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December 31, 2007
Specialty Corn May Not Always Like The Way You Grow It
Not far from your farm is a company that buys specialty corn, and you have made good profits from the premiums paid over the past several years. You have signed a contract for growing more next year, and have ordered seed for the type of corn desired by the plant. It is time to settle in for a long winter’s nap, but suddenly you are awakened by a nightmare that the fertility monster is about to eat your premium.
Quickly you hop out of bed, turn on your computer and begin to scour resources about the fertility needs of specialty corn. A few minutes later your spouse flips on the light in your office and asks what you are looking at on the Internet at 2 a.m. Your story about searching for the fertility needs of specialty corn may be far enough out of the box to be believable! But just so you’ll get a good night’s sleep, let’s say your concern is justified, so let’s talk about the solutions.
Even though commodity prices have nearly doubled in the past two years, the demand for specialty corn still exists. Ethanol plants may pay premium prices for hybrids that have highly extractable starch (HES). Also food companies need hard endosperm corn (HEC) for dry grind into corn meal and corn flour and regularly offer premiums for contract delivery. The irony is that HES is high starch and low protein and HEC is low starch and high protein. High amounts of nitrogen fertilizer will increase protein levels and decrease starch levels, and you may be trying to increase corn yield with high amounts of anhydrous ammonia, but deteriorating the quality of the corn you are trying to deliver.
Another agronomic issue is plant population. High population decreases protein and increases the starch yield. There may be other agronomic issues that you can control to help achieve your high protein or high starch goal, whatever it might be. Issues such as the previous crop could have an impact, particularly if it was soybeans that may have added to the nitrogen content of the soil. The bottom line should be to manage your specialty corn crop in a way that it helps your bottom line, and not hurt it.
Agronomists at the University of Illinois conducted a wide range of research on nitrogen rates and plant populations to determine impact on the trait content of various kinds of corn. The experiments were conducted at several test plots, with various nitrogen rates, planting dates, and plant populations. Soil tests were taken and grain samples were analyzed for protein, starch, oil and extractable starch. The hybrids tested were common hybrids, known for their desirable traits for extractable starch, hard endosperm, and being nutridense (ND).
Yield. Your priority is yield, since a 10 cent premium will not make up for a 10 per cent reduction in yield. And there was a large difference in yield, determined largely by location of the test plot and its environmental conditions. On average the HEC and the Yellow Corn control were the highest yielding at 224 bu./A, followed by the HES hybrid at 212 bu., and the ND at 192 bu.
Nitrogen response. Nitrogen increased yield at all sides, but there were variations in magnitude and maximum yield achieved. The largest response (107 bu./A) was in continuous corn in one plot, but rotated corn (following soybeans) provided the largest nitrogen response across all plots.
Rotation. The continuous corn yielded 194 bu./A, compared to the corn after soybeans at 208 bu./A. “Interestingly, the same maximum yield was achieved by both rotations, but continuous corn required 222 lb N/A to reach it compared to only 146 lb N/A for rotated corn.”
Population. The effect of plant population was of much smaller magnitude than that of fertilizer. The largest response was only 13 bu./A, and there was no difference in yield response to population when compared to continuous or rotated corn.
Grain composition. The highest protein concentration was obtained with the HEC hybrid (8.4%), and the HES hybrid had the lowest protein concentration (7.3%). The HES hybrid had the highest starch and extractable starch concentrations (73.8% and 68.3%) and the ND hybrid the lowest (72% and 63.1%). However, the ND hybrid produced grain with the highest oil concentration (5.5%) and the HES hybrid the lowest oil concentration (3.9%).
Protein. Protein increased with the increase in nitrogen applications, on average 1.3%. Grain protein concentration of unfertilized continuous corn (6.2%) was lower than in rotated corn, but both reached 8.2% protein with high rates of nitrogen. Protein levels were reduced with higher plant populations, and declined the most between 28,000 and 36,000.
Extractable starch. Extractable starch decreased with greater levels of nitrogen, as much as 1.7%. That occurred between the unfertilized corn and the highest rate of N, but there was still a 1% drop in starch content when the nitrogen rate was increased from 100 lbs/A to 200 lbs/A. By increasing the plant population, the amount of extractable starch increased as much as 0.9% when plant populations were increased from 28,000 to 40,000.
Corn oil. Both increased plant population and nitrogen reduced the amount of oil concentration, particularly in the ND hybrid, but the magnitude was smaller than for protein or starch.
Bottom line:
1) Grain protein concentration is maximized with management practices that increase N availability.
2) Soybean as a previous crop should be preferred over corn, the plant population should be maintained as low as possible without affecting grain yield, and N fertilizer should be applied at a slightly higher rate than the optimal N rate for grain yield.
3) Conversely, extractable starch can be maximized by management practices that limit N availability.
4) In order to maximize grain extractable starch concentration, continuous corn is preferable over rotated corn, plant population should be increased and over fertilization of N should be avoided.
Summary:
Farmers who are utilizing production contracts to gain premiums for specialty corn, specifically for high protein or high starch, have the opportunity to make agronomic decisions that will maximize the starch and protein content of the grain. However, those decisions may be counter to typical decisions or maximizing yield, such as nitrogen application and plant population.
Posted by Stu Ellis at 12:51 AM | Comments (0) | Permalink
December 28, 2007
Extension Update
Extension Update is a weekly summary of news from Extension, government, and other attributable sources, focused on marketing, farm management, and other issues that are of interest to Midwestern farm owners and operators.
Ethanol demand for corn will continue to grow, but with reduced corn acres in 2008 prices will be historically high for the 2007, 2008, & 2009 crops with corn priced in the mid to high $4 range according to Purdue Marketing Specialist Chris Hurt. Hurt says ethanol plants coming on line will raise corn usage from 2.5 to 4.0 bil. bu. by July.
Chris Hurt’s forecast is for a 6% drop in 2008 corn acres, with production dropping to 12.4 bil. bu. in the face of a 13.3 bil bu. demand. He says that means the crop will need to be rationed with higher prices. As a result the ethanol industry will cut use back to 10 to 12% below capacity. Hurt thinks corn production will be insufficient until 2009.
It is easy to get carried away with bullish enthusiasm about the market says MO crop Marketing Specialist Melvin Brees, “A number of factors could produce lower prices, maybe significantly lower prices. Fund profit taking or liquidations of commodity holdings, improved production prospects in other countries (especially South America), softening of oil/fuel prices, strength in the dollar, or rationing of demand by the current high prices.” He says are valid arguments for higher prices, but a lot of downside risk.
Melvin Brees recommends against trying to hit the highs, and spread sales out to capture good prices. It is important to follow the markets closely and be prepared to act quickly on market signals that a price high is in or an uptrend is broken. Whatever marketing strategy is chosen, focus on favorable prices or market signals and not on how high prices will go. Read his Decisive Marketing newletter.
The post-Christmas La Nina forecast was unfriendly to the Cornbelt says Iowa State meteorologist Elwynn Taylor. He says the Pacific sea surface temperature statistics reached a threshold level which points to a yield risk from a potential 2008 drought. He says there is now a 68% chance of corn being below trend yield which is about 151.6 bu. Taylor says there is only a 15% chance of a record high, and a 35% chance of a drought. His complete advisory is here.
USDA’s Hogs and Pigs report counted the inventory at 65.1 mil. head, up 4% from last year, and down 1% from September. The breeding inventory was up 1% from last year and the market hog inventory was up 5% from 2006. The fall pig crop was up 4%, and winter farrowings will be up 2%. The numbers were at the high end of trader estimates.
Livestock economist John Lawrence at Iowa State says the only opportunity for pork profits might be in the summer of 2008, but otherwise costs will exceed market prices in the coming year. He says the last quarter of 2008 may show the expansion is slowing.
Biodiesel demand may get a boost with research by Univ. of IL Ag engineer Al Hansen who says its nitrogen oxide emissions can be controlled with an adjustment in engine timing to retard combustion. He has a sensor that adjusts the timing by detecting the amount of biodiesel in the fuel blend. The result is reduced environmental concerns.
Biodiesel demand is also fueling the consumption of soybean oil, which IL Extension Specialist Darrel Good says we’ll use 8% more soy oil than last year in the domestic market. His recent calculation indicated soybean prices were 42% higher than a year ago, and soybean oil prices were 48% more than a year ago, thanks to biodiesel.
Soybeans have the capacity to produce 100-plus bushels, but Iowa State agronomist Palle Pedersen says that rarely happens. He and colleagues at 5 other universities will use a USB soybean check-off grant to link the yield correlation, genetics, and agronomic practices. He says the initiative is designed to ensure soybean acres are not lost to corn.
Are you buying seed corn, based on the labels “triple” or “double?” Ohio State agronomist Peter Thomison says in the 2007 yield trials, 8 of the top 10 hybrids were triple stack, 1 was a double stack, and 1 held a single genetically modified trait. And he said of the bottom 10, 9 were triple stack and 1 was a double stack. Thomison’s point is hybrids will perform differently, based on region, soils, and environmental conditions.
Timber draws hardwood buyers, but IL Extension forester Jay Hayek says don’t sell on the first offer. Professional foresters will advise on value and language for sale contracts:
1) Agree on price, which trees are harvested, and acceptable amount of residual damage.
2) Establish time limits on logging operations, which may typically be 12-18 months.
3) Establish stiff penalties for taking unmarked trees, which protects owner from theft.
Your timber may be your retirement, says Hayek, "Astute forest landowners will treat their standing timber just like a 401K or an IRA. It's simply another long-term investment tool that can be a vital part of their financial portfolio. Therefore, manage it wisely."
If you are converting to organic production, plan to attend the Midwest Organic Production and Management Conference Jan. 17-18 in Urbana, IL. Topics include: economics, developing markets, livestock, agronomic and horticulture crops, aquaculture, and organic management. Pre-register.
Plants are basically designed for survival, but future crops may be reconfigured for increased productivity, according to IL crop scientist Stephen Long. He and a cohort have built a computer model that mimics photosynthetic responses to environmental change. Long says plant productivity could be improved and farmers would benefit, if, for example, they re-direct nitrogen to boost certain leaf proteins relative to others.
Posted by Stu Ellis at 12:22 AM | Comments (0) | Permalink
December 27, 2007
Have You Wondered Why Farm Policy Affects You And Your Neighbor Differently? It Is Not Rocket Science!
We have just seen the Congress go through the process of writing a new Farm Bill, in which one of the stated objectives was to reduce farm program payments and payment limits because farm programs were benefiting large farms more than small farms. Whether the objective was achieved remains to be seen, but when you look at the financial diversity of farm families, an agricultural policy designed to apply equally to everyone just won’t work.
Why won’t it work? USDA economists Ashok Mishra and Hisham El-Osta researched the variability in farm household assets and debt, and reported that today’s farms with income from both agricultural and non-farm sources, combined with a blend of farm and non-farm assets and a blend of farm and non-farm debt make the typical farm family one that is difficult to define and assist with common policies in a Farm Bill. The economists say examination of family wealth is important to the analysis, but it is difficult to measure within the agricultural community. They say two households can have the same income, but one may have substantial asset wealth and a high debt, and the other may have few assets and debt, but farm policy may treat them equally.
Farm households are unlike any other in the country, because they have income from both farming and other employment, assets from farming and from other investments, and debt from farming, and non-farm reasons such as credit cards and a home mortgage. In a recent study, the average net worth of farm families was twice that of the non-farming family. With net worth resulting from liabilities subtracted from asset values, the economists contend the variability in those must be understood for meaningful policy to be written.
The USDA economists say almost 80% of the variability in farm household assets originates from real estate holdings, but the source of the variability changes, once farm size is taken into consideration. Small operations may have variability in assets, but those are primarily non-farm assets. For commercial farms variability in real estate is the major contributor to variability in household assets. Farming contributes nearly 88% to the variation in wealth for large farms and 23% of the wealth for small farms. For large farms, agricultural debt is practically all of the debt maintained by the household, but for small farms, agricultural debt is less than half of the household debt. In USDA’s agricultural region known as the Heartland (which is the central 2/3 of the Cornbelt), the economists say, “A large proportion (50%) of the variability in household assets originates from real estate (value of land and buildings). Further, non-farm assets contribute about 16% to Heartland region household asset variability.”
The variability of assets is also distinct between small and large commercial farms. For small farms the assets are in non-farm assets (59%), stocks and mutual funds (10%) cash and retirement accounts (8%). But the variability for large commercial farms comes from land and buildings (75%) and non-farm assets (10%). The economists contend, “Farm assets are strongly and positively associated with total farm household wealth. It appears that the higher the households’ commitment to farming and the higher the proportion of farm assets to total assets, the higher is the contribution of the farming component of assets to the overall variation of total farm household assets.”
Among the findings of the study:
1) Despite having low farm income, many farm families have a substantial amount of wealth or net worth (when assets from farm and non-farm sources are included) compared with average non-farm household wealth.
2) The portfolio of assets held by farm households is heavily weighted toward farm assets relative to housing and other non-farm assets. In contrast, the average non-farm household asset portfolio is most influenced by home values.
3) The diversity in sources of farm household wealth suggests households will respond differently to policy measures.
4) Because farm households are so diverse in their resource base, it is clear that no one policy action focused on the economic well-being of farm households will affect all households in the same way.
5) Farm households’ well-being is affected by changes in real estate values and long-term debt. Any changes in the amount and prices of land, and in the interest rate on long-term debt, will affect the economic well-being of farm households.
Summary:
Farm policy writers have long tried to create farm programs that affect farms equally, but when financial parameters are applied, the wide diversity in agriculture makes the task almost impossible. The blend of agricultural assets, liabilities, and wealth will be quite different between large commercial farms and farms that are smaller operations designed for residential or quality of life purposes. The variability in the farm economy will have different impacts on every farm, as will a uniform farm policy.
Posted by Stu Ellis at 12:56 AM | Comments (0) | Permalink
December 26, 2007
Will You Have Some Weeds Next Spring Which Are Glyphosate Resistant?
You gave your corn and soybean fields a good shower of Roundup earlier this year, but during harvest you found some healthy weeds that refused to cooperate with your herbicide program. Your combine did a great job of spreading the seed, and that weed patch will be waiting for you next year with reinforcements. You think, “Why does this have to happen to me?!?”
Roundup is supposed to kill everything but your corn and beans. That’s what the label says, but weed scientists are keeping close track of numerous patches of various kinds of weeds in the Cornbelt that resist a glyphosate shower. How that happens was explained by weed specialist Bob Hartzler recently in a research report presented at the Iowa State Integrated Crop Management Conference. And what he said in his presentation will not only help you understand how weeds resist glyphosate, but what you can do to prevent that headache.
Glyphosate was used for 20 years before weeds developed any resistance, and during that time is provided a high level of effectiveness, application flexibility, a large margin of crop safety, and safety for applicators and the environment. Glyphosate was successful because it would disrupt the weeds metabolic process, could not be metabolized by the weed, and was efficiently sent to the growing point in the weed. Glyphosate locks onto an enzyme known as EPSPS and disables it. EPSPS is involved in the pathway in the weed that carries growth regulators and many other chemicals, amino acids, and organic chemicals needed to survive. Weeds that are resistant to a chemical are able to metabolize and break it down, before it reaches the target site. That is why corn can survive atrazine and soybeans survive a spray of pursuit.
Roundup Ready soybeans introduced in 1996 contained the EPSPS enzyme, but it was modified by a gene from a bacterium that was insensitive to glyphosate. Roundup Ready corn contains a gene from a resistant variety of corn and the new version of EPSPS works fine.
Shortly after Roundup Ready soybeans were introduced, an Australian weed, known as rigid ryegrass was found to be resistant of the process that disables EPSPS in the weed. Then in 2000, some horseweeds in Delaware were found to be surviving glyphosate from year to year. Since then, 12 weed species have been identified as resistant to glyphosate. Some of the weeds have a mechanism that is resistant to glyphosate and several have multiple mechanisms. Weed scientists have found the resistant horseweeds to only have resistance at a specific time, and when glyphosate was applied at the two leaf stage it could be controlled. However, when the rosette stage appeared, so did the resistance. The plant may have sent the glyphosate chemical to an area where it was of no harm, or it could have produced more EPSPS, or it could have increased it branching. It is believed that the horseweed did not allow the glyphosate to migrate out of the leaves, and the leaves died, but not the rest of the plant. At the two leaf stage, the plant could not achieve that process.
In Italian ryegrass, one resistant patch demonstrated the same process as the horseweed, with 80% of the glyphosate remaining in the leaf, but in another resistant patch, only 51% remained in the leaf, indicating it had found a different way to survive. In that case one of the 425 amino acids that comprise the EPSPS enzyme was restructured after the glyphosate spray which allowed it to survive, and that escape mechanism has been found in other resistant weeds. In the past two years resistance has been found in other Cornbelt weeds, such as waterhemp, giant and common ragweed, and common lambsquarters. Their resistance mechanism has not yet been confirmed.
Weed scientists are still trying to find out why certain weeds have developed resistance to glyphosate, but anticipate different mechanisms to be found. Hartzler says, “Glyphosate resistance is different from previous herbicide resistance issues faced in the Midwest due to both the multiple resistance mechanisms and the relative level of resistance. The use of correct glyphosate rates has been promoted as the critical factor in managing glyphosate resistance. Since most (resistant weeds) possess a relatively low resistance level, use of rates that allow significant numbers of weed escapes undoubtedly would enhance the rate that resistance evolves within a weed population.” But he says those weeds with resistance have a high resistance level and using the labeled rate will only create more weeds that have resistance. And control of those weeds will require alternate strategies, with limited reliance on glyphosate.
Summary:
Glyphosate resistance is now a fact of life for some Cornbelt farmers who have weed patches that cannot be controlled with an application of labeled rates of Roundup. Those weeds have developed one of several mechanisms that allows them to escape the impact of glyphosate, and possibly it may have more than one mechanism of resistance. Weed scientists expect more weed species to develop resistance, more resistant weed patches to appear, and more challenges to farmers who have to find alternative management strategies.
Posted by Stu Ellis at 12:43 AM | Comments (0) | Permalink
December 25, 2007
Is There Any Money Being Made Currently In Livestock Production?
Pork producers are putting on the pounds, some 75 million more pounds of pork than USDA estimated just a month ago. At least that is the increase in the fourth quarter pork production projection, which now stands at 6.1 billion pounds or 8% over similar figures in 2006. That impacts, not only the pork market, but the market for other livestock and meat prices.
Pork producers have been operating in the black for nearly 3 years, but increased production has driven prices to annual lows in the cycle, says USDA in its recent livestock outlook. $40 is the calculated breakeven price compared to the $38-$39 prices that will average for the fourth quarter.
Cold storage stocks are not increasing, indicating that domestic and foreign consumers are buying the record level of production. Recently, there has been an 8% increase in supplies that caused wholesale prices to drop. Comparatively, in 1998 a 10% increase at the same time of the year resulted in a 31% drop in wholesale prices. Since the pork market has not fallen as steeply, USDA economists say the export market has bought much of the increased slaughter rate, another benefit of the lower valued dollar and expanding demand for pork. Fourth quarter exports are forecast at 860 million pounds, which is triple the amount in 1998. In October alone, exports were 31% higher than October 2006, and 81% of the export trade went to only 5 nations. Domestically, higher beef and poultry prices are making pork more competitive in the meat case.
In the beef market, heavy cow slaughter continues, which began with the shortage of forage supplies. But economists say fall rains have re-established pastures in the Southeast and Southwest, and the rate of cow slaughter should decline. Even with high milk prices, dairy cow slaughter had been high because of high corn and feed prices. 2006 saw an 18% increase in cow slaughter over 2005, but in 2007, the rate was about 7% above 2006. Some analysts believe the cattle cycle is now in the liquidation phase, with only a small percentage above the cycle low of 41.851 million head 4 years ago.
Calf slaughter is well ahead of the rates for the past two years, and should have a high impact on the January 1 cattle inventory. USDA says that could lead to reduced supplies of feeder cattle and the potential for reduced beef supplies the next two years. Feeder cattle prices are declining because of the lack of wheat pasture available for grazing. USDA believes wheat producers do not want to risk crop damage in the wake of high wheat price prospects for next spring. Additionally, the profit picture for cattle feeding is negative, but there have been some opportunities for feeders to hedge at $1 per pound or more into the coming spring. The commodity beef market has risen in the past four weeks, but competitive pressure has not insured profits for packers.
USDA economists say there are strong prices for fed cattle; but slaughter numbers are high for heavy weight cattle, there is a high share of choice cattle, and there are relatively high numbers of cattle that have been on feed for 6 months. Retail prices for choice beef are relatively high, cumulative production numbers are ahead of 2006, and with disappearance being down slightly from 2006 USDA says consumers may see higher prices.
Broiler production in the first 10 months of the year totaled 30 billion pounds, but that is 0.3% under 2006. Live weights have been slightly higher, but USDA poultry specialists any production increases will come from the larger number of chicks being placed for growout. That rate has been nearly 5% more than last year. Cold storage grew only slightly from the third quarter, but is 11% under 2006 and stocks are significantly lower than last year. With a slowdown in exports and greater production, stocks are expected to build. That will pressure prices downward, which have been higher in 2007 than in 2006.
Summary:
Increased pork production continues to weaken pork prices, which have slipped into the red for most producers. Cold storage stocks have been increasing but not at the rate seen during the 1998 decline in pork prices. Cow slaughter continues at high rates as the industry’s liquidation phase has brought numbers near the low point of the last cycle. Calf slaughter is also rising with the strain on feedlot profitability, and that means lower beef supplies in the next two years. Poultry production is steady, but placements have increased pointing to higher production, and pressure on prices. However, cold storage numbers are down.
Posted by Stu Ellis at 12:08 AM | Comments (0) | Permalink
December 24, 2007
If You Build It, Will They Come? Possibly Not, When It Comes To Broadband Internet Service.
If you are reading this via the Internet, are you using a dial-up telephone line, or some faster broadband service, such as DSL or cable? Numerous farm organizations have been strong advocates for extension of broadband service to rural areas at an accelerated rate, and USDA has implemented several funding programs to achieve that goal. However, the rate at which many people jump the “digital divide” into the world of the Internet may not reflect the availability of broadband service to them.
“I don’t have it, because I can’t get it.”
“I can get it, but I don’t have it.”
Those seem to be the two scenarios discovered by economist Brian Whitacre at Oklahoma State University who says the gap in broadband access rates has remained relatively constant over the past several years despite increased extension of DSL and cable networks through the state of Oklahoma. Taking that state as an indicator of the rest of rural America, Whitacre’s findings may indicate that despite substantial USDA investment to erase the “digital divide,” it may be more of a function of households than being unable to connect households.
Whitacre says, “In the period between 2003 and 2006, rates of residential broadband access increased from 20 to 42 percent throughout the U.S. Over this same period, the number of broadband lines supplied by various providers increased from 23 million to 64 million.” But he says when the broadband infrastructure was available, different segments of the population showed different adoption rates. “The adoption decision is affected by the characteristics of the household. For instance, individuals with higher income and education levels are more likely to be early adopters. This fact is particularly true for broadband access, since its technological nature may be seen as an obstacle for households unfamiliar with its benefits.”
To support his theory about demographic characteristics retarding the adoption of broadband Internet service, Whitacre says in his 2003 to 2006 study, there were numerous changes in Oklahoma demographics, with improvement in education and income particularly:
1) There was a 4% increase in the number of heads of households with a high school diploma, and a 1% increase in college degrees.
2) Household income rose, with a 4% loss in the number under $10,000 and a 4% gain in the number over $100,000.
3) Other household characteristics, including age and household composition characteristics such as the percentage of married household heads, the percentage of male household heads, and the number of children, have remained relatively consistent over the three years.
4) The state did become slightly more diverse over this period, with more Hispanics, Native Americans, and individuals of other racial categories. Rural residents comprise approximately 42% of the state, which is comparable to the rates documented in the 2000 Census.
Comparatively, the proportion of residents with access to both cable and DSL rose from 15% to 34% from 2003 to 2006. “Only 8% of rural residents had both cable Internet and DSL access available to them in 2003. This number rose to 14% by 2006. By contrast, the percentage of urban residents with both types of access available rose from 20% in 2003 to 49% in 2006.” But Whitacre says adoption of broadband Internet service go in different directions when demographic characteristics of education and income are analyzed, “Broadband access rates for households earning less than $30,000 per year increased from 18% in 2003 to 26% in 2006. The statistics do not suggest that the same is happening with education levels. For instance, household heads with a high school education or less had broadband access rates of 23% in 2003 and 24% in 2006.”
Summary:
Rural development policy advocates have strongly pushed for broadband service to rural households; however, even in a rural state like Oklahoma, extension of broadband service does not necessarily mean that households will sign up. Demographic characteristics determine whether a household adopts broadband service, with lower income and higher age being determinants of fewer subscribers to DSL and cable Internet service.
Posted by Stu Ellis at 12:44 AM | Comments (5) | Permalink
December 21, 2007
Extension Update
Extension Update is a weekly summary of news from Extension, government, and other attributable sources, focused on marketing, farm management, and other issues that are of interest to Midwestern farm owners and operators.
The back 40 needs to be the back 42 says IL Extension Marketing Specialist Darrel Good. High domestic and foreign demand for US corn, beans, and wheat means a need for 7.4 mil. more acres and trendline yields, which will challenge the market. Read more of his newsletter.
Darrel’s corn calculation is based on the use of 12.69 bil. bu. in the current marketing year with a 1.8 bil. carryout. He says we’ll need 13.6 bil. in the 2008-09 marketing year, which means the need for a 13.1 bil. crop. That will require a 151 bu. national average yield on harvested acreage of 86.7 mil., which is up 600,000 acres from the 2007 crop.
Darrel’s bean calculation is based on the use of 2.988 bil. bu. in the current marketing year which leaves only a 185 mil. bu. carryout. Even with declining exports, the US crop in 2008 will have to produce 2.9 bil. bu. to meet consumption, since carryout is minimal. That will required a 42.5 bu. crop on 68.2 mil acres, up 5.4 mil. from the 2007 crop.
Darrel’s wheat calculation is based on the need for 2.333 bil. bu. in the current marketing year, which leaves only 280 mil. bu. in ending stocks. Even with declining exports, a 2.2 bil. bu. crop is needed to meet the demand. That will require a 42 bu. yield from harvested acreage of 52.4 mil. acres, and that is 1.4 mil. more acres than in 2007.
But, worldwide, what is the chance for 20 MMT more wheat and a return to normal wheat production, asks Ohio State’s Matt Roberts? Importing nations may raise 5 MMT more, and if Canada and the EU reach normal production then stocks would stabilize. Roberts says July ’09 & ’10 futures are too high and are incentives to build inventory. He says deferred wheat sales are reasonable, but prices will be gone by harvest time. Read more.
Regarding soybeans, Matt Roberts believes the US carryout is sufficient, but he says reports about Brazilian production are conflicting, with acreage anywhere from up 5% to unchanged. Minimal expansion there means greater pressure on exports in the US. He expects the market to buy more soybean acres and advocates hedge to arrive contracts which allow users to lock in the futures prices, then wait for improvement in the basis.
Trendline yield may be elusive in 2008 says meteorologist Elwynn Taylor at Iowa State. His latest calculation is a 50/50 chance for 146 bu. corn, with a 64% chance of being below the trendline. Taylor says there is only an 18% chance at a record yield above 165 bu., and a 33% chance of a drought, which would be less than 135 bu. His estimate relies on current subsoil moisture, the statistical risk of drought, and the La Nina potential.
USDA’s pork production projection is for 21.849 bil. lbs. for 2007, up 3.7% from 2006 and a new record production. MO Extension’s Glenn Grimes and Ron Plain say 2008 production should reach 22.25 bil., and they think USDA’s 2007 estimate is too low. Read more.
Per capita consumption is estimated at 50.7 lbs of pork in 2007 and 51 lbs. for 2008; but Grimes and Plain say total red meat consumption will be 221.1 lbs in 2007, a half pound down from 2006. They believe 2008 consumption will repeat 2007 levels.
The export market is doing its share to underpin pork market prices, despite how soft they are. Iowa State’s John Lawrence says October was a record month for exports at 312 mil. lbs. which is up 31% from 2007. Japan is buying 36% of the total, followed by Mexico and Canada. Pork exports to China are 218% higher than Oct. 2006.
The John Lawrence crystal ball says pork slaughter will seasonally decline and add some strength to market prices, but pork supplies are at record levels. For cattle, tight packer margins are causing slaughter rates to drop. Steer carcass weights are at record levels, and delays in marketing will add to their weight and weaken sellers’ leverage. Read more.
The beef export market slowly improves, but is still 45% under the 2003 volume before the BSE problem. Japanese Oct. purchases were 45% above last year, and up 303% for the year. Mexico and Canada are the largest buyers, but both are down from 2006 levels. Don’t be fooled by the 13,429% increase for So. Korea, because its only at 77 mil. lbs.
Consumer demand for beef remains high in the analysis of Utah State economist Dillon Feuz, who says 2007 choice boxed beef will average $149.88, compared to $146.80 in 2006. He’s forecasting $150-plus for 2008, but says NE feedlots lost $15/hd this year. Read more.
With high feed prices, Feuz says alternative feeding and stocking programs may be able to add weight at a lower price. He says the industry will have to redefine its practices, and says that may dictate an altering of calving and weaning dates for those programs.
The new Energy Bill will have a long term benefit for agriculture in the view of Purdue economist Chris Hurt, who says various ethanol feedstocks will be produced on farms.
1) Corn will provide up to 15 bil. gal. by 2015, which requires more than 5 bil. bu.
2) Refinery demand for corn will increase rapidly into 2009, outpacing production.
3) Ethanol refineries will add facilities to process cellulose feedstocks such as cornstalks.
4) Grazing lands in the South & Plains will provide prairie grasses for cellulosic ethanol.
5) CRP acreage may largely shift toward cellulosic energy crops in areas of the country.
6) New crops, such as sweet sorghum, tropical maize, & sugar cane will be produced.
7) Most new feedstocks will be natural resource-based, so agriculture will reap rewards.
No wonder lots of ethanol plants are being built! A 100 mil. gal. per year ethanol plant pumps $31.7 mil. and 168 new jobs into a local economy, says NE economist David Peters. That includes corn premium, tax base growth, and job multipliers. But he warns that rising corn prices and falling ethanol prices can idle plants and reverse the wealth. Read more.
Farm operators and landowners who feel constrained by FSA rules in their attempts to develop innovative and flexible cash rent arrangements have another month to submit their comments to USDA which is considering rule changes. Many of the variable cash rent leases that have been negotiated have been determined to be cropshare leases by FSA. Comments must be submitted by Jan. 17 to Salomon.Ramirez@wdc.usda.gov .
Strides have been made at the Univ. of IL in crossing soybeans with a distant cousin that has resistance to soybean rust, SCN, soybean aphids, and detrimental viruses. The cousin is tomentella, a native soybean-type plant from the So. Pacific, which can provide drought tolerance, yield genes, seed composition genes, and other disease and pest traits. Researchers believe germplasm can be available to commercial breeders by 2010.
Iowa had average rainfall in 2007, but Iowa State agronomist Jim Rouse says soybeans did not grow in an average environment. He says most of his test plots had average yields between 49.7 and 54.6 bu., but the difference was attributed to the timing of the rainfall and its relationship to when the soybean plants were in flowering stage.
The less the tillage, the higher the yield according to NE ag engineer Paul Jasa, whose test plots go back to 1981 with a dryland corn and soybean rotation. Corn yields were 132 with a plow-disk-disk system, 132 with a chisel-disk, 135 with a disk-disk, 135 with a disk, 142 for 26 years of no-till, and 134 on 25 years of tillage and 1 year of no-till. Read more.
New herbicides and blends will be available for the 2008 crop. They include:
1) Harmony with TotalSol has less a.i. and is applied on wheat at a higher rate.
2) Prowl H2O can be used for winter annuals and grasses in wheat up to flag leaf.
3) Prowl H2O will control summer broadleaves and winter annuals in alfalfa.
4) Roundup PowerMax is 4.5 lbs. of glyphosate/gal. in a blend of adjuvants.
5) Duramax & Durango DMA are 4 lb. blends of glyphosate/gal. with a surfactant.
Thyroid, pancreas, pituitary and other glands produce hormones that may be disrupted by certain pesticides. The US EPA has targeted 73 pesticides to evaluate not because they impact your endocrine system, but because of their high risk for exposure to people or the environment, then all pesticide chemicals will be screened by the EPA. Find the list of the first 73 and program information.
As time passes, the nutritional value of corn stalks deteriorates for cattle. Rain and snow leach out soluble and digestible components, but Purdue forage specialist Keith Johnson says livestock have preferences for what part of the crop residue to consume first. He says cattle get less nutrition on the 10th day of grazing than on the 1st day in the cornfield.
The “milk from contented cows” slogan was right on target to Univ. of IL animal scientist Stan Curtis. The animal with low stress is the productive animal, and Curtis says scientists need to better analyze the “state of being” of an animal, because producers can’t manage what can’t be measured. He says being able to understand its conscious feelings will help reduce its stress and convert the animal into higher performance.
Posted by Stu Ellis at 12:05 AM | Comments (0) | Permalink
December 20, 2007
What is the Real Reason You Use Roundup? It May Not Be What You Think!
You may think you know why you plant Roundup Ready soybeans, but do you really know why? You may say that weed control is easier, but would your subconscious agree? Lie down on the couch and tell the Doctor what you really think.
Obviously, most farmers like the concept of Roundup Ready soybeans. USDA’s planted acreage surveys each spring have indicated nine out of ten acres of soybeans are glyphosate tolerant. But do plant that type of seed just to avoid walking your bean rows? The real value in Roundup Ready beans was the objective of research by Olha Sydorovych and Michele Marra of North Carolina State University. http://agecon.lib.umn.edu/cgi-bin/pdf_view.pl?paperid=29022&ftype=.pdf The researchers say the widespread use of pesticides over the past several decades has resulted in concerns about threats to human health and environmental impacts and they say regulatory agencies are on the alert. With the cost of monitoring substantial, the researchers wanted to identify the positive impact that pesticide systems provide. Their investigation looked at the degree of pesticide safety, intensity, and duration of exposure, and estimated the impact of Roundup Ready soybeans on the welfare of the US farmer.
Assuming that farmers have a more accurate knowledge of pesticide risks to humans and the environment, since they not only apply pesticides, but are also exposed to their negative facets. One of their findings was that Roundup Ready soybean use results in the substitution of a single broad spectrum herbicide favorable to the environment instead of a variety of other herbicides which might vary in their environmental impact. “If one considers herbicide relative toxicity information in addition to the information on the application volume and the number of applications, RR soybeans show an improvement in the environmental “footprint” brought about by their adoption, which should have an impact on the welfare of farmers.” The North Carolina State economists believed that farmers are concerned about herbicide impacts on their own health, their family and employees’ health, and the impact on soil and water, including fishing, hunting, swimming, and other recreational activities.
Among their findings are that farmers were willing to pay up to $10 per acre per year to avoid high risk to chronic human health, and willing to pay $3.35 per acre per year to avoid a high risk of surface water pollution. They say the adoption of Roundup Ready soybeans, on average, resulted in an on-farm herbicide risk reduction in all risk categories. Adoption of the Roundup Ready system reduced the financial risk down to 50¢ per acre per year for acute human risk reduction, 93¢ per acre per year for chronic human risk reduction, and 33¢ per acre per year for surface water risk reduction. The researchers say, “In our analysis, the farmer associated positive values with reduced herbicide risk to human health, as well as with reduced risk of surface water pollution. Because RR soybean adoption, on average, results in on-farm reduction in these risks, we expect some positive impact on the welfare of the farmers. The aggregate impact on the welfare of U.S. soybean farmers was estimated to have been a little over $90 million in 2001 alone.”
Summary:
While the overt reason for using Roundup Ready technology is the use of one herbicide to control all weeds without harm to the soybean crop, there apparently are covert reasons for using Roundup. Those include a desire to use a pesticide that has a low risk of creating acute or chronic health problems in humans, and a low risk of causing surface water contamination. For those benefits, farmers have established financial values and those values are more than covered by the Roundup technology.
Posted by Stu Ellis at 12:41 AM | Comments (0) | Permalink
December 19, 2007
USDA Says US Agriculture Had A Pretty Good Year, But How Did You Do?
Nearing the end of the calendar year, with snow and ice everywhere to be found, most Cornbelt farmers are frozen to their 2007 records and taxes and their 2008 marketing plans and crop budgets. USDA economists have a good idea of how financial affairs will settle and believe that 2007 net farm income will be $87.5 billion, more than 28% higher than last year, and more than 57% above the 10 year average. We’ll provide the big picture and you compare your farm numbers to the trend.
USDA’s Economics Research Service has compiled a comprehensive look at the financial affairs of farm families, including farm budgetary figures, household finances, balance sheet changes, and all of the bottom line issues that you see at this time of year. The ERS report
is lengthy and we’ll convert it into several installments. First up will be the outlook for 2007 farm income.
Agricultural cash receipts totaled $282 billion, with 50.5% from crops and 49.5% from livestock. Individually crop and livestock income were about $20 billion higher than in 2006. Government payments fell from $15.8 billion in 2006 to $12.1 billion in 2007. Other farm related income (trucking, custom harvest fees) remained steady in the mid-$17 billion range. That put gross cash income at $312.1 billion ($272.5 billion in 2007). Cash expenses (all of your favorite Schedule F deductions) were $226.4 billion, leaving net cash income at $85.7 billion. USDA economists add the gross cash income of $312.1 billion to non-money income (such as the rental value of your farmhouse owned by the landlord) plus inventory adjustment which gives a gross farm income of $341.7 billion. When total expenses of $254.2 billion are subtracted, the result is net farm income of $87.5 billion.
In the category of crop production, feed grains contributed $41.2 billion, which was a 13% increase over 2006 and 24% over the 10 year average. Oilseeds contributed $22.6 billion, 4.4% over last year and 16.5% over the 10 year average. Meat animals contributed $65.3 billion, which was only a marginal increase over 2006, but a 54% jump over the 10 year average. Dairy contributed $35.2 billion, up 11.8% over 2006 and 23.3% over the 10 year average.
In the category of expenses, farm origin expenses were $68.8 billion, up nearly 51% over the 10 year average. Those included such things as feeder pigs bought from a neighbor, the corn and soybean meal you produced and fed to your livestock, and any seed that you saved from the prior year for planting in 2007. Commercial product expenses were up 4.1% over 2006, and 30.4% over the 10 year average. They included fertilizer, pesticides, fuel, and electricity. Other purchased inputs (repairs, machine rental, grain storage, labor) were $59.6 billion, a nearly 48% increase over the 10 year average.
Government dealings included direct payments of $12.1 billion, which was down 3.7% from 2006, but 16.9% above the 10 year average. Other government dealings included property taxes that totaled $9.5 billion, and were up 7.2% over the 10 year average.
Other stakeholders in your operation included labor ($48.6 billion which was up 42.3% over the 10 year average), cash rent to landlords ($10.2 billion, which was up 10.5% over the 10 year average), and interest paid to lenders ($15.6 billion, which was up 13.2% over the 10 year average).
USDA economists said in general 2007 was a good year for most producers of crops and livestock because of high commodity prices. That resulted from strong demand from the biofuels industry and the export market, and farmers had relatively large production to sell at the higher prices. While the biofuels industry is pushing prices upward, USDA says inadequate rainfall in competitor countries reduced worldwide production and lowered stocks. The combination of reduced supplies, higher worldwide income, and the 25% depreciation in the dollar has increased exports and boosted farm level prices.
The Economics Research Service analysts say agriculture has enjoyed a period of exceptional earnings since 2004, with many of their yardsticks recording new highs such as net farm and net cash income, and the value of crop and livestock production. It favorably compares to the early 1970s and late 1980s, and even with an inflation adjustment, 2007 trails only 2004 as the largest economic contribution by agriculture since 1974.
Other than farm operators, landowners, hired laborers, and lenders, there are many other stakeholders who are standing to gain from the good fortunes of agriculture this year. They include commodity processors, elevators, and retailers who either sell products to farm operators or who have marketing contracts to buy from farms and sell to consumers. USDA says family farm operators will collect about 40% of the 2007 contribution that agriculture is making to the US economy. Non family farm operators will get 10.6%, and contractors will get 13.8%. Hired labor will get 17.8%, lenders 9%, and non operator landowners will bet 9.2%.
The 2007 agricultural wealth is not being equally shared geographically. Almost 64% of the production value will be concentrated in two regions, the heart of the Cornbelt, and the myriad of sections of the US that produce and market specialty crops, all the way from Idaho potato country, through the heart of California, South Texas, and Florida. More than 53% of net farm income will be concentrated in those areas, even though they have less than 32% of the US operating farms.
Family farms, where the majority of the business is owned by the operator or his blood and marriage relatives comprise 97% of all farms and contribute over 80% of net value added to the US economy. Operations with more than $1 million in gross sales will contribute almost half of the net agricultural value.
The value of crop production is up more than $30 billion over 2006, with the help of a $33 billion corn crop, a $21 billion soybean crop, and a $10 billion wheat crop. As previously noted those are the function of biofuel and export demand, and large acreage benefiting from generally good weather.
The value of livestock production is forecast at a record $140 billion, and that makes it 5 consecutive years above $100 billion. Dairy receipts will be the highest on record at $35 billion, which is $12 billion above 2006. That is the result of tight world supplies of dairy products, higher incomes in developing nations, and a weaker US dollar. Beef receipts will be a record $50 billion helped by higher slaughter rates and a small increase in export business. Pork receipts will be $14.5 billion from large production and strong exports. Broiler receipts will hit $23.1 billion, helped by a 22% jump in prices from strong exports and falling flock numbers.
Government payments are down 26% from the five year average to $12.1 billion. Direct and Counter cyclical payments will be $5.3 billion. CCP payments will be down $4 billion from 2006, and were only made to cotton and peanut producers this year. Marketing loan benefits will be $1 billion, slightly more than half of 2006, and 99% of it will be going to cotton producers. USDA says 43% of farms received government payments. 7% went to farms with less than $10,000 in sales, which make up 35% of all farms. 16% went to farms generating over $1 million in sales, which make up 3% of farms. Farms in the two lowest sales classes receive 7% of commodity payments and 54% of conservation payments. Farms in the three largest sales classes received 22% of conservation payments and 64% of commodity payments. USDA economists say, “The increasing shares of payments going to the largest farms is due to the increasing size of this class of farms as the value of farm receipts has increased over time and to the increasing concentration of production among the large farms. Rising cash receipts shifts more farms into the higher sales categories while increasing concentration of production increases the share of commodity payments going to large farms.”
Miscellaneous income is even up in 2007 and will contribute 5.4% to the net value added. That includes machine rental and custom work, insurance indemnity payments, agri-tourism and livestock grazing. Those totaled $17.8 billion in 2007, and represented significant income on some operations. Federal Crop Insurance contributed $3.5 billion, with 60% of it in the plains states and 20% going to greenhouse and nursery operations. Agri-tourism accounted for an estimated $1.75 billion, shared by 2.3% of farms.
Production expenses, to no surprise, rose 9.4% to $254.3 billion. That would be a 32% increase since 2002, and a 15% increase since 2002 adjusted for inflation. But compared to 2006, the ratio of expenses to output will be down. The $6.9 billion for feed expense is a 22% jump. Fertilizer climbed 20%, and miscellaneous expenses will be up 9.5%. Crop related expenses will be $37.5 billion, and that makes the fifth consecutive year of a $1 billion-plus increase. Fertilizer expenses will reach a record of $15.9 billion, which is the result of greater corn acreage. Pesticide expense will rise 3.4%, which is a function of the increased cost of petro-chemicals used to manufacture pesticides.
Payments to stakeholders will rise 7.2% in 2007 to a record of $48.6 billion. That includes a 4% increase in wages for hired labor and an increase in the amount of labor used. Also with a 4% increase in cash rent and a 26% increase in share rent results in a 9.7% increase in rent to landowners along with a 22% decline in direct payments to them. And the lender stakeholder will collect additional interest from land and operating loans, primarily from increases in outstanding debt at the end of the year, and only small increases in interest rates.
Fuel prices, adjusted for inflation, have risen 94% since 2002, and farms spend $11.6 billion on fuel in 2007, which is a record amount. Fuel comprises about 5% of production expense, the same as fertilizer, which has also increased due to greater demand from added corn acreage. USDA says about 25% of farms took some action to reduce either fuel expense in 2006 (correct), which included regular engine servicing and reduction of field operations, as well as negotiating price discounts. Fertilizer expenses were reduced by conducting soil tests, reducing application rate, using precision technology, and adjusting plant population, as well as negotiating discounts.
USDA says the farm financial picture also includes 4,000 farms producing biomass for energy production and 14,000 farms earning dividends from investments in ethanol plants.
Summary:
Increased domestic and foreign demand for US farm products resulted in premium prices in 2007 which helped farmers increase their income. Both crop and livestock operations recorded increased receipts, but production expenses climbed as well. Higher costs for fuel, fertilizer, and land costs raised the overall expenses for farm operators, both from increased cost for the product, but also for increased acreage that required application of crop inputs.
Posted by Stu Ellis at 12:26 AM | Comments (0) | Permalink
December 18, 2007
Are You Really, Really Sure About Your 2008 Cropping Plans?
How productive is your farmland? Do you have 200 bushel corn and 65 bushel soybean soil? Or do you have 140 and 40 bushel corn and beans? Your productive potential may be the best indicator of what you should plant in 2008. If you are still working on crop budgets and potential marketing income, consider letting your soil make the choice.
Think about the answers to two questions. What are your overall costs of production for corn and beans? What has the potential to yield better on your farm? Ag economists Gary Schnitkey and Dale Lattz at the University of Illinois projected corn and bean returns for 2008. In short, your crop performance and income for the period of 2004 through 2007 should give you an idea of what to expect. But let’s work through their calculations, which covered high yielding soils in the northern 1/3 of Illinois, the central 1/3 which has both high and moderate yield soils, and the southern 1/3 of Illinois which has lesser productivity. So the wide variation will parallel most Cornbelt farms. Schnitkey and Lattz said, “In most cases, corn-minus-soybean-returns were positive, meaning that corn returns where higher than soybean returns. Only in 2005 did soybean returns exceed corn returns in two cases: central Illinois with low-productivity farmland and southern Illinois.” There is the first hint. In a year with reduced yields, the soybeans provided better returns.
Corn exceeded soybean returns on average for the 4 years by $47 in northern Illinois, $46 on the better central Illinois ground, by $39 on the lesser central Illinois soil, and by $16 in southern Illinois. “In general, corn yields increase more on higher productivity farmland than do soybean yields. This causes corn returns to exceed soybean returns the higher the productivity of the farmland.” If you are wondering about send year corn, the economists calculated a 10 bu. per acre yield drag on corn after corn, and production costs were higher for second year corn because of higher fertilizer requirements.
1) For the better soils in northern Illinois the planting decision was based on a comparison of returns. Operator and land return was $342 for corn after beans, $291 for corn after corn, and $270 for soybeans. The economists concluded that corn was the best choice for profitability on the higher yielding soils.
2) For the better soils in central Illinois, the planting decisions were similar. The return to land and operator for corn after beans was $396, for corn after corn was $344, and for soybeans was $312. “This suggests that planting corn will be more profitable than planting soybeans for the better soils in northern and central Illinois.”
3) For the lesser soils in central Illinois the differences were not as pronounced. The return to land and operator was $323 for corn after beans, $271 for corn after corn, and $291 for soybeans. “This suggests that planting soybeans on farmland that was previously planted to corn will be more profitable than planting corn for farmland with this productivity.”
4) For the lesser quality soils in southern Illinois, the variations changed. The return to land and operator was $226 for corn following beans, $173 for corn following corn, and $232 for soybeans. “This suggests that soybeans will be more profitable.”
If your decision is more corn oriented, Schnitkey and Lattz offer four items for your checklist before you reach the point of no return.
1) Commodity prices will determine the relative profitability given the market volatility, and for every corn price there is a break-even soybean price that will vary by soil productivity.
2) Individual farms may have results different from the averages calculated by the economists. The variability is high as a result of highly variable fertilizer prices.
3) Machinery and power costs were kept static regardless of cropping pattern.
4) The 2008 planting decision will impact 2009, if the yield drag and higher fertilizer costs on second year corn are considered.
While the calculations were made applicable to the specific conditions in Illinois, the trend would be applicable to the rest of the Cornbelt based on comparisons with soil type and productivity.
Summary:
Highly productive soil produces higher returns from corn than from soybeans. As soil productivity declines, returns decline faster for corn than for beans, and beans will become the more productive crop. Use your general results from 2004 through 2007 to help make planting decisions for 2008, if your options are still open. The market price relationship between corn and soybeans will still have an impact.
Posted by Stu Ellis at 12:49 AM | Comments (0) | Permalink
December 17, 2007
Market Your Grain With Confidence, Not A Grimmace
Does it seem there is excessive volatility in the grain market? Wheat make a limit up or down move at least once per week, and the corn and bean markets certainly don’t move in fractions of a cent anymore. The higher the price, the more amplified the moves in the market. If you happen to have grain to sell, you are not only lucky, but challenged on how and when to do it.
The market volatility is quite intriguing and stems from all of the outside forces tugging on the grain markets. The energy markets are driving corn and bean prices and world wheat shortages are pulling wheat upward according to Marketing Specialist Mike Woolverton at Kansas State University. His December 14 newsletter says much of the current dynamics were rooted in action by the Federal Reserve Bank to lower interest rates. That caused the value of the dollar to fall in its relationship to other currencies, and since crude oil is quoted in dollars, the price of oil jumped upward taking ethanol and soydiesel up with it. The Fed action was short of what the stock market wanted, so a sell off in equities caused investors to buy commodities and the resulting demand drove grain prices even higher.
Last week’s USDA Supply/Demand Report tightened US and world grain stocks further and that created more strength in the market for corn, beans and wheat.
1) Corn ending stocks are currently comfortable at nearly 1.8 billion bushels.
2) Wheat ending stocks are the lowest in 32 years and export demand continues at a high level, with the appearance of panic buying by some foreign nations which are also paying record high freight rates to obtain wheat.
3) Soybean stocks were lowered to the point the US will have only a 3 week supply when the marketing year ends, and despite a record South American crop, the global supply will be insufficient until the new US crop is harvested.
Woolverton says market volatility can be expected to continue, and producers should take advantage of the opportunity to price, not only the 2008 crop but the 2009 crop as well. He says if you are using the futures market, beware of huge margin calls, or as an alternative, sell in small lots and work with your elevator to hedge for you and absorb the margin calls.
How much volatility should you expect? Market Specialist Jim Hilker at Michigan State University has calculated price probabilities in his December 7 newsletter.
1) Corn. Hilker says there is a 50% chance the corn market will be above or below $4.20 by July, and there is a 10% chance of the price being below $3.21 and a 10% chance of it being above $5.52. “What this is saying is that there is a more downside risk, but a higher chance of very high prices compared to today than very low prices.” Storing until summer means you have to subtract storage charges, lost interest, and the basis. For new crop corn, December futures are $4.36 and Hilker says there is a 50% chance of it being above or below $4.20 at harvest, with a 10% chance it could be below $2.96 or a 10% chance it would be above $5.99, which means an 80% chance of it being between those.
2) Wheat. There is a 50% chance July futures will be above or below $7.50 says Hilker. He says there is a 10% chance it will be above $10.39 and a 10% chance of it being below $5.42, or an 80% chance of it being between those two levels. He says due to the large variance in wheat basis, look at summer 2008 forward contracts instead of hedges.
3) Soybeans. Hilker says there is a 50% chance that July futures will be above or below $10.96, with a 10% chance the price will be above $14.45 or below $8.34. For new crop soybeans, Hilker says there is a 10% chance the July price will be above $13.87 and below $7.23 per bushel, with a 50% chance it will be above or below $10.00.
Summary:
Market volatility offers opportunity for profitable grain sales, and various financial and energy markets are certainly creating volatility in the commodity market. Corn and beans are being driven by energy prices, which are a function of the weaker dollar. Wheat is in short global supply with panic buying keeping prices up. Farmers who have the opportunity to price old and new crop grain within the volatile price environment should beware of the potential price range, not only the midpoints of the range, but the upper and lower ends of the price range.
Posted by Stu Ellis at 12:51 AM | Comments (0) | Permalink
December 14, 2007
Extension Update
Extension Update is a weekly summary of news from Extension, government, and other attributable sources, focused on marketing, farm management, and other issues that are of interest to Midwestern farm owners and operators.
Corn prices remain strong with the help of Congressional plans to again raise the target for renewable fuels and ethanol says IL Extension Marketing Specialist Darrel Good. A 15 bil. gal. cap would need 5.5 bil. bu. of corn, up from the current 3.2 bil. bu rate of consumption. Read more.
Bean prices remain strong with the help of robust export demand says Darrel Good. Export inspections are even with 2006, but unshipped sales are well ahead. Outstanding sales to China are at 207 mil. bu., compared to 100 mil. last year. Traders are concerned also about dryness in So. America, and a La Nina reducing the 2008 US bean crop.
Wheat prices remain strong with the help of dry soil in US production areas, a frost in Argentina, and a smaller crop for Canada. India is buying more wheat because of production problems. US wheat exports are at 730 mil. bu., up 66% from 2006 and unshipped sales are 114% larger than year ago levels. We are at 90% of USDA’s target.
Darrel Good says despite current lofty price levels there is little to suggest that prices will move significantly lower in the near term. “More acreage of all three crops may be needed in the US in 2008, and the prices of other crops are moving higher as well. A favorable growing season is needed to prevent another round of sharply higher prices.”
USDA’s latest Supply/Demand report tightened carryover stocks because of strong demand. Corn exports were raised to 2.45 bil. bu. and carryout dropped by 1.797 bil. Bean exports were raised 20 mil. bu., and the carryout was cut to 185 mil. bu. Wheat exports were raised 25 mil. bu. and the wheat carryout was dropped to 280 mil. bu.
Along with the tighter supplies, USDA raised the estimated price ranges for crops for the current marketing year. Corn was raised 15¢ to a range of $3.35 to $3.95 per bushel. Beans were raised 75¢ to a range of $9.25 to $10.25 per bushel. Wheat was raised 30¢ to a range of $6.20 to $6.60 per bushel. The next update will be the final report on Jan. 11.
$10 for corn and $17 for soybeans is the going rate for organic corn and beans in Iowa, as a result of the high prices for commodity grain and beans. Iowa State’s organic program director says yields were improving with test plots recording 209 bu. organic corn and 65 bu. organic beans. But acreage is static because of high commodity prices.
Barring unforeseen developments, Kansas State’s Mike Woolverton says the next critical time in the wheat market will be when it comes out of dormancy. “After that, new crop hard red winter wheat will remain in a jittery weather market until near harvest.” He says prices will be bolstered by US acreage competition and replenishing low stocks.
Head scratching syndrome has spread from the Univ. of IL entomology staff to their counterparts at Iowa State, all because of inconsistencies in the performance of corn rootworm control programs. Bt corn performed very well at some test plots, but not at all of them. Products performed well at some plots, but not at all of them. Lodging was also inconsistent, but they said YieldGard Plus and Herculex XTRA gave the best protection.
Soybean rust is history for 2007, but 2008 may bring different weather patterns and an earlier threat. In November Headline and Folicur lost their registration. Others may soon expire, but others are in the registration process. Get a scorecard on Asian soybean rust fungicides.
Soybean rust trackers say any rust in the Midwest may likely originate in Central America, since there are Mexican plants that are host for the spores sentinel plots have been established there. Analyzing 2007, Iowa State Specialist Daren Mueller says:
1) LA, TX, & OK had adequate rainfall, and once established, rust moved northward.
2) August rainfall was beneficial in the western Cornbelt, but heat reduced its vitality.
3) Cooler September temps allowed rust to resume its spread to 19 states and Canada.
4) Rust levels under 1% can be identified, giving greater value to sentinel plots.
Soybean cyst nematodes were found in 71% of 205 soil samples obtained randomly around Iowa. Compared to a similar survey in 1995, researchers say SCN has not spread much in the past 10 years, nor has it receded. No-till and tilled fields are infested at equal rates. In 1995, 74% of 399 fields were infested, but fewer no-till fields were infested.
The SCN researchers at Iowa State tested the performance of N-Hibit™, sold as an SCN seed treatment. Read more.
1) For SCN resistant varieties, there was no yield difference reported with the product.
2) Yields of resistant varieties were significantly greater than susceptible varieties.
3) Treated susceptible varieties yielded more than untreated plots in 2 test plots.
4) There was no difference in yield in treated susceptible varieties in 7 test plots.
5) There were no statistical differences in SCN egg densities for the 9 test plots.
Did you use a corn fungicide just because it might be a good idea, or it was needed? Iowa State researchers said fungicide trials gave yield responses from a loss of 15.6 bu. to a gain of 21.6 bu. per acre. The average yield response was a positive 3.3 bu. and 77% of the fields had a positive response. But only 27% of the fields yielded enough to pay for the fungicide treatment. Researchers say fungicide should be an IPM-based decision.
If fertilizer prices are causing you to consider cutting back on soil nutrients, Ohio State specialists say start first with a soil test. It will determine the need for P and K, and compare your results to established nutrient requirements for crops. Find them at:
1) Ohio:
2) Illinois:
3) Iowa:
Forage supply and demand went in opposite directions for many producers this year. To help reduce feed expenses, evaluate forage for sale, analyze livestock performance in the wake of forage shortages, and rejuvenate pastures and forage, Extension specialists at Purdue answer your questions.
New herbicides will be available for your 2008 corn crop. Check the entire list.
1) Halex GT is premix of Callisto, Dual Magnum & Touchdown for RR corn.
2) Laudis is a “bleacher” like Callisto for application in corn up to the V8 stage.
3) Require Q is a premix of Resolve, Banvel & Clarity for application on V2 to V7.
4) Resolve Q is a premix of Resolve & Harmony GT for application up to V7 stage.
5) SelectMax will kill poor stands of RR corn in preparation for replant in 4-5 days.
6) Surestart is a premix of Harness, Python & Stinger for RR or LL corn up to 11 in.
New herbicides will be available for your 2008 soybean crop. Among them are:
1) Authority Assist is a premix of Spartan and Pursuit for grass control in RR beans.
2) Authority MTZ is a premix of Spartan and Sencor for resistant weeds in RR beans.
3) Enlite is a premix of Valor, Classic & Harmony for resistant weeds in RR beans.
4) Envive is a premix of Valor, Classic & Harmony for resistant weeds in RR beans.
5) Prefix is a premix of Dual II Magnum & Flexstar for pre-emergent broadleaves.
6) Sonic & Authority First contain Spartan & Firstrate for RR resistant broadleaves.
7) Valor XLT is a premix of Valor & Classic for RR resistant broadleaf control.
Will hog prices climb next summer from what they are now? MO livestock economist Glenn Grimes says the chance is low for that to happen. “Anyone who cannot stand much more losses needs to look at what the futures market is now offering for all of 2008 for foreword pricing at least a portion of their hogs with the futures market or a packer contract tied to the futures market.” Read more.
Glenn Grimes says, “If slaughter is close to current expectations next summer it will require demand growth similar to 2004 to get $53-54 live hogs in June of 2008. Another comparison is the current futures market is offering a price for June 2008 very close to the average for June for the years of 2003-2007. This seems highly unlikely with a projected slaughter of three percent plus or minus from 2007 in 2008.”
Grimes and his partner Ron Plain say meat demand has been stronger than in 2006:
1) Jan-Oct consumer demand was up .9% for beef, up 2.3% for pork, up 3.4% for turkey.
2) Live fed cattle demand was up 3.7%, and live hog demand was up 3.2%.
You are not a terrorist, but the Department of Homeland Security wants to know if you have more than 2,000 lbs. of ammonium nitrate, 60,000 lbs. of propane, 10,000 lbs. of anhydrous ammonia, or 400 lbs. of either potassium nitrate or sodium nitrate. Those amounts of fuels and fertilizers are on the “Top Screen” list which requires registration by Jan. 22.
Posted by Stu Ellis at 12:28 AM | Comments (0) | Permalink
December 13, 2007
What Would You Pay For A Trustworthy, Long Term Weather Forecast?
You have just watched the latest weather forecast on TV presented by the blow-dry weather reader, and you say to yourself, “I wish I could depend on what he says.” You have learned where some of the weather maps are located on the Internet, and you may even have a weather service on your cell phone. But you lack long term weather forecasts that will allow you to adjust your cropping pattern for different crops, or even just select more drought-resistant hybrids. How important is that to you, and what would you pay for having that knowledge? No sales pitch is being made here, so……
The western Cornbelt was a magnet for hip waders this year. The eastern Cornbelt was parched during most of the growing season. There is an increasing prospect for a La Nina arriving, but remind me, does that mean wet or dry? It is part of the dynamic cycle of surface water temperatures in the Pacific along the Equator, and the cycle can either mean wet or dry seasons for the Cornbelt, impacting crop production and commodity prices. The grain traders may already be spending a lot of money on long range forecasts to improve their profits, but what about the producer where the grain meets the ground?
Ohio State economists Brent Sohngen, Ted Napier, and Mark Tucker interviewed 936 farmers about the use of weather information, their desire for improved information, and how much they would pay for it. The survey was taken in 2001, and the study was published in 2003, but the findings are important because of the current weather dynamics and the extraordinary investment farmers are making in land and inputs for the 2008 crop.
The researchers say one El Nino cycle could have a financial impact on the US that might range from $1.5 to $6.5 billion, and the value of a perfect forecast for an El Nino cycle could be as large as $323 million just for agriculture. Adoption of practices to prepare for such a weather cycle depends upon farmer perceptions of the accuracy of the forecast. While farmers have marketing tools such as forward contracts, and production tools such as crop insurance, the Ohio State economists say weather information could substitute for such risk management devices, or help them make better decisions.
What is a long term forecast in your mind? To the researchers it is 6 to 9 months in advance of important production decisions, such as seed selection and crop insurance decisions. Some of you may already have a subscription weather service, so the Ohio State researchers considered either an initial subscription, or upgrading to a more expensive service. And the decision to adopt an improved forecast and pay for it is all based on an underlying profit motive.
The survey found that weather ranked behind market prices and input costs as the most important risk factor they face. And they were asked “If you could access weather information in which you could place 75 – 100 percent confidence of predicting monthly temperature and precipitation for your farm 6 – 9 months in advance, would you use such weather information to make crop production decisions?” They found that 47% would use such reliable forecasts if they were available:
1) Income does not have a significant effect on the probability of adopting improved weather forecasts.
2) More educated farmers are more likely to adopt the information, while older farmers are less likely to adopt it.
3) Farmers who have adopted long-term weather information for a larger number of farm decisions today are more likely to adopt the improved weather data we offer them.
4) Greater losses from drought likewise increase the probability of adopting the improved weather information, whereas the use of insurance and genetically modified seeds to reduce susceptibility to droughts does not seem to influence the adoption decision.
5) Average yield and variance in the yields for the county where the farmer is located do not have significant effects on the adoption decision. (Survey was taken in Ohio.)
Of the 219 farmers who would adopt the improved weather forecasts for 6-9 months out, the researchers asked how much they would pay for that service. The willingness to pay for improved weather information averaged about $105 per year, but the most frequently mentioned fee that would be acceptable was about $75. (Keep in mind that these are 2001 dollars, and today’s averages would be slightly more by inflation, and possibly larger still because of higher production costs.)
Summary:
About half of Cornbelt farmers would purchase improved weather forecasts for which they could be 75-100% sure of the weather 6 to 9 months away, all in an effort to make better production decisions. The results of a survey taken 6 years ago found that the average farmer who would subscribe would not pay much more than $75 for the information, even though it might accurately predict an El Nino that could cause up to $6.5 billion in damages to the US.
Posted by Stu Ellis at 12:28 AM | Comments (1) | Permalink
December 12, 2007
Adjust Your Marketing Plan With USDA's Latest Supply/Demand Numbers.
Exports are up. Livestock production is up. And the combination means greater consumption of grains and oilseeds, with the resulting downward push in estimated ending stocks. That was the essence of Tuesday’s USDA Supply and Demand Report, and the farm gate has the details for you to work into your marketing plan.
The market was anticipating a drop in carryover stocks due to the high pressure export market, and the USDA confirmed the expectation, but commodity prices still closed higher with the help of global stock estimates that were also friendly to the market. Here is a summary from the latest Supply and Demand Report.
Wheat. When the marketing year ends next June, US wheat stocks will be at a 60 year low of 280 million bushels and global wheat stocks were bumped up slightly, but they remain at a 30 year low. Domestic use of the old crop is rising marginally, but exports were raised 25 million bushels because of foreign demand and reduced stocks held by competitors. The World Agricultural Outlook Board at USDA raised the estimated cash price by 30¢ per bushel with the price range now $6.20 to $6.60 per bushel. Globally, wheat production estimates were lowered because of smaller expected output in Canada, Argentina, and the European Union. USDA says, “Global exports are lowered 1.0 million tons tightening the gap between projected marketing year exports and imports as world supplies tighten with lower production in major exporting countries.” Slight increases in stocks are expected in the European Union and the Former Soviet Union states.
Corn and other coarse grains. USDA reduced its estimated corn carryover next August by 100 million bushels to 1.797 billion bushels with the help of increased export estimates, which were boosted to 2.45 billion bushels. That would be a record level, and helped the USDA raise its average cash price by 15¢ to a range of $3.35 to $3.95 per bushel. Demand for coarse grains for feed and export caused USDA to also raise season average prices for sorghum by 20¢ and barley by 15¢. Global stocks were raised only slightly as a result of balancing production and exports. Global trade in coarse grains was increased because of increased livestock feeding, and the lack of feed grade wheat that is usually cheaper than corn. Global stocks of coarse grains were lowered, particularly for corn. However, global barley stocks would be at their lowest in 42 years.
Soybeans and other oilseeds. USDA reduced the soybean carryout next August to 185 million bushels, a drop of 25 million from the November estimate. The lower supply is a result of a 20 million bushel hike in exports helped by Chinese demand. The crush was also marginally increased to reflect export demand for meal. Because of the demand, USDA raised estimates for season prices by 75¢ to a range of $9.25 to $10.25 per bushel. Correspondingly, meal prices were raised to a range of $265 to $295 per ton and oil prices were raised to a range of 41¢ to 45¢ per pound. Globally, oilseed production is at a record level thanks to crops in other nations. In addition to low carryout levels for US and world soybeans, global oilseed stocks are expected to be 22% lower than year ago levels.
Livestock and dairy. More livestock in the past year means more meat production, and USDA said Tuesday that red meat and poultry production will increase in the fourth quarter. Fed cattle supplies are tight and packers have raised bids, amidst strong pork slaughter and strong expansion in poultry production. Meat exports, particularly for broilers, have been helped by the lower value of the dollar. Beef exports will be lower for both 2007 and 2008. But for 2008, USDA does not expect production to vary much from the current year. The market will be watching the next Hogs and Pigs report due out on Dec. 27, for indication about 2008 production. Fourth quarter prices for cattle will be slightly higher and pork prices will be slightly lower reflecting supply in each case. Dairy production will be slightly higher because of weaker supplies early in 2007. USDA raised its estimate of the 2007 all milk price by 10¢ from November and is forecasting the 2008 price to range from $18.00 to $18.80 per cwt.
Summary:
Despite increased production for some commodities, both in the US and globally, stocks are generally low because of strong demand or some spot production problems. Corn prices are high because of domestic US demand, but global demand is high because of higher livestock production and the lack of feed wheat. Wheat prices are high because of record low stocks and increased demand. Soybean prices are high because of demand, even with record oilseed production.
Posted by Stu Ellis at 12:47 AM | Comments (0) | Permalink
December 11, 2007
Are Large Pork Operations Really "Living High On The Hog?"
Large livestock production operations have proven there is an economy of scale, but have they gained an even larger advantage in recent years over mid-sized operations from low prices of corn and soybean meal? With higher prices for corn and soybean meal now compared to the past decade has the playing field changed any?
For decades farmers have called hogs the “mortgage lifter,” and the 1920’s provide the feed value relationship in the hog-corn ratio. 40 years ago when Wendell Murphy’s feed mill used hogs to clean up the gleanings a new livestock production economy was created that would grow to a large scale. That scale drew the attention of economists Elanor Starmer and Timothy Wise at Tufts University, whose research into the production economics of confinement feeding operations rhetorically asks if the playing field has been tilted to benefit the larger operations because of low priced feed inputs.
Starmer and Wise report that poultry was being vertically integrated in the 1920’s but the past 20 years has sped up the process in poultry, swine and beef. The poultry “industry saw its average feed efficiency double between 1945 and 1970, while labor productivity rose an annual average of 10.5% over the same period. Overall production costs dropped by nearly 90% between 1947 and 1999.” They quote USDA statistics that the hog inventory housed in facilities with 2,000 or more animals increased from 37% in 1994 to nearly 75% by 2002. They quote other USDA day that economies of scale are most evident between small and medium operations, leveling off as operations grow beyond 2,000 head.
The Tufts University economists say the 1996 Farm Bill eliminated price supports that remained from prior supply management policies and brought about declining commodity prices, increased production levels, rising input costs, and stagnant or declining net farm income. They say supporters of the policy hoped the US would gain more world trade, but improved technology caused yields to increase, and prices to drop. Critical of current farm policy, Starmer and Wise say, “This paper suggests that one of the major beneficiaries from recent changes to U.S. farm policy has been the industrialized livestock sector generally, and industrial hog operations in particular. Among some of the largest buyers of U.S. corn and soybeans, industrial hog operations spend some 60% of total operating costs on feed made largely of these two components.”
The researchers calculate that costs of production for corn and soybeans from 1986 to 2005 was almost always higher than the market price, based on statistics from domestic and international sources, and the margins widened after the 1996 Farm Bill, “As a result of their ability to purchase corn and soybeans on the market at a price below cost of production, industrial hog operations received, in effect, a discount on their feed from below-cost corn and soybeans. We estimate this discount to be 10% in the earlier period and 26% in the post-reform period.” The economists contend low grain prices after 1996 allowed large livestock operations to save an average of $945.3 million per year in feed costs. “These estimates suggest that industrial hog operations gained considerably from policy changes in 1996 that fed overproduction and provoked lower feed-market prices.”
Starmer and Wise say that since government payments tend to inflate land values, the price supports provided by the 1996 Farm Bill impacted land values, and a subsequent deflation of land values would affect the corn production cost by 4% and the soybean production cost by 6%. They further believe those adjustment shrink the discounted cost of feed, but it still provides a benefit to the livestock industry.
The nearly $1 billion savings in feed costs, say Starmer and Wise, was not available to the smaller operations that grow their own feed. “The availability of low-priced hog feed on the market may have contributed to a structural transformation in hog production, encouraging the growth of industrial operations by giving them a cost advantage over diversified competitors.”
The Tufts University economists hypothesize that large operations saved 2.4% to 10.7% in operational costs from “lax environmental regulations,” which they detailed in their report; and combined with discounted feed costs their overall operational savings totaled 17.4% to 25.7% compared to diversified crop and livestock farms which had smaller herd numbers.
With rising commodity prices, market values are expected to be above production costs for the next five years say Starmer and Wise, which would represent a 29% increase in the cost of feed for large confinement hog operations. They believe diversified operations will regain some economic advantages and may out-compete larger operations.
Summary:
Lower commodity prices, based on the marketing loan program in the 1996 Farm Bill, provided low costs of corn and soybean meal that allowed large increases in the number of large livestock feeding operations. Their economy of scale, according to the research, may have resulted more from government policy than from operational economics, with diversified crop and livestock operations being disadvantaged. Higher commodity prices anticipated in the next few years will return diversified operators to a better economic position.
Posted by Stu Ellis at 12:00 AM | Comments (0) | Permalink
December 10, 2007
How Will Your Farm Fare With A New Farm Program Concept?
The US Senate is expected to conclude its debate this week on the Farm Bill amidst a flurry of amendments, before a select group of Members of the House and Senate will meet to reconcile the differences. One of the amendments may be the proposal by Senators Durbin of Illinois and Brown of Ohio to use state-based yield and price calculations to define the financial safety net for farmers, and then integrate it with the crop insurance program. How will that work for you?
Considerably more complex than a national market loan rate, and even more complex than the calculation of Posted County Prices, the Durbin/Brown plan contains a revenue counter-cyclical program which may pay farmers in one state, but not the next, since it is based on localized factors. Ag economists Richard Taylor and Won Koo at North Dakota State University analyzed the proposal, which came close to adoption by the Senate Agriculture Committee, and comes from a concept proposed by the National Corn Growers Association. Since there is very little correlation between a producer’s yield and the national yield, the proposal compares a producer’s yield with the closer state average to determine if a support payment is made. Those correlations are 68% for wheat, 81% for corn, and 79% for beans.
Under the plan, any crop insurance indemnity payment would be reduced by the amount of the Revenue Counter Cyclical Payment (RCCP). For example, multiply the state yield by the state average price to get a revenue target. If your farm’s revenue did not reach 90% of that state target, then you may qualify for an RCCP payment, but not both the payment and a crop insurance indemnity payment. If you carried crop insurance, your revenue shortfall would be covered by an indemnity check, adjusted downward by the amount of the RCCP payment you had received. Farmers would be unable to collect twice for the same production shortfall. Revenue insurance programs could be bought has high as 95% of expected revenue.
The North Dakota researchers developed scenarios based on the House-passed Farm Bill, the Harkin plan to be debated in the Senate this week, a status quo based on current farm safety net calculations, plus a trio with 75%, 85%, and 95% crop insurance guarantees with the RCCP payment program. For the period of 2008 to 2012, all of the proposals return more money to average profit farms than would the current farm program payment mechanism. Taylor and Koo say, “The state-level RCCP proposals provide slightly greater support than the House scenario, but, in most cases, lower than Harkin’s scenario. The main reason for the greater support is that the RCCP proposals utilize Harkin’s higher target revenue levels, but at the state level.” Farms in a higher profit category would benefit the most from the Harkin plan, then the House, then the base plan, but the 95% RCCP plan would eclipse the Harkin plan for revenue. Taylor and Koo say there is only a 2% difference between the 75% and 95% plans when they are averaged over a 5 year period.
While the Durbin/Brown plan is novel, the integration with crop insurance results in a safety net that is quite close to the Harkin and House plans for commodity price supports. The state-level revenue targets do lower income variations since the counter-cyclical program is based on state statistics, and not a national average. Taylor and Koo expect crop insurance costs to decline, “The integration of federal crop insurance with the RCCP will reduce crop insurance premiums in the states. Payments will occur less frequently and at lower levels, but in the long-run, it will not change net farm income levels because insurance premiums will decline.”
To evaluate the Durbin-Brown proposal for your farm, use the Farm Bill Scenario Analyzer.
Summary:
Within a day or two, the Senate will determine whether the Revenue Counter Cyclical Payment program will be part of the Senate Farm Bill, and if so, it will then be discussed by the Conference Committee to reconcile the House and Senate versions. The program is the first to integrate crop insurance and farm price supports, and the first to use state-based yield and price statistics to establish a revenue target as the basis for any safety net payments.
Posted by Stu Ellis at 12:50 AM | Comments (0) | Permalink
December 7, 2007
Extension Update
Extension Update is a weekly summary of news from Extension, government, and other attributable sources, focused on marketing, farm management, and other issues that are of interest to Midwestern farm owners and operators.
The strength of demand for corn persists says IL Extension’s Darrel Good, which started with ethanol, but has been supported recently by export demand. That scenario implies corn acreage will have to remain large to keep prices “reasonable” for users. Good says high wheat and soybean prices also imply that corn prices will remain high.
Corn exports had reached a 2.134 bil bu. high mark in 2005-06, but are projected at 2.35 bil. this year. And Good says sales are proceeding at a more rapid pace. 58% of the goal had been reached before the end of Nov. Prospects for strong exports result from the likely decline of Chinese exports and continued expansion in world feed demand. Read more of his newsletter.
Ethanol production has slowed, says Darrel Good, when margins diminished in Sept. They have since widened and ethanol prices that were $1.49 in Sept. had been $1.98 in July. The low prices resulted from large supplies and stresses on transportation and storage. He says as long as oil and unleaded gas prices are high, ethanol is profitable.
Speaking of ethanol, Iowa State’s Bob Wisner says plant expansion has not stopped despite poor returns. “Although the time needed to build an ethanol plant has increased from a couple of years ago, nearly all of the plants under construction should be operating within two to two and one-half years. The increased number of plants in the planning stage since late July also is an indication that investor interest in ethanol plants has not completely halted.” Read his analysis.
Wisner’s analysis of the ethanol industry includes his calculation that, “If all planned plants are built, the volume of corn needed just for the processing industry in the state will be 159% of the 2006 Iowa corn crop.” And he says that does not include any requirements for corn feed to livestock, exports of corn, or any other corn processing.
Wheat prices were headed down until Sept. but Mike Woolverton at Kansas State says concerns about dryness in the US and production problems in the So. Hemisphere caused a reversal that has brought prices for hard red winter wheat up 13%. He says wheat fields in SW Kansas and the OK and TX panhandles have been too dry for seedling emergence.
Woolverton’s wheat analysis covers Australia, where he says there is only half of a normal crop. He says in Argentina the flowering wheat was hit by 2 freezes and the government suspended exports until the end of the year. The extent of damage is unknown at this time. Woolverton says demand remains high and world stocks are not going to be filled by the So. Hemisphere crops. He says prices will remain strong.
Nitrogen and phosphorus prices will rise further in 2008 says NE Extension’s Gary Hergert. But he says natural gas in not the sole reason because in some parts of the world it is $1-3/MMBTU, compare to the $7 US price. He says nitrogen demand is up 14% in China, India, and So. America. Also the weak dollar makes imports more expensive.
If you have not booked your fertilizer needs, watch several websites for price trends:
1) The Fertilizer Institute price trends
2) The London fertilizer market
3) Dept of Energy natural gas prices
With a 20% increase in fertilizer prices, monitor its ratio to corn prices. NE economist Hergert says it should be 7 or 8 to 1, which is equivalent to $2.25 corn and 30¢ fertilizer.
1) Credit your residual soil nitrate-N with the help of soil samples 3 to 4 feet down.
2) Set yield goals for application of N. Use your 5-year yield average and add 5%.
3) University research-based recommendations may be lower than commercial labs.
4) Consider replicated strip trials on your farm to evaluate higher and lower rates.
Nitrogen availability cannot be determined in a preplant soil analysis say Ohio State fertility specialists. That can only be done with in-season soil estimates, or a calculation based on probability and estimates. They add, “In a high cost environment, it does not make economical sense to over-apply nitrogen hoping for a greater yield return, when field research reveals only a small chance for a response to high nitrogen rates.”
Nitrogen is one of the most expensive variables for corn, say Purdue agronomists, who quote IN prices from 40¢ to 50¢ per lb of actual N. That puts 180 lbs of N per acre at $72 to $90, and they urge a critical evaluation of material, rate & timing. Read more.
“The bottom line on N use in corn is that we’re dealing with a biological system that interacts with everything under the sun, including the sun,” says Purdue. They add:
1) You can’t predict the weather, nor the N supply throughout the year.
2) You can’t afford (financially or environmentally) to simply apply “more than enough”.
3) You can minimize risk of N loss by understanding placement and timing.
4) You can develop average N rate recommendations that will work in “average” years.
Root pruning by corn rootworms did not always mean yield loss say IL entomologists Kevin Steffey and Mike Gray. Over multiple test plots, the root injury ratings were not the best predictor of yield, but they said treated plots yielded significantly more than untreated plots. Read more.
There are significant questions raised about the way damage by corn rootworms is measured say the entomologists, and they wonder if root-rating is the best yardstick:
1) Even with equal ratings why are there large yield differences with Bt and chemicals?
2) Why would Bt outyield the same isoline with soil insecticides even with more injury?
3) Are rootworm injury rating scales relevant for rootworm Bt corn hybrids? Stay tuned.
Bt corn has made a big difference in reducing the corn borer population say Extension’s Steffey and Gray. “There is mounting evidence to indicate that the widespread planting of Bt corn has reduced the average population of European corn borers over time, and the results from our survey reflect this situation.” (Do you care if the specie is endangered?)
The strong linkage between SCN and SDS in beans means that if you have SDS, you need to check for SCN. Ohio State’s recommended management plan includes:
1) If SCN levels are 200 to 2,000 use an SCN-resistant soybean variety.
2) If SCN levels are 2,000 to 5,000, plant corn, wheat or alfalfa in those fields next.
3) If SCN levels are over 5,000, consider keeping soybeans out of that field for 2 years.
If you have a weed patch immune to Roundup, take note of the analysis of Iowa State weed specialist Bob Hartzler. He says, “The majority of species in which glyphosate resistance has evolved have a relatively high natural tolerance to glyphosate. Simply using labeled rates is unlikely to be an effective resistance management strategy since escapes with these species are likely to occur whenever the environment places them under stress or other factors limit glyphosate efficacy. Effective management of glyphosate resistance will require the use of not only appropriate rate selection, but also inclusion of alternative management strategies and limiting reliance on glyphosate.”
Just like the grain market, livestock market exports are benefiting from the low dollar. Economist Shane Ellis at Iowa State says, “Foreign markets have growing economies, increasing wealth and willingness to pay for US food products; and the foreign consumer’s opinion of beef safety is improving, which builds consumer preference. For poultry, disease has hampered other counties' ability to produce the product.”
But instead of pork exports, there has been an increase in Canadian hogs coming into the US, which theoretically should not happen. Ellis says YTD imports of feeder pigs and market hogs are up 9% and 18%, respectively. From the perspective of a Canadian producer, a weakening US dollar would reduce the cost of feeding pigs in the US, which would increase feeder pig imports. He expects more trade adjustments to occur. Read his newsletter.
Fewer cattle means better prices, say MO Extension’s Ron Plain, “We should have at least a few more months with fed cattle marketings below a year earlier. With continued growth in beef exports, the demand for live fed cattle is expected to end the year stronger than a year earlier. This combination should result in live fed cattle prices in the mid to upper $90s into mid winter.” Read more.
Beer can ears, banana ears, zipper ears, bouquet ears. They are all illustrated with reasons for why they occur on a new Ohio State poster about abnormal corn ears. You can buy a big poster, by sending an e-mail to: pubs@ag.osu.edu or download a small poster.
Posted by Stu Ellis at 12:53 AM | Comments (0) | Permalink
December 6, 2007
Headache: Donating Food That Does Not Exist, To Countries That Cannot Handle It, Amidst An International Firestorm
In the season of giving and charity, it may be appropriate to explore what the US does in the way of charitable donations to the world’s family of countries. After all, the food donations to needy countries are produced by farmers, and there are substantial taxpayer funds, farmers included, who pay for commodities to be donated and shipped abroad. Food aid is part of the Farm Bill trade title, so let’s shed some light on it.
The US has donated food to needy countries for many years, but came into prominence with humanitarian relief after World War II and became organized during the Eisenhower Administration’s PL-480 program. Most farmers have taken pride in those efforts, but with the world culture changing, complaints that it is unfair trade, and the high cost of the programs, the entire issue of food aid has come under greater scrutiny. Purdue agricultural economist Phillip Abbott’s Overview of Food Aid & the Farm Bill organizes food aid into three categories:
1) Emergency relief augments food supplies or rebuilds productive assets following natural disasters or political strife.
2) Project food aid funds a wide range of development projects implemented by foreign governments or private voluntary organizations (NGOs).
3) Program aid provides balance of payments support to recipient governments to cover food import costs as well as other foreign exchange needs.
Abbott says program and project aid are often “monetized” as donated food is sold in recipient countries and receipts fund broad development programs and emergency food aid is more likely to use food rather than cash donations.
Those types of aid are included in eight different federal programs, which have budgetary allocations that ranged from $0 to $803 million in 2006. The primary programs which are part of Public Law 480 observed their 50th anniversary in 2004, but were subjected to criticism because of multiple purposes that have changed over time.
One of the biggest challenges to food aid programs is the fact the 1985 and 1995 Farm Bills created policies that ensured the market would handle any production surpluses, instead of the Commodity Credit Corporation, which currently holds no surplus food products. Without surplus food being available for donation, critics rhetorically asked why such programs exist. This parallels the negotiations in the World Trade Organization at which the European Union has offered elimination of its export subsidy program that had shipped food to countries at substantially reduced prices. In turn the EU wanted the US to reciprocate by eliminating programs the EU thought were similar, although the US characterized them as outright donations. As part of the negotiations, several issues become dominant:
1) Cash donations are more easily handled than containers of food products.
2) When the donated commodity gets to its destination, should it be donated or sold?
3) Donated food displaces imports from commercial sources.
4) Food donations create a disincentive for recipient countries to produce their own food.
5) US food donations have to be shipped on US carriers, and freight charges are 40% of the budget.
6) Purchase of local food, or from nearby countries reduce transportation and handling costs.
The US is prohibited by trade agreements from using food aid as an export subsidy, but Abbott says the concern exists because donated food is less available when prices are high and needy countries are less able to purchase it, such as the current situation with many commodities. WTO negotiators have agreed that export subsidies are improper, donated food should not displace commercial purchases, and donors should give cash rather than food products. The US has rejected the concept of cash instead of food, and has said no cash would be forthcoming during natural emergencies, if the rule stands.
As the Congress rewrites the Farm Bill, several issues are noteworthy:
1) Food aid is part of the permanent 1949 legislation, but calls for donations to be made from surplus government stocks.
2) The last major overhaul of food aid programs was in the 1991 Farm Bill.
3) USDA is urging Congress to use some PL-480 funds for the purchase of local foods to assist people in a food aid crisis.
Abbott says food aid is a bargaining chip in the current WTO negotiations with respect to export competition, and any final agreement will contain changes from the current US policy on food aid. It is difficult for both the Congress and trade negotiators to settle upon the same solutions in two different arenas. While cash is a more efficient way of providing aid, but there are strong political interests calling for that cash to be used to buy US commodities. However that issue and the requirement for donations to be shipped on US carriers may take precedent over the most efficient help being provided to the needy.
Summary:
The US has a long and proud history of providing surplus food to needy countries, particularly in times of emergencies. But other nations see the action as displacing sales of their food to the needy, and the US no longer has stores of government owned food to donate. So, change is forcing new rules to be written for food aid donations in the World Trade Organization rules. While this comes at the same time as the Farm Bill and its trade title is being revised, there is no certainty for agreement on policy.
Posted by Stu Ellis at 12:27 AM | Comments (1) | Permalink
December 5, 2007
Crop Insurance And Disaster Aid Are Key Farm Bill Elements Still Unresolved
How much of the risk in farming should fall on the shoulders of the farm operator as opposed to the government. Since the first farm programs, policymakers have decided that some portion of the weather related losses should be USDA responsibility or there may not be enough farmers who plant the crops that are needed. But taxpayer questions about crop insurance subsidies and frequent disaster payments have created a new atmosphere of contentiousness in the 2007 Farm Bill debate.
Part of the permanent farm program authorized in 1938 and 1949 requires federally subsidized crop insurance to be offered to producers by USDA’s Risk Management Agency. Additionally, the Farm Service Agency offers the Non-insurance Assistance Program as well as ad hoc disaster payments when there are widespread problems.