

The act would eliminate that and add a tax for transferring assets – like tractors or grain – as if they were sold for fair market value, even while the farmer is still alive.

This might sound familiar because there’s been a lot of death tax buzz lately. The act comes less than a month after the Republican-backed Death Tax Repeal Act of 2021 was introduced to the House and Senate. What a coincidence.

What’s next: Significant debate is expected as the Biden administration weighs this act in the context of paying for a new infrastructure proposal. The STEP Act has to make it through a 50-50 Senate – so it’s a game of wait and see.