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May 31, 2007
The 2007 Farm Bill Will Not Be Neutral To Livestock Producers
So you are a pork producer or a cowboy, and just have a passing interest in the 2007 Farm Bill. Maybe you raise poultry, or sheep, or exotic livestock and they are never mentioned in farm programs. Since there are no program payments for livestock production (except milk), you have very little interest in the current debate on Capitol Hill. Buckle your seatbelt for a 180 degree turn.
As all 435 Members of the House and 100 Members of the Senate prepare for farm policy debate over the next several months, the Congressional Research Service has been issuing background papers so everyone on Capitol Hill can speak about agriculture without having the audience or the media giggle. The recently released report on animal agriculture contains a broad look at some controversial issues that need to be addressed in the 2007 Farm Bill. Here is a slice of the report now in the hands of your Congressman and Senators:
Livestock and their products are not covered by farm program payments, and producers have not sought coverage, except for disaster assistance when pastures were unavailable. Livestock can be covered by livestock insurance limited to cattle and hogs, and whole farm revenue pilot programs in some states. The options are not as comprehensive as typical crop insurance. However, the value of animal agriculture exceeds $105 billion, which is over half of the total value of farm production. Animal agriculture is changing with the growing integration of production, marketing, and processing. These trends are occurring at the same time feed costs are rising due to ethanol demand for corn and while there are public policy concerns about environmental protection, food safety and animal welfare.
The US is a world leader in trade of livestock and meat products. The US is the #1 producer, consumer, and importer of beef, and dropped from #2 to #8 rank in exporting after the BSE case. For pork, the US is #3 producer, consumer, and importer; #2 exporter. For broiler meat, the US is #1 producer and consumer; #2 exporter. We are the #1 producer, consumer, and exporter of turkey. A substantial challenge is for importing countries to impose phytosanitary regulations to impede trade, which have no scientific basis.
Feed is the largest cost for livestock production and that can be impacted by land retirement programs such as the Conservation Reserve, as well as government promotion of ethanol which competes with livestock for corn. While ethanol plants produce distillers’ dried grains as a livestock feed, it cannot replace corn on an equal basis and is less useful to pork and poultry producers because of the lower energy and higher fiber content.
The Congressional Research Service (CRS) report quotes a study by Tufts University, which contends in the 9 years after the 1996 Farm Bill, corn prices were 26% under true production costs and soybeans were 15% under true production costs. The report contends that livestock producers have long benefited from low costs of feed. While the Agriculture Committee in the House has had minimal debate on the ethanol tax credits and incentives, most of those issues will be decided in other committees.
The CRS analysts tell Congress that structural change is underway, with fewer packing companies and greater connection between the packers and the livestock to be slaughtered. Small cow-calf operations are in the majority of such operations, but large feedlots are in the majority of such operations. Today within the pork industry there are only 10% of the number of operations that existed in 1980; with about 30 key firms, and production is primarily located in Iowa, Southern Minnesota, and North Carolina. For both pork and beef, the number of packing companies has diminished, and the top four firms slaughter 63% of the hogs and 80% of the fat cattle. One of the industry trends is the development of supply chains that bypass typical commodity markets and production suppliers. A recent study of the impact of the trend was that 38% of cattle, 89% of hogs, and 44% of lambs were marketed in this method. While there are several federal laws designed to ensure competition, Congress will be asked to include a competition title in the Farm Bill to further regulate such integrated production and marketing of livestock.
The changing structure of livestock production has clouded the actual price that packers pay for animals, and Congress will be asked to increase the requirements of the Mandatory Price Reporting Law that better indicates current market values. One proposal goes as far as requiring packers to obtain 25% of their daily slaughter from the spot market.
Since the adoption of the 2002 Farm Bill, which was designed to implement Country of Origin Labeling, Congress and USDA and many advocacy groups have grappled with the implementation of the law and how it was going to happen. It has not yet been implemented, and the 2007 Farm Bill is expected to address COOL is some form. COOL advocates say consumers should be aware if their meat products come from foreign countries. COOL opponents say it will give a distinct advantage to American meats, and the US will find itself attacked for violating free trade laws.
Another issue that CRS says Congress will have to resolve is Animal Identification, which also began in the 2002 Farm Bill, with a directive to the USDA to establish a system so that animals with maladies such as BSE could be quickly tracked, and their meat products withdrawn from the market. A universal system is some ways away because of technical issues, as well as cost prohibitions. Issues revolve between mandatory and voluntary programs and CRS says Congress will need to resolve the controversy.
The Animal Welfare Act was designed to set minimum standards for production of warm blooded animals, but animal activists have been advocating an animal rights agenda that prescribes how animals can and cannot be raised, and convincing large food purveyors to force their suppliers to adopt rules not typically accepted in animal production. Congress will be asked to adopt stronger requirements controlling animal production.
The changing structure of agriculture has caused a consolidation of the industry, with the development of larger facilities in areas where there are minimal environmental complaints. However, concerns are lodged about air and water contamination with larger quantities of manure coming from larger numbers of animals. Producers are fighting a requirement to include livestock operations under EPA “Superfund” regulations. The House and Senate Agriculture Committees do not have a vote on the proposal, since it will be heard in other committees.
Summary:
While many livestock producers may think the Farm Bill debate is for grain farmers, there are numerous issues involving the future of the animal agriculture industry. Packer consolidation can negatively impact market prices. The EPA Superfund could be a costly way to remove manure. Animal Identification and Country of Origin Labeling have been on the front burner for the past 5 years with many decisions still to come. Members of Congress are learning the pros and cons of most of the issues, not only from the Congressional Research Service, which is neutral, but from the special interest advocates, which are certainly not neutral.
Posted by Stu Ellis at 12:06 AM | Comments (1) | Permalink
May 30, 2007
If The Soybean Market Is Cloudy, We'll Gladly Clear Up The Picture
With the wheat crop heading into the home stretch and the corn crop planted and growing (in most places) the biggest commodity question mark this year is soybeans. Planting is two-thirds finished, but the size of the potential crop is the unknown factor and the volatile markets confirm the lack of anyone having a good grasp on the 2007 soybean crop.
For the benefit of the soybean grower, let’s visit with some authorities who have a clear perspective of the soybean market. Several weeks ago, Extension Outlook Specialist Darrel Good at the University of Illinois rhetorically asked if soybeans had established their marketing year high, and noted that February highs had not previously occurred. Last Friday, the cash market added 20 cents above the February high, and the 2008 and 2009 November contracts established new highs, with the 2007 new crop contract only a penny under the February high.
All of this is occurring as planting progresses with a record carryover expected at the end of August. And University of Missouri Outlook Specialist Melvin Brees acknowledges the irony of it all, saying, “The soybean market continues to confound many market analysts. Large crops in South America and record 2006-07 US ending soybean stocks, along with the potential for increased acreage (producers are expected to plant soybeans on failed wheat acres and corn acres that may not get planted), would ap- pear to be negative news for soybean prices. However, after slipping nearly 80 cents per bushel from price highs in February to lows in April, new crop soybean futures prices have rallied and are again above $8.00!”
While futures prices are high from the speculative demand, cash prices are unusually low because of the wide basis. Darrel Good says, “The combination of that speculative demand and large current inventories of soybeans have kept basis generally weak. The average central Illinois cash bid was $.42 under July 2007 futures on May 25. That is about $.07 weaker than the very weak basis of a year ago and about $.35 weaker than the typical basis for this time of year.” Allen May at South Dakota State University labels the basis as “horrendous,” and is not very optimistic about a turnaround anytime soon, “There is little one can say about the wide basis except that the wide basis for both old and new crop beans puts the current basis in a territory we have not seen in past history. Unless we see a noticeable change in fundamentals of lower production and decreasing carryover domestic and worldwide supplies, there appears to be little indication at the present time of basis getting significantly better any time soon.”
In fact, Purdue University Outlook Specialist Chris Hurt says many of your neighbors are waiting to unload beans in the next month or so, “Some producers are going to hold on to those stocks awaiting the defining weather of July-maybe even August. This means there is a higher likelihood that prices will drop rapidly after early-July if weather threats have not arisen by that time.”
So the cat is out of the bag on the basis, which is due to a large carryout with adequate supplies of beans available whenever a crusher wants to buy them. But what is the reason for the speculative demand driving the futures market skyward? Missouri’s Brees sums up the reasons as, “Fund buying, growing biodiesel demand, a weaker dollar supporting exports and reduced 2007 planted acreage are among some of the reasons for strength in soybean prices.” And he says the bidding for 2008 soybean acreage may have already begun, “Although soybean supplies are expected to be more than adequate for 2007-08, use cannot continue to exceed production by this amount. Soybean prices will need to bid for acres in 2008. This may already have begun as some analysts point out that the current rally in soybean prices is bringing the soybean/corn price ratio back to more normal levels compared with last winter’s price ratios that greatly favored corn.” And he says to keep in mind that summer weather has not yet impacted the bean market.
Soybeans, as you know, are priced on their oil and meal value, and prices for soybean oil and soybean meal have been strong in May for various reasons, says Darrel Good at Illinois. “July 2007 soybean oil futures increased about $.03 per pound while July 2007 soybean meal futures increased about $20 per ton. Soybean meal prices reversed the lower trend that started in late February, while soybean oil prices continued the upward trend that began in early November 2006.”
Although we’ll have 600 million bushels of unused beans at the end of the current marketing year, the market is concerned about a diminished carryover a year from this August, and is apparently ensuring sufficient acreage is planted for 2007 production. Remember that USDA’s Planting Intentions report forecast 68 million acres, some of the outlook specialists believe that could expand. At Kansas State University, Outlook Specialist Mike Woolverton told a radio program, “There is a lot of corn that did not get planted or replanted, and those acres will go into beans, and many of the frozen wheat acres will be planted to beans, possibly more than USDA expects.” Iowa State Outlook Specialist Bob Wisner agrees that bean acres will surpass the current projection, “We have increased planted soybean acres by 1.4 million acres from the March 1 intentions and have increased the U.S. average yield by 0.5 bushels per acre from current USDA projections. At that level, the U.S. yield would still be 0.7 bushels per acre below last year and 1.0 bushels per acre below the 2005 yield. With this combination, U.S. soybean stocks would tighten considerably vs. this year by August 31, 2008. However, they would still be a fully adequate 7 weeks supply.”
With futures prices high, the basis wide, and a potential market decline in the summer, how do you begin to manage price risk? Darrel Good says there are still some factors that will determine prices, “In addition to prospects for the 2007 U.S. crop, soybean prices will be influenced by planting decisions in South America later this year. Higher fertilizer prices and a weak U.S. dollar make soybeans less attractive in Brazil. Still, at current futures prices a substantial increase in soybean acreage in South America can be anticipated this year. The market appears to be offering an early opportunity to price a portion of the 2007 crop.”
Purdue’s Hurt says with the recent advance in soybean prices, producers should not wait too long to plan sales, based on what he sees ahead, “This means continuing to clean up old crop sales except for bushels you are willing to store into the summer for a possible weather rally. Given normal yields this summer, I would expect harvest prices to be near $6.50 to $6.75 this fall.” And he draws complete agreement from Allen May at South Dakota State, “One cannot necessarily look at the prospect of $7.40-$7.50 new crop beans and turn one’s nose up at that kind of price. Be prepared to take advantage of possible continued upturns by having a marketing plan in place so you’ll be ready to pull the trigger on new crop beans when your price target is reached.”
Summary:
Whether you are in the field planting beans, spraying corn, or something else, Extension’s market specialists are all in agreement with their analysis of the soybean market: More beans may be planted than expected, but the acreage is still unknown. The futures market is driven by speculative demand for biodiesel, fund buying, and a weaker dollar. However, cash prices are disproportionately low because of large stocks that are quickly available to processors. Once the crop size is known and there is a lack of weather threat to the crop, soybean prices are expected to rapidly drop. Soybeans in the $7 range should provide profit opportunities.
Posted by Stu Ellis at 12:54 AM | Comments (1) | Permalink
May 29, 2007
As Wheat Turns The Corner Toward Harvest, How Sharp Is That Corner?
The current wheat crop was planted on more acres than the 2005-06 crop, but in many areas wheat suffered critical injuries earlier this spring from the devastating freeze. With some disease problems and harvest getting underway in the coming month, let’s visit about the supply and demand outlook for the crop, and where prices fit into the larger commodity picture.
USDA’s latest wheat outlook estimated the crop at 2.2 billion bushels, up 20% from last year on 11% more acres. Kansas State economist Mike Woolverton characterized that as bearish news, but since world stocks are down, “U.S. exports of wheat are expected to be strong because of tight supplies in other major wheat exporting countries. The national average U.S. farm price for wheat is expected to be in the range of $4.35 to $4.95 per bushel. The projected wheat price also reflects the battle for acres with corn that will be continued into the next crop year.”
The current wheat crop has been challenged, not only with freezing temperatures in early April, but now diseases are breaking out. Several Nebraska Extension crop watchers were offering anecdotal reports last week:
1) “Nearly all of the winter wheat in Holt and Boyd counties was sprayed for rust during the past week and from what I saw it was justifiable. I saw some big differences in the wheat variety plots near Atkinson so it will be interesting to see how the various varieties yield.”
2) “Several fields of wheat were sprayed with fungicides the last couple of weeks. There will be a lot of variability in wheat yields this year, some very good and others pretty mediocre.”
3) “We have had spotty moisture, but not enough. The wheat needs rain and is showing stress — dryland acres will need continued rainfall to make what appears to be an above average crop. Wheat streak mosaic and tan spot have taken an additional toll on wheat that had to survive a very tough winter (dry and windy).
Just prior to those crop conditions being reported, USDA economists Gary Vocke and Edward Allen issued their monthly analysis of the wheat market.
The National Agricultural Statistics Service (NASS) survey-based May 1 forecast estimates:
1) U.S. winter wheat production is 1,616 million bushels, up 24 percent from 2006. Based on May 1, 2007 conditions, the U.S. yield is forecast at 43.5 bushels per acre, 1.8 bushels above last year. Harvest area totals 37.2 million acres, up 19 percent from last year.
2) Hard red winter (HRW) wheat harvested acreage is up about 26 percent from the previous year to 26.8 million acres. The estimated harvest-to-planted (h-to-p) ratio for 2007 is 84 percent, up from last year’s reduced 73 percent because of the drought. HRW production is up 51 percent from a year ago to 1,028 million bushels with an average yield of 38.4 bushels per acre, 6.4 bushels above last year’s drought reduced yields.
3) Soft red winter (SRW) wheat harvested acreage is estimated to be up 8 percent from last year to 6.7 million acres. The estimated (h-to-p) ratio for SRW for 2007 is 77 percent, down from last year’s 83 percent because of the freezing weather on April 7-8. The portion of the winter wheat crop rated good to excellent on April 29, at 56 percent, was 20 percentage points above last year. SRW production is down 11 percent and totals 347 million bushels with an average yield of 52.0 bushels per acre, down 11.3 bushels from last year.
So where did the freeze leave the wheat crop? Vocke and Allen say wheat is recovering from the early setback. “HRW expectations in the central and southern Great Plains were well above normal prior to the April 7-8 freeze. The week following the freeze, condition ratings fell but improved slightly in Kansas and Texas by April 29. Expected harvested area and yield are up significantly in Oklahoma and Texas compared with last year's drought-stricken crop.” The freeze had a greater impact on SRW, with yield deterioration in AR, MO, TN, and KY. In the Pacific Northwest, wheat condition is rated mostly good to excellent and soil moisture is mostly adequate. USDA says total U.S. spring wheat production in 2007 is projected to be 558 million bushels, 44 million bushels more than the drought reduced 2006 crops. Spring wheat seeding trailed behind normal during the month, mostly due to cool and wet conditions in the northern Great Plains.
Overall, demand and supplies are both growing. USDA is expecting total production at 2.174 bil. bu., up 362 mil. from last year. Total use is forecast to increase by 129 mil. bu. Food use will be up slightly on the increased demand for wheat-based products; feed use will be up because of high corn prices, and exports are up because of tight world supplies. As the US cleans out the bins on the old crop, exports continue to drive the market, due to tight world supplies. That is reducing the carryover to 412 mil. bu. Ending stocks will be up slightly, but the second lowest in the last 10 years, supporting a season average price of $4.35 to $4.95 per bushel, well above the 2006/07 forecast of $4.27 per bushel. Due to forward contracting, prices received by farmers in 2007/08 will also reflect strong prices during early 2007 for new-crop delivery.
Worldwide, wheat supplies are somewhat tight, but for a variety of reasons:
1) The European Union-27 (EU-27) is expected to be the world’s largest wheat producing region in 2007/08, increasing wheat production to 127 million tons, only a 2-percent increase from the drought-stricken crop in 2006/07. The expansion of rapeseed area to supply biodiesel limited the rebound in wheat plantings. Moreover, the growing season so far has been far from ideal.
2) China is expected to be the second-largest wheat producer in 2007/08 reaching 100 million tons, a 3-percent decline from the previous year. Area planted is reported down slightly as wheat returns and government payments were not enough to maintain area. Dryness has been reported in some regions and growing conditions so far have not been as good as a year ago.
3) Wheat production in the former Soviet Union (FSU-12) is forecast at 92 million tons in 2007/08, up 7 percent from a year earlier. Fall planting conditions were much better, facilitating a rebound in winter wheat plantings in Ukraine and parts of Russia. However, the strong exchange rate and increased input costs have limited the profitability of wheat production.
4) India is projected to produce 74 million tons in 2007/08, up 6 percent from a year earlier. High wheat prices encouraged a 5-percent increase in area and growing conditions have been mostly favorable.
5) Canadian planting intentions surveys indicate a sharp drop in sowings of Canadian western red spring wheat, more than offsetting a planned increase for durum. Canola and barley are expected to offer better returns than wheat. Moreover, winter wheat seedings in eastern Canada dropped sharply due to cold wet planting conditions last fall.
6) Argentina’s 2007/08 wheat production is projected to decline 10 percent to 12 .8 million tons due to a decline in expected planted area. The Government restricted export registrations in 2006/07 in order to limit internal flour price increases and thus, reduced producer planting incentives for 2007/08. Moreover, a program to subsidize wheat production appears to have been ineffective.
7) Australia is expected to rebound from devastating drought in 2006/07, more than doubling wheat production to 22 million tons in 2007/08.
Summary:
While the there is a strong demand for US wheat from food, feed, and exports, there is also a problem in producing the crop. Some early season damage from freezing temperatures and some late season problems with crop diseases will create crop quality problems. With more acreage planted a year ago, supplies should be sufficient to meet the demand, but still keep wheat prices in the mid to upper $4 range according to USDA and the outlook specialists.
Posted by Stu Ellis at 1:53 AM | Comments (0) | Permalink
May 28, 2007
An Idea That Solves Trade Issues, Land Values, Plus Your Income And Retirement Problems All In One.
If you are like most Americans your savings account is minimal, if it exists. If you are like most farmers, your financial cushion has been re-invested in more land or better machinery. With the Congressional hearings on the new Farm Bill, periodically there are calls for policy that push farmers toward establishment of risk management accounts that provide a year to year financial cushion, as well as a fund that would permit a farmer to retire. Not that you would think you personally need either of these, but let’s play “what if…”
Farmer savings accounts have been proposed for many years, and were part of the 2002 Farm Bill debate. They have taken many forms with many advocates, but aren’t here just yet. Purdue University economists, as part of their new series on Farm Bill alternatives, have taken a look at farmer risk management accounts. Whether such accounts are used for financial risk management or retirement, some advocates have called for them to replace all or part of farm subsidy programs. You would build your account in a high income year, and use the account in low income years.
Among the ways it might be built up:
1) You would create a qualified savings account, and certain government payments would be deposited, along with your own voluntary contributions
2) A fund would be created from tax deductible money, with tax free earnings such as on an Individual Retirement Account.
3) Government bonds with a higher rate of interest could be issued as a special savings instrument for qualified participants.
Canadian farmers have had such a plan for a number of years. The account can receive up to 3% of net sales then matched with governmental contributions with maximums on both amounts. Or the producer can contribute up to 20% of net sales with higher interest rates and certain tax advantages applied. Money can be withdrawn in several ways:
1) If income falls below a 5 year average net returns after costs
2) When taxable income falls below a fixed level.
3) When a farmer retires
4) When a farmer withdraws from the program
The US Farm and Ranch Risk Management Account program was proposed for the 200 Farm Bill. Similar to the Canadian plan, but different in the way the contributions and withdrawals are given tax treatment. In 2001, the USDA Commission on 21st Century Production
Agriculture called for the program to supplement other farm programs.
Farmer Savings Accounts have been proposed as a new component of domestic producer support that would be more acceptable to the World Trade Organization than current farm program payments. Proposed by the Chicago Council on Global Affairs, the funds would be similar to 401 (k) accounts, backed by government matching funds and could be used for a variety of farm family needs, including retirement or health expenses.
The Farm Income Stabilization Account is a specific proposal for the 2007 Farm Bill and would replace current government commodity payments with contributions to a special farmer savings account. The contribution would be a percentage of adjusted gross revenue, but would decline as that number increased. Funds would also be based on conservation practice. Farmers could also deposit tax deferred funds into the account and could make withdrawals when adjusted gross revenue falls to 95% of its five year average.
The Purdue economists say the alternatives provide funds for use during times of financial stress and could be a more disciplined approach to financial risk management. They compare it to counter cyclical payment, disconnected from land values and possibly reducing capitalization of farm programs into land values. Such plans also protect against loan defaults and create rural economic development.
Such accounts will take time to build, and farmers with low income will have a more difficult time building an account. And the Purdue economists another issue is the will of Congress to let them work, by avoiding the pressure to provide disaster payments in times of crop failure and low income. These accounts also push farmers to diversify their assets into financial holdings, not just farmland and machinery
Summary:
Farmer savings and risk management accounts have been proposed in many forms over the years, and the 2007 Farm Bill may provide a pilot program. Through a combination of farmer contributions and government contributions, the programs could provide an opportunity to avoid trade issues, as well as prevent farm program payments from causing inflated land values. The accounts could also help farmers diversify their assets, which could be used to pay family expenses during times of low income, as well as provide a retirement fund unrelated to the vagaries of a “farm sale.”
Posted by Stu Ellis at 6:45 AM | Comments (1) | Permalink
May 25, 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.
Corn planting is nearly complete and Iowa State’s Bob Wisner estimates a 2 mil. acre reduction in corn plantings vs. USDA’s March intentions report. His reasons include:
1) The considerable increase in the soybean/corn price ratio since the March survey.
2) Up to 1.5 mil. A of the WCB was under water and is beyond the best planting date.
3) Shortages of the best hybrid seed corn varieties will reduce interest in corn acres.
4) High fertilizer prices will make corn production more expensive and cut revenue.
Even with reasons to plant more beans, Extension’s Wisner doubts it will happen:
1) New-crop corn prices remain much higher than in recent years.
2) The high insured revenue from crop revenue insurance policies favors corn planting.
3) In some cases, herbicide applications may also restrict the ability to shift to soybeans.
Bob Wisner at Iowa State says dropping the yield to 149 bu. and reducing acreage by 2 mil. would cut the projected ending carryover to a 2 week supply. But he says, “It is unlikely that the actual carryover would be that low. More likely, the lower acreage and yield would increase corn prices enough to ration out 300-400 mil. bu. of demand.”
The price decline following the February highs illustrates the existence of downside price risk, says Outlook Specialist Melvin Brees of the University of Missouri. “Lower prices could occur if production meets expectations and large trading funds continue to liquidate their long futures positions. The anticipa¬tion of large corn production and limited storage availability suggests weak harvest time basis as well.”
Missouri’s Melvin Brees says, “Market plans should be adjusted to reflect changes in production expectations, but that doesn’t necessarily mean avoiding sales. Plans should remain in place to make sales that capture profitable prices. If produc¬tion concerns limit the amount of sales that can comfortably be made using cash contracts, other strategies can be used to protect prices.” Read more of Brees’ Decisive Marketing newsletter.
This is weird, but Iowa and USDA officials say there is no more evidence of soybean rust in Iowa last year, other than one leaf found in a grain bin. Nothing else in the bin, nor in the harvested field, nor in any neighboring fields. They have called in USDA’s Office of the Inspector General to get to the bottom of this mystery near Oskaloosa, IA.
Corn rootworms may be hatching this weekend. IL Extension entomologists say in most years, the annual hatch occurs near the end of May or early June. The estimated dates of corn rootworm larval hatch for central Illinois over the past 11 years range from May 16 to about June 1. Within a day or so they will be picnicking on your corn roots.
Bug Roundup. With young plants growing in your field, bugs are finding tasty treats:
1) European corn borer moths are being found in southern counties of IL, IN & MO
2) Wireworm damage is necessitating replanting, despite premium seed treatments.
3) Japanese beetle grubs usually cause little economic damage, except in dry soils.
4) Grape colaspis larvae eat corn root hairs, prevent water uptake, and turn plants purple.
5) Armyworms are on the march in some areas, leaving wheat for more tender corn.
Insect-induced defoliation can significantly delay soybean canopy development, which provides more sunlight for weeds to grow and compete with the crop, directly affecting your subsequent weed management plans. NE weed specialists say soybeans with 30-60% of insect damage do actually have a shorter weed control window and potentially fewer weed control options. Spraying an insecticide to control bean leaf beetles may actually widen the herbicide application window and increase weed control options.
If your herbicide label suggests higher rates “if weeds are under adverse environmental conditions,” that generally means dry soil or low air temperatures. But IL weed specialist Aaron Hager says high relative humidity, adequate soil moisture, and moderate to warm air temperatures all favor enhanced herbicide absorption. And if those conditions favor rapid herbicide absorption into weeds, crops will soak it up also, resulting in injury. Here is an environmental chart.
Corn trying to grow in dry soil faces a number of challenges, says Extension’s Emerson Nafziger. Read his analysis.
1) When the seed draws moisture, it will create its own capsule of dryness around it.
2) Seeds which began the germination process, then dried out, will not be able to restart.
3) Soils tilled too wet have clods that may have water inside, but unavailable to any plant.
4) “Floppy” corn with poor nodal roots, initially grew fast, with the crown above the soil.
5) Purple corn may indicate poor growth from dryness and a sugar build up in the stem.
USDA’s latest cattle on feed report put the inventory at 11.30 mil., down 2.3% from ‘06 with net April placements at 1.47 mil. head down 4.4%. NE Extension’s Darrel Mark says, “Cattle supplies may be a little tighter in the upcoming months than thought. This would be supportive to prices in early summer as the market approaches its seasonal low. Look for fed cattle prices to average close to $90/cwt for the summer quarter.”
If DDGS are available and economical, new research at the Univ. of IL indicates they can be fed up to 35% to nursery and growing-finishing pigs, but a 20% rate is maximum for finishing diets. That is the conclusion of a comprehensive report on swine diets.
Posted by Stu Ellis at 12:25 AM | Comments (0) | Permalink
May 24, 2007
Why Have Most Pork Producers Remained In The Black With Corn Prices Where They Are?
There is no secret that corn growers are enjoying the result of a market demand driven by ethanol, exports, and feed. However, the pork producer, fearful of being pinched by high corn prices, is also enjoying a demand-driven market. In a period of high feed costs, margins should be thin to non-existent. But that has not been the case, and pork production balance sheets are printed with black ink.
That is not to say that pork profits would be much higher with $2 corn, however profitability in the pork industry has fortunately remained despite corn prices floating from $3.50 to $4. At Purdue, economist Chris Hurt says, “Since the end of March, hog prices have seen a strong seasonal surge, actually putting some green in bank accounts of hog producers. Hog prices were about $42 in late March, but rallied as high as $54 in the past few weeks. Current costs of production are estimated to be in the $47 to $49 range for farrow-to-finish production.”
The existence of the slim margin for pork producers comes despite the fact that more pork is being produced. Hurt says output of packing plants has been 2.5% higher in the first four months of the year, compared to last. And parallel to that are hog prices that are 10% higher, but that is not the result of more demand by the US consumer. Hurt and his Cornbelt colleagues say it is the result of international pork trade and greater marketing margins.
Pork Exports. Simply put, exports are up 3% and imports were down 8%, and the resulting volume difference was a 10% increase in benefit to the US pork producer. At Iowa State, livestock economist Shane Ellis says, “Pork exports in 2007 are greater than a year ago, but most of that was the result of high January exports. Exports in February and March were below those of a year ago. A large portion of the additional January exports were destined for Japan. Between foreign and domestic demand utilizing the increasing US pork supply, hog prices will be supported and above those of a year ago.” At the University of Missouri, livestock economists Glenn Grimes and Ron Plain agree with Ellis, and add that exports to Mexico were down more than 20% in February and almost 30% in March, but for the quarter there is still positive news. “However, the good news is that pork exports for January - March were still up nearly three percent from 2006. But another decrease of 7.6% in April, which is what we had in March from last year, will pull exports down to about last year's levels for January - April.” Ellis makes the point that export markets are shifting, “Even though Japan exports have been consistently increasing, we should remember our other foreign markets. Korean markets now have nearly five times the presence in our export portfolio.” Grimes and Plain report first quarter pork imports were down 7.7% from last year. “In 2006, net pork exports for these three months were 9.54 percent and they were 10.23 percent in 2007.” By the way, the bulk of the imports still come from Canada, and for the quarter they were up nearly 8% over last year.
Marketing margins. The second factor stimulating hog prices was a narrow retail price margin, according to Purdue’s Hurt. “Generally speaking, when packer or retail margins are smaller the producer tends to get more of the consumer pork dollars. That has been the case so far this year. Consumers have paid $.03 per retail pound more for pork, and retail margins have been $.05 per retail pound less. This translates into higher hog prices for producers. In fact, prices so far this year have averaged $46.60 compared to $42.70 during the same period last year. That’s almost $4.00 more and a welcome outcome in this period of higher costs.” Grimes and Plain agree, “All of the increase in retail prices plus some was enjoyed by hog producers. The total marketing margin for pork for January - April was down two percent from a year earlier. For April, live hog prices were up 16.8 percent from last year while the January - April live price was up 10.2 percent from 12 months earlier.” They say the demand growth for pork is from population growth, marketing margins and more exports, but pork producers should not expect the benefits from the marketing margin to last.
Outlook. Hurt says prices are strong through August, based on the futures market, but may drop into the fall period. He believes $50 will be the average price over the coming 12 months. With high prices for corn and soybean meal, profitability will be challenged in the coming months.
Summary.
There has been surprising profitability for pork producers, based on export trade and lower marketing margins for packers that have allowed a few extra dollars to go to the producer. While export demand will continue, the marketing margin benefit may not last, and pork profitability will be challenged to remain in the black over the next 12 months.
Posted by Stu Ellis at 6:21 AM | Comments (0) | Permalink
May 23, 2007
What Does Your Off-Farm Job Allow You Or Prohibit You From Doing?
Do you have off-farm income? If you do, you are part of the 71% majority of farmers who do; but more so, your off-farm income may be a primary determinant of how you run your farming operation. As amazing as it may seem, such typical farming activities as manure spreading and record keeping are impacted by off-farm income. If that has whetted your whistle, read on…
The difference between manure spreading and record keeping is the first is a capital intensive project and the second is a labor intensive project, and the common denominator is off-farm income. That is the finding of agricultural economists Haluk Gedikoglu and Laura McCann, both of the University of Missouri. They studied the adoption of how livestock operators injected manure into the soil as part of their environmental requirements of feeding operations. In identifying whether particular operations adopted certain technologies, the researchers determined, “While the early adoption theories focused on profitability, subsequent studies have found that farm size, risk and uncertainty, information, human capital and labor supply also affect adoption.” And they have added off-farm income to that list. “There can be two effects; 1) farmers with off-farm income have more financial capability to adopt new technologies, 2) farmers with off-farm income do not have enough time to adopt new technologies. Hence, depending on capital and time requirements of the technology, the off-farm income can be a factor that intensifies adoption or a factor that defers adoption.”
The economists surveyed over 3 thousand Missouri and Iowa farmers with a wide range of farming operations, and looked for those with and without off-farm income, and compared their tendencies to four common farming operations:
1) Injecting manure into the soil is categorized as a capital intensive technology since it requires specific equipment,
2) Using grass filter systems as a buffer around water sources is intermediate,
3) Record keeping is labor intensive,
4) Soil testing is categorized as neither capital nor labor intensive.
The survey results found:
• If the farm operator has seasonal off-farm work, then the farmer is more likely to adopt injecting manure and grass filters than a farmer who has no off-farm work.
• If the farm operator has year round off-farm work, the farmer is less likely to adopt record keeping than a farmer who has no off-farm work.
• For soil testing, however, it is found that, if the farm operator has seasonal off-farm work, then the farmer is more likely to adopt soil testing than a farmer with no off-farm work. The same result is found for the impact of the spouse’s seasonal work.
As a double check against the findings, the researchers compared the variables to larger farms, where the operator would have had less time available for off-farm labor. “In the current study, farmers with an off-farm income level of $10,000-$24,999 are found to be more likely to inject manure and adopt grass filters than farmers with an off-farm income level of $25,000-$49,999. For soil testing, there is no statistically significant difference between the base category and the other off-farm income levels.”
Finally, the Missouri researchers conclude: “The current study predicted that adoption of capital intensive practices is positively impacted by off-farm work, due to creation of extra income, and adoption of labor intensive technologies is negatively impacted by off-farm work, due to a lack of time. Since the importance of off-farm income is expected to increase in the future, programs and policies to increase the adoption of environmental practices need to take this into account. Time to acquire information and perform practices is increasingly scarce. For farmers with full-time jobs, meeting with NRCS agents during the day is problematic. EQIP and other incentive programs can help capital-constrained farmers but the application process is time-consuming and requires interaction with NRCS agents. The design of new technologies should take into account the opportunity cost of farmers’ time as well as the out of pocket costs.
Summary:
With the majority of US farmers reporting off-farm income, whether that is their own second job or in combination with a spouse, their farming practices will be dictated by the time available and the extent of its capital requirements. If a job is labor intensive such as bookkeeping, then there will be little time for it once the demands of farming and a second job are met. If a job is capital intensive, such as implementation of livestock management plans with expensive equipment, then it may fit into an operation with off-farm income.
Posted by Stu Ellis at 12:31 AM | Comments (0) | Permalink
May 22, 2007
If You Are Buying Chemicals Over The Internet, Have You Considered Used Machinery?
With higher prices of fuel, you decide a small utility tractor is needed around the farm, but there are no used tractors on dealer lots and no farm sales scheduled in the near future. You’ve just about given up looking until you noticed that your spouse was looking at eBay on your computer. Suddenly, it dawned on you that eBay might be the place to find that utility tractor! But are you going to be paying more than it is worth?
eBay may not offer the cadence of an auctioneer’s call, but that is about the only thing missing on the Internet’s primary buy/sell marketplace. And that includes utility tractors of all sizes, shapes, colors, and conditions. But your main question is whether you’ll pay more or less for the same tractor that you might find at a farm sale. Ohio State University economists Florian Diekmann, Brian Roe, and Marvin Batte wondered the same think and calculated those variations for you in a research report. You have a choice of the short version or the long version.
The economists say Internet auctions will become more popular for the exchange of farm equipment, since fewer and more widely dispersed buyers will impact the success of local auctions. One of the problems of Internet auctions, particularly eBay, is the lack of inspection services to manage the buyer’s risk. However, there are reliability ratings of individual sellers, photos and videos of the item for sale, and the availability of a fraud insurance policy. They look at several questions in the long version you should ask yourself about such a venture:
1) Do eBay and in-person auctions yield similar average prices for comparable equipment?
2) What influences whether tractors are offered for sale on eBay versus in-person auctions?
3) What kind of tractors is being offered for sale on eBay and which ones are actually getting sold, i.e., generating bids that surpass reserve prices?
To get to your primary curiosity reflected in the first question, the researchers analyzed data from the Internet (eBay’s Tractor and Farm Machinery) and from Cornbelt auctions (Machinery Pete’s Farm Equipment FACT’s Report) from June of 2005 to March of 2006. They excluded pre-1960 tractors, tractors with expensive attachments, and sub-30 hp tractors used in landscaping, as well as those being sold for parts. They ended up with 588 eBay transactions and 1,770 auctioned tractors, all from the major equipment makers. Developing a base price, and then premiums and discounts for various attributes, the researchers compared the sale prices, as well as the commissions and other fees that were charged by both eBay and the 600 auctioneers providing sale data to the FACT’s Report.
“The results are quite stark,” say the Ohio State economists. The median price on eBay was $7,706, while the median price at an in-person auction was $10,996. Another difference is transportation of the tractor, borne by the seller at the local sale barn, but borne by the buyer on eBay. Using some standard tractors, the researchers report, “All three of our example tractors which are predicted to sell for more than $20,000 at an in-person auction, are predicted to sell for considerably less on eBay. For example, the Case-IH tractor is predicted to sell for $23,367 less if sold on eBay than if sold at an in-person auction. For 2 of the 3 example tractors (In the lower priced range) eBay generates higher net prices, including $1,416 more for a 43-year-old Allis Chalmers D17 with a front-end loader. For a John Deere 4020 the mean in-person auction price ($8,212.50) is quite close to that of the eBay sample ($8,166.37). Several statistical tests suggest that the two venues yield the same sales price for this venerable tractor. Hence, in-person and eBay auctions provide similar prices for the John Deere 4020’s sold in the Midwest during this time frame.”
The Ohio State economists found “the average price received in eBay auctions is substantially lower than in in-person auctions; the average tractor in our sample is predicted to sell for nearly $10,000 less if sold on eBay. However, the percentage discount for eBay tractors is smaller for items that sell for less than $20,000 – the price threshold beyond which goods are no longer covered by eBay’s Buyer Protection Program. In fact, for the most frequently traded model in our data set (the John Deere 4020), which normally sells for prices well below the $20,000 threshold, the distribution of prices obtained in eBay and in-person auctions is no different.”
Summary:
Farmers wanting to buy or sell farm machinery have an Internet alternative to the local farm sale or sale barn, in the form of eBay. However, this alternative should be considered by the first time buyer or seller as having characteristics somewhat different from the time-tested local auction. While it is difficult to closely examine the product, risk management insurance is available to ensure the product is what it is claimed to be, and there are scores awarded to sellers for their reliability. However, the base prices will differ somewhat between eBay and in-person auctions, based in part on the cumulative value of the item. On eBay, lower priced items might sell for more, higher priced items might sell for less, and certain standards such as a John Deere 4020 might sell for similar values in both types of auctions.
Posted by Stu Ellis at 12:43 AM | Comments (1) | Permalink
May 21, 2007
Given The Growing Corn Demand, What If We Don't Produce Enough?
Ah, its one of those years! “Instances of substantial shortfalls in the size of the U.S. crop when stocks were low and demand was strong have been rare (1974 and 1995), but years with the potential for such an occurrence have been more numerous. The current year is one of those years.” And with that bit of introduction, let’s find out what history can teach us about the risks of a shortfall in corn production...
Corn stocks were large coming into this year, but demand was bigger, and Cornbelt farmers are in the driver’s seat. The road is a bit unfamiliar, so agricultural economists
Darrel Good and Scott Irwin at the University of Illinois have refreshed our memory about this “road less traveled,” in a new Marketing and Outlook Brief. What is the setting in this scenario?
1) Rapidly expanding consumption due primarily to increasing quantities of corn used for ethanol production: In 2004-05 the US refined 1.323 billion bushel of corn into ethanol, a demand that rose to 1.603 billion bushels in 20050-06, and is expected to reach 2.15 billion bushels during the current marketing year. Next year, USDA says it may hit 3.4 billion bushels. The 118 refineries in production have a 6.1 billion gallon capacity, and 79 more plants are in the construction stage.
2) Declining inventories: Corn stocks that hit a 17-year record of 2.114 billion bushels 20 months ago will be whittled down to 937 million at the end of August. During the current marketing year, consumption will exceed 11.5 billion bushels, which is a record and one billion bushels more than was produced last year.
3) High prices: corn prices moved sharply higher beginning in September 2006 to a high of $4.60 in February 2007. Although prices have faded, new crop futures remained near $3.70 in mid-May, at the extreme high end of the historical range of prices for this time of year.
4) Reported intentions to increase planted acreage: Corn growers promised the market they would plant 90.5 million acres this year, 12.1 million more than planted in 2006. Planting progress has regained its normal pace, but any substantial shortfall in production would not only result in a further reduction in domestic inventories, but could require some reduction in the anticipated level of consumption.
And therein lies the rub, as the Bard said about something else, but in this case, the risk in not producing enough is the difference in what is needed, versus what we do produce. What has been our history in that regard, and what can we learn from it. Economists Good and Irwin looked as far back as 1970 to calculate the probability of meeting the expected production. They determined, “Actual production was larger than expected production in 22 years and smaller in 15 years. Actual production was within 10 percent of expected production in 25 of the 37 years (67.5%).” The largest discrepancies were in 1974 and in 1988 when there was a 40% shortfall. The largest positive difference, 16.7%, was in 1979. Most of the differences between expected and actual production was a factor of the yield and not of the harvested acreage.
So what does that allow economists Good and Irwin to project for 2007, given the USDA’s expectations of 90.545 million planted acres and a trend yield of 148.6 bushels? With production estimated at 12.29 billion bushels, the economists applied the 1970 to 2006 model and found, “Based on historical distributions, there is a 67.5% probability that the 2007 crop will be between 11.06 billion and 13.52 billion bushels, or within 10% of expected production. There is an 18.9% chance of a crop smaller than 11.06 billion bushels, which would require substantial rationing of use, and a 13.5% chance of a crop larger than 13.52 billion bushels, which would likely lead to a build-up of inventories during the 2007-08 marketing year.” Based on the expected 12.29 billion bushel crop, Good and Irwin looked at the impacts of crops that were at that level, 10% above, as well as 10% and 20% below that level.
10% above expectations: A crop 10% larger than expected would likely result in lower prices, increased consumption, and larger carryover stocks. We project larger use in each category except non-ethanol processing uses (Other) of corn. A crop of 13.519 billion bushels could result in total consumption of 12.9 billion bushels, year ending stocks of 1.566 billion (12.1% of projected use) and a 2007-08 marketing year average price near $2.60.
Even with expectations: A crop of 12.29 billion bushels would allow for a substantial increase in consumption of U.S. corn during the 2007-08 marketing year, including up to 3.4 billion bushels for ethanol. Corn exports will likely decline from the 2.2 billion bushels expected this year due to large competing supplies in South America. Feed and residual use of corn will also likely decline from the level of the current year as byproduct feed from the ethanol industry provides more competition. Total use might be near 12.55 billion bushels, 975 million more than expected use for the current year, leaving year ending stocks at only 692 million bushels, or 5.5% of expected use. Under that scenario, the 2007-08 marketing year average price of corn might be near $3.30.
10% below expectations: A crop at 11.061 billion bushels, would force consumption of corn for all purposes to be slightly less than during the current marketing year and use would be limited to 11.55 billion bushels and year ending stocks reduced to 463 million bushels. Prices would have to be high enough to ration use of the crop. The estimates by category in the balance sheet reflect the following percentage reductions: Feed down 11.5%, Exports down 10%, Ethanol down 3%, and Other down 3%. Good and Irwin say, “While these projections by category reflect the general pattern expected, actual use by category could deviate substantially from these projections. The important point is that total consumption would be restricted to a total of only about 11.55 billion bushels. There are no historical observations on which to base the average price forecast, but an average near $4.25 is projected.”
20% below expectations: The need for rationing would expand from the 10% under scenario. A crop of 9.832 billion bushels and year ending stocks of 414 million (4 percent of use) would allow consumption of only 10.37 billion bushels, 17.4% (2.18 billion bushels) less than consumption with a crop of 12.29 billion bushels. Use by category is forecast to decline as follows: Feed down 22.6%, Exports down 20%, Ethanol down 10%, Other down 10%. As in the previous scenario, consumption by category could deviate substantially from these projections, but total consumption would be limited by available supplies. A period of extremely high prices would be required in order to force such a large reduction in use. The average farm price for the year would likely exceed $5.00 per bushel and is forecast at $5.25. The economists believe, “The high prices would force a substantial reduction in livestock numbers, increasing meat supplies in the short run, but resulting in much smaller supplies after that. Meat production could eventually decline 10 to 15 percent, resulting in escalating retail meat prices. The high prices would have significant negative financial implications for livestock producers, forcing some to discontinue production entirely.”
Other implications: If a shortfall occurred, would the market be allowed to allocate the corn, or would there be government intervention such as in the case with the 1973 soybean crop, when exports were embargoed. The economists say, “The potential negative impact on longer-term trade relationships would make an embargo a very unpopular alternative. The financial implications of high corn prices for livestock producers might evoke intervention in the allocation of supplies between domestic livestock producers and processors of corn.” Good and Irwin make the point that the market and policy makers should keep in mind the potential for a shortfall in the environment of strong market demand and have alternatives in mind in the case a shortfall materializes. And with the strong expansion of the ethanol market, that scenario needs to be kept in mind for several years to come. Additionally, the economists suggest that farm programs need to be carefully crafted to not over emphasize biofuels production at the expense of other crops, and the concept that a corn reserve might be needed to buffer any shortfall.
Summary:
With the increasing demand for corn outpacing supply, there are legitimate concerns that a shortfall could occur based on recent history when 1988 fell 40% short of the demand. The demand-based market exacerbates the potential for crop shortfalls, and if one happens price rationing will occur with ethanol production, livestock feed, and exports all impacted. While the market has been able to sort out such instances recently, 1973 brought about a government mandated soybean embargo. The current demand market will exist for several foreseeable years, and both the market and policy makers should beware of the potential for a shortfall in production that would require alternatives.
Posted by Stu Ellis at 12:39 AM | Comments (0) | Permalink
May 18, 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 May 11 crop report lowered the expected 2007 crop yield about 4 bu. to 150.3, but IL Extension Specialist Darrel Good says that was in part to a new calculation formula. USDA says it is “an econometric model fit over 1990-2006 using a trend variable, July rainfall and temperature, and planting progress as of mid-May.”
Darrel Good says the methodology differs from last year that based the yield calculation on a “linear trend fit over 1960-2005 (1988 omitted), adjusted for 2006 planting progress.” The projection this year is about 2 bu. less than expected by the market, but is about 1.5 bu. above a projection based on the simple linear trend from 1960-2006. Good says the trend yield for 2007 may be overstated based on a relative short history.
The USDA report forecast the 2007-08 marketing year average farm prices in a range of $4.35 to $4.95 for wheat, $3.10 to $3.70 for corn, and $ 6.50 to $7.50 for soybeans. Darrel Good says the futures market reflects average new crop cash prices at or above the high end of these ranges. He says that would be $3.75 for corn and $7.90 for beans. Read more.
There will be more beans than the 67 mil. acres projected by USDA, says Purdue’s Chris Hurt, who expects failed wheat and delayed corn acres going into beans, along with increased double crop acreage. That means weaker fall prices, even if the market is now stronger. Read more.
Marketing old crop beans is a priority to Chris Hurt, who says there is a lot on hand and many producers are strong holders. Some producers are going to hold on to those stocks awaiting the defining weather of July-August. This means there is a higher likelihood that prices will drop rapidly after early-July if weather threats have not arisen by that time.
The May Crop report forecast the US wheat crop at 2.2 bil. bu., up 20% from 2006. The national yield is expected to average 41.7 bu. per acre; up 3 from last year, on 11% more harvested acres. The projected world ending stocks are 6% lower than last year. Wheat exports are expected to be strong because of tight supplies in other major wheat exporting countries. Kansas State’s Mike Woolverton says the projected farmgate price of $4.35 to $4.95 reflects the battle for acres with corn that will be continued into the next crop year.
More ethanol plants will be built in the Eastern Cornbelt, says Ohio State economist Matt Roberts, because of changing relationships in corn prices. Roberts says corn in the Western Cornbelt has been 40-50¢ cheaper than in the Eastern Cornbelt, creating a better economic environment for ethanol plants. He says the difference has diminished to 20-30¢ and now 8-15 new ethanol plants are planned for Ohio, even without tax incentives.
Grain storage will be a problem with 500 mil. to 1 bil. more bushels of corn compared to 2004, the last time we faced serious storage and transportation issues says Ohio State economist Matt Roberts. “We really won’t know how this will all play out until this fall, but it’s safe to say that there will be more grain storage pressure in corn-intensive areas like Iowa and Illinois.” He also expects a shift in typical corn distribution channels.
If your corn will be sold to an ethanol plant, the plant manager will have wanted it planted by May 1. That is the date when the ethanol yield begins to decline, says Wisconsin Agronomist Joe Lauer, “From a processing perspective, planting dates also affect recoverable ethanol per bushel of grain. Recoverable ethanol ranged from 2.8 to 2.9 gallons per bushel during May, but only 2.6 to 2.8 gallons per bushel for corn planted in June. So June planted corn has both reduced ethanol yield and recoverable ethanol.”
Soybean rust specialist X.B. Yang at Iowa State says 2007 may be different from the past two years, since the rust has been discovered on some Louisiana kudzu. “If an outbreak develops from this early occurrence before the end of June in Louisiana, the risk of soybean rust will be quite different from the last two years. In the last two growing seasons, the weather was dry and the disease moved slowly in the Mississippi Basin.”
There is not enough soybean rust in Louisiana for an outbreak says X.B. Yang, and it will have to spread out from the Gulf Coast by the end of June before it will get too hot for it. He says the rust will need 12 days of rain each in July and August to cause problems, which is more than normal and the 2007 forecast is for normal precipitation.
With the discovery of viable Asian soybean rust in Louisiana, Cornbelt soybean researchers have pumped up the sentinel detection network and added new elements to the official soybean rust website. It also includes a “Good Farming Practices Documentation” tool to assist producers in substantiating that good farming practices were used to manage soybean rust should producers need to file an insurance claim.
A tiny wasp, found in China, will be released into six states later this year as a biological control for soybean aphids. This natural enemy has been licensed by US and Canadian authorities for release into the environment to help control the spread of soybean aphids. The wasp controlled aphid populations in the Orient, but without the presence of the wasp in North America, aphid populations have attacked soybeans unthreatened.
IL entomologists have expressed new concern that “the principles of integrated pest management (IPM) in corn and bean agroecosystems are increasingly being ignored. Of particular concern is the lack of integration of pest management tactics and the over reliance on single-tactic approaches without any scouting input.” They urge use of scouting and economic thresholds.
If your farm has recorded 300 degree-days, you might be seeing black cutworms eating your corn. Rescue treatments are warranted when 3% or more of the plants have been cut. Find a guide to treatment.
Wheat fields should be monitored for armyworms, which are ravenous. Rescue treatment is warranted if you have 6 or more per foot of row before they begin cutting wheat heads. If Mother Nature destroyed your wheat, the armyworms won’t be happy and may take out their frustration on your corn, so scout your corn and any grass near it.
Continuous corn will need your help with fertility management. IL Fertility Specialist Fabian Fernandez says conservation tillage and no-till systems leave a large quantity of residue causing cooler temperatures and wetter soil that delays germination and root development. The roots' ability to take up nutrients is decreased due to a smaller volume of the soil being exploited by the root system, a decline in the ability of the crop to actively take up nutrients, and slower movement of nutrients in the soil.
Manage your fertility for continuous corn differently than in a corn-soybean rotation. Extension’s Fabian Fernandez says it may need extra nitrogen, but not always, and it is important to get the maximum return to nitrogen by using the N-rate calculator. Also corn residue has less nitrogen than soybean residue and retards its availability for the next corn crop.
If weeds have begun to emerge before a soil-applied herbicide has been moved into the soil by rain, Extension Weed Specialist Aaron Hager says it may be time to consider additional management options. Certain soil-applied herbicides may still provide some control of emerged weeds if precipitation occurs soon, but if emerged weeds exceed 2 to 3 inches, a postemergence herbicide application may be necessary to control them.
A rotary hoe might solve your dry soil and weed problems says Hager of IL Extension:
1) Rotary hoeing is most effective while weeds are still in the "white stage.”
2) Once the weed has emerged and grown roots, the hoe’s effectiveness is reduced.
3) Hoeing is generally most effective when done at speeds of 8 to 12 miles per hour.
4) A second rotary hoeing 7 to 10 days after the first might improve weed control.
5) Hoeing may also aid crop emergence by breaking soil crusts after planting.
Has your corn been nipped by herbicide, even though that wasn’t supposed to happen? IL Weed Specialist Aaron Hager says there could be many reasons why that happened, ranging from the genetics of the hybrid, to environmental conditions, to the type of herbicide, and a blend of all of those. If your crop shows potential herbicide damage, consider his analysis.
Living expenses went up 4.3% in 2006 for farm families, averaging $54,996 for nearly 1,200 IL farms. That did not include another $4,700 for capital purchases. Over half was non-farm income which averaged $29,614 in 2006. Net non-farm income is up 81% in the last 10 years. 2006 income tax was $10,251 and medical expense was $7,665.
Mark your calendar for June 13-14 when the Universities of IL, WI, MN & Iowa State will host the 4-state Dairy Conference at Dubuque, IA. Registration and information.
Posted by Stu Ellis at 12:44 AM | Comments (0) | Permalink
May 17, 2007
Adjust Your Corn Marketing Plan Following The Latest USDA Report.
Following last week’s USDA Supply and Demand report, which provided a more clear look at the potential for the 2007 corn crop, market activity has been strong on both sides of the unchanged mark. Is that an indication of the volatility in the months to come, as the market enters its second demand-driven crop?
Several of the Cornbelt Extension Outlook Specialists have published their weekly newsletters, providing considerable insight, and providing some guidance to refine marketing plans. Tomorrow we’ll look at soybeans, but the spotlight today is on the corn market.
“Corn has been the main focus of grain traders in recent months and will continue to drive the markets,” says Mike Woolverton at Kansas State University. Woolverton, Darrel Good at the University of Illinois and Chris Hurt at Purdue have contributed their analysis of the corn market this week. Woolverton says the USDA report came at the time many farmers were trying either catch up with planting or make strategic decisions to plant beans on either failed wheat acres or unplanted corn acres. He says USDA’s reduction of the national yield estimate from 154 down to 150 reflects the slow planting progress.
Darrel Good says the revised yield estimate is the product of a new econometric model that includes planting progress, July rainfall and temperature, and a trend variable, “The methodology differs from that of last year that based the yield calculation on a “linear trend fit over 1960-2005 (1988 omitted), adjusted for 2006 planting progress”. The projection this year is about two bushels less than expected by the market, but is about 1.5 bushels above a projection based on the simple linear trend from 1960 through 2006.” And Good says regardless of the model, July and August weather will determine the size of the corn crop.
Purdue’s Chris Hurt agrees to a great extent, saying that spring planting weather will determine 1/3 of the yield, and the balance will come from summer weather, “Planting dates, while statistically significant, only explain about 1/3 of the variation in final yields. Weather for the rest of the growing season is the primary factor that explains the remaining 2/3’s. Thus, while our best expectation of national yield has been lowered, the biggest factors to influence final yield will remain the weather still to come.”
Of course the size of the crop, now estimated at 12.5 billion bushels, is still a function of acreage and Hurt says he’s not convinced the US will plant over 90 million acres of corn as USDA projected at the end of March, and believes about one million of those acres will slip away from corn, “First, soybean prices are stronger relative to corn compared to when the plating intentions survey was taken, providing some incentive for lower corn acres. Secondly, delayed planting in the Western Cornbelt will result in some shifting to soybean acres.”
The push for so many acres of corn is from the demand for ethanol, which Good says is expanding significantly from 2006, “Most of the increase in processing use is from a 1.25 billion bushels (58.1%) increase in the projection of corn used for ethanol production.” That would raise the corn demand for ethanol to 3.4 billion bushels, a large number, but not large enough for Chris Hurt, “My calculations show that the industry may have the capacity to use over 4.0 billion bushels of corn. This is based upon plants under construction coming into production in12 months and all plants running at 100% of capacity. Certainly, all ethanol plants may not run at 100% of capacity if corn prices are very high and ethanol prices decline as expected this fall and winter.”
With corn prices remaining in a range that is 10% under the $4 mark, Hurt thinks they will generally stay there for a while, “I would see the market as having strong support at recent lows with upside potential remaining. July futures have traded in the range of $3.60 to $4.00 awaiting further indications for direction. That may be the trading range for the next few weeks until more planting is complete and prospects for summer weather begins to be better defined.” Darrel Good says USDA is expecting new crop corn prices to range from $3.10 to $3.70, with the average farm price for the new crop at $3.75 per bushel. And with global supplies of corn down, Woolverton at Kansas State says we’ll have a volatile weather market this summer, “Even with the record crop in the U.S., global supply of coarse grain is expected to decline by about three percent this year setting the stage for corn price spikes on weather events as the U.S. crop passes through the critical stages of reproduction.
Purdue’s Hurt, who says he’d be 25-35% sold in the new crop believes marketing opportunities will present themselves over the summer, “Prospects are still in place for much higher prices this summer (poor weather) and somewhat lower prices (favorable weather). However, the downside price risk seems to be more limited by the recognition that the ethanol sector will continue to provide a solid base under prices.”
Summary:
The 2007 corn crop is being planted at a faster pace than several weeks ago, but observers debate whether the late planting will hurt the overall yield. USDA has revised downward its projection for the year, but says demand will consume all but nearly one billion bushels of the 12.5 billion produced and keep market prices tightly connected to crop weather events.
Posted by Stu Ellis at 12:15 AM | Comments (1) | Permalink
May 16, 2007
How Will USDA's Farm Bill Proposal Affect Your Income?
If you squeeze your hand in your shop vise, you’ll probably try a different approach in the problem you are solving. That is what USDA has done with some elements of the farm program. The US farm program is being squeezed by budgetary constraints on one side and the WTO trade rules on the other. US farm policy is feeling the pinch and USDA is proposing a change that would increase direct payments, reduce the loan rate, and convert the countercyclical payment into a national per-acre revenue program that is not based on production. Whether those fly in farm country is anyone’s guess, but instead of guessing about the impact, let’s consult with some thinkers.
The Food and Agriculture Policy Research Institute (FAPRI) at the University of Missouri analyzed the financial impact of those three proposals on farmers and on the federal budget. The direct payment for corn remains at 28¢ per bushel through 2011, then rises for three years to 30¢. The direct payment for soybeans begins at the present 44¢, then gradually rises to 50¢ per bushel. The direct payment for wheat begins at the current 52¢ and after three years rises to 56¢. Additionally the loan rate would the lesser of two amounts. It could be the loan rates which are part of the 2002 Farm Bill. Or the rates would be a calculation of 85% of season average farm prices with the high and low years discounted in a running five year average. Finally, a countercyclical revenue payment would be made in years when a target price was not reached. The complex formula is found in the FAPRI analysis.
Impact of higher direct payments:
Direct payments are made on base acres, not on increased production, which make them more acceptable to the expected WTO rules. FAPRI says the average increase would be less than $2 per base acre for wheat, feed grain, and soybean producers, “In the higher direct payments scenario, direct payments for grains increase for the 2010/11, 2011/12, and 2012/13 crop years only. For both corn and wheat, this results in a slight increase in total receipts and payments per harvested base acre in those three years. Producers with soybean base acreage benefit from a direct payment increase in all years, but the increase is largest from 2010/11‐2012/13.” Subsequently, the increased direct payment reduces the potential for a countercyclical revenue payment.
Impact of the lower marketing loan:
The current USDA baseline prices for the next 7 years are well above the calculated rates for marketing loans, consequently, loan benefits decline for producers of wheat, feed grains, and soybeans. FAPRI believes, “ For grains and soybeans, marketing loan benefits are small in the baseline, so the modest effects shown are largely a result of cross‐commodity effects on market prices and receipts.”
Impact of the countercyclical revenue program:
Since prices and revenue are generally above trigger levels in the USDA baseline for the next 7 years, the countercyclical revenue program has only modest benefits for wheat, feed grain, and soybean producers. FAPRI says the reason for this is rooted in the rising yield trendline, “ Crop yields tend to increase over time, so any given market price is associated with rising per‐acre market revenues. Because the revenue target used to compute countercyclical revenue payments is fixed, based on 2002‐2006 observed yields, the likelihood of such payments generally declines over time.
Impact on acreage:
The amount of acres farmers devote to a specific crop depends on the revenue that crop generates, whether it is from the marketplace or from government programs. FAPRI says programs not connected with the number of bushels produced are going to have little impact on planting decisions. The higher amount of direct payments has little impact on crops, and because the loan program has only modest benefits, it, too, will have little impact on cropping decisions.
Impact on prices and demand:
Because the proposed elements in the new farm program would create little change in crop acreage, FAPRI expects the farm program to have minimal impact on prices, and since the supply is not driven by the farm program, there would be little impact on overall demand for the specific crops.
Impact on the federal budget:
Since direct payments would be rising, the USDA would be spending an average of $649 million more per year than the current farm program. However, because there would be fewer countercyclical payments made, USDA would save an average of $379 million per year over the span of the program. When all three elements are aggregated the total cost over the span of the ten year USDA baseline is $1.25 billion.
Other notable results of the proposal include:
• The increase in direct payments increases returns to land, and part of that increase is captured by landlords, some of whom are not operators. The average annual increase in net farm income is $224 million over the 2008‐2012 period, relative to the baseline.
• Net rental payments to non-operator landlords also decline in response to the decline in returns to land. The 2008‐2012 average annual reduction in net farm income is $170 million.
• Relative to the baseline, the average annual increase in net farm income over 2008‐2012 is $260 million. Net farm income actually declines relative to the baseline beginning in 2013.
• In general, farm real estate values change in the same direction as net farm income, albeit with lags.
• Only 1% of the time would the financial benefits included in this program exceed the maximum US amount of industry subsidization as defined by the expected WTO rules.
Summary:
The USDA has proposed Congress consider a commodity support program composed of higher direct payments, a lower loan rate, and a countercyclical program based on a national per acre revenue calculation. The budget impact of this program is minimal, and has been calculated at only $1.25 billion over ten years, as well as within the parameters being proposed by the WTO.
Posted by Stu Ellis at 12:05 AM | Comments (0) | Permalink
May 15, 2007
How Are You Impacted By Global Economic Change?
Frequent headlines proclaim the international stalemate over new world trade rules. Commodity association leaders tell about vast opportunities to sell our products abroad. But few of us ever have the opportunity for a first hand view, and since what is out of sight is out of mind, global trade might as well be in the next constellation down the road. But is it? Are we directly affected by global trade, and what will it do to the farm economy and employment opportunities for the rest of the family? Hmmm…is this something I should know about?
Bob Thompson thinks so. A well traveled scholar and international consultant knows many of the frontline and backroom players in the international trading game, and was asked by the Federal Reserve Bank of Chicago for help in understanding the impact of global trade on Cornbelt agriculture. What he told the Fed, is shared in a pair of newsletters. One is “Globalization and the Benefits of Trade.” The other is “Globalization and Rural America.”
Thompson says trade expanded significantly after WWII thanks to the development of rules that guide how trade should be handled. Trade barriers have been removed by wealthy nations, and lowered by lesser developed countries, allowing the easy movement of products and money. Nations increase their GDP by trading, and purchasing goods from other nations with a lower cost of production. Export growth bids up wages in low income nations, increasing purchasing power and demand for higher value products. Thompson says, “The current Doha Round of the World Trade Organization’s (WTO) negotiations is putting special emphasis on using trade to accelerate economic development in presently low-income countries. Out of the world’s 6.5 billion inhabitants, about half live on less than $2 per day, and 1.25 billion live on less than $1 per day. People with so little purchasing power do not represent market opportunities. The objective of the Doha Round is to create a trading environment in which broad-based economic growth can occur in the presently low-income countries.”
The globalization goals of the Doha Round of WTO talks is designed to achieve more economic power for all countries. But Thompson says that will require adjustment in each countries, as the market reallocates its land, labor and other resources. That reallocation may cause the loss of jobs as some industries find they cannot compete with the same industry in other nations. He says it is natural for business owners, laborers, and the politicians who represent them to complain about the change being made. US workers who are highly skilled and well paid may find fewer jobs because of lower wage countries, where workers are selling their greatest resource which is low wage labor, in an effort to increase their economic base. When Congress recognized that the gains of gainers were more than the losses of the losers, it established trade adjustment benefits to the companies and workers that were the losers, in an effort to insulate them from the losses of a declining industry. He says it is appropriate that society bear the financial burden of the trade adjustment process instead of it being on the shoulders of individuals.
Agriculture, Thompson says, has benefited from globalization, “American agriculture sells the production of one acre out of three overseas; this generates one-quarter of U.S. farm sales revenue. Without this outlet for its enormous productivity, American agriculture would be much less profitable, and land values, which make up a significant part of many rural communities’ tax base, would be lower.” But in recent years, the balance of agricultural trade has nearly equalized, exports have expanded for Brazil and other agricultural nations, and the rural US economy has come to rely on non-farm income to sustain itself. Thompson says as per capita income rises, the number of farmers declines. But those who are left on the farm with larger acreage, and those who sought urban employment opportunities are both enjoying higher incomes. Part of the success in agriculture Thompson attributes to advancements in research which has spurred productivity 2.6 fold in the past 50 years, all with fewer inputs. But Thompson says many of these changes would have occurred naturally, and without the help of globalization.
With the current round of discussions about world trade, comes the examination of highly subsidized and protected agricultural economies. Many of the benefits are retained by the owner of the land, rather than the operator, and that has given rise to land values. Governments are reluctant to change many of their policies because of the potential for land values to fall. Thompson indicates that productive land will always remain in production, but the value of the land is something that could change with changes in policy. In the US, farm policy has focused on subsidy programs, not rural development programs, and any change in farm programs could change the value of the land, subsequently impacting the tax base of rural communities. He says a rural policy, rather than a farm policy, would be more sustainable for the farm economy.
Thompson believes that US agriculture has a comparative advantage over many nations because of our resources, but also because of our farm policy, which has helped promote commodity exports, “International competition in the production of raw commodities is brutal. Because commodities by definition are undifferentiated, whoever can produce them at lowest cost will get the sale.” However he says the US does not have a comparative advantage when it comes to low paying unskilled labor jobs, and many rural areas fear that jobs in the community will be lost to other countries, “An important focus for policymakers interested in rural development should be on upgrading the quality of schools in rural areas. Higher quality education leads to a stronger local work force, while making communities more attractive places to live for potential employers and workers from elsewhere. Better educational opportunities are essential for rural communities seeking to be competitive in either agriculture or non-farm employment.”
Globalization has been fostered by the declining cost of transportation and communications. While many rural communities have comparative disadvantages in those areas, there opportunities can improve with the expansion of broadband Internet access. Rural communities can become global players by making themselves attractive to an in-migration of skilled workers following highly paid jobs and a good quality of life. However, economic development will bring social and economic change to rural communities, which must be met with an open mind of acceptance and entrepreneurial spirit.
Summary:
Globalization is bringing about a change in the world economy through trade, which will raise the economic lot of some nations and their workers, and create change in other nations where employment opportunities will have to be restructured. Comparative advantages will be claimed by those with a lower cost of production, which may not be traditional sources of those commodities and services. As a result of the change, rural America may be concerned about its future, since many farm families depend on off-farm jobs. Rural communities which restructure themselves will find new opportunities as part of the global market.
Posted by Stu Ellis at 12:26 AM | Comments (0) | Permalink
May 14, 2007
What Would More Ethanol Production Mean For Your Farm?
http://www.usda.gov/oce/newsroom/chamblissethanol5-8-07.docFriday’s USDA Supply Demand report nudged upward the expected ethanol production in the coming year, subsequently nudging upward the amount of corn that will be needed for it. Those continued adjustments in the amount of corn being refined into ethanol have always been up and with a 58% increase in new crop corn used for ethanol compared to the old crop, some of those ten year projections are going to have to expand as well. The USDA’s Chief Economist Keith Collins has been thinking about that and dusted off his crystal ball to see where we are headed and what the ramifications will be. Buckle your seatbelt for this ride.
USDA’s current projections are for 12 billion gallons of ethanol to be produced from corn in 2016, which is the end of the current 10 year baseline of economic projections. Along with ethanol production, USDA is estimating there will be 700 million gallons of biodiesel refined from soybean oil by 2016. Concerned that the current trendline points above those benchmarks, just set in February, Keith Collins and his colleagues at USDA looked at the impact of two 2016 scenarios, one with a 15 billion gallon ethanol production and the other with a 20 billion gallon production. Biodiesel production was raised to one billion gallons, for the purpose of analysis.
Current US energy policy established a number of targets, in an effort to become less dependent upon foreign sources of petroleum. In doing so, USDA’s 2016 baseline projects that 4.3 billion bushels of corn will be used for ethanol. For comparison purposes USDA’s Supply Demand forecast for the 2006 corn crop was for 2.1 billion bushels to be used for ethanol, and as of Friday, the projection for the 2007 crop is that 3.4 billion bushels will be used for ethanol, only 900 million under the projections for 2016.
Collins’ 15 billion gallon scenario would need one billion bushels more corn than the current USDA baseline and the 20 billion gallon scenario would need 2.85 billion bushels more. The one billion gallon biodiesel production would need 2.2 billion gallons of soybean oil and that would take 31% of annual production.
With the ethanol refining process, most of the production will be from dry milling plants and that means additional distillers’ grains (DDGS) would be produced, replacing some of the corn that would ordinarily be fed, says the Chief Economist, “The displacement factor of DDGs for corn in the feed ration depends on the type of animal. One pound of DDGs is assumed to displace one pound of corn for beef cattle, 0.45 pound of corn for dairy cattle, 0.85 pound of corn for hogs, and 0.55 pound of corn for poultry.” And he says some of that will replace soybean meal in livestock rations, “Each additional bushel of corn used in ethanol production produces DDGs that displace approximately 1.2 pounds of soybean meal.”
So what is the impact of all of this?
•The price of corn will be in the $4 per bushel range beginning with the 2009 crop.
•Soybean demand will be torn between demand for more soybean oil for biodiesel production, and the declining demand for soybean meal due to expanding DDGS supplies.
•Soybean prices will average in the $7 range from the current crop onward, peaking at an average $8 price in 2016.
•Corn acreage rises to 92 million acres by 2016 in the 15 billion gallon scenario and over 98 million acres in the 20 billion gallon scenario.
•The total US planted crop area expands in both scenarios, but the total area planted to soybeans diminishes slightly in both scenarios.
•Because each livestock species consumes different rations, each of the major species is impacted differently from the higher prices of corn, and the change in availability of DDGS and soybean meal.
1) Poultry producers use relatively more protein in feed rations than do other livestock producers. Thus, although poultry producers experience higher corn prices, they also benefit from lower soybean meal prices.
2) Beef cattle producers also experience higher corn prices, but are able to substitute cheaper DDGs to replace a portion of corn in the feed rations; with the cost of DDGS diminishing over time.
3) Because hog and dairy producers experience the greatest increases in feed costs relative to other livestock producers, production of pork and milk declines under both scenarios.
4) With reduced pork production, retail prices climb and take poultry and beef prices up with it.
5) Farm and retail prices for milk increase due to lower milk production under both scenarios
•Cash receipts for crops would increase $3.2 billion over the USDA baseline for the 15 billion gallon scenario and $7.7 billion over the USDA baseline for the 20 billion gallon scenario.
•Cash receipts for livestock increase by $1.1 billion over the USDA baseline for the 15 billion gallon scenario and $4.3 billion for the 20 billion gallon scenario, but feed expenses outpace those higher receipts.
•While ethanol refineries are outbidding export markets for US corn, less corn is being exported, but the corn that is shipped abroad is of higher value, and export income is increased.
With the increased production of corn, the Cornbelt will see some changes in culture and practices, according to Keith Collins, “The main conclusion is that along with bringing new land into production, induced changes in crop rotations and tillage practices from increased corn production lead to increases in soil erosion and nutrient loading, particularly in the Corn Belt and Northern Plains, where adjustments are the greatest.” Collins says he assumed the CRP will remain at 39.2 million acres, but indicated rental rates will dictate what really happens to CRP acreage.
Regarding crop rotations, the area devoted to continuous corn increases throughout the Cornbelt, the Northern Plains and the Great Lakes States. That also requires changes in tillage practices, “In the Corn Belt, the increase in crop acreage leads to an increase in use of all tillage types except moldboard. Mulch tillage increases more than conventional tillage. In the Northern Plains, no-till and conventional tillage increase, with mulch tillage use decreasing. Nitrogen fertilizer use increases in every region except for the Pacific region. The percentage increase is at or above the national average in the main corn-growing regions under both scenarios.”
With the DDGS production lowering the cost of livestock feeds, the increased production could spawn livestock operations near ethanol plants, but the Collins group doesn’t see that happening, “We do not anticipate major shifts in livestock production with the advent of higher prices for corn and possibly other feeds driven by increased ethanol demand. The extensive infrastructure in place to support existing production, especially in vertically integrated industries, is a significant factor constraining regional shifts.”
Summary:
It is no surprise that the US is producing more ethanol than anyone could have imagined, and that production is increasing at a substantial rate. If the US achieves production of 1 to 20 billion gallons of ethanol in the next 10 years, acreage will increase well above 90 million for corn, demand will raise corn prices, continuous corn acres will be more prevalent, tillage practices and fertilizer use will change. While crop income will rise, the cost of livestock production will depend in large part on use of DDGS in rations. Pork production will decrease and retail prices rise, taking beef and poultry prices higher.
Posted by Stu Ellis at 12:26 AM | Comments (0) | Permalink
May 11, 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.
Have soybean prices hit their highs, wonders Extension’s Darrel Good? “The average cash price of soybeans in central IL reached a 2006-07 marketing year high of $7.505 on Feb. 22, declined to $6.775 on Apr. 24, and stood at $7.005 on May 4. The recovery since Apr. 24 has resulted from a marginal 4¢ strengthening of the basis (which remains unusually weak) and a 19¢ increase in July futures.” Read his latest weekly newsletter.
Darrel Good says, “The average country elevator spot cash bid for soybeans is 22.7% higher than the price of a year ago, even though the basis is about 15¢ weaker.” Soy oil prices are 28% higher than they were a year ago, but meal values are only 5% more. He says cash bean prices in Central IL have never established a marketing year high in Feb., as has been the case so far this year, but it will take summer crop concerns to exceed it.
Volatility will increase in the corn market, says Michigan State’s Jim Hilker. “If corn plantings had gone along at the average of the past five years, we would have taking some of the volatility out of the market, but they didn't. Volatility in the markets, generally means opportunity, the problem is timing. Consider using the likely corn price volatility to price the remainder of your 2006 corn by the middle of July, when the yield picture becomes clearer.” Read more.
Wheat traders will be watching today’s crop report for the first indication of acreage and yield. Hilker at Mich. St. says, “The world wheat stocks are at the lowest level in a couple of decades due to our poor 2006 HRW wheat crop and the disastrous Australian 2006-07 wheat crop. At this point a normal world wheat crop would be just fine, but the world needs decent wheat crop or better this year to keep prices under control.”
Are you behind in planting corn? If so, don’t make any rash decisions to change plans:
1) Production specialists at Iowa State say wait until the end of May to switch hybrids.
2) Do not change cropping plans as yield potential is maintained through mid-May.
If you have any type of planting delay from the wet spring weather, please consider:
1) Full season soybean varieties can be planted through the first week of June.
2) Cooler soils slow down the conversion rate of nitrogen to nitrates.
3) Saturated soils slow down the loss of nitrogen from denitrification.
4) Plant your crops first, then test leaves or soil for nitrogen and adjust from there.
Clarification: The last newsletter warned of potential difficulties with the marketing of Syngenta’s AgriSure corn. Syngenta officials said most of their seed varieties are cleared for international export, except the AgriSure™ RW MIR 604 hybrid has not yet been approved in foreign markets. The newsletter did not specify the RW MIR 604 event.
Flowers and pods (yield) are produced at the nodes in soybeans, and NE researchers say plant soybeans as early as possible to allow them to create as many nodes as possible. Soybean plants produce a node every four days, and late planted soybeans can’t produce nodes any faster and will never catch up with early planted beans.
Scouting will not increase your soybean yield, but will help you halt any yield deterioration from crop pests. Iowa State is offering farmers the chance to ask questions and post pictures of problems in bean fields, with public responses that might help you identify the same issue. Look for it here.
The early April freeze is being applauded for diminishing the potential for soybean aphid threats this year. “Aphidologists” are finding them, but not in the densities that had been expected, and they attribute the attrition to the cold weather last month. Healthy colonies still exist, so the threat has not totally been eliminated. Specialists also say that the later planting and emergence of soybeans may also contribute to a reduced threat.
Bean leaf beetles may not be your current priority, but may cause your beans to grade at less than #2 yellow next fall. They carry the bean pod mottle virus that discolors beans and reduces grade, so what should you do for protection? Iowa State researchers say there are no clear results. Without a clear result, they say your best choice may be the use of tolerant soybean lines.
Consider the economics of your planting and weed control practices. Michigan State weed specialist Christy Sprague says, “Competition from these early-season weeds can reduce soybean yield by as much as 16% (8.3 bu). This could lead to as much as a $56.44/A loss in revenue at the end of the season with current soybean prices ($6.80).
If your pre-emergent herbicide is failing for lack of rainfall, and weeds have germinated and are thriving, Ohio State specialist Mark Loux suggests that a rotary hoe will buy some time until rains can activate the herbicide. He adds, “In corn fields where pre-emergence herbicides were fairly ineffective, postemergence herbicides should be applied when weeds are less than 4 inches tall to avoid risk of yield loss.
Giant ragweed, resistant to glyphosate, was found in only one IN county last year. However, 10 IN counties have glyphosate resistant giant ragweed this year says Purdue weed specialist Bill Johnson, who adds that 90% of the beans and 50% of the IN corn this year will be glyphosate resistant varieties. He made several recommendations:
1) Use appropriate soil-applied herbicides in both Roundup Ready beans and corn.
2) Apply the correct rate of glyphosate based on weed size.
3) All vegetation should be controlled prior to planting no-till fields.
Scout your wheat for powdery mildew, which is one of the most common wheat diseases. Mild temperatures, high relative humidity and dense stands favor mildew development. It is most prevalent on the lower leaves of susceptible varieties when wheat is in the joint to flag-leaf stage of development. Ohio State has more.
Nebraska livestock economist Darrel Mark spent much of his weekly newsletter teaching cowboys how to interpret the meaning of USDA’s weekly planting progress report. He says, “As a result, much of the long-term price risk will likely result from weather conditions and planting progress over the next week or two. Feeders may want to use this week’s weakness in the corn market to cover a portion of their feed needs.” He suggested livestock feeders buy a call option to protect against rising corn prices.
The demand for pork was down 1.7% compared to 2006, but the demand for live hogs is 2.2% higher say Glenn Grimes and Ron Plain at the Univ. of MO. That is because exports are up and imports are down. Feeder pig prices are higher than 12 months ago also. Even with corn adding $7-8 per cwt. and live hog prices only $4-6 per cwt higher than a year ago, there is still a demand for feeder pigs. Economists ask, “Is it possible we have built enough finishing houses in the last year to outpace the supply of pigs?
Are you feeding DDGS to hogs? Purdue animal scientist Mickey Latour says beef cattle can consume up to 30% DDGS without meat degradation, but the pig's unique body composition turns DDGS into soft fat at rates higher than when the pig is fed a straight corn-soybean diet. “Replacing 10-12% of the corn with DDGS in pig diets is doable, but for gilts it is closer to 6-8% because gilts tend to have softer fat relative to barrows.”
Hogs with high DDGS content in their ration produce bacon that is flabby, commonly shown as "bending,” and exhibits smeared-looking fat and lean lines. Non-DDGS sausage has a richer color and texture, while pigs fed large quantities of DDGS produce sausage that appears pale and undesirable. The nutritional value of pork is also reduced.
Contracting financial support for dairy education and research has spurred 10 Cornbelt universities and 2 corporate partners to create the Midwest Dairy Consortium at the University of IL. Resources will be shared for graduate programs, promote research, and inform consumers to maintain a vigorous Midwest dairy industry.
Your diesel fuel bill should be less than last May by 13% says Kansas State economist Kevin Dhuyvetter. And he says diesel prices should be as much as 22% under year-ago levels through August. Diesel fuel prices at harvest should be back above 2006 fall price levels. His forecast is based on petroleum futures prices with a Midwestern basis.
Ethanol plants demand corn and 3 gal. of water for each gal. of ethanol produced even by a dry grind plant. IL ag engineers are developing new ethanol refining processes to reduce the water demand by 50-85%. Methods include use of a membrane that filters out impurities which hamper enzymes in the fermentation stage, as well as separating the starch first to avoid contact between the fermentation bacteria and other kernel elements.
Posted by Stu Ellis at 12:59 AM | Comments (0) | Permalink
May 10, 2007
And What Are You Doing With Your New Found Wealth?
If you are a typical farmer you have an iron pile, a bucket of used nuts and bolts, a drawer with almost new sand paper and other scraps that might come in handy some day. Your favorite things to do are make something out of nothing, pinch pennies, and scrimp until your spouse stops speaking to you. But corn and soybean prices have created a new economy, where you now have enough money to no longer depend on baling wire and duct tape. Yes, this is a new world for most farmers. It may be time to buy a new shirt, get a haircut more than twice a year, and even get your wife some flowers for Mother’s Day. But what else should you do with your new found wealth?
Before you buy the biggest pick up truck in the county and order a new combine, you might want to read the advice of Iowa State University economist Bill Edwards about Managing Your Finances with High Grain Prices. Edwards acknowledges that most farmers pay attention to financial advice when prices are low, interest is high, and there is a squeeze on cash flow; but farm businesses can make more progress positioning themselves for the long haul when the economy is more friendly than usual.
Edwards says the demand-driven market is rare, but it is unlike the export explosion 30 years ago that fostered “fencerow-to-fencerow” farming. That faded in the 1980’s, but today’s economy is driven by energy needs and other economic factors are more friendly, such as low interest and inflation, and abundant crops. He says the average debt to asset ratio that rose to 34% in the 1980’s has fallen to 11% and Cornbelt farmers are building equity. So what should you do financially to bolster your balance sheet?
Pay off your debt.
If your operation has substantial debt from buying land, livestock, machinery or other fixed assets, reducing that debt will reduce your interest payment and provide more financial cushion if commodity revenue fades. Compare interest rates and pay off the higher rate loans first, if your loan agreement allows a pre-payment. Also reduce your operating line of credit, and create a credit reserve for future needs. Edwards also suggests:
1) Build your current ratio (the value of assets divided by debt payments) to 2.0 or more.
2) Keep your working capital (the difference between current assets and current liabilities) within the range of 25% to 35% of your annual gross revenue.
Pay cash
If you are replacing equipment or other depreciated assets, use this opportunity to pay cash rather than financing your purchases. And if you are leasing combines or other equipment, it may be time for a purchase rather than making high lease payments. Despite high land prices, some farmers may want to buy land instead of paying high cash rents. Edwards says, “A larger proportion of net farm income will accrue to land ownership and a lower proportion will accrue to labor and management.” But he warns that if you are financing a land purchase, it must cash flow with prices that are not as high as today. “Purchasing fewer acres with a higher down payment can lower financial risk.”
Stay flexible
No one likes to be locked into an untenable position, and Edwards’ recommendation is to stay as flexible as possible, including the use of flexible leases that base rents on price and yield. And he adds, “Spreading net worth over more crop acres can have the same “leverage” effect as borrowing more funds. The average net worth per crop acre for Iowa farmers is around $1,000. Values substantially below this mean that small variations in the market will have a larger effect on the farm’s equity.”
When you have adjusted your farm finances, include some of your family’s wish list:
• New kitchen
• Vacation
• (Hmmmm)
Summary:
Increased farm revenue can provide opportunities to restructure the financial position of many farms. Strategies for benefiting from higher crop prices might include paying down intermediate and long term debt, switching from leasing to purchasing machinery, obtaining more land either through purchases or strategically structured mortgages. Many financial actions can be taken in the current farm economy that have not been considered for several decades.
Posted by Stu Ellis at 12:57 AM | Comments (2) | Permalink
May 9, 2007
Conservation Policy: How Would You Allocate The Funds?
Do you have any CRP on your operation? How about buffer strips or other conservation practices that either local NRCS or soil and water conservation crews helped install or helped finance? As new federal farm policy is written this year, conservation will take a front seat because of the increased visibility and voice of advocacy groups. And while most farmers are strong advocates of soil and water conservation, sometimes stepping back to look at the big picture of what is happening can give a valuable perspective on what the future needs.
From the $500 million dollars that was used to start the CRP in the 1985 Farm Bill, federal conservation funding has grown 8-fold in the past 20 years to the current $4 billion. Congress has not only appropriated more money toward conservation, but also shifted the way it is allocated says USDA economist Roger Claassen who authored a report on conservation funding in the May issue of USDA’s electronic magazine Amber Waves. Claassen says a significant amount of land has been taken out of production in the past 20 years in the name of soil conservation, “From the mid-1980s until 2002, the bulk of USDA conservation funds went toward land retirement: paying farmers to remove environmentally sensitive land from crop production for a time period specified under contract. As of January 2007, almost 36.7 million acres were retired from crop production—about 10 percent of U.S. cropland.”
However, in the first 15 years, 69% of the conservation funding was for land