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March 30, 2007
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.
Not since 1944 has the US planted anywhere near that much corn, but USDA reports planting intentions of 90.454 mil. acres. That is up 15% from 2006 and 11% from 2005 and reflects increased acreage in nearly all corn growing states(except MA) as farmers have responded to an ethanol-fueled, demand driven market unseen in many generations.
Among the Cornbelt states, intended acres and percentage of increase from 2006:
IL: 12.9 mil 14%
IN: 6.2 mil 13%
IA: 13.9 mil 10%
KS 3.7 mil 10%
MI: 2.5 mil 14%
MN 7.9 mil 8%
MO: 3.4 mil 26%
ND 2.6 mil 54%
OH: 3.6 mil 16%
NE 9.0 mil 11%
SD 4.9 mil 9%
WI 4.0 mil 10%
Soybean, along with cotton and rice acres, would be sacrificed to make way for more corn, if the current intentions become reality. USDA projects soybean acreage at 67.140 mil. acres, an 11% drop from last year and the least since 1996. However, soybean acreage is expected to expand in the Southeast, and record high acreage in NY.
Among the Cornbelt states, intended acres and percentage of decrease from 2006:
IL: 8.7 mil 14%
IN: 5.0 mil 12%
IA: 9.2 mil 9%
KS 2.4 mil 24%
MI: 1.7 mil 12%
MN 6.7 mil 9%
MO: 4.6 mil 11%
ND 3.1 mil 21%
OH: 4.4 mil 5%
NE 4.4 mil 13%
SD 3.6 mil 9%
WI 1.4 mil 15%
Also responding to higher prices, wheat producers have 60.3 mil. acres planted, up 5% from 2006. Winter wheat is up 10%, including 31.9 mil for HRW and 8.66 for SRW. Spring wheat may be losing about 1 mil. acres, possibly to corn, and USDA reports intentions for cotton acreage are down 20%, with declines in all cotton producing states.
Quarterly grain stock estimates were also released by USDA today. Corn stocks were estimated at 6.07 bil. bu. down 13% from a year ago, with disappearance at 2.86 bil. compared to 2.83 bil. a year ago. Soybean stocks were estimated at 1.78 bil. bu., up 7% from March 2006. Disappearance for the quarter was 917 mil. bu., up 10% from 2006. Wheat stocks totaled 856 mil. bu., down 12% from year ago figures. The quarterly disappearance of wheat was estimated at 459 mil. bu., up slightly from March 2006.
If you want to delve further into the USDA reports issued March 30, visit:
1) Prospective Plantings
2) Grain Stocks
3) Hogs & Pigs (2 pm)
Even major media, such as USA Today and CNN have become interested in the March 30 USDA Planting Intentions Report, labeling it as “the report of the Century.” You may or may not agree, but it is big news in the Cornbelt because of its impact on the market.
Grain traders were looking for corn acreage between 86.3 and 90.7 mil. acres with an average of 88 mil. compared to the 78.3 mil. acres planted in 2006. For soybeans, traders were expecting 65.9 to 70.8 mil acres with a 69.2 mil. acre average. That would compared to 75.5 mil. acres planted in 2006. For wheat, traders expected 58.9 to 60.4 mil. acres, with a 59.7 mil average compared to the 57.3 mil. 2005-06 acrage.
US corn stocks as of March 1 were estimated at 6.023 bil. bu. by grain traders ahead of the Prospective Plantings report. That compares to corn stocks of 6.987 bil. bu. Mar. ‘06. Ethanol usage and export volumes are known, but the market did not know how much corn was kept in storage by producers and how much $4 corn was fed to livestock.
Soybean stocks and usage were also reported by USDA. Grain traders had expected 1.801 bil. bu. of beans in storage, following usage of 896 mil. bu. of beans used in the second quarter of the marketing year. Dec. 1 soybean stocks had been 2.697 bil. bu.
If cash prices don’t favorably compare to futures, IL Extension’s Darrel Good says blame the basis, which is unusually wide. “The basis is about 6¢ weaker than at this time last year and about 20¢ weaker than the four-year average basis for the third week of March.” He says the flow of corn to the market is sufficient to meet the accelerated level of consumption. And he expects it to remain weak until supplies become tight. Read more.
Regarding the soybean basis, Darrel Good says it is 9¢ weaker than in 2006 and 14¢ weaker than the 4-year average. “The new crop basis is also weaker than the actual harvest time basis experienced in recent history, except in 2005 when hurricane Katrina closed the Gulf Port for a period of time. The weak basis currently being experienced is likely a function of high soybean futures prices resulting from high corn prices and anticipation of storage capacity issues. As with corn, the storage capacity issues may not be as extensive as expected, but with substantial regional variation possible.”
Farmers planting Syngenta Agrisure Rootworm with the MIR 604 event are being warned by the National Corn Growers that the hybrid has not been approved for export to Japan. Without that approval by harvest time, which is not guaranteed, marketing of the grain could be at risk in normal channels. It could still be fed to livestock in the US.
For $500 per acre you can grow corn in the northern 2/3 of IL, say ag economists there who analyzed 2006 financial records of thousands of farms. The survey reported costs per acre rose 5-8% from higher prices for fertilizer, seed, fuel, insurance and land costs. Total economic costs ranged from $2.74 to $3.11 per bu. Read the entire report.
For $386 per acre you can grow soybeans in the northern 2/3 of IL, and in southern Il for $341 per acre. The IL Farm Business Farm Management survey found costs per acre rose in all parts of the state. Variable statewide costs accounted for 33% of the total cost of production for soybeans, with other nonland costs at 33% and land costs at 34%.
No surprise, but the Univ. of Mo Food and Agriculture Policy Research Institute says bio-fuels are changing agriculture, increasing corn, soy oil, and commodity prices:
1) The combination of increased production and lower petroleum prices is likely to lead to weaker bio-fuel prices and lower net returns to bio-fuel producers.
2) Projected ethanol net returns over operating costs drop to an average of 20¢ per gal. after 2008/09. This may be too low to result in significant further expansion of capacity.
3) For soy bio-diesel, projected net returns over operating costs drop sharply and are actually negative beginning in 2010. Rising soybean oil prices are the principal cause.
4) If current bio-fuel tax credits and tariff protection expire, bio-fuel prices drop, bio-fuel production drops, along with prices for corn, soy oil, and other agricultural commodities.
5) Livestock producers could be more or less able to adjust feed rations to increase use of DDGS, and significantly impact different prices for DDGS and other bio-fuel products.
There are positives in the pork market say Glenn Grimes and Ron Plain at the Univ. of MO, “Retail pork prices for January and February were 0.7% higher than in 2006. Pork marketing margins for the first two months of 2007 were down 2.4% from a year earlier. The smaller marketing margin and the increase in retail prices permitted packers to pay 9.6% more for barrows and gilts for the first two months of 2007 than 2006.”
There are also positives in the beef market says Nevil Speer at Western KY, “Talk of a $100 spring market is now seemingly within reach. Perhaps more important is the outlook for closeouts as spring transpires. A month ago April and June contracts were $95 and $92, respectively. But the cash market is $8 better than 30 days ago. Depending on the marketing window cattle feeders have been provided with $75-100 more revenue.”
Corn yield can be trimmed 5% or more if wet soils are compacted in the spring from premature field work, then followed by a dry summer. Ohio State’s Peter Thomison says, “Depending on the production situation, location, hybrid planted and soil type, mistakes made during planting operations can lead to uneven stands.”
As a final thought about the acreage report, expecting 90.5 mil. acres of corn. Most authorities warn that the additional acreage planted to corn will not produce trendline yields, and planting conditions will have to be perfect in the Cornbelt to achieve the potential crop. Most of the Cornbelt is wet and fieldwork in most areas has not begun.
Posted by Stu Ellis at 12:08 AM | Comments (0) | Permalink
March 29, 2007
Isn't There A Wheat Crop Out There Somewhere?
While you are twiddling your thumbs, awaiting Friday morning’s Planting Intentions Report, you pick up USDA’s latest analysis of the domestic and global wheat market. Corn growers will have some passing interest in the report since some wheat acres could be torn up for corn planting, and wheat will supply part of the cattle market if corn prices don’t soften for the livestock industry. As a matter of fact, there is a lot in the report impacting the corn grower whose pause button has been pushed.
To refresh your memory about the wheat market, declining acreage and a drought in 2006 produced the smallest US crop in 35 years. And that produced some of the highest prices in many years, pushing farmers to plant more acres last fall attempting to book some $5 wheat in 2007.
New Crop Outlook
As wheat comes out of dormancy, the new crop is expected to be about 60 million acres, up 2.7 million from last year. Trend yields would produce about 2.170 billion bushels and the increase over 2006 more than offsets last years’ shortfall. Total use for the new crop will be 2.236 billion bushels, about 210 million higher than last year. USDA says, “This forecast is largely influenced by high prices generated by reduced wheat production worldwide in 2006/07 because of weather problems in the United States and elsewhere in the world and rising U.S. ethanol demand for corn.”
Just like the corn and bean markets, the wheat market contains some healthy prices, resulting from the demand-driven corn market. Both soybeans and wheat have to battle for acres, and that is keeping premium prices currently. USDA believes the higher prices, and increased foreign production will dampen exports to 925 million bushels, only 50 million more than what was exported from the old crop. But more than an additional 150 million bushels of wheat will be fed to livestock. Domestic food use is slowing due to the consumer preference for low carbohydrate diets. USDA believes that will result in a $4.30 season average farm price.
Domestic Old Crop
When the marketing year ends in June, the total domestic use of the old crop will closely compare to the prior crop with slightly higher food use and slightly lower feed use. Exports will be about 875 million bushels, a 134 million bushel decline caused by higher prices. Smaller U.S. wheat exports drop the projected U.S. share of the world export market from 24% in 2005/06 to 22% for the current marketing year. The ending stocks of wheat for 2006/07 are down nearly 100 million bushels from 2005/06. The sum of the hard-wheat ending stocks is about 300 million bushels, the lowest since 1995/96.
Global Crop
The US was not the only nation with a shortfall in wheat production last year. Key producing countries such as the EU and Russia were down 5-6% from heat in Europe and reduced acreage in Russia. But Australian production was down 58% from a drought. Canada and Argentina both had good crops and kept up their export business, with a 20% increase for Argentina and 31% increase for Canada. The latter was also helped by currency relationships. Buying wheat last year was India, which boosted its imports to the highest in 30 years due to demand. That is a significant shift from the prior 6 years of exporting wheat. Worldwide, 109 million metric tons of wheat will be traded, about the same as the two prior years. Global wheat use for the current marketing year is expected to be down 1% due to smaller production and higher prices. Most of the decline will be reduction of wheat feeding in Europe with producers switching to lower priced barley. With world production sliding for the past 2 years, ending stocks are expected to be at the lowest level in the past 25 years.
Summary:
US wheat producers will raise about 2.7 billion bushels and we’ll use a bit over 2.2 billion bushels this year. Increased production results from higher prices, caused by low production and acreage last year. But major world producers also had a short crop in 2006, causing higher prices that tended to ration use, but still result in declining stocks both domestically and globally. The new US crop still has its future to be written with some acreage expected to shift to corn production on the fringe of the corn belt.
Posted by Stu Ellis at 12:20 AM | Comments (0) | Permalink
March 28, 2007
The Hour Is Nigh. What Is Your Decision?
The clock is rapidly ticking toward one of the most anticipated crop reports in recent history. Unlike the August 1 production reports in the drought years of 1983 and 1988, this spring 2007 prospective plantings report will have brief market impact, but long term planning impact for producers and consumers of agricultural commodities. On Friday morning we will hear what you and your neighbors are “intending” to plant. The grain traders have their positions squared away, but do farmers? Are you protected from a sudden upward or downward move in the market? You have two days to take care of business. So let’s see what the brightest and best have to say.
Corn
If you check local cash corn prices, you will find them no where near futures prices, because of an unusually wide basis. In his weekly newsletter, Outlook Specialist Darrel Good at the University of Illinois says, “The weak old crop basis reflects higher futures prices and ample supplies, while the weak new crop basis may reflect concerns about storage capacity for the coming harvest.” He says corn is being sold to keep up with the export and ethanol demand, and the basis will remain wide until supplies become tight.
At Purdue, Outlook Specialist Chris Hurt belives prices could be as high as they are going to go without an unusually bullish report on Friday or growing season weather concerns. And he suggests, “Pricing some portion of remaining old-crop and new-crop prior to the report should be considered. When ready to price old-crop, be sure to ask about bids for June or July delivery. At some locations, those bids are sufficient to cover storage costs. This is especially true at locations that have an ethanol plant starting in production this spring.” Hurt also believes the old crop may still have some higher values, which can be captured by selling cash, and buying call options on 20% of your old crop inventory if you have that much left. Consider liquidation in mid-July if the new crop is maturing on schedule. For the new crop, Hurt says, “The traditional guidelines are to have 25% to 35% of expected production priced in the spring pricing window from mid-March to mid-May. Thus, having around 1/3rd of that done prior to the March 30th report might be a guideline. “
At Ohio State University, Outlook Specialist Matt Roberts, agrees that holding corn over the report without some pricing protection is more risk than should be assumed. He thinks corn acreage above 11 million and good growing weather could take 50-75¢ out of corn prices. He suggests an option strategy as well, but recommends, “The purchase of $3.90 July puts for about 18¢ if you would like longer-term protection, or $3.90 May puts for about 10¢ if you want very short-term protection for old crop bushels. For new crop, if you haven’t marketing any, I would advise some forward sales to lock in what are undoubtedly significant profits. New crop options remain expensive, but the calls are a bit more expensive than the puts, meaning that the better option is to buy puts and hold the corn unless the prospects for basis improvement are poor, in which the sale of the physical corn and purchase of out-of-the-money ($4.60 or higher) calls is the better choice.”
At the University of Missouri’s Food and Agricultural Policy Research Institute, Outlook Specialist Melvin Brees says if you don’t use options, at least call your elevator and put in bids if the market goes up or down. “Downside price traps near $3.90 (December corn futures) could capture this price before the market declines to fill the chart gap near $3.75 or lower. For those expecting prices to rally, upside price goals near previous highs would capture higher prices. Then setting traps near $4.00, or above, would capture a higher trap price if a rally failed to reach previous highs.” How much do you sell? Brees says that depends on your production, available storage, and whether you have crop insurance. “If corn acreage is increased, locking in a profit on expected production from the increased acreage may be advisable. Those with crop insurance may be more confident in making pre-harvest sales if production is reduced.” He says no strategy is perfect, but having a plan is better than nothing, and your plan may need action before the March 30 report. “Upside price goals may not be reached. Downside price traps may be triggered and then prices may reverse, moving higher than before. In spite of these difficulties, spreading sales insures that profitable sales are made while additional quantities remain to be sold if prices surge higher. The objective is to capture favorable prices and avoid the risks associated with pricing everything at once or selling at low harvest time prices.”
Beans
If you check the soybean basis, it is also parallel to the wide corn basis, and Darrel Good at the University of Illinois says that is significant. “The new crop basis is also weaker than the actual harvest time basis experienced in recent history, except in 2005 when hurricane Katrina closed the Gulf Port for a period of time. The weak basis currently being experienced is likely a function of high soybean futures prices resulting from high corn prices and anticipation of storage capacity issues. As with corn, the storage capacity issues may not be as extensive as expected, but with substantial regional variation possible.”
His colleague, Chris Hurt at Purdue says soybean prices should be moving up this spring in a seasonal cycle. “Short-term forecast into later March do suggests dryer and warmer than normal temperatures which may cause markets to anticipate somewhat fewer bean acres.” Nevertheless, he is expecting basis levels to remain wide, new crop prices in the fall to exceed old crop, and no premiums for early delivery. “Old-crop pricing should be advanced in the next 60 days during the traditional spring pricing window. This is a period to consider pricing 25% to 35% of anticipated new crop production. Corn and soybean prices should come back into alignment in the 2007/08 marketing year, with soybeans 2.2 to 2.4 times the price of corn. If corn is to average $3.70 for the 2007 crop, then soybeans should be in the $8.14 to $8.88 range. This suggests that soybean prices still have some “catching up” to do relative to corn prices.”
Matt Roberts at Ohio State agrees that you should prepare to sell some soybeans in the next few weeks. “Global supplies are ample, as Brazilian production has been very good this year. Further, because the US has such carry-in and expected carry-out, it would take a significant yield even to significantly increase soybean prices. Therefore, in spite of the higher call premiums, I would recommend forward sales of soybeans. At this point, I lean toward forward sales because I think that there is much more downside risk in basis on beans than upside potential. If you want to maintain some upside, purchase November $9.20 calls on some of your sales.”
Those are some ideas, but only you can pull the trigger, if you feel the need for some protection from potential market pitfalls.
And Outlook Specialist Mike Woolverton at Kansas State says there are plenty of dynamics in today’s market that demand the need for attention. "A domino-effect linkage among the general economy, the stock markets, energy commodities, and crop commodities has become more apparent in recent days. When rumors of a slowing economy caused the Chinese stock market to tumble and take U.S. stocks down briefly, commodity prices also fell. Here are links in the chain: global economy – the U.S. economy - oil price – ethanol price – corn price - and the prices of other crop commodities. Ethanol is the connector. An economic slowdown would reduce the demand for fuels, ethanol included. If ethanol production fell, so would the price of corn fall and take the prices of other crop commodities down with it.
"What this all means to producers is marketing of grain and oilseeds has become a more critical managerial function. Over the next five or six months, because of higher priced grains and oilseeds and frequent and wide price fluctuations, excellence in marketing could add tens of thousands of dollars to gross revenue. It will take constant vigilance of markets, extra time allocated to marketing decision making, and regular contact with grain and oilseed buyers to capture those extra dollars. It would be a shame to let golden opportunities slip through the fingers."
Posted by Stu Ellis at 12:13 AM | Comments (0) | Permalink
March 27, 2007
How Do You Plant The Perfect Stand Of Corn?
You like the concept of $4 corn and you are planning to do everything possible to produce as much as possible. You have increased corn acreage in your rotation. You have booked more nitrogen (but haven’t told anyone.) And you are planning to boost your plant population. But the question is, how much? What is the perfect stand of corn?
That was the rhetorical question asked by Extension Crop Production Specialist Emerson Nafziger of the University of Illinois recently at one of many crop conferences. (Proceedings Page 45) “Many producers have increased their targeted plant population in corn in recent years yet still wonder, after a year with good weather and good yields, whether they should have set the planter for higher populations than they did.” Does that describe you?
Nafziger says yields at some research plots:
1. show yield increases beyond 40,000,
2. some begin to fade at 35,000, and
3. some begin to fade at 30,000.
Those statistics are a relationship between soils; and despite the expense of the seed, he says there seems to be little risk in pushing populations above 30,000 per acre in the more productive soils.
What about the variability of spacing between corn plants? After all you are not digging holes, separated by the length of your foot, and putting two kernels and a fish in each one. Nafziger says some serious debate has occurred among crop production specialists about the variability of plant spacing and its impact on population. After all, planters are not infallible; but he says, “Faster planting speeds increased plant spacing variability slightly but had no effect on yield.” But he says where there are a lot of plants missing, and spacing between kernels varies by 4-5 inches or more, population and yield will drop. Conversely, if plants are thinned to an even stand, there is little effect on yield. In the end, Nafziger says, most agronomists now believe that, while perfectly spaced plants down the row is the ideal, there is likely to be little yield loss under the small amount of variability,” which he defines as 3 inches or less deviation in the spacing from one seed to the next. “As a general rule, spending money to try to improve a stand that is less than perfect but within an acceptable range probably will not increase profits much, if any.”
What about the variability of emergence and plant maturity? Nafziger says uniformity and plant size early on will diminish yields more than non-uniform plant spacing. The key to uniform emergence is a uniform planting depth. He says the optimum depth is 1.5 to 1.75 inches, and more or less will probably mean a lack of uniformity of soil conditions and create a variety of emergence. As planting depth drops from that level, so does yield potential. Plants that are not as large as those around them will have a greater challenge in competing for light and moisture, and will be unable to produce an equal amount of grain as those around them.
What about the grade of the seed affecting yield? Quick and uniform emergence has an impact on plant uniformity and ultimately on yield. Nafziger’s research finds little yield variation based on seed grade. Whether you are planting flats or rounds, whether you are planting large or small seed, the yield fell within a couple percentage points of each other. Different planters may differ in distribution of seed, but Nafziger says once it is in the ground, seed grade will have little affect on yield.
Summary:
The key to an optimum stand of corn generally is uniformity, both in depth and in spacing. But those will not guarantee a good yield if there is not good contact between the seed and the soil and if there is an insufficient amount of moisture. The uniformity will guarantee that each plant has an equal chance at light and moisture. But the grade of the seed makes little difference in the yield, unless the planter has trouble with uniform distribution of that particular grade.
Posted by Stu Ellis at 12:48 AM | Comments (0) | Permalink
March 26, 2007
Let's Knock The Rust Off Your Rust Preparedness Plan
Soybean planting is a month or more away for most of the Cornbelt, but the nervousness about Asian soybean rust was recently heightened with confirmation that remnants of rust were found in soybeans stored in Iowa. Subfreezing temperatures have pushed living spores well to the southern parts of Florida and the Gulf Coast, but where do you stand this growing season? It is too late to obtain crop insurance for revenue risk management, so your production strategies are your only remaining alternative. What do we know about the enemy as we prepare for a possible battle this summer?
Those who lived through the Cold War were taught to fear “Ivan.” While the Soviet armies never attacked the US, it coincidentally was a hurricane named “Ivan” that brought soybean rust to the US in all likelihood. That was in September 2004, and soybean rust watchers found it in shortly thereafter in Louisiana. It appeared the next spring in Florida, after some of the hurricane-borne spores survived the winter on kudzu. Since then it has found its way to 15 other states, including the Cornbelt states of Indiana, Illinois, and now Iowa, as well as the states in the southern soybean belt. USDA plant pathologist Glen Hartman at the University of Illinois updated farmers and crop protection specialists. His report can be found on page 21 of the on-line proceedings of recent crop protection conference.
Hartman says 255 soybean producing counties had soybean rust confirmations last year as reported on the official USDA soybean rust website http://www.sbrusa.net and the occurrences increased from 2005 to 2006. He says research has increased substantially from the arrival of soybean rust in the continental US. Several findings will be important to the control of the fungus:
• The spores are sensitive to solar radiation, and Hartman says, “The relationship between spore viability and exposure to solar radiation is important to the soybean rust aerobiological model that provides North American soybean growers decision support for managing soybean rust.
• Spore release increased after leaves dried, peaked during midday, then tapered off toward the evening. Rainfall events reduced spore release for a 24- to 48-hour period.
• There are a variety of Asian soybean rust isolates found around the world, with different levels of virulence in attacking soybean lines that have some resistance to soybean rust.
• Quite a few hosts are being discovered for Asian rust, including lima, kidney, and other beans, however native legumes in the US have not encountered it.
• Seed samples from the soybean germplasm collection at the University of Illinois are being grown to look for potential resistant varieties, and so far 805 have shown some resistance. They are being tested in multiple geographic locations, and after being crossed with each other are being genetically mapped.
• A wild perennial relative of the soybean has show resistance, and its genes are being crossed with current soybean cultivars to introduce resistance to rust.
• For control purposes, fungicide testing in the US and Paraguay has focused on the efficacy of various fungicides, application technology and timing.
• Results showed that almost all fungicides controlled rust compared to the non-fungicide treatment, with yields often greater in fungicide plots than non-fungicide plots.
• In some locations, the difference between the two-application program and the three-application program was also significant, and these differences showed a trend where the residual activity differs among the products. In other locations in other years, trends varied depending on the onset and severity of rust.
• Data from the 2006 U.S. test plots with rust are currently being compiled, but, in 2005 in the test plots without rust, all but one treatment had significantly greater yield than the control at one location, and there was no statistical difference between the control and most treatments at two other locations.
Summary:
May researchers believed farmers “dodged the bullet” in 2006 by not having soybean rust problems, thanks to weather patterns and how far to the southwest Asian soybean rust successfully overwintered. Any change in weather or survival locations could mean a significant change in what producers will have to do this season to either prevent or treat soybean rust. There is a significant amount of research underway to discover potential prevention and rescue treatments, as well as an official website which provides daily information and recommendations for management.
Posted by Stu Ellis at 12:12 AM | Comments (0) | Permalink
March 23, 2007
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.
With harvest underway, Southern Hemisphere corn and soybean crops are substantially improved from a year ago. Iowa State’s Bob Wisner reports in his latest newsletter:
1) The Argentine corn crop is forecast 36% larger than last year’s weather-reduced harvest.
2) The Brazilian corn crop is expected to be 15% larger than last years harvest.
3) The South African crop is estimated at 8% better than last years weather reduced crop.
4) These 3 will raise 495 mil. bu. more than 2006, with exports at 11% of US exports.
5) Brazil & Argentina will raise 200 mil. bu. more soybeans, exporting most of that.
As private forecasters project a 10 mil. acre increase for US corn, Iowa State’s Bob Wisner says those acres will probably yield less than acreage usually planted to corn:
1) Cotton acreage in TX, MS & LA only has a 3-year average corn yield of 129 bu
2) Spring wheat acreage in ND only has a 3-year average corn yield of 115 bu.
3) Private forecasters expect significant hay and pastureland will be planted to corn.
4) Some CRP may also be planted, but it gives better soybean yields than corn yields.
Manage your price risk going into the Mar. 30 planting report says Ohio State’s Matt Roberts. He says an 11 mil. increase in corn acres could drop prices 50-75¢, and an 8 mil acre increase might increase prices 50-75¢. But he says there is a greater chance of a drop than an increase, and it is too early in the marketing year for a big price increase. Read his comments.
To protect prices, Roberts suggests the options market. “For the old crop, I would suggest looking into the purchase of $3.90 July puts for about 18¢ if you would like longer-term protection, or $3.90 May puts for about 10¢ if you want very short-term protection for old crop bushels. For new crop, if you haven’t marketing any, I would advise some forward sales to lock in what are undoubtedly significant profits.
Are corn and bean prices high enough, or are you seeking extra cash through specialty grain premiums?
1) Food grade yellow corn: +5-15¢ over local cash, variety specific +40¢.
2) White corn: +30-40¢ over CBOT, variety specific +50-65¢.
3) High oil corn: +40-60¢, variety specific only. Hard endosperm: +15-26¢.
4) High starch corn (70%+ yield): +20-30¢ over CBOT, variety specific.
5) Blue corn: $9-9.20/bu. Non-GMO corn: +20-25¢.
6) Non-GMO beans: mostly +65-75¢ over local cash
7) High protein beans: +80-90¢ over local cash, variety specific.
8) Low linolenic beans: +60-65¢ over local cash, variety specific.
High wheat prices have resulted in significant acreage increases compared to 2007. The 44 mil. acres of winter wheat exceeded 2006 by 3.5 mil. and the 8.3 mil. acres of soft red wheat was a 13% increase. As some producers consider replacing wheat acreage with corn, IL Outlook Specialist Darrel Good says, “Current weather patterns maintain the potential for relatively high wheat yields, making replacement with spring planted crops a very risky decision.”
Darrel Good says, “Price volatility will likely continue due to the uncertainty about US and world production of wheat and other crops. However, the longer term price trend may be lower as current high prices will likely lead to large crops and more abundant world stocks. If so, pricing opportunities may be best early in the ‘07-08 marketing year.”
Regardless of its appearance, almost any wheat crop with an adequate stand at the time it greens up has the potential to produce a good yield, says Extension Specialist Emerson Nafziger. That means enough tillers to produce 60+ heads/sq. ft. The decision whether a wheat crop is worth keeping can be made when the crop is 8 to 10 inches tall, by which time you can usually count what will likely become productive (head-bearing) tillers.
If you are leaning toward converting wheat to corn, your biggest unrecoverable cost is seed. Any topdress N can be used by the corn. Wait on herbicide application until your decision is final, and remember Harmony needs 45 days before corn can be planted. For a burndown, glyphosate works well, but keeps armyworms hungry until corn spouts up. Read more Nafziger comments.
Extension entomologists are taking a hard line on the issue of planting refuges adjacent to Bt corn hybrids. They say the 20% refuge acreage requirement is part of the agreement with seed companies, and the slight loss of yield with a refuge is not worth sacrificing the viability of Bt technology to control caterpillar and rootworm pests.
The sledgehammer approach to rootworm control is applying granular insecticide on top of seed-treated Bt corn. But IL Extension bug gurus say, “There is no data to support the rationale for using three active ingredients against corn rootworm larvae, whose populations have a rich history of developing resistance to control tactics.”
Prepare for soybean aphids. Based on egg sampling this week at Michigan State Univ., soybean aphid eggs made it through the winter, and they will hatch as buckthorn buds break in the next few weeks. Aphid specialists remind producers that the soybean rust website, offers aphid updates. Under the date, the site can be switched to aphids and a commentary about aphids is available when a state appears in color.
Are you a no-tiller who is planning to increase corn acreage and plant corn on corn? You may have researched the problems, but NE Specialist Paul Jasa offers some tips for no-tilling corn on corn in a NE weekly Internet newsletter.
1) Crop rotation cut many pest and disease problems and increased soil biological activity
2) Rotation also spread the workload and production risks and generally improved yields.
3) Are the prices worth the higher production expenses, increased risks, and lower yields.
4) Do you have adequate machinery and labor capacity for more corn acres?
5) To aid soil drying and warming, consider strip-till on poorly drained soils.
6) Consider ridge-till to provide a warmer, drier soil providing good early growth.
Some new herbicides on the market this year provide added control flexibility:
1) Impact 2.8SC is a PRE for grass and broadleaves, and has soil persistence.
2) Canopy 75DG has been re-introduced for soybeans after withdrawal a few years ago.
3) Canopy EX is a fall applied herbicide, equivalent to Classic, Sencor, & Express.
4) Authority First and Sonic 70DF are soybean pre-mixes for PRE or PPI.
5) Status is equivalent to Distinct with a safener for corn protection from 4 to 36 in.
6) Prefix CP blends Reflex, Flexstar, & Dual Magnum for grass and broadleaf control.
7) Valor XLT is Valor & Classic burndown for use up to 3 days after bean planting.
8) Autumn 10WDG is a fall herbicide which can be used only ahead of corn planting.
9) Stout mp is Accent & Harmony and controls some grass and broadleaves in corn.
10) SureStart is a new soil-applied herbicide which includes acetochlor and others.
Corn population research is difficult because of variable weather, but IL Extension reports in its March newsletter.
1) 35,000 population provided more profit than 30,000 or 40,000 in favorable conditions.
2) Less productive and dry soils have a better yield response with 25-30,000 population.
3) Target populations under 30,000 might want to be modestly raised.
4) Raising the population in continuous corn often lowers yield, and seldom increases it.
5) If planting can be finished by May 10, there is no need to adjust population by date.
Will starter fertilizer provide missing micronutrients to boost yield? Nafziger believes new hybrids with rapid growth will root faster and reach nutrients quicker. He says moisture is more important to yield than micronutrients and the combination of good soil contact with early root growth will provide better water uptake at important times.
Federal courts have halted sales of roundup Ready alfalfa. There was a problem at USDA in shortcutting the testing process, and is not your fault. If you plant any prior to March 30, 2007, it is exempt from this ruling and can be harvested, sold and fed to animals. Any Roundup Ready alfalfa seed purchased before March 12, 2007, must be planted before March 30, 2007. After then all alfalfa must be a conventional variety.
Conservation tillage continued to grow in 2006, according to a survey across 22% of US cropland by the Conservation Technology Information Center. No-till and strip till acres totaled 31.5%, ridge till reached .9%, mulch till dropped to 22.3%. Total conservation tillage acres are at 54.7%, reduced till dropped to 21.8%, conventional tillage is at 23.5%. Only 20.4% of corn and 30.4% of small grains, but 44.5% of soybeans were no-tilled.
Negotiations to resume beef exports to South Korea are stalled, but US pork exports are hot. Missouri’s Glenn Grimes says they were up 35% over 2006, and pork exports were up 43% to Japan, where beef has been slow to re-enter the market. He says the US exports 11% of our pork production, and pork exports began the year 20% above 2006.
Posted by Stu Ellis at 2:05 AM | Comments (0) | Permalink
March 22, 2007
Ties, Tank Trucks, and Telephones
Years ago a corn, oats, and hay rotation fed the family and the horsepower. Some grain went to the elevator and a wagon load of lime or potash came back to spread on the fields. But mechanization brought the need for improved roads and a way to haul fuel around and agriculture had to think how the infrastructure needed to be changed to accommodate progress. Today the same exercise is underway because ethanol production is a new variable in the equation and there are some significant demands on the infrastructure of agriculture that require it to be changed once again.
There may be adequate roads, utilities and other elements of infrastructure available for today’s agriculture, but when a new industry comes to the neighborhood, and several more pop up in the next county, the infrastructure may be stressed according to Economist Roger Ginder at Iowa State University. His study, Potential Infrastructure Constraints on Ethanol Production in Iowa, can really be applied to any part of the Cornbelt where ethanol has brought a change to the local economy. It is not just the county highway engineer who will have more roads to repair, but when a plant brings extra jobs, there will also be a need for more phone lines, computer technicians, and diesel fuel pumps with hot coffee near the cash register. Ginder says the current infrastructure in a community is closely matched with the corn and soybeans produced nearby. But the new ethanol plant is drawing down stored corn, and trucks are not only hauling corn in, but are loaded outbound with ethanol and distillers’ dried grains (DDGS.)
For this spring, the seed infrastructure is changing. More seed corn is being sold meaning seed corn companies have more activity, and popular varieties will have to be managed. Soybean salesmen will have a lot in common with the Maytag repairman trying to dust off the cobwebs. With a significant increase in corn acres, there will be more demand for fertilizer and crop chemicals than with soybeans, and the ag service industry will be taxed in getting it delivered or applied in a timely fashion. If the increased corn acreage persists, then additional trains of fertilizers will be arriving and more trucks will be on the highway for localized distribution. Nitrogen may be readily available, but possibly not in the volume of anhydrous ammonia that all producers wish.
Ethanol plants require a steady supply of corn, whether that is from farmers, from elevators, or from farmers through arrangements with elevators. Nevertheless, either steady truck lines will form, or rail sidings will be required to supply corn in larger quantities. Without railheads, the increased flow of corn on local roads will result in more trucks, more drivers, more wear and tear on pavements, and increased traffic volume in rural areas and through small communities unused to such volume. But once refined, an equal volume of outbound ethanol and DDGS products will be shipped in similar fashion.
Elevators provide storage, handling, and drying functions, but with a new game in town at the ethanol plant the relationship of those services will be changed to some degree. Elevators will have to carve out their niche, and the more aggressive elevator operators probably have already done so. But elevator managers will also have a significant challenge at the outset, since a large corn crop in 2007 and 2008 will yield 180+ bushels per acre that will need to be stored, displacing soybeans that would have needed only 30% of that space, pushing elevators to use more temporary storage to accommodate the extra volume.
Once the ethanol is refined it has to go somewhere. Currently it cannot be stored at elevators or feedlots where corn is found, but it has to find a home in a tank that can either hold it until blending or haul it to an ultimate user. Rail infrastructure in the form of sidings and tank cars are going to be needed in short order to haul ethanol out of the Cornbelt to metropolitan areas. The current rolling stock could be out of service for several weeks while making shipments from the Midwest to coastal fuel terminals for blending. New railcars are expensive and manufacturers are booked for as much as two years out. While proposals for pipelines have been made, no trenches have been dug yet for an ethanol distribution network.
Shipping DDGS is another issue, since it requires railcars that typically haul commodity grains, but getting it out of those cars is difficult and mechanical unloaders can sometimes damage freight cars. DDGS is a perishable commodity, and transportation must be efficient to deliver the product on time to a user, while retaining its value.
Summary:
Whether it is building new rail cars, repaving Main Street, or applying nitrogen 24 hours a day for a month, the Cornbelt can expect to refurbish its infrastructure with the onset of the ethanol economy. While this new industry brought a demand-driven corn market, it will be making demands on utilities, local governments, and the agriculture service industry which may share in the benefits, but will also share in the burdens and growing pains.
Posted by Stu Ellis at 12:35 AM | Comments (0) | Permalink
March 21, 2007
How Do Risk Management And Farm Policy Reconcile Their Differences?
As Cornbelt farmers head into 2007 with their risk management program in place (crop insurance, marketing plan, etc.), something may seem a bit unsettling. Crop insurance, at least the revenue kind, is based on expected production and the expected market, which is based on domestic and foreign demand. But the USDA-funded crop insurance program and prices have a common bond with the World Trade Organization. And the WTO is trying to dismantle the US farm subsidy program, which includes crop insurance, and a variety of other farm program benefits. Suddenly, it appears to be a house of cards which is about to collapse around the hundreds of thousands of dollars of inputs about to be buried out in the field. Is this a nightmare or is it reality? Wake up and …
USDA’s recent Outlook Forum explored risk management and trade issues and Mississippi State University agricultural economist Keith Coble says it is clear that US cotton subsidies could not withstand challenges with the World Trade Organization, and its effort to decouple farm supports and make the US farmer more responsive to the market runs counter to current risk management practices, such as the use of federal crop insurance. And Coble’s concerns about the future of farm programs are amplified by his beliefs that current high prices will not last, and that is something that will aggravate the writing of a new farm policy.
In brief, Coble believes the ultimate outcome of the 2007 Farm Bill to be WTO compliant will feature one of two alternatives, “Essentially the two best bets for WTO compliance appear to be either the current direct payment program with the fruit and vegetable restriction eliminated, or some type of whole-farm revenue guarantee with a 70 percent trigger that would subsume all enterprises, including crop and livestock revenue.” The latter is a low level of financial protection, closer to 65% MPCI insurance than today’s versions of CRC, RA, and GRIP that have much higher financial guarantees.
Coble says with the trend toward revenue insurance, as opposed to insuring price and yield separately, it is important to note the homogeneous relationship with major commodities and their price variability of the past 30 years. In essence there is very little difference from one commodity to another; and from one region to another, “Likewise, because of spatial arbitrage, the price variability for soybeans in Mississippi and the price variability for soybeans in central Illinois are quite similar. Therefore, the current as well as previous sets of commodity programs protect against price risks that are remarkably similar on a per unit basis across commodities.” However, yield risk is much different, and the variability may be 4-5 time greater in one region than another. But since revenue risk is determined 80% by yield, then the revenue guarantees of Farm Bill proposals are more difficult to reconcile.
However, Coble reminds you that once programs are computed on a national scale, the yield or revenue variability diminishes considerably. But on a farm level the variability is increased and yield variability is nearly as large as the revenue variability for the primary crops. Cornbelt corn and soybean producers are more likely to understand the benefits of a revenue-trigger for farm programs than other farmers, because of the correlation between yields and price for corn and soybeans. But the same strong inverse relationship for corn yield and price and bean yield and price does not always exist with other government supported commodities. For cotton, the revenue variability is driven by region. Coble says, “However, the relative magnitudes of revenue risk are greater in other regions and for other commodities. This suggests revenue triggered programs might shift benefits away from the Midwest corn and soybean producers. This will be particularly true if the revenue trigger is based on state, crop reporting district, or county revenue measures. As a result there appear to be significant trade-offs between the magnitude of payments and correlation of payments with producer risk.”
Coble says it is a terribly complex task to manage LDPs, Counter-cyclical Payments, crop insurance, and forward pricing strategies all at the same time. But he says it can be done with success, “Producers, if they choose to consistently adjust their forward pricing strategies in recognition of the commodity programs and crop insurance programs available to them, can create a portfolio of risk management tools that in many instances will provide quite effective risk management coverage.”
Coble believes that the best program for USDA is to help insure yield risk, because that is the least likely option to be available from the private sector for a reasonable price. With higher prices, there will be less government outlay for commodity supports, and more need for crop revenue insurance guarantees. Giving support to improvements in the actuarial foundation of the program, Coble says that helps justify the program and its reinsurance agreement with the private companies that write policies. Not being an advocate of ad hoc disaster programs because of their redundancy, Coble says risk management programs should be carefully written because of their potential to trigger trade complaints and put USDA spending over budget.
Summary:
In a time of budget deficits and trade complaints, the risk management program of the new Farm Bill needs to be carefully constructed, something difficult to do given the different price and yield characteristics of primary commodities. While revenue for corn and soybeans is a function of the inverse relationships of price and yield, such is not always the same for other commodities. And while national averages may have small annual variation, farm-level statistics can have significant variation. Ag economist Keith Coble of Mississippi State says his suggestion would be to keep government risk management programs tied to yield protection, for which the private sector is the least likely to provide economical programs. The balance of risk management can be managed with forward pricing alternatives.
Posted by Stu Ellis at 12:14 AM | Comments (0) | Permalink
March 20, 2007
If Asian Markets Want Our Food, How About Our Bio-fuels?
If you don’t like paying $2-$4 for a gallon a gasoline or diesel now, consider that the future will bring a growing demand for fuel from China, India, and other Asian economies which will further stress global petroleum production. That part of the world has already become an important player in grain and meat exports and imports, but what impact will it have in the bio-fuels market? Will the demand for ethanol and bio-diesel in that part of the world equal its need for food, and what does that mean for the Cornbelt farmer who grows both food and fuel? Will Asian markets be consumers or competitors?
Soybeans came from China, but they are a major US customer for soybeans. China produces large volumes of corn, but depending on the year, their exports and imports are felt by the US commodities market. Japan and Korea can turn on and off the US meat economy with the flip of a switch. India and China are major producers of wheat, but sometimes have trouble keeping up with domestic demand. However, the Chinese and Indian economies have not yet been factored into the petroleum market, where the price is established for corn-based ethanol and soy bio-diesel. As the world economy grows and the two most populated nations buy cars and need fuel, Cornbelt farmers will feel the impact according to a report entitled The Future Role of Bio-Fuels in the Asia-Pacific Region by Walt Armbruster of the Farm Foundation and William Coyle of USDA’s Economics Research Service.
In addition to US ethanol and bio-diesel production, China is growing its ethanol industry, Europe is a significant producer of bio-diesel, and Southeast Asia has the resources to produce bio-diesel with all of its palm oil production. The Asian interest in bio-fuels is driven by a need to reduce dependence on foreign oil; reduce greenhouse gases and pollutants because 18 of the world’s 20 most air-polluted cities are in that part of the world; and revitalize the economies of their rural areas.
Needless to say, the future of bio-fuels will be sustained by the need to develop an alternative to the high price of petroleum. The Asian economies see continuing economic growth and subsequent demand for oil that will push prices higher. The sugar feedstock for Brazilian ethanol and unsubsidized corn feedstock for US ethanol have been judged by world economists in 2004 as the only viable bio-fuel alternatives based on oil prices. Although other bio-fuel alternatives are available, their economic viability depends on oil prices being $65 to $145per barrel. One of the benefits of US and Brazilian ethanol production was not only the relative low price of corn and sugar, but the opportunity to market the co-products (DDGS for livestock feed and bagasse for heat production) to further increase the value of ethanol production. Finally, the demand for bio-fuel will be sustained by the development of cellulosic ethanol estimated to be able to replace one-third of US transportation needs. Many of these issues are contingent upon government policies, and Asian economies are no exception.
Environmental issues will be driving the switch to bio-fuels, since the production of greenhouse gases derives from transportation, and the Asian economies will see extensive urbanization in the next 20 years. However, bio-fuel production will have an impact on available farmland say Armbruster and Coyle, “While average crop and bio-fuel yields are improving, bio-fuel production is still a very land-intensive energy source. According to the Organization for Economic Cooperation and Development, the European Union would have to convert 70 percent of its agricultural land area to meet 10 percent of its fuel needs; the United States 30 percent; Canada 36 percent; and Brazil 3 percent.” The study also indicates some significant rural impacts of bio-fuel production, such as providing increased employment in rural areas where fuel plants are built, as well as increasing the cost of the feedstock as has been seen by the US livestock industry.
Asian governments will also need to develop strategies or establish policies related to bio-fuel supply and demand, as all governments have typically been involved with energy and petroleum policies. Armbruster and Coyle say, “Bio-fuels will likely play an expanding but modest role in the energy mix of almost every country in the region but will represent only one element of a broad-based portfolio of policy responses to high oil prices. Other policy elements include promotion of energy conservation, development and promotion of more efficient uses of energy, and expanded production of oil and non-conventional fossil fuels.” They also suggest that Asian economies consider bio-fuel tax incentives to fuel producers, fuel consumers, and more money for research.
Summary:
The global population is not only growing and demanding more food, but the global economy is growing and that implies increased needs for motorfuels, potentially bio-fuels because of increased strain on petroleum supplies and the environment. Ethanol from sugar and starch feedstocks such as sugarcane and corn are currently the most economical, but the growing economies of Asia will have immediate needs beyond the supply of Brazil and the US and may develop a bio-fuel industry from their own feedstocks. In the meantime, costs of many commodities may be influenced by the development of bio-fuels, but the fuels themselves may see more domestic use than sold internationally.
Posted by Stu Ellis at 12:14 AM | Comments (0) | Permalink
March 19, 2007
Livestock Producers And Packers Marry Each Other, But Pre-Nuptual Agreements Are A Necessary Evil
For years, concerns have been expressed about livestock markets being less than transparent, manipulated, and other adjectives that reflect anything but free and open. USDA has studied their structure, both with and without Congressional directives, and producers still express complaints that the declining number of meat packers has a larger control over their price than what they want. The latest study began in 2004 and a final report was just released by USDA’s Grain Inspection, Packers and Stockyards Administration (GIPSA). You can either read the 1200 page report, or read the farm gate version of the findings. If I were you, I would…
The study, among other issues, focused on alternative marketing arrangements (AMA), which include all possible alternatives to use of cash or spot markets for conducting transactions. The GIPSA study was the result of a Congressional directive stemming from complaints that prices offered by packers through AMA’s resulted in reduced income for livestock producers. The questions posed by the Livestock and Meat Marketing Study wanted to know: What types of marketing arrangements are used? What is the extent of their use? Why do firms enter into the various arrangements? What are the terms and characteristics of these arrangements? What are the effects and implications of the arrangements on participants and on the livestock and meat marketing system? The study looked at beef, pork, and lambs between 10/2002 and 3/2005. During that period, livestock producers will know: 1) BSE appeared in the US for the first time, 2) Beef exports were halted, 3) Cattle prices were at record highs 2003-2005, 4) Packers lost money from tight supplies and imported Canadian beef, 5) pork producer returns were negative during the first half of the period then turned positive, 6) hog production reached record levels and demand improved, and 7) lamb prices set record highs during the later part of the study period as the supply declined. It may not have been the best time to study the livestock and meat processing industry, but at least it provided an opportunity to see it from all possible angles.
The USDA survey found 38% of the fed cattle, 89% of finishing hogs, and 44% of lambs are marketed with AMA’s. It includes those animals that are under packer ownership. 5% or less of the beef and lamb was owned by packers, but 20-30% of the hogs were owned by packers. Moderate increases are expected in the use of AMA’s for the lamb industry, but little or no increase is anticipated in AMA’s for pork and beef. The cash market is important for small producers and packers and those reported prices are frequently used as the base in the formula pricing for AMA purchases. The use of AMAs is associated with lower cash market prices, with a much larger effect occurring for finished hogs than for fed cattle. Producers can obtain benefits of risk management, cost management, and quality assurance through AMA’s. Restrictions on the use of AMA’s would result in a negative economic impact on producers, consumers, and the middleman.
Beef and cattle:
Twenty specific findings were listed for the beef and cattle marketing industry. Among them were:
1) Feedlot operators said AMA’s allowed efficiencies of $1-17 per head in cost savings, while packers said they allowed a savings of 40¢ per head in reduced procurement cost.
2) The spot or cash market was used by 78% of small beef packers but only 10% of large packers.
3) While few producers and packers thought AMA’s would change much in the next several years, packers in the west and High Plains use AMA’s much more frequently than packers in the Cornbelt and northeastern US.
4) Prices for fed cattle sold through auction barns tended to be somewhat higher because of price risk and prices for fed cattle sold through forward contracts tended to be somewhat lower because of market access.
5) Producers and packers using AMA’s valued them as a means of dealing with production, market access, and price risk.
6) Individually negotiated pricing was the most common method to determine purchase prices, with 60% of the fed cattle in the Cornbelt and High Plains being sold with that method.
Pork and hogs:
Twelve specific findings were listed for the pork marketing industry. Among them were:
1) AMA’s are an integral part of the pork industry and are not expected to change dramatically. However, their use is more prevalent in the Eastern US, but spot/cash markets are more popular in the Midwest.
2) There are substantial differences in daily hog prices paid by packers on a carcass weight basis, because of region, quality, and plant size.
3) On average, plants that use a combination of marketing arrangements pay lower prices for their hogs relative to plants that use the cash/spot market only.
4) An increase in either contract or packer-owned hog sales decreases the spot market prices or induces the packers to buy the lower priced contract hogs.
5) A higher proportion of AMA use is associated with higher quality pork products.
6) In analyzing the importance of hog producers’ risk aversion for contract choice, the study found that hog producers who use production contracts are more risk averse than producers who use cash/marketing arrangements.
7) If restrictions were placed AMAs in the hog and pork industries hog producers would lose because of the offsetting effects of hogs diverted from AMA’s to the spot market, consumers would lose as wholesale and retail pork prices rise, and packers would gain in the short run but neither gain nor lose in the long run.
Lambs:
Twelve specific findings were listed for the lamb marketing industry. Among them were:
1) Packers procure lambs 42% through formula pricing and 39% through auctions.
2) AMA’s have small effects on lamb pricing and a 10% increase in formula pricing would increase the slaughter price by only 2.5%.
3) Price risk shifting from lamb producers to lamb packers and breakers has not occurred as a result of AMA’s.
4) Restrictions on the use of AMA’s would likely reduce the competitiveness of the lamb industry and may increase concentration of various segments of the lamb industry, but the effect of increased concentration on market power is unknown.
Summary:
Although some producers and producer organizations will take issue with its findings, another USDA study of the marketing practices in the livestock industry has found they have both positives and negatives. Alternative marketing arrangements, which is everything other than the cash/spot market, not only provides constant flow of livestock into a packer, but provides guaranteed market access and risk management opportunities for the producer. The study found that in some cases those marketing arrangements depress market prices and also allow a packer to buy cheaper animals first. The study did reveal that alternative marketing practices vary widely by region of the country and specie of livestock.
Posted by Stu Ellis at 12:08 AM | Comments (0) | Permalink
March 16, 2007
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.
Plans for a large decline in soybean acreage and a large increase in corn acreage is expected to be revealed in USDA’s Prospective Plantings Report to be released on Mar. 30 says IL Extension’s Darrel Good. “If planned acreage of either crop is judged to be too small or too large, the market will have 3 to 4 weeks to try to alter production plans.” Read more.
Darrel Good says last year “The March report revealed intentions to increase soybean acreage by 4.863 mil. and to reduce corn by 3.76 mil. acres. The market judged that to be too large a shift so that prices adjusted. However, the price adjustment was not large enough and did not persist long enough. Soybean planting increased by 3.49 mil. acres and corn plantings declined by 3.452 mil. acres in 2006. If a significant change from intentions is judged to be needed this year, price changes will have to be more decisive.”
If you have 2006 unpriced corn in storage, Extension Specialist Jim Hilker at Michigan State wants you to consider putting a cheap out of the money put under it for 5-16¢/bu. depending on the level of protection you want. He says the market could drop like a rock if the Prospective Planting Report shows 12-13 mil. more acres of corn could be planted. Read Hilker’s analysis.
The late February highs in the corn market will not be exceeded before the Mar. 30 report says Purdue’s Chris Hurt, and he suggests marketing some old and new crop before then. “When ready to price old-crop, be sure to ask about bids for June or July delivery. At some locations, those bids are sufficient to cover storage costs. This is especially true at locations that have an ethanol plant starting in production this spring.” Read more.
The soybean basis will remain depressed, says Chris Hurt, who believes 2006 beans will remain in storage as the new crop is harvested. “This means that new crop prices will have to be higher than August soybean prices. In addition, there are not likely to be any premiums for early delivery soybeans as their will be for corn. Old-crop pricing should be advanced in the next 60 days during the traditional spring pricing window. This is a period to consider pricing 25%-35% of anticipated new crop production.”
Corn planting has started in LA and MS with large shifts from cotton to corn, says Extension’s Mike Woolverton at Kansas St. He says, “Some corn is being planted on rice acres, but it appears that soybean acreage will be the same or increase. High fertilizer prices are not deterring producers from planting corn. Extension specialists are cautioning producers to take care in planting corn because they may not be able to get re-plant seed.”
If a La Nina weather pattern forms, Iowa State’s Elwynn Taylor says yield prospects change. “Under La Nina conditions temperatures tend to be more extreme than usual (increased frost and drought risk). Should La Nina establish before mid-May the risk of severe drought goes from 25% up to 33%; with a 70% chance that the national yield will be below the 148.4 bu/A trend. As of today the chance of an above trend yield is 53%.”
Related to that, Kansas State’s Mike Woolverton says, “The markets will be extra sensitive to weather events during the planting and growth phases this year. Given a warm, dry spring, farmers will plant corn until they run out of seed. That would dampen corn price, but send soybean prices higher. Cold and muddy conditions at planting time could have the opposite effect as farmers plant what corn they can before filling their planters with soybean seed. July, as always, will be a critical month for corn production, and some weather forecasters are predicting hot, dry conditions for the Midwest.”
Woolverton says wheat farmers are comparing wheat and corn prices. “What looks like the best Great Plains wheat crop in years and expanded winter wheat planting around the world in the Northern Hemisphere has put downward pressure on wheat price since the first of the year. Price has been see-sawing sideways recently based on the suspicion that many spring wheat acres will be planted to corn instead and some fall planted wheat may still be shifted to row crops if wheat price moves any lower.” Read his latest newsletter.
How thick will you plant beans? The bigger the plant the fewer we need, and that rule also works for plant size within soybeans. Ohio State’s rule-of-thumb is: best yields are produced with about 100,000 plants 40 inches tall, or about 130,000 plants 30 inches tall, or about 170,000 plants that are 20 inches tall. The typical seeding rates needed to produce those populations are 125,000, 175,000 and 235,000 respectively. Adjust rates up and down, depending on fertility, moisture and tilth. Read more.
If you grow continuous beans, because of poor corn yields, improve your management:
1) Rotate soybean varieties yearly to mitigate disease and SCN-related issues.
2) Rotate your herbicides to avoid the potential for glyphosate resistant weeds.
3) Select varieties based on yield potential, maturity and disease and nematode history.
4) Diversify the soybean genetic pool and plant different maturity groups to ease harvest.
Without SCN, there would have been 123 mil. bu. more soybeans last year, says Allen Wrather at the Univ. of MO. We may not have needed the soybeans, but farmers could have used the $806 mil. lost to SCN. Wrather says March is a great time to collect soil samples for SCN analysis, so farmers can make SCN management plans if necessary. He says the extent of SCN presence determines the number of years to grow alternate crops.
Does your hybrid produce more or less ethanol? Research at the Univ. of KY is just starting, but researchers say as the kernel starch content increased from 70% to 73.5%, the ethanol yield per bushel rose from 2.65 gal. to 2.80 gal. A 190 bu. yield produced over 500 gal. per acre, compared to under 400 gal. per acre for a 140 bu. corn yield.
Missouri economists say ethanol will be worth $1.17 bil to the state’s economy when production reaches 500 mil. gal. in 2008. They said, “That level of production also will support more than 7,700 jobs across the state, generate more than $110 million in taxes, and produce 1.42 mil. tons of distillers grain that could feed more than 1 mil. beef cattle.”
DDGS will become cheaper, says Purdue’s Brian Richert, as more ethanol is produced. “Some estimates show that by the end of 2007, the United States will be producing 10.67 bil. gal. of ethanol leaving 66.7 bil. lbs of DDGS on the market. This increase in ethanol production will possibly make DDGS an affordable and attractive option, especially to beef and dairy producers. One option is to sell the corn and buy back DDGS to use in ration formulations and diet feeds; and also share a load with neighbors to ease handling.
Eastern Cornbelt cattle feeders are more profitable according to Ohio State’s Dan Frobose, who compared cattle market prices and corn market prices during February:
1) A 650 lb. KS steer calf sold for $100.78/cwt, but only $91.78/cwt in Ohio.
2) A KS market steer brought $139.69/cwt, but an Ohio steer brought $148/cwt.
3) Iowa corn on February 27th was $3.78/bu, in Ohio it was $3.98/bu, a 20¢ spread.
4) Even with $13/head more in corn costs, the Eastern feeder netted $108/head more.
Think again, if you thought the cold spell killed insects. Missouri Extension’s Chris Starbuck says, “Springtails can quickly empty their gut systems to avoid freezing injury. Some insect species accumulate antifreeze compounds in their bodies like glycerol, manitol or ethylene glycol. Other species lower the freezing point of water in their cells by producing thermal hysterisis proteins. Still other species can move water into extra cellular spaces where it freezes without causing harm.” Eggs are least affected by cold.
No-tillers wanting the benefits of tillage, if you are planting corn after corn, should consider Purdue’s suggestion of strip-tilling to avoid a 15% no-till yield penalty.
1) Plant 5 in. from the old corn row for uniform depth and seed-soil contact.
2) Run shallow strip tillage in the spring to avoid working wet soil.
3) Avoid strip tillage uphill and downhill on slopes greater than 3 percent.
4) Or use a fluffing harrow to till 1-2 in. deep and mix a little soil with crop residue.
The US House Transportation Committee approved the WRDA bill which authorizes the Corps of Engineers to construct 7 new 1,200 ft. locks on the Upper Mississippi River System and create a major ecosystem restoration program. The $3.6 bil. project was close to approval in the last Congress and is expected to see full consideration soon.
In other Congressional news: 1) $3.7 bil. in general ag disaster aid was approved by the House Appropriations Committee and attached it to an Iraq war funding bill. 2) Senate Budget Chair Conrad said the 2007 Farm Bill will be funded $15 bil. more than the Cong. Budget Office wants, but $5 bil. under that sought by the Sen Ag Comte. 3) Sen. Harkin has called for a national ethanol pipeline network built on Interstate ROW.
Most importantly, those of us who eat salute those of you who produce our food, as this nation observes National Agriculture Day on March 21. We humbly express our thanks.
Posted by Stu Ellis at 12:05 AM | Comments (0) | Permalink
March 15, 2007
Are You Booking More Or Less Roundup This Year?
For 2007 your decision is more corn. That is a given. But for 2007 is your decision more Roundup Ready corn? Chances are, the percent of acres immune to glyphosate will edge upward. Some farmers will go full bore with it because of the need to increase efficiency and produce more corn acres in the same amount of time as last year. Other farmers may ease back, concerned about the increasing number of weeds becoming immune to glyphosate, and they will try an herbicide program designed to avoid future problems. Where do you line up, and if undecided, what should you prepare for?
Instead of sampling the Eastern and Western ends of the Cornbelt, let’s travel north and south along the Avenue of the Saints (Louis & Paul). (Alright, from Missouri to Minnesota, for those of you who don’t get out much.) University of Missouri weed specialist Kevin Bradley reported in a winter newsletter, “Missouri is the first and only state where three glyphosate-resistant weeds— tall water hemp, common ragweed, and horseweed, have been identified. Bradley said Missouri holds this dubious honor because of the large number of acres planted to continuous soybean, 99% of which use a glyphosate system for weed control.” With some of those acres being switched to corn this year, there will be an instant problem with controlling weeds in Roundup Ready corn.
In the March 16 Missouri Integrated Pest Management newsletter, Bradley suggests 2006 corn in Missouri was only 21% Roundup Ready, much less than neighboring states where as much as half of the crop in glyphosate resistant, “Five years from now, I’ve heard some predictions that we will be planting 75 percent or more of the corn acreage in the United States with Roundup Ready© or other glyphosate-tolerant varieties.” But for 2007, Bradley says glyphosate practices cannot continue as they have, if you are embarking on continuous corn. “Why? Because the research clearly indicates that corn is much more susceptible to early season yield loss than soybeans, and that we can’t stand to wait to remove the weeds until they are 6-inches or more tall. By this time, significant corn yield losses will already have occurred.” He is pushing a pre-emergent herbicide program followed by a post emergent program, which can be glyphosate.
Bradley’s recommendation comes from 29 different tests last year with a variety of herbicides. “What I found was that in 19 out of the 29 trials where these comparisons could be made (65 percent of the time), highest corn yields were obtained with a two-pass program consisting of a preemergence herbicide followed by a postemergence herbicide. In 8 out of the 29 trials (28 percent of the time), a one-pass postemergence program that also contained a residual herbicide provided highest corn yields, whereas in 2 out of the 29 trials (7 percent of the time) a one-pass preemergence herbicide program provided highest corn yields.” Bradley says Roundup Ready beans followed by Roundup Ready corn is asking for problems with weeds becoming glyphosate resistant. “The best way to decrease the likelihood of resistant weed development under these scenarios is to break up the cycle with a herbicide that acts at an alternate site of action. One way to accomplish this is to stay with conventional herbicides in a conventional corn-Roundup Ready© soybean rotation. To my knowledge, no glyphosate-resistant weeds have been selected for in this kind of crop rotation and herbicide system.”
Due north, weed specialist Jeffrey Gunsolus at the University of Minnesota has similar concerns, expressed in his research, Ten Years of Roundup Ready - where are we now? He says in the 10 years before 2005, the amount of corn acres with a pre-emergent herbicide application declined from 73% to 49%, while glyphosate acreage climbed from 0% to 49% of corn acres. And Gonsolus adds, “One recent trend in soil residual herbicide use in corn is a decrease in acetochlor use rate by 26% over the 2003 to 2005 time period. In both corn and soybean, as glyphosate use increases the use of ALS herbicides dramatically decreases. Glufosinate, though often linked to a Bt-trait has had limited market penetration in the corn market.” Gunsolus joins Bradley and other Cornbelt weed specialists with pleas for diversity in chemical use for corn weed control, “Also, can some chemical diversity (i.e. different modes of action) be retained on the corn acres? Currently (2005 data), 41% corn ground is treated with atrazine (0.5 lbs a.i./A), 24% is treated with a plant growth regulator and 17% is treated with mesotrione (Callisto).
In addition to the diversity of the chemical program, Gunsolus also recommends a pre-emergent and post-emergent system, “Our research has shown that using one-half of the labeled use rate of acetocholor followed by a V2-V5 application of glyphosate is as effective as a two-pass postemergence treatment of glyphosate with less risk of yield loss due to a late initial application of glyphosate.” Just like Missouri, a fair piece to the south, the most difficult Minnesota weeds to control are waterhemp, lambsquarters, and ragweed.
Summary:
Regardless of where you farm in the Cornbelt, weeds are becoming more and more resistant to glyphosate, but that has been our chemical of choice, and in 2007 Roundup Ready corn will be planted on 2006 Roundup Ready soybean stubble. Weed specialists are increasingly recommending a pre-emergent herbicide program that will help interrupt the life cycle of weeds that are becoming glyphosate resistant.
Posted by Stu Ellis at 12:06 AM | Comments (0) | Permalink
March 14, 2007
Bio-fuels Notwithstanding, Farm Exports Are Still Making Headlines
With all of the attention focused on the domestic refining of corn by the ethanol industry, has the export market for farm products withered away? Not really, based on a presentation that opened the recent USDA Outlook Conference. The bottom line is that commodity exports are increasing, the expansion of trade is a priority, and farm income will be bolstered by grain and livestock that make their way around the world. This is quite a story.
At the beginning of the Outlook Conference, possibly to underscore the importance of the international market, Deputy Undersecretary Ellen Terpstra said there have been four successive years of increased farm exports with the annual value near the $80 billion mark.
Let’s take a quick look at some of the facts that were presented.
• NAFTA’s importance has grown with the fact Canada and Mexico are the largest customers of US food products.
• Chinese demand for US food has surpassed the EU for third place, and the $6.6 billion worth of business will increase $2 billion in 2007.
• The FY 2006 export business of $68 billion will grow to $95 billion by 2016 with the help of global demand for bio-fuels; significantly improving the outlook for the US farm sector.
• By 2020 the size of the middle class throughout the world is expected to double to almost 1 billion households with 87 percent of that growth coming from developing countries, particularly China and India.
Trade Negotiations
• The average tariff charged by foreign nations on imports is 62%, compared to 12% for products imported into the US. Such a barrier adds to the cost of doing business and hinders trade, which is the purpose of the World Trade Organization negotiations.
• The Brazilian complaint against the US cotton subsidy program is in a final stage, and if the US loses its last appeal, then the WTO will determine how much money the US will have to compensate Brazil.
• The Canadian complaint against the US feed grains program is in an initial stage, but 8 other nations have joined in the complaint.
Free Trade Agreements
• In the past decade since NAFTA has been in place there has been a $17 billion increase in US products sold to Mexico and Canada, which will buy $25 billion in 2007, or 1/3 of US farm exports.
• The Free Trade Agreement is still being negotiated with Korea, which is the 6th largest US market, but imposes an average tariff of 50% on products imported from the US.
• As trade agreements are reached, some countries impose health and sanitary restrictions on US products, such as pointing at the BSE issue and halting imports to circumvent free trade rules.
2007 Priorities
• USDA is offering a $20 million grant to help work out solutions to those health and sanitary issues.
• Funding for technical assistance to specialty crops.
• The US will try to gain more seats on the international committees that oversee trade issues. Currently the EU has 83% of the positions and the US has 1%.
Summary:
Even though ethanol gets the headlines, US farm exports are certain “the rest of the story.” Based on projects offered at the USDA’s Outlook Conference, exports are in the fourth consecutive year of growth, USDA has increased its 2007 projections twice in the past four months, and exports which are near $80 billion will push toward $100 billion in the coming decade. The expansion is being fueled by the demand for US food commodities and for bio-fuels. The continuation of trade negotiations, both within the WTO and bi-laterally, is a priority for reduction of tariffs that make US products more expensive and reduce their demand abroad.
Posted by Stu Ellis at 12:09 AM | Comments (0) | Permalink
March 13, 2007
Preventive Insect Control on Field Crops
Some soils spent the winter saturated and frozen. Other soils overwintered as dry and relatively warm. As spring begins to bloom with 60 degree temperatures across the Cornbelt, soil temperatures will begin to rise and give life to many creatures that are hungry for the seed corn and seed beans that you will soon bury to their benefit. And that makes you think, should a seed treatment or insecticide be applied as a form of germination insurance? Let’s ask the bug boys to see how they would plant your crops.
The latest issue (March 6) of the Crop Observation and Recommendation Network newsletter published by Ohio State University, focuses on several planting considerations for 2007 crops, among them the need for preventative insect controls. Entomologists Ron Hammond and Bruce Eisley offer their perspective on several pests that can be anticipated this year.
Corn Rootworm
A preventative treatment is recommend when planting corn on corn, and with all of the additional corn acreage expected this year, there will be more need for corn rootworm control. That can come either with a transgenic hybrid, a soil insecticide, or a high rate seed treatment if there is low to moderate pressure from rootworms. They leave the decision up to you, based on the needs of your farm. However, some preventative is even recommended for first year corn if your territory has been host to the variant rootworms that lay eggs in bean fields preparing for next year’s corn crop.
European corn borer
Preparation for corn borer is best done by scouting and use of insecticides where they have been found, or the use of a transgenic hybrid that will control them. The decision for use should be based on your history and how well they have been controlled in the past. In many areas of the Cornbelt, the corn borer is not increasing its prevalence, so a judicious decision may save money. The Ohio State entomologists recommend the use of a transgenic hybrid over an insecticide, if there is a definite need.
Flea beetles and Stewart’s Wilt
Some hybrids are susceptible to Stewart’s Wilt, which is spread by flea beetles. The first precaution is to know what you are planting and its potential for the fungus. If you are planting a susceptible hybrid, the entomology specialists recommend a commercially-applied seed treatment. However, a producer-applied product is also available in case you have already taken delivery of your seed. The survival of the flea beetles is temperature-dependent, and many areas of the Cornbelt will have varying survival rates because of the warm early winter and the cold late winter. The Ohio State bug folks say this year will be hard to predict.
Seedcorn maggots, grubs, & wireworms
Seed treatments are recommended, not as a “just in case” preventative, but as an “I’ve had them before” preventative. Where these pests have previously caused problems, then preventative measures should be taken. An unfortunate situation is that it is hard to determine for certain if there will be a problem from one year to the next. The only situation where a preventative seed treatment is highly recommended is where corn is being planted where a high concentration of green organic matter is being plowed under in preparation for the corn. That seems to give rise to higher numbers of seed corn maggots.
Soybean aphids
Based on overwintering populations, high numbers of soybean aphids are anticipated in 2007, but entomologists are not recommending any type of soybean seed treatment for aphids. It is an insect that may appear in some fields and not in others and scouting and foliar spray treatments are more recommended than any preventative seed treatment.
Bean leaf beetles
While aphids appear later, bean leaf beetles appear earlier in the season. Their injury is focused on where they exist in high numbers, and that will not be known until scouting is accomplished. Seed treatments may control early bean leaf beetles, but not the later appearing ones which can only be controlled with foliar sprays. On the other hand, producers of soybean seed and food grade beans may want to consider closer control because of the beetle’s ability to carry bean pod mottle virus. The Ohio State entomologists suggest a couple sprays during the season to control as many of the beetles as possible.
Summary:
Insects attack crops at different times, if they attack at all. That is why you will not hear a blanket recommendation for seed treatments and soil insecticides at planting time. Entomologists prefer to have scouting completed first to determine the extent of the insect population and its potential damage. In many cases transgenic hybrids are preferred over insecticides. The primary recommendation for a preventative measure is for corn rootworm, where problems have occurred in fields in the past.
Posted by Stu Ellis at 12:24 AM | Comments (0) | Permalink
March 12, 2007
What Is A Cowboy To Do?
Would an American consumer pay $50 for a chicken with a serial number? Most probably would not, even though the supply of French “Label Rouge” chickens is insufficient to meet the demand and French consumers don’t blink an eye at the price. Would an American consumer pay $50 per pound for a steak? Most probably would not, even though the supply of Japanese Kobe beef is insufficient to meet the demand and Japanese consumers gobble it up. Consumers bought one million servings of US beef from a Japanese restaurant chain within 10 hours after beef shipments resumed last July, and grocery meat cases cannot get enough US beef to meet the demand. However, our sales of beef to Japan are minimal. What’s wrong with this picture?
The Japanese ban on US beef began in late 2003, when a Canadian cow wandered into a beef processing plant, after making a three week stop in a Washington State feedlot, and the cow was found to have BSE when it was slaughtered. Poor cow and poor cowboys. There was no smoking gun, but there was enough manure on our boots to find the US beef industry guilty and the penalty has been paid by everyone in the beef production chain. Other Asian markets closed their gates on US beef and exports dried up like a West Texas creekbed in August. But when there is consumer demand and a supply to meet that consumer demand, what is a cowboy to do?
In a study by Roxanne Clemens, published in the Iowa Ag Review, entitled, After the Ban: U.S. Beef Exports to Japan Lag Demand, Clemens indicates, “Importers were expressing frustration that they were unable to obtain enough U.S. beef to meet demand, even at the very low volumes needed for a slowly expanding, very cautious market.” The consumer demand for US beef was a bit surprising, since surveys indicated consumer reluctance toward purchasing the product because of questions about food safety and the lack of a verification system that could track the product from animal to consumer. Such a system is used for Kobe beef (and is the basis for the “Label Rouge” poultry) and the Japanese consumers were expected to look for it. Clemens says the survey data and the media castigation of US beef led marketers to stock very little US beef and the detailed inspection, shipment, and delivery system had not been ready for volume demand. In the four months following the lifting of the ban, the meat from about 30,000 animals was all that was in the pipeline to feed a population of 127 million people. Roughly calculated, that is 1/100 of a pound per person.
Japanese restrictions only permit the importation of meat from livestock under 20 months of age. Beef producers can certify age of their livestock “in a USDA-approved Quality System Assessment (QSA) program or Process Verified Program, or cattle can be determined to be A40 physiological maturity or younger through an official USDA evaluation using the U.S. Standards for Carcass Beef and the description of maturity characteristics within A maturity.” What is the live age of the animals providing the meat found typically in a grocery store? Clemens says surveys have found the average age is 16-17 months, and 97% are under 20 months. However, only 5% of the animals have the QSA certification, meaning 95% could be shipped to meet the Japanese demand but are not eligible. Additionally, some processing plants approved for export to Japan were not shipping beef there and some meat eligible for export was not being shipped. Clemens says, “Industry experts estimated that around 3 percent of U.S. beef could potentially qualify for export to Japan when U.S. beef was allowed re-entry into Japan in July 2006. Thus, although the United States is producing vast quantities of the age and type of beef demanded by the Japanese market, Japanese importers have been unable to source enough eligible beef.”
Economist Clemens says the age of cattle entering the slaughter process will not change much, but their eligibility to enter the high value export channel can increase with the participation by livestock producers in the age verification program. The Japanese government says it will not consider increasing the age restriction, but will conduct audits of the present system to determine its performance, and that process could take some time. The Japanese companies which import US beef find consumers uninterested in commodity beef that only meets the age standard, but quite interested in the beef that has a traceable history. And restrictions that limit export to certain cuts of beef will only allow increased export volume if the number of eligible cattle can be increased.
What is included in the identification system? Clemens says each animal at birth is double-tagged with a 10-digit identification number. “The ID number can be used to view production information via the Internet at any time during the animal’s life and is labeled on meat sold in supermarkets. Using the number, producers and consumers can obtain such information as the animal’s birth date, sex, breed, place of birth, calf producer’s name, dates of movements to different facilities, and harvest date. Cellular phones with Internet access capabilities have increased the accessibility of the database because a computer is no longer required to view the data.” Subsequently, a Japanese consumer, wanting a prime cut of beef, can enter the tag number in a cell phone and instantly know the history of that animal, and is more willing to pay a premium value for that piece of meat.
Summary:
Although Japanese consumers are willing to pay premium prices for US beef, the supply just does not exist in Japanese markets because of restrictions that limit imported meat to age and type of cut. US meat packing plants could fill more orders for the meat, and potentially bid up market prices, if there was a larger availability of animals that were registered into a USDA age verification program. Such a program permits the tracking of a piece of meat back to a specific herd, satisfying Japanese consumer desires for information about the history of the animal.
Posted by Stu Ellis at 12:42 AM | Comments (0) | Permalink
March 9, 2007
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.
A winter enigma has been the strength of exports despite high prices. Iowa State economist Bob Wisner says for corn, the increase reflects reduced availability of feed wheat and sharply reduced corn production in the So. Hemisphere last spring. For beans, it reflects less concern about bird flu than last season, good Asian demand, and strong demand for vegetable oils to support Europe’s aggressive bio-diesel fuel program.
For the grain markets, Wisner says the key unknown is whether current corn prices are enough higher than soybean prices to get the needed large increase in corn plantings. He expects prices for both corn and soybeans to make at least one or two upward moves between now and mid-April to insure that needed acreage shifts will occur. Wisner thinks corn prices will be stronger if the USDA March 30 report forecasts less than a 9 mil. acre increase, and stronger bean prices if the acreage decreases more than 7 mil. acres.
Can the corn market weaken? Wisner says weaker prices this fall could easily occur:
1) The grain industry will struggle to handle and dry 12-16% more corn than usual.
2) Storage capacity will be needed by at least 2-3% more than the 2006 crop.
3) Reduced carryover stocks will offset a substantial part of increased production.
$4.06 & $8.09 Guaranteed! Those are the spring price guarantees for producers signing up for revenue-based crop insurance products. The prices represent the February average closing prices of Dec corn and Nov bean contracts, and will be the indemnity prices paid by the crop insurance program if your revenue does not match those levels. Mar. 15 is the sign-up deadline. Review the details.
Iowa State weathermeister Elwynn Taylor says 140 bu./A is the most likely yield if we are into a La Nina by the end of May, but the prospects rise to 158 bu./A if we are back into an El Nino by the end of May. He says there is a 50/50 chance of hitting those yields along with a 12% chance of a 163 bu/A yield and a 25% chance of 134 bu/A yield.
FAPRI economists believe corn acreage this year will increase 8.4 mil. acres and reach nearly 90 mil. acres by 2008, and in the long term, corn prices will be above $3 each year for the next ten years. The price is demand driven and FAPRI calculates ethanol will consume 4 bil. bu. by 2009. As corn prices stay high, livestock production declines, even for poultry which reacts to high corn prices with a 50% cut in the annual growth rate.
The ethanol engine may be powering a significant change in cattle feedlots. Nebraska economist Darrell Mark says the Feb. Cattle on Feed report reflected a change northward for the largest feedlot inventories. While winter storms hit the southern plains hard, there is also a 50¢ higher cost for corn in TX than in NE, and less expensive DDGS are more plentiful to feedlots in the northern plains which are closer to Cornbelt ethanol plants.
Hog prices so far this year have been somewhat higher than had been anticipated says Purdue’s Chris Hurt. “Using actual cash prices so far this year and lean hog futures prices on March 2 for the rest of the year (adjusted for historical basis), the expected yearly price is $50.37.” He attributed the price strength in part to exports being up 15% in the last quarter of 2006, helped by the weakness in the US dollar and weak imports.
Pork production costs are high says Hurt, who estimated costs for the first through fourth quarters, at: $49.00, $50.25, $ 51.25, and $49.75, respectively. “If current futures markets are correct and live hog prices also average near $50 per live hundredweight, then producers will escape a potential bombshell with a nearly breakeven year,” he says.
For those willing to take some added price risk, Purdue economist Chris Hurt says buying a portion of corn and meal futures now and then waiting until early May to price lean hog futures would play more favorably to the seasonal price patterns and might enable producers to pick up about $1 to $2 per hundredweight of profits for 2007.
If you are feeding DDGS, rather than corn and soybean meal, what is your savings, if any? Ohio State economist Brian Roe has been tracking the price relationships as they dance with each other, and says the current cost savings is among the highest seen in the past 8 years. By substituting 1 ton of DDGS for 31.8 bu. of corn and 190 lbs. of soybean meal, a livestock feeder would save $19.63. Spoilage and transportation are not included.
Manure is worth its component values when and where it is applied say Iowa State specialists. It needs to be sampled and analyzed, then compared to commercial fertilizer. Downside issues include: soil compaction from application, uniformity of the product and application, impact on planting date and increased weed and disease pressure on the crop. Also beware of problems with manure high in phystase, DDG, and synthetic amino acids. Read more.
An alternative to chemical control for pond algae is a strong dose of a blue dye during April. Bright blue water will not hurt the fish but will reduce algae production to levels that are more manageable by reducing light and retarding the ability of the algae to grow. Kill your algae before the water reaches 60 degrees, or decomposition will hurt the fish.
Students and advocates of sustainable agriculture have 6 IL tour opportunities this year:
1) 5/4 Fairbury: heirloom crops, heritage breed animals, conservation, and leek cropping.
2) 6/14 Stewardson: organic vegetables & dent corn, chickens, turkeys, hogs and cattle.
3) 7/30 Farmington: marketing through weekly customized orders via email ordering.
4) 8/17 Elsah: a 150-member Community Supported Agriculture program.
5) 9/14 Dixon Springs: no-till planting, beef cattle research, organic apple production.
6) 10/23 Maple Park: creative agri-tourism with orchards, pumpkin patch, and gift shops.
Details are available. Tour fee is $20.
Posted by Stu Ellis at 1:17 AM | Comments (1) | Permalink
March 8, 2007
The Crystal Ball Is Cloudy, But You Can Sure See What Is Happening Right Now!
Grandpa made the change to mechanization. Dad made the change to hybrid corn and crop protection chemicals. You have made the change to biotech seeds and now the ethanol economy. Is the latter the latest structural change in agriculture? There are some good arguments for that, but whatever it means, a new day has dawned and it has brought new opportunities and new challenges.
The March issue of Iowa State University’s Ag Decision Maker newsletter contains some observations by economist Don Hofstrand, entitled, “Energy agriculture - corn ethanol.” And his comments are ones you’ll want to share with others at the coffee shop, parts store, or on the radio call-in program you listen to each morning.
Hofstrand says the changes are occurring in an industry usually burdened with over supplies of corn, but with the constant talk of shortages, this is a huge paradigm shift for farmers to learn how to benefit from and to address the challenges. However, corn production and ethanol production are still commodity businesses, indicated by low profit margins, in this case for ethanol. Ethanol will continue to expand until the price is driven down to the breakeven point or corn prices are driven up, which is currently the case.
We hit $4 twelve years ago, and corn prices have spiked in 1983 and 1988, but those were all the result of weather-related shortages, and those soon correct themselves. The current market is demand driven and something that has not occurred in recent times. Commodity advisors can compare current markets with past years to make parallels, but there really are no parallels and history will not be of much value in helping us know what to expect.
Corn prices are spilling into other commodity markets, bolstering other crops because of the acreage inter-relationship. Corn prices will result in more acres being planted, and those will have to come from soybeans. Soybean prices have risen as a result, and soybeans will nudge out some wheat acres. Wheat prices have risen as a result, and all of this is the result of a finite amount of cropland that can be planted. It is not a restriction on corn acres because genetic improvements have allowed corn to be planted in many new regions, but we are seeing the impact of limits on total available cropland.
Higher corn prices have reduced profitability in livestock production, and Hofstrand says there are concerns that livestock production will be limited in regions where ethanol production has dominated corn prices. Distillers grains can be fed to livestock, but to a limited extent due to the elimination of its energy value for ruminants, and its high fiber content for non-ruminants. Feeding corn to livestock results in more employment than by refining corn in an ethanol plant. If livestock feeders begin to feel dislocated from their source of feed, consider also the fact that soybean processing plant may be further removed from their source of supply, and the same applies to feed mills.
Hofstrand believes that corn production will substantially increase for several reasons:
• Trendline yields are going up, and the rate of increase is faster.
• Improvements in crop genetics will create corn that can yield very well in challenging weather years, as well as in geographies where other crops are typically planted.
• Some of the Conservation Reserve will be converted to cropland.
• Agricultural research will continue to provide better and higher yielding corn
• Drainage improvements in the Cornbelt will help yields.
Land will be the limiting resource, and as a result, higher prices will be bid for both owning land and renting land, issues that will affect the local economies. But the demand for corn will be driven both by food and fuel. Currently, the food supply is stable and does not change very rapidly. The fuel supply is a dynamic, but the price of ethanol is gauged more from the price of oil than the price of corn. Since the energy economy is volatile, that will have an impact on the prices of grains, as well as the price of fuel needed to produce them. How do farmers respond to these challenges? Hofstrand says a successful response is built from a strong risk management program.
Summary:
Not many people are looking at the corn market and thinking de javu, because we are going into uncharted waters with a demand-driven corn market. Ethanol will continue to be produced until its price gets too low, or corn prices get too high. Grain prices have climbed because of a shortage of total cropland, and some crops are being bumped out because of the price of an alternative crop. The outcome will be increased prices for land, both for sale and for cash rent.
Posted by Stu Ellis at 12:10 AM | Comments (1) | Permalink
March 7, 2007
Are You Reserving Your Acreage For Commodity Grain Or Specialty Grains?
Just a year ago many farmers were considering production of a specialty crop to gain an extra 10-30 cents per bushel. Production contracts with a premium above the market would have provided a good return. Production contracts with a set price would have created hard feelings between the producer and the buyer because of the ethanol-driven corn market at delivery time. What are your plans for specialty crop production in 2007, given the opportunity to profit from the delivery of a commodity, rather than the challenges of a preserved identity specialty crop?
Although the fall of 2006 took a substantial turn in grain marketing, the production of specialty crops is expected to increase overtime with the demand of a segmented consumer market: organic, pharmaceuticals, etc. Exploring the dynamics of the identity preserved market is USDA economist Aziz Elbehri in a new study entitled, The Changing Face of the US Grain System.
There is an extensive system that is required to neatly categorize all types of identity preservation into their own pigeonholes. Production requirements will vary from segregating trait-specific crops to organic crops that require specialized production practices. There are also safeguard required for genetically modified crops as well as those bound for pharmaceutical production. Also factored into the mix are purity, quantity, and market acceptability.
In addition to those factors there are also market channels that define specialty crops:
1) Bulk commodities, such as #2 yellow corn and traditional soybeans
2) Channeling, such as white corn, high-oil corn, yellow food grade corn, waxy corn, non-GM corn
3) A closed loop system used for high-oleic soybeans, high-amylose corn, and stacked GM corn
4) Container systems used for blue corn and tofu/clear hilum soybeans
5) Certified systems used for organic corn & soybeans, organic tofu/clear hilum, certified seed
6) Segregation and isolation systems use for high-erucic acid rapeseed, and “anti-hepatitis" corn
Shortly after the systems developed to segregate shipments and preserve their identity that would return a premium to the producer, the world changed and that identity preservation system will soon be used to protect the ultimate consumer, not just reward the producer says USDA, “The current U.S. grain market does not observe full traceability of grains from field to shelf. Nevertheless, the regulatory environment is changing significantly. The U.S. Public Health Security and Bioterrorism Preparedness and Response Act of 2002, the European Union’s traceability and labeling directives beginning in April 2004, and the Biosafety Protocol on Biodiversity starting in 2006 are all inducing agribusinesses, particularly those at the start of the supply chain such as grain elevators and grain warehouses, to track shipments and supplies more than before. These regulations are expected to require that food and feed manufacturers, processors, transporters, and importers keep records of the (immediately previous) source of food, feed, or ingredient being accepted; the transporter who delivered it; the next recipient of the firm’s product; and the transporter delivering it to that recipient. For grain markets, this partial traceability approach can lead back to the food/feed ingredient supplier or a group of elevators/farmers in the event of a food recall.”
Without regard to the costs associated with the potential for a food recall, there are numerous costs associated with production, transportation, and segregation of a specialty crop.
• The main sources of added costs over conventional varieties are seed (including technology fees) and special transportation, handling/drying, storage/segregation, and management. (Farm surveys show that these segregation costs differ widely among specialty grains.)
• For high-oil corn, the largest additional cost is seed, as proprietary seed commands a technology fee, while the ease of testing for oil level makes physical segregation unnecessary.
• For waxy, white, or food-grade corn, IP costs are more substantial for physical segregation (transportation, handling and drying, and storage).
• For specialty soybeans like tofu or seed soybeans, the main additional costs are seed technology fees and transportation.
• IP costs are also affected by whether verification claims are required.