farmgate: Extension Update
Extension Update is a weekly summary of news from Extension, government, and other attributable sources, focused on marketing, farm management, and other issues that are of interest to Midwestern farm owners and operators.
Oh, no, not again! Japan’s discovery of spinal cord tissue in a shipment of US beef has slammed shut the barn door on our beef exports to that country. After two years of trying to convince the Tokyo government US beef was safe and Japanese regulations would be met, USDA is not happy that banned tissue escaped the inspection process. Although the animal was less than 30 month age limit, the vertebral tissue is specifically banned.
Addressing the issue, Agriculture Secretary Mike Johanns said action was being taken:
1) The beef processing which originated the product has been banned from exporting.
2) Personnel action is pending against the food inspector who approved the shipment.
3) A team of USDA inspectors is enroute to Japan to re-inspect all pending shipments.
4) US beef being prepared for export now will be inspected by two inspectors.
5) Additional, unannounced spot inspections will occur at beef processing plants.
6) Negotiations will resume with Japan to reopen the beef export market.
The beef market opened weaker Friday morning on the news from Japan, however was stronger by late morning. In all actuality, with the small amount of beef that is at risk in export channels currently, the development is not much different than just a delay restarting beef shipments. Beef prices may suffer less than USDA’s “loss of face.”
Do you manage price risk for cattle, as you do crops? Iowa State has upgraded its web-based decision aid for Livestock Gross Margin (LGM) insurance which gives estimates on premiums for different levels of coverage on cattle. LGM bundles cattle prices and feed costs to provide protection against the loss of gross margin, calculated as the market value of livestock minus feed costs. The market value is obtained from futures prices, not from local market prices.
Did you see the “positives” in USDA’s latest corn stocks report? Extension’s Darrel Good says, “Consumption of corn during the first quarter of the 2005-06 marketing year was a record 3.417 bil. bu., 105 mil. more than consumption of a year ago. Domestic processing use of corn was up about 65 mil., feed and residual use was up by 55 mil. bu.
Soybean market dynamics are different says Darrel Good, since domestic crush for 2005/06 was increased by only 10 mil. bu. At 1.73 bil., the projection is 34 mil. bu. larger than last year. It is being driven by an increase in domestic meal consumption and a lower yield of meal per bushel of soybeans. The oil yield from the 2005 crop is a record, resulting in a forecast of a sharp increase in domestic oil stocks by year end.
Will corn acres shift to beans? That is yet to be determined, but ag economist Darrel Good says 2% more wheat acres in 2006 will come from corn and bean acres. There is a 19% in soft red winter wheat acres, with the largest increases coming in Missouri, Illinois, Indiana and Ohio, which are prime corn and soybean growing states.
Soybean aphids have been prevalent in odd-numbered years, but Purdue entomologist Christian Krupke says, "There is the potential for that every-other-year cycle to be broken this crop season. One of the primary reasons is that we're not seeing the number of predators (Asian lady beetles) overwintering that we've seen in past big aphid years."
If farm budgets are your priority, Ohio Extension ag economist Barry Ward says his economic models predict diesel prices for 2006 will be 25% to 35% above 2005. He expects nitrogen to average $0.335 per pound in 2006, up 22%. (NH3 price of $550/ton equals price per actual pound N of $0.335.) A second and more optimistic scenario pegs N at $0.30 per pound which equals an NH3 price of $480/ton. He says seed prices should average 2.5% higher, and operating loan rates about 7.75% in 2006 up from 6.5% in ‘05.
Who do you buy from? Purdue’s survey of 2,100 farmers nationwide with annual sales over $100,000 found farmers place greater importance on price, product performance and customer service than on ease of purchase when making agricultural input buying decisions. The convenience preference declined from 17% in 1998 to 14% in 2003.
Land purchases may challenge your profitability, says ag economist Abner Womack at the Univ. of MO, who says an 18% price since 2004 increase puts land to where it is very difficult to pencil out a profit from farming. He says, “If you have deep pockets and a good off-farm job, you might make it. You may be tempted to pursue land when it becomes available, but do your calculations before buying." Womack noted that rising land prices, followed by higher interest rates, put many farmers into a crisis in the 1980s.
As you consider production contracts for the 2006 crop, USDA has analyzed contract production trends, based on 2003 statistics, which are the most recent available:
1) Contracts covered 39% of the ag production in the US, up from 36% in 2001.
2) Over the long term, contracting has trended up from 11% in ’69, and 28% in ’91.
3) Contracting has become concentrated in hog, tobacco, cotton, and rice production.
4) Contracts covered about 20% of production among farms with sales under $250,000.
5) Contracts covered 53% of production on farms with sales over $1 million.
6) Contracting held steady or declined among smaller farms, but grew among larger farms, and increases in contracting mirrored their increased volumes of production.
Mark your calendar for the 36th annual Farm Expo at Western Illinois University, set for Feb. 11-12 at Macomb. 250 exhibits will be featured, and IL Ag Dir. Chuck Hartke will open the show at 10:30 a.m. Saturday. The show features emerging technology.
Farmers in the Upper Sangamon River watershed are being recruited for nitrogen management research, comparing yield and net income using current guidelines and the new recommendations. Incentive payment is $8 per acre. Enrollment for the new crop depends on extent of fall-applied nitrogen. Inquire: dcwhite@agwatershed.org.
Posted by Stu Ellis on January 20, 2006 2:45 PM to farmgate