Navigate to « November 2006 | Main | January 2007 »
December 31, 2006
A New Year's Resolution To Post On The Shop Door
Happy New Year! And with that greeting we quickly move to the issue of New Year Resolutions, and knowing you probably resolved to lose weight, let’s go a bit further. For the men reading this, just click on “continue reading” now. For the women reading this, take a good look at the recommendations included here, post them on the refrigerator, the shop door, the machine shed door, and make extra copies for his bedside reading. There is a lot here, more embedded in the link, but it may pay off in the long run.
“Enjoy life more. Enhance your role as a productive employee and family member. Maintain your mental and physical function and independence. Even improve your life expectancy. Feel better today and tomorrow.” If that is your goal, make your New Year Resolution one of practicing better health. Kansas State nutrition specialists Mary Meck Higgins and Kimberly Shafter say that is the promise of good health in their guide: Men's Health: A Guide to Living Long, Strong and Well.
Answer these to yourself and be honest now:
1. Do you view your health differently from that of a woman?
2. Are you less likely to focus on your overall health, wear and tear on your body, or on disease symptoms?
3. Are you more reluctant to visit a health care provider?
Higgins and Shafter focus on six common health issues in men, most of which are never discussed at home, nor to anyone, for that matter. Since you are reading this on the privacy of your computer screen, or a printed copy in your shop (thanks to someone who cares about you), take a long hard look at these potential problems in your life. They can be fixed, just like a broken cultivator shovel, but you’ll need the help of someone who has the right tools.
Osteoporosis. You’ve seen the elderly women at church who are growing shorter and walking a bit more stooped than last year, or may have broken a bone too easily, all because of osteoporosis. Higgins and Shafter say two million men in the US have osteoporosis and twelve million more might potentially have it. “Male risk factors for osteoporosis include older age; heredity; Caucasian ethnicity (white males are at greater risk); prolonged use of medications such as steroids and aluminum-containing antacids (look at the ingredients label to find out if the product has aluminum); smoking; excessive alcohol use; lack of dietary calcium or physical activity; and chronic diseases of the kidneys, lungs, stomach and intestines.”
Here’s how to work on the problem:
1) Regularly do weight-bearing physical activities.
2) Get vitamin D, either by spending 10-15 minutes a day outside in the sunshine or through vitamins.
3) Get enough calcium, with the help of milk, cheese, or yogurt. (There are healthier ways than a dose of ice cream.)
4) Improve other lifestyle behaviors to reduce bone loss, such as quit smoking and don’t use alcohol to excess.
Cardiovascular disease (heart and stroke). Males have a better than 25% chance of dying from a cardiovascular problem. You know this, but it is good to review it. Higgins and Shafter say, “A man’s chances for getting heart disease and stroke increase if he has high blood pressure or high cholesterol, is physically inactive or overweight, and if he smokes. Healthy eating and physical activity are important for preventing and treating heart disease and stroke.” Briefly, diet and exercise are the issues here.
Here’s how to work on the problem:
1) Eat 4-6 cups of colorful fruits and vegetables per day; 3+ ounces of whole grains, only 5-7 ounces of lean meat, avoid fried foods or those with added fats, read nutrition labels to avoid saturated fats and trans fats, switch to lower fat dairy products, limit your sodium (salt) intake.
2) If you are a smoker, give it up.
3) Get moderate physical exercise
4) If you are overweight, lose some of it.
Prostate cancer. This is the second most common cancer that affects men, behind skin cancer. Higgins and Shafter say, “What factors increase the chances for prostate cancer? They include: older age, having a father or brother who had the disease, being African American, eating a diet high in animal fat (found in meats and high-fat dairy products), eating few fruits and vegetables, being overweight and getting little physical activity.” (Yes, you can cure a couple potential problems with the same tools.)
Here’s how to work on the problem:
1) Eat more fruits and vegetables.
2) Eat foods that are red or pink which contain lycopene.
3) Eat strong flavored foods such as onions or garlic that contain allium
4) Eat cooked dry beans which contain isoflavones
Colon cancer and large bowel problems. This is the fourth most common cancer in men, but one in three deaths from colon cancer could be avoided with a regular screening test. What increases men’s chances of getting colon cancer? 90% are 50 or older, family history of colon cancer, personal history of bowel problems, diet low in fruits a vegetables but high in animal fats, insufficient physical activity, obesity, smoking, excessive alcohol consumption, and diabetes.
Here’s how to work on the problem:
1) Eat 3+ cups of a variety of fruits and vegetables every day; eat 3+ cups of cooked dried beans per week; chose whole grains, limit sugar intake; eat fish frequently; limit consumption of red or cured meats.
2) Get 30+ minutes of daily physical activity at least 5 days per week.
3) Take a daily multivitamin with folate and a supplement with calcium and vitamin D.
Depression. Six million men have depression, but only 10% of diagnosed cases are men, leading authorities to believe there are millions of undiagnosed cases. Depression can be treated successfully to restore productivity and enjoyment of life. Higgins and Shafter say, “Although many men have depression, it’s often not recognized. Some men deny having problems with depression because they believe that they should be strong and not express emotions. Depression leads some men to withdraw from socializing with friends and family, or to use alcohol excessively. Men suffering from depression may lack sexual desire. They are likely to describe their symptoms as being physical, such as feeling tired, experiencing headaches or not sleeping well. Other signs of depression are difficulty concentrating or remembering, or feeling irritable, pessimistic, anxious, or sad most of the time.”
Here’s how to work on the problem:
1) Consume folate, Omega-3 fats, and vitamins B6 and B12 either through foods that contain them or with vitamin supplements.
2) Increase your physical activity
3) Talk to a health care provider about other options
Arthritis and joint problems. Only heart disease causes more work loss than arthritis. 17 million men have arthritis that has been properly diagnosed, but there are more than 100 different kinds of arthritis. Higgins and Shafter say, “Men who have had a sports injury (such as to their knee or hip), those ages 40 years and older, and men who are ten or more pounds overweight are at increased risk for osteoarthritis. Doing moderate physical activity, such as walking at least three times a week, can reduce the risk by almost half for knee osteoarthritis-related work disability. Losing 10 to 11 pounds of excess body weight also reduces the risk.”
Here’s how to work on the problem:
1) By losing 1 pound of weight, you will take a four pound reduction in the load exerted on your knee per step you take.
2) Consume the recommended amounts of fruits, vegetables, and whole grains recommended for other health issues in this guide.
3) Avoid foods that adversely interact with your other medications
4) Any sugar, salt, saturated fats, and alcohol consumed should be in only moderate amounts.
5) If your problem has been diagnosed as gout, drink plenty of water; reduce fat intake, lose weight gradually, and limit your consumption of purines which are found in meat extracts and alcohol.
6) If your problem has been diagnosed as rheumatoid arthritis, consume sufficient amounts of citrus fruits and cruciferous vegetables, along with omega-3 fats, and dietary sources of zinc and selenium.
Lastly, get a physical examination annually if you are more than 50 years of age.
Summary:
Acknowledge it or not, men can suffer ill health from time to time, and some of it can be rather serious, even fatal if not treated properly. There are measures that can be taken for disease prevention, but if that is too late, begin with measures to address the disease. Many of those issues can be addressed with a healthy diet and good exercise.
Posted by Stu Ellis at 6:18 PM | Comments (3) | Permalink
December 29, 2006
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.
Smaller acreage for new crop beans and the strong pace of old crop exports continue to hold up the soybean market says Purdue’s Chris Hurt, and adds analysts are estimating exports to be up 21% for this marketing year, but so far commitments are up only 45%. He’s concerned about the South American crop, which could be 12% more than the 2006 US crop.
Bean prices have been following corn, and Purdue’s Hurt expects that will continue. “Spring highs on soybeans tend to be in the late-March to Mid-May time period. This is a reasonable expectation for this year as well, with the realization that unfavorable weather could take prices much higher into the summer. Cash prices for 2007 crop soybeans in the $7.00 to $8.00 per bushel range might become reasonable expectations, although the $8.00 level is clearly higher than futures market price expectations at this time.”
Ethanol demand will likely push corn prices to a higher level for an extended period, say IL Extension economists. That will come despite increased acreage because corn supply will remain tight. Results of the scenario will be non-fuel users having to pay higher prices, higher land values and rents, and increased foreign production of corn. More.
Farm power costs varied little when IL Extension Economists surveyed thousands of farms in the IL FBFM farm records association. Regardless whether farm size was below 1,000 acres, or exceeded 4,000 acres, power costs averaged $66 to $70 per acre. More.
If you plan more 2007 corn acreage, also plan for a slight increase in machinery costs say IL Extension economists. While the additional machinery costs will be small, the main concern may be a tighter planting window, a longer and more complicated harvest, with more fieldwork for tillage and fertilizer application. Your timing will be a concern.
USDA’s Cattle on Feed report last Friday indicated the feedlot inventory was up 2% over 2005 and 6% over 2004, making it the highest Dec 1 cattle on feed inventory since 1996 when records began. November feedlot placements were 8% below 2005, but November marketings of fed cattle were 6% above 2005 and 10% above 2004.
USDA’s Hogs and Pigs report Wednesday indicated the pork inventory was 1% above 2005, but down 1% from the September report. The breeding herd inventory and the pig crop were both up 1% from 2005, and farrowing intentions are up 2% for the current quarter and up 1% for the spring quarter. Cornbelt state inventories were up 2-5%.
Energy #1. Investors in new ethanol and biodiesel plants may not personally benefit from the regulatory protection enjoyed by the plant say IL Extension ag law specialists. Depending on how the investment is structured, the company could save significant costs from federal registration which is not passed onto farmer investors. Ask before investing.
Energy #2. The resurging interest in coal mining may bring offers to buy coal rights on your farm, but IL Extension ag law specialists say it may also bring the controversial longwall mining, which has great potential for surface subsidence. Although it is legal, its consequences include damage to drainage systems, and uneven field terrain.
Energy #3. Increased demands for energy may result in new power lines crossing your farm, but despite the utility’s power of eminent domain, there is room for negotiation to ease the impact on your farmland. Some state laws mitigate the adverse impacts of power lines say IL Extension ag law specialists, but you may want a lawyer handy.
Energy #4. A windfarm on your land may be lucrative, but IL Extension ag law specialists say easements you grant may limit the use of the land forever, and you should consider long and short run consequences of any agreement. Consult your attorney first. More.
Giant ragweed is now #7 on the official list of Roundup resistant species due to an IN patch. Purdue’s Bill Johnson says there are only four effective postemerge herbicides for giant ragweed: glyphosate, Flexstar, Cobra and FirstRate. If the giant ragweed population is resistant to ALS inhibitors, that leaves only glyphosate, Flexstar or Cobra. If the populations are resistant to glyphosate and FirstRate, that leaves only Flexstar or Cobra post-treatments. He says the wind won’t spread ragweed seeds, but may spread pollen.
The FDA is being criticized for allowing consumption of meat and milk from cloned animals. Because of expense, don’t look for it in the grocery store this weekend. An advocate of cloning says the practice will result in leaner meat and disease resistant animals, which means more consumer safety and more humane treatment practices.
Pork production could be enhanced as a result of a genetic discovery by USDA’s Meat Animal Research Center in NE, where gilts can be genetically identified and selected for increased litter size. Genetic markers correlated with litter size can increase profitability.
Grain exporters will be toasting their success. Despite higher prices, corn exports are currently 18% above export volumes recorded at this time in 2005. Soybean exports will be 1.2 bil. bu., representing 937 mil. bu. of soybeans and 282 mil. tons of meal. October set a new monthly export record of $6.9 bil. and for all ag exports, ‘06 is 12% over ’05.
Weather impacts oil and protein content in soybeans, and drought in the Plains and Western Cornbelt resulted in a slide in average protein content to under the 35% target. The United Soybean Board says 2006 protein values were 34.5%. Oil content of the 2006 soybean crop was 19.2%, slightly above the USB export target of 19%.
With sadness we report the passing of Sonja Hillgren, Editorial Vice President of Farm Journal media. A long time colleague, respected journalist, and friend, Sonja will be truly missed by all of agriculture where her shadow passed during the past 30 years. The first farm writer to be President of the National Press Club, Sonja gained the respect of the Washington media who realized she had the trust of all farmers. Godspeed Sonja.
On the Cornbelt calendar are many opportunities about risk management and profitability:
Crop Protection Technology is the focus Jan 3-4 at Urbana, IL with speakers on: fungi in field crops, agronomic issues, wheat production and management, glyphosate resistance, insect management challenges, issues associated with the agriculture/urban interface. Register.
Marketing without LDP’s is the topic of a series of seminars for IN farmers presented by Purdue educators on four successive Monday nights, beginning Jan. 22. They cover futures, options, cash marketing alternatives, and the impact of biofuels on grain prices. The $20 fee covers materials and can be paid to Extension offices hosting the semnars.
The 6 keys to a quality pasture are: choice of site, quality of soil, forage mixture, seeding process, weed control, and first use of the forage, says Purdue forage specialist Keith Johnson. His presentation and others will be Jan. 24-25 at the Heart of American Grazing Conference, at Mt. Vernon, IL. Register.
IL livestock feeders are invited to attend a seminar on buying and using DDG & gluten. Topics include product locations, costs, trucking, storage, and ration formulation. They will be: 1/16 at Pekin, 1/17 at Perry and Jerseyville, 1/31 at Macomb and Roseville, 2/2 at Lewiston, 2/12 at Hennepin, and 2/20 at Petersburg. Pre-register at Extension offices.
44 different workshops presented by 27 different experts will be held at 12 Iowa cities during January, focused on crop management, fertility, conservation, marketing, and pest management. Register for Crop Advantage Series 2007.
Beef producers in IA, KS, MO, & NE will want to attend one of the four sessions in the four state beef conference, held Jan. 10 & 11. Topics include: state of the industry, co-product feeds, grazing management, and declines in percent choice. The $25 registration fee includes a meal and materials. Details.
Crop Protection Clinics will be held in twelve locations across Nebraska, beginning Jan. 4. The daylong seminars will focus on weed, disease, and insect management. Dates, locations, and times are available.
Annie’s Project, a six-session risk management training program for farm women, will be held in two Ohio locations. Bowling Green begins Jan. 9 and Delaware County begins Feb. 1. Details.
Minnesota Dairy Days begin Jan. 5, with sessions on feeding dairy cows in the future, what's new about feeding young calves, what producers are doing to achieve low somatic cell counts, biological risk assessment of your dairy, milk marketing, compost barn economics, and residue risk management. Details.
Posted by Stu Ellis at 12:37 AM | Comments (0) | Permalink
December 28, 2006
Take A Picture Of Your Local Elevator To Show Your Grandkids
You have undoubtedly followed a semi-trailer truck with a bumper sticker proclaiming: Country elevators: use ‘em or lose ‘em. That tugs at one’s heartstrings until the local processor or nearby river terminal bids a dime per bushel more and farmers find themselves caught between philosophies and finances. The choice of use or lose will continue, and country elevators are now finding themselves also bidding against the local ethanol plant. The young bull in the pasture just may become the major domo and the local elevator will see less and less business. How it that going to change the economic landscape of Cornbelt country?
Purdue ag economist Frank Dooley says, “The rapid growth of ethanol production in Indiana is leading to drastic changes in grain marketing and transportation.” And Dooley’s world of Indiana could easily be transferred to anywhere else in the Cornbelt. Instead of unit trains hauling corn outbound from Midwestern states on hourly schedules around the year, the face of grain storage and transportation will shift to inbound loads to ethanol plants and outbound loads of ethanol and its co-products. Unless the ethanol plant manager has adopted the local elevator for his storage needs, the role of the elevator manager could be relegated to history.
Thinking short term, Dooley says the ethanol plants coming on line in Indiana in 2007 alone will triple the state’s consumption of its own corn from 5% to 18% in just a few months.
Thinking long term, higher corn prices will entice more corn acreage, and even with an increased supply, 38% of the state’s supply of corn will be converted to ethanol by 2010. That is based on the needs of the ethanol plants that are currently under construction in Indiana.
Dooley’s research finds that typical elevator market areas are limited to 25 miles, but ethanol plants draw from a 75 mile radius. That means more corn will be trucked on state highways leading to the ethanol plants, by-passing several country elevators along the way.
But trucks entering the ethanol plant will be met by trucks leaving the ethanol plant. Dooley says, “A 100-million gallon per year plant, operating on a 24/7 basis, will produce around the equivalent of 9 rails cars of ethanol and an additional 9 rail cars of DDGS per day. Yet it is not clear that either the ethanol or DDGS will be shipped by rail.” While grain moves around the Cornbelt currently on unit trains, the US infrastructure does not yet exist for unit trains to distribute ethanol around the country like it does grain. DDGS shipments are dependent upon the demand from livestock producers which are more concentrated in the Western Cornbelt and Plains, but they are more likely to purchase from closer sources which have lower transportation costs.
With the development of ethanol plants, Dooley’s colleagues at Purdue have already indicated that a number of local elevators will likely close or consolidate from the increased competition.
Dooley says a similar restructuring occurred in the 1980’s with the switch to unit trains, a rather swift shakeout of smaller elevators that could not be serviced by the longer trains or could not quickly fill them to avoid demurrage charges. And he says the change at hand will also result in a swift restructuring.
Dooley’s expectations for the change in grain transportation and storage resulting from the evolution of ethanol plants are significant:
• More corn will be trucked further on average from the farm to ethanol plants, primarily on state and local roads.
• Perhaps corn will be moved by short-haul unit trains of corn within a state.
• Rail traffic to Southeast U.S. poultry and hog markets will decline.
• The volume of corn and soybeans exported from a state will decline.
• Some elevators located within a 50 miles radius of ethanol plants will close or perhaps become vertically aligned with ethanol plants.
• Outbound shipment of ethanol will be by truck to local markets and by rail to more distant markets.
• The market for DDGS ethanol plants could include local markets to beef feedlots in the Western U.S. However, the market for DDGS could become over-saturated with the rapid growth in ethanol production.
Summary:
The development of ethanol refineries around the Cornbelt has not gone unnoticed by grain elevator managers, who must compete for corn. However, there will be a restructuring of how grain is stored and is moved, as well as products from the ethanol plants. Those imply many changes that must be addressed, many of which will require infrastructure improvements to handle more trucks on highways and train traffic at petroleum depots. There will also be changes in transportation of types of feed to livestock markets that those managers must address.
Posted by Stu Ellis at 12:17 AM | Comments (1) | Permalink
December 27, 2006
The Farm Bill: Where Feedlot Operators and 4-H Members Meet Brooklyn Deli Shoppers
Animal agriculture is a $124 billion industry in the US, and surpasses that of crop production. Although program crops such as corn, beans and wheat will draw the focus of Congress and many of the farm news headlines during the next few months, livestock producers will be at the table and have issues on the table during debate of the 2007 Farm Bill. Beef trade with Korea and Japan are not the only issues, nor is animal ID. How many of the following issues are pocketbook issues for you?
“In Congress, policy debate has revolved around impacts of the sector’s structural and technological changes on farm prices, on the traditional system of smaller-sized, independent farms and ranches, and on rural communities and workers. Also at issue are implications for consumers, the environment, and trade. Inherent in these questions, which could be addressed during consideration of a new farm bill, is the appropriate role of government in intervening in or assisting the livestock, meat, and poultry industries.” And with that, Geoffrey S. Becker, Specialist in Agricultural Policy for the Congressional Research Service begins his briefing paper to Members of Congress about the issues that are on the table and need decisions during the 2007 Farm Bill debate.
1) Commodity programs and feed prices have a direct impact on livestock producers, whether it is price support programs, the Conservation Reserve and other land retirement programs, or ethanol promotion programs, many farm program decisions will involve the profitability of animal agriculture. The only federal supports for the livestock producer involve milk production and federally funded premiums for whole farm and livestock gross revenue insurance.
2) Disaster payments are typically reserved for crop production, but have sometimes been made to livestock producers for feed purchase following drought or flood. The Farm Bill debate will likely include discussion of a permanent disaster fund, and whether it will be available to the livestock producer.
3) Market competition has been a debate in every recent session of Congress and some expect it to be a separate Title in the 2007 Farm Bill. The issues stem from the consolidation of the livestock industry toward large producers and a few meat packers, leaving smaller packers and producers without a competitive chance. Congress will decide how far and fast the consolidation trend continues and how to enforce the Packers and Stockyards Act.
4) Meat exports are rapidly growing, and enhancing the value of US meats. However, beef, pork, and poultry competition are increasing, making it more difficult for US products to find a foreign buyer. Additionally, many foreign nations are banning US meat products for a variety of reasons that US producers label as “shams.” With the pending expiration of the administrations ability to negotiate trade agreements, the US meat export business may whither; and with the failure of past agreements to enhance meat exports, some producers are not encouraged by the potential for new agreements.
5) Animal identification and animal disease control will be issues that producers will have to resolve with consumers as well as Congress. Although the National Animal Identification program has been debated since the discovery of a BSE-infected Canadian cow that entered the US, the administration and even the purpose of the program have been debated. Whether the 2007 Farm Bill resolves the issue or calls for more debate is uncertain, but the issue will be at the forefront.
6) Environmental laws have the potential for great financial impact on animal agriculture, and in many sectors of the US have closed down operations and prevented others from starting. Since the House and Senate agriculture committees must defer key environmental issues to other committees for debate, watch for their members to offer testimony on behalf of agriculture.
7) Continued problems with meat inspection and food safety will ensure a continued debate over food regulation, as well as the degree of oversight for other animal health, antibiotic, and disease issues. These issues could come to a point in the Farm Bill debate as it is expected to have a decidedly consumer protection shift.
8) Biotechnology will appear in the Farm Bill debate, both in its ability to enhance food, but in consumer concerns over food safety, social resistance, and animal welfare. With FDA’s expected announcement Thursday that meat and milk from cloned animals are safe, the resulting debate will be fueled in the Farm Bill by opponents.
9) Animal welfare advocates are expected to use the Farm Bill to extend welfare provisions for warm blooded animals to include farm animals, which are now only subject to humane treatment and slaughter. While the agriculture committees may not agree, the issue could arise in floor debate before passage of the Farm Bill.
Summary:
The 2007 Farm Bill will address crop subsidy provisions, conservation, and biofuels issues, but there are many other issues that will impact millions of head of livestock, and over one million producers who commercially sell livestock. Ranging from animal welfare to food safety, and the complete range of sciences of infectious diseases and biotechnology, animal agriculture will be frequently spotlighted during Farm Bill debate. Whether it is a 4-H member with a club calf, a Texas feedlot operator, or a Brooklyn consumer shopping at the local deli, all will be directly connected to livestock issues during the Farm Bill debate.
Posted by Stu Ellis at 12:38 AM | Comments (0) | Permalink
December 26, 2006
Corn, Corn, All We Hear About Is Corn! What Is Happening In The Oilseeds Market?
With the spotlight on corn, its alter ego, soybeans have been left nearly out of the limelight. Attention has been placed on buying acreage for 2007 corn, and even though soybean prices have tried to keep pace to ensure sufficient acreage, a leading private forecasting service has estimated US soybean acreage will decline by 6.8% in the next crop year. Let’s shift the spotlight to the soybean market for a moment.
While you were investing in that nearby ethanol plant, a major change occurred in soybeans, which has not received as much attention as one would expect. For years, soybeans were crushed for their protein meal content, but with lower meal values and higher oil values, soybeans are being crushed for their oil content. And in October, the US soybean processing industry crushed a record volume of 161.7 million bushels of soybeans. Attribute that in large part to the growth of interest in soybean oil-based biodiesel.
USDA’s December Oil Crops Outlook reflects that price change, “The forecast of the national average farm price was raised to $5.70-$6.50 per bushel from $5.40-$6.40 previously. USDA raised its forecast range of the 2006/07 average price of soybean oil to 26.0-29.0 cents per pound from the prior 24.0-28.0 cents.”
Even in the face of higher prices, the soybean export market has remained strong, although not quite at the level seen in October. Export inspectors signed off on 371 million bushels in the September to November period, and that is 65 million higher than the same period for the 2005 crop marketing year.
As noted previously more beans were crushed in October than ever before, meaning more soybean oil was produced in October than ever before, and use of soybean oil in October was at nearly the highest ever. We are also exporting more soybean oil and USDA’s marketing year target is 1.35 million pounds, up from 1.15 million in 2005. In the wake of all this, there is an abundance of vegetable oil supplies around the world, but there is also an increasing demand for soybean, palm, and other vegetable oils, in part due to the increased interest in biodiesel fuels.
Although soybean meal prices had been rising in October and November, USDA economists believe the meal market has peaked as indicated by softer prices in early December. And they say bean meal is cheap, compared to corn.
In the Southern Hemisphere, soybean acreage has expanded in Argentina by a half million hectares, because of the higher soybeans prices here in the US. But with the Argentine ban on corn imports to fight inflationary food prices, farmers may plant more soybeans which are in surplus, and which can be exported.
The palm oil market still competes worldwide with soybeans, and palm oil imports and use are growing in the US. Once nearly pushed out of the market by the lower saturated fat in soybean oil, palms high saturated characteristics are desired as a replacement for the need to hydrogenate soybean oil. However, that is not an issue, if the oil is being converted to biodiesel, and palm oil has found an international destiny in diesel fuel tanks. For example, very little palm oil is currently used for biodiesel fuel in Malaysia, however 75 biodiesel production plants are being constructed and the government anticipates one million tons of palm oil will be converted to biodiesel in the coming year. Palm acreage is being increased 40% in Indonesia, demand is up, prices are up, and all thanks to higher US soybean prices and the move toward biodiesel fuels.
Summary:
The US motor fuel consumer has discovered biodiesel. As a result, soybeans are being crushed for their oil value, soybean oil values are strong and climbing, soybean prices are high to attract sufficient 2007 acreage, foreign oilseed acreage is expanding, all the result of the increased demand for biodiesel.
Posted by Stu Ellis at 12:23 AM | Comments (1) | Permalink
December 25, 2006
The Corn Market: The Gift That Keeps On Giving
You may think the corn market is one of the best gifts you received this year; but has it peaked with a double-top chart formation, and is heading back down? Or is it pausing to refuel for another rocket move upward? Your coffee shop and elevator buddies may have all the answers, but their opinions could easily differ from yours. When listening to the best and brightest of the Extension Outlook Specialists, you’ll readily see their positions are well thought out. If you still have old corn to sell, or want to do your best marketing the new crop, let’s explore the facts once more before the calendar changes.
“Since late August, corn prices have rallied about $1.60 per bushel. Surprisingly, this price rally occurred while the third largest crop in history was being harvested. During the rally corn prices have reached levels exceeded only four times in the last 35 years!” That’s the assessment of Melvin Brees at the University of Missouri’s Food and Agricultural Policy Research Institute. In his December 15 marketing newsletter, Brees notes that March corn futures have nudged toward the $4 mark, and some commodity analysts believe corn will get there. But he says there was a different scenario the last time corn prices hit $4, “That was in 1996 when the market moved to record highs while rationing very tight supplies. While current corn supplies may begin to tighten, supplies are not forecast to be nearly as short as in 1996.”
One of the outlook specialists is anticipating $4+ corn fairly soon, but the driver is not short supply, but strong demand. That is the key factor according to Chris Hurt at Purdue. In this December 21st newsletter, Hurt says there is strong demand from ethanol refiners, strong demand from international buyers, and strong demand so farm from livestock feeders, “What all this may mean for corn prices is new contract highs this winter and perhaps into the early spring. Those contract highs would take the futures market back toward $4.00 per bushel and with strong basis levels this could mean that cash prices in central and northern Indiana could approach the $4 mark as well.” Even though the demand fundamentals are strong, Chris Hurt says the traders in the commodity market have been buying, and not wanting to sell their futures contracts, “In addition, open interest in contracts has remained quiet large indicating that many traders are willing to hold on to positions for the longer-run.”
One of the reasons Hurt is so bullish on the corn market is the explosive rate of construction of ethanol plants. Using numbers from the Renewable Fuels Association, Hurt says the monthly increase in refining capacity is nearly unbelievable, “In October, construction was started on new plants that would use an additional 165 million bushels of corn. In November, that rate of expansion was up to about 300 million bushels of additional corn use and in the first 20 days of December there was another increase of about 450 million bushels of corn use. This means the expansion rate has been near 1.0 billion bushels in the last three months of 2006 alone. It is likely that this rate of expansion will continue through the winter.”
While Hurt says there will be a strong demand for corn, Bob Wisner at Iowa State says in his December 15th newsletter, that it will be met with a larger supply. He’s been told by private sources to expect a 9.4% increase in corn acreage in 2007, “The private acreage survey implies that dramatic increases in corn prices this fall may have pushed the market high enough to generate the needed expansion in next year’s U.S. corn plantings.” And Wisner says that means about 7.4 million acres more than in 2006.
Typically, large acreage expectations would be met with a market decline. But Alan May at South Dakota State University, in his December newsletter, says the market should be strong for another 12 months at least, all because of the fundamentals, “Funds were active buyers this past week, appearing unwilling to give up the bullish attitude toward corn. With future supplies by the end of the 2006-07 marketing year under 1 billion bushels, the corn trade was content to keep prices supported in the high $3.00 range again this week. Even with some analysts predicting an increase of over 7 million acres planted in 2007, the market has to live with a relatively short supply of corn until harvest a year from now.”
Alan May strongly recommends sales of corn at current levels, because there had been no indication corn would be in the $3 range during harvest, and such sales are a smart idea. Even though Chris Hurt at Purdue, is looking for higher prices, he, too, is a supporter of making $3 sales if you have not, “Cash corn prices over the past 20 years have been higher only about 5% of the time. So, doing some pricing at these levels can hardly be criticized. However, prices appear to have more upside and maybe considerably more upside potential this winter.”
At Missouri, Melvin Brees agrees with the upside potential, but he is a bit more uncertain than is Purdue’s Hurt, “Although the case for higher corn prices appears strong, there are also downside price risks when prices are at historically high levels. If energy prices decline (they have already slipped from the price highs of last summer), high corn prices could reduce ethanol profits and slow expansion. High corn prices, along with any increases in the dollar, increases costs to foreign buyers and encourages foreign production. High prices may also eventually ration foreign use and negatively impact export demand. Livestock producers are already “feeling the pain” of higher feed prices. This will likely lead to shorter feeding periods, lighter finished weights, use of lower-priced feed alternatives to corn, and slowing of demand for corn for feed.”
You have diversity of opinion in the coffee shop, and diversity of opinion within the ranks of academia, which suggests that you collect all of the information you can. In his December 18 newsletter, Darrel Good at the University of Illinois will be watching for a collection of January 12th USDA reports that will give a good indication of what to expect:
1) The Crop Production report will give a final estimate of the 2006 crop
2) The Grain Stocks report will indicate inventory, but also what has disappeared from the inventory to feed livestock and supply the export and ethanol demand.
3) The World Supply and Demand Estimates will report on world stocks and how much export demand there will be for US corn.
4) The Winter Wheat Seedings reports will allow a calculation of available land for corn planting later in the spring.
Darrel Good says the key to interpreting the reports will be how they assess the miserable harvest conditions in Indiana and Ohio, “The primary focus should be on the eastern corn belt, where wet conditions and delayed harvest may have negatively affected production. Because of strong demand and prospects for dwindling U.S. and world stocks, the production estimate for corn will be especially important.”
In the meantime, how do you manage your marketing plan? Alan May at South Dakota State offered several alternatives, “While it may be tempting to simply hold old crop corn in anticipation of even higher prices, think about strategies that can take advantage of current price levels and protect you from falling prices. You might consider selling some corn now, and place a storage hedge on the rest you have in the bin. You might consider selling all your corn and stay out of the storage business the rest of the winter. You might even consider selling your corn and re-own the crop on paper, either through the futures market or the options market in order to eliminate future storage costs.”
Summary:
The corn market this fall is comparable to an unexpected Christmas gift. Most of the Extension Outlook Specialists acknowledge there will be some strong marketing opportunities before another harvest rolls around because of the demand, but if one of the demand factors begins to falter, producers should have their marketing plan in place that protects against downside risk. Pay close attention to the January 12 USDA reports and be ready to implement that marketing plan at any time. And, oh, yes, Merry Christmas to you and your family!
Posted by Stu Ellis at 12:07 AM | Comments (0) | Permalink
December 22, 2006
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.
Corn and soybean prices have moved into a sideways to lower trend, says Marketing Specialist Darrel Good. That results from the lack of new fundamental information flowing into the marketplace. But he says that will change over the next several weeks as USDA reports are released and more information is available about So. American crops.
Mark your calendar for USDA reports on Jan 12, says IL Extension’s Darrel Good:
1) Crop Production Report will have the final 2006 corn and soybean crop estimates.
2) Grain Stocks will report Dec 1 inventory and detail rate of feed and residual use.
3) World Supply/Demand will show dwindling stocks and amplify 2007 corn estimates. 4) Wheat Seedings will show acreage response to high wheat prices vis-à-vis corn.
Darrel Good says the Wheat Seedings report is expected to show a large increase in hard red winter wheat, but expectations are mixed for soft red winter wheat. He says farmers in the Eastern Cornbelt and southeastern US may have responded to higher wheat prices, or were drenched out by fall rains. Either way, that will have an impact on corn acreage. Read more.
Regardless of recent price trends, SD Extension’s Alan May says corn prices are still at historically high levels. He says, “It is still important to evaluate what $3.00 corn means to your bottom line. It has been very rare to have prices at this level, for both old and new crop corn. It just seems practical to make some sales now, especially for new crop corn. In addition, write a marketing plan that forces you to make sales if prices move higher and if prices should move lower.” Read more.
Will other Cornbelt states confirm the IL trend regarding corn planting percentage (CCP)? IL Extension economist Gary Schnitkey says in 2005, “41% of the farms decreased CPPs and 29% of the farms increased CPPs by more than 5 points. If this variability continues into 2007, a considerable number of IL farms will decrease CPPs even if the average CCP increases. Southern IL acres likely will be weather driven, but Schnitkey says crop budgets suggest northern and central IL corn acreage will be larger. Read more.
USDA’s Christmas present to the Environmental Working Group is a lump of coal in farmer stockings. EWG has received 15 million additional records of USDA program payments. It has all the details of 11 years of subsidies worth $165 billion distributed to farmers. The latest batch identifies farmers receiving benefits from farm corporations.
Pesticide applicators will not require pollution discharge permits under new EPA rules when spraying pests in or near water. That includes control of pond weeds, mosquitoes, and aerial timber spraying where it may reach lakes or streams. Spray drift rules still are pending. Read more.
Stink bug populations are increasing says MO Extension entomologist Wayne Bailey, and that does not bode well for soybean yields. Stink bugs puncture pods fostering disease and malformed and off-color soybeans. He says they also damage the ability of a soybean plant to dry down prior to harvest. He attributed the trend to more no-till, warmer weather, and letting weeds get bigger in the spring before spraying.
Scout early for corn disease in 2007 because of carryover in corn after corn. MO Extension pathologist Laura Sweets warns, “If weather conditions are favorable for disease development, a disease may occur earlier in the season or at more damaging levels because inoculum was present in close proximity to the developing corn.” Read more.
Potential 2007 corn diseases will require different management responses:
1) Prevent seed rots and seedling blights with warm planting and fungicides.
2) Prevent foliar disease with resistant varieties, crop rotation, & right population.
3) Prevent stalk rot with proper population, strong stalk hybrids & timely harvest.
4) Prevent ear & kernel rots by protecting plant from ear-feeding insects.
Feeder calf prices declined 8 weeks to $112/cwt while corn prices climbed well above $3. With 75 bushels of corn needed to finish a calf, SD market specialist Alan May says the impact of higher corn prices is $85/head with a $160/head loss in feeder calf value.
Price risk during backgrounding can be substantial says Alan May, potentially unraveling the demand for March feeders. He says there is substantial price variability from year to year, with the largest changes in the past two and adds, “The current cost to protect against a price decline is about $4 per cwt. May says a synthetic put strategy may be preferred as it would place a floor price much closer to the futures level.”
Ethanol is so tied to Iowa agriculture that Iowa State economists can say it pushed up land prices by 10%. The $290 jump from 2005 pushed the average Iowa land price to $3204, the first time it had surpassed $3,000. Economist Mike Duffy said it was good for older farmers wanting to retire, but bad for young farmers wanting to get started farming.
The next issue will feature the Dec 22 Cattle on Feed Report and the Dec 27 quarterly Hogs and Pigs Report. These will be good barometers for judging corn and soybean meal use in the wake of rising grain prices. Cattle placements and farrowing intentions will indicate producer response to higher feed and lower livestock prices the past 3 months.
Posted by Stu Ellis at 1:21 AM | Comments (0) | Permalink
December 21, 2006
Living Off The Fat Of The Land, Until The Diet Police Arrive
You are familiar with USDA’s Food Pyramid, aren’t you? Yes, that’s the graphic that tells folks what kinds of food they should eat every day, and in what proportion. Of course, you follow it religiously, don’t you? No, this is not a lesson on replacing your favorite foods with multiple helpings of fruits and veggies…..but if the US population followed the healthy diet prescribed by the USDA Food Pyramid, your farm will be affected along with the commodities you produce. We’ll explore that impact and you can decide whether USDA should begin to enforce its Dietary Guidelines.
First of all, let’s see what that USDA Food Pyramid recommends, which some of you will find to be a rather Spartan meal plan: “The Guidelines recommend that Americans on a 2,000-calorie-per-day diet should consume 2 cups of fruit, 2.5 cups of vegetables, 3 cups of milk products, and 6 oz-equivalent of total grains daily. Half of the grain servings should be whole grain.” There are also 5.5 servings per day in 1 oz-equivalent from the meat and beans group, three cups of milk, and 6 teaspoons of oils, with 267 calories left over which can be spent anyway you choose.
USDA’s Economics Research Service applied that recommendation across the US population in its report, Possible Implications for U.S. Agriculture From Adoption of Select Dietary Guidelines. To meet the Guidelines, ERS calculated that Americans would need to
• Increase fruit consumption by 132 percent
• Increase milk and milk product consumption by 66 percent
• Increase consumption of whole grains by 248 percent
• Decrease total grain consumption by 27 percent
• Increase vegetable consumption by 31 percent (Additionally, consumers would need to alter the mix of vegetables, and include the consumption of more legumes, dark-green vegetables, and orange vegetables and less starchy vegetables.)
To achieve those levels of demand, ERS economists believe that supply, demand, and commodity values in the US will change, “Therefore, if Americans fully meet all of the recommendations, the demand for these foods would increase. As a result, prices of these foods would increase, making it more likely that imports and domestic production would increase and that exports would decrease.”
The required crop production, given current yields of various food products, would demand a 1.7% increase in US crop acreage equal to 7.4 million acres.
• To increase fruit consumption by 132%, USDA estimated fruit production would need to rise 117% to 157,669 million pounds and imports would need to rise to 63,080 million pounds.
• To produce 128.2 billion pounds (farm weight) of vegetables each year for Americans to raise their vegetable intake to 2.5 cups per day, USDA says farmers would need to harvest 15.3 million acres, an increase of 137% over 1999-2003 levels.
• To produce enough milk and milk products for a 66% consumption increase, the milk supply would have to increase by 111 billion pounds, requiring an expansion of the dairy herd, which is counter to the current trend.
• To reduce grain consumption by 27%, but raise consumption of whole grain products, there is a need to reduce wheat acres by 5.6 million per year.
• To achieve the goals for meat consumption, production would decline, along with the need for feed grains to supply the beef, pork, and poultry industries. However, there would be an increase in the dairy herd that would moderate such effects.
USDA says these changes would not occur very rapidly, and any impact on US agricultural acreage and crop mix would slowly evolve.
Summary:
While USDA promotes a healthy diet in one part of its organization, it supports many farm programs that may conflict with those nutritional guidelines. US agriculture produces the greatest quantity and highest quality of food anywhere in the world, but it is not parallel to the USDA’s dietary guidelines. If those guidelines were to be implemented by the consuming public, more acres of fruits and vegetables would be needed, more dairy products and fewer meat products would be needed, and fewer wheat acres would be required.
Posted by Stu Ellis at 12:36 AM | Comments (0) | Permalink
December 20, 2006
Cure Your Soybean Cyst Nematode Problems, And Begin Now!
A bunch of numbers. That’s all you have, and you have no idea what they mean. At least you can read a soil test and figure out how much P and K you need. But what you got in the mail today were the results of the soil sample you sent to a laboratory several weeks ago to determine the seriousness of your problem with—cue the scary music—soybean cyst nematode.
scn is so insidious that it doesn’t even deserved to be capitalized. But scn is nearly everywhere in the Cornbelt. In the November 22 edition of the farm gate you learned that 62% of Cornbelt farmers don’t think they have a problem with scn. But 61% of Cornbelt farmers have a problem with scn. Let’s imagine that many of those took the statistics to heart and shipped off a soil sample and just received the results in the mail.
Greg Tylka, a plant pathologist at Iowa State University, walks us through the interpretation of the results. He says you need to know what was counted by the lab, whether it was the eggs in a soil sample, or whether it was the number of cysts (dead females that contain eggs) and the juveniles. If you have a number representing cysts, multiply that by 100, because there are about 100 eggs per cyst. The juveniles don’t last very long in the soil, and their numbers are somewhat of a ho-hum.
The scn number you have is based on so many cysts (or eggs) per volume of soil. Your lab results may be for 100 cubic centimeters (cc) or 250 cc of soil. Your treatment program will be based on either 100 or 250 and if you have the wrong one, all you have to do is convert to the other. If you have X number of scn eggs per 100 cc, and you need it in terms of 250 cc, just multiply your egg number by 2.5. To go the other way, divide by 2.5.
The number of scn eggs will vary widely from state to state, from county to county, from field to field, and from plot to plot within a field. scn may move an inch in its lifetime, so it is not like GMO pollen. The eggs will be moved by tillage equipment, and soil left on the shovels will move scn from field to field. But from plot to plot within a field, the egg count might be well into the 5-digit range, and 50 feet away it might be zero. Tylka says, “Even though variability cannot be eliminated, increasing the number of soil cores and decreasing the area from which a sample is collected make the SCN soil sample results more meaningful.”
Tylka says scn management issues kick in at the threshold of 12,000 eggs per 100 cc of soil, and that begins with the growing of a non-host crop such as corn. And if you are increasing your corn planting this year, the fields with the higher scn populations may be the ones you begin with.
Iowa State recommends a six year rotation if your scn counts are more than 12,000 eggs following a year of corn, or more than 16,000 eggs following a year of soybeans:
Year 1: Plant a resistant variety from breeding line PI88788
Year 2: Plant a non-host crop, such a corn, oats, or alfalfa.
Year 3: Plant a resistant variety, other than what you grew in year 1
Year 4: Plant a non-host crop, such a corn, oats, or alfalfa.
Year 5: Plant a susceptible variety
Year 6: Plant a non-host crop, such a corn, oats, or alfalfa.
Summary:
Soybean cyst nematode can eliminate any profit in your soybean crop, by cutting yields without you knowing it. However, by evaluating the results of an scn soil test, and knowing whether you have a count of cysts or eggs, you can begin a management program in 2007.
Posted by Stu Ellis at 12:29 AM | Comments (0) | Permalink
December 19, 2006
If Livestock Producers Have Difficulty Controlling The Cost Of Inputs, Let's Help With The Value Of The Output
There’s been some recent conflict between the cowboys and the combineboys, who are fussing over the corn market spurred on by ethanol, which has either squeezed or eliminated livestock profits. Some livestock operators want to dilute some of the incentives that have supported the ethanol industry, and those who’ve watched the price of corn nudge the $4 mark can grasp its negative financial impact on a cattle feeder or pork producer. The farm gate can’t intervene in the conflict, but we can make sure the livestock folks have all the marketing tools they need to manage their price risk until the price pressure eases somehow.
The majority of cattle and hog producers in the Cornbelt are probably locked into livestock contracts, and knowing how they can provide very little wiggle room for the producer, any little bit of help might be welcome. Livestock economist John Lawrence at Iowa State University has assembled a thorough collection of fact sheets for cattle and hog producers, designed to ensure they know the basics of managing their price risk with the help of futures contracts.
Lean hog and live cattle contracts on the Chicago Mercantile Exchange can provide that risk management mechanism to avoid price volatility, both up and down. When the price goes up, you have already locked in a profit. When the price goes down, you have already locked in a profit. The futures contract price is a known quantity, and the only unknown is the basis, and we’ll visit about that also.
First let’s provide some foundation about hog contracts, and anyone signing a contract needs to understand every aspect of the agreement. Many states are assisting producers in the production contract area, and Lawrence says, “The various contracts are sufficiently differ¬ent so that a producer should be able to select the contract that has the most desirable features. All the features should be considered before a contract is selected.”
The buyer will be taking a futures position when you sign the contract to manage his own risk, and your compensation will be equal to that futures contract, minus a discount. The size of the discount (a basis of sorts) will vary depending upon time and distance, and other costs the buyer will incur. There are many resources available to producers to help them evaluate production contracts. Remember, whoever wrote the contract made it fair for himself, but a producer will not sign a contract unless he sees some profit in it.
Since we’ve mentioned livestock hedging on the part of the contractor, let’s look at how the producer would use the futures market for hedging. A producer would engage in a short hedge, in other words, sell a futures contract at a profitable level, and when the cash transaction occurs, the futures contract would be purchased to liquidate the contract and negate the obligation to physically deliver your livestock to the Merc. Lawrence’s four page fact sheet is full of examples on what and how to do it.
Another risk management tool is the use of the livestock options market, which requires a premium be paid for the right, but not the obligation, to exercise a futures contract. Depending upon the volatility in that particular contract or how far in the distance the delivery might be made will determine how much of a premium you would have to pay. Lawrence’s factsheet on using options in livestock marketing are quite helpful for someone who wants some background before visiting with a commodities broker.
The final element in the risk management plan is understanding and using the basis in livestock marketing, which is the difference between the local cash price and the futures contract that is closest to that cash contract. Lawrence says, “Basis levels remain relatively constant because the cash and futures prices react to similar conditions. If hog supplies decline relative to demand, both cash and futures prices tend to rise. If supplies increase, both cash and futures prices tend to fall.”
Since the basis generally remains constant, you can track it to determine whether your current basis is unusually wide (not good for sales) or unusually tight (good for sales). Lawrence provides several aids to help you consider whether the basis is advantageous or not, and when it might become more beneficial.
1) Lean hog basis table
2) Seasonal hog price patterns
3) Live cattle basis table
4) Seasonal cattle price patterns
Your local Extension office will probably be able to help provide more assistance in understanding the use of futures and basis in hedging your livestock. Another resource is the National Ag Risk Library. All of these will protect your ego and you won’t be seen going into a seminar on how to use the futures market. (I know, I taught those until I found out the reason people always had a “conflict” and called me the next day to get the handouts.)
Summary:
The impact of the price of corn has been devastating to livestock producers, whose outlay for feed has been skyrocketing for the past four months. However, there are some good risk management tools that are not only used by many of your neighbors, but are used by the folks who are buying your livestock. The use of futures contracts and a good knowledge of the basis will help many producers weather the financial storm. There are many good resources to get help with price risk management.
Posted by Stu Ellis at 12:35 AM | Comments (0) | Permalink
December 18, 2006
We May Have The Bull Market By The Horns, But Are They The Horns Of A Dilemma?
Cornbelt farmers now have what they’ve always wanted, a demand-driven market, which may be shedding certain amounts of government intervention. But as the corn and soybean markets have battled each other higher in an attempt to buy 2007 acreage, one agricultural economist is wondering aloud if prices have gone too high. While that is heresy to most farmers in Rural Route America, others will realize there have been some unintended consequences accompany corn prices to their lofty levels.
Both corn and soybean markets have moved sideways for the past several weeks, following the nearly unprecedented harvest time rally. The bullish sentiment is that traders are pausing to assess and the upward momentum will resume. The bearish sentiment is that the markets have bought the acres they need for 2007 and are at a topping point. You can be the judge, however, Iowa State Outlook Specialist Bob Wisner Friday quoted “a leading private market forecasting firm” as saying its 2007 acreage survey shows “a 9.4% potential increase in 2007 U.S. corn planted acreage and a 6.8% decline in 2007 soybean plantings.”
If that is the case, a follow-up survey needs to occur to find out if those are just planting intentions, of if the higher prices have resulted in forward contracts being signed, anhydrous applied, seed being booked and paid for, meaning the Cornbelt is really locked into a 9.4% corn acreage increase. (As an aside, farmers with “intentions” may want to seriously consider managing their price risk with either cash forward contracts or futures hedges.)
However, Wisner’s colleague to the south, Melvin Brees at the University of Missouri, also Friday issued some serious challenges to Cornbelt farmers, questioning if prices have gone too high, and suggesting there will be some nasty consequences that few of them had thought about.
Brees acknowledges that corn demand will surpass supply by more than one billion bushels, and the case for high corn prices can be made. However, he points to, what he calls, “downside price risks when prices are at historically high levels.” In brief those are:
1) reduction of profits for ethanol producers and a production slowdown
2) increased cost of corn exports that encourages foreign production
3) financial pain felt by livestock producers causing less production
Melvin Brees suggests that lower soybean prices would be a better alternative than higher corn prices, and would accomplish the same thing. It would shift acres from soybeans to corn without building on the current world surplus of beans, without the consequences listed above. Brees also has some concerns about the large trading funds, which hold significant numbers of long contracts in corn and soybeans, which helped push markets up. He says if those fund managers want to show large profits they have achieved for their clients, the money could be pulled out of the commodity markets, with a very negative effect on corn and bean prices. Additionally, he is also concerned about the negative impact should there be “unexpected events such as bird flu, soybean rust, political unrest, terrorism, oil supply disruptions, etc. that could impact the markets in the months ahead if any of them occurred.”
Now that you may be a bit nervous about the market, if you have not managed your price risk, Brees offers suggestions to both the bulls and the bears:
1) Bulls should follow the rally, but have a “just in case” plan in effect if the market starts to decline by using downside price targets (stops or trap prices) to trigger sales if the market fails to rally and breaks lower; or use option spread strategies to protect floor prices and target upside price goals.
2) Bears should capture profitable prices spreading sales to capture profits on a portion of the corn and retain some inventory that can be sold during other price rallies; and by using option strategies to provide downside price floor protection and allow capturing higher prices.
Summary:
There are indications that the market rally in corn has bought the acreage needed to sustain 2007 supply demands, but the higher prices for both corn and soybeans may hurt both the US ethanol and livestock industries and encourage more foreign production. The same acreage shift could have been accomplished, not with higher prices for both corn and soybeans, but with a spread between the two markets; and lower prices for soybeans than corn would have achieved the same supply goal without the unintended consequences.
Posted by Stu Ellis at 12:30 AM | Comments (1) | Permalink
December 15, 2006
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.
USDA’s World Supply and Demand Report held few surprises this week, and IL Extension’s Darrel Good says the market will be watching other reports. “The markets will continue to monitor the rate of US exports and export sales and anticipate the Jan 12 reports on grain stocks, winter wheat acres, and final 2006 US production estimates. He says, “Following the sharp increase in prices since mid-September, some consolidation would not be surprising over the next 4 weeks. The major issue will continue to be US producer planting intentions for 2007.” That report will be released the end of March.
For March corn futures, Michigan State outlook specialist Jim Hilker says there is a 10% chance that the price will be higher than $4.31 and a 10% chance that the price will be less than or equal to $3.14. That leaves an 80% chance of it being between those two, with a 50% chance it will be on either side of the $3.68 midpoint of that range.
For March bean futures, Hilker says there is a 10% chance that the price will be higher than $7.77 and a 10% chance that the price will be less than or equal to $5.94. That gives an 80% chance it will between, with a 50% chance it will be above or below $6.79. For March wheat futures, Hilker says there is a 10% chance that the price will be higher than $5.61 and a 10% chance that the price will be less than or equal to $4.23. So there is an 80% probability it will be in between, and a 50% chance of being above or below $4.87.
“Learn to live without the LDP for as long as the biofuels market inflates corn and soybean prices,” says Purdue ag economist Corinne Alexander. She says sharpen your marketing skills to maximize profits in volatile grain markets. With large storage returns, storage hedges or forward contracts and early pricing had been a winning strategy as grain prices began to climb. "Now we're seeing prices increase substantially for future deliveries, so waiting to price seems to be a better strategy," says Alexander.
Farmers who missed a price peak can still use other marketing strategies. Purdue University’s Alexander says "Should there be another energy price spike that increases demand for corn again, they can use a sell-and-defend strategy, where you price your grain with a forward contract and then buy an out-of-the-money call."
Should you let your wheat grow or tear it up and plant corn? Nebraska Extension economists created a spreadsheet to help answer that question. They say it appears that tearing out the wheat and planting corn is a good choice on irrigated land, while leaving the planted wheat is the best choice for dryland conditions, (based on Nebraska yields.) They emphasize the need for accuracy of input.
Changing crop rotations requires careful calculations and Iowa State offers an Internet-based calculator to help compare expected yields and returns. Find the calculator. Use of the decision-aid will require your computer to have a recent version of Excel software.
When using the Iowa State calculator, economist Mike Duffy says be sure to use the right soybean yields. “Since 2000, on average, corn yields have been 3.6 times the soybean yields. From 1995, there has been 3.37 bushels of corn per bushel of soybeans, on average.” Read more.
If you sell grain after Jan. 2, evaluate your true savings says Iowa State economist Bill Edwards. 20,000 bu. of corn at $3 is $60,000. A Dec sale taxed at 41% (25% fed, 5% state, & SE tax) is a $24,600 tax liability. A Jan sale means you have that money for another year, and if your operating loan rate is 8%, multiply 8% by $24,600 to calculate a savings of $1,968. However, that must be weighed against additional storage charges.
On the other hand, Edwards says you can’t defer opportunities for deductions and credits. “Be sure to report enough taxable income to take advantage of all available deductions, exemptions and credits. Reporting a very low taxable income in one year may waste these. Meet with your tax preparer and complete a tax estimate before the end of the year, then plan marketing and prepayment of input expenses accordingly.”
Giant ragweed is becoming harder to control, and too much glyphosate may be the reason. Extension agronomists say where a preplant burndown (glyphosate plus 2,4-D ester) was followed with two POST glyphosate applications at 0.75 lb ae/A, the glyphosate-sensitive giant ragweed were 100% controlled, but glyphosate-resistant ragweed were only 88% controlled. They say these giant ragweed populations may not be adequately controlled by herbicide programs consisting of only Roundup.
How do you control glyphosate-resistant ragweed in Roundup Ready beans?
1) Do not plant into the patch, but destroy it with tillage or a pre-plant burndown.
2) Apply PRE herbicides to reduce early-season density and rate of growth.
3) Apply POST treatments when they are 6-10” tall, but consider ALS resistance.
4) Make a second POST application of glyphosate no more than 3-4 weeks after the first.
Congratulations and condolences go to Missouri, the first and only state where three glyphosate-resistant weeds have been identified: tall waterhemp, common ragweed and horseweed. Weed scientist Kevin Bradley said Missouri holds this dubious honor because of the large acreage planted to continuous soybeans, 90% of which are Roundup Ready.
Incoming House Ag Committee Chair Collin Peterson says he wants half of US motor fuel produced by US agriculture, moving toward cellulosic ethanol. He says cellulosic feed stocks such as grass and corn stalks will get a lot of attention in the 2007 Farm Bill, particularly in research funding. He wants a CRP-type program producing the biomass.
Attach a silage cutter into the rear of a combine and you have what Iowa State ag engineers say will not only combine your corn, but chop and harvest your corn stover. Instead of separately harvesting corn and stalks (for biomass ethanol), the one-pass operation only requires a silage wagon pulled behind the combine. They say the more stover you want to collect, the more you have to slow down your combine speed.
Beef producers should see two small positives from higher corn prices, according to Utah State livestock economist Dillon Feuz. He says expensive corn means cattle will not be overfed, and will be marketed early with lighter weights. Secondly, he says corn prices will also impact swine and poultry producers and meat competition will decline.
High corn prices used to cause more pork producers to exit the business than low hog prices, but Nebraska Extension’s Al Prosch says that trend is diminishing. He says, “For the most part, most producers are just beginning to see the higher price of corn as a factor. There are not likely to be any losses of great magnitude though the end of 2006. Next year may be a different story. Hog prices will need to remain in the same range in 2007 as they were in 2005 and 2006 to leave producers with any profit.”
Regardless the livestock specie, any effort to save on feed costs, should be weighed against performance. Kansas St. economists say, “Consider income over feed costs (IOFC) or total cost/cwt of milk (as opposed to feed cost/cwt). As producers consider alternative feed ingredients (such as DDGS) it is possible to reduce feed cost per cwt, but if production decreases, IOFC might also decrease, leading to reduced financial returns.” Read more.
If your tillage program requires more horsepower, IL Extension economist Gary Schnitkey suggests sharing a bigger tractor with your neighbors. “(If) you are pulling the anhydrous ammonia tank with some extra sweeps or cultivation during that tillage, it will be a fairly big tractor needed to do that operation. If several farmers get together and share that tractor, it could reduce costs on those farms that are doing strip till.”
Diversity in hybrid selection is important to your bottom line according to a new Iowa State University website on corn production. Iowa State agronomists say, “If three high-yielding hybrids perform the same across several university test plots, plant only one of them. Yet, if there are differences in genetic traits, maturity, or disease susceptibility, then planting all three of them is a good idea because it spreads your risk and increases the potential for having high yields.” Consult the handbook.
Mark your calendar for USDA’s annual Outlook Forum, scheduled for Mar. 1-2 in Arlington, VA. A major focus will be on bioenergy and its implications for agriculture. Register. Over 100 speakers, including farmers and industry officials will cover dozens of topics, and attendees are never disappointed.
Farm wives, farm kids, and senior farmers are all targeted in a series of farm safety resources and factsheets contained in a new Extension website, focused on farm safety. Farmers who think their family should know the information, should themselves review other factsheets on electricity, mowing, tractor rollovers and many safety rules they frequently violate.
Posted by Stu Ellis at 12:35 AM | Comments (0) | Permalink
December 14, 2006
Do What You Want Behind The Barn, But Be Careful Brewing Your Own Soydiesel!
So your neighbor has a soybean extruder to make bean meal for his hogs, and the two of you have been thinking about squeezing the oil out of your beans to make soydiesel and save some money on fuel bills next spring. My, you have a plan! And all you have to prevent is a farmstead-destroying methanol explosion. Or maybe your plan is a bit tamer, and you just want to try some of the soydiesel available from the local co-op, but you’re not sure how well it performs. Maybe it is a good time to chew the fat about soydiesel.
Soybean oil-based biodiesel is accelerating in popularity, both for its benefit to the soybean market and for its performance in diesel engines. Purdue agronomist Shawn Conley and Purdue ag engineer Bernie Tao have produced a fact sheet “Biodiesel Quality: Is All Biodiesel Created Equal?” which will answer some of your initial questions about biodiesel.
Just as ethanol has offset part of our dependence on petroleum, soybean oil can do the same in diesel fuel. After all, Rudolf Diesel didn’t have diesel fuel to power his invention, and instead he used vegetable oil (peanut oil if you must know.) So from day one, diesel engines could run on vegetable oil, but today’s high performance engines were designed for diesel fuel, and accommodations have to be made if part of the fuel is soybean oil, or really soy methyl ester to be exact.
Creation of soydiesel takes a chemical reaction that will be familiar to a fat chemist (not a heavy chemist, but one who studies fats, such as soybean oil.) The soybean oil is combined with methanol to make soy methyl ester, a long chain hydrocarbon similar to diesel fuel, and that is how it can easily blend. The soy methyl ester is also known as B100, or 100% biodiesel, and you’ll need to keep track of your percentages. As an aside, methanol is not only toxic stuff but highly explosive, and you probably don’t want to order a tank truck to make your own B100, because of the threat to your neighborhood. There is more liability than your insurance agent will want you to have in playing with methanol.
You may see some references to whether the soy methyl ester is saturated, monounsaturated or polyunsaturated. Chances are your spouse can explain those to you since she watches nutrition issues for the family. What you need to know is that those different fatty acid chains in the fuel will perform in different ways in your engine. They will have different cetane points which affects ignition quality, different cloud and stability points, which affects cold weather flowability, and release of pollutants.
Conley and Tao compliment soydiesel because it provides a more consistent energy output, compared to pure diesel fuel which can vary by 15% due to blending. They say, “In general, however, the average energy output for #2 diesel fuel is approximately 8% greater than for B100. In a typical B20 blend, this would equate to an approximately 1% loss in fuel economy and an insignificant drop in torque and power.” Remember that B20 blend is 20% soy methyl ester and 80% diesel. They say that the soydiesel will have a higher cetane number, which indicates shorter ignition delay.
When buying soydiesel, request information on its cloud point, pour point, and cold filter plug point, all of which will be important in using the fuel in cold weather. Just like diesel fuel which can turn into a gel in a fuel tank and refuse to be pumped into the engine, soydiesel may also have sluggish characteristics, and you will need to ask your fuel supplier for that information. A Cornbelt farmer will probably not be able to use B100, but lesser blends will work, and particularly with cold flow additives.
For those of you enticed by a do-it-yourself soydiesel program, Conley and Tao provide some final thoughts before they disinherit you:
1. Methanol is extremely flammable and volatile. Catalysts used in making biodiesel, such as sodium/potassium hydroxides, are very caustic and can cause chemical burns.
2. Engine warranties may not be covered if your fuel does not meet ASTM standards.
3. Biodiesel can only be stored for 6 months or less before there is a risk of contamination.
4. In a northern climate, cold flow properties as well as vehicle manufacture warranties based on blends are issues that must be confronted.
5. Transportation fuels are usually taxed federally if used on public roads. Those using homemade biodiesel in trucks driven on public roads may be in violation of federal tax laws. Those selling homemade biodiesel must be prepared to face the legal issues involved with selling fuel.
If this brief conversation about biodiesel has whetted your appetite for more, visit the website of the National Biodiesel Board for both technical and energy policy information.
Summary:
Biodiesel is a fuel that probably has a place on your operation, from the standpoint of both economy and performance. While the fuel can be made on-farm, it is not recommended because of hazards. If you are purchasing commercial grades of biodiesel, learn about its performance characteristics in cold weather so you won’t have a nasty surprise during high expectations this winter. You will see many references for different blends of soydiesel, and the number indicates the percent of soy methyl ester in the petroleum blend.
Posted by Stu Ellis at 12:23 AM | Comments (2) | Permalink
December 13, 2006
Have You Recently Compared Corn Prices With The Cost of Distiller's Dried Grains?
Corn is a hot commodity. Livestock producers want it for feed. Export houses want it for overseas sales. Ethanol producers keep bidding up the price to feed their refineries. Consequently, the price is strong and has substantial demand-driven support. But take a look at the price of distillers’ dried grains (DDG), which is an ethanol co-product. You’ll see a corn-based product, going up in price also, but driven more by the growing supply than from demand. If you produce livestock, the price of DDG should be on your radar screen and let’s find out why…
Brian Roe’s December Livestock newsletter from Ohio State University compares the corn and DDG prices in the Eastern Cornbelt, where there are fewer ruminants, and more swine and poultry compared to the Western Cornbelt, where DDG is also piling up at ethanol plants.
Roe says the Sept 1 to Nov 30 span saw corn prices in Central IL rise 76%, while DDG prices rose only 38%. At Toledo corn climbed 67%, compared to Lawrenceburg, IN which recorded only a 9% increase in DDG prices. While the price of DDGS is friendlier than corn, the nutrient value of the product is quite comparable, says Roe, “Dried distiller’s grains have as much dry matter (about 89%) and energy (0.89 mcal/lb) as corn and soybean meal and have much more protein than corn alone (31% compared to 9%). The high protein of DDG means it can replace both corn and bean meal in many rations.”
But while nutritional values of corn and DDGS are equal, prices don’t necessarily move in lockstep with each other. “Analysis of the cost of Central IL DDG suggests that, from 1999 through 2006, the average price of DDG was $85 when south Central IL corn was at $2. In fact, over that time period, the average DDG price reported in Central IL was $85.10 while in Lawrenceburg, Indiana, it was $87.90. For every dime that corn increased, the price of DDG went up by $2.58 (per ton.)” But Roe says prices of corn and DDG have diverged during the past 5 weeks and he rhetorically asks if this is a temporary aberration, or a new standard? “It is a question that only time will fully answer.”
He says there are two schools of thought. One says that DDG prices will remain at lower levels until livestock producers realize what is happening and consumption catches up with the supply. The other school of thought is that ethanol plants are grinding out DDG more rapidly than the livestock industry can consume it, with the result that corn prices will remain high and DDG prices will remain low.
Regardless of the trend, Roe says livestock producers should be asking themselves if it makes sense to convert DDG into as much of their ration as they can. Roe calculated the price savings for Central IL livestock producers, based on inserting one ton of DDG, instead of 26.1 bushels of corn and 420 pounds of soybean meal. “Over the 1999-2006 timeframe examined, the average savings from such a substitution was $92.90 for each ton of DDG added to the feed ration. Furthermore, this has spiked during the past 2 months, rising to nearly $130 per ton.” In a related note, prices of gluten feeds or wet distillers’ grains have remained soft compared to corn, and livestock producers should evaluate it as well.
However, there are some caveats that Roe wants livestock producers to factor into their feed budgets.
1) Consult with a nutritionist to closely examine how much DDG to add to the ration.
2) Monitoring the quality of incoming feed (darker DDG can cause problems) and seeing how the animals are responding to the change in ration both in terms of palatability and performance.
3) There may be additional capital and labor expenses as these feeds may require new bins or modifications to existing facilities.
4) Ensure the new feedstuff is being stored properly and protected from the elements and moisture.
5) You’ll have to work out purchase and transportation logistics.
6) There may be changes in manure management that will have to be implemented to deal with its higher phosphorus content.
Summary:
DDG is plentiful, particularly around dry mill ethanol plants, and livestock producers should seriously consider incorporating it into their feed, particularly since DDG prices are not climbing as fast at corn prices. However, there are a handful of issues that will have to be addressed in utilizing DDG in a livestock ration. It remains to be seen if DDG prices will remain below corn values, or whether they will catch up, and what the long term trend will be.
Posted by Stu Ellis at 12:43 AM | Comments (2) | Permalink
December 12, 2006
Grain Prices May Still Be At Lofty Levels, But Are You Getting Nervous?
Monday’s corn and bean markets may have closed higher on Monday, but the underlying news from USDA was that farmers on the warm side of the world are increasing their production because of the high prices. The World Agriculture Supply and Demand Estimates released December 11 held the US balance sheet steady, but changes were made elsewhere, and here are the details as they impact your marketing plan.
The farm gate will summarize many facts in this analysis, but if you want to explore the details a bit further, visit:
The World Agriculture Supply and Demand Estimates
Darrel Good’s newsletter at the University of Illinois
Mike Woolverton’s newsletter at Kansas State University
Let’s break down the report by commodity:
Corn and coarse grains:
Darrel Good at Illinois says the USDA did not make any changes to US production estimates, but massaged the price forecast a bit. The midpoint of the projection for the marketing year average farm price for corn was raised a dime to $3.10. A similar 10 cents was added to the average price forecast for sorghum. And a 5 million bushel increase was made to the barley balance sheet.
At Kansas State, Woolverton says, “Domestic demand for corn continues to increase as new ethanol plants come on-line at the rate of one per week, putting ever increasing pressure on the short supply. Longer term, the demand pressure may be offset by a sizable shift in acreage to corn production this spring provided normal growing conditions prevail.
However, South American feed grain crops are growing larger, and Good says, “The Argentine corn crop is forecast at 748 million bushels, 59 million larger than the November forecast and 126 million larger than the 2006 harvest.” That will provide more domestic stocks for Argentina, since Woolverton says exports may be in question for Argentine corn. “The USDA report did not reflect the late November decision of the Argentinean government to suspend registration of further grain and oilseed exports. Export contracts already approved apparently will be honored, but the government stopped further sales to assure adequate domestic supplies and to limit internal price increases. Not only did that action place a cap on Argentina’s exportable quantities of corn, wheat, and soybeans, it signaled global buyers that Argentina is not a reliable trading partner.”
Soybeans and oilseeds:
USDA kept the US soybean balance sheet intact, but Good says the midpoint of the price range was raised 20 cents to $6.10. But USDA did make some adjustments in soybean oil, by raising beginning stocks, raising production because of a higher 2006 oil yield, raising exports, and raising ending stocks slightly; which all boiled down to a slight increase in the price range.
For Brazilian soybeans, Woolverton notes USDA did not reduce their expected production. He says, “Earlier in the year, the consensus was that Brazilian soybean production would decline because of the extreme financial difficulties faced by Brazilian growers. The Brazilians were expected to reduce land area planted to soybeans by 10 to 15 percent. However, the run up in soybean prices this fall gave Brazilian producers opportunities to forward contract soybean sales at profitable price levels. The USDA is estimating Brazilian soybean production to be 56 MMT, about two percent more than last year.” Despite that projection, most CBOT soybean contracts closed at double digit levels higher after Monday morning’s report.
Wheat:
USDA fine-tuned the US wheat balance sheet according to Good, by increasing domestic food use, reducing exports, increasing ending stocks and subtracting a nickel from the midpoint of the marketing price range. Wheat exports were already expected to be at low levels and the USDA estimate put them at the second lowest levels since 1971-72. And Darrel Good says Argentine farmers have also raised wheat production along with corn, “The current Argentine wheat crop is now forecast at 522 million bushels, 35 million larger than the November forecast and 16 million larger than last year's crop. The projection of Argentine wheat exports was increased by 37 million bushels.”
Woolverton saw a couple other interesting points in the wheat projections, both regarding the Aussie wheat crop, which he says was probably already built into the market. “The USDA did not change its estimate for Australian wheat production from last month’s 10.5 MMT. Although that is down nearly 60 percent from last year’s production, Australian producers’ continue to struggle with an El Nino induced drought that may reduce the crop even more. The Australian government’s most recent estimate for wheat production was 9.6 MMT. It appears the USDA is waiting until the Australian harvest begins later this month to adjust its estimate.”
In conclusion, Darrel Good says the current fundamentals in the world market are still in place, but the prospects for larger crops in the Southern Hemisphere indicate marginal increases in supplies. He expects the market to monitor export sales, along with the January and March USDA reports that point to stocks and prospective 2007 crops. He would not be surprised at a consolidation in the market in the next several weeks, but 2007 planting intentions will be major issue.
Woolverton agrees, but the Kansas State specialist says the wheat market is going to be important to watch because the current high prices driven by the old crop may soon clash with lower prices driven by the new crop’s increased plantings.
Summary:
The books will soon be closed on 2006 US crop production about the time estimates can be made on the Southern Hemisphere crops, which give indications of being abundant, including corn, wheat, and soybeans in South America. In coming months, the grain trade will be watching export reaction to strong US prices, as well as 2007 planting intentions.
Posted by Stu Ellis at 12:55 AM | Comments (0) | Permalink
December 11, 2006
If You Wondered Why The World Is Not Gobbling Up US Farm Products, Here Is The Reason Why.
World Trade Organization? Market access? Trade barriers? What does all of that have to do with you? Now, it seems the Farm Bill is going to be written to make other nations around the world happy. You are befuddled about the whole impact of trade, and since exports are not currently driving commodity prices, you just don’t understand what the fuss is all about. Well, my friend, you’ve come to the right place to find out.
Out of 10 rows of corn you raised this year, livestock consumed 6, ethanol consumed 2 and 2 others will be exported; which is a simplified explanation of corn use. Similarly for soybeans, 2 out of three rows will be crushed and one row will be exported. Now, let’s just concern ourselves with the exported commodities, whether it is grain or meat, or any of hundreds of other products shipped out of US ports to foreign ports where it has to pass through customs.
At that location, and depending upon the country and the product, it may be taxed (a tariff) which is designed to prevent it from undercutting the price of similar products in that nation. But since those economic factors can be clearly identified and calculated, many nations impose non-tariff barriers to restrict market access and prevent the free flow of trade.
It is those “non-tariff barriers” that Iowa State University economist John Beghin explores in a new research report on agricultural trade policy. As Congress writes a new trade-compliant Farm Bill and the world negotiates new international trade policy, you will hear a lot about those non-tariff barriers, so let’s lay down a foundation for that understanding.
Beghin suggests an initial list of five different groups of non-tariff barriers, for example, which restrict US farmer access to foreign consumers. They include:
1) import quotas imposed by a foreign consuming nation and how they are determined, export limitations and bans imposed by a consuming nation on a country that produces a product; voluntary export restraints such as President Nixon’s ban on soybean exports, limits on trade imposed by import or export companies. There are also temporary controls on the value of a commodity based on a false exchange rate for the Dollar. Also the requirement for inclusion of products produced in the importing nation will hamper market access. And labeling rules about the country of origin are also viewed as non-tariff barriers.
2) A second category includes a tax that might be applied once prices or quantities reach a threshold level; monetary deposits required by the importing nation even though money should be flowing the other way; financial penalties imposed by the importing nation if it believes the product is being sold for less than its cost of production within the exporting nation. There are also taxes applied to both imported and domestic products which make the domestic product cheaper than the imported product.
3) The third category of non-tariff barriers includes government policies that favor domestically-produced commodities, governmental-sponsored entities such as the Australian Wheat Board or the Canadian National Railway. It would also include policies on exchanging units of currency, control of foreign investment, and even immigration policies, among others.
4) The fourth area involves the point of customs, and how incoming products are evaluated by customs officials and values assigned for tariff purposes. There are international guidelines to follow, but customs officials may follow their own procedures, including charging for documentation.
5) The last category of non-tariff barriers involves those health and safety issues, formally known as sanitary and phytosanitary rules, an example of which is keeping most US genetically produced crops out of Europe. These technical barriers to trade also include environmental regulations, packaging and labeling, product advertising, and animal welfare.
If you remember GATT, the General Agreement on Tariffs and Trade, it was designed to reduce tariffs. And Beghin says following 8 efforts to do so, tariffs have practically been eliminated, except in a few cases. The World Bank currently calculates tariffs as averaging 3% in developed nations and 11% in developing nations, which are about one-third the levels they were 25 years ago.
That may be a good thing, but as tariffs have diminished, the non-tariff barriers have increased, as countries try their hand at new initiatives to protect their industries:
1) The United Nations says non-tariff barriers based on quantity and price controls have decreased from 45% in 1994 to 15% in 2004.
2) The use of non-tariff barriers have increased from 55% of all protective measures in 1994 to 85% in 2004.
3) The use of technical barriers to trade increased from 32% to 59% in the same period. Many of these have originated because of consumer demands for safety or because of environmental issues.
Beghin says, “The average tariff equivalent is about 40% for the goods affected by these (non-tariff barriers.)”
Measuring the impact of a non-tariff barrier is difficult, because it is hard to differentiate from other issues, such as the failure of the product to be accepted by consumers. Many of them do not equate to a recognizable value or penalty on the US product as it enters the foreign market. There are several methods which attempt to establish the financial impact of the non-tariff barrier:
1) A tax equivalent, which allows the US exporter to have the same profit from a standard market price, regardless whether it was a tax or a non-tariff barrier that was imposed.
2) Beghin says the second calculation “compares the domestic price that would prevail without the non-tariff barrier to the domestic price prevailing in the presence of the non-tariff barrier assuming the price paid to suppliers remains unchanged.”
3) Other measurement techniques, including frequency of imposing barriers and the assessment of risk, such as in health and environmental trade barriers, can also be used to determine the financial impact of trade barriers.
Beghin says many trade disputes arise from the non-tariff barriers and it is important to quantify them to determine the impact on the export market.
Summary:
Any US farmer who has produced a Round-up Ready soybean or a Bt corn has been affected by a non-tariff barrier, designed to prevent the products from entering Europe. While those are the most prominent examples in the Cornbelt, all farmers should be aware of non-tariff barriers imposed by consuming nations designed to restrict the free flow of trade of one commodity or another. The non-tariff barriers can take many different forms, but all can be reduced to a monetary value that trade negotiators can use to seek compensation from the restrictive nation. At the end of the day, the tariffs that used to make US farm products expensive for foreign consumers are rapidly disappearing, but they have been replaced by non-tariff barriers on US farm products that keep their cost high and restrict market access and prevent US farm exports from being higher than they are.
Posted by Stu Ellis at 12:52 AM | Comments (0) | Permalink
December 8, 2006
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.
There is no evidence yet that the higher prices of US corn and soybeans have slowed the pace of export commitments, says IL Marketing Specialist Darrel Good. “Some of the large outstanding sales may represent an accelerated pace of purchases as importers anticipated higher prices, or in the case of corn, reduced availability due to domestic ethanol use and a smaller than expected crop.” Read his export update newsletter.
Technical indicators in the grain markets suggest a downtrend in prices for corn and beans, says Iowa State Extension Specialist Bob Wisner. He says, “Soybean and soybean meal price charts have turned negative, and corn price charts are at a critical point. A close moderately below the Dec 4 settlement price on Mar 2007 corn would indicate prices have temporarily broken out of the 2 1/2 month uptrend.” (It has closed lower.)
Watch for more corn in 2007, says Iowa State’s Wisner, because of several reasons:
1) Seed corn sales are up 10-12% and the best varieties are sold out.
2) There are temporary local shortages of nitrogen from heavy fall application.
3) Market forecasting firms show a potential sharp increase in corn plantings.
Corn demand remains strong, says Wisner. Export sales through Nov were up 35% from 2005. Cattle in the larger feedlots are up 4% from 2005 and 6% from 2004. Farrowing intentions show a slight increase the next few quarters. Read more.
While soybean prices stall, and meal prices fall, Wisner says the soybean oil market is still in an uptrend. He says production cost data for bio-diesel suggest current SBO prices may be pushing some bio-diesel operations into the red. Returns for individual plants will be influenced by how much of the oil supply was locked in earlier at lower prices.
Will high commodity prices lead to high cash rents? IL Extension economists say that may not be justified in times of uncertain prices. They offer 3 scenarios:
1) $3.20 corn & $6.90 beans return $254 per acre well above the $182 average return in the years 1995-2005 and operators could reasonably pay relatively higher cash rents.
2) $2.40 corn & $6.10 beans return $157 per acre, $25 below the $182 historical average and may not cover the non-land costs, which are $41 higher than the1995-2005 period.
3) $2.56 corn & $6.50 beans are equilibrium prices that result in a $182 return equal to the 10-year historical level and needed to offset loss of USDA payments.
Read the entire newsletter.
Higher corn prices have not impacted cattle weights, but KS State’s Jim Mintert says that could change in 2007. He says commercial carcass weights averaged 649 pounds in 1986, and now are at 774, up 19% in the past 20 years. He says genetics and feeding technology have pushed weights up, but corn prices may push weights down. Mintert says when July 1996 corn hit $5, beef carcass weights fell more than 3%. Read more.
The additional cost of purchasing corn for feed has affected not only the profitability of cattle finishers, but also dampened the market for feeder cattle, says Iowa State Extension Specialist Shane Ellis. He says while the market value of fed cattle has dropped by 6% between early- Sept and mid-Nov, KS feeder prices have slipped 15% in the same period, and cash corn prices have increased 58% during the same period.
Cattle feeders who are currently purchasing feeder calves for $110/cwt and can lock in corn at $3.25 per bushel are estimated to need $88-90/cwt in fed cattle prices to break even next summer, says Shane Ellis. If dried distillers grains are used, the breakeven price may be $1-3/cwt dollars lower, depending upon DDGS cost and quantity in ration.
Memories of the StarLink problem surfaced this summer in the rice industry when unapproved genetic varieties entered the marketing chain. IL Extension ag law specialist Bryan Endres says the ultimate lesson for developers of genetically engineered varieties is that they should submit a GMO detection test along with requests for seed approval.
Did you have European corn borer this year? IL Extension entomologists surveyed 498 fields in 50 counties, and report the statewide average number of 2nd generation ECB per 100 plants in IL was lower in 2006 (23.24) than in 2005 (34.4). However, the average percentage of infestation of corn plants was 24.2 in 2005 and 33 in 2006. Read their survey results.
If soybean aphids are a 2007 concern for you, register for a Cornbelt Extension teleconference focused on management guidelines and the potential for biological control, scheduled for Mar 6. Register.
Make your tax decisions soon, says Purdue’s George Patrick. "Farmers need to sit down before the end of the tax year and figure out where you are in terms of receipts to date and expenses to date, because you can make changes until Dec. 31," he said. "After that it may be hard to accomplish some of the things you are trying to do."
Ride your horse to Weight Watchers for a weekly weigh-in and ensure your equine diet is not higher calorie than the horse needs for the exercise it is getting. IL Vet Med staff and students say obesity is becoming a problem for horses, because they are getting too much grain or pelleted feeds and not working it off. Also limit the horse’s pasture time.
Posted by Stu Ellis at 12:14 AM | Comments (0) | Permalink
December 7, 2006
Net Farm Income Was Down This Year, But How Did Your Family Fare?
Today concludes a two part series on USDA’s Agricultural Income and Financial Outlook for 2006. Part one focused on production income and expenses for the current year with a 20% drop in net farm income, and this installment will explore the checking account and balance statement for the farm family. Compare your numbers to these, and submit a comment with your thoughts.
The $68,669 average income for US farm families is 20% higher than the average of the prior 5 years, but because 2005 income was extraordinarily high, 2006 income will be 13% less. There will be a significant difference from one farm to another, depending on the commodity produced.
• Specialty crop producers, including vegetable and fruit growers and greenhouse/nursery operators are expected to generate a higher level of income for the fourth consecutive year.
• The incomes of livestock farms are expected to decline more than for other farm types because of forecast lower prices, reduced marketings, lower government payments, and higher input costs.
• Dairy farm income could be lower in 2006 being than for any year this decade.
• The smallest net cash income declines are forecast for poultry and beef farms, where higher receipts offset some of the increases in expenses.
• Average net cash income for farms that specialize in the production of program crops such as corn, soybeans, wheat, cotton, and rice are forecast to be 8-18% below 2005 levels.
While geographic location makes a difference in farm income because of the type of crops produced, so does farm size.
• Commercial operations, which represent about 9% of farms and 75% of production, are expected to experience an 11% decline in average net cash income for 2006. The 2006 forecast for these farms is still 14% higher than the previous 5-year average and the third highest income in this decade.
• The rate of decline forecast for intermediate farms (primary occupation of farming and gross sales below $250,000) is almost twice that of commercial farms (21%,) resulting in net cash income near the previous 5-year average.
• Two-thirds of U.S. farms are classified as rural residences, where the vast majority of rural residence farmers were employed off-farm prior to becoming a farmer, with a much larger share of both operators and their spouses having off-farm jobs. The farm operations of these households have for many years averaged a negative net cash income, with 2006 no exception.
Looking at farm debt, USDA’s Economic Research Service says nearly half of farm businesses had no term debt coming into the year, and two-thirds have total liabilities less than 10% of assets. “However total liabilities have increased over time, and will average $140,000 per operation at the end of the year. Most of the increase in total liabilities has resulted from non-current liabilities where farm owners have used debt capital to acquire real estate or other long-term assets. Non-current liabilities, on average, have increased by about 50% while current liabilities have increased 22%. Farmers that reported the highest liabilities relative to asset values (farms with debt over 71% of asset values) operated larger farms in terms of acreage and generated much larger value of production than operations that reported smaller amounts of debt.”
When your lender evaluates your financial portfolio this winter, the categories of debt, assets, and equity will be a focus.
1) Equity is assets minus debt, and nationally it will rise by 7% this year from $1.6 trillion to $1.7 trillion. Asset values will rise by 6%, and debt will increase by 1.2%.
2) About 80% of the increase in asset values can be attributed to higher values for farm real estate.
3) Farm debt is forecast at $218 billion, up from $215 billion at the end of 2005. Commercial banks provided 42% of the debt, Farm Credit 32%, and 26% came from FSA and individuals.
4) Agriculture’s financial position continues to improve, and comparing debt to assets, the 2006 ratio of 11.4% is the lowest since USDA began recording it in 1960. “The driving factor in the reduction in farm sector leverage has been the increase in farm asset values by 149% (since 1989).”
The family checkbook should be healthy, but take a close look to see where the deposits originate. USDA says the $80,703 average family wealth is down less than 1% from 2005, and remains well above the 5-year average. Off farm income went up 3.3%, but since it represents 85% of farm family income, the increase more than covered the nearly 20% loss in farm income.
1) Commercial farm households (7.7% of family farms) on average receive a much larger share of household income from farming (75.6%) than other farm households.
2) Commercial farm operators are projected to have household income of $174,214. Though this represents a 12.9-percent reduction in household income relative to 2005, it is 9.8 percent above the 5-year average.
3) Operators of intermediate family farms (23.3% of family farms) receive a much smaller shar