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September 28, 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 Quarterly Grain Stocks report Friday morning indicated the last marketing year ended with 1.303 bil. bu. of corn on hand, a 34% decline from levels a year ago. However the usage rate of 2.231 bil. bu. was much less than what the market expected.
USDA’s Quarterly Grain Stocks report released today indicated soybean carryout at the end of the last marketing year was 573 mil. bu. That means a use of 518 mil. bu. use of beans throughout the last quarter, less than the trade expectation of 555 mil. bu.
USDA’s Quarterly Grain Stocks report for wheat indicated we have 1.727 bil. bu. on hand, which was less than the market expectation of 1.835 bil. bu. The current wheat stocks were also less than the 1.751 bil. bu. that USDA reported at this time a year ago.
The USDA’s Small Grains Summary today reported less expected production for the current year, which was characterized as bullish to the market. Wheat production is now forecast at 2.07 bil. bu. in the 2007-2008 crop year. USDA reported that production of hard red winter wheat is expected to increase, but other classes will drop in production.
Soybean marketing #1. Purdue University market outlook specialist Chris Hurt says, "Add a dollar a bushel during storage season which will push prices into the $9-$9.50 range and if there are growing problems in South America and export demand from China is stronger, we could see double digit soybean prices up in the $10 range."
Soybean marketing #2. Missouri marketing specialist Melvin Brees says storing beans is more risky than corn. “In spite of weak basis, current soybean cash bids are well above the top end of the USDA’s projected price range. This suggests that, if storage space is limited, storing corn would be favored over storing soybeans. If soybeans are stored, with limited futures market carry, it appears that capturing basis gain is a primary objective.”
Soybean marketing #3. Iowa State marketing specialist Bob Wisner says, “No one knows how high soybean prices will have to rise to encourage enough production to meet market demand. With a near normal growing season in So. America, it would not be surprising to see soybean futures prices reach a peak sometime between now and Feb.”
Soybean marketing #4. University of Illinois marketing specialist Darrel Good says, “The pricing and storage decisions for the 2007 soybean crop are being influenced by the current high price, the weak basis, and the availability of storage.” Alternatives are:
1) The weak basis suggests storing the crop to capture a post harvest basis strengthening.
2) Hedging allows you to benefit from basis improvement and to capture current prices.
3) Unpriced storage allows you to capture a higher basis, but at the risk of lower prices.
Which crop do you store? Darrel Good says, “The weak basis and large carry in the corn market make storage of that crop attractive. In cases of limited storage capacity, producers may need to examine the relative returns to storing soybeans and corn. In central IL, the net return to corn storage, as measured by potential basis improvement, exceeds that of soybeans due to the high interest opportunity cost of holding soybeans.”
Futures will pay about 5 cents a month to store corn, says Jim Hilker at Michigan State. “That pays for on-farm storage, but does not pay for commercially stored corn. Those who do not have on-farm storage and still have unpriced 2007 corn should watch for pricing opportunities from now through harvest.” Hilker says consider a basis contract, selling cash and buying futures or a call option, a minimum price contract, or a min-max contract. He tells farmers with on-farm storage to keep the basis open as long as it pays.
Cash wheat prices are slightly above $8.00/bu now, says Michigan State’s Hilker, so how can you go wrong selling some or all of your crop? The hard one is pricing your expected 2008 wheat crop. When you see the bids, think further back than today. July 2008 futures at $6.70 look very good historically, but not next to Dec 2007 at $9.33.
If you have not yet ordered seed corn for 2008, you’re smart, says Purdue’s Bob Nielsen, because test plot data is important. “Seed selection is important and should not be based on advertising or a sales pitch, but on yield performance. I encourage folks to not be afraid to use the prior year's yield trial information and look for hybrids that performed well because it really comes down to consistency of hybrid performance.”
Protect your valuable stored corn in the bin, says Doug Johnson at KY, who provides several tips.
1) Operate combine to minimize grain damage, trash and fines.
2) Store corn at 15, 14 or 13% moisture when holding for 6, 9, or 9+ months respectively.
3) Apply a protectant to the grain, but only after drying and cooling.
4) Only apply a “cap out” treatment to the grain surface, but not if a protectant is used.
If stored grain over 50 degrees, insects will start feeding and reproducing immediately, says ND entomologist Janet Knodel. When grain temperatures exceed 50 degrees, bins should be inspected for insect activity every two weeks. Stored grain insect pests generally are inactive below 50 degrees. Use a grain probe to determine what species of insect pests are infesting the grain and the extent of infestation within the grain mass.
USDA has not officially announced when the pilot program will begin or other details, but Monsanto reports farmers who use certain stacked trait biotech hybrids will be eligible for a 24% premium discount on crop insurance if they farm in IL, IN, IA, or MN, and purchase a minimum of 75% of their seed with those traits. The 20% biotech refuge is still required, says Monsanto, but USDA has not yet released any information.
If dandelions are a problem in no-till or alfalfa, consider a fall herbicide application say WI researchers, “The perennial nature of dandelion is a management challenge. Unfortunately, established dandelions are not consistently controlled with burndown applications of glyphosate or 2,4-D in the spring. The WI weed specialists evaluated 17 alternatives.
Control winter annuals with a systematic approach says Mark Loux at Ohio State:
1) Overwintering weeds interfere with crop establishment and early-season growth
2) Prevent seed production by these weeds, which reduces future weed infestations.
3) Effectiveness of the treatment is important – speed of control is not.
4) Combinations of two herbicides are usually more effective than any single herbicide.
5) Herbicide recipes and application tips are available .
Without winter annuals, black cutworm moths will have reduced locations to lay eggs, say Ohio State entomologists, and their larvae will have a reduced advantage in attacking new corn plants in the spring. The Extension specialists add, “With the various seed treatments not providing acceptable management of black cutworms, eliminating weeds is an excellent preventive tactic to begin your corn insect management for 2008.”
Asian soybean rust continues to spread, but because of the maturity of the soybean crop, plant pathologists say soybean rust will be a non-issue in the Cornbelt in 2007. Among the latest confirmed rust spots are in deep southern IL, and across the Ohio River in western KY, along with spots in MO and KS. Consult the official soybean rust website for updates.
The last Cattle on Feed report revealed about 3,000 more head on Sept. 1 compared to Aug. 1, much less than the typical seasonal increase seen in inventory numbers, says NE livestock economist Darrel Mark. “The data continue to support the trend towards a feeding advantage in the northern states (IA, SD, and NE) relative to southern plains states brought on by the availability of ethanol byproducts and cheaper corn.”
Animals do not require specific feeds, they require nutrients, say Ohio State Extension specialists, who say, “If the value of nutrients can be determined then the value of a feed can be calculated by summing up the value of its nutrients. The value of nutrients can only be determined using market prices and those constantly change.” Their decision aid at www.sesamesoft.com calculates the value of nutrients based on current feed prices.
Cow-calf operators will want to attend an 11/28 conference in Springfield, IL, to learn feed alternatives to high priced hay and corn. Topics include storage, handling issues, and timely buying of co-products; using co-products in growing and backgrounding diets; cow and heifer rations using co-products; utilizing co-products in finishing diets; early weaning and feeding co-products; and new co-products from corn dry-grind ethanol production. $18 fee includes materials. Register by e-mailing: dseibert@uiuc.edu .
In the haste of harvest, MO ag engineer Bill Casady reminds farmers that combines and tractors have to breathe just like people, and with the dust generated in harvest air filters will clog quicker than any other time. “A dirty air filter starves the engine of air and leads to poor performance, poor fuel efficiency, and increased emissions.”
Posted by Stu Ellis at 9:26 AM | Comments (0) | Permalink
September 27, 2007
Direct Payments: Beneficial? Vulnerable?
The leadership of the US Senate Agriculture Committee has delayed consideration of the 2007 Farm Bill until funds can be earmarked for conservation and disaster aid programs that are beyond the scope of what has been approved by the House of Representatives. At midweek the word on Capitol Hill was that Direct Payments to commodity producers would be diverted into the conservation and disaster aid programs, which drew considerable criticism from some farm groups. Cornbelt farmers have been receiving Direct Payments, but what are they based on?
Unlike Counter-cyclical payments and Loan Deficiency Payments, eligible farmers receive Direct Payments for the same amount, year after year. Ohio State University ag economist Carl Zulauf writes in a July 2007 newsletter that Direct Payments never vary because of commodity prices. Their origin is in the 1996 Farm Bill and were originally known as payments for Production Flexibility Contracts and were provided to producers of the program commodities. In 2002 they became Direct Payments and were extended to soybeans as well. Congress has been appropriating $5.3 billion per year for Direct Payments, which is close to what Senate Agriculture Committee Chairman Tom Harkin is wanting for additional Farm Bill funding.
The nature of the Direct Payments makes them a major focal point in the negotiations over the World Trade Organization rules. Since the Direct Payment is not tied to production, and cannot promote additional production, they are considered to be safe from the WTO’s proposed spending limits. Such a payment is considered to be a social income transfer instead of a production subsidy, so it has the WTO’s blessing.
The Direct Payments were originally calculated with a production factor, so they are paid on bushels, pounds, and hundredweight of production. Zulauf says the Direct Payment is calculated by multiplying a farm’s program yield (1981-85 yields) by the farm’s base acres (also 1981-85) and then multiplied by 85%. Once that bushel value is determined, it is then multiplied by a Direct Payment rate. Corn receives a 28 cent per bushel payment, soybeans are 44 cents per bushel, and wheat is 52 cents per bushel.
Zulauf says Direct Payments have been guaranteed, which is appreciated by bankers, but do not help manage price or revenue risk. Recent practice for cash rent producers has been to agree to higher rents because of the Direct Payments, in essence turning them over to a landowner. Direct Payments do provide certain cash flow that can be used for operating expenses, but depending upon the crop, can vary widely. Zulauf says the effective benefit of Direct Payments varies from $95 per acre for a rice farmer to $1 per acre for oats.
Summary:
While Direct Payments have been a relatively minor part of the recent farm program, they do provide cash flow and they are compliant with the World Trade Organization rules. Direct Payments provide a more than $5 billion benefit to commodity producers, and because of the high value, may be vulnerable for a shift into programs that may be of a higher priority for Members of Congress.
Posted by Stu Ellis at 12:33 AM | Comments (0) | Permalink
September 26, 2007
Profitability Is More Of A Function Of Cost Than Revenue For Most Farms
What determines profitability on a farm? Among the many factors are those that cannot be controlled, and those that can be controlled. A producer will have the opportunity to determine how much is spent for inputs which will have a direct impact on revenue, and subsequently on profitability. But what are those decisions? For this 500th edition of the farm gate blog, we'll look at production expense.
Profitability is a function of weather (can be controlled with crop insurance), trade policies (farmers have to depend upon the government negotiators), interest rates (that is a duty of the Federal Reserve), and government programs (the 2007 Farm Bill is being constructed now.) But an individual farmer has relatively little input in any of those. However, individuals can manage for profitability, and that is the essence of a 5 year survey taken by Kansas State economists Chris Crosby, Kevin Dhuyvetter, and Terry Kastens with the help of the Kansas Farm Management Association. Their report provides a description of high, medium, and low profit producers, which you can compare to your operation.
Non-irrigated corn. The difference between high and low profit farms was $91 per acre, despite variable yields and prices across all three categories. Gross income averaged $2.42 per acre more for the low profit farms than the high profit farms, consequently over 100% of the difference in net profit was due to cost differences. Machinery had the biggest impact on cost and was over $31 less for the high profit farms than the lower profit farms. However, there was only $3.29 per acre difference between high and mid profit farms for machinery costs. High profit farms had less cost per acre in all categories compared to low profit farms, except for crop insurance, but the difference was only a dime per acre. High profit farms had more acreage than other mid or low profit farms.
Non-irrigated wheat. The average difference in profit between high and low profit operations was $65.39 per acre, and high profit operations were $26.83 better than the mid profit farms. Market prices were all within $0.11 per bushel, but high profit farms had better yields by 7.5 bushels per acre compared to mid profit farms, but were only 4.5 bushels per acre better than the low profit farms. The better yields and prices allowed the high profit farms to gross $11 more per acre than low profit farms and $24.66 more than mid profit farms. Of the $65 per acre difference in profitability, 18% was from income, and 82% was from cost control. Machinery was $24.18 per acre less for high profit than low profit, and had lower costs in all other categories with some having a 20% or more margin. Mid profit farms had 82% more acres than low profit farms and 6% more acreage than high profit farms.
Non-irrigated soybeans. High profit operations netted $74.52 more per acre than the low profit farms and $26.57 more per acre than mid profit farms. High profit farms had 2.8 bushels per acre more yield than mid profit farms and 6.9 bushels per acre more than low profit farms. That provided $27.28 more income for high profit farms than low profit farms. Of the $74 per acre span in profitability, 29% was related to gross income and 71% due to costs, with machinery having the biggest impact. Machine costs were $21.88 per acre lower for high versus low profit farms, and other costs all were less for high profit farms than low profit farms, with most of the difference being 20% or more. High profit farms also had the most acreage, and low profit farms had the least, suggesting economy of size.
Summary:
Significant profitability swings exist between high and low profit farms, indicating the extent of returns to management for managing costs. Most of the difference was due to cost compared to income, indicating yield and markets had less of an impact on profitability than did cost controls. In most cases the high profit farms all had less cost per acre or cost per bushel than did the low profit farms. Machinery costs were the largest segment of expense, and high profit operations all had lower costs per acre than the lower profit farms. Additionally, the higher profit farms were generally the larger operations, but not always, indicating some economy of size can be expected.
Posted by Stu Ellis at 12:14 AM | Comments (0) | Permalink
September 25, 2007
Just Plain "Storage" Is Not A Sufficient Marketing Plan For Corn And Soybeans
What is the marketing plan for the crops you are harvesting? Have they all been sold? Are you holding any unpriced grain? What protection do you have against any downside movement? Or are those questions you’d prefer to ignore and hold your crops until the price gets better? Sorry to ruin your day, but if you are planning to take advantage of good prices over the next few years in the demand market, you’d better have a marketing plan.
Nearly all of the private commodity advisors and the university marketing specialists look for markets to get stronger once the 2006 surplus soybeans are consumed and the 2007 bumper corn crop is whittled away. In the meantime prices could take unusual turns as the result of greater South American production or adverse trade issues, and suddenly the premiums evaporate. To protect against that, consider a marketing plan that addresses a strong market carry and a weak basis.
At the University of Missouri, marketing specialist Melvin Brees says cash corn is currently in the middle of the USDA marketing range and cash beans are above the USDA marketing range. But he says, “Regardless of price, weak basis is a market signal to avoid cash sales. As a result, many producers will likely choose storing the grain over harvest time deliveries or sales.” Brees says even though corn production is at a record high and may still get bigger, and the carryout is large and may still get bigger, corn prices are stronger than at the time of the USDA report which forecast that scenario. He says that is positive!
Corn. The “carry” in the market, reflected by higher prices in more distant futures contract months, indicates there is money to be made by storing grain until then. “May 2008 corn futures prices have offered a price premium (or carry) of more than twenty-five cents per bushel over December 2007 futures prices. The July 2008 corn futures contract offers nearly thirty-five cents of carry.” To take advantage of that scenario, Brees says, “The market carry can be protected, or “locked-in,” by using futures hedges or some form of deferred delivery cash contract.”
In the coming year, strong domestic demand from livestock and ethanol, as well as for exports will require another large crop, and many observers expect the market to bid for acres. That is being done with the $4 corn offered for fall 2008 delivery, and Brees says the market could break out of the current 45 cent trading range, but a good marketer will watch the market for storage strategies. He says if negatives develop, such as a weakening of demand or a sluggish economy, then the outlook will not be as good. “Corn marketing plans should include strategies to capture basis gains and deciding whether to speculate on market trends or pro¬tect market carry. Besides strategies to capture higher prices, these plans also should include downside price targets or trap prices to help avoid the risk of a market decline.”
Soybeans. The soybean market is focused on declining supplies from the current record surplus to a level next August that might hint at rationing. That may be exacerbated by the lower yield estimates this year that might decline as time goes on. In the middle of the marketing year will be a healthy crop from South America, the size of which won’t be known until after the first of the year.
Unlike corn, the carry in the soybean market is weaker, and Brees says it will not cover storage costs, “The price premiums for January 2008 soybean futures (sixteen cents) and March 2008 futures (twenty-three cents) will only cover about one-half of the cost of storing soybeans. More distant futures contract months (May, July) offer little or no additional market carry.” Without a better market carry, producers will have to depend upon basis improvement, but large supplies and high energy and transportation costs are not letting that happen very quickly.
With the reduced supplies next August, the market is telling producers to plant more beans in 2008 as it bids against corn and wheat for acreage. Of course, South American producers will be capturing some of that market premium. Currently the new crop soybean prices are discounted from the old crop about 35 cents. Even if prices for the 2008 crop rise, that does not mean prices will also rise for the 2007 crop.
Brees believes there is more risk in storing beans than corn, since beans are already above the estimated marketing range for the year. However, to gain any additional value from soybeans, he says it will have to come from the basis, and marketers will have to closely watch for a top in the market.
Summary:
A weak basis and a strong carry in the market are signals for storage. But corn and bean markets have some different dynamics that will dictate different marketing plans. Corn has a strong carry, which will pay for storage costs, but the basis has to be monitored while the market is expected to continue bidding for 2008 acreage. Soybeans have current high values but a weak basis. While the carry in the market is negative and will not pay for storage, the basis will strengthen as the supply is reduced, and that may provide a return to storage.
Posted by Stu Ellis at 12:41 AM | Comments (0) | Permalink
September 24, 2007
Do You Plead Guilty To Raising The Price Of Food?
Farmers, high commodity prices, and the biofuels industry have all received bad public relations recently from consumers and the economists who study food prices. Their analyses end up in the Washington Post, the New York Times, and on evening television news broadcasts and always paint a negative perspective from the viewpoint of Cornbelt agriculture. But is the blame really deserved?
Purdue economists Chris Hurt and Corinne Alexander say the answer is complex, involves global food and energy economics, and raises questions about where US policy should go. Their research in the Purdue Agricultural Economics Report looks at what happened to food prices in the 1970’s when commodity values were strong. At that time general inflation was 6.8% per year, and food prices were rising at 10.3% per year. During the disinflationary period of the early 1980’s the general rate of inflation was 10%, and food prices were only inflating at a 6.8% rate.
Hurt and Alexander say food prices are rising because of the farm level values of raw materials used to produce food, but unlike the 1970’s when farmers received 32% of the consumer food dollar, today’s share is 20%. They also say foods make up a smaller share of the Consumer Price Index. Compared to the 1970’s, a 40% increase in commodity prices would push up food prices by 12.8% and inflation by 2.43%. But today a 40% increase in commodity prices only results in an 8% rise in food inflation, and a modest 1.2% rise in general inflation.
Another issue that diminishes the impact of US agriculture on food prices is the global food market, and a drought in the US is not going to impact food prices as it would have 35 years ago, since the US share of crop production has diminished and the US imports more food than it did in the 1970’s.
While food inflation has been less than the general inflationary rate for the past several years, that changed in 2007 and food inflation has lead the general inflation rate. But interestingly, the higher food prices have been due to prices for fruits and vegetables, wheat products including bread, spaghetti and flour, as well as eggs.
• Fruit and vegetable prices are a function of reduced acres, a California freeze in January, a cold February in Florida, and weather damage to Mexican crops. Also the loss of honey bee colonies reduced production for many food items, but nothing there can be related to the demand surge for biofuels.
• Higher prices for bakery items are a function of tight supplies of wheat in the US and the world, poor crops in Canada and Australia, and crop damage in the Great Plains, but nothing related to biofuels.
• The higher prices for eggs are due to higher corn prices, since the farm share of the retail price of eggs is 53%, which is the highest of any food product.
Hurt and Alexander say a related study at Iowa State suggests that, “Results are for food inflation to be higher than they would have been without biofuels by 1.1 percent to 1.8 percent.” And they report a USDA study does not attempt to link food prices to biofuels, but predicts, “Food inflation in the U.S. will be three to four percent in 2007 and that is up from an annual inflation rate of 2.4 percent in 2006. Thus, this reflects an increase from 0.6 percent to 1.6 percent higher than in 2006.” The Purdue economists say that every $1 increase in commodity values is probably pushed onto consumers who have to pay an additional $1.
Compared to farm prices and consumer costs in 2005/06, the Purdue team says there will be an additional $15 billion or 1.2% increase in food prices for 2006/07, and an additional $22 billion or 1.8% for 2007/08. However, 50% of the impact on food costs is due to higher prices for meats.
Summary:
Food prices will feel some impact from biofuels over the next several years, but to a lesser magnitude than some forecasters. That is because farmer receive a much smaller share of the consumer dollar, consumer spending for food is declining compared to other consumables, and more food comes from foreign sources. Food price inflation is also the result of higher energy costs and poor weather conditions. Food inflation had been lower than the general inflation rate, but for 2007 and 2008 it is expected to surpass it. Nearly half of the food inflation rate can be attributed to livestock prices. The Purdue report suggests food will be able to successfully compete with biofuels, but prices will be higher, however that will depend on yield trends, energy costs, and biofuel production technology, as well as where US biofuels policy heads.
Posted by Stu Ellis at 12:39 AM | Comments (0) | Permalink
September 21, 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.
If you haven’t heard, Mike Johanns has resigned as Secretary of Agriculture to run for the Senate from Nebraska. He says farm equity is at $2 trillion, the debt to asset ratio is the lowest in 45 years, 2007 net cash income will be a record 86 billion, with average farm household income projected at $81,500 for the 2007 calendar year.
The Acting Secretary of Agriculture will be Chuck Conner, who has been Deputy Secretary under Johanns and has been the USDA lead on Farm Bill deliberations on Capitol Hill. He was raised on an IN farm, advised the White House on farm issues, headed up the Corn Refiners, and was former staff chief for the Senate Ag Committee.
What happens to a 13 bil. bu. corn crop? IL Extension’s Darrel Good says 12.79 bil. bu. will be consumed, helped by a 1.42 bil. bu. increase over 2006 crop consumption:
1) Ethanol will use 3.3 bil. bu. which is a 1.725 bil. bu. increase over last year.
2) Exporters will need 2.25 bil. bu., 130 mil more than ‘06, and the largest in 18 years.
3) Feed use will grow by 1.7%, helped by a 2% increase in livestock numbers.
Looking at the 2008/09 crop, Darrel Good says if an additional 1 bil. bu. of corn is needed for ethanol production, it may come from carryover which would negate the need for significant additional acres. Any increased acreage required by corn will have a substantial impact on soybean and wheat prices, says Marketing Specialist Good.
Marketing the current crop is your priority, and Darrel Good says price levels and basis will dictate your marketing and storage decisions. The weak basis tells you to store the crop, and the large carry in the market dictates the use of forward pricing. Read his newsletter.
The soybean market is just like the corn market, says Iowa State Specialist Bob Wisner. “The current weak basis and a very large carryover for both corn and soybeans (harvest delivery vs. summer delivery futures contracts) offer much above normal returns for storing on farm and forward contracted bids for spring or summer delivery.” He says forward contract bids for summer vary considerably, and may provide up to 70¢ benefit.
Bob Wisner is uncertain how high soybean prices will have to be between now and spring to encourage enough production to meet market demand. “Soybeans have moved up to new life-of-contract highs for NOV futures, with a substantially higher price being offered for 2008 delivery. With a near normal growing season in So. America, it would not be surprising to see soybeans reach a peak sometime between now and February.”
What will move the market in the near term? Iowa State’s Bob Wisner suggests:
1) A speedy harvest and good fall weather will weaken the basis.
2) Weekly corn and soybean export numbers will confirm overseas demand.
3) The Sept. 28 Grain Stocks Report will indicate recent feed use of grain.
4) The Oct. 12 Crop Report will further define kernel and bean size.
If your storage options are limited, Purdue’s Chris Hurt says the priority is on beans. He says both corn and bean prices will increase throughout the storage season; but he says corn may only increase 50-60¢. Hurt says beans have more return to storage and more upside market potential with Chinese purchases and Brazil production problems.
Purdue’s Chris Hurt says, "Whatever crops the world needs in 2008, the market place will bid very aggressively for those crops and direct the ways which farmers shift their crops.” He’s expecting an 8% increase soybean acres and a 4% decline in corn acreage.
Wheat fundamentals are bullish, but Kansas State’s Mike Woolverton says the market dropped because prices were higher than the fundamentals could support. He says acreage won’t expand much because, “The steep futures market inverse; September 07 to July 08, is telling producers to expect a significantly lower wheat price in July. Plus, strong soybean and corn prices will work against a large shift into wheat.”
Woolverton says the top of the market may be in for wheat. He says Great Plains planting is underway with good conditions; the So. Hemisphere producers are adding to the supply despite their drought; and when the No. Hemisphere crop comes out of dormancy next Feb. and if conditions are near normal, harvest prices will be lower.
Most Cornbelt combines are running, but in areas of excess rain the past several weeks; questions arise about when corn can be harvested. Iowa State agronomists say, “Hybrids will vary in rate of dry down. Drying rates of later maturing hybrids or late-planted corn are slower than earlier maturing hybrids or early-planted corn. This is partly because the corn matures when days are shorter in length and temperatures are usually cooler.”
Husk and ear characteristics will also affect dry down, such as fewer and thinner husk leaves; early husk leaf senescence; ears with tips that protrude beyond the husks; looser husk leaves; early ear drop from an upright position; thinner or more permeable pericarp. Purdue has more.
If your yields were cut by drought, MN Extension soil scientists urge caution in N application. They say there is a good chance that larger than normal amounts of residual soil nitrate-N may be available for use by the 2008 corn crop. And as always, avoid N application to soils above 50 degrees without the used of a nitrogen stabilizer.
Alfalfa producers should consider potassium applications after the final harvest to increase carbohydrates in the roots and create early spring vigor. OH agronomists suggest a 6 ton crop will remove 300 lbs per acre and it should be replaced. Use a soil test to also check if P levels are below 100 lbs. per acre. 1 ton removes 13 lbs. per acre.
Wheat producers who ignore the Hessian fly-free date to get good early growth before winter have also fed aphids that will damage the crop and spread barley yellow dwarf, say Purdue entomologists. An Indian summer spray is too late to prevent BYD, but entomologists say it will kill aphids if you want revenge or you can just wait for frost.
Winter annuals can create many agronomic problems, including SCN hosting, unless controlled. If that is on your checklist for the fall, ensure that you know what weed problems you have, then consult Purdue’s herbicide scorecard for winter annuals.
Your bottom line is the priority if you are considering adding to your precision ag toolbox, says Purdue Specialist Bruce Erickson. He says nitrogen sensor-based tools will become available, and since N and fuel costs are high, the expense of that technology will help the bottom line. Erickson said the same is true with automatic guidance systems, which can save fuel, inputs, and cost by reducing a 5% row overlap to only 2% overlap.
April and June live cattle started the week at over $99 and $95/cwt, respectively, and the three year average basis in Iowa has been a positive $1 to $4/cwt. Iowa State’s Shane Ellis says, “If corn can be purchased at $3.10 per bushel and 1200 lb. fed steers can be sold for $97/cwt next year, then the feedlot could pay up to $136/cwt for their 550 lb. calves right now.
Despite historically high calf prices and 9 years of profit for cow-calf producers, the US cow herd is not expanding. Economist Jim Mintert at Kansas State says high lease rates on pasture, high prices of forage, high prices of corn, as well as high fuel and utility costs have all combined to put more uncertainty into whether profitable prices will remain.
Hogs being farrowed under production contracts have declined, but hog numbers that are finished under production contracts have increased. MO Extension’s Glenn Grimes suggests the trend may be due to the cost of buildings. He says to make loans viable to construct buildings takes a longer payoff, and lenders want to see longer term contracts.
If high milk prices are causing consideration of dairy expansion, Purdue dairy specialist Mike Schutz says the issue of diminished forage supplies and high hay prices need to be addressed first. He also says milk handlers and retailers are forcing producers to avoid using BST with a threatened loss of premiums. He says current prices will not last, but Schutz says, “The strong demand seems poised to prevent a dramatic drop in prices.”
High milk prices cannot be blamed on ethanol, says Purdue’s Schutz, who says strong dairy prices are the result of strong global demand for protein products like whey powder and non-fat dry milk. He said that and the weak US dollar created world demand.
E. coli contamination which kills dozens of people and sickens tens of thousands may be attributed to European starlings. Ohio State researchers are tracking bird movements from farm to farm with radio transmitters and leg flags to assess responsibility for the spread of the bacteria which ends up in ground beef and milk. They were brought to the US in 1890 to populate New York’s Central Park with all of the birds from Shakespeare.
Posted by Stu Ellis at 5:48 AM | Comments (0) | Permalink
September 20, 2007
The 2008 Feed Issue: Supply and Price
When the Senate begins its consideration of new farm policy, livestock groups are expected to be vocal about the problems raised with policies that promote ethanol production and result in higher feed costs for livestock, whether intended or not. The Senate will have the latest USDA Feed Outlook handy and you do also.
USDA’s September analysis of feed supplies for livestock is headlined by the 13.3 billion bushel corn crop currently being harvested. It quickly notes that ethanol’s demand for corn has declined slightly and more corn is expected to be shifted to livestock channels. Combined with the other feed grains of sorghum, barley, and oats, the total 2007 production will be a record of 357 million metric tons, up 77 million from 2006. The total supply for the new marketing year is expected to be 392 million tons, up 55 million from last year, which is a 14% increase in supply.
Along with the increased availability of feed is the increased volume of livestock to eat it. Characterized as “grain-consuming animal units” the increase is up .1 million from last year, and resulting from ore hogs, poultry, and dairy cows, but few numbers of beef cattle.
The bulk of the feed supply is, of course, corn, and USDA says, “Feed and residual use of corn was raised 100 million bushels this month to 5.85 billion bushels because of higher yields, which are associated with increased residual use, and reduced availability of distillers’ grains. Distillers’ grains are expected to be lower than last month because of declining plant capacity utilization and sluggish startups of new ethanol plants.” USDA economists have calculated season average corn prices at $2.80 to $3.40 per bushel, compared to the $3.03 average for the marketing year just ended.
Sorghum production is estimated to be 495 million bushels for the current year, up 217 million from 2006 levels. Because of the higher production, USDA says there will be more available and used for feed. Sorghum prices averaged $3.30 per bushel in 2007, which was 109% of the price of corn, and the current marketing year price is expected to be $2.60 to $3.20 per bushel, which is 93% of the price of corn.
USDA’s barley and oat estimates will next be reported at the end of the month, but because of tight barley supplies in Europe, US exports are expected to increase. US is a net importer of oats, and because of the large Canadian crop, imports will increase, even with a 25¢ per bushel increase in price.
The US feed grain economy can be attributed, in part, to the lower global production and resulting increase in US export business. The largest international decline was in Europe, which suffered another drought. Argentine feed grain production also declined, but only because acreage shifted to oilseeds. For the imminent planting season in Argentina, feed grain acreage is expected to increase by 7%. Chinese corn production declined in the heat, and the Australian crop also diminished from warm, dry weather. Brazilian production of corn increased to 51 million tons with the help of strong export business with the European Union which wants non-GMO crops.
In the coming year, global consumption is expected to increase, and partly at the expense of wheat, which will be used less for feed because of expense.
More than 90 million tons of corn will enter the international export market and the US will contributed 57 million tons, which is the most in over a decade. In bushels that represents about 2.25 billion. Brazil will ship 8 million tons abroad.
Summary:
For the livestock feeder concerned about the availability and price of feed grains, the USDA says substantial increases in corn and sorghum will help address the supply, and prices are expected to average about the same as the past year. There will be more mouths to feed from increased animal production, but the supply should be up to the task. Additionally, US corn growers will supply two-thirds of the world’s corn exports, and prices for corn will be comparable to 2006/2007 marketing year that just ended.
Posted by Stu Ellis at 12:44 AM | Comments (0) | Permalink
September 19, 2007
Land Values and Cash Rents: A Game Of Reverse Limbo
We’re within striking distance of the end of the 2007 farming season, once harvest is complete and some fall tillage accomplished. Then it will be time for the old game of musical farms, as some farmland changes hands and some tenants change farms. That will indicate the impact that commodity prices have on land values and cash rents, but a good indication has already documented by Purdue University economists. Buckle your seatbelt.
The annual Purdue survey of land prices and rents was taken in June, and the focus quickly shifted from whether farmland was reaching a top to how high will land prices really go. That’s the assessment of Craig Dobbins and Kim Cook who said all land values in the state increased. While their detailed report on land values and cash rents contains statistics that are more parochial for Indiana, it contains many trends that will broadly apply at least across the Cornbelt, as well as in many other sections of the US.
Interestingly, the Dobbins survey asked for a land value based on long term corn yields and found, “The most expensive land is the poor quality land with a value of $26.80 per bushel. Top quality land was the least expensive at $25.15 per bushel.” Farmland everywhere is moving out of production, and the Purdue pair said the value of transitional land is anywhere from two to ten times its agricultural value, with an average over $95 hundred per acre. Recreational land values ranged from $975 to $10,000 per acre with the median value at $3,500.
As a result of the higher land values, cash rents also went up, and Dobbins and Cook say, “This was an increase in rental rates of 10% for poor quality land, 9.4% for average quality land, and 10.3% for top quality land. Again, this is the largest annual increase in cash rent since 1977. State-wide, rent per bushel of estimated corn yield ranged from $0.97 to $0.99 per bushel.”
Are the higher prices for farmland drawing more onto the market? The Purdue survey found that only 16% of the respondents thought there was more land on the market than in 2006, with the balance believing the land on the market was the same or less than last year. And who is buying it? The survey respondents said over 75% of the demand was from farmers, substantially reversing a 3 year trend of declining interest by farmers. While farmer interest in farmland has increased, non-farm investor interest has apparently decreased which the economists attributed to higher interest rates and better stock market returns. The survey found a strong interest in the demand for rural homes, with 56% of the respondents saying the demand had increased.
The reason for buying land is to capture the premium prices of corn and soybeans say respondents to the Purdue survey. They were asked to predict the average prices for the next five years, and said corn would average $3.43 per bushel and beans would average $7.31 per bushel. Another reason for buying land is the moderation of interest rates. The survey respondents did not expect much change from the current average of 7.6%, which is well below long term rates in the past decade.
Despite the moderate interest rates, they were the only factors among 11 dynamic forces that were seen as negatives to farmland values. Crop prices were the greatest positive forces, followed by net farm income, growth in returns to farmland, supply of available farmland and cash liquidity of buyers. The economists said the increase in commodity values and its impact on land values has created increased uncertainty about the future of land values. Only 8% of respondents thought values would decline. Of the 92% believing values will remain the same or increase, the average expected increase in land values exceeded 13%.
But what could soften the demand for land and weaken land values? The Purdue economists said there are several potential pitfalls:
• Large increases in production costs
• Higher long term interest rates
• Increased risk of ownership as related to US farm policy
• Sharp decline in crop prices
• Decline in oil prices that would affect biofuel prices.
• Continued weakness in the housing market
• A combination of the above factors
Summary:
With little doubt the winter will bring more land sales at higher prices and higher cash rents demanded by land owners. Whether the information comes from Indiana or any other Cornbelt state, the likelihood of increases will exist. Farmers will be buying more land than non-farm investors, and both transitional land around metropolitan areas and recreational lands will maintain strong to higher values. Tuesday’s lowering of interest rates would be seen as a strong force to continue the momentum.
Posted by Stu Ellis at 12:47 AM | Comments (0) | Permalink
September 18, 2007
How Does Someone Begin Farming Without Substantial Financial Support?
A Cornbelt farmer need not look too far to realize there is a transitional problem in agriculture, which has not germinated young farmers replacing those who want to retire. Every year the average age of farmers gets a bit older, in part because there is an insufficient number of younger farmers. They either have moved away from the farm or cannot get adequate financing to enter farming. And that is a problem.
USDA statistics indicate one-third of all farmers have less than 15 years of remaining life expectancy. While that indicates the economic environment may be right for young farmers to purchase farmland and equipment and set up shop, the cost to do so makes it nearly impossible. Economists Charles Dodson and Steve Koenig of the Farm Service Agency examined the finances of beginning farmers who obtained financial assistance from FSA’s Farm Ownership loans.
FSA provides both direct loans and loan guarantees for farmers working with commercial credit sources. Some 4,200 beginning farmers used direct loans for land purchases in 2000 to 2004, which was three times the number who opted for the guaranteed loans from commercial sources, but in doing so provided farm business plan data that Dodson and Koenig analyzed.
Concerns have been expressed that loan limits are not adequate to provide enough capital to help create a viable farming operation. Since the fund is limited, providing higher limits would shut some young farmers out of consideration because the money ran out. Applicants for the program must be unable to obtain credit elsewhere, substantially participate in the farming operation, and operate only a modest sized operation. The Farm Ownership program will loan up to 100% of the transaction, with a $200,000 cash limit and a 40 year term, with real estate collateral.
Dodson and Koenig have long studied the issue of credit for beginning farmers, reporting that higher debt loads increase financial risk, some solutions are leasing farmland, and that some beginning farmers should look beyond traditional credit programs.
Of the 1,425 beginning farmers in the program in 2005, every state was represented, but 53% were in the Great Plains and Western Cornbelt. Dodson and Koenig say regardless of how the loan was structured, 85% of the beginning farmers in fiscal 2005 had credit problems that would have prevented them from obtaining commercial credit. The participants were analyzed for return on assets, current ratio, debt to asset ratio, repayment margin, and loan to value ratio. The farm business plans did not include any information about credit history, only the viability of the proposed farming operation.
The economists said the most common problem was the lack of collateral to secure their loan. While commercial lenders want loan to value ratios not less than 80%, the Farm Ownership program participants averaged 90%. Other problems included tight cash flow and limited repayment capacity, and one-third had debt coverage ratios of less than 115%.
Compared to the average US farmer under 35 years of age, who has an average net worth of $440,000, the participants in the Farm Ownership program averaged only $160,000 of net worth. That reflects one of the criticisms of the program in that it excludes potential operators of commercial farms and supports only those with small farming operations. 46% of the participants used the money to purchase land for a beef cattle operation, and subsequently reported less than $50,000 in annual sales. 22% of the borrowers received the maximum sized loan.
Summary:
Beginning farmers with limited credit can obtain a variety of financial assistance from the Farm Service Agency’s Farm Ownership lending programs. However, an economic analysis of the participants and their farm business plans indicate that 85% of them would be unable to qualify for commercial credit sources. With limited funds in the program, participants are subsequently limited to smaller loans, consequently can only create smaller farming operations under the typical size of commercial farms.
Posted by Stu Ellis at 12:39 AM | Comments (1) | Permalink
September 17, 2007
How Would Your Farm Fare With A Revenue Counter-Cyclical Farm Program?
Iowa Senator Tom Harkin, who chairs the U.S. Senate Committee on Agriculture, Nutrition, and Forestry, is within days of beginning its deliberations on the 2007 Farm Bill. One of the major considerations for a commodity program is offered by IL Senator Richard Durbin and OH Senator Sherrod Brown. If it is included in the Committee proposal, adopted by the Senate, and makes it through the Conference Committee with the House of Representatives, farmers would see some significant changes in farm program payment calculations.
Committee Chairman Harkin has delayed the Senate’s consideration of the Farm Bill until he gets additional funding for conservation and other issues and will jumpstart the Committee’s debate when he’s satisfied with the potential funding.
In the meantime, agricultural economist Carl Zulauf at Ohio State University has analyzed the Durbin-Brown plan. He says one of the elements will keep farmers from collecting both farm program payments and crop insurance indemnity payments on the same yield loss, but could also reduce the cost of crop insurance premiums that farmers have to pay.
Zulauf says the Durbin-Brown proposal replaces the loan deficiency program and the price counter-cyclical program with a new safety net that is based on revenue counter-cyclical payments. It does not change the direct payments which are determined by bushels produced.
The revenue counter-cyclical program has several elements:
• Payments will vary from state to state and are based on yield and revenue calculations in that state.
• A state will have a revenue target, and if the state’s revenue is less than the target, a payment would be made.
• The yield calculation for each state is based on the yield trendline beginning in 1980.
• A spring price for row crops or pre-plant price for small grains would be established, which is based on an average of the current and two prior years.
• However, that pre-plant price cannot increase or decrease more than 15% from year to year.
• The revenue for a given state is determined by the state yield, the acres planted, and a harvest price, which parallels the harvest price calculation for current revenue-based insurance.
• The producer would receive a payment if the state revenue calculation is less than the state target revenue.
• The payment would be calculated on 90% of a producer’s acreage, and based on a producer’s actual production history compared to the state expected yield.
Ohio State University’s Zulauf says the Farm Service Agency and the Risk Management Agency will compare their notes to ensure producers are not compensated by both agencies for the same revenue deficiency. But he says payments may be higher depending on the year, the program parameters such as support levels, and how much the price and yield move in relation to each other. He says a state-based program would provide more protection, since it will reflect more localized weather problems. If a state typically has greater revenue variability, it would tend to receive greater payments than under a national program.
Zulauf also suggests the Durbin-Brown program is more flexible than prior Farm Bills because target prices would be based on a 3-year moving average, instead of fixed for the life of the legislation, and payments are based on planted acres, not a historical acreage number. The target payments would move with the market and not have floors or ceilings. By integrating formulas for determining crop insurance indemnity payments, the Durbin-Brown plan creates a farm safety net based on crop insurance concepts. And by using trendline yield statistics, the Durbin-Brown plan allows farmers to update their program yields annually.
Producers wanting to test their farm program numbers in the Durbin-Brown proposal can utilize a special spreadsheet offered by ag economist Gary Schnitkey at the University of Illinois.
Summary:
Although the House of Representatives Farm Bill contains a revenue counter-cyclical program, but a proposal in the Senate would link the revenue counter-cyclical plan to established formulas for crop insurance, and also break out program payments based on state averages instead of a national average. Such changes would also allow farm program payments to more closely follow the market from year to year, and benefit producers where there is greater variability in farm revenue.
Posted by Stu Ellis at 12:47 AM | Comments (0) | Permalink
September 14, 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 September Crop Report estimated corn production at 13.308 bil. bu. with a 155.8 national average yield. The Supply/Demand report increased exports and feed use each by 100 mil. bu., and lowered ethanol use of corn by 100 mil. and raised ending stocks to 1.675 bil. bu. The national average price ranges from $2.80 to $3.40. Details.
USDA’s September Crop Report estimated soybean production at 2.619 bil. bu. with a 41.4 national average yield. The Supply/Demand report modestly increased the crush rate to 1.825 bil. bu., lowered exports to 975 mil. bu. and dropped ending stocks to 215 mil. bu. next August. The national average price ranges from $7.35 to $8.35.
Despite the wide difference between futures and cash prices, “The price difference is not a grain market collusion; it is simply supply and demand” says MO marketing specialist Melvin Brees. He says freight, fuel, and trucking costs are higher, there is competition for rail cars and barges that are all depressing the basis. And he says with more grain coming to elevators than is storable, the elevators have increased their risk of loss.
Low temps in the northern Cornbelt are threatening immature crops. USDA’s latest report indicated vulnerability for 59% of the IA corn, and 70% for corn near NE & MN. Agronomists say there is a 3% yield loss with the milk line at ¾ of the kernel and an 8% yield loss if the milk line is at ½ of the kernel. Drying is also difficult with frost damage.
The wet corn problem for livestock feeders is from excessive August rains that left ears in dirty water. Dairy Specialist Mike Hutjens says “The end result of this is delayed harvest, mold and mycotoxin formation in the grain, rotten corn plants, risk of lodging, dirt contamination on and in the corn plant, and the germination of corn on the cob.” He says harvest for grain or silage when possible and prepare to discard if it is unwholesome.
The dry corn problem for livestock feeders is from scant rainfall in July and August that burned up the crop. Hutjens says there is variable kernel fill, variable kernel size, and heat stressed stalks, and says an alternative is for dairy managers to purchase corn as a forage extender, particularly since hay prices currently exceed $150 per ton.
Are cattle profitable at current corn prices? Livestock economist Dillon Feuz at Utah State says with fed cattle at 90¢ for most of the year, and the cost of a pound of gain averaging 70¢, “It would appear to be the economically correct decision for a feedlot to continue to feed cattle up to the point where there is a risk of the cattle being discounted for heavy weight carcasses or yield grade 4 carcasses.” But just where is that point?
Watch for weeds that escaped your herbicide as you harvest, says MO weed specialist Kevin Bradley. If you can’t identify the weeds in your field, get help from Extension:
1) Make a map or use your yield monitor to record a significant patch of weeds.
2) Sparsely scattered weeds may have germinated after your last herbicide application.
3) A patch of different weeds in a clean field may indicate a sprayer malfunction.
4) A patch of the same weed in a clean field may indicate possible herbicide resistance.
5) A dense patch of weeds will mean an even greater problem in the same spot next year.
Will large weeds interfere with harvest? A hard freeze and 7 days weakens the biomass. You can also apply glyphosate, but the corn must be under 35% moisture and cannot be harvested for 7 days. If applying glyphosate to soybeans to kill weeds, the harvest delay must be 15 days, 65% of the pods must be mature brown, or beans under 30% moisture.
Asian soybean rust spores are showing up in the Cornbelt, but Specialist Ann Dorrance at Ohio State says don’t worry. The spores were apparently killed by ultraviolet radiation enroute from southern states, and were not viable when they arrived. The numbers of the soybean rust spores are very low and don’t warrant any action even on doublecrop beans. Continue to monitor the official soybean rust website.
Test weight is affected by kernel density, size, and shape as well as by moisture and condition of the seed coat; but Extension agronomist Emerson Nafziger says no one has found a correlation between test weight and yield. Within the same hybrid, lower or higher test weight is often related to kernel weight, which is often correlated with yield.
A corn kernel that does not fill very well with starch has lower endosperm density, thus lower kernel density. This means the kernel has less weight for its volume. This often means a drop in test weight. From a practical standpoint, more "bushels" (56-pound units) fit into a bin when test weight is high than when it is low, concludes Nafziger.
If you are planting wheat, Extension’s Emerson Nafziger says research shows a consistent yield advantage of 2 to 4 bu. where wheat follows soybean compared to corn. This difference might be less where lower corn yields mean less crop residue and some carryover nutrients, primarily nitrogen. Make sure that herbicides applied to the previous crop, and the rate and timing of application, allow wheat to be planted this fall.
For weed control in wheat, some producers use herbicides on no-till wheat on the fall. This can be very helpful if there are winter annuals that can be controlled, and with weeds like dandelion, in which fall control is usually better than spring control. In tilled fields, fall-applied herbicides are often unnecessary if few weeds emerge with the wheat.
Harvest season is also accident season, since more mishaps between cars and farm equipment occur at this time of year than any other. Although motorists are to blame for most accidents, there are pro-active things farmers can do to reduce the potential:
1) Equipment should have SMV symbols meeting S276.5 standards of 1,000 ft. visibility.
2) Equipment on the road at night should have 2 white headlights and two red tail lights.
3) Equipment should have one flashing amber light, mounted as high as possible.
4) Retro-reflective red tape should be placed on the extremities, facing the rear.
5) Equipment wider than 2 lanes should be accompanied by front and rear escorts.
6) Do not move equipment on highways when weather cuts visibility to under 1,000 ft.
Find out how your farm will fare under each of the various farm program proposals being considered by Congress for the 2007 Farm Bill. IL Extension farm management Specialist Gary Schnitkey created a calculator that is downloaded into an Excel spreadsheet.
38 MO farms were studied in depth by ag economists to forecast financial performance, and found variability, detailed in their report.
1) corn-soy had the strongest outlook, were improving & driving toward record profits.
2) crop-beef farms were benefiting from crop prices, and helped by stronger beef prices.
3) pork-crop farms may not cash flow in 2009-10 if feeding more than farrowing.
4) beef farms have better outlook now because of continued stronger demand for beef.
5) dairy farms are strong from high milk prices, and will have less future financial risk.
Early in 2008 you will be asked to fill out and submit information for the USDA’s 2007 Ag Census, based on your farming operation this year. One of the options is to fill out the questionnaire on the USDA’s website.
Your Ag Census form is due back to USDA by Feb. 4, whether you fill out the paper version or the online version. It looks at land use and ownership, operator characteristics, production practices, income and expenditures and other topics. It provides the only source of uniform, comprehensive agricultural data for every county in the nation.
If commercial fertilizer is costly because of high natural gas prices, IL Extension Bioengineer Ted Funk suggests more reliance on manure, if all issues are resolved:
1) Test your soil and apply manure first to poor ground where P & K tests are low.
2) Apply manure based on maximum P & K, not trying to reach an N target rate.
3) Including hauling, keep manure application costs to 1 to 1.5¢ per gal.
4) Surface application of liquid or solid is cheap but emits odors until disked under.
5) Subsurface injection costs 4 times as much, but puts nutrients where they’ll be used.
6) If buying manure, get periodic content sampling to ensure nutrient consistency.
7) If application is limited to fall, N will be lost if temperature exceeds 50 degrees.
Cornbelt farmers wanting grants to fund on-farm research to test practices such as sustainable or organic agriculture are invited to a grant-writing workshop on 9/27 in Springfield, IL. USDA is seeking proposals for grants. To register or obtain more information, send an email to: cvnghgrn@uiuc.edu .
Do your tax preparer a favor and alert them about Extension’s series of farm tax schools being held around IL from 10/23 to 12/7. Some of the topics address: like-kind exchanges, Schedule K-1 issues, death of a taxpayer, new legislation, small business issues, entity issues, S corporations, and elder issues.
Posted by Stu Ellis at 12:46 AM | Comments (0) | Permalink
September 13, 2007
Global Dynamics For The Grain Market
USDA’s September Crop Report raised corn production and lowered bean production estimates, but along with the US numbers, there were some significant changes made in the worldwide balance of grain production and stocks which will impact markets in the near term.
USDA’s World Agricultural Supply and Demand Estimates usda take the US numbers into account to build a picture of global supply and demand. Without excessive details, let’s skim the 39 page update:
Wheat
• US carryout for the marketing year will be the lowest since the 1973 crop.
• Higher prices for wheat have limited feeding, but lower quality wheat is being milled.
• US exports continue to rise because of the tight world supply, pushing season average prices to a range of $5.50 to $6.10 per bushel.
• Global production estimates are down because of lower yields in Australia, Canada and Europe.
• The world ending stocks for 2007/08 will be the lowest in 30 years.
Coarse Grains
• US corn production is forecast at 13.3 bil. bu, and the 155.8 average yield will be the second highest, behind 2004.
• Ethanol use is lowered because of declining plant capacity utilization and a slowdown in new plant start ups.
• Both feed and export use are expected to be 100 mil. bu. more and ending stocks will be 1.7 bil. bu.
• The average US price for new corn will range from $2.80 to $3.40.
• Global coarse grain production will be up because higher production in the US, Canada, and Russia will more than offset lower production in Argentina, Australia, China, and Europe.
• Feed grain demand in Europe will spur international trade in coarse grains, because of the higher cost of wheat for feed.
Oilseeds
• US soybean production is expected at 2.6 bil. bu, down slightly from the August estimate.
• Soybean crush and exports will both increase, leaving ending stocks at 555 mil. bu. for the marketing year just past, at 215 mil. bu. at the end of the new marketing year.
• The season average price for soybeans will be $7.35 to $8.35 per bushel, with soybean meal averaging $205 to $235 per ton, and soybean oil averaging 33 to 37 cents per pound.
• Globally, oilseed production will be down in several countries because of lower production of sunflowers and cotton seed.
Livestock
• US meat production totals for 2007 will be down slightly because increased turkey production will not be able to offset lower beef and pork production.
• For 2008, more pork will help increase total meat production.
• Exports were raised for 2007, and pork exports will be higher for 2008 as a result of more Chinese purchases.
Summary:
As the 2007 crop comes into the bin, there are indications that healthy domestic use and strong export demand will sustain corn prices around $3, bean prices near $8 per ton, and wheat prices in the upper $5 range. USDA’s global estimates indicate low wheat stocks because of continued poor weather in overseas production areas, a strong demand for corn for both ethanol and livestock feed. In fact, livestock production is expected to remain at a strong pace.
Posted by Stu Ellis at 12:44 AM | Comments (0) | Permalink
September 12, 2007
You May Not Speak Their Language, But Their Money Is Good
Despite the inability of the world’s trading nations to come to some agreement over the rules about imports and exports, production subsidies, and support for domestic agriculture, US farmers are on the verge of setting back to back records for trade. USDA says farm exports will surpass the $79 billion mark for the current year and will be more than $83 billion in the fiscal year beginning in October. How have you accomplished that feat with all of the rancor over international trading rules?
You have been able to set those records with the help of higher values of farm commodities, that’s how! USDA’s latest trade data indicates the US has ample supply to meet the needs of tight global markets which have suffered from adverse weather conditions. The volume of corn exports is up, the value of wheat exports is up, soybean exports are seeing increased volume, and dairy values are keeping up the value of livestock exports.
The demand for US farm goods has kept ahead of the US consumers’ demand for imported foods; although the balance of payments slipped under $5 billion in 2005. For several months since that time, imports outpaced exports, but the year has always ended on the positive side for US farm trade.
While there are many complex issues, the environment for trade has an economic impact on every Cornbelt farmer who raises commodities. Even with high US gas prices and the slump in the stock market, the world economy is hungry for food. The Chinese and other Asian economies are up, “China’s GDP is expected to grow 11.6 percent in 2008, bringing growth in East Asia to over 8 percent. The rest of Asia is slated to grow over 6.5 percent, with India growing more rapidly.” The European and Canadian economies are expected to slow a bit.
One of the primary engines for bolstering foreign demand for US farm products is the weaker Dollar, which means foreign currencies can afford to buy more than usual, “Relative to 2007, the dollar is expected to depreciate 8 percent against the Euro, 4.5 percent against the Yuan, and 4 percent against the Brazilian real in 2008. The dollar is forecast to be up 2 percent versus the yen, 2 percent against the Canadian dollar, 5 percent against the Mexican peso, and 10 percent against the Argentinean peso.” So if the Dollar is weakening, those countries can buy more US foods, but fewer food products if the Dollar is stronger than other currencies.
Grain products will be going fast in 2008 say USDA economists, with a nearly 6% growth over 2007. That is helped by tight global supplies, particularly for wheat. USDA economists say US corn growers will be able to meet both the domestic ethanol demand and the foreign export market. The oilseeds market is also rising, helped by higher values for soybeans, and strong Chinese demand for both oil and meal.
For livestock producers, foreign demand for meat will help support prices. They should reach over $15 billion with the help of the beef market. The US beef industry is about to regain access to the lucrative markets in Japan and Korea. However, the dairy export industry, which was on fire in 2007, will not see the significant uptrend as it did this year.
While the 1980’s and 1990’s saw many US ships eastbound to Europe, and trade conflicts were daily headlines, the major US export trade is off the west coast and links Asian markets with US consumer demand. However, many of those containers will be returning to the Orient with their share of farm products. China is expected to consume $8.4 billion worth of US food products, with an increase more than any other world market, with cotton and soybeans the primary commodities. The Japanese market may buy more total US farm goods than China, and the rate of growth will be as strong as it was prior to the 1997 Asian financial crisis. The Japanese like US beef products.
The Western Hemisphere will consume about half of all US farm exports, helped by the free trade agreements with Canada, Mexico, and Caribbean countries. The NAFTA nations will consume nearly $27 billion worth of US farm goods, up $5 billion from 2006. That is one-third of US exports worldwide. Canadians want high value products, such as processed foods, fruits, and horticulture products. The Mexicans want a more broad range of commodities.
Summary:
While international trade officials debate a new set of rules, US exporters have been busy shipping a record amount of farm products abroad. While that is helped by diminished supplies abroad, the weaker US dollar makes purchases easier. Watch for continued strength across a broad range of farm commodities, each going in different directions to different world markets, but their continued strength will serve as a support for the commodities market in the year ahead.
Posted by Stu Ellis at 1:19 AM | Comments (0) | Permalink
September 11, 2007
Lock In Your Wheat Profits For This Year And Next.
The wheat market: so many questions, so few answers. Why are futures prices at record levels, and your local cash prices are one-third less? How can a wheat producer take advantage of the current prices? What are the implications of high wheat prices on the corn and bean markets? Let’s sit down with several Extension Marketing Specialists and get a good picture of where we have been, where we are going, and what to do about it.
Futures prices are well above $8 per bushel. Cash prices are in the $6 range for old wheat. And new wheat prices are at $5. That is a speculative market that reflects short supplies and high demand, with the expectation of bigger supplies next spring, but still strong demand. So how did we get here? At Kansas State University, Mike Woolverton says there are numerous reasons for the current tight wheat market, “Major Northern Hemisphere wheat producing and exporting countries harvested smaller than expected crops this summer. Freeze damage in the United States and heavy rain at harvest in the U.S. and Western Europe reduced the output and quality of wheat. Canada’s crop was hurt by dry weather as was wheat in Eastern Europe, the Former Soviet Union, and China. Global wheat stocks were at a 30-year low when market news services reported that continued drought in Australia and dryness in Argentina during the wheat reproductive period in those countries is putting the Southern Hemisphere harvest in doubt. If it doesn’t rain in Australia or Argentina within the next week or so, replenishment of global wheat stocks will have to wait until next June and July.”
Those factors have keep a fire under the wheat market, but at South Dakota State University, Allan May fears the fire will die out at some point, “Whenever a market runs this hard and this fast, the concern is that what the market gives…the market can take away. The one real support under this market however, is the very real concern over very tight domestic and world wheat supplies. With wheat supplies at the lowest levels in thirty years, and with demand for U.S. wheat very strong, this recent rally may have more “legs” under it than the type of rally that is supported by a short term weather concern or short term bullish demand.”
Whether the market keeps blazing or not, there is currently profit in it for the wheat producer, and recent sales have certainly been at profitable levels. May says the marketing opportunities have been quite good, “. Even though basis is much wider than we would like, don’t look the cash price “gift horse” in the mouth either. I have been saying for months that as prices have moved higher one should honestly consider making some sales with prices at these levels. If you made wheat sales last week, last month, or several months ago when we all thought that we were looking at some very good wheat prices, don’t kick yourself too hard over those sales now that wheat prices are much higher. While it may be easy to second-guess those sales, think about the word “profit” and if you made a profit on those sales, that is a very good thing.”
But if the market has “legs,” could it remain for quite a while longer? If you ask that question of Kansas State’s Mike Woolverton he will tell you there is danger in waiting too long to take advantage of high prices, The real danger is that this panic will cause the wheat market to collapse on itself. The lifecycle of a panic is this: Price starts to increase as market participants, including speculators, come to the realization that there is a shortage of a commodity. Buyers of the physical commodity start to buy ahead to cover needs, afraid that the commodity will not be available in the future or price will go up to a prohibitively high level. As price reaches a ridiculously high level, commodity users slow purchases as their operating margins shrink to zero, producers announce large production increases, and speculators offset positions to harvest profits or even reverse positions to take advantage of the anticipated downside price slide. As the panic peaks and price starts to fall dramatically, everyone rushes to the exit at once. Speculators try to limit losses, some owners of the physical commodity attempt to sell in the cash market to capture inventory price gains, but most buyers of the physical commodity sit on the sidelines, waiting for price to bottom out. Price run ups can take a long time, but the drop can occur very quickly.” He says the futures market is estimating new crop prices at $1.60 lower than they are now and $2 less for the 2009 crop.
If you are out of old wheat, but plan to produce a 2008 crop, Melvin Brees at the University of Missouri suggests the options market may be the best bet to achieve profitability, “These July 2008 futures prices are also offering the opportunity to use a put option to set a futures price floor near $5.00. Thursday, August 16, 2007, CBOT closing price was $5.75 ½ for the July 2008 wheat contract. A $5.70 strike price July put option with a premium (cost) of $0.52 protects a net futures price of more than $5.15. That’s the $5.70 strike price minus $0.52 premium, minus brokers’ fees. A $5.30 July premium of just over $0.30 protects a net futures price near $5.00.”
With all of the excitement about wheat, what are the implications for the corn and bean markets, since all three commodities are fighting for acreage? At the University of Illinois, Darrel Good says if 2008 corn consumption increases to 13 billion bushels, then acreage will have to remain high. And he says if soybean stocks decline as expected, with a corresponding increase in consumption, there will have to be significant soybean acreage next year also. He says additional crop acres will have to come from somewhere, “If U.S. winter wheat seedings are increased significantly, if more U.S. soybean acreage is needed in 2008, and if U.S. corn acreage needs to remain at the 2007 level, corn and soybean prices will continue to be well supported. Prices of those two crops will have to be in the right relationship at the right time to direct plantings and perhaps high enough to divert acreage from other crops. In 2007, acreage of cotton and spring wheat (excluding durum) declined by nearly six million acres. In addition, acreage of all crops (including harvested acreage of hay) increased by 3.7 million acres. Can those types of adjustments continue in 2008?”
Summary:
With the corn, bean and wheat markets where they are, it is a great time to control farmland. High wheat prices from short global crops have created strong futures prices, and despite the wide basis, cash prices are at profitable levels. Outlook specialists advise producers to take advantage of both old crop and new crop prices if possible, because next spring will bring the opportunity to fill up the global reserves and weaken prices. However, wheat will continue to compete with corn and beans for some acreage, and wheat may have to defend itself if corn and bean prices rise any further.
Posted by Stu Ellis at 12:36 AM | Comments (0) | Permalink
September 10, 2007
The IRS Wants Its Share Of Your Crop Insurance Payment.
This has been a Goldilocks Year. For some farmers it has been the wettest crop ever. For some farmers it has been the driest crop ever. And for other farmers, everything has been just right. Many of the farmers in the first two groups will be visiting with their crop insurance agents, and scheduling a visit from an adjuster. Just like grain sales revenue, crop insurance payments are income and are taxable. And that opens a new can of worms.
As you are spending your working and leisure hours this fall in the combine cab, call your insurance agent on your cell phone and get a claim started for your flooded/droughty crop (you pick the correct term.) They may want a check strip left in the field for the adjuster to inspect later, but just follow the requirements. The issue at hand is tax planning for the indemnity check. Extension Specialists Robert Holcomb and Gary Hachfeld of University of Minnesota Extension and Mark Schull of Crop Insurance Services offer some tax planning suggestions.
Crop insurance indemnity checks and any federal disaster payments must be treated as ordinary farm income on your Schedule F. If your accounting is cash basis, and typically sell crops following their year of production, you can defer your crop insurance proceeds to next year for tax purposes. Farmers on an accrual system would pay tax on the insurance indemnity for the current year.
If you have Group Risk Protection or Group Risk Income Protection, which do not involve crop damage, but pay an indemnity based on the county average yield, then a producer must pay tax on the proceeds in the year it is received. That is because the GRP indemnity is not dependent upon actual crop damage and cannot be deferred under terms of the Internal Revenue Code (IRC 451(d). The same holds true for revenue insurance which is based on the decline in price of the crop, such as GRIP, CRC, or Revenue Assurance with the harvest price option.
Holcomb, Hachfeld, and Schull want farmers to know that tax deferral of crop insurance proceeds is prohibited if the policy is based on a calculation that does not include crop damage. They also want you and your tax advisor to jointly determine how much of your insurance payment can be deferred, and how much must be claimed as 2007 income, which they say is a gray area in the tax law.
To calculate your claim on revenue-based insurance, truck and wagon loads need to be connected to a field if you have optional units as part of your crop insurance policy. Your insurance agent will be able to confirm if a bin is to be measured. If your grain did not end up in the bin, but was chopped for silage, that is a significant diversion of the crop, and the adjuster would want to have seen a check strip in the field. If it is too late for that, you will likely not be able to receive an indemnity payment.
Check your calendar for filing any claim. September 30 is the deadline for filing a claim on small grains, and December 10 is the final day for corn an soybeans. For revenue insurance, the deadline is 45 days after the announcement of the fall harvest price.
If you were part of the drought crowd, your grain may have a test weight deficiency, and that is reason to file a claim.
Summary:
With the severe weather variability this year, it was a good time to have your crop protected with insurance, but as with any insurance program there are rules for filing claims. However, there are also rules in the tax law that determines if any indemnity can be deferred to next year, or must be paid as current year income. Indemnities on actual crop damage can be deferred for cash basis payers, but tax on indemnities for revenue insurance or county average insurance products must be paid in the year they are received.
Posted by Stu Ellis at 12:40 AM | Comments (0) | Permalink
September 7, 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 September Crop Report will be out on Wednesday, refining the August corn estimate of 13.053 bil. bu, and massaging the soybean estimate of 2.625 bil. bu. Private market analysts FC Stone estimated the US corn crop at 13.062 bil. bu. and Informa Economics estimated corn at 13.323 bil. bu. Informa's soybean estimate is 2.664 bil. bu.
Crop estimates at or near August would be bearish for the market says Bob Wisner at Iowa State and would suggest downside risk into the harvest season. Wisner says cash prices have even more downside risk as storage will become an issue as elevators run out of storage space and lines of trucks are backed up waiting to unload Iowa’s wet corn.
Cash prices for beans averaged $7.50 to $8 during Aug., which was 42% more than a year earlier, thanks to soybean oil and bio-diesel production, says Extension Outlook Specialist Darrel Good. But, ironically, it is the record demand for soybean meal that has increased the soybean crush rate, and that has created record surpluses of soy oil stocks.
Soy oil use is growing, says Good, because of bio-diesel production. Bio-diesel demand took 19% of soybean oil in July, compared to 10% in Jan. With that demand he says the price of soybean oil is becoming linked to the price of bio-diesel, and that is linked to the price of diesel fuel. He says consumption of soybean oil will be heavily dependent on bio-diesel demand and subsidies provided to bio-diesel producers by US energy policy. Read more.
December wheat futures were recently trading at a 270% premium to December corn. And IA Extension’s Wisner says that is reminiscent of the 1970’s Russian wheat deal. Wheat prices have been climbing since last April, and are at record levels because:
1) Global stocks are at a record low level compared as a percent of expected use
2) Weather problems during the last growing seasons in Europe and Australia.
3) Recent Canadian reports indicating 2007 production was below levels of 2006
4) A wet harvest in Kansas that caused acreage abandonment and loss of 400 mil. bu.
5) Nervousness about the impending Australian harvest beginning in November.
6) The switch by India from being a wheat exporter to being a wheat importer.
7) The large wheat market that has developed in Iraq.
Will wheat acreage increase with prices? Iowa State’s Bob Wisner says that may depend on when soybeans are harvested. “Depending on the timing of the soybean harvest, farmers along the eastern edge of the Great Plains, as well as in the eastern Corn Belt and South will have a strong incentive to plant part of this year’s soybean acreage to winter wheat.” Read his newsletter.
“Wheatmeister” Mike Woolverton at Kansas State says after India imported wheat at $10.64/bu. and Russia banned wheat exports, “The real danger is that this panic will cause the wheat market to collapse on itself. The concern for wheat producers is that the Great Wheat Panic of 2007 will end before they have had a chance to lock in the highest wheat prices of their lifetimes. If a producer is going to plant wheat this fall and next fall, it would be good to lock in price on the amount covered by crop insurance sooner.” Read his newsletter.
With new wheat still above $6, are you considering more wheat acres next year? If so, brush up on agronomics:
1) Plant right after the Hessian fly-free date in your area (mid-Sept. to mid-Oct.).
2) A seeding rate of 30 to 35 seeds per sq. ft. is recommended, at 1 to 1.5 in. deep.
3) Wheat receives 10 lbs/A of N credit when following beans; 30 lbs after alfalfa.
4) Apply 20-40 lbs/A of N in the fall, and another 40 lbs of N in the spring.
5) Phosphorus and potassium should be applied based on current soil test and past yields.
6) Wheat in a C-S rotation increases corn yields 10-12 bu. & beans 5-6 bu. per acre.
How are you allocating additional income? IL Extension’s Paul Ellinger suggests:
1) Ensure you can cover the higher input costs and cash rent expected in 2008.
2) Build working capital by reducing debt, increasing liquid assets or both.
3) Reduce your debt level to less than one-half of your total asset values.
4) Establish retirement accounts that allow you to capture the time value of money.
5) If buying farmland, it may appreciate in value, but will not cash flow to service debt.
From a landowner’s perspective a cash rent lease has no risk, but the landowner should expect the lowest return on the agreement say Purdue economists. But they say a share lease has the greatest risk and the expected return should be higher. The Purdue experts say a flexible cash lease should provide a base payment level and a bonus in good years.
From a tenant’s perspective cash rents are the riskiest and may have a high payment in poor years. The share rent is the least risky, but also has the lowest expected return, say the Purdue ag economists. They say the flexible lease provides a situation where the base rent is not as high in poorer years, but there are higher rents in years with better income.
So what amount of rent is appropriate? The Purdue economists say 3 to 4% of current land value is a reasonable range. They say it can also be based on long term corn yields, and rent which is 95¢ to $1.10 per bu. is a reasonable range for the past 5-6 years of yields. They are looking at a 15% increase in the cost of production for the 2008 crop. They say communication is important and ideas from both sides should be on the table.
Unintended consequence. That may have happened with the development of Bt corn containing more proteins to control corn borers and rootworm. The extra protein feeds corn leaf aphids, which may be expanding along with the additional acreage of Bt corn. Another unintended consequence is more parasitic wasps which feed on the aphids.
Unexpected consequence. That is what is happening to PI88788, the source of SCN resistance to 90% of soybeans resistant to soybean cyst nematodes. But researchers have found that 82% of the SCN populations in IL were able to successfully attack PI 88788. Despite rotation of crops and types of SCN resistance, researchers say SCN populations densities remain at levels capable of causing significant yield loss in IL soybeans.
Another nematode, the lance nematode, was being found over the summer in IN, and had damaged both soybean and corn fields. It is transparent and feeds both inside and outside corn and soybean roots. Purdue specialists say it has caused extensive damage, and could be the reason for any unexplained damage in both corn and bean fields.
Charcoal rot is being frequently identified in soybeans, where there are dead spots, and stems have spots resembling charcoal dust. Since it also attacks corn, rotation will not prevent it, however it can be reduced with practices that reduce drought stress, avoiding high seeding rates, and using conservation tillage practices to conserve soil moisture.
To ease spring planting of continuous corn, some producers use a fall application of N to speed stalk deterioration. IL Extension agronomist Emerson Nafziger says that practice will not result in a yield increase, and some of the N will be lost if tillage does not quickly follow. But he says stalk breakdown is more of a function of microbial action, along with soil moisture, temperature, and contact with soil microbes than with N.
Pork prices will be affected by packing plant closures and labor issues this fall in the US and Canada, but Iowa State’s John Lawrence says plant capacity should not drop to levels seen in 1998 when pork prices fell to $10 as slaughter hog numbers backed up.
Other market factors could jeopardize fall pork prices, such as an increase in carcass weights expected through the end of the year. Pork exports have increased for 15 years, but are now declining from reduced Mexican purchases. Anticipated exports to China may have been worked into the market, and traders may “sell the fact” if it happens. And Lawrence says poultry production is rising, and pork must compete with its lower prices.
What is your weed control program? Purdue agronomists regularly survey farmers to determine what current practices are used for weed control. They have discovered:
1) 46% apply a burndown to a no-till soybean field 7-14 days prior to planting. While 19% squeezed in a burndown within 7 day s of planting, 9% did it the prior fall.
2) Of the farmers growing glyphosate resistant soybeans, 26% were using a residual pre-emergent herbicide, meaning 74% were using glyphosate as their only weed control.
3) Purdue weed specialists discovered a wide variety of practices for spraying giant ragweed and lambsquarters, many well outside the glyphosate label requirements.
Experiment with miscanthus until a local market is ready for it as a cellulosic ethanol feedstock. Sterile rhizomes are planted on 3 ft. centers, 4 in. deep in a fine soil bed, and allowed to spread, without producing seeds. It is efficient at capturing and retaining its own nitrogen, and eventually overwhelms weeds. It grows from April to the first killing frost, and reaches 12 ft. tall in a season, producing 15 tons of biomass per acre. Read more about Miscanthus.
Posted by Stu Ellis at 12:37 AM | Comments (0) | Permalink
September 6, 2007
Are You More Productive Than Your Father Or Grandfather? You Bet!
If you attended the recent Farm Progress Show, you may have seen some equipment that caused you to think, “Boy, I could be a lot more productive with that!” Your yearning is probably true, although your spouse may beg to differ. But in actuality, USDA says your productivity has increased to the point that you have every right to beat your chest and snap your galluses.
The last half of the 20th Century was momentous in terms of US agricultural productivity. Milk production climbed from 5,314 to 18,201 pounds per cow, corn yield went up 39 bushels per acre and the typical farmer was 12 times more productive in 2000 than he was in 1950. No one anywhere else comes close to the pace being set by the American farmer.
USDA’s latest report on US Agricultural Productivity utilizes a new formula called “total factor productivity (TFP) which removes the technological advances to level the playing field with other industries and countries. While high powered inputs like fertilizer and machinery increased your output, USDA says those increases were offset by reductions in cropland and reductions in the agricultural labor force. Subsequently, the total amount of crop and animal output per unit of input, increased 2.7 times in that half century. USDA’s Economics Research Service says during the period studied total inputs remained constant at an index of 100, but total output and total factor productivity ended the century at 270 on the index. The consequence is that farm commodities can be grown and harvested at less cost, benefiting farmers, as well as downstream merchants and consumers. “Productivity growth allowed more output to be produced from the same amount of inputs, reducing the average cost of production.”
While the 50 year productivity trend line rose at a steady pace, there were year to year fluctuations that stemmed from energy crises, droughts, and farm policies such as the 1983 PIK program. During the period US industrial production growth nearly doubled that of agriculture, because of the shrinking share agriculture held in the US economy, but while total factor growth for industrial production climbed 13 percent, the TFP climbed 117 for agriculture. It reduced the need for labor and capital inputs, while keeping up with total output. As that was happening, labor was replaced by new machinery and improved chemicals. While farm labor declined 3.2% per year, output per worker climbed 4.9% per year. UDSA economists say land, capital and non-labor inputs accounted for 60% of the growth in labor productivity, the TFP growth accounted for 37% of the rise in labor productivity.
So what does this mean? USDA says, “Instead of relying primarily on the development and adoption of new farming methods that substitute non-labor inputs for farm labor, agricultural productivity growth is increasingly based on finding better ways to manage and save on a whole range of inputs.” New chemicals have allowed the use of less chemicals per acre. Integration of livestock production and improved animal husbandry practices have resulted in more productivity.
Since you are so productive, visit your boss and tell him you want a raise!
Summary:
Productivity in US agriculture has increased more rapidly in the past 50 years than in other countries, and much more rapidly than US industrial production. The yardstick to measure productivity eliminates technological advances, and relies solely on the productivity of the American farmer. While labor has been replaced by improved equipment and crop protectants, the actual output per individual has increased.
Posted by Stu Ellis at 12:04 AM | Comments (0) | Permalink
September 5, 2007
How Will Your Operation Be Affected By Payment Limits?
Very little incites more controversy about US farm programs than the issue of limitations on farm program payments. Critics hold up the issue like foreign radicals burning the American flag in front of television cameras. And needless to say, the issue has polarized many farm groups, as well as farmers. With the House Farm Bill lowering payment caps, and an influential Senator wanting it reduced further, what will be impact of lower ceilings?
In the 2002 Farm Bill, a $360,000 limit was set on direct payments, counter-cyclical payments, and gains on marketing loans or loan deficiency payments. But that was multiplied if a person engaged in other faming entities, and eligibility was retained even if adjusted gross income approached $2.5 million. The House-passed version of the Farm Bill reduced the means-test of adjusted gross income to $1 million and eliminates the three entity rule, but does raise the maximums on direct payments to $60,000 and counter-cyclical payments to $65,000, with the opportunity to receive a maximum $250,000 for a household if a spouse is fully engaged in the operational ownership.
When the USDA made its Farm Bill proposal, it wanted a $200,000 maximum for adjusted gross income before ineligibility for payments. While that ceiling appears to be moot, the Senate could take a harder line on payment limits than the House, which will be seen in the next week to 10 days when Chairman Tom Harkin of the Senate Agriculture Committee proposes his version of the Farm Bill.
When the USDA proposal was made, its study of 2004 tax data found that only 1.2% of sole proprietors and 2% of land owners would be impacted by the $200,000 AGI limit. In a recent report on the economic study, USDA economists said farm income averaged $271,749 and net worth averaged over $1.86 million for farm household with an AGI exceeding $200,000.
Before we go too far, let’s define Adjusted Gross Income:
1. AGI is taxable income from all sources, including farm income or losses after all expenses, including depreciation and capital expensing, associated with this income are totaled.
2. AGI can be impacted by Net Operating Losses, which arise when allowed deductions exceed gross income for the year.
3. The most significant deductions allowed include those for individual retirement arrangements, medical savings accounts, one-half of self-employment tax paid, self-employed health insurance costs, and deductions for contributions to self-employed retirement plans.
For the 2004 tax year studied by USDA, 40.2% of farms received payments, with the average payment being $12,034, representing 11.2% of gross cash farm income on those farms. USDA says only 3,084 farmers had an AGI over $2.5 million and only a few hundred would be affected by the cap. Texas A&M concluded more farms would be affected than the IRS data suggested by the Congressional Research Service said the Texas A&M study did not address farm accounting peculiarities.
The 2004 IRS data indicated 4.2% of farm operators and 4.6% of landlords had an AGI over $200,000, but a much smaller percent would be impacted by the payment limit since not all of them received farm program payments. When the latter group was taken into account, they only received 5-6% of total payments disbursed by USDA.
Cornbelt farmers will be more immune to any payment limits, because of fewer farmers having larger AGIs. The bulk of the affected farmers are in CA and FL, with NV, CN, & NJ also affected. Eastern Cornbelt farmers have a greater chance of being clipped by the limits than do western Cornbelt farmers.
Organizational structure of farms also had an impact on financial affairs and resulted in a greater chance of ineligibility. While farm corporations involved 10% of farmers impacted by the $200,000 ceiling, their average individual payment was about two-thirds of the payment of farmers involved with farm partnerships. Similarly, more crop farms had a higher AGI than did livestock farms, however, high –AGI livestock farms were larger with more household income and net worth. By commodity, rice and cotton farms were more subject to the payment limit ceiling than other commodities, and hog farms were more likely to hit the ceiling than beef operations.
While the USDA study looked only at the impact of the USDA proposal for a cap at $200,000 of adjusted gross income, and the Congress may set a different limit, numbers of affected farms and farmers will change, but the types, locations, and nature of impacted farms will likely change very little. The USDA study looked only at the 2004 tax year, which probably will have little comparison to the 2007 tax year. With farm incomes, particularly Cornbelt grain farms expected to experience record income, the impact of a farm payment ceiling will be felt by a greater number of operations.
Summary:
Controversy surrounds the issue of farm payment limitations. The USDA’s proposed ceiling of $200,000 of adjusted gross income has been set to $1 million by the House version of the Farm Bill, the Senate’s version may be in between those points. Farm operators and landlords may experience wide variations in impact, depending upon geography, commodity produced, farm structure, and size of operation. However, the ceilings may have a greater impact in coming years with higher commodity prices, than in the past with lower prices than what exist at this time.
Posted by Stu Ellis at 12:34 AM | Comments (1) | Permalink
September 4, 2007
There May Be Money In Meat Goats
Your holiday menu might have included steaks or burgers on the grill. Your dinner menu for the week will probably include beef or pork, and possibly chicken. But beginning late next week is a holiday for over one billion people who will prepare and eat a goat. Where do they get enough goats? Where is this market? Can I make money raising meat goats? Ah, you have come to the right place for answers!
There are not many households in rural America that serve goat meat, but there are millions of Muslim and Hispanic households in urban America where goat meat is prized. And when the month-long Muslim holiday of Ramadan begins September 13, ethnic markets in major cities will need goat meat to meet the consumer demand. If you have under-utilized livestock facilities, and are looking for an underserved market, one of the considerations may be production of meat goats. You don’t have to eat them, just raise and sell them. Someone else will take care of the slaughter process.
The University of Illinois has just assembled an extensive research collection on meat goat production, and it is all designed to aid the newcomer. So how do you begin?
1) Evaluate your resources, such as personnel (it is a 24/7 job), land (6-8 goats per acre), buildings (20 sq. ft./doe), equipment (hay, pens/chutes), labor (check twice/day), and capital. The latter is important since your operation should be sustainable in 3-5 years.
2) Marketing can include goat production for commercial slaughter, sale of breeding stock, or for 4-H shows. However, commercial slaughter may offer the best profit potential if goats can be marketed ahead of the ethnic holidays. Check the ethnic calendar for consumer demand.
3) A herd health program is necessary and a checklist is provided at the Illinois resource. You will also need to identify a veterinarian which can assist with your operation.
4) Feed will primarily be forage, either on pasture or hay, combined with small amounts of grain or concentrates with minerals. They are efficient users of low quality forage, and feed from the top down which helps eradicate many weeds. Clean fresh water is mandatory.
5) To build your herd, consider many of the issues that you would for cattle or hogs. Check for the health of the animal, look at its current environment, and start with lesser expensive goats.
Meat goat breeds should be judged on environmental adaptability, reproductive rate, growth rate, and carcass characteristics. The primary breeds are Boer, Kiko, Spanish, Savannah, Myotonic, and Pygmy. Dairy goat breeds exhibit better milk and cheese production, but culls and bucks wind up as slaughter goats.
Additionally, the Illinois meat goat resource contains a lengthy list of
1) goat associations
2) classes for production instruction
3) governmental resources
4) marketing information
5) other goat-related sites.
6) Books and magazines about goats
7) Farm production software
Summary:
Entrepreneurs who recognize the potential demand for meat goats in the growing ethnic marketplace should consider not only production and marketing issues, but how the enterprise fits into the current operation with respect to under utilized resources. If the resources are available, numerous references can be consulted for production and marketing expertise.
Your holiday menu might have included steaks or burgers on the grill. Your dinner menu for the week will probably include beef or pork, and possibly chicken. But beginning late next week is a holiday for over one billion people who will prepare and eat a goat. Where do they get enough goats? Where is this market? Can I make money raising meat goats? Ah, you have come to the right place for answers!
Posted by Stu Ellis at 12:24 AM | Comments (0) | Permalink
September 3, 2007
It Is Hard To Swim If The Gene Pool Is Empty.
When a new crop pest appears, researchers scurry into their seed vault to find genetics that may be resistant, and begin breeding that gene into current corn hybrids and soybean varieties. The same drill is required for livestock production, but heritage breed herds are quickly diminishing because reproductive rates, rates of gain, and other performance measurements are not as high as crossbred livestock. But if crossbreds are more susceptible to disease and other health-related production problems, what economical production solutions can be developed to serve both the producer and the consumer?
Ohio State University ag economists Daniel Sanders and Stan Ernst along with animal scientist Catherine Ernst of Michigan State University explored the maintenance of pork heritage breeds and whether consumers would pay the cost of preserving those heritage breed herds. The researchers say the Berkshire, Poland China, Tamworth, and Gloucester Old Spots breeds represent the basis for current livestock genetics and if those are los, then the original genetic information and variability is lost with them. While USDA is preserving some of the germplasm in the National Animal Germplasm Program, it will not be used to actively maintain a population. That means there must be a sufficient number of heritage breeders and herds, as well as a market that will sustain their genetically viable population.
If the market will pay a premium for unique taste and texture of the meat, to offset the added cost, such a niche market presents both opportunities for producers as well as challenges that are foreign to the commodity market. The researchers believe, “Genetic variability is the key to maintaining any population. Without a continuous mixing of genes, serious genetics consequences can result. The overuse of line breeding to improve a strain of animal will eventually lead to the inclusion of inferior genetic traits on a large scale, and the fitness of the entire population will suffer. Only maintaining the line by mixing diverse populations of varied heritage within the breed will keep the overall population stable.” They say the same applies to the heritage breed, and enough animals need to be raised to maintain genetic diversity in the heritage gene pool.
The Ohio State and Michigan State research involved consumer surveys at grocery stores as well as a research model based on the preservation of wildlife species. They took into account that in a litter of 9 pigs, 8 would be marketed and 1 would be reserved for breeding. One of the issues that arose in the surveys was consumer preference for “locally grown” meats, and the choices of “support local farmers” and “freshness” far outdistanced other choices that included “safety” and “flavor.” The consumers’ willingness to pay a premium price for those attributes generally extended as high as $1.50 per pound over the price of the commodity product if it was locally produced. While the consumers were unfamiliar with the heritage concept, they expressed positive attitudes when it was explained.
When it comes to numbers of livestock that must be raised for a diverse gene pool in a heritage breed, the researchers say it is about one-third of the current population. While that is