K-State Agricultural Economist Following Avian Influenza Developments

Poultry bans by overseas buyers could weigh on pork and beef, as well as poultry prices.

News that more than 40 countries have banned poultry imports from Minnesota after a lethal strain of avian influenza was confirmed in a turkey flock there has now been compounded by news of confirmed cases in Missouri and Arkansas turkeys.

How long those bans are in effect and whether more countries stop buying poultry from Minnesota or other parts of the United States will determine what, if any effect the ban will have on poultry, beef and pork prices, said Kansas State University agricultural economist, Glynn Tonsor.

The outbreak linked to H5N2 avian influenza in Minnesota, confirmed by the U.S. Department of Agriculture’s Animal and Plant Health Inspection Service in early March, was the first finding in an area called the Mississippi Flyway. That outbreak killed 15,000 birds in about a week.

H5N2 has now also been confirmed at two commercial turkey farms in Jasper and Moniteau counties in Missouri and a commercial turkey flock in Boone County, Arkansas.

No human infections with these viruses have been detected, according to a March 10 APHIS statement, but state officials are working with poultry workers at the affected farms to ensure they are taking proper precautions.

“If additional countries make announcements banning U.S. poultry products from either specific regions or the country entirely, that would result in U.S. poultry products being diverted to other customers,” said Tonsor, who is a livestock market specialist with K-State Research and Extension. “In some cases this is other foreign customers and in other cases, more poultry will be consumed here domestically. In both cases, the diverted products going to alternative channels will occur at lower transaction prices. Otherwise they would have voluntarily been re-channeled already.”

As poultry prices decline from these events, he said, the spillover on both beef and pork is expected to be adverse for those industries.

“Narrowly, with lower poultry prices, we typically see pressure on pork and beef demand as the three meats are substitutes and collectively comprise the vast majority of red meat and poultry production and consumption,” said Tonsor, who is a livestock market specialist with K-State Research and Extension.

The biggest uncertainty, he said, is the exact duration and extent of poultry trade bans: “We know the directional impacts, but the economic magnitude is largely a function of the duration and extent which are yet to be established.”

In a March 11 statement, the Kansas Department of Agriculture said it is monitoring a control zone in southeast Kansas, including Cherokee and Crawford counties, after the avian influenza case was confirmed in Jasper County, Missouri.

Avian influenza exists naturally in many wild birds and can be transmitted by contact with infected animals or ingestion of infected food or water.

Kansas backyard poultry producers in the Crawford and Cherokee county area are asked to self-report their flocks to the Kansas Department of Agriculture at 785-564-6601, in order to help them monitor the situation and control any spread of the disease.

The combined value of U.S. production from broilers, eggs, turkeys, and the value of sales from chickens in 2013 was $44.1 billion, according to the USDA.

Information on the H5N2 avian influenza outbreak is available on the USDA APHIS website: http://www.aphis.usda.gov/wps/portal/?urile=wcm:path:/aphis_content_library/sa_our_focus/sa_animal_health/sa_animal_disease_information/sa_avian_health.


For more information:
Dr. Glynn Tonsor – 785-532-1518 or gtonsor@ksu.edu


Story by: Mary Lou Peter
mlpeter@ksu.edu
mlpeter@ksu.edu K-State Research and Extension

Meat and Poultry Recalls: What Food Firms and Investors Should Know

A K-State study used stock market prices to determine costs of recalls to food firms and what recall factors are most impactful economically.

Food safety is top-of-mind among many consumers and producers of food. It is also a continuum, because the more a food firm spends on effective technologies and protocols to ensure safe food, the greater chance the foods are protected against contamination.

Despite a blanketed desire to keep foods safe, eventually food firms reach a price point—a limit they can spend feasibly to ensure staying in business and giving consumers an affordable product, said Ted Schroeder, professor of agricultural economics at Kansas State University.

“The more a company knows about the anticipated impact of a recall event, the better it can make a decision about adopting new food safety protocols, new technologies or new surveillance methods to reduce the probability of a food safety breach,” Schroeder said.

Schroeder, along with Veronica Pozo, assistant professor of applied economics at Utah State University, recently found that when food firms face a meat or poultry recall, several factors determine how that recall affects the firm’s bottom line. The most impactful factor is the class of the recall, which determines if a severe human health hazard is involved. Other factors include the size of the recall, size of the firm, if the firm has prior experience dealing with a recent recall and the media coverage surrounding the event.

A close look at publicly traded food firms
The researchers examined meat and poultry recalls that took place between 1994 and 2013, based on availability of recall data from the U.S. Department of Agriculture’s Food Safety and Inspection Service (FSIS). The FSIS showed more than 1,200 meat and poultry recalls happened during that time, and 163 of those recalls came from 31 different publicly traded firms.

Although 163 of more than 1,200 recalls may seem like a small number, publicly traded firms showed almost half of the total meat and poultry products recalled, said Pozo, who was a K-State doctoral student when the research was conducted. In fact, 277 million out of 638 million total recalled pounds, or 43 percent, came from publicly traded firms.

Although it’s difficult to obtain financial data from firms and measure total direct costs and losses of revenue from a recall, price reactions in the stock market surrounding a recall event tend to indirectly reflect all the private costs, Pozo said.

“Some recalls would have gotten out to the consumer, and some would not have,” she said. “Regardless, calculating the actual physical cost of a recall can be quite daunting. You have to track volume of product, determine if the product was disposed of or the firm got an alternative value for it, and the cost of all people involved, including sales losses and liability costs.”

“Our claim is all private costs—costs the company itself ends up realizing—will ultimately be reflected in the stock price through the value of the firm,” Schroeder said. “The stock market is efficient, meaning it rapidly incorporates information and embeds it into the stock values. It is a widely accepted method for evaluating event studies.”

What the stock price does ignore is public costs, he said. For example, if someone gets sick from a recall and it never resonates back to the firm, someone else likely paid for that. It wouldn’t necessarily show up in the stock price.

“Our goal was to look at individual, private firm costs, because if I’m a company that’s in the food processing or merchandising segment, I need to have a sense of what the impact of these (recall) events can be on my company,” Pozo said. “If we show firms how costly a recall can be, then they will be able to conduct a cost-benefit analysis to decide if it’s worth it to implement additional (food safety) technologies.”

In addition, Pozo said the study shows investors the importance of finding out more about a firm’s food safety protocols.

“I’ve seen publicly traded companies that went bankrupt after one recall,” she said. “And although companies do as much as they can to avoid these types of events, food safety outbreaks are still possible. Firms must have a good plan in place. Investors must find out about those plans before investing.”

Recall reflections in stock prices
The researchers found it took about four to five days, on average, for the stock price to reflect a recall. If a major health hazard was part of the recall, the stock price could take a hit earlier, potentially within one day.

Investor and firm interests often go hand-in-hand during a recall, Schroeder said. In the stock market, especially as a recall progresses, there’s uncertainty and emotion.

“Our results show investors do respond fairly quickly, within the day of the recall or as soon as the markets open after the recall,” he said. “As the recall continues to unfold, the market will adjust, and it’s either going to go down further or readjust back up if the confidence and handling of the recall is made known.”

Regardless if a health hazard was part of the recall, the researchers found the stock price returns decreased on average 0.63 percent within five days. A health hazard jumped that decrease to an average of 1.15 percent, which could translate to a loss of hundreds of millions of dollars for some firms.

A breakdown of factors that most impacted stock price reactions
Severity: Class I recalls pose a major health hazard compared to Class II and Class III. The researchers found the seriousness of the human health risk, brought on by E. coli O157:H7, salmonella or listeria as examples, would impact shareholder losses to the greatest extent.

Recall size: The larger the recall, the more financial damage the firm would face, according to the researchers. Knowing that recall sizes matter, it may behoove firms to test products in smaller lot batches to help prevent a large-scale recall, but they would need to weigh the costs to implement this practice.

Further, firms should know that combining acute health urgency in a Class I recall with a large recall size would make the most sizeable market reaction.

Firm size: Some of the financial hit from a sizeable Class I recall can be countered if the firm is large and more diverse, said the researchers. In addition to immediate private costs, insurance premiums for the firm also would likely rise.

A large firm won’t have near the stock market impact as a smaller publicly traded firm that relies heavily on that particular meat or poultry product as its main line of business. Smaller, more homogeneous firms are more apt to go bankrupt from one recall.

Firm’s experience: Say a firm experienced one recall and within a year faced an additional recall. The researchers found the impact of the second recall would still be adverse, but because the firm showed it could manage a recall situation, all the possible repercussions from the second recall didn’t have as much effect as the first.

The firm’s customers, investors and consumers are often more at ease after the firm shows it can bounce back from one recall. If a company is experiencing one of its first recalls, it might benefit from leaning on experts who know how to navigate a recall to minimize financial damages.

Media: Media has an important effect on how a processing or manufacturing firm’s customers, investors and consumers perceive the company. The larger the number of media articles about the recall event, the more damage it would likely cause the firm related to that particular recall.

Most of the media articles related to the recalls under study were informative, but they carried a negative tone, according to the researchers. Results suggest value in firms having a media plan in place if a recall were to occur.

More details about these and other recall factors are available in the full report, “Costs of Meat and Poultry Recalls to Food Firms,” which can be found on K-State’s Ag Manager website (http://www.agmanager.info/livestock/marketing/FoodSafety/Pozo_Schroeder_FactSheet_2015.pdf).

For more information, contact Veronica Pozo at veronica.pozo@usu.edu or 435-797-3863; or Ted Schroeder at tcs@ksu.edu or 785-532-4488.


Story by:  Katie Allen
katielynn@ksu.edu
785-532-1162
K-State Research and Extension

Farm Bill Update: Clarification about Market Year Average prices released on March 30

In his recent update of Marketing Year Average (MYA) prices, Art Barnaby noted that the February prices would be released on March 30, which would only leave one day to make a change to the program selection. He was NOT encouraging farmers to wait to do that, but rather noting that there really wouldn’t be time to make changes with any new information that might be available then.

The paragraph that has caused some confusion has been modified. Note the bolded and italicized text:

“USDA will release one more monthly price on March 30, 2015 prior to the final Farm Bill program selection date.  Farmers would only have 1 day to call FSA to change their program selection.  As a result some farmers have been trying to delay their county FSA appointment times. However, because of the low weight for the February price, there be will little if any additional information provided by the March 30 price.  As a result, farmers should be making the program selection now.  There is no way everyone can sign up on the last day.  There are lot of unknowns that will have greater impact on the final results and include price for the next 5 years, the distribution of the county yield loss distributions, etc. KSU is offering a webinar on March 11, and will present a summary and a final look at the Farm Bill decision.  For more information or to register, the link is: http://www.agmanager.info/events/Webinars/default.asp. The registration fee is $25 per line with no limit on the number of people viewing the webinar per line.”

To view the entire article in PDF: http://www.agmanager.info/crops/insurance/risk_mgt/rm_pdf14/AB_Est-MYA.pdf

Faster loading but less formatting HTML at: http://www.agmanager.info/crops/insurance/risk_mgt/rm_html14/AB_Est-MYA.asp

For more information or if you have problems registering for the webinar, contact Rich Llewelyn at 785.532.1504 or rvl@ksu.edu.

Final Farm Bill Webinar: Wednesday, March 11 – Register now!

The Agricultural Act of 2014: A Final Update – Webinar by Art Barnaby and Mykel Taylor

On Wednesday, March 11 at 11:00 a.m. central, the K-State Department of Agricultural Economics will offer an hour-long webinar to update farmers and others on the decision between selecting the Price Loss Coverage (PLC) vs. Agricultural Risk Coverage (ARC). This update will highlight some of the new resources available and also the Marketing Year Average (MYA) price estimates after the January prices are released. This will be the final KSU webinar before the sign-up deadline at the end of March.

Register at http://commerce.cashnet.com/KSUAGECON . Registration fee is $25. If you cannot attend the live webinar, a recording will be available for the same price. Register for the webinar and receive instructions of how to access recording, following the webinar.

For more information or if you have problems registering, contact Rich Llewelyn at 785.532.1504 or rvl@ksu.edu.

 


 

PREVIOUS UPDATES: Base Reallocation and Payment Yield update deadline that was originally today is now extended to March 31st! The deadline to make the program election remains as March 31st.

The link for the news release from USDA: http://www.usda.gov/wps/portal/usda/usdahome?contentid=2015/02/0051.xml&contentidonly=true

We also would like to highlight some new resources on AgManager, under Decision Tools: http://www.agmanager.info/policy/commodity/2012/default.asp

First off, there is now a map to show announced 2014 Kansas NASS County Yields: http://www.agmanager.info/policy/commodity/2012/Yields.asp

Taking that a step further, there is also a map to show Kansas projected ARC-CO payments for wheat, corn, sorghum, and soybeans: http://www.agmanager.info/policy/commodity/2012/Payment.asp Note that Jan. prices will be released at 3 pm today, so by Monday your estimate may change slightly to reflect the new price projections.

For complete information, we have have created a spreadsheet for all covered commodities in all U.S. counties that shows NASS yields, corresponding ARC-CO payments at different MYA price levels, AND tradeoff spreadsheets for 2015. Again, price estimates will be updated on Monday, but go ahead and take a look at this tool: http://www.agmanager.info/policy/commodity/2012/ARC-2014_Tradeoff-PLC-ARC-2015.xlsx


For more Farm Bill information, visit http://www.agmanager.info/policy/commodity/2012/.

 

K-State 2014 Farm Bill team reaches more than 4,000 Kansans

K-State 2014 Farm Bill team reaches more than 4,000 Kansans
AgManager.Info hosting upcoming webinar, updates to deadline

Farm producers and ranchers are facing many decisions regarding the Agricultural Act of 2014, also known as the 2014 Farm Bill.

To help with that decision-making, K-State Research and Extension held meetings throughout the state in January and February. Recordings of presentations offered at the meetings are now available online.

Mykel Taylor 2015 Farm Bill meeting in Wichita  “More than 4,000 people attended the meetings, with many attending more than one to improve their understanding,” said Mykel Taylor, assistant professor of the Kansas State University Department of Agricultural Economics. “Surveys at these meetings asked people to rate the value of the information presented on the programs details and the tool. An average of 89% of attendees rated the information as Valuable or Very Valuable on a four point scale (‘Not Valuable’, ‘Somewhat Valuable’, ‘Valuable’, or ‘Very Valuable’).”

Base Reallocation and Payment Yield deadline update
The Base Reallocation and Payment Yield update deadline that was originally February 27 is now extended to March 31.  The deadline to make the program election remains as March 31.

Final Webinar Update to be held Thursday, March 11Art Barnaby Wichita Farm Bill meeting 2015
Art Barnaby, agricultural economics professor, and Taylor will offer an hour-long webinar on Thursday, March 11, 2015 at 11:00 a.m. CDT to update farmers and others on the decision between selecting the Price Loss Coverage (PLC) vs. Agricultural Risk Coverage (ARC).

This update will highlight some of the new resources available and also the Marketing Year Average (MYA) price estimates after the January prices are released. This will be the final webinar before the sign-up deadline at the end of March.

Register at http://commerce.cashnet.com/KSUAGECON. Registration fee is $25. If you cannot attend the live webinar, a recording will be available for the same price. Register for the webinar and receive instructions of how to access recording, following the webinar.

Video list from Wichita Farm Bill meeting

In addition, updated information including many tools and resources are available at www.AgManager.info on the 2014 Farm Bill.

Additional information is available from Rich Llewelyn: rvl@ksu.edu or 785-532-1504.

New College of Agriculture ambassadors include seven students from Department of Agricultural Economics

On the evening of February 24, 2015, 34 Kansas State University College of Agriculture students joined the ambassador team in February. Newly selected agricultural economics students are:

  • Nolan Allison, Eureka
  • Coleman Forst, Marysville
  • Abigail Horn, McCoy, Colorado
  • Anna Setter, Humboldt
  • Halli Wigger, Troy
  • Youwei Yang, China

The agribusiness students are:

  • Kristin Stiebe, Kinsley
  • Rachel Zimmerman, Ulysses

The ambassador team aids in recruitment of prospective students and will represent the College of Agriculture at various events throughout the year. More than 800 prospective students are anticipated to visit the college this year to tour campus, sit in classes and hear personal K-State stories from the ambassadors.

A prerequisite to the application process involves passing the 8-week College of Agriculture Training program aimed at teaching the students about the college’s departments and programs. The application process included a written application and a simulation of a situation students would potentially face as ambassadors followed by an interview.

View the full list of new ambassadors.

Tonsor and Schroeder Examine Economic Implications of E. coli Vaccine Use

E. coli Vaccine Effective But Seldom Used in Feedlot Cattle: K-State Study Examines Economic Implications

When it comes to foodborne illnesses, few rival E. coli for the damaging effect it can have on humans.

Research shows that STEC-related bacteria cause more than 175,000 human illnesses per year with an annual direct economic cost ranging from $489 million to $993 million, said Kansas State University agricultural economist, Glynn Tonsor.

Shiga toxin-producing E. coli, often referred to as STEC 0157 or simply E. coli, is naturally occurring in cattle and though it does no harm to the cattle, can make humans sick. In some cases it is lethal. To reduce the chances that beef leaving their plants is contaminated with the pathogen, beef processors have implemented hazard control steps and also test their beef products for the presence of E. coli before they leave the plant.

Another potential way to reduce prevalence of E. coli is to vaccinate cattle in feedlots long before they are shipped to processing plants.

“Immunization through vaccination has been a commercially available pre-harvest intervention to reduce E. coli shedding in cattle for about five years,” said Tonsor, who is a livestock marketing specialist with K-State Research and Extension. “Despite demonstrated substantial improvement in human health the vaccine offers, it has not been widely adopted.”

In a recent study he, along with K-State colleague Ted Schroeder, also an agricultural economist, took a closer look at the potential economic impacts of incorporating animal vaccination into E. coli pre-harvest control practices.

A fact sheet is available at http://www.agmanager.info/livestock/marketing/FoodSafety/default.asp. Study results have been published in the Agricultural and Food Economics Journal at http://www.agrifoodecon.com/content/3/1/7.

The study made clear two primary reasons most feedlot managers don’t use E. coli vaccines. Because cattle themselves are not adversely affected by the pathogen, the presence of E. coli does not hinder cattle feeding efficiency so there are no production costs for feedlots directly associated with the prevalence of E. coli. In other words, it costs no more to feed cattle that have E. coli than it does to feed cattle that don’t.

Further, there is no well-established market that compensates producers for vaccinating for the pathogen. So generally, the price paid for cattle coming out of feedlots is the same whether the vaccine was used or not. Because administering the vaccine adds costs without direct economic incentives, most cattle feeders choose not to, Tonsor said.

Key findings from the K-State study include:

  • Given the current market setting, producer adoption of E. coli vaccination protocols is likely to remain limited. If such vaccinations were implemented, it would cost U.S. feedlots $1.0 billion to $1.8 billion in economic welfare loss over 10 years if demand didn’t increase with premiums for vaccinated cattle.
  • Retail or export beef demand increases could spur adoption by feedlot producers. Considering different scenarios, the study found that retail beef demand increases of 1.7 percent to 3.0 percent or export beef demand increases of 18.1 percent to 32.6 percent would be necessary to generate sufficiently higher fed cattle prices to offset the costs associated with vaccination.
  • Production cost decreases to either beef retailers or wholesalers (packers) could also provide an incentive for feedlot producers to vaccinate. The study indicated that cost declines of 2.2 percent to 3.9 percent for retailers or alternatively production cost declines of 1.2 percent to 2.2 percent for packers would be necessary to generate sufficiently higher fed cattle prices to cover feedlot adoption costs, making producers economically neutral to adoption.

“A key point of this research is that limited use of E. coli vaccinations in U.S. feedlots is consistent with the lack of current economic signals for producers to expand adoption,” Schroeder said. “Unless there is a substantial change in market signals presented to feedlot operators, limited use of E. coli vaccinations can be expected in the future.”


Story by: Mary Lou Peter, mlpeter@ksu.edu, K-State Research and Extension

For more information, contact Glynn Tonsor at 785-532-1518 or gtonsor@ksu.edu; or Ted Schroeder at 785-532-4488 or tcs@ksu.edu.

Hikaru Peterson co-leads the new K-State Center for Rural Enterprise Engagement

Center for Rural Enterprise Engagement established at Kansas State University

A new center at Kansas State University will lead the nation in new media technology research for the improvement of small rural enterprises.

On Feb. 10, the Center for Rural Enterprise Engagement was established to help small businesses succeed through new media marketing research. This interdepartmental effort represents a collaboration of previous federal grant funding and support from the Kansas Agricultural Experiment Station and the National Institute of Food and Agriculture.

Hikaru PetersonUniversity faculty in three departments led the establishment of the center: Lauri M. Baker, communications and agricultural education; Cheryl R. Boyer, horticulture, forestry and recreation resources; and Hikaru H. Peterson, agricultural economics.

“We saw a need for independently owned rural businesses to learn how to capitalize on new online media technologies in order to advance their business goals,” Boyer said. “The team conducts research to determine how to effectively use social media to improve rural businesses and rural economies.”

The center’s objectives are to generate research-based knowledge related to new media technologies and rural enterprises while offering hands-on research experiences for graduate and undergraduate students in an effort to serve as a source for local, regional, and national rural enterprises and others involved in improving rural life.

“We have enjoyed the ability to conduct research that directly benefits rural economies and look forward to growing this effort through the establishment of the center,” Baker said.

Baker, Boyer and Peterson have successfully secured U.S. Department of Agriculture grant dollars for initial research efforts and will continue to seek grant and industry funds to support the efforts of the center.

“The Center for Rural Enterprise Engagement will meet a national need for rural business new media research while addressing all three missions of Kansas State University through research, teaching and extension work,” Peterson said.

The center aligns with the goals of a multistate project, “Sustainable Practices, Economic Contributions, Consumer Behavior, and Labor Management in the U.S. Environmental Horticulture Industry,” which is funded by the National Institute of Food and Agriculture and is a part of the ongoing effort to increase economic benefits to rural areas through increased understanding of consumer and business behavior in these specialized markets.


K-State News and Media Services

 

FARM BILL UPDATE: Base Reallocation and Payment Yield update deadline extended to March 31st

If you haven’t heard:  Base Reallocation and Payment Yield update deadline that was originally today is now extended to March 31st!   The deadline to make the program election remains as March 31st.

The link for the news release from USDA: http://www.usda.gov/wps/portal/usda/usdahome?contentid=2015/02/0051.xml&contentidonly=true

We also would like to highlight some new resources on AgManager, under Decision Tools:  http://www.agmanager.info/policy/commodity/2012/default.asp

First off, there is now a map to show announced 2014 Kansas NASS County Yields: http://www.agmanager.info/policy/commodity/2012/Yields.asp

Taking that a step further, there is also a map to show Kansas projected ARC-CO payments for wheat, corn, sorghum, and soybeans: http://www.agmanager.info/policy/commodity/2012/Payment.asp   Note that Jan. prices will be released at 3 pm today, so by Monday your estimate may change slightly to reflect the new price projections.

For complete information, we have have created a spreadsheet for all covered commodities in all U.S. counties that shows NASS yields, corresponding ARC-CO payments at different MYA price levels, AND  tradeoff spreadsheets for 2015.  Again, price estimates will be updated on Monday, but go ahead and take a look at this tool: http://www.agmanager.info/policy/commodity/2012/ARC-2014_Tradeoff-PLC-ARC-2015.xlsx


For more Farm Bill information, visit http://www.agmanager.info/policy/commodity/2012/.

 

Christine Wilson honored at APLU Annual Meeting

The Association of Public and Land-grant Universities honored Christine Wilson, professor in agricultural economics, for completing the Food Systems Leadership Institute’s (FSLI) Executive Leadership Development Program along with the 21 other fellows in her institute cohort.

Christine WilsonThe FSLI is a 2-year program of the APLU designed for experienced leaders in academia, government, and industry. Through a dynamic curriculum that includes three executive style residential sessions, individual coaching, mentoring, and personal projects, the FSLI seeks to enhance personal leadership ability, develop skills and knowledge for organizational change, and broaden perspectives on integrated food systems.

“The FSLI was a tremendous professional development and growth opportunity for me.  It has been one of the most valuable experiences of my career,” Wilson said.

FSLI is in partnership with North Carolina State University, Ohio State University and California Polytechnic State University- San Luis Obispo. Financial support from the W.K. Kellogg Foundation helped establish FSLI in 2006.

Learn more about FSLI at www.fsli.org.

For a full list of the fellows recognized at the meeting visit http://www.fsli.org/fellows.html#cohort-8.

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