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October 31, 2007
Could There Be Any Dark Clouds On The Horizon For Ethanol?
For the most part, agriculture has worked hard to promote pro-ethanol policies to build a new market. The effort has been quite successful in driving commodity prices higher as the result of a demand market. But if those policies change, as they sometimes do, are ethanol and the corn market vulnerable?
Ironically, agriculture has had a lot of doubts about the issue of global warming, but the promotion of ethanol has benefited as the result of advocates of alternative fuels, bio-fuels, and those who prefer to reduce the impact of petroleum on the environment. In the category of politics and environmental issues making strange bedfellows, Cornbelt farmers and the global warming sector are in the same political camp that has pushed upward the target for ethanol production and use. And currently 90% of alternative fuels used in the US is an ethanol blend from corn.
But Iowa State ag economist Bruce Babcock and his colleagues have expressed concerns in the current issue of the Iowa Ag Review that shifting political policies may melt ethanol demand along with glaciers and Polar ice. While federal policy focuses on promoting biofuels, a new California policy says the biofuels must have a 10% reduction in carbon content by 2020, and that goes well beyond federal requirements. Babcock and colleagues say ethanol is in a good position if it does indeed reduce carbon. But there are many variations to the calculations, as well as definitions, and just what all is included in the proof.
Babcock rhetorically asks if the expansion of corn production to produce ethanol reduce the buildup of greenhouse gases? He says if the answer is yes, then corn based ethanol may qualify as a low-carbon fuel, but if not then the California requirement (and there could be others) will threaten the future of ethanol. It all starts with the planting of corn, followed by its refining into ethanol, and concluding with its use as a motor fuel. The analysis also includes US and foreign land use changes that can be attributed to expansion of corn acres.
Ethanol and gasoline can be easily compared in terms of energy, carbon release, and other yardsticks. But Babcock says the decision on whether ethanol is a low carbon fuel must also consider the impact on other crops and their acreage, as well as the impact on other uses of corn, “The two most important determinants of greenhouse gas emissions per gallon of ethanol in the agricultural phase are the yield per acre of land and the amount of nitrogen fertilizer used. And both of these are influenced by whether corn is grown after soybeans or after corn.” They calculate that increased production of corn to meet the ethanol demand requires more nitrogen and its production causes ethanol to be charged with higher carbon emissions. When the corn is refined into ethanol, the energy required at the refinery causes more greenhouse gases, but ethanol should not be charged with all of that, since distillers’ grains also are produced.
On the issue of land use, corn production gets a credit from the fact that soybeans are not produced on that acre which would otherwise be a charge for carbon emissions. If corn is grown on virgin land, it has to be charged with releasing more carbon than if it were going to be produced on typically tilled land, and even on CRP land. But so far, the increased corn acreage has only been at the cost of other crops, and not bringing new land into production. However, with less US soybean acreage resulting from more ethanol demand, the higher prices have resulted in more South American production and more virgin land being planted to a crop.
While Babcock’s crop production and refinery calculations indicate corn-based ethanol reduces greenhouse gas emissions, this conclusion is neutralized by soybean expansion into virgin grass and timberlands in South America. To keep ethanol in a positive light for greenhouse gas emissions, the impact will depend on the type of energy used at ethanol refineries, whether distillers’ grains are sold wet or dry, and the type of land that is used to plant the increased acreage for corn. Babcock says the ethanol refinery will probably make the first decision on energy prices. The second decision depends on the siting of cattle feedlots and local zoning laws. And the last issue is beyond control of the ethanol industry, but could be impacted by USDA policies on CRP contracts. Babcock’s team says the whole issue of whether ethanol is a low carbon fuel may depend on foreign cropping practices.
Summary:
Ethanol is seen as an alternative biofuel designed to replace petroleum, but if public policies require fuels to emit low quantities of carbon dioxide and greenhouse gases, there is a question whether ethanol can meet than requirement. While corn production and refining calculations can be made that indicate ethanol is a low carbon fuel, the deciding factor may depend on soybean acreage expansion in South America, as well as land use policies in the US that allow additional corn acreage.
Posted by Stu Ellis at 12:59 AM | Comments (1) | Permalink
October 30, 2007
What Is The Value Of Crop Insurance In Your Operation?
The eastern part of the Cornbelt will be filing crop insurance claims for the drought and the western part of the Cornbelt will be filing crop insurance claims for the flooding. But would you have crop insurance if it either cost more, or if indemnity payments were not as good? Those choices were strongly evaluated by the Members of Congress who are working on the 2007 Farm Bill. Crop insurance is seen as an expensive service to farmers that could be the source of money for conservation, nutrition, and other USDA services. What is the bottom line on the value of crop insurance for you?
One of the delays in Senate consideration of a new Farm Bill stemmed from difficulty in finding the funds to pay for the programs desired by the writers of the legislation. Both the Senate and House looked at sources of funding, a frequently the solutions seemed to be reducing Direct Payments for Cornbelt commodities and reducing expenses in the Crop Insurance Program. While the House version is set, the Senate debate is just beginning, and nothing will be safe until the House-Senate Conference Committee reconciles the differences. Crop insurance could get cut, changing its financial value for your operation.
The fall issue of the Iowa Ag Review http://www.card.iastate.edu/iowa_ag_review/fall_07/article2.aspx explores the workings of the crop insurance program, in relation to agricultural policy, but part of the article relates to every farmer who has carried crop insurance. Author Bruce Babcock says the crop insurance program costs $5 billion, and program crops make up 80% of the cost and that has been regularly increasing. As the program currently works, premiums are subsidized, insurance companies are reimbursed for their administrative expenses, and they are guaranteed a profit similar to other commercial underwriters.
Babcock says farmers will buy crop insurance if the benefits are greater than its price. Those benefits include the knowledge that the deductible will be covered, but since that is not enough Congress subsidized over half of the premium. And some farmers still do not carry it. However, for a farmer to break even on crop insurance in Iowa, Illinois, and Minnesota, about half of the premium has to be subsidized. Nebraska is at a 25% level, but farmers in Kansas and the Dakotas could breakeven on crop insurance even with 10-20% less subsidy. Babcock says, “Corn Belt farmers would not buy crop insurance if it were not heavily subsidized whereas farmers in important wheat states would have a profit motive to buy crop insurance even without premium subsidizes. Given that corn and soybeans together represent about 60% of the entire crop insurance program, it is only a bit of an overstatement to say that the crop insurance industry is selling a product with so little demand at its current price that without government price subsidies, there would be no viable market.” What many farmers are unaware of is the premiums they pay do not cover the costs the insurance companies incur as well as the commission for the agents who sell it. USDA and taxpayers pay those costs, but if not the premiums would be much higher.
With Congress considering reducing the subsidies for crop insurance premiums, more money would be available for other priorities, however it would mean that fewer farmers would buy crop insurance since it would cost more. The House version of the Farm Bill reduced the subsidies for GRP and GRIP, which Babcock says will mean many farmers will move to other crop insurance products that receive higher subsidies.
Summary:
Funding the Farm Bill is a complex process and Congress seriously is looking at shifting money away from the crop insurance program to other priorities. However, farmers currently see crop insurance as expensive, even though the USDA pays over half of the premium, plus reimburses the insurance companies for their administrative costs and gives them a profit. If funding were removed from crop insurance programs, it is likely that fewer farmers would sign up.
Posted by Stu Ellis at 12:41 AM | Comments (0) | Permalink
October 29, 2007
Take This Test On Your Knowledge About Controlling Soybean Aphids
When scouting soybeans, what is your reaction to the discovery of a colony of soybean aphids? Do you watch and wait? Do you immediately spray the spot or the entire field? Do you know what the recommendations are for threshold levels of aphids that begin to cause economic damage? Instead of putting you on the spot, we’ll find out how your neighbors answered those questions.
Aphids invaded soybean fields early in this century and some years have made a pest of themselves and other years have remained scarce. They seem to be more prevalent in the northern parts of the Cornbelt than in the southern reaches, so a survey team from Minnesota, Iowa, Wisconsin, and Michigan questioned hundreds of soybean farmers in those states to determine their attitudes about controlling soybean aphids with chemical sprays or more natural means, and what the trends indicated from 2004 to 2006. Their analysis indicates producers generally initiate pest control measures based on aphid counts, weather, and plant stages.
In 2004, 13% of farmers treated for aphids and sprayed 50% of their acreage. The following year, 84% sprayed, and 87% of the acreage was treated. In 2006, 35% of farmers sprayed for aphids, and 81% of the acreage was treated. Most farmers had learned about aphids and even in 2004, 81% were aware that once a field was sprayed, soybean aphids could repopulate and cause economic damage. Three out of four farmers were aware that aphids removed sap from soybeans, but the other 25% gave a broad variety of answers of how aphids damage a plant.
Over 75% were aware that profitable treatment frequency depended on aphid counts, weather, and plant stage. The balance believed treatment should be scheduled depending on the month. Less frequent was producer awareness of when soybean plants could be damaged by aphids, the responses were scattered throughout the entire growth range of the soybean plant.
Two-thirds of farmers used 250 aphids per plant as the threshold for treatment, but others provided answers as low as 3 per plant. Scouting reports were considered a valuable tool in decision making and 84% used them for that in 2004, but by 2006, that number had risen to 94%. 54% said plant growth stages were important in the decision, but other decisions to spray were based on the availability of custom applicators and whether neighbors were spraying. Half of the farmers indicated they had adopted most university recommendations for integrated pest management, which includes the use of natural predators to assist in the reduction of aphid pressure on soybeans.
Summary:
Although soybean aphids is a relatively new invasive pest in the Cornbelt, farmers who raise soybeans have quickly learned his potential for damage and are demonstrating growth in their decision-making on how and when to treat any problem fields. While 50% indicated they followed most university IPM recommendations, there were still quite a few farmers whose decisions to spray or not to spray were based on a wide variety of other factors.
Posted by Stu Ellis at 12:27 AM | Comments (1) | Permalink
October 26, 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.
High soybean prices could push 2008 South American production over 105 mil. acres and production to 4.34 bil. bu. under current projections. But Extension economist Darrel Good says US producers may be needed to increase acreage by 4-5 mil. next year. And he says, “The price of soybeans needed to accomplish that size of increase depends to a large degree on the corn prices and the magnitude of increase in wheat seedings.”
Once the South American growing season is underway, IL Marketing Specialist Darrel Good believes, “Prices will largely take direction from the market's take on the needed increase in US acreage in 2008. The generally weak basis and the $.42 carry from Nov 2007 to July 2008 futures offer a decent opportunity for hedging farm-stored soybeans. Holding some soybeans unpriced may be prudent as well, given all the production uncertainty into 2008.” Read his outlook.
Darrel Good’s quarterly corn outlook says 2008 corn demand will be 12.975 bil. bu. and with a 152 bu. trend yield, harvested acreage will need to be 85.36 mil. He says 2008 acreage could drop 4.2 mil. acres and we would have sufficient supplies with the nearly 2 bil. bu. carryover. “With December 2008 corn futures above $4.00, corn still appears to be potentially more profitable than soybeans in the heart of the corn belt for 2008.” Read his newsletter.
Corn prices should remain in the upper part of USDA’s estimated range says Darrel Good, “With 20% of the 2007 US crop likely already sold at an average price above $3.00 per bushel and the futures market contracts for the 2007-08 marketing year trading from $3.69 to $4.04 it seems likely that the average price for the year will be near the upper end of the USDA's projected range for the average price.” He says the weak basis will improve, and with the large carry in the futures market, storage will be profitable.
But what if you don’t have storage? Marketing Specialist Jim Hilker at Michigan State says the corn market will not pay commercial storage costs. He says consider selling if you think prices will decline, or use a basis contract if you think they will rise. “Other alternatives are a minimum price contract or selling your crop now and buying a call option now or a later in the season. Calls are expensive, but not as expensive as commercial storage plus lost interest.” Hilker's newsletter.
If you are running out of bin space and bins are available to rent, what is a fair rental rate to pay for a grain bin? Owners should cover depreciation, insurance, repairs, tax, and interest, but get details. Ohio State economists say the rate should be between that cost and commercial rates. Issues to resolve are: aeration, repairs, insurance claims, utility costs, and grain quality problems.
From red ink to black ink will be the case for most dairy farms say IL Extension economist Dale Lattz from producer records statewide. “Milk prices will likely exceed costs in 2007 resulting in positive profit margins for dairy producers. Higher milk prices will be the reason for the increase in returns. The average price received for milk in 2006 was 17% lower than the average in 2005. The average milk price for 2007 is projected to be about 50% more, or about $6.35 per hundredweight, than the average for 2006.”
2006 dairy revenue was down and costs were high says Lattz in his newsletter “The average net price received per 100 pounds of milk was $12.88 which was less than total costs of $16.77. The average price received for milk in 2005 was $15.46. The 2006 price received for milk was the lowest since 2003. On a per cow basis, total returns from milk were $2,508 compared to the total cost to produce milk of $3,271 per cow.”
Cattle profits have risen more than production according to Purdue economist Chris Hurt, who says prices will be at record high levels, despite a recent fade. Price expectations for the final quarter had been excessive as cash prices reached $95 in early September. However, prices have moderated to near $90 and averages in the final quarter now appear likely to be in the low-to-mid $90s. Cattle will remain profitable to own, he says in a newsletter.
How profitable will cattle be next year? Purdue livestock economist Chris Hurt says, “For the entire year of 2008, cattle prices are expected to make new record highs, averaging $1 or so above this year’s $92 average. High prices will eventually encourage expansion of the cow herd, but that is not expected until at least mid-2008 or even 2009.”
Recent studies show that anywhere from 60-75% of soybean fields are now being left untilled following fall soybean harvest, however the 25% of soybean stubble that is being tilled has shown significant soil erosion over the past 5 years, says IL Extension Natural Resources educator Bob Frazee. He says agronomists recommend against fall tillage of soybean stubble, and Frazee says trends are showing compliance with that philosophy.
Do yourself a favor and clean out any buckthorn on your farm, which serves as the overwinter host for soybean aphids. IL Extension’s John Church says it stays green longer than most plants, making it easily identified. Smaller plants can be pulled without regrowth, but larger plants that are cut off need to be treated with herbicides or fire to prevent regrowth. See plant information.
Lambsquarters that just won’t die are becoming yield killers in corn and particularly in soybeans because of its growing resistance to glyphosate. It has developed resistance to ALS inhibitors and triazines as well, says Purdue weed scientist Bill Johnson. He says no-tillers need to have 2, 4-D in a burndown program, and the best thing to use against lambsquarters is a soil-applied herbicide, since nearly every one works on lambsquarters.
Lush growth of winter wheat should not be a concern, say Ohio State agronomists. They say more fall growth means tillering is completed before dormancy and the plants will begin reproductive growth with the spring warm up. It improves winter hardiness, and decreases the potential for heaving in the spring. They add that recent surveys in Ohio have indicated minimal problems with rust, diseases, and aphids in wheat fields.
Wet soils throughout much of the Cornbelt will yield compaction problems next spring says MN soils specialist Jodi DeJong-Hughes, but her advice is just be careful while you harvest the crop.
1) Tracks or duals on combines and grain carts will provide better floatation options.
2) Use the proper tire size and inflation for the carrying capacity of your equipment.
3) 80% of compaction occurs on the first pass, so keep the grain cart in the same track.
Mark your calendar for the National No-till Conference, Jan9-12 in Cincinnati. Speakers are Extension specialists, crop consultants, experienced no-tillers, and others. Details and registration information.
If you are storing corn wet, what is the cost to dry it? Ag Engineer Ken Hellevang at ND State says 11¢ will get it from 21% to 16% moisture, based on a 7¢/kwh rate with airflow of 1.25 cfm and 7 weeks of air. Adjust your electric rate accordingly. He says add another 15¢ if you warm the air 3-5 degrees and dry it down to 13.5% moisture. Get more details.
If you fear aflatoxin, “Harvest corn early and dry it down to 14% moisture for immediate marketing or 12% for long-term storage to help manage aflatoxins,” says SD State plant pathologist Larry Osborne. He says keeping the crop in the field allows moisture to fluctuate and enhances the potential for more toxins to grow and reproduce.
Aflatoxin poses risks to livestock, particularly dairy cattle says SD dairy specialist Alvaro Garcia, “Consumption of low concentrations by animals sensitive to aflatoxins can lead to death in 72 hours. Health and productivity of animals that eat corn contaminated with non-fatal levels of aflatoxins is seriously impaired.” He said screening can cut aflatoxin content in whole kernels 86-89% compared to fines.
Slowly, but surely, we are moving toward a new Farm Bill. The Senate Committee on Agriculture, Nutrition, and Forestry approved a measure Thursday which may get full Senate consideration next week. Among the provisions, the pending proposal:
1) Lets farmers choose between a conventional subsidy or an average crop revenue
2) Creates a permanent disaster aid program, replacing yearly ad hoc programs
3) Increases loan rates and target prices for soybeans, wheat, and some other crops.
4) Eliminates the 3-entity rule for payment limitations, with payments going to a person.
5) Funds conservation programs at $4 billion, with full CRP funding.
Bypassing the Senate Ag Committee, other senators have introduced an alternate Farm Bill for full Senate consideration which would take money from typical farm program payments and spread it to producers of fruit, vegetable, and other crops around the US.
Posted by Stu Ellis at 12:51 AM | Comments (0) | Permalink
October 25, 2007
Unharvested Crops May Be Deteriorating Rapidly In Quality
60% of the corn crop had been harvested by last weekend, along with 75% of the soybeans. That may be well and good for this point in the year, but consider the fact that 40% of the corn remains in the field along with 25% of the soybeans, and the western and northern sectors of the Cornbelt report continuing rain, water standing in the field, and muddy harvest conditions. That does not bode well for crop quality.
The crop in the field represents 5.3 billion bushels of corn and 650 million bushels of soybeans when you apply those harvest estimates to the size of the crop USDA projects for the 2007 harvest. Some of those bushels are in good shape and are coming out of the field a bit slow because not every farmer can harvest120 acres a day with the equipment he has. But many of those bushels are in varying degrees of peril because of the weather. Iowa is one of those spots where agronomists are expressing concerns about the quality of the crop.
USDA said 18% of the unharvested Iowa crop is either moderately or heavily lodged. And the agronomists at Iowa State say there is little more that is discouraging than to have the crop go down in fields which are too wet to harvest, “Flooded corn will not likely stand for much longer, which will predispose the ears to an increased chance of mold infections.” Upright ears are receptacles for water and grain in a warm most husk will begin to germinate.
The Iowa State Plant Diagnostic Clinic reports samples of stalks that have changed color and are coated with a blackish soot. Specialists diagnosed it as a common decay fungus found on dead organic matter, as well as a second fungus which is feeding on the stalks and will likely increase stalk degradation.
The high moisture conditions will favor fungi that cause ear and stalk rots, and cause mycotoxin contamination. The specialists urge farmers to harvest the corn as quickly as possible because the longer it stays in the field the greater the chance of toxin production, such as vomitoxin and fumonisin. They suggest combines be set to minimize kernel damage, since damaged kernels enhance contamination. The grain should be dried to less than 15% moisture and cooled to less than 45 degrees as quickly as possible to reduce toxin production. If there are potential mycotoxin problems, crop insurance agents should be alerted. Beware that any adjustments must be made on standing corn and cannot be made if it is in the bin.
Elevator managers have already found mold damage exceeding 5%, compared to 2% in normal years. Such damage reduces storage life. Field damaged corn should not be mixed with good grain, which includes leaving corn standing in ponded areas or where it had been on the ground or frost damaged. It should be stored separately and managed closely. Iowa State specialists say field damaged corn will not store beyond winter months, and should be kept 1-2 percentage points drier than normal grain.
If you have been able to harvest damaged grain and are drying and cooling it in a bin, an end user such as an ethanol plant will likely be rather strict on grading since it reduces the quality of its products. Disputed results can be sent to USDA as an appeal, but that takes additional time and expense. Toxins can triple and quadruple in content in distillers dried grains, and ethanol plants are reportedly running tests on corn that is particularly low in test weight.
If good grain has been mixed with grain that has germinated, pre-cleaning can eliminate much of the problem and raise the value of the good grain. Similarly, kernels high in mold content can be removed with the help of air separation, but the Iowa State specialists say that may not reduce the mycotoxin levels to a safe point.
Mycotoxins are dangerous to livestock, particularly dairy cattle, so any damaged grain should be tested before being fed to livestock. Having out of condition corn is one issue, but a sick herd of livestock is another. And fumonisin has been found in many of the higher rainfall areas.
Popcorn and other food grade corn should be treated seriously, but with the higher value of those crops, cleaning is an affordable exercise that is recommended.
Summary:
Thousands of farmers around the Cornbelt share a common concern about deterioration of their crops which are still standing in wet fields which harvest has been halted by wet and muddy conditions. Corn that is exposed to wet conditions is susceptible to various molds and mycotoxins that will reduce the value of the grain to both ethanol plants and livestock feeders. The crop should be harvested as quickly as possible, with additional moisture and temperature management, but damaged grain should not be mixed with high quality grain. Procedures are available to screen out kernels that are preparing to germinate or are moldy and that will raise the value of the grain.
Posted by Stu Ellis at 12:33 AM | Comments (0) | Permalink
October 24, 2007
The Senate Ag Committee Debates The Farm Bill: Part 3
The Senate Agriculture Committee today is scheduled to debate and approve a proposal for the 2007 Farm Bill that can be considered by the full Senate. The past two editions of the farm gate have summarized many of the elements on the table, and today you’ll get a look at Committee Chairman Tom Harkin’s proposals for Rural Development, Research, and Credit.
A summary of the Harkin proposal is found on the website for the Senate Agriculture Committee.
In the Rural Development portion of the proposal, Senator Harkin endorses mandatory funding for day care, hospital equipment in small towns, broadband grants to libraries, and low interest programs for rural electric cooperatives. On the issue of broadband Internet access, Harkin focuses aid where at least 25% of households do not have such service and restricts aid to areas where there are three or more providers already.
The proposal would continue grants to promote locally grown value added foods, but reduce funding from $500,000 to $300,000. A new element in the Value Added program would bolster rural collaboratives to boost rural economies, quality of life, and job creation. Other programs would support micro-enterprises with assistance and loans for beginning entrepreneurs.
Senator Harkin’s Rural Development programs would exclude cities of more than 50,000 population and areas contiguous to those cities.
The Harkin Research proposal is similar to that proposed initially by the USDA and already adopted by the House of Representatives. It creates a federal agricultural research administrator, similar to the National Institutes of Health, who would coordinate national research priorities and ensure that universities would share in research funding as well as allocate money to competitive grants. The new National Institute of Food and Agriculture would supervise research that would have a high degree of visibility. The proposal also puts funding priority on specialty crops, invasive species, food safety, and organic production.
In the Credit portion of the Harkin proposal, he begins with a pre-amble that indicates the challenges are immense for beginning and socially disadvantaged farmers and ranchers, particularly for obtaining land and equipment, credit, and building equity. Among his proposals are:
1) A subsidized interest rate so beginning farmers can borrow down payment money which would be 4% below standard rates, but no less than 2%. It also reduces the borrowers minimum down payment to 5% of the purchase price, and increases the maximum amount of money that can be borrowed.
2) Establishment of a pilot program to match the savings account of a beginning farmer or rancher designed for capital expenditures, including land, buildings, equipment and livestock.
3) Encourages private land sales that transfer farms from retiring farmers to new farmers, however details are not provided in the summary.
4) Increase direct farm ownership and operating loan limits up to $300,000.
5) Prioritizes funding for farmers wanting to convert from conventional production to either organic or sustainable farming practices.
6) Provides incentives for retiring farmers to aid beginning farmers if the land involved is in the Conservation Reserve Program.
7) Eliminates term limits on guaranteed loans and allows all farming experience to be considered when applying for a loan, and allows guaranteed farm ownership debt to be eligible for direct loans.
Summary:
With the Senate Committee on Agriculture beginning its debate of the Farm Bill, quick movement should be expected toward full Senate action. The Harkin proposal puts major rural development focus on improvement of Internet services to rural areas and other grant programs that will build quality of life and job creation in more rural areas. He also joins the House in creating a National Institute of Food and Agriculture for the purpose of research oversight, and eases credit issues for beginning and disadvantaged farmers.
Posted by Stu Ellis at 12:39 AM | Comments (0) | Permalink
October 23, 2007
The Senate Ag Committee Debates The Farm Bill: Part 2
Wednesday is when the US Senate Agriculture Committee will be debating the proposal for the 2007 Farm Bill offered by Chairman Tom Harkin. The farm gate yesterday examined his proposals for commodity programs, crop insurance, and conservation. Today the spotlight turns to Livestock, Energy, and Trade, then this three part series concludes Wednesday.
A summary of the Harkin proposal is available on the website of the Senate Agriculture Committee.
Concerned about competition among the relatively small number of packers, Senator Harkin wants to create a Special Counsel at USDA to enforce the Packers and Stockyards and Agricultural Fair Practices Acts as well as conduct investigations and prosecutions. Additionally, the application of the Fair Practices Act would be extended to members of marketing associations and cooperatives. Under the Packers and Stockyards Act, producers would not have to submit to mandatory arbitration on livestock contracts, but arbitration would be voluntary. On the issue of contracts, if a producer had made a capital expenditure of $100,000 or more to secure the contract, any termination could not be made in less than 90 days.
Under the provisions of the Livestock Mandatory Reporting Act, Senator Harkin wants USDA to conduct a study of wholesale pork reporting.
Senator Harkin proposes restrictions against the use of certain information obtained under the National Animal ID program and restricts the Secretary of Agriculture in the handling and use of the information.
Other proposals:
1) benefit sheep and goat production and research,
2) express concern about the impact of feral swine on domestic pork production
3) authorize a voluntary program for trichinae testing
4) and includes live poultry production under the Packers and Stockyards Act
On the issue of energy, the Harkin proposal strongly supports the production of energy from commodities. Many of the initiatives are federal appropriations for research and program expansion. Among them are:
1) $197 mil. to spur biomass crop production through incentive payments to farmers
2) $422 mil. for grants and loans for bio-refineries and to power them with renewable fuel.
3) $245 mil. to help bio-refineries purchase feedstocks for advance biofuel production.
4) $270 mil. in grants and loans for plants converting animal waste into energy
5) $75 mil. in research for bio-mass research and development.
6) $45 mil for 10 universities to create comparative bio-energy experiments.
7) Funds or policy support for biodiesel education, energy evaluation programs for farmers, and renewable production of nitrogen.
The trade provisions of the Harkin proposal focus on program renewal and creation to enhance agricultural trade. They include:
1) An additional $116 mil. in matching funds for groups promoting commodities or specialty crops over the 5 year term of the Farm Bill.
2) Cleaning up or reforming export promotion programs that are in conflict with the World Trade Organization, and saving $23 mil. over 5 years.
3) Reform of the Food Aid program to address changes recommended by the General Accounting Office.
4) Establishment of a minimum of $600 mil. for the Food for Peace program and an additional $25 mil. for the potential purchase of local foods to be distributed in emergencies.
5) A $78 mil. appropriation to help pay for transportation of commodities being donated in the Food for Progress program.
Summary:
The Harkin proposal for the Farm Bill strengthens the authority of USDA over livestock packers and provides various protections for individual producers. On energy issues, the Harkin plan calls for many grant programs to enhance the production of bio-fuels in rural communities, helping both farmers and bio-refineries. On trade, the Harkin proposal seeks to bring USDA programs into compliance with WTO regulations, but keep many of the appropriations that will fund food donation programs abroad.
Posted by Stu Ellis at 12:45 AM | Comments (1) | Permalink
October 22, 2007
The Senate Ag Committee Debates The Farm Bill: Part 1
The US House of Representatives approved its version of the 2007 Farm Bill in July, and chapter 2 begins Wednesday when the US Senate Agriculture Committee debates the proposal of Chairman Tom Harkin of Iowa. After the Committee and the Senate vote, a conference committee will reconcile the differences. But in preparation for the long-awaited Senate Ag Committee debate, let’s explore what is on the table in a 3 part series. The first segment examines Sen. Harkin’s proposals for farm programs and conservation.
A summary of the Harkin proposal is found on the website for the Senate Agriculture Committee.
The proposal for the farm safety net indicates it will be extended through the 2012 crop year, which confirms the legislation is a 5 year plan, although other time frames had been mentioned. The summary says the proposal:
1. Retains current base acres and creates base acres for newly-eligible crops
2. Rebalances target prices for crops
3. Maintains direct payments
However, it does not provide details on the level of target prices nor the amount of direct payments. The latter had been an unfunded issue late last week. It also maintains planting restrictions for fruit and vegetables, apparently on program crop acreage but that is not specified.
Loan rates will also be rebalanced, but levels are not specified, and it makes an administrative change in the loan deficiency payment to set the rate when beneficial interest is lost.
The proposal also establishes an average crop revenue option, which includes fixed payment rates, recourse loans and a state level revenue program. This would be similar to the National Corn Growers Association plan, which was included in the House, along with the Durbin-Brown plan. The Harkin proposal indicates planting flexibility provisions are under discussion and crop insurance premiums would be re-calculated based on new ratings.
Responding to calls for more support for specialty crop producers, the Harkin proposal establishes $365 million in grants for specialty crops, and a variety of other funding for specific crops, nursery crop protection, and organic crops.
Payment limitation would be reformed to ensure payments go only to payment beneficiaries, but details are not specified, and the three entity rule would be eliminated as it was in the House. Details on cash levels are not revealed.
Other issues in the Harkin plan include a sugar program, extension of the MILC program with increased payments, and a peanut program.
The Crop Insurance program would see the loss ratio reset at 1.0 which means premiums paid by farmers would equal indemnity checks paid to farmers. There would also be many administrative changes including:
1) Farmers who are also agents could not sell to their family operation and get a commission.
2) Organic crops would be rated the same as non-organic crops
3) The fee for CAT insurance would rise from $100 to $200 per crop per county
4) Allows producers with livestock production contracts to obtain crop insurance.
5) Creates crop insurance for crops dedicated to energy production.
The Conservation elements of the Harkin plan call for considerable expansion of those programs as expected, since he was quite critical of the level of conservation program support in the House version of the Farm Bill. Among the programs:
1) Expands the Comprehensive Stewardship Program (CSP) to annually add 13.2 million acres with the help of an additional $1.28 billion above the current 10 year baseline funding, which adds 80 million acres to conservation programs.
2) Better coordination of CSP and EQIP programs.
3) Continue the EQIP at current levels.
4) Maintain the Conservation Reserve (CRP) at 39.2 million acres.
5) Reauthorizes the WRP and enrolls 250,000 acres annually through 2012.
6) Earmarks 10% of conservation funds for beginning or disadvantaged farmers.
7) Calls for a new program to reduce greenhouse gases
Summary:
The Harkin proposal for the 2007 Farm Bill will be debated in his committee beginning Wednesday, but some details have not yet been revealed, such as levels of target and loan rates and direct payments. His proposal does provide for creative programs, such as those proposed by the National Corn Growers Association and Senators Durbin and Brown. Payment limitation will be apparently restricted, but levels were not revealed. Conservation funding will get a large boost with 80 million more acres in the CSP program, an enlarged wetlands program, and maintenance of the CRP program. Other details of the Harkin proposal for the Senate’s version of the Farm Bill will be explored Tuesday and Wednesday.
Posted by Stu Ellis at 12:43 AM | Comments (0) | Permalink
October 19, 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.
More exports, less ethanol was the bottom line on USDA’s latest 2007 corn estimates, and Extension’s Darrel Good believes, “Increased feeding of co-product feed from ethanol production has been substituting for corn feeding recently, but the apparent feed and residual use of corn during the 2006-07 marketing year was surprisingly small.” He thinks the 2006 corn crop may have been underestimated and looks for a correction.
Darrel Good also says our projected 2 bil. bu. carryover may be enough, “Stocks at that level suggest that an increase in US corn acreage may not be needed in 2008. Some decline in corn prices following the large projection of year-ending stocks would not have been surprising, but prices actually increased. There may be some concern that the 2007 crop forecast could be lowered again in November.” Read his weekly newsletter.
The corn market will wrestle with supply and demand according to Bob Wisner at Iowa State. “With profit margins likely to turn negative for some plants, the depressed ethanol profit margins are likely to be a tempering influence on corn prices in the next six to nine months. But this winter and in early spring, extremely strong export demand for U.S. corn and concern about reduced corn acres in 2008 will likely be offsetting influences.”
Your marketing plan should be flexible enough to accommodate 3 Wisner warnings:
1) Weakness in ethanol margins that cause a slowdown in production plant expansion.
2) Increased 2008 world wheat production that will reduce corn exports next summer.
3) The potential for increased South American corn and soybean production in 2008.
The basis will continue to improve says Wisner. Spring and summer 2008 forward contracts for corn and beans are profitable for those who have on-farm storage available. Forward contracts will vary from elevator to elevator, but the basis being offered is considerably stronger than at harvest and Wisner says it will tighten more. “That creates an incentive to sell on contracts with the basis left open and to be locked in at a later time.” Read more.
Regarding the differences in returns to storage from on-farm and off-farm storage, Wisner estimated profits for 4 and 8 month storage, on $2.97 corn and $8.64 soybeans:
1) Potential profit to store corn 4 months on-farm is 7¢ versus a 10¢ loss off-farm.
2) Potential profit to store corn 8 months on-farm is 28¢ versus 4¢ for off-farm.
3) Potential profit to store beans 4 months on-farm is 17¢ versus 2¢ for off-farm.
4) Potential profit to store beans 8 months on-farm is 15¢ versus an 8¢ loss off-farm.
Wheat is in extremely short supply everywhere in the world according to Mike Woolverton at Kansas State. He says exports have been higher than expected, but cannot be sustained; and he believes the price may rise to ration the remaining US supply. He says current high prices are not buying much, because most old crop wheat has been sold. And he adds, “If wheat acreage expands around the world as expected and growing conditions are good, look for wheat price to move lower this winter and early spring.”
Change must occur, say MO Livestock economists Glenn Grimes and Ron Plain following USDA’s latest Hogs and Pigs Report. “One of the big questions about the current hog industry is how quick producers will react to red ink by reducing production. With the current structure of the hog industry, the response may be slow. If so and we do not get substantial demand growth in the next 2-3 years red ink may flow for some time.”
Agreeing with that is Purdue’s Chris Hurt, who says slaughter capacity is 428 thousand per day, and he says it’s an issue, “In the first two weeks of October, actual slaughter has run very close to that number assuming one-half day of capacity on Saturday’s. Slaughter for this short period has been a surprising 8% above year-earlier levels.” Read more.
With insufficient slaughter capacity, Hurt says prices this fall will average $43-47 on a live weight basis. “Absolute daily lows could move into the lower $40s. Late October or early November tend to be the time of the historic seasonal lows. Winter prices are expected to improve about $2 and to average in a range from $44 to $48. Spring and summer prices should be much better and are expected to average in the very low $50’s.”
But the big supply of pork will be met with a big demand. At Iowa State, economist Shane Ellis says, “Pork retail prices may reach a three year low as extra supplies come available. Consumption, in turn, is expected to reach a three year high. Competing meat prices, beef and poultry, are considerably higher than they were a year ago. So a sign of softening pork prices should draw the attention of consumers. His meat analysis and charts are in his bi-weekly newsletter.
Beef consumption will fade in 2008, says Iowa State’s Ellis. However, exports will be more important to the market, and they are up 25% from last year. The largest growth in beef exports has been in Japan and South Korea, climbing up from zero. Exports to Canada have increased 38% from last year, which is to be expected, with 21% more Canadian feeder cattle being finished here in the US. On the other hand Mexico, our largest beef customer, took in 12% fewer beef and sent us 19% fewer feeder cattle.
Comparing current beef exports to pre-BSE levels, livestock economist Jim Mintert at Kansas State says, “Year-to-date beef exports to all destinations were 46% below the same period in 2003. And shipments to Japan during January-August 2007 were still 83% below the same period in 2003. Longer term, beef exports are expected to continue to grow, but it is expected to take several more years before US exports match 2003’s.”
How do you compare to the average? University of MO and IA State questioned pork producers in 2006 and found: 54% self-prepare their feed and 35% of grain is raised on-farm. Livestock economist Glenn Grimes says responses to the grain question ranged from 2% to 79%, and with the higher corn price expected for the foreseeable future, it increases the competitiveness of the farms that produce most or all of their grain needs.
Corn without ears describes “tropical maize,” but you might be growing it in future years for the sugar content in its stalk and leaves. IL agronomists say it requires a long growing season, but the shorter season in the Cornbelt means the sugar is not converted to cellulose and could be more easily processed into ethanol than miscanthus or switchgrass. Agronomists say it requires less nitrogen, so cost of production is less.
Place your bets on aphid numbers in 2008. Ohio State entomologist Ron Hammond says there were plenty of eggs last spring, and 2007 was predicted to be a big year, but it wasn’t. He thinks the cold spring weather either killed them or destroyed their early food supply. He says there aren’t many preparing to overwinter, but he’s not making bets just yet. Aphid populations alternate high and low, year to year, says Hammond.
Green stem is an enigma but Ohio State agronomists have a theory on its cause. They say when a soybean stem loses pods early, leaves will stay green, but that is not the case on branches. The loss of the pod changes the flow of carbohydrates in the plant, and in maturing the soybean plant digests its leaves and stem to fill the pod. If the plant part is not needed, it will not be used, and will remain green while other plants mature normally. Their theory is plausible, and you can get details .
Should you forget about soybean rust? Purdue’s Greg Shaner says don’t write it off as a minor threat, just because the Cornbelt has escaped its potential damage. He says 2007 was one of the driest years ever for Southern states, and the third successive year of drought conditions, which have combined to suppress Asian rust problems. “If in some future year, southern states receive more rainfall in the spring and early summer, rust could develop quicker down there, and move into the Midwest earlier in the summer.” Read more.
Preserving your grain preserves your revenue, and you can help yourself by monitoring pests in your grain bin. Purdue entomologist Linda Mason suggests placing traps outside and inside a grain bin to detect a trend in potential pests. “Pheromone baited flight traps allow you to monitor moth populations, while grain probe traps monitor beetle populations. Make sure to examine trap data on a regular basis, it is not always the absolute number of insects you catch but the trend that is important. A steady increase in the population indicates a growing problem.” Read more of her grain protection advice.
You can’t tell the players without a program, and NE has the line-up on various bio-tech corn “events” so you know what crop pests are controlled and whether you need to plant a 20% refuge with a non-pest control hybrid, and simplified recommendations on refuges. It is located in the October 12 edition of Cropwatch. Study up, because next week there will be a test on: MON88017/Cry3Bb1 + Mon810, Cry1Ab .
Posted by Stu Ellis at 12:40 AM | Comments (0) | Permalink
October 18, 2007
Checkoff Programs: What Challenges Are Around The Next Turn?
Very little incites a good coffee shop argument than someone taking a strong pro or con position on a commodity checkoff program. All farmers have opinions, strong opinions, and those who have not served a couple terms on a commodity checkoff board have been those who have attempted to dismantle the programs. With the renewal of the Farm Bill, and perennial challenges about their constitutionality, what are the challenges facing commodity checkoff programs?
Nearly three-quarters of a billion dollars are collected by some of the largest checkoff programs regulated by USDA, and nearly half of that is paid by the dairy producers and the milk processors. Other large programs include soybeans at $88 million, beef at $81 million, cotton at $71 million, and pork at $47 million. All are monitored by USDA’s Agriculture Marketing Service; all are mandatory programs; and all of them have farmers who contribute into the programs make decisions on the use of the funds.
But in preparation for the Farm Bill, Members of Congress were provided fact sheets on commodity checkoff programs developed jointly by the Farm Foundation, Texas A&M University, and the National Public Policy Education Committee, all of which took a neutral position for the purposes of educating Congress. The groups said the generic advertising and promotional programs have come under intense scrutiny and legal challenges in recent years by individuals who question if their mandatory contributions for mass marketing are any better than individually-funded marketing efforts.
Authority for such programs goes back to 1937 with the Agricultural Marketing Agreement, and successive farm policies have enlarged the authority over the years. Early voluntary programs operated with little controversy. Mandatory programs overcame problems with “free riders.” Some programs authorized refunds after collection and expenditure.
But recent years have brought numerous court challenges by non-supporters and parallel concerns have arisen about the programs being compliant with World Trade Organization requirements. The initial Supreme Court decision, which occurred in the beef checkoff, found that USDA regulation of the programs constituted “government speech,” rather than private speech when First Amendment issues arose. Since the days of the early non-controversial programs, agriculture has changed with fewer, larger producers, and the smaller producers believe larger producers are in a better position to profit from the checkoff programs.
With the new Farm Bill, what challenges will face the checkoff programs which have a wide variety of rules and regulations? The study groups point to four possible challenges in their fact sheets:
1) Exemptions and opt-out provisions will be a continuing battle by small producers wanting independence, even though the largest producers of a commodity still produce a small percentage of the total commodity. The larger producers may be in a position to better benefit from the value of the checkoff program by virtue of their structure, and some programs may find a consensus in allowing producers under a certain threshold to opt out without hurting the program with the loss of the majority of producers.
2) The origin of the message will rise in consideration for some checkoff programs and will have to be resolved with all messages funded by the checkoff to be attributed to the federal government, rather than to the board of farmer directors who oversee the allocation of funds. That will reduce the complaints from opponents that some group of farmers is speaking which does not represent them.
3) More research funds may have to be diverted away from basic or advance research and directed at demonstrating to producers opposing the checkoff program about the ways their contribution has benefited them specifically. For example it may show how a specific product developed from the checkoff program increased the value of the commodity and a producer benefited with additional dollars from commodity sales.
4) Many of the commodity checkoff programs have funds allocated for export market development, and the WTO may take the position that such funding is not compliant with its rules and is closer to an export subsidy, which has been determined to be illegal under current regulations.
Summary:
Checkoff programs have touched every farmer in the Cornbelt, and many farmers in the rest of the US, but they remain controversial because the mandatory nature of them is in conflict with the independent nature of the farmer. Recent court challenges have only scratched the surface of issues which question the propriety of the checkoff programs and several other issues may confront checkoff proponents in coming years.
Posted by Stu Ellis at 12:18 AM | Comments (1) | Permalink
October 17, 2007
You Have An Excellent Export Market, But With Whom And What Are You Competing?
If you are confused about the apparent conflict between high prices and high export demand, that’s understandable. Usually foreign buyers try to purchase US grain at bargain basement prices, but record export volumes are being set at the same time that prices are at record high levels. The keys to the conundrum are scarce global grain supplies and the foreign currency exchange rate prices US grain at those bargain basement levels. So where will the corn and beans you’ve been harvesting be exported to in coming months?
USDA’s latest coarse grain review forecasts global trade in coarse grains (such as corn, barley, and sorghum) to be 117 million tons this year, which is a record, and the US will be exporting 92 million tons of that. This amount of land office business results from improved prospects for the US crop, diminished foreign competition, and tight global supplies. It occurs despite $166 per ton corn prices ($4.22/bu.), and is helped by a five fold increase in sorghum exports compared to last year; and that is the highest volume in 15 years for sorghum exports. One of the reasons is the fact that European markets want livestock feed that is free of GMO content and are buying US sorghum instead of US corn.
1) US corn exports will match the prior record set in 1989/90 because it is attractively priced to foreign buyers.
2) Chinese corn exports have been cut in half to the smallest level in a decade because of low production and high feed demand.
3) Argentina will be exporting about 550 million bu of corn which is a record level.
4) Brazil will be exporting 300 million bu. of corn, particularly to Europe.
USDA’s latest report on wheat indicates that the Central Asian republic of Kazakhstan has become a world wheat power, exporting 300 million bu. to neighboring countries and Eastern Europe. That compares to the 1.1 billion bu. being exported by the US and the 400 million bu. by Russia. However, USDA says there will be some buyers with strict quality standards that will prefer more expensive US wheat.
1) There was strong demand for wheat worldwide during September, even though world prices rose $40 to $60 per ton, depending on class of wheat.
2) The Australian drought cut its wheat exports to 300 million bu, compared to the 400 million bu last year, which was also reduced by drought.
3) Argentina will export 380 million bu. with the help of improved crop prospects.
USDA’s October report on oilseeds provides another bullish forecast for exports, and the 1.1 billion bu. of soybeans expected to be shipped abroad in the current fiscal year would be a record level, even in the wake of farmgate prices of $7.85 to $8.85. But USDA says foreign buyers really don’t see that price, “One element of the price rallies this year comes from the appreciation of foreign currencies against the U.S. dollar. Since January 1, the exchange rates for many countries have appreciated between 5 and 15 percent. Thus, the improving purchasing power of importers enables them to bid more strongly for dollar-denominated U.S. supplies.” USDA says meal exports for 2006/07 will surpass 2005/06 by 10% and 2006/07 soybean oil exports will reach a four year high. Exports of meal and beans in the current marketing year are expected to see higher competition from South American and volumes may be trimmed.
1) Brazilian soybean prices are 40% higher than last year and farmers have forward contracted large amounts of production, with more acreage and more production expected compared to last season.
2) Chinese soybean production estimates have been cut because of drought, but consumption with be increased with the help of imports.
3) A bumper crop of soybeans is being produced this year in India and many of them will be shipped to China.
Summary:
Despite high prices for corn, soybeans, and wheat world commodity buyers are knocking at the door of the US farmer. Short supplies, higher demand, and a favorable exchange rate have combined to create incomparable demand that is expected to remain throughout the balance of the marketing year. However, there have been some alternatives that have appeared on the scene. Kazakhstan has stepped in to supply wheat. India will be exporting large supplies of soybeans to China. And US sorghum will be a popular feed grain in Europe for farmers not wanting GMO corn.
Posted by Stu Ellis at 12:23 AM | Comments (0) | Permalink
October 16, 2007
Optimum Fertility Means Optimum Revenue
With current grain prices, a yield that might have been 10 bushels more per acre would generate considerable additional revenue; and slight fertility adjustments could make that happen. What does your latest soil test show, and by the way, how old is it? This is the time to take a new soil test, and you have many bushels of reasons to do it.
Your combine yield monitor might have been showing higher numbers, if your fertility had been at optimum levels for Phosphorous and Potassium, as well as Nitrogen. While your expense sheet might wince at varying prices for achieving top fertility levels, your income sheet would have benefited, say Iowa State agronomists Antonio Mallarino and John Sawyer. With the recent changes in crop and fertilizer prices, the agronomists urge farmers to examine the relationship between the two.
Among their recommendations in a recent newsletter are higher soil-test K levels for all crops, and update default yield levels for calculating P and K rates needed to maintain desirable soil test levels. Among their concerns are the increasing corn and soybean yields are removing P and K faster than many farmers are replacing it, if farmers are using standard recommendations for fertility levels. After speaking with farmers, the Iowa State agronomists are finding that to be true, and most producers are not paying attention to potential soybean response to P and K, if the nutrients are only being applied prior to a corn crop. They say there is no difference between annual or bi-annual application of fertilizer, as long as the appropriate amount is being applied. Their research shows that P and K application for the optimum soil test indicates higher maintenance rates than were common 5-6 years ago.
If farming a particular tract next year is uncertain, or your bank account cannot afford a large fertility expense, the Iowa State agronomists offer an alternative. “Due to a low proven probability of crop response in soils testing "Optimum," a reduced fertilizer rate (even as low as a starter rate) might be appropriate for a tenant with uncertain land tenure or a producer having a cash flow issue. On the other hand, producers with certain land tenure for two or more years into the future can minimize yield and economic losses by applying recommended maintenance rates.” At the same time, variable rate application can help improve yield, if there are significant differences in soil tests within a single field. The concept is parallel to the more recent push by Cornbelt agronomists to apply nitrogen at levels that pay back with a “return to nitrogen.”
Speaking of nitrogen, if your harvest ended early and there is daylight to spare, some farmers may be pushing the soil temperature envelope to apply nitrogen early and head to the shed before the end of October. University of Illinois agronomist Fabian Fernandez says nitrogen is one of your more expensive inputs, as well as one that can pose environmental problems. He urges judicious management of nitrogen with both of those issues in mind.
In a recent newsletter article about fall nitrogen application, Fernandez says it is critical to wait until the soil temperature at the 4 inch levels is below 50 degrees, and can be maintained below that level. If nitrogen must be applied at a higher temperature, that temperature must not exceed 60 degrees and the nitrogen must be applied with a nitrification inhibitor. That should not be news to anyone, but is offered as a reminder.
As a refresher, ammonium is a stable form of nitrogen that is readily absorbed into the soil. Above 50 degrees, ammonium converts to nitrate, which can be lost through denitrification and leaching that allows it to be picked up by the flow of groundwater and field tiles. So your first consideration should be the form of nitrogen you apply as determined by the temperature of the soil. If the choice is either ammonium nitrate or urea ammonium nitrate (UAN) the nitrate molecule is already in a form that can be lost through denitrification and leaching. So neither would be appropriate forms of nitrogen above 50 degrees.
Anhydrous ammonia quickly locks into the soil moisture and is converted to ammonium for stability. Urea converts first to ammonia, then to ammonium, and can be used in the fall, but there is a greater risk of conversion to a nitrate and being lost before it is used by a crop.
If the nitrogen is being applied above 60 degrees, a nitrification inhibitor needs to be applied, which interferes with the activity of the bacteria that are catalysts in nitrification process, consequently the nitrogen will be available for a longer period of time.
Summary:
Following harvest, 2008 fertility concerns may be one of your priorities. Nitrogen application should wait for cooler soil temperatures or it will convert to a nitrate that is lost for use by spring crops but will create water quality problems. Consider the various forms of nitrogen that are available and select one that will not be hampered by soil temperatures. On the issues of phosphorus and potassium, ensure that your crops are receiving an optimum amount for both corn and soybeans, since the latter has not always been the case in recent years. With high value crops, optimum fertility levels can mean the addition of revenue.
Posted by Stu Ellis at 12:55 AM | Comments (0) | Permalink
October 15, 2007
Would You Go To Any Ethanol Plant To Buy Hog Feed?
With the growth of the ethanol industry, livestock producers will have an increasing quantity of distillers’ dried grains (DDGS) available as an alternative feed to provide protein and energy. However, DDGS will vary in its nutritional content from plant to plant, and pork producers are particularly urged to be knowledgeable of the characteristics of the DDGS before it is fed.
At the 2007 Midwest Swine Production Conference, University of Illinois swine nutrition specialist Hans Stein said, “Some DDGS products have been heated to an extent that the concentration and the digestibility of lysine has been reduced and it is, therefore, important that the concentration of lysine is measured in DDGS before it is used.” Stein’s presentation on Feeding DDGS to Pigs suggests that many new products from the ethanol industry will become available in the future and the feed value will need to be measured.
DDGS consists of the entire corn kernel, except the starch, which was removed and fermented for ethanol. Most of the earlier constructed ethanol plants were built only to remove the starch, but some of the newer processes will convert the corn kernel into different fractions that will result in a variety of products with different contents. Those might include products with varying quantities of hulls and germs. Stein says when the degermed and dehulled corn has been fermented, a high protein, low fat, low fiber product is produced, but the solubles stay with the hulls, and the remaining high protein product is 40% crude protein and is just DDG, distillers’ dried grain (no solubles). He recommends the inclusion of a 20% high protein DDG in diets fed to pigs, but if a 40% formulation is used, feed intake may be reduced in the growing period.
Other products from the ethanol plants may have had the corn oil removed, and the resulting product is only 4 to 6% crude fat, instead of 9 to 10%. Although untested, Stein expects the energy value is lowered 10 to 15% and less valuable than conventional DDGS. Another product may have had more fiber removed, which is also too new for feeding trials.
One of the prime considerations for a DDGS product is Lysine quality, quantity, and digestibility. Stein says there is more variability in Lysine digestibility than other amino acids because of heat damage during the drying process. Some DDGS samples with the lowest concentrations have the least digestibility. That is why lysine concentration needs to be quantified. Certainly lysine can be computed from the quantity of crude protein present, but because the processing can impact the lysine and not the crude protein, just knowing the crude protein is not sufficient. Stein says a color chart is not a good indicator of lysine, since the color of the DDGS can vary from time to time at an individual ethanol plant. Stein says part of the damage to the lysine comes when the solubles are reintroduced to the distillers’ grains, therefore he says DDG may be expected to have more lysine and it is more digestible than in DDGS.
Most of the available DDGS comes from ethanol plants producing a motor fuel, but Stein says there will be beverage ethanol plants that also produce DDGS. While no testing on the differences in nutritional characteristics has been done, Stein does not expect much difference in the quality and quantity of lysine. It all depends on the production process at an individual plant and the temperature during drying of the DDGS product.
Another difference of DDGS from various ethanol refineries is the concentration of phosphorus, and Stein says while the total amount of P is relatively small, there seems to be a wide variation in the amount of available P. Subsequently, it is important to establish the phosphorus content and the manner in which it was calculated.
In the end, the variations in characteristics of DDGS could be a substantial reason for the great variance in feed efficiency with different formulations of DDGS in swine rations. DDGS with a low lysine content will have an impact on finishing pig performance, and Stein says the crude protein concentration may also have been the limiting factor, “If the inclusion of crystalline
Amino acid is not increased, then the concentration of crude protein in the DDGS containing diets will increase. This can result in reduced feed intake, reduced dressing percentage, and reduced intestinal health, which in turn will reduce pig performance.” Until more research is done, Stein recommends not increasing the crude protein in a ration formulated with DDGS.
The end product is the meat quality of the animal, and Stein says the inclusion of DDGS in a diet fed to finishing pigs does not influence the palatability of bacon or pork chops. However, DDGS fed to finishing pigs will increase the iodine values and produce softer bellies than conventional rations, but the reasons are unknown.
Summary:
More ethanol plants mean more distillers’ dried grains available for livestock feed, but it also means more variability in the nutritional content, particularly in the quantity and digestibility of lysine which is important for swine rations. The variability results from the processing, which is different at individual plants, and pork producers should have DDGS analyzed to ensure quality and help quantify the value of the product being purchased for hog feed.
Posted by Stu Ellis at 12:05 AM | Comments (0) | Permalink
October 12, 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 October Crop Report nudged 2007 corn production higher to 13.318 bil. bu, up from 13.308 bil. in Sept. The change results from a new acreage estimate of 93.6 mil planted which is up from the 92.888 mil. acre estimate released at the end of June. But USDA also reduced the average yield estimate to 154.7 bu. from the 155.8 bu. in Sept. The market was looking for a production estimate ranging from 13.232 to 13.600 bil. bu.
USDA’s October Crop Report reduced the soybean production estimate to 2.598 bil. bu. down from the 2.619 bil. estimate in Sept. and compared to the trade estimate of 2.648 bil. bu. The lower production estimate was calculated with a new acreage estimate of 63.699 mil., compared to 64.081 mil. estimated in June. Ave. yield remained at 41.4.
The October Supply and Demand Report lowered the corn use to 12.640 bil. bu. which raised the carryout to 1.997 bil. bu. at the end of next August. USDA reduced feed demand by 150 mil. bu. reduced ethanol use by 100 mil. bu., and reduced exports by 150 mil. bu. The average seasonal cash price was raised 10¢ to a range of $2.90 to $3.50.
The October Supply and Demand Report rebalanced its soybean estimates. With less 2007 production, USDA adjusted beginning stocks upward and calculated 2.962 bil. bu. total supply, compared to the 2.964 bil. Sept. estimate. Aug. 2008 ending stocks remained at 215 mil bu. Cash prices were raised 50¢ to a range of $7.85 to $8.85.
Other notes from today’s USDA October Crop and Supply and Demand Reports:
1) The 86.1 mil. corn acres estimated for 2007 harvest will be the most since 1933.
2) Ear counts in IL, IN, IA, NE, and WI surpasses the 2004 record.
3) Overall, soybean pod counts are lower in 2007 than in 2006 for the Cornbelt states.
4) Compared to 2006, pod counts are up in IA, MN, & NE; down in IL, IN, OH, & MO.
Corn prices are high, relative to history says Michigan State’s Jim Hilker. “The market is still saying it will pay storage for 2007 on-farm stored corn, as shown by the basis and the spreads between futures going out through July. This is not saying the market will go up, but the rated basis will strengthen more than enough to pay for on-farm storage.”
Soybean prices are high, regardless of basis problems, says Hilker. The market appears to want to pay storage into Jan., then puts the brakes on. The problem with trying to take advantage of the storage opportunities is the unpredictable basis we have seen since Mar. However, if you have unpriced soybeans, and have adequate on-farm storage, consider some hedges or H-T-A's to try and take advantage of the weak basis. I suspect the worse you will do is breakeven, and if the basis corrects itself, there may be a nice return.”
“Wheat prices appear to have peaked at least for now,” says Extension’s Darrel Good, but he says prices may remain generally high and very volatile until 2008 crop prospects are better defined. Read his weekly newsletter.
1) US wheat seeding is about 60% complete, with more soft wheat acreage expected.
2) So. Hemisphere producers will plant based on No. Hemisphere acreage reports.
Darrel Good says yields will be as important as wheat acreage, since world average yields have ranged from 39.3 to 42.8 bu. “A modest increase in world wheat acreage and yields near the low end of recent experience would point to the need to ration wheat consumption in 2008-09, while a larger acreage increase and yields near the upper end of recent experience would allow some rebuilding of world inventories,” says Good.
A good wheat crop begins with a good stand says Kansas St. agronomist Jim Shroyer, “If you planted 90 lbs/A in 7 ½-inch rows, for example, you could expect to have about 11 to 13 plants per ft. of row, depending on seed size. If you planted 60 lbs/A in 12-inch rows, you could expect an emergence of about 14 seedlings per ft. of row,” he said. He gives emergence tips.
Despite bickering among trade negotiators, Univ. of IL trade specialist Bob Thompson says consensus has been reached in the World Trade talks, “to ban agricultural export subsidies and to reduce import tariffs and domestic support linked to the production of specific commodities. While there is still some disagreement concerning the depth of the cuts and how many exceptions should be allowed for politically sensitive commodities, the differences are narrowing rapidly.” He says an agreement this year is possible.
The Farm Bill is an opportunity to address trade issues, says Bob Thompson, but he says, “The House farm bill sends a message to the rest of the world that the US is not very serious about the trade negotiations. In fact, the House action is seen by the rest of the world as yet another example of the US arrogance and unilateralist approach when it comes to international relations.” He says it creates trade problems in 5 different areas.
“The same old thing,” is what Purdue trade specialist Allan Gray calls the House proposal, but he says the Senate is making changes in pocketbook issues. He says direct payments may be cut slightly, specialty crops will be allowed on acreage previously reserved for program crops, and the ceiling will be lowered on farm program payments.
Are farmland prices in line with returns to farmland? IL Extension Specialist Gary Schnitkey says that depends on the capitalized value of the land, which is driven up by either higher cash rents or by lower interest rates. Read his capitalization analysis.
Schnitkey’s contention is that “While farmland prices exceed capitalized values currently, likely increases in cash rents will bring farmland prices and capitalized values more closely in line with historical average difference. It is not likely, however, that increasing cash rents will cause farmland prices to equal 1.07 times capitalized values, the historical average from 1986 through 2004.” He says, “Either a new relationship between farmland prices and capitalized values exists where farmland prices exceed capitalized values by a large margin, possibly caused by urban sprawl, or growth in farmland prices must slow so that capitalized values catch up with farmland prices.”
Blue eye mold can over-winter in your stored corn, says Purdue’s Dirk Maier. “Blue eye mold can grow at lower moisture contents and may stay in the grain even after it’s been cooled. When temperatures become warm in the spring the mold can continue to grow and create problems that can result in quality discounts at the time of sale.” He says removing some grain from each bin will pull out the center core with fines and molds.
Soybean aphids might be a rarity in 2008, if Ohio State analysis holds true. Bug folks there have been finding only small colonies preparing to over-winter, “The significance of these low numbers point to the possibility that, even though we did not have the large populations anticipated this past summer, we might still be in for a low aphid year in 2008.” But before coming to conclusions they want to hear from other states.
Starve some SCN this winter by eradicating winter annual weeds that play host to the cysts until 2008 soybeans arrive. Winter hosts include: Purple deadnettle (strong host), Henbit (strong host), Field pennycress (moderate host), Shepherd’s-purse (weak host), Small-flowered bittercress (weak host), and Common chickweed (weak host).
Corn stalks are not very palatable, but crop residue provides grazing options where forage is tight. Ohio State Specialist Jeff McCutcheon says 1 acre of corn residue will provide enough for a 1,000 lb animal for up to 2 months. The animal will begin with the grain, and husks, then resort to cobs and stalks. He says stalks have a 60 day limit. Read more on crop residue and stover nutrients.
Selling “pre-conditioned” calves nets an additional return of $23.50 per head according to an Oklahoma State study: sickness declined from 36.4% to 9.2%, death loss decreased from 4.3% to 1.5%, average daily gain increased from 2.6 to 2.9 pounds, and percent grading USDA Choice increased from 36% to 50% for precondition calves versus non preconditioned calves in Texas feedlots. Read more.
Time for soil testing, managing fertility, and IL Extension’s Mike Roegge says it takes $50 to maintain P & K for 175 bu. corn. He says a corn-soy-wheat rotation can use 40 lbs of P, but lower that by 10 lbs if the rotation is only corn-soy. Potassium soil test levels of 240 lb/A (on high CEC soils) will provide 95% of optimal yield for all crops.
Don’t guess your limestone needs says IL Extensions Jim Morrison, but take a soil test every 4 years. In a cash-grain system a pH of at least 6.0 to 6.5 would be suggested. With alfalfa and clover in the rotation, the pH needs to be at least 6.5, preferably closer to 7.0. He says liming enhances nitrogen fixation and may improve soil structure and tilth.
Mark your calendar for the IL Crop Protection Technology Conf. on Jan. 9 & 10 in Urbana, IL. The focus will be on high production corn and soybean management, nutrient management and water quality, pest resistance management, and IPM.
Posted by Stu Ellis at 12:50 AM | Comments (0) | Permalink
October 11, 2007
Exploring The Details Of Pork Production Economics
While the grain markets have rallied in the past year, and beef values are climbing, the pork market has not shared in the good fortune of other Cornbelt commodities. Profits have been good for several years, but are diminishing with lower market prices and higher production costs. But this is a complex economic equation.
Attendees at the recent Midwest Swine Nutrition Conference heard from University of Missouri livestock economist Ron Plain present his outlook on the economics of pork production. Plain says the story begins with the bio-fuels industry, which he calls the most significant development in US agriculture in the past 25 years. Seven years ago, the ethanol industry used only 6% of the corn crop, but that will increase to 26% for the current year, which brought a large increase in corn prices, and Plain says that caused a large increase in corn acres this year with an expected shift toward soybean acres next year. He believes the traditional stair-step trend for corn prices now has corn making a significant upward jump to the next level.
As corn prices move higher for pork producers, ethanol plants are producing distillers dried grains (DDGS), which has benefits and detriments, “The protein, fat, fiber and mineral content of a pound of DDGS are approximately three times that of a pound of corn. The energy level of DDGS is comparable to that of corn. Because of its high fiber content, DDGS has seen limited use in swine rations.” As the supply of DDGS grows, its price declines, and it is now priced under corn.
Although DDGS provides a high protein ration, the choice remains with soybean meal, and Ron Plain says its prices have followed soybean prices upward and USDA anticipated them to average $200 per ton.
Pork production has increased annually for the past 5 years according to USDA estimates. There is a larger breeding herd, litter rates have climbed, market weights have increased, imports have expanded, and that means there is more pork available per capita. Exports have expanded for 15 years, but tailed off this year as Mexico dropped out of the buying mode.
Although exports have fallen, 85% of US pork is consumed domestically, but its popularity in the supermarket depends on the prices of other meats. Plain says the outlook for beef is bright because of low supplies, consequently pork demand should be quite clear. US citizens are eating more meat as a whole, helped by a strong economy and low unemployment. Plain says his calculations show pork, beef, and turkey demand all up for the year.
Hog slaughter for 2007 is estimated by plain at 107.7 million animals, up 3% from 2006, but that 2008 slaughter will be 109.7 million, a nearly 2% rise. That is due to increased farrowings, increased sow productivity and that 2009 would see slaughter at 110 million head. Plain says 2007 market prices will be close to $63.50 this year, falling to $62 next year, then back to the low $60’s in 2009 for typical barrow and gilt prices.
Summary:
Pork production has continued to climb in the wake of higher feed costs and for the coming years, prices will be parallel to the cost of production. Corn prices have reached a higher plateau, soybean meal prices have followed corn prices up, making production costs higher. Exports have fallen for the first time in many years, but should recover, and total demand should remain strong with good US consumer response.
Posted by Stu Ellis at 12:07 AM | Comments (0) | Permalink
October 10, 2007
Crystal Ball Gazing: Part 3
You’ve been briefed on the economy and trade. You’ve learned about commodity price prospects and input costs. As we approach the season for land sales and lease renewals, what should you consider to manage your risk? Our 3-part series concludes today with those bottom line balance sheet issues of land prices, cash rents, and farm financial management.
The Purdue Agricultural Economics Department’s 2008 Outlook provides a bright forecast for commodity prices, but with higher input costs, says there will be narrow margins to address land costs, for both cash rents and higher land mortgage payments.
Economist Luc Valentin says higher commodity prices and higher land prices mean that landowners and operators will have to renegotiate leasing arrangements. He says it is important for both sides to understand that higher risks should be accompanied by higher returns, and vice versa. Since cash rents provide low risk for the land owner, their rate of return should be lower than with a crop share lease which would carry a higher risk. For the tenant, the least risk is a crop share arrangement with a landowner. However, it offers less income than with a cash rent lease, which is more risky.
Owners and operators need to carefully think about their personal objectives, then enter a negotiation with understanding what each side hopes to achieve. It is entirely possible that landowners may want increased opportunity to profit from the higher commodity prices, and that may be achieved with a flexible cash lease. However, those need to be discussed with local FSA personnel to ensure goals do not vaporize inadvertently.
Throughout the Cornbelt land prices have climbed substantially, paralleling commodity prices that are expected to remain strong. Purdue economist Craig Dobbins says the higher prices have also brought more price volatility and increased risks. But how should risk be rewarded and how much reward from the market should go to the land? The land owner needs a return to land and the operator needs a return to labor, management, and the risk that is assumed. Dobbins calculates the total return to land and risk at $175 per acre for $3.25 corn and $7.80 beans. But he says a 10% increase to those prices boosts the return to land and risk to $220 or 26% more as a result of the price variability in the market.
One significant issue in the Cornbelt will be calculating cash rent in the wake of the highly variable weather that occurred in 2007. The eastern half was too dry, and much of the western half was too wet, both of which create problems for tenants and landowners to reconcile in their rent negotiations.
For many years the government safety net has provided revenue insurance for operators since farm program payments could be used to underpin farm budgets or used to pay cash rents. Those market-based payments will diminish this year and the direct payments may disappear in the new Farm Bill.
If cash rents rise along with commodity prices, then land prices are pushed higher as well. But Dobbins says there is uneasiness in financial markets that may force long term interest rates up as a cure for the undervalued risk in the housing market. Such a move would reduce the increase in farmland values and push some owners to sell. But currently, there are more buyers than sellers in farmland markets.
When all of the pieces (US economy, trade, commodity prices, input costs, land values and cash rents) fit together in the agricultural puzzle, Purdue economists Mike Boehlje and Chris Hurt say the strength of 2007 should carry over into 2008. They point to many companies in agribusiness which have posted good profits for the past year and provide similar expectations for the coming year. But they say farms are showing the same hint of success with greater equity positions, mostly driven by higher values for farmland. Additionally, the debt to asset ratio has declined to a 50 year low of 12.1%, less than half of what it was in the mid-1980’s. In other words, the picture is good. But will the good fortunes continue for farmers?
Boehlje and Hurt express some risk about the turmoil in the US financial markets from the subprime lending industry, since it would tend to increase interest rates. Even though there has been a recent cut in interest rates, the risk premium needed by the capital markets may result in higher long term rates that will impact farmland purchases. More immediately, the economists are concerned about profit margins for farmers in 2008 which will be compressed by higher rents and input costs, and then challenged by volatility in the commodity markets. Their concern is illustrated by an example of $2.75 corn and a 20% increase in production costs. The government safety net would not be available, but farmers could lose up to 45 cents per bushel if input and rent charges push the cost above the market price.
While the overall outlook is favorable for the next 1-2 years, the economists say the outlook is not guaranteed and the risk to a profit margin could increase dramatically. They urge producers to manage margins, not just costs or prices, but the total picture, and create trigger points that will trigger action if the threat to the margin is imminent. They also urge conservatism by avoiding a “hoped for outcome,” as well as diversification of an operation to increase the odds of survival by managing downside risks.
the farm gate blog expresses its appreciation to the Purdue agricultural economics staff for a very thorough Outlook report. You are strongly urged to visit the 14-page summary document, as well as visit the Outlook package that contains dozens of graphs and charts that accompany it.
Summary:
Strong commodity prices justify higher land prices, as well as rental rates, but those rents should be calculated to provide adequate returns to the landowner for his land and to the operator for the risk that is taken. Higher land values have helped farmers increase their equity position, as well as reduce debt to historic lows. Much of agribusiness is enjoying a similar bright outlook, however turmoil in US financial markets could impact long term interest rates and land prices. Farmers will be able to survive if profit margins are appropriately managed.
Posted by Stu Ellis at 12:15 AM | Comments (0) | Permalink
October 9, 2007
Crystal Ball Gazing: Part 2
Will grain prices remain strong? Will livestock prices hold their own? How high will input prices go? Those are questions you need answers for to prepare for 2008. Today brings the second of a 3-part series drawing from Purdue’s University’s 2008 Agricultural Outlook and is focused on farm-level operational economics: income and outgo.
Before working on your financial projections for 2008, step back for an assessment of what might be expected for revenue and expenses. Purdue's 2008 Outlook provides that glimpse.
Commodity prices
Dairy. The all-milk price reached a record of $21.70 in July, and while high prices won’t last forever, Purdue’s Mike Schutz says strong demand will continue to support profitable prices. Dairymen have been hurt by high feed prices, but global demand for US milk proteins has been strengthened by the weak Dollar. Production will increase 2.1% from higher prices, but domestic consumption will weaken from higher prices. Futures markets and USDA both forecast strong prices, and Schutz says prices will remain over $15.50 for the first half of 2008. He suggests considering futures hedges and pricing programs offered by Co-ops as a means of price risk management.
Beef. Prices will remain strong because of reduced supplies, says Purdue’s Chris Hurt. Beef operators hurt by BSE, export restrictions, droughty rangeland, and high corn prices have been reluctant to expand in the wake of high prices. Hurt says resumption of exports and the growing population mean a decline in per capita supplies next year resulting in strong prices. He believes Choice NE steers should see a $93 record price. Hurt says profit prospects are bright with the low point in the 10-year cattle cycle and increased stocks of distiller’s dried grains to soften feed prices. But he says producers should be cautious about forage costs and uncertain consumer trends.
Pork. Production expanded 2% this year and will grow another 3% in 2008 which Purdue’s Chris Hurt says will depress pork prices modestly from $50 to $48. Production costs which have been near $40 are expected to push to $49 in 2008. Profits have been helped by strong exports, but that market is down this year and could resume in 2008. In the meantime, Hurt says the industry will operate with small losses this fall and winter, but small profits early next year with breakeven at best for the next 12 months. He says production has remained high in the wake of high feed prices, and producers have lived with compressed profit margins rather than cutting production, which occurred in other livestock sectors.
Corn. What the market demanded, the market received and the 13.3 bil. bu. corn crop will match the record consumption of 12.8 bil. bu. With 1.7 bil. in ending stocks, USDA is forecasting a $3.10 average price. Purdue’s Chris Hurt says tight global stocks will keep export demand high to compete with the ethanol and livestock industries. However, ethanol margins are quite low and will have an impact on how much ethanol plants can pay for corn, which will slow down the rate at which new plants come on line, as has already been seen. While futures markets have been high, basis levels have been wide due to large localized supplies, and farmers with storage capacity may be able to pocket 45 to 55 cents per bushel return on storage for spring or summer 2008 sales. Commercial storage will not provide that return, and with the weakening ethanol market, a strong price climb for corn is not expected. Hurt suggests forward pricing with a hedge to arrive contract, or use of the futures market, both of which would not force a producer to set the basis this fall and take advantage of an improvement in the basis as time goes on. Corn acreage in 2008 should not be locked in until the market has time to build in price incentives to address the global needs for corn, beans and wheat.
Soybeans. The 18% decline in production from 2006 to 2007 eliminated the US surplus and reduced supplies too tight in the wake of a strong domestic crush. Purdue’s Chris Hurt says livestock demand for soybean meal is strong and biofuel demand for soybean oil is strong as well. As a result, global markets will have to rely more on South American production, which is expected to climb 2%. Cash soybean prices are much weaker than futures prices because the basis reflects the surplus left at the end of the marketing year. Hurt says the basis should improve 40 to 50 cents as stocks decline, and $8 harvest prices should rise $1 more. He says farm bins should provide a 55 to 65 cent return on storage and even commercial storage should return a profit in most cases. The market will be watching total acreage and planting progress in South America, along with the value of the Dollar, all of which will impact soybean export market demand in coming months. He expects futures markets to provide price incentives for more bean acres in 2008.
Wheat. Below normal US yields and poor production in other wheat growing areas have reduced inventories and supported record prices. That has also been helped by currency values that have foreign buyers preferring US wheat because they can buy more with a weak Dollar. Purdue’s Chris Hurt says wheat prices will be at a record of $5.80 in the current marketing year and as production increases, 2008 wheat should average closer to $5.50 per bushel. He says anyone seasonally capable of double-cropping wheat and beans should consider that plan to add an additional $30 to $60 per acre over a single crop rotation. He says northern farmers with a shorter growing season will find single crop corn and beans both beating out the potential wheat revenue, unless they add straw production to the operation.
Input costs.
Fertilizer. Cornbelt prices will increase 3 to 20% in 2008 compared to the USDA’s cost determined last April, however prices will vary by type of product, based on global demand. From 2001 to 2006, N demand grew 14%, P demand grew 13%, and K demand grew 19%, with much of the demand coming from China, India, and Brazil. With an 8% increase in natural gas prices, the cost of anhydrous ammonia will rise. The international demand for urea will keep prices for that product higher than usual.
Chemicals. Generally, a 2 to 6% increase is expected in chemical prices, but newer formulations may demand premium prices. The basis for the price increase is due to higher energy costs.
Seed. Despite the drought seed supplies should be adequate in quality and quantity, but prices may increase significantly for higher levels of biotech corn. Large increases in acreage planted with biotech corn and modest increases for biotech beans in the past year are expected to be followed in 2008. Purdue says the seed industry is forecasting a 15 to 25% price increase. And the high price of commodity wheat is leading to a 30 to 35% increase in prices for seed wheat this fall.
Fuel. 2008 will bring a 6% increase in diesel fuel prices, caused by tighter supplies and higher prices for crude oil. Propane stocks are down 10% and tighter supplies are pushing up prices 5 to 10% this fall compared to 2006.
Crop insurance. Premiums were up last spring due to higher values for commodities, and if commodity prices stay high, then crop insurance premiums will stay high. However, current prices for corn indicate corn policy premiums may soften a bit, but higher prices for soybeans point to higher premiums for soybean policies.
Machinery. Demand for equipment rose in 2007, and is expected to increase further in 2008, supported by high commodity prices. Along with demand, prices are expected to be higher. In July, USDA reported the index of farm machinery prices was 4.4% higher than in 2006, which is within the 5% annual upward trend of recent years. Similarly, the index of wage rates for farm labor went up this year by 4.6%.
Tomorrow you will visit the issues of land prices, cash rents, the farm economy, and managing profit margins.
Summary:
Except for pork, higher commodity prices this year are expected to be followed by strong prices in 2008. Grain markets will vary as acreage demand is established, but milk and beef prices will remain strong from both foreign and domestic demand. Pork prices will soften from larger supplies, and profits will diminish. Input costs will all be going up, making production costs higher along with higher commodity prices, subsequently, profit will become a smaller percentage of the overall gross revenue for an operation. Producers will have to be careful in managing their expenses, even with higher levels of revenue.
Posted by Stu Ellis at 12:57 AM | Comments (0) | Permalink
October 8, 2007
Crystal Ball Gazing: Part 1
How is your financial footing? A Purdue economics team believes farm families on average are in their strongest financial position in 50 years. And they say it is helped by a 17% increase in land values that has pushed up your equity. As we turn into the home stretch for harvest, let’s take a look at their crystal ball for 2008. This 3-part series will first focus on the economy and trade, followed by farm revenue and expense, and ending with financial affairs.
Agriculture is an integral part of the economy. Commodity prices are factored into inflation and they impact food prices. Land values determine taxes and the financial welfare of rural communities. Farmers purchase billions worth of inputs that provide millions of jobs across the country. And your exported goods help reduce the trade imbalance. So a look at the overall economy is a reflection of agriculture and vice versa. Purdue's 2008 Outlook provides that glimpse.
Purdue economist Larry DeBoer says the US economy is expanding, but at a slower rate than for the past 6 years; and when oil and food prices are removed from the equation, inflation is falling. That is one reason for the recent cut in interest rates. There have been headlines about the slump in the housing industry and the problems in the mortgage industry and DeBoer questions if that will cause consumers to curtail some food spending. He expects unemployment, oil prices, and food prices all to rise, but he says inflation should moderate, and he expects Treasury note interest rates to decline, even with the threat of China selling some of their T-bonds. And DeBoer says there is a 20% chance for an economic recession. On a positive note, the falling value of the dollar and the growth in the world economy have spurred export business.
Regarding the impact of the value of the Dollar on trade, Purdue economist Phil Abbot says there will growth in both ag exports and food imports. Even with a 10% increase in the latter, the higher value of commodities will help push the ag trade balance to an $8.5 billion surplus. “Why such strong export values?” Abbott rhetorically asks, “That is because of higher prices due to biofuels demand around the globe, strong world economic growth, and the very weak dollar. Until recently, both export and import expansions were led by higher value product trade, such as meats, and horticultural products in the case of imports. However, over two-thirds of the current export expansion is from greater grains and oilseeds export values. Quantities of grains and oilseeds exported have not fallen substantially in the face of these high prices, however.”
Feed grain exports will be up 40% from last year. And Abbott says, “In the case of soybeans, export value is expected to increase 7% in 2008, resulting from a 14% increase in price and a 7% decrease in quantity exported.” Abbot says trade in livestock products will be up 4% in 2008, but poultry will be down slightly.
As previously noted, the surge in export business has been fueled by the depreciation of the value of the Dollar, both against the Euro and against the currencies of trade competitors. Abbott says the exchange rate has declined 11% since 2000, and since the US trade deficit is 6.25% of US GDP, he says that means prospects for a weak Dollar for some time to come, keeping a high global demand for US farm products.
The major issue in trade is a lack of a new global agreement for trading rules, and the World Trade Organization has not only failed to create a new roadmap, but in the meantime the authority of the Bush administration to sign an agreement without Congressional input has expired. In the last several days, trade negotiators have been making indications that movement off dead center might be expected, but Purdue’s Abbott says any agreement will be a challenge for the current administration to sign.
The Purdue economist says even though a new Farm Bill may not be WTO compliant, the pressure for that to occur may be reduced because the current level of trade at high prices will overshadow the need for farm subsidies that draw international trade criticism. And he adds that the currency relationships and the biofuel demand for grain may diminish the need for trade agreements and farm subsidies. Even with high demand for corn from the ethanol industry, the export market has continued to keep pace with its demand, signaling strong demand for US farmers to address by adjusting cropping patterns.
Tommorow you will get a commodity outlook and forecasts for input costs for 2008.
Summary:
The US economy currently has a low core inflationary rate, in the sixth continuous year of growth. However, several economic challenges could push the economy into a recession. Agriculture may be somewhat insulated with a strong commodity price outlook, fueled by biofuel demand and export demand. Exports are being driven by a weak value for the US Dollar, which is seen to exist for some time to come.
Posted by Stu Ellis at 12:20 AM | Comments (0) | Permalink
October 5, 2007
Extension Update
Extension Update is a weekly summary of news from Extension, government, and other attributable sources, focused on marketing, farm management, and other issues that are of interest to Midwestern farm owners and operators.
Corn exports are the largest in a decade says IA Extension’s Bob Wisner, which is 42% more than last year, and already 35% of USDA projections have been shipped. He said the rate cannot be sustained because of inadequate transportation capacity. Part of the reason is that global wheat prices are so high, livestock feeders are switching to corn.
Domestic feed use of corn was 660 mil. bu. less than expected in the last USDA quarterly Stocks Report, says Iowa State’s Wisner, who says the number may be later revised. He says the issue at the center of the debate is how much distiller’s dried grain was fed, versus corn, which has been impacting estimates for several years. But, he adds:
1) Corn could have been replaced in feedlots with some low quality wheat.
2) Southern corn was harvested early, and could have been fed by late summer.
CBOT ethanol futures are thinly traded, but indicate declining prices of ethanol in the wake of high prices for corn. That was the problem earlier this week when VeraSun said it was halting construction on a new ethanol plant in IN. But Extension’s Wisner says, “With more capacity scheduled to come on stream in the next several months, ethanol margins may deteriorate further.” He says limited blending and transportation capacity has reduced prices. Read his newsletter.
How do you calculate the cost of storage to determine your breakeven price for either corn or beans? Iowa State has a worksheet with 34 factors, and you don’t need a calculator. Find it here.
Wet corn can be costly to dry, but there are a variety of ways to manage stored corn to avoid spoilage, says NE Extension’s Tom Dorn. Heated air has the potential to pick up more moisture per unit volume passing through the grain than natural air. “A rough rule of thumb is the relative humidity drops by one-half for each 20°F rise in temperature.” Consult his extensive grain drying fact sheet.
Tinderbox conditions in parts of the Cornbelt have spawned more field fires than average. Rural volunteer fire departments have been busy, but many combines, trucks and crops are lost when a blaze breaks out from an exhaust pipe insulated with a blanket of crop dust. Carry your fire emergency numbers in your combine cab. Also:
1) Keep disc or field cultivator attached to a tractor to create an emergency fire break.
2) Keep multiple fire extinguishers on your combine to put out small fires.
3) Keep fire extinguishers and shovels in truck and tractor cabs, with fire numbers.
Shatter loss is highest in beans under 13% moisture, but there are some measures that can be taken to reduce field loss. Adjust the reel to run about 25% faster than ground speed. For a 42-inch diameter reel, this is about 10 to 11 RPM per mile per hour of ground speed (i.e. 30 rpm for 3 mph). Harvesting in dew, light rain, or high humidity will reduce shattering. Four beans per square foot behind the combine is one bu./A.
With a quick harvest, some fall tillage has been completed in some parts of the Cornbelt and nitrogen application is being contemplated. “Stop!” says Extension’s Fabian Fernandez, until soil temperature at the 4 inch level remains below the recommended 50 degrees. Use a nitrification inhibitor if nitrogen has to be applied between 50 and 60 degrees. Get more information.
Corn Stover #1. Ohio State research says, “Removing up to 50% of corn residue decreased yields in sloping lands by an average of 1,740 pounds per acre or about 31 bu. per acre. The DOE-funded study suggests that the presence of residue helps to regulate soil temperature and store more water for plant use, resulting in higher crop yields.
Corn Stover #2. IL research says stover removal directly impacts the corn-nutrient requirements that need to be included in fertilization plans for the following crop. To calculate an estimated stover value, multiply the amount of nutrients removed in stover by the current price of each corresponding nutrient. At plant maturity, corn stover on average contains 7 pounds of P2O5 per ton and 30 pounds of K2O per ton. The stover yield per acre generally equals the amount of corn grain produced, pound for pound.
A winter La Nina should bring needed moisture to the eastern Cornbelt says Purdue climatologist Ken Scheeringa, but the fall will remain warm and dry. His colleague Dev Niyogi says every El Nino and La Nina is different in terms of impact and how it spans out, and there is no way of predicting when La Nina is going to be really active.
Before you plant soybeans next spring, test the soil this fall for SCN. Statistics show that more than 80% of farmers who don’t think they have a problem, have a serious SCN problem. Obtain 15-20 soil samples at the 6 to 8 inch depth scattered over a field. Combine and mix the samples and label. Consult your Extension office for locations to obtain an analysis. Get more information.
With high wheat prices, many farmers will be experimenting with a variety of crop rotations. WI Extension agronomists say there are some definite do’s and don’ts when it comes to wheat.
1) Wheat grain yields were greatest when following soybean crops.
2) Third, fourth, and fifth year wheat yields were lower than other rotations.
3) Growers should plant wheat after soybean first, then corn, and lastly wheat.
4) The risk of head scab will be greater when wheat follows corn or wheat.
Farmers, who are a bit rusty on continuous wheat production, should remember to plant a seed variety that has a strong disease package and avoid bin-run seed. Consider using a fungicide treatment, but it is not a cure-all. If planting into no-till wheat, ensure the seedbed is free of living volunteer wheat, which could carry barley yellow dwarf virus, and use a herbicide that will burndown the food supply for aphids spreading BYD.
If you are planning corn rootworm management for 2008, IL entomologist Kevin Steffey says some farmers, but not everyone, may see benefit from using both a Bt hybrid with an insecticide. That tactic has worked in some locations, but has not proven true in others. Review his results at: http://www.ipm.uiuc.edu/bulletin/article.php?id=838 .
Use your computer to watch a 45 min. audio/slide show on corn rootworms and Bt corn as a management tool. Learn about and