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April 30, 2007
What Is The Value Of The Corn Being Planted?
How much of your corn crop has been forward contracted? 25%? 50%? More? Last year farmers sold early, only to miss out as prices nearly doubled in the fall and winter. If farmer selling practices are like nearly every year in the past, they will have been reluctant to book sales early this year, thinking it will be like last year and they won’t want to miss out on the higher prices next fall. Since most farmers are not particularly adept at outguessing the market, there is probably a lot of corn yet to be sold. However, probably more corn was forward contracted this year than ever before, just because $4 seemed like a good price to sell some. How much of your unsold corn will get booked for $4? $3.50? $3.00?
By the way, what happened to $4 corn? The Titanic-like commodity, seemingly invincible with its ethanol-demand buoyancy, hit the USDA acreage iceberg on March 30th, slipped beneath the $4 waves, and plummeted into the netherworld of $3 values. Not that $3 corn is bad, mind you, but everyone had the chance to taste the expensive stuff and it tasted pretty good. And you want it back.
At the University of Missouri, Outlook Specialist Melvin Brees with the Food and Agriculture Policy Research Institute said the market was comfortable with $3 corn until the January crop report, “The low January carryover estimate was followed by limit up price moves that continued a price rally toward an unusual February high near $4.50 for May 2007 futures prices (old crop) and near $4.30 for the December (new crop) contract.” But prices began to fade, and USDA’s March Planting Intentions report accelerated the trend, “By April 3, May corn futures prices had declined about $1.00 per bushel from the February highs and December futures prices were down about sixty cents.”
“Old crop corn supplies may not be as tight as earlier estimated.” Brees says livestock producers have softened their demand for corn as a result of the high feed prices, adding 125 million bushels back into the supply. That raises the ending stocks to the level of adequacy, subsequently lowering prices. World corn stocks are also tight says Brees, increasing demand for US corn abroad. But with the higher than normal prices, China has found some corn it can sell. Brazil and Argentina have a new crop to sell, and the pressure on US corn exports is easing.
“The market was successful in attracting acres for the 2007 corn crop.”
The healthy prices convinced farmers to plant more acres than the market anticipated, leading to expectations of an abundant supply. Soil moisture is good and the market knows crops suffer more from drought than from too much water. So yields should be at trendline or better, providing adequate supplies without the need for rationing.
“Fund liquidation and negative technical market signals point to lower prices.”In recent years commercial hedgers have yielded their market influence to hedge fund speculators, and in recent weeks they have liquidated some of their long positions in the market. Since more have yet to be liquidated, corn prices remain weak, and the weaker they are the more likely they will sell their remaining holdings. The technical market signals commonly watched are indicating continued weakness in corn prices.
“A number of factors could still push corn prices back above $4.00—maybe well above $4.00.”
If all of the intended acres are planted, there will be a sufficient supply of corn and capable of meeting the demand. However, the supply demand balance will leave little for carryover and that points to potential market volatility in future years. Since we have had a cold, rainy, and slow start to the planting season, there has been a combination of factors that caught the interest of the market:
• Insufficient seed for replanting
• Late planting means pollination during hotter weather.
• Uncertainty about sufficient summer rains.
The strong demand for corn, from ethanol, exports, and livestock, should keep supplies tight, says Brees. We will go through the acreage-bidding process again next winter and spring and any production concerns this year or next will have a price impact.
Summary:
$4 corn came and went, without a guarantee that it will return. Its presence forced some rationing that rebuilt supplies, which in turn convinced traders that supplies would be sufficient for now. But with a close relationship between supply and demand, there is little margin for error, and any increase in the demand or threat to the supply will return the market to the $4 territory.
Posted by Stu Ellis at 12:25 AM | Comments (0) | Permalink
April 27, 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.
The weather is key to the market says Purdue’s Chris Hurt. “Exports are still on a pace to exceed the USDA’s current estimate of 2.25 billion bushels. The U.S. dollar remains weak which encourages foreign buyers. However, feed usage may be revised lower again as the livestock industry continues to make adjustments to the high corn prices. This leaves weather as the large swing factor.” Read his monthly corn market newsletter .
Hurt says small weather problems can result in better prices. “Current price premiums for delivery into June and July are generally more than costs of interest, thus those with on-farm storage should price for later delivery. Holding perhaps 15% to 20% of old-crop inventory into mid-June for the possibility of weather concerns seems prudent this year.”
Purdue’s Chris Hurt says the historic weather odds are 1 in 6 that yields be in the low 140’s, or less, helping December futures to exceed $5.00 in the late summer and fall. But he says odds are also 1 in 6 that yields would exceed 160 bushels. At 160 bushels per acre, December futures price would be expected to drop to perhaps $3.00.
Large stocks and a weak basis make soybean prices vulnerable, says Chris Hurt. July futures could move toward the $6.90 to $7.00 range compared to $7.40. With the current wide basis, this would mean cash prices might drop to $6.30 to $6.50 per bushel. Adding to sales of old crop soybeans would be advised now. Expect large supplies of soybeans to be unsold at the end of this summer. Expect a very weak basis from July through harvest.
Farmers in Lake Iowa or other wet areas with 2-8 in. of rain and 0 to 100% of corn planted have a variety of issues to address say Iowa State agronomists. Corn had not emerged, but with the hard rain creating a crusty soil, it may still not emerge very soon.
If your submerged fields have been planted, Iowa State specialists provide this advice:
1) Smaller seedlings are more vulnerable than larger seedlings, so survival is chancy.
2) Some hybrids will probably respond better than others, but it would be hard to tell.
3) A germinating seed is a living organism and as such requires oxygen to survive.
4) In flooded soil conditions, the oxygen supply will become depleted within 48 hours.
5) Cool air temperatures (less than 77o F) help to increase the possibility of survival.
6) Don’t expect survival of germinating seeds to be greater than that of young plants.
7) When waters recede, confirm plant survival by examining the growing point.
8) The root and shoot should appear white or cream colored. Seeds should hold form.
9) Surviving plants will resume growth within 3 to 5 days after the water recedes.
As of April 15, the US corn crop has a 50/50 chance at 154 BPA says Iowa State weather specialist Elwynn Taylor. The chance of a yield above 163 BPA is 30% and the chance of drought (below 133 BPA) is 20%. The chance of exceeding the trend yield of148.4 BPA is 59%. The estimate considers the above average subsoil moisture in much of the Corn Belt, a statistical risk of widespread drought, the shift from El Nino toward neutral, and sea surface temperatures in the Central and North Pacific and in the Gulf of Mexico. A possibly significant temperature anomaly should be evaluated in late May.
Corn planted in early April is beginning to emerge with the help of some growing degree days, says IL Crop Production Specialist Emerson Nafziger. But he’s concerned about the recently planted corn. “Heavy rains that were falling April 25 and 26 may cause soil crusting in some planted fields, which may prove to be a bigger challenge to emergence than cold temperatures have been.” Rotary hoeing may not be sufficient.
With the anxiety to get corn planted, Nafziger says compaction can become a year-long problem. “At some point it may become necessary to work and plant fields ‘on the wet side’ because the delay in planting corn will cause more yield loss than will poor soil conditions. But we're at least three weeks away from that date in Illinois.”
If your soil is damp, Iowa State ag engineer Mark Hanna says lighten your springs. Wet, plastic soil is easily compacted. Virtually all planters have down pressure springs on closing wheels or discs. Spring pressure should be lighter in wet soil conditions to avoid compacting soil excessively in the seed zone. In wet soils, not as much surface pressure is required to establish seed-soil contact and moisture is readily available for germination. Read more.
Prepare for soybean rust at the official USDA soybean rust website at: www.sbrusa.net IL rust guru Glen Hartman says, “Growers should check the map frequently as the spring season moves along. Rust will not show up out of nowhere. The key will be when the map begins to light up in northern Kentucky and Arkansas and southern Missouri. When that happens, they can take appropriate actions based on their own risk tolerance.”
Black cutworms will be attacking young corn the first two weeks in May, based on intensive collections of moths in traps during the past 10 days. Entomologists say Herculex I corn hybrids are supposed to control them, along with Cruiser 250 and Poncho 250. However, Extension specialists are asking for farmer input on the success of those.
White grubs, which may be larvae of Japanese beetles, are being turned up in spring field work say Extension entomologists. They might create havoc later in the summer, but Japanese beetle larvae will likely not hurt corn seedlings. But if they are white grubs with 3-year life cycles they will feed on corn seedling roots and control is warranted. Check identification.
If bean leaf beetles need to be controlled Iowa State entomologist Marlin Edwards says you have a choice to make: soybean yield can be improved if a seed treatment is used in place of an early-season foliar insecticide applied for bean leaf beetle. In contrast, seed quality was most consistently improved with an early- plus mid-season foliar application (targeting the over-wintered population and first generation). Read his analysis.
Armyworms moths are showing up in the southern reaches of the Cornbelt. Former wheat and grass pastures will be at risk from their larvae, so scouting for armyworms and symptoms of their feeding injury by mid-May should be on everyone's to-do list. No-till corn with grassy weeds or previous grass crops should be scouted for armyworm larvae.
Discard the economic threshold when armyworms begin feeding on freeze-damaged wheat or when weevils attack the freeze-damaged alfalfa. That’s the advice of Kevin Steffey at the Univ. of IL, who says use your experience and adjust decisions about control with insecticides accordingly. You do the same thing for stressed corn and beans.
Cut your fuel bill with changes in your tillage and cultivation practices, says Extension Educator Bob Frazee.
1) One tillage trip should provide adequate leveling of the soil and seedbed preparation.
2) Change to a no-till planting system where field conditions permit.
3) Reduce the depth of tillage if you are using a mulch-till or reduced-till system.
4) Combine pre-plant or pre-emergence herbicides with fertilizer for one trip.
5) Custom applicators offer efficiency in fertilizer and herbicide application.
6) Use post-emergence herbicides for annual grass and broad-leaf weed control.
7) Avoid unnecessary use of the cultivator for weed control.
8) Match field equipment to the appropriate sized tractor and avoid wasting horsepower.
9) General tractor maintenance and correct tire pressure improves fuel efficiency.
10) Examine use of the pick-up truck and avoid unnecessary trips to town.
What herbicides are on your shopping list? If your weeds are not worried, you have a resistance problem says Extension specialist Aaron Hager, who offers these tips:
1) A selection pressure for herbicide-resistant weeds occurs each time the same herbicide is applied to a particular field. (Such as the use Round-up for controlling all weeds.)
2) Rotating herbicides or tank-mixing herbicides may help slow the selection of glyphosate-resistant weeds, but it is unlikely to completely prevent becoming resistant.
3) Stewardship of glyphosate is easy to discuss, but it is more difficult to implement.
How would you score on a weed identification test? Impress your friends and family with your knowledge after consulting a variety of Extension publications featuring weed pictures. (By the way, it will also help in choosing the right chemical for weed control!)
1) Weekly Pest Bulletin
2) Early spring weeds
3) 2007 Pest Management Handbook
If time is short, agronomists say overall depth of NH3 injection was more important in reducing crop injury than was the amount of time between NH3 application and planting.
Posted by Stu Ellis at 1:30 AM | Comments (0) | Permalink
April 26, 2007
What Would A Corn Shortfall Mean This Year?
Every livestock producer is watching the price of corn. So is every ethanol plant manager. And so is every corn grower. The demand-based corn economy we’ve had for the past 8 months has created cost concerns for livestock producers and ethanol plant managers. Much of the concern is based on whether the US will be able to meet the demands of the livestock producer and the ethanol plant. Is it reasonable to expect a crop that will supply the demand, or should we always have “Plan B” in mind? (Whatever Plan B is!)
Most farmers today who climb onto a tractor or put a sharp pencil to paper have never experienced a demand-driven market. After many years of staking off 10-15% of a corn field and planting it in oats, or pledging more land to the Conservation Reserve, or taking the loan price because the market had too much corn, it is difficult to really grasp the meaning of life as it is in today’s farm economy. While some Cornbelt elevators still have corn piles from last year, they are diminishing, and probably by this time next year they will all be gone and elevators will have many empty bins. We won’t be running out of corn, but Miss Supply and Mr. Demand will be dancing closely with each other unlike ever before.
Is it reasonable to always expect a sufficient supply of corn? Iowa State economist Bruce Babcock explores that question in his publication, Corn Shortfalls: Historical Patterns and Expectations. A shortfall is the deviation between actual production and expected levels. Actual production can be measured, but expected level is a bit more ethereal, but Babcock says, “Expected corn production is estimated as the product of U.S. trend yield per harvested acre, U.S. planted acres, and the trend ratio of harvested to planted acres.” He says since 1970 only four crops have fallen short of expectations by more than 20%. And there are fewer crops that have fallen short in the 10-20% range. Most of the shortfall crops have been less than 10% under expectations. 2006 was an anomaly in that trend, since it was a surplus crop, but demand sneaked up and turned it into a shortfall crop.
Despite the efforts of corn breeders to create “drought-proof” hybrids, corn is still subject to yield loss in dry weather. We’ve not had a 1983 or 1988 lately, but dry weather in 2005 in parts of the Cornbelt created many blank ears and cut yields severely. Babcock says as corn is planted outside the fringes of the Cornbelt, the variability of supply will increase.
At this point, farmers have told NASS, and NASS has told the market to expect 90.545 million acres. If 91% of that is harvested, Babcock says the trend yield of 149.4 bushels per acre will produce a 12.3 billion bushel crop. His research indicates a one in 50 chance of that falling below 9 billion bushels, which would equate to a 1988 crop. There is a 12% chance of the crop falling below 11 billion bushels. And he adds, “If the crop does fall short of 11 billion bushels then we should expect corn prices to rise to levels that may cause ethanol plants to shut down. On the other hand, there is a 70% chance that the corn crop will exceed 12 billion bushels, in which case prices will be moderate. Of course if planted acreage falls short of planting intentions, then the odds of high corn prices could grow substantially.”
Summary:
Market prices for corn are currently speculating on whether the 2007 supply will meet the 2008 demand. If acreage needs are not met, then the expected crop will certainly be short of the target. If the yield is not met, then the crop will be short, but just how short will be a function of the efficiency of price rationing. The crop could be short, and in a demand market that will be more serious than in all of the years of recent history in which supply driven markets have established the price.
Posted by Stu Ellis at 12:51 AM | Comments (0) | Permalink
April 25, 2007
Call This Edition Of the farm gate “Failed Wheat Central.”
How is your wheat crop doing after the freeze? How do you evaluate the possibilities? For some there is nothing much that can be done. But if you have an alternative, what decisions need to be made, what actions need to be taken, and what are the risks that need managed? Call this edition of the farm gate “Failed Wheat Central.”
We will look at a variety of issues, including evaluation of the crop for making decisions, how to eliminate the wheat before planting a new crop, whether to use the crop as forage, pest management before and after, and your all important crop insurance decisions. You won’t get every question answered, but follow the links and you’ll discover more than you ever wanted to know.
Has your wheat crop failed?
In a recent crop production newsletter from the University of Illinois, Specialist Emerson Nafziger writes: “In fields that were in Feekes growth stage 8 (flag leaf emergence) or 9 (flag leaf completely out, or early boot), the growing point (developing head) was 6 or more inches above the soil surface. Many plants this size may not have had the majority of their leaf area killed by the freeze, but stems may have frozen below the growing point, and many such plants have "flopped," ending up nearly flat on the ground due to weakened stem tissue. Dead stem tissue beneath the head means that the head is basically cut off from nutrients and water. Such plants may show green color for some time, but there's little chance that they will recover to produce good yields.” Since it has been more than two weeks since the freeze, you should be able to determine the extent of the damage. Most wheat will have had some leaf damage, but new leaves will emerge and expand. Nafziger adds, “If heads are healthy and stems start to elongate, with a majority of leaf area still intact, then the crop should recover. If any of these is missing, then recovery is unlikely. In any case, however, this period of low temperatures will mean a delay in development of the crop, including later heading and harvest. The crop in the most advanced fields was on pace to head early, so the delay may not be serious. But any delay means, on average, warmer temperatures during development. This could be a problem, especially if it rains during the flowering period.”
The crop is not dead, but is it hurt substantially?
Another crop production newsletter written by University of Illinois Extension Specialist Emerson Nafziger offers several intermediate descriptions of wheat damage to help you pinpoint the status of your crop. In the newsletter, he answers a series of questions. Ask the questions about your crop and try to apply the appropriate answer
• Might here be damage to the head even where it was less than 6 inches above the ground and less than an inch long during the freeze and it still looks healthy? Cold weather when wheat is in the boot stage is usually blamed for heads emerging twisted or even bleached and sterile. We hope that heads as small as many were at the time of the freeze will not show such symptoms, but it might help to split some stalks occasionally over the next few weeks to see if heads are developing normally.
• Can plants grow out of lower stem injury caused by freezing? Though some stem function returned after the freeze, the plant is not able to completely repair damage to its "plumbing," and stems are likely to stay more fragile and subject to breakage where they were frozen.
• What about leaf damage? Many leaves that showed only minor darkening during and after the freeze may have recovered some, but unless leaves have a deep green color, they do not have full photosynthetic capacity.
Will winter wheat in the Great Plains be able to fill properly?
Specialists at the University of Nebraska, in their April 20 newsletter, say, “A major factor in winter wheat yields is the length of the filling period. The longer the filling period, the better the yields. Temperatures above 85°F shorten the filling period and decrease yields. We might estimate a field has 25% freeze injury, but if we have a long cool filling period, we still could have some of our best winter wheat yields. Likewise if we again estimate that the field has 25% freeze injury and the filling period is short with hot weather, yields may be even less than 50% of normal. Freeze injury does delay the onset of winter wheat filling so injured winter wheat yields can be reduced if the weather is hot at the filling stage. Early freeze injury is difficult to evaluate unless it kills the plant. Therefore, growers should be cautious about estimating yield loss as a result of the freezing conditions in early April. Winter wheat is a crop well adapted to the vicissitudes of Nebraska weather and should not be counted out prematurely.”
Should I be filing a crop insurance claim?
Before you destroy it, feed it, or do anything but harvest it, your crop insurance agent needs to know about it, if your wheat crop was insured. This year may be a watershed year in the development of federal rules for crop insurance on wheat, since just about every rule will be tested. Extension Farm Management Specialist Gary Schnitkey at the University of Illinois has provided a comprehensive look at what wheat growers should be doing and what their policies will allow them to do in the wake of the early April freeze. He says if the wheat was not insured, it can certainly be converted to other acreage if warranted. Someone who had signed up for crop insurance on corn can add that former wheat ground to the corn policy for coverage. If your wheat acres were insured an adjuster will want to see some test strips left in the field to later calculate an indemnity payment. On your insured wheat that is being destroyed, you will have the choice of an indemnity payment on the wheat, or insuring the next crop (if you had signed up by the deadline), but you cannot be eligible for insurance on both; and Schnitkey provides an example upon which to base your decisions. For regions with a prevalent practice of double crop soybeans, that soybean crop is eligible for insurance as well as your initial wheat crop. Schnitkey says producers with GRP or GRIP insurance will not have to leave test strips because the indemnity payment is based on the county average. However with many producers expected to destroy wheat in lieu of an alternate crop, the calculations for the indemnity payment will be based on wide variations on planted and harvested acres, and he says destroying wheat acres increases the likelihood and expected amount of GRP and GRIP payments.
Can failed wheat be used as forage?
Forage is a potential use for a failed wheat crop, but with many qualifications. And before any of it is fed to livestock, it needs to be tested for nitrates. At Kansas State, soil fertility specialist David Mengel says the nitrate issue is linked to fertilization, “A very limited number of freeze-damaged wheat samples taken recently have shown high nitrate levels -- 6,000 to 15,000 parts per million (ppm) -- in the forage. The highest values came from fields fertilized shortly before the freeze. Therefore, producers wanting to graze or hay this wheat should test it for nitrates before turning cattle in or cutting for hay. The potential for problems is great.” Nitrate levels higher than 6,000 ppm can potentially be toxic, depending on the situation. Kansas State offers a bulletin on feeding forage from wheat crops that addresses animal health issues.
Extension Livestock Specialist at the University of Illinois Justin Sexten says, “Nitrate toxicity occurs when the animal consumes more nitrate than the rumen microbes can utilize. The rumen microbes reduce nitrate to nitrite which is then converted to ammonia and used by the microbes as a protein source. When the animal consumes forages high in nitrates, excess nitrite is absorbed into the blood and converts hemoglobin into methemoglobin, which restricts the blood's ability to transport oxygen to cells. Animals suffering from nitrate toxicity will exhibit muscle tremors, lack of coordination, and diarrhea. Blood will turn chocolate brown rather than the normal bright red. If symptoms are observed, contact your veterinarian, move the animals to an alternative forage source, and offer grain supplement to speed utilization of the excessive nitrate.” Sexten offers a chart that indicates whether the wheat can be used for forage depending on the percent of nitrate in the dry matter.
How do I eliminate my failed wheat?
Weed Specialist Aaron Hager at the University of Illinois writes in a recent crop production bulletin that before you destroy the wheat to plant a new crop, ensure there is a sufficient interval between application of a wheat herbicide and planting the new crop. That may control what you decide. Any chemical used to kill the wheat should be applied 3-5 days before any tillage operation to allow the wheat to die. Hager offers a number of chemical options to eliminate the wheat prior to planting corn or soybeans.
At the University of Missouri, Weed Specialist Kevin Bradley says the use of Harmony on your wheat will not complicate your transition to another crop, “For the most part, the majority of wheat fields in Missouri are treated with either 2, 4-D or Harmony Extra. As you can see from the table below, if you have treated your wheat crop with either of these herbicides, carryover to corn or soybeans should not be much of a concern. One caveat to this statement is that the previous Harmony Extra label had a 45 day requirement between application and planting of corn or soybeans. Recently, a new supplemental label for burndown use of Harmony Extra in corn or soybeans has been approved which allows for an interval of 14 days between application of this herbicide and planting.” Bradley also provides numerous suggestions for chemical eradication of the wheat prior to tillage.
If you have used a variety of other wheat herbicides, the University of Kentucky provides a list of those with their appropriate intervals for planting corn or soybeans. Some chemicals will not allow another crop to be planted this season.
My wheat is salvageable, but where did the aphids come from?
Disabled by a freeze and limping toward harvest and now your wheat is besieged by aphids. Purdue entomologists John Obermeyer, Christian Krupke, and Larry Bledsoe say the aphids have probably always been in your wheat, but you never had a reason to look for them. They don’t believe the aphids will contribute to further yield losses, nor spread barley yellow dwarf virus. So they say there is little justification for an insecticide application right now. However, scout for the aphids as the wheat heads fill, because 50 or more aphids per head is the threshold for an insecticide treatment. They believe that natural aphid predators may keep the population down without your help.
Will the transition out of wheat bring more insect problems?
Your wheat crop has been home to many insects for the past several months that have appreciated the food supply. Their population and growth stage will probably cause problems as you kill the till the wheat and then plant corn and soybeans which will be quite vulnerable. Entomologists Kevin Steffey and Mike Gray at the University of Illinois believe there is an increased chance for wireworm damage to corn following failed wheat. And they warn users of Bt hybrids that the low level of seed treatment may be insufficient to ward off the wireworms, “Although Bt seed is treated with a low rate of a neonicotinoid insecticide (Poncho 250 or Cruiser Extreme 250), there are concerns that these systemic seed treatments may not afford the desired level of protection against economic infestations of wireworms. Because efficacy data collected from intense wireworm infestations are not plentiful, producers are urged to consider the full spectrum of control choices for this insect pest. An in-furrow application of a granular soil insecticide has been considered the traditional management tactic for heavy infestations of wireworms.”
Summary:
Farming always presents a challenge, and the April freeze will challenge many wheat growers to make hard decisions on whether to stick with their crop and harvest a less than typical yield, or convert the wheat ground to another crop and face new challenges. The ability to make wise decisions is based on good information and how you apply that information which the Extension Specialists have offered in the wake of the freeze. The crop may still be used for a livestock forage, but only if nitrate levels are low. Elimination of the crop will generate challenges on controlling it with herbicides and tillage prior to planting a row crop. Herbicide carryover from wheat to the new crop is a concern for some, as will be a new crop insect pests. Before any action is taken on your failed wheat, your crop insurance agent should be notified, if the wheat was insured.
Posted by Stu Ellis at 12:17 AM | Comments (0) | Permalink
April 24, 2007
Is There A Profit In The Future Of The Beef Industry?
The price of corn. The cost of calves. The near record amount of cattle in feedlots. That is a deadly combination for cowboys out to make a profit. However that is reality. But like all reality TV shows, scenarios change, and will there be a change in store for the beef industry?
Whether it is writing on the wall or the picture in the crystal ball, it is clear that future beef profits will be dependent upon a production cutback. The April 1 feedlot numbers were the second highest ever for April at 11.6 million head, and trucks were unloading calves into feedlots during March at a 7% rate over 2006 volume. But the unusual element is the fact the beef economy is currently marching to two different drummers, says Iowa State livestock economist Shane Ellis, “Historic trends usually suggest that high feed costs lead to lower feeder cattle prices. However, even though the price of corn is over 60 percent above a year ago feeder cattle prices are at and above prices of a year ago. There appear to be two forces supporting the feeder cattle market. First is the cash price of fed cattle prices which have been around a $100/cwt in the resent weeks. Second is the availability of feeder cattle. The January Cattle report suggests that in the next year there may be a tighter supply of domestically raised beef calves.”
The increased number of placements during March may be a phenomenon attributable to corn prices, suggests Purdue’s Chris Hurt, “The data for March show that placements of calves weighing over 700 pounds were up 11 percent. In addition, lower corn prices may have helped stimulate March placements. May corn futures, for example, dropped $.61 per bushel in March, although $.20 came on the last day of the month. Of equal importance was the strength of live cattle futures. August futures were as low as $88 in early February, but rallied to highs above $95 in March.”
That helps make ends meet for the livestock producer, but in the long term, the current environment has to change says Hurt, and he believes that it is. The high number of cows headed to slaughter and the high number of heifers in feedlots both indicate the size of the breeding herd is being reduced. And he says a reduction in the breeding herd will be necessary if the industry is to be profitable. “Maybe more importantly for the cattle industry is the prospect for a smaller cow herd being reported in the July 20 Cattle inventory update. The way for the brood cow sector to recover from high feed prices is to reduce the size of the cow herd thereby reducing the level of beef production by 2009. In this manner, higher feed costs will eventually be passed to beef consumers.”
Another element helping profitability is the balance of trade in beef. Glenn Grimes and Ron Plain, livestock economists at the University of Missouri say beef imports are down while exports are up, “Beef exports in January and February of 2007 were up 23.8% from a year earlier. Exports of beef during these two months were up sharply in percent to Japan and Taiwan because their borders were still closed to beef last year because of BSE. Our exports for these two months were up to Canada by 21%, down to Mexico by 5.3%, up in the Caribbean by 22.8% and other up 138.7%. Beef imports for January and February were down by 7.8% from 12 months earlier. Net beef imports as a percent of production was down from 10.1 in 2006, to 7.7% in 2007. In other words, beef supplies domestically were reduced by about 2.4% in January and February of this year compared to last year.”
Another dynamic in the beef industry is the transition of the market from the southwest to the North Central states. Dillon Feuz at Utah State University compared state production numbers with years past and found, “Feedlots in the north appear to be feeding more cattle relative to last year and relative to the south. South Dakota, Iowa, and Nebraska on feed totals were up 10%, 6%, and 3% respectively. Conversely, Texas, Kansas and Oklahoma on feed totals were down 5%, 4% and 3% respectively. This lends some credence to the “window” surveys that are reporting more cattle being fed where more ethanol plants are being built.”
Hurt at Purdue says beef prices should keep many producers in the black on the coming months, “For the first quarter of 2007, Nebraska finished steers averaged $90.70 per hundred, which was $1.50 higher than the price in the same quarter in 2006. This was an impressive showing given that beef production was up over two percent for the quarter. The number of head coming to market was up four percent, but average weights were nearly two percent lower because of high feed prices.” And Shane Ellis at Iowa State says there is only one factor that is responsible for underpinning the calf market, “It would appear that those holding feeding feeder cattle are not saturating the market which has helped support the feeder cattle market. It would also appear that in the coming year domestic beef feeder cattle supplies will be in slightly lower, adding additional support to the feeder cattle market. This is good news to cow-calf producers. Many would have never expected to have such a long run of high calf prices. They can thank the influence of a strong fed cattle market.”
Summary:
Despite high corn prices, the strong cattle market is helping keep the feeder calf market in a demand mode. While feedlot placements are at near record levels that will have to change if profitability is going to exist. The latest USDA estimates indicate the breeding herd is being trimmed, and that will be necessary for the consumer to keep the industry in the black in the future.
Posted by Stu Ellis at 12:04 AM | Comments (1) | Permalink
April 23, 2007
What Crop Production Issues Will Challenge You In 2007?
2007 has begun with a challenge; first some inverted temperatures have threatened the wheat crop, and lately wet weather has prevented early access to fields for corn planting. But what lessons can we learn from the issues of 2006 that will spill over into 2007? What are the chances for bugs, weeds, disease, and other pests that will require our attention? As Dragnet’s Detective Joe Friday said, “Just the facts, please.”
The University of Illinois convened numerous specialists at the outset of the year to analyze the transition from 2006 agriculture into 2007. The conference proceedings and details of their reports are available. Although some of their references are to Illinois, most of them are applicable to farms in the heart of the Cornbelt.
Climatologist Jim Angel said spring and fall offer no real trends, however warmer temperatures in the winter and more variation in weather patterns in the summer have been noteworthy in the past 20 years. In the past 30-40 years there has been a trend toward more precipitation and fewer period of drought, which he said causes more flooding and more erosion. “Temperatures during spring, summer, and fall show no significant warming. Despite the negative impacts of some recent years, such as the drought of 2005, conditions during the growing season in the later portion of the historical record have been much better than the series of hot, dry summers in the 1930s.” Regarding the latest forecast for the 2007 growing season, Angel’s advice is to keep in touch with the National Weather Service’s Climate Prediction Center, which produces the official forecast for the next month and for 3-month periods for the next 13 months. These are updated twice a month for the 1-month forecast and once a month for the 3-month periods.
Crop Production Specialist Emerson Nafziger says 2006 for the most part was a good production season, but there were some problems appearing at the end of the year, which will be worthy of watching in the 2007 crop.
1) A flurry of reports about unusual plant growth symptoms, in which corn stalks were bent with pith discoloration. While there was no cause found, and most field yielded well, a repeat of the situation will be watched.
2) Corn seedling anthracnose was noted, and both seed treatment insecticides and Bt traits had a positive influence on corn stands.
3) Spotty areas of dry weather confirmed that corn and beans are not drought proof, and it is clear that increasing acreage of continuous corn will present ongoing challenges.
4) There were scattered reports of “short ear syndrome,” aka “beer-can ears.” There is no clear cause of the problem, which can cost up to 100 bushel yield losses.
Weed Specialist Aaron Hager says there are increasing reports of herbicide injury in soybeans where fields were particularly dry. Season carryover of mesotrione-containing products are being increasingly reported, however the wet spring may have helped dissipate the problem for 2007 soybeans. Hager says a two year cycle weed is becoming more of a problem as it moves from highway and railroad right of way to cropland. One such biennial weed species is poison hemlock which has become difficult to control in the spring prior to crop planting. Hager says farmers may want to consider investigating fall application as a possible way to improve overall success. A fall application would be better suited for targeting rosette-stage plants, and higher herbicide rates may provide better control with fewer planting restrictions, compared with lower application rates in the spring. Hager rhetorically asked, “Will total postemergence weed control programs in corn become as common as they are in soybeans today?” Concerned about glyphosate resistance growing among some weed species, Hager says, “This type of program also carries the greatest risk for significant yield loss if weeds are allowed to compete too long or if significant weed populations emerge after the initial glyphosate application and are left uncontrolled.” Although glyphosate is usually a good way to control volunteer corn in soybeans, its efficacy is diminishing. It will certainly not control Roundup – Ready corn, but there are difficulties in controlling volunteer corn that was not a Roundup-Ready variety. And Hager says glyphosate resistance is becoming more common, “Control of common lambsquarters, waterhemp, volunteer corn (described previously), and velvetleaf following postemergence applications of glyphosate could be described as ranging from extremely effective to highly erratic. Weed size, application rate, and myriad other variables almost certainly influenced the level of weed control achieved, but suffice it to say that the efficacy of glyphosate against several weed species has declined.”
Asian soybean rust was quiet until the end of the year, when it was found in Southern Illinois, Northwestern Indiana, and later in Iowa, which causes Integrated Pest Management Specialist Suzanne Bissonnette to remind all farmers about the sentinel plots that are surveyed regularly, and the information network www.sbrusa.net which will help inform producers about the proximity of soybean rust confirmations. Other resources include soybean rust websites:
1. Information on soybean rust, rust management, fungicide
recommendations, and monitoring
2. More information on soybean rust, rust management, fungicide
recommendations, and monitoring
3. Electronic weekly newsletter
4. North Central IPM Center’s soybean rust fact sheets
5. NCR 504 scouting brochure.
6. Characteristics of Fungicides for Field Crops
Soybean producers and scouts should have
1. A field crop scouting guide (Field Crop Scouting Manual, U of I Extension publication number X880d); and • the reprinted and updated soybean disease pocket guide
2. Pocket Guide to Soybean Diseases, U of I Extension publication number C1380).
3. A new and specifically for soybean rust are a disease assessment tool Soybean Rust Assessment Tool, U of I Extension publication number X881;
4. A hand lens for soybean rust scouting endeavors folding pocket magnifier, 20X, U of I Extension item number X882).
Preparation, training, prescreening, and vigilance really did work to detect soybean rust.
Nematologist Terry Niblack says, “2006 was a pretty good year for corn and soybean, with lots of big, beautiful root systems and little evidence of widespread disease. However, those big, beautiful root systems suggest that there was plenty of food for root-feeding nematodes. On average, nematode populations increased enormously in both soybean and corn in 2006. This increase will have an impact on 2007, especially for those who choose not to rotate crops.”
1. 84% of the soybean fields in Illinois are infested with SCN, and more than 75% of those SCN populations already have adapted at some level to the resistant varieties we have available. Soybean producers should make an extra effort to keep an eye on the SCN populations in their fields—and to choose soybean varieties carefully. The Variety Information Program for Soybeans database can be an enormous help in that regard.
2. The shift away from soil insecticides to neonicotinoid seed treatments or to genetically engineered hybrids may allow nematode populations to increase more than they were able when soil insecticide use was more widespread.
3. The increase in no- or minimum-till production allows the build-up of nematode species that are sensitive to soil disturbance.
4. The increase in corn-on-corn production will definitely affect the nematode populations, in a positive way for nematodes but in a negative way for corn production.
5. Lessons from the past show those seasons with good growing conditions contribute to bumper crops of nematodes for the next season. Nematode management should not be at the bottom of the list for production concerns in 2007.
Entomologists Mike Gray and Kevin Steffey say some events in the corn insect world probably seem preordained:
1. The distribution of the variant western corn rootworm probably will continue to expand southward and westward in 2007.
2. The western bean cutworm likely will gain more of a foothold in 2007.
3. Japanese beetles likely will threaten pollination in many areas in 2007, although predicting where is not easy.
The entomologists say the number of tools for insect control available to corn
producers continues to increase, and many producers will continue to use soil-applied insecticides for control of soil-inhabiting insects, especially corn rootworm larvae, and many producers will continue to rely on seed-applied insecticides (e.g., Cruiser, Poncho) for control of subterranean insects. However, the efficacy of seed-applied insecticides against corn rootworm is not reliable, and the efficacy against some secondary insect pests (e.g., black cutworms) was called into question in 2006.
The focus of insect management programs for soybeans in 2007 will justifiably be on soybean aphids, with bean leaf beetles and Japanese beetles also receiving attention.
In fact, with an increasing amount of data indicating that seed-applied insecticides (e.g., Cruiser, Gaucho) effectively control early season bean leaf beetles and delay the onset of heavy infestations of soybean aphids, Gray and Steffey anticipate that more soybean producers will rely on insecticidal seed treatments as part of their overall insect management program. While they are not convinced that the insecticidal seed treatments are cost effective for soybeans, the added insurance against insect injury is attractive to many producers. The continued concern about the occurrence of Asian soybean rust will encourage many producers to scout soybean fields regularly and frequently, an activity that should improve decision making for insect management. However, Gray and Steffey believe there will be some incentives for soybean producers to mix insecticides with either fungicides or herbicides (e.g., Roundup) or both to “control” all pests at once. Under most circumstances, this mixing of pesticides is unnecessary, and the widespread application of so many pesticides could have unintended consequences. They urge carefully planned decisions for anyone assessing the need for any of these pesticides for soybean pest management in 2007.
Summary:
Getting a head start on 2007 corn planting really has not occurred, but if you can get a head start on crop production issues, you might be money ahead. Part of that head start can be defined as a good scouting program. That will help with disease, insect, and weed issues. Rust is an issue that most farmers have little experience in scouting, but a good policy of accessing the latest information is just as good as a good scouting program. While getting a head start on identifying problems is the best way to protect your crop, the way not to proceed is by throwing chemicals at a potential problem that has not yet been diagnosed.
Posted by Stu Ellis at 12:03 AM | Comments (0) | Permalink
April 20, 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. (Revised edition)
Soybean prices have declined since the bullish acreage report, but IL Extension’s Darrel Good says there are two reasons, “These are the decline in the rate of consumption of US soybeans and the much larger soybean production estimates for South America. Domestic use is expected to be negatively impacted by declining livestock feeding margins, while exports will face competition from increased supplies from South America.”
Darrel Good says USDA now projects the South American crop at 4.135 bil. bu., 150 mil. larger than the March forecast and 310 mil. larger than the 2006 record. Production in Brazil is expected to be up almost 11% even though area harvested is down 5.5%. The Argentine crop is expected to be 17% larger, with harvested area up only 4%. That crop will result in much smaller exports of US soybeans through at least September 2007.
Even with the recent decline in prices, Good says, “Soybean prices remain about $1.50 above the level that would have historically been expected by the size of the current surplus. The price strength is coming primarily from soybean oil prices. General strength in vegetable oil prices, particularly palm oil, due to expanding world biodiesel production, along with high crude oil prices account for the strength in soy oil prices.”
If the bean crop lives up to its potential, Outlook Specialist Darrel Good says some further weakness in soybean prices can eventually be expected, particularly in prices for the 2007 crop. November 2007 futures may have risk down to near the $7.20 area.
Iowa State’s Bob Wisner says, “Next week’s crop progress report will be especially important for the corn market. For the last three years, respectively, 18-state corn percentages planted for the comparable week were 25%, 30%, and 37% respectively. With wet fields in many areas and minimal spring fieldwork in the Midwest so far this year, it looks unlikely that progress will be close to these levels by next Monday.”
Wisner thinks only 88 mil. acres of corn will be planted. He says, “If planted and harvested with good yields, it could raise our projected 2008 corn carryover stocks by 200 to 250 mil. bu. or more. That prospect, if it occurs, would add significantly to the down-side price risk for old and new-crop corn, but might add slight upside potential for soybean prices for a few weeks. Excellent weather across the Cornbelt in the next three weeks and rapid planting progress could shift trade expectations toward those prospects.
If the calendar concerns you, IL Extension’s Emerson Nafziger says the highest yield was produced in the last week of April. Corn loses yield at about 1 bushel per day from May 1 to 10, 2 bushels per day from May 10 to 20, and almost 3 bushels per day during the last third of May. With some cooperation from the weather, you’ll make it fine.
Iowa agronomists last week said 4 extra days would be needed to plant Iowa’s extra corn acres. Emerson Nafziger says, “We have planted at more than 5% per day over some 10-day periods in several recent years, and if every field in IL were fit to plant at the same time, we likely could plant at least 75% of the corn crop in a week. He says, “The median number of days IL producers need to plant their entire corn crop is about 5. This might be higher by half a day or so this year because of increased corn acreage.”
If you are uncertain about replanting wheat, you are not alone. Crop production specialist Emerson Nafziger says the persistent cool temperatures have kept wheat recovery very slow, and it is difficult to evaluate whether the wheat will be able to make any kind of an acceptable yield. Read his analysis.
Crop insurance adjusters need to know your plans for any frozen and failed wheat crop, before you replant to another crop or convert to livestock forage. But IL Extension’s Justin Sexten says there are serious concerns that need to be addressed before feeding it:
1) Herbicides used for wheat may not permit grazing of wheat forage prior to maturity.
2) Consider nitrate toxicity as a livestock-related problem with frost-damaged wheat.
3) Producers should have the state laboratory test forages to determine nitrate levels.
4) Harvesting damaged forage as silage or balage is the best option.
If replacing failed wheat with corn, your corn will be covered by crop insurance if you have a corn policy. If your wheat was insured, an adjustor may want test strips left to ascertain lost yield, unless you have GRP or GRIP. For the new crop you can either forego insurance or insure the new crop, but you won’t get a 100% payment on both.
The failed wheat issue this year is a challenge for crop insurance and could result in some policy setting, particularly for GRP and GRIP. IL Extension’s Gary Schnitkey says since the group policies will not require test strips to establish yields, the calculation will be the county average. However, as more fields that are destroyed, the county average falls, but increases the likelihood and expected amount of GRP and GRIP payments.
One of your big replant decisions may be on the availability of seed corn and nitrogen. IL Extension’s Nafziger says the choice of corn hybrids and even companies was already a problem due to the large acreage increase, and the supply will be stretched more thin if many former wheat acres are planted to corn. He says nitrogen will also be in short supply in some areas, but any nitrogen applied to the wheat can become a credit for corn.
A failed wheat field, destined for corn, may also be destined for wireworm damage says Extension entomologist Mike Gray. Even if you use a Bt seedcorn, Gray says the toxin may be insufficient to control wireworm and a full spectrum of control will be needed in heavy populations. Find help.
Posted by Stu Ellis at 2:06 AM | Comments (0) | Permalink
April 19, 2007
What Do Pork Prophets Say About Pork Profits?
$4 corn gave pork producers plenty to worry about. Their primary feed expense had risen 80% in 6 months. The breeding herd had continued to grow in each successive USDA report. Prices were softening and profit margins were growing thinner. About crunch time, the pressure seemed like it might have been easing up. Has it?
There are many factors that interconnect to determine pork profitability; such as marketing weights, the breeding herd, import/export trade, and of course, feed prices. We’ll solicit the thoughts of the Cornbelt pork prophets to get a handle on your pork profits.
Market weight was one of the points covered by Glenn Grimes and Ron Plain at the University of Missouri in their latest newsletter. They say weights have hit the high for the year, with lower weights expected every month until late summer, a trend that will help solidify prices.
Breeding herd numbers are determined, in part, by gilt and sow slaughter, which has not been very high. Grimes and Plain say it continues to run at a level that indicates the probabilities are low that producers are reducing the breeding herd at a very slow rate if at all. In fact, an Iowa/Missouri study found that large producers plan to increase marketings in 2007 and 2009, compared to 2006. Marketing specialist Darrell Mark at Nebraska believes the current pork inventory is closely related to corn prices, “Overall, total inventory was estimated at 61.103 million head, up 1.3%. Despite close to three years of consistent profits, hog producers did not expand as rapidly as they historically have in response to these profits. The moderate growth in recent months was likely due to corn price variability.”
Corn prices have faded from the $4.25 highs at the CBOT in late February, to the current cash prices in the $3.30-$3.50 range. Those prices could further ease with good planting weather, ensuring the acreage will be near the expected 90.454 million. At the University of Nebraska, marketing specialist Darrell Mark strongly urges producers to lock in corn prices as they have faded following the acreage report at the end of March. “The volatility of corn prices throughout the winter and the uncertainty of corn planting intentions ahead of the Prospective Plantings Report likely held breeding herd growth down in recent months. (The) Hogs and Pigs report pegged the hog breeding herd at 6.081 million head, up 0.9% from last year. While that is slightly above the average pre-release trade estimates, it is likely lower than would have resulted if corn prices had been lower and less volatile.” But Mark acknowledges that buying expensive corn is distasteful, “While locking in corn prices at current levels is not attractive by historical standards, it could be profitable for pork producers. Breakevens in the low $60/cwt range (lean weight basis) are possible for producers with modern technology. Importantly, with lean hog futures prices in the mid-$60s to mid-$70s through the remainder of the year, profits could be locked in. To actually have these profits protected, though, protecting against possible corn price increases will be necessary.”
Futures prices for hogs were healthy, despite some negative fundamentals. Grimes and Plain say it was possible to lock in a price between $50 and $51 per cwt live using the futures market for the remainder of the year with average basis. At the University of Nebraska, pork specialist Al Prosch says even the most efficient producers are in jeopardy of lost profits, “Lean hog futures prices are taken from the Chicago Mercantile Exchange. For Nebraska lean hog futures price plus a negative $2.00 basis value is used. Periodically, numbers were revised with current data, and the profitability of Nebraska average producers and the top ten percent of producers were calculated. Average producers had a period of loss in early 2004 when feed prices rose sharply. The top 10 percent of producers were near breakeven. However, this represents only producers who would have had to buy feed on each increment of rising prices. It quickly illustrates the value of cost controls and forward planning and contracting.”
Canadian hogs are still a significant factor in the US pork market and Nebraska pork specialist Mike Brumm says, “In 2006, US producers imported just under 5.9 million feeder pigs from our neighbor to the north. Imports to date this year are running ahead of last year’s record pace.” But exports are strong as well, says Brumm’s colleague Al Prosch at Nebraska, “Pork exports have continued to increase year over year for 15 years. The increase since 2004 has been dramatic. Continuing that performance (exports are off to a strong start in 2007) will be important. January 2007 pork exports were up 17 percent over January 2006.”
Regional issues could play a significant role in the 2007 pork industry. Nebraska’s Darrell Mark notes that corn is being planted in the southeast early and in good soil conditions and southeastern farmers are the only ones planning increases of soybean acreage. Those factors should combine to allow sufficient supplies of low priced corn and bean meal for the pork producers in the Southeastern U.S. Another regional issue is identified by former Nebraska pork specialist Mike Brumm who said there are structural changes underway in Cornbelt pork production. “Iowa and Minnesota are the leading states for importing of feeder pigs as evidenced by the disparity between the breeding herd and kept for finishing inventory expressed as a percentage of the US inventory. These imported pigs come from Canada, Nebraska, Missouri, Oklahoma, North Carolina and lately, Illinois. In the past 3 years, Illinois farrowed more pigs than were finished in the state, with the excess pigs exported out-of-state, most often to Iowa and Minnesota. The shift towards more farrowing than finishing in Illinois is somewhat surprising given the state is the number 2 state in the US for corn and soybean production. The lack of a significant cattle, dairy or poultry industry in Illinois relative to feed grain production suggests that Illinois grain farms rely heavily on exports from Illinois or industrial usage of the feed grains for their market opportunities.”
Profitability is the indicator of success, and Prosch says the pork producer has had a record number of months of profits, “Hogs sold from 2003 through 2006 were sold profitably. This prolonged profitable production cycle has been driven by two factors: Producer restraint in expansion of the breeding is one, and a strong export market is the other. Producers have shown great restraint in breeding herd expansion during the past 3½ years.
Summary:
High corn prices threatened to derail the pork market in the US, but they have come off their highs, and pork weights have slimmed down a bit as well, which helped pork prices. The export trade has remained strong, creating additional disappearance of pork. However, the breeding herd is also strong and growing despite high feed prices. The prudent pork producer will be able to take advantage of the weaker corn market and the strong pork futures market to lock in profitable margins.
Posted by Stu Ellis at 12:25 AM | Comments (0) | Permalink
April 18, 2007
Corn: Do We Feed It Or Do We Burn It?
Corn: Do we feed it or do we burn it? That question is being raised more frequently as the nation becomes concerned that ethanol’s demand for corn will outstrip the availability of corn for food, but more particularly for livestock feed. Iowa is the center of gravity for both ethanol plants and a diverse livestock feeding infrastructure. Outward from Iowa, like ripples on water, the impact will be felt in neighboring states.
Although ethanol is the new kid on the block, the livestock industry is still the heavyweight, consuming about half of our annual corn crop. But with the 10% extra corn acres this year, and the slowdown in livestock feeding due to higher corn prices, that ratio will change in 2007. And that trend will possibly see ethanol and livestock trade places in the next ten years. Iowa State livestock economist John Lawrence says corn typically represents half or more of the feed cost for most meat, milk and egg-producing animals. Rising corn prices are expected to result in reduced supplies and rising prices of all commercial animal agriculture in the United States. There also may be some shifting of meat supplies as cattle are better able to utilize distillers’ grains and solubles (DGS) than hogs or poultry and can gain more weight on pasture to reduce total concentrate feeding.”
With the current feed demand for Iowa livestock, Lawrence says there will be a market for 2.3 million tons of distillers’ grains from 270 million bushels of corn, plus an additional 500 million bushels of corn. But he is quick to temper that estimate, by saying, “These DGS and corn demand estimates will change with inclusion rate in the diet and adoption rates by producers. These decisions will be driven by economics of substitution technology of corn processing that may make the co-product more or less valuable in diets, and management skills of producers.” As every livestock producer knows, DDGS cannot be fed exclusively to any animal, but depending upon price and supply they can be incorporated at optimum levels.
Lawrence urges livestock producers to work with professional nutritionists to balance a ration, looking at the economics of the feeding alternatives, and even the rate of gain for various rations. But most importantly, consider the serious health issues that exist with the use of DDGS:
1) Mycotoxin concentrations can reach problem levels for some livestock — for instance, dairy has zero tolerance for aflaxtoxin.
2) There may be concern in gestation diets. DGS can have high concentration of sulfur and when fed at high inclusion rates may cause problems in cattle rations.
3) Sulfur levels may differ by plant or even batch and some feedlots have high sulfur content in well water resulting in high sulfur intake.
4) Phosphorous is concentrated in DGS and manure and may require more land for manure application if phosphorus is applied at the crop uptake rate.
Feed recommendations for DDGS have been developed in a variety of Land Grant Universities overtime, and with the increased supply and high costs of corn, many feeding trials are still being conducted to refine the rations.
Hogs: University of Minnesota recommendations for maximum inclusion rates for grow-finish and lactation diets are 20%. Kansas State University research showed no change in grow-finish performance fed 10% DDGS in the ration compared to a corn-SBM diet. Lawrence says the currently the more common substitution rate is 10% in a ton of feed or 200 pounds of DDGS and 3 pounds of limestone will replace 160 pounds of corn, 38 pounds of SBM and 5 pounds of DiCal Phosphate. Lawrence says the downside to DDGS in hogs is the potential impact on pork fat quality, making it softer. And he says essential amino acids must be rebalanced in a DDGS ration. Those may be the recommended limits of feeding, but it is not worthwhile to approach those limits pending the cost of distillers’ grains and the cost of corn. Pork producers can utilize a web-based calculator at Iowa State University to evaluate the economics involved.
Beef: In a beef ration, with wet distillers grain (WDG) becomes a more useful product according to Lawrence. WDGS has higher feed value than DDGS in beef rations and higher feed value than corn up to 40-50% of dry matter in the ration. WDGS substitutes for corn and protein supplement. Vitamin and mineral supplementation still is needed, but it already is excess in phosphorus. Maximum inclusion rates are being tested. Iowa State University research found no performance difference at 40% of ration, but may result in reduced marbling and quality grade. Current research is looking at 60% inclusion rate particularly for growing diets. Regarding the economics, Lawrence says, “This example considers a 650 lb. steer calf finished to 1,300 lbs. At current prices of $3/bu corn, $200/ton supplement and $35/ton modified DGS (approximately 50% dry matter), the cost savings per head is $40 and $68 per head when fed at 20% and 40% of the diet, respectively. On the 650 pounds of gain, this is $6.41/cwt and $10.41/cwt reduction in cost of gain. If the corn price increased $.65/bu for the 20% DGS and $1.50/bu for the 40% DGS rations, the resulting rations would have the same feed cost as a ration with no DGS and $3/bu corn.”
Dairy: Lawrence says the dairy operation can use either dry or wet distillers’ grain products. South Dakota State University recommends a maximum of 20% of dry matter in lactating rations. Higher levels may suppress feed intake. DGS can replace most protein supplement if alfalfa and corn silage are both used. Over feeding protein if all forage is alfalfa, under feeding protein if all forage is corn silage. There is potential for use in growing replacement heifers and feeding dry cows.
Poultry: University of Minnesota reports layers and turkeys can be fed diets with 10% DDGS without impacting performance. Higher inclusion rates can be fed if additional energy is provided.
Summary:
While the future of the Cornbelt may be ethanol, the future will also be focused on innovations with livestock feed rations resulting from the availability of distillers’ grains. They may make 10% of the ratio less expensive, but the other 90% may be more expensive. At the same time, livestock producers will have to become more adept at balancing rations to adjust for different qualities of the distillers’ grains.
Posted by Stu Ellis at 2:30 AM | Comments (1) | Permalink
April 17, 2007
USDA Is Moving Faster Toward A Farm Bill Than Congress, But How Will Cornbelt Farmers Be Affected?
The US Department of Agriculture made headlines when Secretary Mike Johanns went to every state to listen to farmers and agribusiness about what should be in the next Farm Bill. Then the USDA made headlines when it proposed some creative elements for the 2007 Farm Bill. And the most recent headlines came when the Secretary announced USDA staff members would be writing the details for a new Farm Bill. With political opposition on the Capitol Hill end of Independence Avenue, what will USDA propose that might be accepted?
The agricultural economists at Purdue University have assembled a series of reports on the impact of USDA’s Farm Bill proposals. Allan Gray and Mike Boehlje analyzed the commodity program elements of the administration plan.
For direct payments, corn rises from the current 28¢ per bushel to 30¢ by the end of the five year term of the legislation. Soybeans increase from the current 44¢ to 50¢, and wheat from 52¢ to 56¢. Additionally, direct payments to beginning farmers would be an additional 20%, with annual budget exposure at $5.8 billion. Gray and Boehlje express some concerns that commodity groups will complain about inequitable treatment; the definitions of “beginning farmer” are unclear; will farmers in marginal areas collect the direct payments without producing a crop; and how will the payment plan impact the land market and cash rent?
Another element to a subsidy plan would establish a national target revenue level, and if the actual national revenue fell below that target level, then a payment would be triggered. What Gray and Boehlje say is that this replacement for the counter-cyclical payment is a move toward a revenue assurance program. However they say that by the time the calculations are complete, farmers would be well into the next year of production and the books will long be closed on the old crop.
A third element is the marketing loan and load deficiency program. The loan level would either be 85% of a five year Olympic price level (discard the high and low years) or the loan levels in the 2002 Farm Bill, whichever is the lesser amount. Additionally, the Posted County Price would be converted from daily to a monthly average, which would determine the rate at which a commodity loan would be repaid, or determine the amount of a loan deficiency payment. Gray and Boehlje say producers would no longer be able to pick the best day to either repay a loan or collect an LDP. Because of that producers would have to re-evaluate marketing plans, since the LDP collection would be more closely tied to the actual sale of the crop. The change would provide a safety net on revenue, but eliminate profiting from market swings.
The proposed payment limit rule tightens up the three entity limit, and makes minor changes in limits:
• The overall $360,000 maximum is unchanged.
• The direct payment limit is raised from $80,000 to $110,000.
• The counter-cyclical or revenue assurance limit is lowered to $110,000 from $130,000.
• The marketing loan or LDP cap would be reduced to $140,000 from $150,000.
• The biggest change is to exclude anyone with an adjusted gross income over $200,000 from receiving any farm program payments.
Gray and Boehlje say the payment limit debate will be geographical, since cotton and rice producers have the most to lose. But they question how the limits will be monitored; whether FSA can police the rules; and how the Cornbelt producer will be affected by the AGI limit in a new era of higher commodity prices.
There are two other elements of the commodity program. The first eliminates commodity program payments for any purchaser of land who used 1031 tax exchange provisions of the IRS code, which is designed to soften the rising land market. The other allows fruit and vegetable production on traditional cropland without losing farm program benefits, a change being forced by the World Trade Organization.
Summary:
As the Farm Bill debate continues, the USDA proposal for new legislation is designed to be more WTO compliant; to target the payments to smaller and mid-size farms and beginning farmers; to provide payments in times of low revenues (price times yield) rather than just low prices; and to provide additional flexibility in the production of fruits and vegetables on base acres. That is the environment being pushed by the new Congress and the World Trade Organization and the USDA has responded in kind. However, the final outcome is a long way off.
Posted by Stu Ellis at 12:51 AM | Comments (0) | Permalink
April 16, 2007
Will The Supply Meet The Demand For US Wheat?
As US wheat growers, millers, and traders await the news on how the wheat crop fared from the winter weather of the past two weeks, there is great uncertainty about the potential for having diminished crops in successive years. With heads beginning to emerge in the midst of February-like weather, Extension crop specialists were warning producers to anticipate cutbacks on yields. While the damage to the wheat crop will not be fully known until harvest, let’s pause for a quick refresher on wheat supply and demand and get a better handle on the impact from the weather.
USDA economists Gary Vocke and Edward Allen have authored the latest wheat outlook, entitled, Rising U.S. Utilization Drops Ending Stocks. They say the total wheat supply for the current marketing year is right at 2.5 billion bushels, and because utilization has climbed to 2.077 billion bushels ending stocks will be declining once again. The higher consumption was attributed to both domestic use and foreign demand. Projected total ending stocks are down 50 million bushels from last month to 422 million bushels, 149 million bushels below 2005/06.
The 2006 crop, reduced by fewer acres and fewer rains, will not contribute much to the total supply, should the 2007 crop also be reduced from the weather. However the acres devoted to the 2007 crop will be 60.3 million, up 3.0 million or 5% from 2006, according to the USDA’s March 30 acreage and planting intentions report:
1) 2007 winter wheat is forecast at 44.5 million acres, 10% above last year.
2) Growers intend to plant 13.8 million acres this year of spring wheat, down 7% from 2006.
3) Area seeded to durum wheat is expected to total 2.0 million acres, up 6% from 2006. Durum planted area in 2006 was the lowest since 1961.
4) Soft white wheat planted area is expected to be 3.8 million acres for 2007, up from 3.7 million acres in 2006. Hard white wheat planted area is expected to be 0.7 million acres for 2007, up from 0.6 million acres in 2006.
But how much of the crop was vulnerable to the wintry weather of the past two weeks. Going into April, the southern wheat was heading out, and warm March temperatures had brought Great Plains wheat out of dormancy. “The Weekly Weather and Crop Bulletin from NASS reported that 6% of the winter wheat crop had advanced to the heading stage, slightly ahead of the 4% reported last year and the 3% average. Heading was well-underway in the southern Great Plains, where the crops in Texas and Oklahoma stood at 16 and 13% headed, respectively. While not yet reaching the heading stage, the crop in Kansas was progressing well-ahead of normal, leaving it vulnerable to the week's sub-freezing temperatures. The effects of the cold snap over much of the eastern two-thirds of the country were reflected in a slight decline in winter wheat condition ratings. Still, 64% of the crop was rated in good to excellent condition, compared with 71% last week and 41% last year.” To gauge crop deterioration, watch for the current week’s USDA Weather and Crop Bulletin after 3 p.m. CDT Monday.
Just as livestock producers saw per capita meat consumption begin to level off after the Atkins diet fell out of favor, flour millers say per capita consumption is falling due to dietary trends toward fewer carbohydrates. “Per capita wheat-flour use for calendar year 2006 is estimated at 133.5 pounds, down 0.6 pounds from a year earlier and down 12.8 pounds from the recent high in 2000.”
Internationally, wheat production is up, helped by record crops in Ethiopia, Morocco, and Mexico. While 2006-07 global production should reach 594.5 million tons, global consumption is forecast at 621 million tons. The shortfall will be covered by surplus stocks, which will be more than 120 million tons. The US share of the world trade will be in the form of 900 million bushels of exported wheat, which exceeded expectations due to relatively high prices. However prices did soften during March and sales increased.
The USDA economists say, “The projected range for the 2006/07 farm price is unchanged at $4.20 to $4.30 per bushel. Producers have marketed most of their 2006 production limiting the effect of further price movements on the weighted season-average farm price.”
Summary:
Last year’s drought shortened wheat crop may be followed by this year’s freeze shortened crop. The impact of the summer-like March and February-like April remains to be seen on the US wheat crop. Ending stocks continue to drop as domestic demand rises along with exports, which increased in March when prices softened. The new crop will have plenty of acreage, reversing a long term downward trend, but the yield and crop quality are unanswered questions.
Posted by Stu Ellis at 12:32 AM | Comments (0) | Permalink
April 13, 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.
USDA’s Supply Demand report this week eased the pressure on the corn market with a slowdown of feed use, and a125 mil bu. increase to the carryout when the marketing year ends. USDA also cut the season average price by 20¢ to a range of $3.00 to $3.20.
The continued prospect of planting delay is a growing concern to Outlook Specialist Mike Woolverton at Kansas State, “Since the freeze, corn price has moved sideways as traders await more news on the health of the crop. Planting delays have yet to be factored into corn price, although April is ticking away and many Corn Belt producers are saying it will be at least the first week in May before they can plant if no more rain falls.”
With some Iowa cornfields-to-be encased in snow, yield potential will soon begin to fall. Iowa State specialists report the 2006 planting rate was 315,000 acres per day, and the extra 1.3 mil. acres planned in Iowa this year will take 4 more days to plant, “Four days does not sound like much of an addition, given normal weather in the spring. Yet this year, it appears that the best we might expect to start planting is during the week of 23 April; a week later than last year. If producers keep the same planting pace as in 2006, we could expect planting to be finished during the first week of June.”
Corn growers who are among the few with fields planted, need to cross their fingers says Extension crop specialist Emerson Nafziger. “Wet soils and soil temperatures in the 30s are very hard on corn seed and seedlings. Even the "stress" cold test is conducted at 50 degrees, so it probably does little to predict seed's ability to emerge when temperatures are 40 or less. While we are confident that corn seed can lie in cold soil for several weeks without great harm if the soil is dry, we have no such confidence when the soil is wet.”
Corn needs about 110 growing degree days in air temperature after planting to emerge, says IL Extension’s Nafziger, “Not having seed planted during the kind of weather we are experiencing is no disadvantage, when the prospects for planted seed are so dim and when plants in the field are not able to grow anyway.” But look at your planting date:
1) Corn planted by March 25 might have emerged, but was seriously damaged.
2) Corn planted after March 26 has probably not emerged, but may not be safe.
3) Corn planted by April 1 is unlikely to emerge much before April 25, if it warms up.
Missouri went from record warmth to record cold according to University of Missouri climatologist Pat Guinan, “The two-week period from March 21 through April 3 was the warmest for those 14 days in 118 years. Temperatures across Missouri were 14 to 16 degrees above normal.” Due to an artic cold front April 3, the next six days were the coldest Guinan can find in the record books during those 118 years. "So in three weeks we go from a very unusual mild period to an unprecedented cold period.”
The wheat crop continues to decline in quality, says Mike Woolverton at Kansas State, “Two nights of temperatures in the high teens and low twenties caused light to severe damage to wheat across the area. The extent of immediate damage will remain in doubt for a few more days, although, in anticipation, the Kansas Field Office of the National Agricultural Statistics Service dropped the Kansas wheat condition rating from 77% good or excellent to 56% good or excellent following the freeze events. The full extent of freeze damage will not be known until the wheat is harvested.”
Wheat producers detecting a silage-like smell and with darkened leaf tissue, should understand the cold-damaged crop is basically dead, though some tissue at the base of the plant is still alive. IL Extension’s Emerson Nafziger says some of this living tissue is likely to be small tillers that had stopped developing at the base of the plant. These might start to grow as the competition from the larger stems decreases, but they would be starting very late, flowering very late, filling very late, and ready only for a late harvest.
If you have given up on wheat and plan to destroy the crop then plant row crops, IL Extension has some good tips .
1) Ensure there are no herbicide conflicts between your wheat and new crop chemical.
2) Give your burndown chemical 3-5 days to work before any tillage operation.
3) Without a tillage program, let the burndown benefit from warmer temperatures.
4) Use a broad-spectrum herbicide that will control both grasses and broadleaves.
5) It is easier to control wheat plants now, than after newly-planted corn emerges.
Alfalfa producers should closely evaluate their crop following the cold weather. IL Extension’s Jim Morrison says wait 7 days to see if the cold caused any permanent damage. Split the taproot and crown, and observe any new shoot regrowth and the condition of the taproot. Healthy taproots and crowns are creamy white and firm, while freeze-damaged ones will be watery, brown, and soft in the upper 1 to 2 inches of the taproot. There is no toxin produced in alfalfa as a result of a frost or freeze, but the bloat potential is increased substantially. If alfalfa is being grazed, allow the frosted plants to dry, then implement normal bloat preventative measures. Harvesting stresses the plant.
The soybean market got a bearish report from USDA this week when the crush was lowered 15 mil. bu. along with a 20 mil. bu. reduction in soybean exports. Stocks were raised 20 mil. bu. to an all time record high 615 mil. bu. With the help of 2.16 bil. bu. in Brazil and 1.67 bil. bu. in Argentina, global oilseed ending stocks were raised by 125 mil. bu. to reflect the increased Southern Hemisphere production. USDA left the projected US season average farm price for soybeans unchanged at $6.10 to $6.50 per bushel.
Surprise, but soil temperature is not a determinant of good soybean yields. Iowa State’s Palle Pedersen says, “The new recommendations are based on three variables and probably the biggest change is that it does not take soil temperature into consideration. Soybean planting date is now based on calendar date of April 25 for the southern two-thirds of Iowa and May 1 for the northern one-third of Iowa, along with seedbed conditions, and the weather forecast for the next couple of days after planting.
Soybean producers have a new weapon against Asian rust, following EPA action to authorize several new fungicides. Domark from Valent has been given a full registration. Additionally, 12 others have been given emergency registration for use in 2007.
Hog production will expand for the 8th consecutive year says Purdue’s Chris Hurt. Live prices will be near $48, about 70¢ above 2006. But he says production costs that were $40.40 last year, will be closer to $47.50 this year, with the bottom line determined by the price of corn. Hurt urged producers to hedge both corn and hogs to lock in profits.
Hurt says the pork industry must contract, “Pork producers will need to cut production and reduce the total supply of pork available. Once these cuts are made, retail and farm level pork and hog prices will recover and the higher feed costs will be transferred to consumers. Since pork demand is growing modestly, keeping pork production constant for a period of time will also encourage retail and farm prices to rise.” Read more.
Gauge DDGS costs against corn and bean meal says IL Extension Swine Specialist Hans Stein. “With constant costs of soybean meal, the maximum price that can be paid for DDGS increases approximately $9-$10 for each 50 cents per bushel the cost of corn is increased. Likewise, if the price of soybean meal is increased by $25 per ton, then the price of DDGS can be increased by $11-$12 without increasing diet costs.”
Stein says many producers feed 20% DDGS in diets for all categories of swine. It is possible that up to 35% DDGS can be included in diets fed to nursery pigs and growing finishing pigs. "However, because of the risk of producing pork with soft bellies, the inclusion of DDGS in finishing diets should be limited to 20% until more research has been conducted to investigate the effects of higher inclusion rates on belly firmness."
Costs were up again in 2006 for producing corn and soybeans in IL, according to an analysis of 1,500 farm records. Per acre costs were about $500 for good soils in northern and central IL and $472-$448 for lighter soils in central and southern IL. It cost $387-$341 to raise soybeans. Read the details.
April brought cold weather, but it also brought black cutworm moths which are laying eggs throughout the state. Entomologists are looking for May 14 to be a target date for significant larvae activity in young cornfields, but they also say it is too early to predict the significance of a threat.
When planting beans, do your self a favor and avoid soybean diseases if possible. Iowa State plant pathologist X. B. Yang offers some planting strategies to avoid early and mid-season soybean diseases:
1) There is a higher risk of SDS & seedling blight if planted early in cool, wet soils.
2) Infections by rhizoctonia and phytohphera are enhanced by warm soil temperatures.
3) Bacterial blight, brown spots, and stem canker are not affected by planting dates.
Posted by Stu Ellis at 1:49 AM | Comments (1) | Permalink
April 12, 2007
The Soybean Market May Drag Its Belly For A While
Just like an overweight hound, soybeans are having trouble running with the big dogs this year. The bean market is dragging around over two months worth of surplus, and that extra baggage is holding it back. With acreage decisions made, but uncommitted, what are the current dynamics that will affect soybean profitability this year?
US grain bins are holding record stocks of soybeans. South America is harvesting a record soybean crop. World supplies of soybeans and soybean oil are more than sufficient. But Outlook Specialist Darrel Good at the University of Illinois says if soybean prices remain high, the next Brazilian crop may be even 10% larger. US producers have indicated a potential cut of 8.3 million acres this year. And Good says with a trend yield this year, we will still have a 300+ million bushel surplus in August of 2008. He says that will lead to weakness in soybean prices when the market foresees a trend yield later this summer.
Current stocks from the old crop are more than enough. Even though soybean use since last September has been at a record high, the crush rate may slow over time due to high feed prices that have slowed the rate of feeding. Good says the magnitude of the crush during the last half of the year will depend on the domestic and foreign demand for soybean meal. The latest USDA forecast is for an increase in those, but a slowdown in international demand might be expected because of the large South American harvest. It is expected to be 8% bigger than last year. And a slowdown in domestic demand might also occur because of the availability of distillers’ dried grains from ethanol plants.
An estimate of 1.77 billion bushels of soybeans that are crushed for the year produces just over 20 billion pounds of soybean oil. In the first 5 months of the year, domestic consumption was 8% more than last year, and exports were 80% ahead of last year. Domestic demand for soybean oil is well above the trend rate because of biodiesel production. This past February, biodiesel accounted for over 11% of the US soybean oil consumed, including both domestic and foreign. Darrel Good estimates total soybean oil consumption could be 5% more than 2006, and that would put use at 18.85 billion pounds which is over the current USDA estimate. He says that leaves soy oil stocks at 2.7 bil. pounds, which is large, but 266 mil. pounds less than last year.
US soybean exports should be just over 1 bil. bu. about 14% larger than last year. For the first half of the marketing year, they have been more than 22% above last year at this time. The EU has upped its purchases 88% and China has taken over half of the increased sales. Exports are running well ahead of the rate to reach USDA’s projections, but they will slow down when South American beans become available.
Given those numbers, ending stocks on August 31 should be just under 600 million bushels, which is a 19.4% stocks to use ratio. Darrel Good says that implies an average farm price of $5.40. So far, the average price has been about $6.10, and 80% of the crop has been sold. For the rest of the crop, the CBOT is suggesting $7.50 and that would put the marketing year price near $6.40. Darrel says, “High prices are associated with expectations of declining supplies and tighter stocks in the year ahead.”
What about the year ahead? With 67 million acres forecast in the USDA Planting Intentions Report, that would be 11% less than last year. And Darrel Good says, “Substantial changes from March intentions would not be expected unless relative prices change significantly by mid-May or unusual Midwest weather results in a shift in acreage. If 67.14 million acres are planted, harvested acreage near 66.2 million would be expected with a generally favorable growing season.”
With a good growing season a yield of 42+ bushels could be expected, and NOAA has not forecast the development of unusual weather patterns. Harvested acreage of 66 million and a trend yield would provide 2.8 billion bushels. Combined with the carryover, 3.4 billion bushels would be available for the 2007-08 market. Darrel Good says the demand will depend on Chinese needs, US livestock expansion, and increased biodiesel use. Darrel Good says some of the livestock feed demand may be replaced by 8.8 million tons of distillers’ grains from the additional ethanol produced. Regarding biodiesel, demand for soybean oil will increase as long as oil is under 30¢ per pound. The Chinese demand is determined by its livestock industry and obtaining South American soybean meal. He is expecting total consumption at 3.085 billion bushels and 332 million bushels of ending stocks. That would be a 10.8% stocks to use ratio, which Darrel Good says points to a $6.00 average farm price. But he says there has been a $1.00 premium in the market this year, and that may lead to a $7.00 price for the 2007-08 crop. While there is downside weakness to bean prices, Good says it may not be seen until planting issues are more solid. He says there are currently some good pricing opportunities, but those could fade as the season wears on and South America begins to plant a larger crop next year. The South American soybean crop and the US corn crop will be the determinants of future soybean prices. As seen this year, the soybean market had to defend acreage against corn, and that kept prices strong in the face of large supplies. And Good believes bean prices may now be keyed to buying acreage, rather than responding to a given stocks-to-use ratio.
Summary:
Despite burdensome stocks, the soybean market has been stronger than justified by the stocks to use ratio. However, that may be the key to future soybean prices if sufficient acreage has to be reserved in the wake of the corn ethanol dynamic. Demand has been good for the old crop, helped by exports and biodiesel, as well as a large livestock industry. The new crop will have sufficient acreage along with stocks to meet the demand. There are potential weaknesses in soybean prices, but such weakness may not occur until the actual size of the new crop is determined and how many additional acres are planted in South America next fall.
Posted by Stu Ellis at 3:50 PM | Comments (0) | Permalink
April 11, 2007
What Would It Take To Get You To Make The Switch?
Just for kicks, let’s say that ethanol production is boosting corn prices to the point that it is harming the livestock industry. And let’s also imagine that Washington policy makers writing the new Farm Bill provide financial assistance to farmers willing to raise biomass products for use in cellulosic ethanol plants. And because oil prices are rising too fast for comfort, let’s add the hypothetical that the switch has to occur sooner than later. What would all of this mean for the Cornbelt farmer?
Bruce Babcock and his team of thinkers at Iowa State University’s Center for Agriculture and Rural Development have created a “we can’t say for sure about this, but here’s what we think” type of report that will give policy makers an idea of what they might be facing should farmers be financially encouraged to raise biomass for fuel. Their report, Adoption Subsidies and Environmental Impacts of Alternative Energy Crops, takes a look at the economics of switchgrass as the biomass crop, and the impact on water quality, since corn and soybean row crops would be diminished and restructured within watersheds.
Economics of Switchgrass
Whatever returns a producer would get from growing and selling switchgrass would have to equal or exceed the returns from growing either a corn and soybean rotation or a continuous corn program. That threshold was calculated to be $250 per acre over variable costs. Without that guarantee, few farmers would make the change. Based on costs of production calculated at Iowa State, a four ton per acre crop of switchgrass would cost $187 per acre, and a six ton yield would be $241 because of the added harvest cost. Now add the $250 per acre that is lost from corn and/or soybeans not being produced, and the required revenue becomes $437 or about $110 revenue per ton of switchgrass. If the crop yielded six tons per acre, the revenue requirement falls to $82 per ton. That is the farmgate price that a typical producer would need to be paid by the processing plant that refines cellulosic ethanol.
The ethanol producer will have to factor in the cost of transportation (estimated at $8 per ton,) the cost of refining biomass into ethanol, and the price of ethanol in the fuel market. It is impossible to predict the price of ethanol in the fuel market, but in recent years the range has been $1.25 to $1.75 per gallon, and the Iowa State economists calculate that even at the higher price of ethanol, the ethanol plant could only pay up to $37.50 per ton for the switchgrass. Since that is well below the $82 to $110 per ton required by farmers with 4-6 ton per acre yields, the gap would have to be made up by public financial supports. The economists calculate “The required price subsidies range from $44.33 per ton to $106.75 per ton depending on switchgrass yields and the price of ethanol. Converting these per-ton subsidies into per acre payments can be done simply by multiplying these per-ton subsidies by the yield per acre. The resulting per-acre payments range from a low of $265.98 per acre to $475.98 per acre.”
There are a couple of asterisks that might be added to that substantial level of subsidy payments. If ethanol prices suddenly increased substantially, or the cost of refining dropped substantially, then the subsidy level drops. Another issue is conversion of the land from row crop production to a biomass production that somewhat resembles the CRP and other soil and water conservation practices, except the crop could be harvested for conversion to ethanol.
Water quality impact
Using an internationally-recognized model for evaluating watersheds, the Iowa State group applied the switchgrass production concept to a watershed and predicted the change in sediment and crop nutrients entering the Mississippi River. Three scenarios were explored:
1) Production of switchgrass throughout the entire watershed, no tillage, and application of 110 lbs of nitrogen and 60 lbs of phosphorous fertilizers in the spring. The plan reduced sediment at the outlet of the watershed substantially, by 84%. Large reductions in nitrate (44%), total nitrogen (53%) and phosphorous (83%) were also predicted.
2) Production of continuous corn throughout the entire watershed, mulch-tillage, and removal of 50% of the corn stover for biomass ethanol production. Typical fall and spring fertilizer applications for corn were calculated. This scenario increased sediment yield by 23% relative to the baseline, nitrate by 147%, total N by 150% and total P by 138% on an average annual basis.
3) Production of switchgrass on highly erodible land in the watershed (53% of acres) and production of continuous corn on 47% of the watershed that was not considered highly erodible, with 50% of the corn stover removed. This scenario gives mixed results, with a reduction in sediment yield of 19% and a reduction in total P of 43% compared to the baseline. However, nitrate and total N in Scenario 3 increase by 48% and 32%, respectively.
Summary:
Conversion to an alternative crop for ethanol production such as switchgrass comes at a cost of production, as well as loss of typical corn and soybean revenue. With that economic threshold well above what cellulosic ethanol plants could pay, government subsidies will be required to encourage the switch. However, production of biomass in traditional row crop areas will have a significant positive impact on water quality.
Posted by Stu Ellis at 12:48 AM | Comments (4) | Permalink
April 10, 2007
The Corn Market: From 30,000 Feet Up
Leading up to the USDA’s Planting Intentions report, every said the report would answer all questions of whether there would be enough corn to satisfy the growing demand. Since the report, there have been just as many questions asked about its meaning, the implications, and whether the predictions of the report will be later confirmed. The report gave us answers, but generated even more questions.
Somewhat lost in the falderal of March 30 was the Quarterly Grain Stocks report, which indicated corn use was slowing, obviously because of prices. Exports and domestic feeding were being retarded, and Extension Economist Darrel Good at the University of Illinois says the March 1 corn inventory indicated abundant stocks of corn, which were larger than expected. In Darrel Good’s Quarterly Newsletter he analyzes supply, demand, and the dynamics that will be moving the market in the coming months.
Old Crop Demand
The corn inventory was a shade over 6 billion bushels, and while that was about 1 billion less than a year earlier, it was 75 million bushels more than what the trade anticipated. Although corn use for feed, exports, and processing was higher than ever, the rate of use slowed during the last 3 months. Apparently price related, the feed and residual use of corn was nearly 5% less for the first six months of the marketing year, compared to the 2005 crop year. During most years about 64% feed and residual use during the year comes in that first six month period says Darrel Good. If that typical pattern is followed this year, that means feed and residual used would only total 5.8 billion bushels for the year, a more than 5% decline from a year ago. Good says that means livestock feed use will have to fall significantly, something he doubts will happen, given the current livestock herd and the potential that wheat will not be an alternative feed due to crop damage and higher prices.
While feed and residual use was slowing, processing was increasing. Good says USDA’s statistics indicates a nearly 22% year over year increase during the last part of the marketing year. Also on the plus side were corn exports, and in fact were the largest in 11 years. In the first half of the marketing year, 1.12 billion bushels were exported, more than 16% over 2006, but export sales through the end of March were 14.6% better than last year. Good anticipates shipments in the last half of the year to be smaller comparatively. The USDA maintains an export objective of 2.25 billion bushels, but based on the current statistics, Good believes that might be on the high side.
Unused stocks at the end of the marketing year August 31 are currently forecast at 902 million bushels or 7.8% of the total 11.61 billion bushels used. That ratio would usually indicate at $2.80 average price for the marketing year, however the USDA has been using a $3.20 average price for the year. For the first 7 months of the marketing year, the average is about $2.90, and to average $3.20 for the year, the 30% remaining unsold from the 2006 crop would have to average $3.90 per bushel. Current futures prices are implying a $3.70 price for the rest of the year, and that would put the 12-month average closer to $3.15 per bushel. Given the lower price expectations from the stocks to use ratio, Darrel Good says, “Corn prices are being supported above historic values by strong domestic demand, the need to plant substantially more acres of corn, and the uncertainty about production in an environment of smaller reserves.”
New Crop Prospects
It is old news now, but USDA projects corn acres at 90.454 million, more than 12 million higher than 2006, and more than 9.5 million higher than the recent high water mark in 2004. Large acreages are planned in the Cornbelt, but large percentage increases are planned in southern states, so large that the Cornbelt share of production is modestly reduced. To produce the 12 million additional corn acres and nearly 3 million additional wheat acres, soybean production will be down 8.3 million, cotton down 3.1 million, rice down about 200,000, and sunflowers down about 150,000 acres. Overall 2007 crop acres will be 5.5 million more than in 2006.
But Good rhetorically asks if all those corn acres will be planted. Prices have fallen, rain has fallen, and temperatures have fallen since the report. Weather delays in planting not only will shift some corn acres to beans, but will shift damaged wheat acres to either corn or sorghum. Good believes that with high corn prices, producers will plant corn even beyond the typical cutoff dates, and that acreage will still be close to the 90.5 million. But the yield is still an uncertainty. Since 1960 the average corn yield has increased 1.85 bushels per year. Since 1975 it has increased 1.9 bushels per year. Since 1996 it has increased 2.6 bushels per year. However, Good believes favorable weather in recent years has helped yields more than anything. Another yield consideration is based on how far the acreage in the non-traditional corn areas will pull down the national yield. He says fellow researcher Gary Schnitkey projects the 2007 trend yield at one-half bushel lower than if state shares of acreage remained the same as in 2006. And a third factor working toward a lower yield is the yield drag resulting from an increased volume of acres which produced corn last year, which he said would be another one-half bushel.
Anticipating 83 million harvested acres, and a 149 national average yield, 2007 production is estimated by Good at 12.367 billion bushels. Add that to the 902 million bushels in carryover, the total supply would be 13.279 billion bushels. That is 2/3 of a billion more than the supply for 2006, and with that adequate supply, Good says consumption will likely increase. Leading the way will be over 4.5 billion bushels for ethanol and domestic processing, and 2.1 billion bushels in exports. But feed use is a totally different calculation, since one billion bushels of corn used for ethanol production will also produce 8.8 million tons of DDGS for livestock feed. That reduces domestic corn feeding down to 5.8 billion bushels. Good says that means 12.485 billion bushels of demand will leave 794 million bushels or 6.4% of consumption. That stocks to use ratio implies a season average price of $3.05 for the 2007 corn crop, but the CBOT is implying a $3.95 average price for the 2007 crop, whether that means a smaller crop or increased demand.
Pricing your 2007 corn crop
Since the market is offering more than the fundamentals justify, there are some pricing opportunities for corn producers. Current December contracts are under what is guaranteed by crop revenue insurance. Good says, “To the extent that revenue guarantees are viewed as put options, aggressive pricing might be considered only at prices above the guarantee. A move above that level has a high probability, resulting from a continuation of spring weather concerns or an emergence of summer weather concerns. In addition, extended planting delays or other weather problems would likely push December 2007 futures above the current contract high of $4.30.” Those without revenue insurance may be served by a conservative strategy of selling smaller quantities regularly throughout the year. Good says basis levels will remain weak with the large crop, requiring temporary storage at elevators, but paying producers for on-farm storage.
Summary:
Healthy demand for the 2006 corn crop is pushing the season average price near the $3.15 mark due to strong processing and export demand, while domestic feed demand is fading slightly. The 2007 crop, even with a 15% increase in acreage, will still meet demand with only 6% stocks to use ratio pushing the season average price to just over $3 per bushel. Producers will have good pricing opportunities for the balance of the current marketing year and into the coming marketing year.
Posted by Stu Ellis at 12:58 AM | Comments (2) | Permalink
April 9, 2007
How Long Will Your Farm Survive?
Consider the fact that thousands of farms go into and out of business every year. Just like any other industry, farm businesses come and go irrespective of the size of the farm or the age of the operator. But exit rates decline somewhat as the farm business becomes more experienced. If the land, machinery, inputs, and markets are the same for everyone, what is the determinant that indicates how long a farm will survive?
That issue is one of the questions addressed by USDA’s Economics Research Service in the April edition of Amber Waves, an electronic magazine. The ERS study found that newly started farms will exit quicker than farms with 5 years of tenure. And farms with 5 years of tenure will exit quicker than farms that have 10 years of crops on the books. “The pattern holds among large farms and small, independent of the separate impact of farm size, whereby large farms are more likely to last. The pattern also holds among young and old operators, again independent of the profound impact of operator age, whereby farms with middle-aged operators are more likely to survive.” Establishment of a farm comes with considerable cost. Departure also is expensive, whether that is for the operator or lending agencies that have an investment in the business. Many federal and state programs, supported by tax money, are among those investors which want a better understanding of farm survival.
The ERS staff looked at the records of the Ag Census as far back as 1978, but initially examined the 1992 and 1997 Census records to find those operations which did not survive in that five year period. “Farm businesses often exit farming—35% of those recorded in the 1992 Census were not there in 1997. This reflects, in part, the large share of very small farms, which enter and exit prolifically. But many observers might find the exit rates for other farms surprisingly high as well. For example, 17% of large, well-established farms with middle-aged operators exited during 1992-97.”
All of the farms were categorized into 5 groups of farm size, 4 groups of operator age and 4 groups of the age of the business; which is 80 categories in all. When the age of the operator gets to 65, the exit rate increases rapidly regardless the size or age of the operation. Additionally, the size of the farm in terms of dollars of sales, is secondary to the age of the business itself. “Among the largest farms (at least $250,000 in sales), the newest businesses are 60-90% more likely to exit than well-established farms, for each operator age class except the oldest (where the newest are 30% more likely to exit).”
• The researchers also found:
1. The smallest farms are 30-50% more likely to exit than the largest
2. For the youngest operators, exit rates drop sharply when their business moves from the 0-4 year old category into the 5-9 year old category.
3. As the age of the operation increases, the survival rate increases.
• The researchers found the age of the operation provided several advantages:
1. Through trial and error, operators improve their pre-harvest decisions.
2. Similarly, successful livestock enterprises require breeding, feeding, and culling savvy that improves with experience.
3. Marketing decisions—when to sell, how much, to whom, and under what kind of arrangement—also benefit from experience and new information.
4. Moreover, the relevant experience is specific to a particular farm business, which is more important than operator age.
The critical issue is to identify operations that have increased chances of survival for the purpose o