Navigate to « December 2007 | Main | February 2008 »
January 31, 2008
If You Operate The Largest Farm In Your State, Why Would You Be Interested In Farm Policy?
Imagine that you are involved in a very, very large farming operation. No, much bigger than that. Maybe it is an operation larger than you can imagine. Farm Bill commodity programs are not even a blip on the radar screen of the management, but your Congressman stops by for a tour one day and asks what the federal government can do to help. How do you respond?
Such large farming operations do exits, and generally have acreage or livestock well into the five-digit range. Payment limitations are not even an issue because management time is better spent on maximizing revenue from various profit centers, integrating products and resources with allied industries, and solving million dollar problems. Purdue economists Mike Boehlje and Allan Gray looked at several large agricultural operations in their research on the industrialization of agriculture. They found there were several farm policy issues that need to be addressed which would benefit such operations, and beneficial changes might assist smaller farmers as well. We’ll visit those operations, then review the policies.
Fair Oaks Farms Dairy spreads across I-65 between Indianapolis and Chicago and is partially owned by the Bos family, which also owns the Bos Dairy, and collectively milk 70,000 cows. Fair Oaks has 30,000 cows, milked by 10 units that hold 72 cows with milking underway 24 hours per day. Value added products are integral to the business, which also is concerned with crop production, cow comfort, energy production, and waste handling. Milk is processed in Kentucky to take advantage of a higher price afforded by the Southeastern US Milk Marketing Order.
Tom Farms LLC is composed of 12,000 acres of corn, soybeans, and tomatoes in the US and 4,000 acres in Argentina, with commercial seed corn production being a central focus. It also provides custom farm services to 28,000 additional acres. The operation either produces or manages 30,000 total acres of seed under contract with Monsanto, including processing and transportation to retail locations. Management is focused on return on investment rather than accumulation of land assets.
West Texas Organic Dairy owns 50,000 acres of native pasture and through irrigation is producing corn and soybeans for the dairy rations. The center pivot irrigation systems cover 160 acres, but on the low productive land not reached between the pivots are facilities for 3,500 dairy cows. The organic corn is fed as silage to the cows. The organic soybeans are shipped to a Kansas processor who returns the meal to the dairy, and markets the organic soybean oil. The organic milk is shipped to the Eastern US in return for a substantial premium over conventional milk, valuing the organic corn at $7 per bushel. Another 50,000 acres have been acquired for corn production to provide feedstock for an ethanol plant, as well as ten more dairies with 3,500 cows each.
Louisiana Rice and Row Crop Farm is a Central Louisiana operation with 26,000 acres, including 12,000 laser-leveled acres to supply rice to two rice plants under contract. Investment is being made in a river terminal for both export of products and import of inputs. Another operation of 30,000 adjacent acres may be brought into the business complex.
Past and current farm programs are focused on income transfer based on planting records, price supports, and payment limitations. But economists Boehlje and Gray say the structure of US agriculture continues to move toward industrialization, and many operations have already moved beyond farm programs, except to the dairy operation that is only taking advantage of a distortion in the marketplace created by the milk program. But what would the management of these farms really need in the way of federal farm policy to enhance their operations? Boehlje and Gray suggest:
1) Programs for transition assistance to assist farmers in finding other opportunities, should international competition or other dynamics create a need to buffer farmers from market forces.
2) Develop an institutional structure around a vertical market or supply chain that provides open access to information, prevent anti-trust issues, and help manage risk and rewards in an effort to enhance economic growth.
3) Revisit the rules about intellectual property rights to ensure that current patent and copyright laws are capable of managing the needs of the marketplace in the wake of global competition.
4) Support funding for public sector research and development to ensure that private funding of technology development does not lock it away from the marketplace.
5) Federal support for health care programs, work place safety, and improved immigration laws are needed to ensure a skilled and healthy workforce.
6) Regulations that promote food safety through traceability programs, regulation of antibiotics and additives, and market access to other nations where those issues are of concern.
7) Ensure there are entry-level management positions for young farmers in a career path to accelerate them to be an agricultural leader of tomorrow.
Summary:
While typical Farm bill provisions address the issues needed by most of the farms today, some farming operations are growing well beyond those regulations, and will require some forward thinking policies to allow their growth and success. Some operations with tens of thousands of acres and head of livestock need strategic change in farm policy, not just tinkering with per bushel payment levels.
Posted by Stu Ellis at 12:49 AM | Comments (1) | Permalink
January 30, 2008
Take Advantage Of Prices Offered By The Soybean Market
21 days. At the rate the US uses soybeans, at the end of the marketing year next August a 21 day supply will be all that exists. When the Soviet Union bought US wheat in 1972, we were left with a similar amount of wheat. In 1973 when there was an international run on US soybeans, a 17 day supply was left when an embargo was put in place. The shortage of supply has driven prices well above $13 per bushel, but how high will the bean market go?
USDA’s estimate of the meager soybean carryout for next August pushed market prices higher, but Purdue economist Chris Hurt believes there is still room for the market to travel upward. Just like in 1973, foreign buyers have continued to purchase, thanks in part to the currency exchange rate that gives them an advantage. Current export commitments are ahead of last year and USDA says they need to be cut by 11%. Chinese purchases are up 14% from last year and Hurt says the Chinese would buy more if there is any weather threat to the South American crop.
The tight supplies will continue, even with an 8% increase in acreage that the market expects, which means high prices will remain into 2009. the $13 level has been a consolidation point for many buyers, who are waiting for prices to edge higher where they can feel comfortable again. But with such uncharted territory, what signals should be obeyed by farmers who may still have unsold soybeans? Hurt says:
1) Watch weekly export sales, since buyers may continue at an orderly pace or begin panic buying.
2) Watch for signals that soybean meal use is being cut back by the livestock industry.
3) Watch for weather indicators that may hint about the size of the South American crop.
Hurt says many years will record the market highs in the March to May time period, and this year may not be any different. He is urging farmers to become 40% sold now, and to reach 75-80% sold by planting time in May. Absent the desire to unload large quantities, Hurt suggests small weekly to daily sales to spread out the risk or use an elevator pricing program that sets prices at the average price over a late winter or early spring window.
Those strategies do not require prediction of a top in the market, which Missouri’s Melvin Brees also says he has no idea where and when it will happen. Brees doubts that market demand can be sustained at current prices, and that is already beginning to show up in the soybean oil market.
So what should be done about selling in Brees’ mind? He says while selling decisions are not easy, marketing at today’s prices is quite profitable, despite the volatility. He also advocates incremental sales, as long as you do not run out of inventory to sell before the market reaches its higher areas. At that point, your soybeans can be re-owned on paper and marketed again with either options or futures, and that might require significant margin requirements. Brees also suggests the use of price traps, which is a signal to an elevator that you want to sell, should prices fall to a certain level. Those benchmarks are set below the market and are moved up as the market moves up.
Summary:
The soybean marketing is climbing with uncertainty about how high it will go, and farmers with unsold soybean may want to work on a calendar, with sales over the March to May period when prices would expect to be at their highest for the year. Small incremental sales will also help capture high prices, and price traps willinsulate against any severe price moves.
Posted by Stu Ellis at 11:00 AM | Comments (0) | Permalink
January 29, 2008
The New Federal Energy Bill May Be More Cornbelt Friendly Than The Farm Bill
The new US energy policy that was signed into law late in 2007 boosted the mandates for ethanol and bio-diesel, guaranteeing increasingly higher demand for corn and soybean oil in years to come. But while the targets for use are posted for all to see, the bio-fuels industry will wrangle with Congress in 2010 over extension of the 51¢ ethanol tax credit that have been a foundation block for the industry. Additionally, a tariff that restricts the importation of ethanol and a $1 tax credit for bio-diesel are set to expire later this year. If the tax credits expire or are extended, what will be the impact on commodity prices, bio-fuel use and price, and the rest of the farm economy?
Formally, the policy is known as the “Energy Independence and Security Act of 2007” (EISA) and it mandates that 15 billion gallons of corn-based ethanol be used by 2015, in addition to one billion gallons of bio-diesel used by 2012. Currently, we are at a point less than half of those targets, but corn is already at $5 and soybean oil is over 50¢ per pound. To help Congress understand the impact of its action and prepare for the debate over extension of the tax credits, economists at the University of Missouri’s Food and Agricultural Policy Research Institute (FAPRI) programmed their computers to analyze EISA.
The result was dozens of different economic variables within a variety of scenarios with and without the tax credits and tariffs. Among the more important to a corn and soybean producer are these, if the tax credits and tariff are extended:
1) From 2011 to 2016 there will be 1.1 billion more bushels of corn per year refined into ethanol than if EISA did not exist, with 30% of the demand resulting from increased production and 30% resulting from reduced exports. 40% would result from less livestock production.
2) Corn production expands by 2 million acres, but soybean production does not expand because of higher corn prices.
3) Corn prices increase by 8% ($3.37) compared to life without EISA and soybean oil prices increase by 36%, pulling soybean prices up by 9% ($7.25). Soybean meal prices fall with the increased supply and more ethanol means more distillers’ grains.
4) Higher corn prices result in slight reduction in livestock production, further resulting in higher prices for cattle, hogs, and milk.
5) Higher crop prices mean less government payments from 2002 Farm Bill-type programs.
6) Average feed expenses for livestock producers are unchanged because lower costs of soybean meal offset higher prices for corn.
7) Higher crop prices contribute to an increase in cash rent, as well as other production costs because of increased corn production.
If the ethanol and bio-diesel tax credits are allowed to expire, along with the ethanol tariff, much different economic scenarios occur with the EISA mandates:
1) Ethanol production averages only 8 billion gallons per year from 2011 to 2016.
2) Corn prices increase an average of 52¢, and 5 million additional acres are produced.
3) Wholesale prices for bio-diesel double and the large increase in production pushes soybean oil prices up 72%.
4) With higher commodity prices, revenue returns per acre are greater for corn, which causes soybean acreage to fall slightly.
5) Higher corn prices outweigh lower soybean meal prices, so the overall cost of feed impact livestock producers, particularly for hogs.
6) Higher commodity prices mean less government spending for price supports, including for CRP payments because some CRP land is shifted back into production.
Summary:
The new federal energy policy will result in more ethanol and bio-diesel production than would occur without it, and with high levels of bio-fuel production, there is both increased demand and increased production of corn and soybeans, with resulting higher prices for both. That scenario means less dependence on government programs, but with higher production costs, including land costs.
Posted by Stu Ellis at 12:28 AM | Comments (0) | Permalink
January 28, 2008
Check The Calendar, Instead Of Corn Market Prices
If you are among many farmers with 2007 corn yet to sell, you may not yet have a price target, but do you have a timetable for pricing your unsold corn? Since corn prices may rise to “who knows where,” should your marketing be based on the same timing principles that have guided you for many years? Let’s think about that for a moment.
The market was not anticipating the changes made by USDA in its final 2007 crop report, in which production was lowered, feed use was raised, and carryout was lowered to just over 1.4 billion bushels. Purdue economist Chris Hurt says that may be a lot of corn, but the way the ethanol market is refining it so rapidly; it will be insufficient as a carryover. His recent newsletter says higher prices and rationing must continue. And he says the market needs to buy 2.5 million more acres than it did prior to the report, which he says points to $5.25 to $5.75 corn and that will cut hard into the livestock industry. Export demand is insulated by the currency rates and industrial use can pass on the higher prices to consumers.
But when will the high prices occur? Chris Hurt says over the past ten years, corn prices have tending to peak between mid February and mid May, which is reasonable to expect this year. So farmers have a 30 to 90 day window to price most of their unsold inventory. For an orderly marketing plan, Hurt says be 40% marketed by now, and 75-80% sold by mid May. He also suggests selling any remaining cash inventory by that time and buying call options to take advantage of additional price increases.
Hurt’s colleague, Melvin Brees at the University of Missouri, also says he does not know how high prices will go, but it is likely that you will not sell at the high in the market, and that downside risk is more considerable because of the increasing volatility. Brees also endorses making incremental sales that spreads sales over a wide time period and helps sell some of your grain before any break in the market.
Brees says option strategies can also work, if you want to sell your cash grain and re-own it on paper, even though option premiums could be costly. Those might include an option “fence” which is the purchase of a put option and sale of a call option to reduce premium costs. Or a vertical strategy of buying an at the money option and selling an out of the money option will also reduce premium cost, but any option sale will possibly expose someone to margin calls.
Melvin Brees also say, “The potential for higher prices exist, but downside price risk is present as well. It seems hard to go wrong selling at current prices, but selling decisions are never easy in volatile markets. While no strategy is perfect and getting the market high is not a reasonable goal, a variety of market tools can be used to manage price risk and avoid missing out on good prices in uncertain markets.”
And Purdue’s Chris Hurt acknowledges, “Marketing decisions are going to be stressful. Try to keep emotions at a minimum by having and following an orderly plan of pricing. As you price new-crop, also consider attempting to lock in input costs. Crop insurance decisions will also be critical, so keep studying your alternatives and talking with market advisors and crop insurance sales agents.”
Summary:
The corn market is in uncharted territory and no one really knows how high it might go, which puts stress on farmers with unsold grain. Instead of targeting price levels that may or may not be reached, an alternative is to sell grain in an orderly fashion over the next 30 to 90 days, which puts it within a marketing window that has seen the highs over the past 10 years. If there is a further desire to profit from the market, that might be achieve with the use of options, and certain options strategies can be used which will reduce premium costs.
Posted by Stu Ellis at 12:03 AM | Comments (0) | Permalink
January 25, 2008
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.
Sky high futures prices, but a mediocre cash price has plagued the soybean market for nearly 2 years, and IL Extension Marketing Specialist Darrel Good says the fact that futures and cash prices do not converge at delivery points “implies that the delivery mechanism is failing to some extent.” And he says that may continue for a while.
Darrel Good says, “Persistence of futures prices above cash value at maturity may indicate that the extremely large speculative activity in the futures markets is holding futures prices artificially high and that the delivery mechanism is not robust enough to force convergence of cash and futures prices.” He says the weak basis is more than just transportation, storage cost and availability, insurance, and interest on a high value crop.
The wide soybean basis has affected short hedgers, because the basis has not improved as expected to cover storage costs. Some elevators have also taken steps to limit futures margin exposure by curtailing use of hedge-to-arrive contracts, and forcing producers to hedge themselves. Read more .
Farm stored corn will benefit from the carry through July, says Michigan State’s Jim Hilker. “We have the smallest world coarse grain ending stock projected in 3 decades; it is hard to set a strategy. One could consider selling smaller amounts on up market days and spread remaining 2007 crop sales over the next six months. If you are paying commercial storage, check out a basis contract, and see if you can use the same strategy.”
Hilker’s price probability for corn is an 80% chance for March corn to be between $5.28 and $4.51, with a 10% chance it will be either above or below those levels. The 80% probability range for December corn is from $3.56 to $6.72.
Hilker’s price probability for beans is an 80% chance for March beans to be between $13.62 and $11.21, with a 10% chance it will be either above or below those levels. The 80% probability range for November beans is from $8.78 to $16.02.
Hilker’s price probability for wheat is an 80% chance for March wheat to be between $11.04 and $7.76, with a 10% chance it will be either above or below those levels. The 80% probability range for December wheat is from $5.72 to $12.58.
If you are nervous about market volatility, MO economist Melvin Brees suggests selling cash grain and re-owning it with options. “Put options or various option spread strategies can also work, but premiums are expensive. The premium cost often results in considerable cash outlay and produces protected price floors well below current prices. However, in most cases these still represent profitable prices.”
Given the huge supply, retail pork prices aren't doing badly, say MO economists Glenn Grimes and Ron Plain. “December pork prices at retail averaged $2.859 per pound, up 9.1 cents compared to 12 months earlier. Domestic pork demand ended 2007 on a strong note. The growth in pork demand was stronger in the fourth quarter of 2007 than the other three quarters. This is a good lead-in to 2008. Hopefully, high energy prices and rising unemployment won't disrupt the trend.” Read more.
Grimes and Plain also say, “The feed situation appears to be impacting on fed cattle prices. Short pastures pushed a lot of feeder cattle into feed yards during the fourth quarter of 2007 and high corn prices are keeping the feeding periods fairly short.” They also report continued high cow slaughter because of dry pastures and high feed costs.
Spring is not far off, if it is time to frost seed your pasture and Iowa St. agronomists say Feb. & Mar. is time to do that because of the freeze-thaw cycles giving seed a shallow cover. Red clover gives the best success, when spread on the thinnest, least vigorous areas. But they say success requires average or better rainfall and growing conditions. Read more.
Avoid high N expense on pastures by inter-seeding a legume crop that transfers 20% of its N to surrounding grass. MO agronomists say legumes, such as red clover or lespedeza can provide 50-300 lbs. of N per acre. Potash and pH are important, since legumes need high soil tests. Read more.
If your pasture needs N, fertilize when the plant can respond and maximize forage utilization, since it only pays if you can increase beef or milk production or hay sales. MO agronomist John Lory suggests that “manure nitrogen is typically 50-60% available when it is surface applied but 100% of manure phosphorus and potassium is available to the crop.” Read more.
Soils that have a history of adequate or perhaps even a little excessive P and K fertilization resulting in a high soil test levels are unlikely to benefit (yield-wise) from the inclusion of P and K in a starter fertilizer, say Ohio St. agronomists Robert Mullen and Edwin Lentz. Soils that are below the established critical value in P and K can benefit, especially if broadcast applications were not made the previous fall or in the spring.
Don’t forget to update your records if you are a certified applicator and have used restricted-use pesticides this year. They should include product name and EPA number, amount applied, location, acreage, date, crop, and certification number of the applicator. Information and forms. Find out more.
Corn, which can deliver Vitamin A, is being bred at the Univ. of IL where researchers have discovered genetics that can steer the corn plant’s biochemistry to produce higher levels of the vitamin. The corn is being prepared for use in Sub-Saharan Africa and the Americas, where 17-30% of children under 5 years of age have a Vitamin A deficiency.
Popcorn growers will have to become more educated about the crop they have. You are not just growing popcorn anymore, but there are three main groups. Iowa St. and USDA researchers compared 29 traits and grouped them into: North American Yellow Pearl, which contains most commercial varieties; North American Pointed Rice; and North American Early Popcorn. Read more.
Soybean seed quality is being questioned by Ohio St. specialists Anne Dorrance and Jim Beuerlein. “Much of the seed supply in the eastern Midwest has lower than normal quality due to a stressful growing season and being harvested at low moisture. Physical damage caused by harvest and handling is causing low vigor and more abnormal growth in germination test than normal.” They recommend several steps you can take:
1) A fungicide treatment will protect against early season seed rot.
2) Fungicide returns best on fields with poor drainage, no-till, or continuous soybeans.
3) Fungicide will protect against seed-borne diseases, such as phomopsis.
4) When buying seed, ask for results of a cold germination test on the seed.
Low germination rates may be seen on seed beans, or at least less than the typical 92% floor. WI Extension’s John Gaska says some may be marketed as low as 80% because of environmental adversity in 2007. The result is thin seed coats which are damaged during the conditioning process. Gaska says while a seed treatment might be needed, he is not a strong advocate, since further handling can further damage the seed coat.
If 180,000 drilled seed beans emerge at a 90% rate, but only 80% of the original seeds germinate, the plant population is below 130,000 per acre. Gaska says, “Under most environmental conditions 129,000 plants/acre would produce 100% yield potential, however if we do not achieve our assumed 90% emergence rate due to poor early season growing conditions we rapidly approach stands where yield loss may occur.”
Germination tests can be performed by state crop improvement agencies, or at home. Count out 100 seeds, fold them into a damp paper towel, seal in a zip lock bag, and store in a warm location out of the sunlight. Count the seeds with an intact root and shoot after 5 days. Repeating that 4 times with seeds selected from random bags is a better test.
Growing switchgrass? Iowa St. Economist Mike Duffy tallies the $113.66 per acre production costs. Read his analysis.
1) Establishing the crop, prorated over 11 years is $34.26 per acre.
2) Re-seeding the crop 25% of the time, prorated over 10 years is $6.18 per acre.
3) With a 4 ton per acre yield, the per ton production cost would be $82.23.
4) The need to store it requires a building, with costs estimated at $16.67 per ton.
5) Transportation to storage is $6.10 per ton, then $8.65 per ton to the plant.
The success of switchgrass, says Duffy depends upon available markets, and the economic incentive for producers to change their rotation systems to allow a permanent field of switchgrass. He says the CRP could play a role, if green payments were added to the CRP rent, then production costs could be reduced, but erosion control would remain.
Posted by Stu Ellis at 12:33 AM | Comments (0) | Permalink
January 24, 2008
Oh, I'm Forever Blowing Bubbles......
Some bubbles will give you a headache when consumed. Some bubbles will leave your face a pink, sticky mess when they burst. And some bubbles that burst can leave you with both a headache and mess, particularly if your marketing plan was anchored to it. Is your marketing plan on the bubble?
It is not a case of if, but when, the bubble bursts suggests Iowa State economist Bruce Babcock in the winter issue of the Iowa Ag Review. He says high prices are their own worst enemy because more profits invite more competition and more production. That means lower prices. Babcock says we may have high corn prices now, but in the past 50 years there have only been two occasions when corn prices were high in successive years. Short global crops did the trick in 1973-75, and from 1979 to 1984 prices were kept up with drought and farm policy.
In the mid-1990’s corn futures were in the upper $3 range, then began a five year slide, including a drop in demand cause by the Asian financial crisis. Today, a record corn crop has been followed by record high prices, even while a short soybean crop has been followed by record high prices. Unlike the 90’s, the markets are indicating these prices are not temporary, because 2009 and 2010 futures offer similar prices.
But if these prices are permanent, Babcock says, “The impacts on agriculture would be staggering…” Land rents should increase by a factor of 2.8, land prices should increase, and higher production costs follow. He says the cost of raising hogs, finishing cattle and producing milk and eggs rise dramatically. Those costs are passed on to consumers, but so will higher costs of specialty crops and vegetables, which are displaced by corn and soybean acreage. Babcock rhetorically asks, “But how much faith should we put in the Chicago Board of Trade as a long-run indicator of price levels, particularly when all the world's farmers face an unprecedented incentive to increase production?”
The Iowa State economist points to the recently enacted federal energy policy that amplified the use of corn and soybeans for biofuel production, and says that came at a time when supplies of grains are already tight, telling the markets to encourage world production. He says the US can only expand with the help of good growing weather and some shift of the CRP back into production. South America can slightly increase production acreage. The Ukraine may not have the infrastructure to increase much. The EU will expand pursuant to its own bio-fuels policy. And such a slow response to a call for more production is one reason for high futures prices the next two years.
But Babcock says over time production will increase as a result of the current profit signals which cannot be sustained for the long term. However, he believes the world’s demand for bio-fuels will require more production that may be high cost and require lower yielding acreage. And that he says may keep future prices at a higher level.
Babcock analyzed a variety of scenarios involving corn prices, petroleum prices and the retention and elimination of ethanol subsidies and import tariffs. Those policies help ethanol producers pay higher prices for corn; but a loss of those implies lower corn prices in the wake of high production costs.
Summary:
High grain prices have resulted from a strong demand for grain as well as acreage to produce other crops. Unlike prior times of high prices, the futures market indicates several years of sustainability. However, current values indicate land prices and rents should be higher along with production costs. Today’s strong prices result from the demand on grain to produce both food and bio-fuels, the latter of which is helped by protective policies. The loss of those policies would result in lower grain prices, but land prices and production costs might remain.
Posted by Stu Ellis at 12:14 AM | Comments (0) | Permalink
January 23, 2008
Soybean Market Fundamentals: Will High Soybean Prices Hold?
Wheat and corn prices are high, in part from domestic and foreign demand, as well as low global stocks. On the other hand, soybean prices are high, in part from domestic and foreign demand, but global stocks are not low. Could that impact your marketing plan for soybeans? By the way, what is the big picture for soybeans and oilseeds? We’re glad you asked!
US soybean stocks will be so low at the end of the current marketing year, USDA is forecasting the season average price to be a dime less than a $10-$11 range. The lack of sufficient supplies is only a year removed from record high surpluses, but reduced acres and a mediocre sized crop have occurred in the meantime. However the Brazilian crop estimates are being trimmed ahead of the coming harvest. That is giving rise to strong soybean prices reflected in USDA’s latest Oil Crops Outlook.
The 2007 US soybean crop was the smallest in 4 years, thanks to less acreage and less yield. Since the crop size was determined, prices have been very strong, and have not deterred importers. Shipments are down only slightly despite the lower supply. But those export shipments are fading as reflected in the reduced demand for soybeans at the Gulf and the correspondingly weaker Gulf basis, replaced by a stronger domestic crush. The export trade for the current marketing year is estimated at just under one billion bushels, but would be an 11% decline from last year’s export business.
Crushers are extracting more oil from soybeans, and USDA has raised its projection by 90 million pounds for the marketing year. Carryover stocks are forecast at 2.25 billion pounds, but the demand for oil has taken prices to record high levels. Oil prices recently surpassed 54¢ per pound for the September 2008 contract. The high oil demand and low soybean stocks have pushed futures prices past the $13 mark for the July contract. But the cash market has been slower to move and the basis is about $1, which is two to four times normal levels. Soybean meal prices are also at record highs, causing USDA to forecast a seasonal price range of $305 to $335, compared to the $205 average for last year.
Soybean oil prices are carrying the prices of competing crops higher as well:
1) Sunflowers. Higher yields, more acres, but the cash price for sunflower seed is at a record level of $21.50 per CWT. That results from a high demand for sunflower seed oil, which is selling for twice the price of soy oil.
2) Canola. More acres, but lower yields limited much increase in production. Cash prices have reached an unprecedented $24 per CWT, helped by higher soy oil prices.
3) Peanuts. Higher yield on more acres, but supplies are down because of reduced carry-in. A decrease in beginning stocks, has kept supplies down.
4) Flaxseed. Production was down 46% in 2007 from the prior year due to a 56% cut in acreage. Yields were below the 10-year average and prices are at record highs.
5) Cottonseed. Lower cotton yields and cottonseed availability have contributed to lower supplies of oil and support crush margins.
Globally, soybean production in Brazil has not expanded as much as once thought, but with reasonable weather and crop development yields will be nominal. A lower than expected crop will mean lower than expected exports and declining ending stocks. But Argentine soybean exports may take up the slack at the risk of leaving that nation with low supplies. European imports of soybean will allow crushers to provide soybean oil for bio-diesel and soybean meal for livestock feed that will take the place of wheat. China is on pace to set a record high level of soybean oil imports, but oil consumption rates have slowed from last year.
Summary:
The short crop and high demand for soybeans in the US have resulted in short supplies until next fall, pushing prices higher and pulling other vegetable oils higher. However, expectations for a large, but not record crop, in Brazil and exportable supplies of Argentine soybeans have promised to fill world demand. China will demand large supplies, as will Europe, but the Europeans will make efficient use of both oil and meal.
Posted by Stu Ellis at 12:32 AM | Comments (0) | Permalink
January 22, 2008
Find A Danger On Your Farm And Fix It.
Are you aware that agriculture is the most dangerous of occupations, usually alternating with mining in taking the most lives and limbs? Your answer is probably yes, and because of that awareness your safety practices have increased over time. Or it could have been spousal pressure that forced you to farm safer. Either way statistics collected by USDA in 2006 are quite telling in the dangers that still exist on today’s farms.
25,000 farm operations were surveyed by the National Agricultural Statistics Service (NASS) http://usda.mannlib.cornell.edu/usda/current/FarmSafe/FarmSafe-01-17-2008.pdf about safety and health issues, including the use of safety practices around farm implements. For example, US farmers have an estimated 4.236 million tractors, but only 59% had roll-over protective systems (ROPS). Regional variations ranged from 51% in the Northeast to 65% in the South. Of course, that is not an option on some of the larger tractors used in the Midwest, were 44% did not have them. In the year prior to the survey, 6,700 tractors rolled over, and the majority did not have a ROPS system.
An estimated 1,236,000 all-terrain vehicles are on 900,000 farms and 1.1 million are used in the farming operation. 958,000 are on Midwestern and Southern farms.
How about driveline shields on your power take-off equipment? The survey found they were absent on 7% of balers, 14% of brush-cutting mowers, and 16% of sickle bar-type mowers.
Among hog confinement operations, there were 57,000 manure pits on 40,000 operations. Since they sometimes need hands-on maintenance, they can become deadly. The survey found 63% of operators had not entered the pit in the prior 12 months, and 37% had entered the pit at least once and possibly more than 6 times. 60% of the pits were covered with guards, but only 35% had any powered ventilation equipment.
About 1.5 million silos are spread over 430,000 farms, and 90,000 have the capacity to limit the amount of oxygen that reaches the feed. 75% of all silos had external ladders, and only 1/3 could restrict access to the top of the silo.
Underground power lines cross beneath 980,000 farms, with 33% having all of their lines buried, and 37% having less than half buried. The aerial power lines are problems for the 420,000 grain augers on 270,000 farms. Their average height is 41 feet, but some were up to 120 feet in the air. NASS statisticians counted the augers that were PTO-driven, and found 8% were missing the intake chute guard and 8% were missing the PTO shaft driveline guard.
Within the year prior to the survey, only 37% of the operators reported using a dust mask or respirator during their work. Those who did use a dust mask reported dusty environments as the reason. However, of the 66% of farmers who indicated they worked around loud noises, 64% were inclined to use ear plugs or other protective equipment some of the time.
Summary:
The USDA safety and health study used statistics from 25,000 farms to help other units of government develop safety and health policies. While comparison statistics were not available for prior years, the 2006 survey indicated substantial room for improvement of safety and health practices among farmers. Undoubtedly, great strides have been made, in such areas as using dust masks and ear protection, as well as keeping safety shields and guards in place on PTO drives.
Posted by Stu Ellis at 12:24 AM | Comments (0) | Permalink
January 21, 2008
Livestock Producers: Assume Your Defensive Positions
Farm prices are unbelievable…unless you are a livestock producer on the consuming end of corn and soybean meal, and that high price is a high cost, and instead of piling up profits you are loading up losses. Fortunately, domestic and foreign consumers are still creating strong demand for beef and pork, but the high numbers of animals heading to slaughter and the high cost of production have changed the bottom line color from black to red. So, what are the prospects for reversing that trend?
USDA last week released its latest Livestock, Dairy, and Poultry Outlook and Feed Outlook. They indicate livestock numbers are increasing which will decrease prices and grain fundamentals are pointing to higher prices; neither of which is friendly to a livestock producer.
Pork market. Farrowings, pig crops, and litter rates were all projected upwards in the December Hogs and Pigs report which pointed to continued production increases in 2008, along with lower prices and financial losses for producers. The December report adjusted the June 2007 reports to add 1.1 million head that were previously unreported and another 941,000 to the September report, and those adjustments added to the 9.5% increase in fourth quarter production. USDA economists say the farrowing intentions now for 2008 will raise production by 3.7% over 2007. Resulting market prices are forecast to be 9% below 2007 with lean hog prices ranging $41 to $44 per cwt. With the help of an Iowa State calculation http://www.econ.iastate.edu/faculty/lawrence/EstRet/FA/FA07.pdf USDA says slaughter hogs marketed in December probably lost $25.28 per head. One bright light was the pork export market, which was 4% above equivalent 2006 figures for the first 11 months of 2007, and the currency exchange rate may boost 2008 exports by 17% above 2007.
Beef market. Unlike pork production which is increasing, beef production is decreasing, but the anomaly of drought-impacted range has resulted in higher numbers of beef cattle being marketed ahead of schedule. Additionally, high rates of beef cows and dairy cows are being slaughtered because of high prices of forage. Feedlot placements have also increased because of the lack of winter pasture and producers not wanting to graze wheat in an effort to protect that high-valued crop. The high rate of placements will mean earlier marketing than usual. Livestock economists believe the winter timing of the feedlot placements will mean lower grading and reduced export demand because of poor performance and body condition. Consumer beef demand may also weaken because of the declining domestic economy and plentiful supplies of pork and poultry.
Dairy market. Dairy product prices have been less than stellar from the vantage of the producer: cheese prices have been strong but volatile, butter prices have fallen, and nonfat dry milk exports have fallen 13% and stocks are up 227%. The softening of product prices points to lower milk prices substantially below 2007 values.
Poultry market. In the fourth quarter of 2007 egg set was up 3.7% and chick placement was up 4% over 2006 pointing to higher broiler meat production. Both slaughter rates and meat production are up, as well as frozen stocks. The increased production has translated into lower broiler prices. In the turkey market, USDA economists forecast first quarter 2008 prices above 2007, but then falling 5% below last year for the balance of 2008 because of increased production of both birds and meat.
Feed market. Feed grain supplies are up 16% from 2006/2007, but multiple sources of demand have pushed prices above year ago levels. For the Sept. to Aug. grain marketing year, feed use per grain consuming animal unit is 1.71 tons, but less than the 1.82 ton level in 2005/2006 when prices were lower and DDGS were less plentiful. Feed needs are expected to be strong throughout 2008 and will surpass 2007.
1) 2007 corn production was a record and the surplus will be nearly 1.5 bil. bu. USDA recently raised expected feed use by 300 mil. bu. because of more livestock, but estimates for ethanol production were not raised. A strong export demand is also present, helping push estimated cash prices higher into a $3.70 to $4.30 range for the year.
2) Sorghum yield and production declined in 2007 leading to lower supplies and ending stocks. Both feed and export demand will increase, pushing prices 40¢ higher to a range of $3.60 to $4.20 per bushel
3) Barley and oat supplies remain unchanged, but smaller stocks will mean smaller use. The competing demand from the brewing industry is expected to decline from the slowing economy, but barley price forecasts are up 10¢ to a range of $3.80 to $4.40 per bushel, compared to a season average of $2.85 last year, and oat prices are forecast up 10¢ to a range of $2.20 to $2.80, compared to $1.87 last year.
4) Hay stocks are up 8% compared to last year and disappearance is down compared to last year as well. Yields and acreage were both up in 2007 compared to 2006. Alfalfa and corn silage production were both up in 2007. So far in the hay marketing year, alfalfa hay has averaged $26 per ton above year earlier prices.
Summary:
The outlook for production and cost in the US livestock industry could nearly be the “perfect storm.” Pork production continues to rise, beef cattle are being forced to the market earlier than would be expected, and poultry production remains high with more anticipated. At the same time, high feed costs have continued to increase further because of demand from competing purchasers. While feed supplies will be restocked next fall, demand will remain high, but reduced livestock production is not foreseen in calendar 2008.
Posted by Stu Ellis at 12:16 AM | Comments (0) | Permalink
January 18, 2008
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.
$5-plus corn and going strong. Extension’s Darrel Good says strong crude oil prices are bullish for ethanol; expanding hog numbers are bullish for feed demand; a weak US dollar is bullish for export trade; and declining stocks indicate usage was 9% larger than 2007. But he says watch for developments that might suggest waning fundamentals.
$12-plus soybeans and going strong. Darrel Good says ending stocks next August will be a meager 175 mil. bu. complicated by a small So. American crop. One caution flag is the dramatic slowing of soy oil use for biodiesel production, says Good, which apparently hints at rationing from high soybean oil prices; but use will be 1 bil. lbs. over 2007.
Large crops will be needed in 2008 says Darrel Good, and the market cannot allow any sharp decline in acreage for any commodity. But he says growing season weather cannot be over emphasized, since a legitimate threat to average yields could send prices higher. Read his newsletter.
USDA will make its acreage estimate at the end of March. However, the market is anticipating 87 mil. planted acres of corn, compared to the 93.6 mil. in 2007. For soybeans, the market is expecting 70.8 mil. acres, compared to the 63.7 mil. in 2007. For wheat, the market has estimated 64.4 mil. acres, compared to the 60.4 mil. in 2007.
Adjust your marketing plan when making crop marketing decisions says Mike Woolverton at Kansas State. Factors include: domestic and global supply and demand balances, Southern Hemisphere crop harvests, the battle for acres, Great Plains wheat growing conditions, and profit margins of commodity buyers such as livestock feeders and ethanol producers. He says high prices choke off demand and stimulate competition.
"The energy bill signed into law will have greater impact on farm commodity prices than any farm bill being considered," says MO economist Pat Westhoff at FAPRI. “Mandates to use set levels of biofuels increase demand for corn and vegetable oil and affect market-driven prices more than current or proposed farm bills.” FAPRI analyzed the energy legislation, which could raise ethanol production 24% and bio-diesel 89%.
In one scenario by the MO food policy researchers, feed costs increased by an average of $750 million per year because of the energy bill, economist Westhoff said. "However, in another scenario the net change in feed costs was very small. The results depend on many factors, including how large the increases are in ethanol and biodiesel production." The report is available on the MU FAPRI Web site.
Fertilizer supplies are tight, and Kansas State agronomist Dale Leikam says it is currently difficult to buy nitrogen for either wheat or spring row crops, regardless of the posted price. He says the tight supply applies to UAN, urea, and anhydrous ammonia. He urges producers to keep in contact with suppliers or it may not be available.
Over 50% of nitrogen used in the US is imported and the amount increases annually says Kansas State’s Leikam. US facilities are closing for a variety of environmental and economic reasons, global demand is increasing, and more fertilizers are being imported from natural gas suppliers in the Middle East, South America, and former Soviet Union.
Nitrogen application rates need your attention, says Purdue agronomist Bob Nielsen. "We've found the nitrogen rate needed for maximum yield (or agronomic optimum) for corn following soybean rotation is about 173 pounds of nitrogen per acre, but if nitrogen costs 60 cents per pound and the grain price for corn is $4, then the economic optimum rate drops to only 147 pounds of nitrogen per acre," Nielsen said. "For corn following corn, agronomic and economic optimum nitrogen rates are about 30 pounds more.” Read his N summary.
Reliance on manure can be a good fertility option if managed, says Ohio State’s Jon Rausch. He says, “Swine manure applied as a sidedress to corn and injected into the soil could potentially generate nutrient value (nitrogen, potassium, phosphorus) of up to $136 per acre. By contrast, swine manure applied on the soil surface only results in a value of about $80 per acre due to nitrogen losses.” He says manure is an alternative to N at 60¢.
Low market prices in 2006, high costs in 2007, and significant red ink in 2008 have been challenging to pork producers. IL economist Dale Lattz reviewed hundreds of pork farm records and says the 2007 combination of high feed prices and low market prices indicates that producers will have operated at near breakeven levels for the past year. Read more.
It takes 15-16 months of red ink for pork producers to begin reducing production, say MO livestock economists Glenn Grimes and Ron Plain. And the losses began in October according to Iowa State data. Grimes and Plain say, “If producers respond as quickly to losses as they have in the past, pork production will likely drop below year earlier levels in the first quarter of 2009.” Read more.
Grimes and Plain say hog producers currently have a good financial foundation. Hog production has been profitable for a record high of 35 consecutive months, ending in December 2006. If you eliminate the 60¢ per head loss last January, and add in the next 9 months, hogs have been profitable for 43 out of the past 44 consecutive months.
Because of dry weather in the southeastern US during 2007, the cattle herd on Jan. 1 is expected to be down a little from a year earlier, say Glenn Grimes and Ron Plain at MO Extension. They point to a 6.3% increase in cow slaughter for the first 51 weeks of 2007.
Demand growth for fed cattle through 2007 was up 3.5% through November and beef demand at the consumer level was up 0.9%. If demand growth for both live fed cattle and beef can be continued through 2008, fed prices will probably equal or exceed the 2007 price. But Grimes and Plain say their ability to predict demand action is very low.
Are you planting more corn or more soybean acres, or do you know yet. Work out a crop budget on a spreadsheet or notebook paper. If using the latter, follow the idea of SD Extension specialist Burton Pflueger, “The typical partial budget usually consists of a seven-point plan. The seven components are additional costs, reduced returns, reduced costs, additional returns, totals of the first two and the second two, and a net difference.”
The optimum soybean population is about 125,000 plants per acre to maximize yield says IL agronomist Eric Adee whose 10 years of research at several locations tested populations from 31 to 235,000, with yields of 35 to 78 bu. He says 125,000 population gave the highest yields, and with 90% survival the optimum number of plants varied from 100 to 109,000. Adee says soybeans are able to flex with conditions they encounter. Read his report.
If you have wheat or alfalfa, you’ll prefer snow over ice. An ice blanket locks out exchange of oxygen and carbon dioxide, and causes tissue decline. Mechanical ice removal with a disk or chemical ice removal with fertilizer is not enough to help save an alfalfa crop. Snow cover insulates plants, but persistent protection can stress them.
Snow mold on wheat results from fungi living in the soil and taking advantage of a snow blanket to coat the wheat plants with a slimy fungal growth. The plant will die if the crown of the wheat plant is infected, but they can recover if not substantially infected. Protect alfalfa by avoiding planting in high-risk areas, choosing hardy seed and adapted cultivars. Invite a snow blanket by planting alfalfa with alternate strips of grass.
As strong milk prices head lower, Nov. milk production in the 23 dairy states was up 3.8% from 2007. Iowa State economists say cow numbers were up 101,000, and milk per cow was up 40 lbs. They add, “Strong milk prices, even in the face of much higher feed costs, have encouraged dairy producers to keep cows and build herd numbers.”
Does your farm have an operator transition in its future? If so, a series of fact sheets from Ohio State Extension should come in handy. Issues include asset transfer, timetables, future generations, plans for retirement and estates, goals and objectives, and conducting family meetings. Get the fact sheets.
Grandpa burned corn for heat when it was 10¢ per bushel, but would you burn $4.50 corn? That depends on the price of alternate fuels. IL Extension Specialist Bob Frazee says when comparing the heat produced per mil. BTU from various energy sources, corn at $4.50/bushel would provide a considerably cheaper source of heat than propane, fuel oil, and electricity, but would be slightly more than the cost of natural gas. Review a new MN Extension fact sheet.
Posted by Stu Ellis at 12:39 AM | Comments (0) | Permalink
January 17, 2008
Weed Control May Be A Bit Easier This Year.
You have bumped up your marketing plan. You have stepped up your seed selection. You have climbed up with a new planter. So it is time to go the next step with new weed control program with some of the 2008 chemistry that will be available in the Cornbelt. Grab a pencil to make some notes on weed control programs to discuss with your supplier.
The Extension weed specialists have been busy evaluating a host of new products and thanks to the staff at Purdue and their weed science update, we have some ideas that might solve some of your problem weed spots this spring.
A new burndown product for either corn or bean fields is Rage D-Tech from FMC, which is a premix of Aim and 2,4-D that has activity on broadleaves such as lambsquarters, marestail and ragweed.
A new product for weed control in corn is Halex GT that is a mix of glyphosate, Dual magnum, and Callisto. Syngenta is marketing it for an early post emergent production for glyphosate resistant corn that will have some residual control for grasses and broadleaves. It will control 2-4 inch weeds, or larger ones with a blend of atrazine.
Laudis is a new corn herbicide from Bayer CropSciences to be used in either Roundup or Liberty Link systems, and works on weeds similar to Callisto, but has more activity on grasses. It can be tank mixed with atrazine, Liberty or glyphosate and Purdue says it has fair activity on grasses, and excellent activity on broadleaves, such as giant ragweed, lambsquarters and velvetleaf; particularly when under 6 inches.
Resolve from DuPont is a tank mix partner with glyphosate for Roundup Ready corn, and can provide some residual control. It comes in several forms and can be used preplant or postemerge to corn up to 12 inches tall. Controlled grasses include barnyard grass and foxtail, as well as broadleaves such as henbit, chickweed, and shepherds purse.
Require is another DuPont premix containing dicamba, and is a postemergent herbicide for use in a Roundup Ready system for corn needing residual weed control.
Select Max from Valent was developed to help with glyphosate tolerant corn, where replanting was necessary, but herbicides had more than a 30 day interval requirement. Select Max can be applied 7 days before replanting damaged corn.
For your soybeans, FMC’s Authority MTZ and Authority Assist provide good to excellent pre-emergent help with pigweed, lambsquarters, smartweeds, morning glory and black nightshade. MTZ is a premix of Authority and Sencor to help with ragweed control. Assist is a premix of Authority and Pursuit to help with giant foxtail and shattercane.
Canopy EX from DuPont is a premix of Classic and Express and was designed for fall applications prior to soybean planting, but now can be applied up to 7 days prior. It provides burndown on annual bluegrass, chickweed, henbit and other winter annuals. Add 2,4-D to help with wild garlic, lambsquarters, and marestail.
Envive from DuPont is a premix of Valor, Classic, and Harmony GT for burndown use with residual control prior to soybean planting. It controls nightshade, lambsquarters, pigweeds, emerging marestail, ragweed, and waterhemp, as well as suppression of some grasses like foxtail.
Prefix from Syngenta combines Dual II magnum and Reflex and provides early season grass control, as well as ragweed, jimsonweed, pigweed, marestail and waterhemp. One of its ingredients is sensitive to the amount of organic matter, and rates of application may vary from farm to farm.
Summary:
Chemical companies have been busy working to blend popular and successful herbicides to better help farmers control difficult weeds, and be more applicable to areas where specific weed problems exist. Once you create a list of your weed problems, there possibly will be a new chemical that is tailored for your operation’s rotation and weed control needs. Questions can be addressed to university weed specialists through your local Extension offices.
Posted by Stu Ellis at 12:24 AM | Comments (0) | Permalink
January 16, 2008
Take A Guess: What Is The Relationship Between Ethanol Production And Fertilizer Use?
The secret is out. The jig is up. You have been using more fertilizer to produce corn since the ethanol industry’s growth as a dominant market force in the Cornbelt. Now we know where all of that fertilizer has been going. You have been growing more acres and more corn on those acres to take advantage of the corn prices. But the bottom line is that all of the fertilizer you have applied may not have been used up.
Other than land cost, the biggest expense you’ll have this spring in producing a corn crop will be the cost of nitrogen; and the added cost of potash and phosphate will be on top of that. We won’t get into the nitty gritty of crop budgets, but look at the relationship in the growth of fertilizer use and the growth of ethanol production in the Cornbelt. USDA economists have linked the two trends in Assessing Economic and Environmental Impacts of Ethanol Production on Fertilizer Use in Corn Production.
The Economic Research Service team found that in 2005 and 2006 88 pounds of excess nitrogen and 33 pounds of excess phosphorus per acre were applied in the Cornbelt compared to the 1996 and 1997 excess rate of 39 pounds of nitrogen and 21 pounds of phosphorus per acre. Their statistics were based on actual content of fertilizer use and not tons of various forms of fertilizer. They found that farmers spend 60% more on fertilizer in 2006 than in 1989. (Of course, unit prices rose considerably during that time.) The researchers also noted wide variations in practices within states, such as the 32% increased use of fertilizer on Texas cotton ground, versus the 86% rise in fertilizer use on California cotton. Within the Cornbelt fertilizer use has been stable in Iowa and Minnesota, but varies in Kansas and Nebraska.
During the same period, ethanol production grew substantially, fostered by rising federal targets for production and use. Most of the ethanol is produced in the Cornbelt, in proximity to the primary feedstock of corn, observe the economists. They singled out Illinois and Iowa saying increased use and prices of fertilizer were apparent, compared to adjusted prices that were flat for the balance of the Cornbelt. However, they reported increased fertilizer application rates in the Central and Eastern Cornbelt, at the same time as increases in ethanol production were noted. And that region was putting on fertilizer at a rate that was triple the acceleration compared to the Cornbelt as a whole, and at a rate that was twice the acceleration of just the Western Cornbelt.
In general, their survey of fertilizer prices and use suggested a continuous increase in the influence on fertilizer prices of nitrogen and potassium, which they say indicates more being applied with greater effectiveness. As an aside the researchers say Iowa farmers had better fertilizer management practices than their counterparts in South Dakota. Farmers in the Western Cornbelt were seen to have been shifting to more corn production from other crops, but applying increased amounts of fertilizer as they did so.
The economists note that the USDA predicts 30% of the corn crop will be refined into ethanol in the 2009-2010 market year, and expanded acres means more fertilizer use with a likely greater introduction of more nutrients into the environment, due to excess application.
Summary:
Increased chances to produce and sell corn to the ethanol market have pushed farmers to apply increased amounts of fertilizer, to boost production. At the same time ethanol production is going up, so is the use of fertilizer in the Cornbelt. With increased use comes the chance that increasingly larger amounts will not be used by corn plants and will become excess nutrients that enter the environment..
Posted by Stu Ellis at 12:26 AM | Comments (2) | Permalink
January 15, 2008
Do You Prefer The House Or Senate Farm Bill; Or Do You Know The Difference?
A handful of Congressmen and Senators soon will meet to iron out differences between the House and Senate versions of the Farm Bill. The House proposal is about 500 pages but the Senate plan is 1,600 pages, so wide differences of opinion about farm policy are obvious. Most Cornbelt farmers will be impacted by the commodity programs, and there again the differences are wide. Do you know which is best for your farm, and have you made that call to lobby for one or another?
The choices that the Congressional Conference Committee has are the Average Crop Revenue (ACR) variable payment program that came from the Senate and the House proposal for a Revenue Counter-Cyclical Program (RCCP). You will be dealing with one or the other for the next five years, so an understanding of the two is necessary for you to make an educated call to your Congressman and Senators.
Ohio State ag economist Carl Zulauf compared the two choices and says they are very different revenue programs:
1) ACR addresses the systemic risk that state revenue at harvest is below state revenue expected at planting. Its revenue target changes with prices, which allows ACR to provide assistance if prices decline from their current high levels. The ACR program uses a 3-year moving average of pre-planting revenue insurance prices along with a trend line yield to determine revenue expected at planting. The ACR revenue target is 90% of that value. Thus the revenue target goes up and down as prices fluctuate.
2) RCCP addresses the systemic risk that U.S. revenue is low. Its revenue target is fixed. Because low price and revenue frequently coincide at the national level, RCCP overlaps considerably with the price counter-cyclical program. The RCCP program will have a fixed revenue target in the Farm Bill that reflects the political consensus of what constitutes low revenue.
So, what is the risk? In the past 14 planting seasons, one year out of five saw the revenue per acre for the major commodities decline by at least 10% between planting and harvest. That is on a national scale. On a state scale, those declines could be larger for a state because yield declines could be larger for a given state than for the national average.
But would crop insurance not manage that risk? The revenue declines were less than 25% in the prior example, so a crop insurance policy with 75% coverage would not have been triggered. Since there is always the chance at revenue decline, to at least the 80% or 85% coverage level, few policies are purchased that would be triggered because of the higher premium rates.
The current economic environment is high prices and high production costs. Economist Zulauf says commodity prices are 65% above the targets set by the House in its RCCP program and an October calculation put production costs 26% above their 5 year average. His point is that with high costs and the uncertainty over prices there will likely be financial stress on the farm before the RCCP target is reached. Comparatively, Zulauf says the ACR program gives more timely assistance since formulas are based on yields and revenues on a more local level.
The RCCP program can be closely compared to the counter-cyclical price program implemented by the 2002 Farm Bill. Although the RCCP program is revenue instead of just price like the CCP program, Zulauf says it would provide only $4 more per acre in payments because the national scope of the calculation.
The impact on markets is more with the RCCP program than the ACR program according to Zulauf, because the RCCP program establishes a floor revenue, and the ACR program adjusts downward, based on a 3-year moving average if prices fall, and conversely if prices rise.
During the Senate preparation for the Farm Bill, considerable effort was made to create a permanent disaster program, which the Senate calls the Crop Disaster Assistance (CDA) program. It covers crop revenue loss not covered by the crop insurance deductible if a farm is in a federal disaster declaration. The fewer the crops produced the greater the chance a farm will benefit. The CDA payment is made with a low yield and a county-based disaster declaration, but an ACR payment is made on revenue, based on total state averages. However, theoretically, both programs could make a payment on the same loss.
Summary:
Congressional conferees reconciling differences in the House and Senate versions of the Farm Bill will be challenged to merge the House Revenue Counter Cyclical Payment program that establishes national target prices and the Senate Average Crop Revenue program which calculates a safety net payment based on state yield and price trends. The ACR program is also supplemented by the Senate’s permanent disaster aid program that covers a crop insurance deductible and other non insured crops when a disaster declaration is made.
Posted by Stu Ellis at 12:09 AM | Comments (0) | Permalink
January 14, 2008
The Farm Bill And WTO Agreement: Will There Ever Be A Checkered Flag In This Race?
While much of the world halted its business for the Christmas and New Year holidays, waiting patiently on hold were the new US Farm Bill and the long-negotiated World Trade Organization’s new agreement. If you have slept since you last pondered those agricultural policy issues, let’s get up to speed on what is lying in wait for your attention.
It is widely know in the world of agriculture that the 2002 Farm Bill expired last September and its replacement is still being considered in Congress. Within the next few days members of a Conference Committee will reconcile the House and Senate versions, but over-riding issues will include its impact on the federal budget and how it will be accepted internationally as slow progress is made toward a world trade agreement. That analysis is offered by agricultural economists Bashir Qasmi and Evert Van der Sluis of South Dakota State University.
They point out that the World Trade Organization does not have a deadline for reaching agreement, and the Farm Bill negotiators really don’t have a deadline until the harvest of crops next fall, when 1920’s style parity price supports would go into effect. Reflecting back to the 1996 Farm Bill, the economists say it tried to comply with international trade agreements that were designed to reduce export subsidies, price supports, and implement policies that were less trade distorting. However, as commodity prices fell, its safety net soon gave way to record high levels of financial assistance that were closely tied to production and accused of promoting production to the point of lowering world prices.
Subsequently, the 2002 Farm Bill increased financial assistance distributed to farmers and added more programs that were seen as promoting production and lowering prices. Within the current farm policy debate are budgetary considerations that indicate the Farm Bill proposals are not sustainable over time and growing demands for social programs will soon eliminate some farm program elements.
On a parallel track, but beginning several years ago, the world’s trading nations have been attempting to enhance trade that is widely recognized as fair. To achieve their goals, there have been efforts in several directions:
1) Market Access discussions are directed at reducing tariffs that are applied to goods entering a nation and currently average 51% around the world and can be as high as 300% on a given product.
2) Domestic Support for farmers vary around the world and may include social payments, or government supported research, and such things as federally subsidized crop insurance in the US. Assistance has declined recently as higher commodity prices have prevailed.
3) Export Subsidies have been widely used to eliminate burdensome supplies that reduce market prices, but also include food aid donations to needy countries. There have been some suggestions to totally eliminate all such programs.
4) Special Treatments are a package of considerations for developing countries that would allow them to engage in some level of trade protection for the benefit of their citizens and farm economies.
5) Non-Trade Concerns try to reconcile differences in environmental regulations, rural development, labor standards and food security.
The current discussions on world trade appear to the economists to be stalled in the differences between developed and developing nations. In particular, the US sees a substantial negative impact on land values should farm programs be dissolved. The developing world does not want to give up its mechanisms to protect its farmers. As a result:
1) A weak agreement would erode the effectiveness of the World Trade Organization and more trade barriers would be created.
2) The lack of a world agreement would give Asian and Pacific nations the incentive to create their own protective trade alliance.
3) The lack of a world agreement would spur a multitude of bi-lateral agreements around the world and undermine the WTO.
The researchers believe that the lack of progress toward an international agreement will give the Congress the incentive to include trade programs in the new Farm Bill that will not be internationally acceptable. They look at the current high market prices and lack of need for federal price support programs and see the opportunity for more liberal trade policies. But they say any decline in commodity prices will close that door, particularly with a continued increase in energy prices and land values.
Summary:
Concurrent deliberations on US farm policy and world trading rules have seen little effort at being integrated, particularly in the area of reducing farm price support programs. Even while commodity prices are high and price supports unneeded, Congress has taken little interest in reconciling US farm program and trade policy with US trading partners. The international trade discussions have been painfully slow and if unsuccessful, the WTO would be weakened by independent trade agreements, and by US policy that may retain certain provisions to protect agriculture from higher energy prices and land values.
Posted by Stu Ellis at 12:19 AM | Comments (0) | Permalink
January 11, 2008
Extension Update
Extension Update is a weekly summary of news from Extension, government, and other attributable sources, focused on marketing, farm management, and other issues that are of interest to Midwestern farm owners and operators.
USDA’s Final 2007 Crop Report put corn production at 13.074 bil. bu., a 1% drop from Nov. The average yield was estimated at 151.1 bu.. USDA estimated the carryout at 1.438 bil. well below the trade estimate, helped by a 300 mil. bu. increase in feed usage. The season average cash price was raised 35¢ to a range of $3.70 to $4.30.
The final USDA soybean estimate was 2.585 bil. bu., compared to 2.594 bil. bu. in Nov. USDA estimated the average yield was 41.2 bu., down 0.1 from Nov. USDA dropped carryout estimates to 175 mil. bu. and raised the season average price to $9.90 to $10.90.
The USDA Quarterly Stocks Report estimated corn at 10.268 bil., under the market guess of 10.584 bil. Soybean stocks were estimated at 2.329 bil. bu. less than the 2.265 bil. estimated by the market. Wheat stocks were pegged at 1.128 bil. bu.
USDA’s Winter Wheat Seedings report estimated total acreage up 4% from last year to 46.6 mil. However only 44% is in good to excellent condition, which is a drop from 56% at this time last year. Soft red wheat acres are up 21% due to strong prices in SRW areas.
Commodity shortages and heavy global demand for ag products are pushing up prices, but Purdue economist Mike Boehlje says that will not mean more money in farmer pockets. He says domestic demand is growing because of biofuels, and foreign demand is growing because of the weaker dollar and burgeoning economies in China and India. But he says higher cash rent and production prices will preclude additional farm profits.
“We became confident that La Nina would exist in 2008 when atmospheric pressure statistics reached threshold levels on December 25, 2007,” says Iowa State meteorologist Elwynn Taylor, who says it began October 21, 2007. The US weather pattern typical of a La Nina (moist in the Ohio River Valley, dry in the High Plains, and extreme Midwest temperatures) was apparent by the end of November. The last El Nino ended in October 2006, the La Nina began one year later, and La Nina patterns typically exist for 6-9 mos.
As you prepare marketing and risk management plans for your 2008 crops, monitoring the depth or shallowness of the La Nina may become important to you. Monitor the maps.
“As you were” on that order by the Dept. of Homeland Security requiring farmers to register their stored amounts of ammonium nitrate fertilizer, anhydrous ammonia, propane, biogas and certain other chemicals. The requirement has been postponed indefinitely, so disregard the Jan. 22 deadline; but beware of a future mandate to register.
1998 will be replaced by 2008 as the worst financial year for pork producers in modern history says Purdue economist Chris Hurt. A combination of too many hogs and high feed prices may result in a $25 per head loss on average for the year. Hurt says 2008 cost prospects are over $55 per head, compared to the 10 year average under $41 per head.
Livestock economist Chris Hurt says pork producers will have to go into survival mode for the year, until a spring 2009 recovery. He urges retailers to lower their pork prices to move the product, assured that wholesale pork prices will remain low for months to come. He says producers should cut market weights and analyze their feed efficiency. Read more.
The global market may demand US commodities without GMO content, but USDA cannot meet that guarantee says IL Extension Ag Law Specialist Bryan Endres. He says USDA lost the Roundup alfalfa lawsuit because it was unable to show other producers would not be impacted. USDA’s policy of “Low Level Presence” is a permissive strategy says Endres, and he adds that the industry has a self policing policy of securing international markets for a biotech product before public release, but it has not happened.
If tax preparation is on your agenda, IL Extension tax specialist Gary Hoff says don’t get caught in the 2 person trap. He says the IRS is looking at farms where the husband and wife are collecting government payments as two persons; and checking to see if each of them are paying self-employment tax. He gives several examples in his newsletter.
The cost of forage production is tied into the cost of harvesting equipment and the labor needed to deliver forage. Consequently, Purdue forage specialist Dennis Buckmaster says match the equipment’s capacity with your operation. He says select a set of machinery, not individual implements, within the particular size range for your farm.
Your Dad didn’t have a waterhemp problem, but you do. Extension weed specialists have produced a new tell-all waterhemp booklet that explains why the problem is yours. Obtain the publication.
1) Increased use of no-till and reduced tillage favors spread of waterhemp. Small seed remains at soil surface and reduced cultivation favors many late-emerging plants.
2) 30 years ago farmers relied on soil applied herbicides with long residual activity; but wide use of ALS-inhibiting herbicides allowed survival of ALS-resistant waterhemp.
Say goodbye to 7% iodine. It has been used for years to treat livestock wounds and a few human cuts, but its popularity among the methamphetamine users has caused law enforcement agencies to re-classify the antiseptic as a substance controlled by the DEA.
Posted by Stu Ellis at 12:56 AM | Comments (0) | Permalink
January 10, 2008
If Your Farm Account Is Insufficient, How Do You Pay For A New Purchase?
When the neighboring 80 acres comes up for sale this winter, will you bid on it with fund originating from your farming operation; or will you use non-farm investments and income? Even though exploding crop prices may be sufficient to allow higher land costs to cash flow, the basis for your expansion may not be pure growth from the farm.
Whether it is land, or building a new building or buying a new combine, your investment in agricultural assets may be dependent upon the depth of your off-farm resources. That could be some stock dividends or it could be salary earned by your spouse. The theory belongs to agricultural economists Valentina Hartarska and Chi Mai at Auburn University, who say, “This suggests that perhaps farm households use off-farm income to support farming.”
Other farm economists have already determined that off-farm income is used to manage financial risk, and farm family income is higher than non-farm families, even with less consumption for farm families compared to non-farm. The Auburn economists believe that farmers use off-farm income for agricultural investments, and it alleviates financial constraints for smaller farms constrained by credit. They also researched whether the trend is more or less pronounced above and below $250,000 in sales.
Their research, which focused on Alabama farms, is consistent with USDA research that the non-farm rural economy has grown in importance as more farmers are increasingly dependent on non-farm revenue. They contend that for most farms, non-farm income is more important than the financial well-being of the farm, and increases in off-farm income were more than sufficient to compensate for declines in farm income. “Size remains an important factor in access to credit for family farms and smaller farms use off-farm income to remain in farming.”
Studying more than 1,000 farms, the economists say farm income is significant for the farms in question, but farm households used a larger percentage of their non-farm cash to invest in the farm business. “The finding shows that the more income a farm household earns from off-farm source the more likely it is to invest in the farm business.”
Summary:
While the final decision belongs to the farm operator, assets used on the farm may be more likely purchased with money from non-farm sources than for money that originated on the farm. This is in contrast with other businesses. Also, farm investment in small, more financially constrained farms is more sensitive to the availability of internal finance.
Posted by Stu Ellis at 12:38 AM | Comments (0) | Permalink
January 9, 2008
Consider A New Method For Grain Marketing
Either your hair is turning gray or falling out, or you have absolutely no involvement in grain marketing. The stress of marketing stems, not only from the volatility in the market, but the unpredictable wide range of prices for corn and soybeans. Since you are trying to market the old crop, write a marketing plan for the new crop, and you say to yourself, “There must be a better way.”
Well, yes, there is and the farm gate has the insight on how to make corn and soybean pricing decisions. Agricultural economists Darrel Good and Scott Irwin at the University of Illinois have published a new Marketing and Outlook Brief. They commiserate with you because in the past 25 years the daily spot corn price ranged from $1.22 to $5.25, and for beans the range was $3.87 to $10.40. Additionally, the unpredictability of prices has worsened, and just in the first 4 months of the current marketing year, the daily spot cash price for corn and beans in Central Illinois varied by $1.30 and $3.70, respectively. How can you create a logical marketing plan under those circumstances? It may be something other than….
The traditional approach. The use of fundamentals and technical analysis tools has long been used to forecast prices. But that process may have failed you because it has a narrow focus on timing of sales. That depends on whether you have information unavailable to the rest of the market, which you probably don’t. A second failure factor is a lack of strategies based on skills, characteristics, and beliefs of individual producers.
Good and Irwin introduce farmers to a new approach to grain marketing, based on a pricing matrix which considers more strategies than traditionally:
1) Selection of a timing window. Planting plans begin after harvest of the prior crop and extend to the storage season for that crop which ends in the late summer after the crop is harvested, and that gives a 20-24 month window. Their marketing research indicates the optimal pricing period runs from April before harvest to May after harvest.
2) Relevant pricing strategies. Instead of booking a forward contract at a given time, or any other marketing tool for that matter, the economists suggest defining your approach to pricing. This can be one of four choices that include the traditional marketing process; a pre-determined timing and volume process; and such external choices where someone else makes the pricing decisions or implementing a pricing plan outlined by a marketing advisor.
3) Allocate portions of the crop to be marketed each way. Grain marketers would decide how much of the crop would be distributed among the four methods. Such decisions are based on i) view on market efficiency; ii) risk preference, iii) financial position; iv) pricing skill, and v) decision-making discipline. These will help define the personality of the marketer, and whether the marketing can make decisions himself, or have the marketing process managed by a professional. Among the four choices previously listed various weights can be assigned to reflect the personality of the marketer.
4) Evaluate the performance. Compute a net price for each of the four choices, comparing them with each other and from year to year.
Summary:
Orderly marketing of grain can be upset by price volatility as well as the unpredictability of the market. Instead of using typical marketing tools to sell grain anywhere from 12 months before harvest to 12 months after harvest, consider changing one’s approach to marketing that will more closely related to one’s personality. Steps in doing that will include a narrower timing window, using a blend of price strategies that are composed of internal and external decision making, varying that blend to more closely reflect one’s comfort with marketing, then followed by an evaluation that compares net prices received.
Posted by Stu Ellis at 12:24 AM | Comments (0) | Permalink
January 8, 2008
If You Won't Be Farming In The Future, Here's What You'll Be Missing:
You are farming in a much different way than Dad and Grandpa. And your son and grandson will farm in a much different way than you are. Agriculture is a work in progress and always will be. But what can we expect in the future, so we can be better prepared? (You might share these thoughts with the next generation.)
Purdue economists Michael Boehlje and Bruce Erickson look at Farming in the 21st Century and say new management strategies and new business models will be required. Among the drivers of structural change, they include technology, human capital, financial structure, the business climate, the family life cycle, and the market’s value chain.
Boehlje and Erickson believe that farm operation will be more important than actual farm ownership. As operators grow older, 2-3% of farmland ownership changes annually, but the amount of farmland available to an operator is 4-5% annually. The more aggressive operators who are successful at establishing a relationship with owners will have more opportunity.
Technology has mitigated time constraints say the economists, who cite an example of being able to put in a crop during a narrow planting window: “If planting 2000 acres in Illinois starting April 1 using a 24-row planter and working 12 hour days, there is about a 70% chance of finishing planting by May 1. If auto-guidance allows 16 hours per day and improves efficiency 5%, chances improve to 85%. With one 36-row planter and guidance, the chances of completion by May 1 exceed 90%.” Fewer human resources will be needed as a result of advancing technology, whether it is weed control, data collection, or employee management.
New business models will be created to help farm managers also address timeliness constraints, such as organizing operations in different geographical areas to take advantage of the weather, or to overcome logistical issues of machinery transportation. Those models may include machinery rental, custom farming, or even 24 hour per day operation with precision farming methods that lower equipment costs per acre.
Growth strategies will also be different from the familiar purchase of 80 acres here or renting another 160 acres there. The economists foresee growth of one operation to include taking over the farm operation from a soon-to-retire farmer. That may include retaining the individual along with all of his equipment and the land that he not only owns, but rents as well. Essentially, the process would be acquisition of a business rather than acquisition of assets.
Traditionally, the farm business has supplied its own labor, capital, and management, but future operations may not be a bundled package. Labor and management may be as diverse as any manufacturing business with skilled experts on the payroll. Capital may come from investors well outside the operation or even beyond traditional sources.
Boehlje and Erickson also create a new management model for farmers that is parallel to the corporate world. They include more management from an office than a tractor seat; teamwork instead of hired labor; executive mentality instead of operational orientation; and leadership with management systems.
As livestock systems have become more vertically integrated over the past two decades, the Purdue economists believe that crop production may move in a similar pattern, with larger size operations that will require new capital resources, equipment management, and new solutions to operational management challenges.
Summary:
Tomorrow’s farmers will have a completely different farming operation than where they were raised, and management challenges will require a new set of solutions. Business models will focus more on business management than asset acquisition, and utilize skilled experts that may not be members of the family. Capital needs may come from investors other than the commercial lending resources known today. A new management style will be required that will be more executive than mechanic.
Posted by Stu Ellis at 12:40 AM | Comments (0) | Permalink
January 7, 2008
$5 Corn, $15 Beans, But When Do You Sell?
Is your marketing plan handy atop your desk? Is it buried below stacks of bills, tax forms, crop budgets, and 3 months of farm magazines? Or is your marketing plan something that is implemented by the seat of the pants when a bill has to be paid? The farm gate will not beat you over the head about having a written, and regularly updated, marketing plan, but let’s at least plug in some new target prices.
The premium prices being offered have been an excuse to not worry about a marketing plan, but if you have worked on any crop budgets for next year and noticed the potential for slim profit margins, your marketing plan might be a business priority. In the past week the all time record for soybean futures was set and corn keeps pushing higher toward its 1996 record price. A visit with Purdue’s Chris Hurt yields some celestial numbers, so let’s methodically explore the potential for achieving those prices.
Chris Hurt’s latest corn marketing newsletter shows how corn and ethanol prices are dancing with each other. He says today’s $2.10 per gallon ethanol price and the $160 per ton distillers’ grain (DDGS) price has raised the breakeven price that ethanol plants can pay for corn to $4.87. With the large number of plant start-ups in the next 6 months, an increased demand will occur with the potential to pay significant prices for corn. He says corn acreage will be a key factor because of potential tight supplies of corn. Yet this winter, Hurt says $2.20 ethanol and $170 DDGS will push the breakeven to $5.23 per bushel for corn.
Export buyers have continued to purchase $4-plus corn at a rate 31% ahead of last year, and Hurt expects total exports to exceed USDA estimates by 150 to 200 million bushels and reach a record 2.65 billion bushels.
Hurt is concerned that wheat and soybean prices will cut 5-6% out of corn acreage and supplies will be insufficient even with trend yields. That will force rationing, and the first to cut back may be the US livestock industry, which is having trouble with red ink already.
For the corn grower, his advice is:
1) Remain optimistic about prices, but periodically reward the market.
2) Cautiously approach the 2008 market.
3) If you aggressively sell the new crop, manage your production, and cover your production costs.
4) With the uncertainty of what good and bad prices are anymore, refrain from taking large steps, and keep your focus on the financial protection of your family.
Chris Hurt’s latest soybean marketing newsletter pursues his contention that $15 soybeans are a possibility, because the market has not shown any technical “topping” patterns. While he acknowledges that a top could be near, he says it could extend over a couple months and be a “wild ride.”
The Purdue economist says the soybean usage base is very large and could stand to be reduced. Contributing to the use are Chinese purchases that are 21% above last year. But China is not the only export market, and the US currency value is contributing to high foreign demand that will buy up our remaining supply of old crop beans in the next 8-10 weeks.
But with the need to ration that supply, Hurt rhetorically asks what the rationing price needs to be. With $13 futures, cash prices will move into the $12 range, and that means there is no historical guideline to follow. He says beans have been making $1.50 swings, and one would put futures at $14.50 and two swings would be $16.00, which seems like a “ridiculous” price if the 2008 crops in South America and the US are large.
With the soybean basis being unusually wide, Hurt says the demand will soon tighten supplies and the basis will narrow significantly. For the soybean producer, Hurt says:
1) Cash beans can be held a bit longer for basis improvement, possibly selling them with a hedge-to-arrive contract.
2) Plan to have old crop beans 75-80% priced by mid-March with sales on $1 intervals.
3) Since the new crop will not move as high, but will still be profitable, consider having 25-30% priced by late winter or early spring before the South American crop dampens the market.
4) If you price more than 50% of expected production, consider pricing strategies that do not commit a volume, or have crop insurance protection.
Summary:
Corn and soybean prices will be going higher, possibly above $5 for corn and $15 for soybeans. Corn demand is high from ethanol and export business, but is hurting livestock producers and rationing may soon occur. New crop sales should be made when breakeven prices are reached, and with crop insurance protection. Old crop soybean sales remain strong and rationing prices may soon be seen. The basis will soon improve but South American supplies will negatively impact the market. New crop soybean sales of more than 50% expected production should be accompanied with production risk management tools.
Posted by Stu Ellis at 12:46 AM | Comments (0) | Permalink
January 4, 2008
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.
Wheat and soybean prices have outdistanced corn in recent weeks, but Marketing Specialist Alan May at South Dakota State says farmers have real homework to do, “This represents the corn market’s desire to buy acres at a time when many are predicting that 2008 corn acres will decline due to higher fertilizer prices and a more rapidly improving soybean and wheat market. It will be important in the weeks and months ahead to legitimately evaluate the costs v. returns of a corn enterprise compared to other crops.”
If you have old crop corn to sell, Alan May says the returns to storage are substantial, with the help of the carry in the market. Using a forward contract, May says, “You will establish a floor price today for your corn and have protection against any price decline during the storage period. The drawback is that if corn prices continue to move higher, you would not be able to take part in that rally on the corn in the cash forward contract.”
If you don’t want to forward contract, May says write a marketing plan that calls for periodic sales, “You could simply set a series of target prices you would sell corn as the market moved higher and sell all or portions of your old crop corn. It would be strongly encouraged that if you are currently storing corn with no price protection, you should at least have a “back-stop” price that may be 40-60¢ or more below the current cash price.”
The soybean market does not offer such a clean profit on forward contracts, says May, “You could commit to a cash forward contract on soybeans currently in storage for delivery in the next three to four months and possibly capture a price higher than today’s current price. However, due to the high value of soybeans and the corresponding interest costs, you may not be able to cover the cost of storage over the storage period.”
Beware of the inverse market for soybeans says May, “There is an inverse value of $1.00 when you compare the November ’08 soybean futures contract with the nearby March ’08 contract. This means that new crop bean prices are a full dollar less than the spot cash bid on old crop beans. Don’t make the mistake and assume new crop values match old crop values. However, with new crop soybeans prices (offered by many elevators at profitable levels), there is no time like the present to make some sales.”
Budget an extra 30-40% for spring diesel fuel costs. That’s the projection of Kansas State economist Kevin Dhuyvetter, who analyzed futures prices for crude oil. He says March will be about 42% above 2007, April and May will be 31% higher than 2007. He says they will taper off during the year, but will not drop below 2007 futures prices. Visit his price analysis charts.
A $29 per head loss for farrow to finish operators in November was calculated by Iowa State economist John Lawrence. He says, “Losses on hogs sold in December are expected to nearly as large. Given corn and soybean meal prices predicted for 2008, cost of production for farrow-to-finish operations is projected to be near $70/cwt carcass weight or in the mid-$50/cwt live weight.” He says 2008 will be a negative return year. Read his newsletter.
Pork exports will set a record in 2007, says Lawrence and he is expecting a 10% increase in 2008. “The lower wholesale pork prices and weaker US dollar has increased the pace of exports in the fourth quarter.” Lawrence says demand remains strong:
1) 4Q production was up 9%, but wholesale prices dropped only a little more than 10%.
2) Cold storage inventory climbed only 1.6% indicating strong consumption trends.
The holidays interrupted hog marketing, says MO economist Glenn Grimes. “The record high hog slaughter for the week of Dec. 22 contributed to pulling the average live weight of barrows and gilts in Iowa-Minnesota down 0.7 lbs per head to 268.5 lbs. This weight was also 0.7 lbs per head below a year earlier. However, average weights are likely to increase for the two holiday-shortened weeks ending Jan. 5.
Grimes says hog slaughter is at capacity. “Our estimate is for total slaughter in 2008 to be near 113.5 million head. If fourth quarter slaughter is close to farrowing intentions, slaughter in the fourth quarter will be up only about 1%. This number is getting close to the level that could mean not enough slaughter capacity, but unless we lose some of today's capacity, we will likely be able to get by without much of a problem.”
A forage analysis is important when feeding livestock. IL Extension’s Jim Morrison says it indicates values for many dry matter nutrients, but first needs a good sample.
1) Acid detergent fiber calculates digestibility, and the lower the number the better.
2) Neutral detergent fiber will indicate forage intake, and again, lower numbers are better.
3) Crude protein value is 6.25 times the N content, and larger numbers are desired.
4) Dry matter is the percent that is not water, and the value should be 100%.
5) Relative feed value ranks digestibility and intake potential, the higher the better.
6) Relative forage quality parallels RFV, but includes digestible fiber.
Forage tests will only need a few grams of material from the tons you may purchase, but should be a representative sample. For sampling and evaluating forage tests, Morrison says additional information can be found at the National Forage Testing Association brochure.
Your volunteer Bt corn should be controlled, or your fields may begin incubating corn rootworms. Purdue entomologist Christian Krupke warns that volunteer Bt corn in your soybeans creates a continuous opportunity for corn rootworms to become immune to the Bt toxins. He says stronger, tougher-to-control rootworms will result, since they are feeding on maverick Bt corn plants which may not carry the intensity of the Bt toxin.
Entomologist Krupke says the rootworm adults that survive the Bt toxin are larger and lay more eggs than those susceptible to the Bt gene. If you have a rootworm concern, and have a problem controlling volunteer Bt corn, Purdue weed scientist Bill Johnson suggests the use of Assure II, Select Max, Fusion or Raptor, tank-mixed with glyphosate.
On your tax return, Purdue economist George Patrick says there is a tax liability on conservation payments. “In general, these payments are ordinary income that is subject to income and self-employment taxes. In the case of some cost-sharing payments, there may be an offsetting deduction, or some payments may qualify to be excluded from income.” Read more.
1) Conservation Stewardship Program payments are ordinary income and require SE tax.
2) Depreciation may not be eligible on practices that are funding with cost-sharing funds.
3) Cost-share payments are offset with expenditures, reducing income & SE tax liability.
4) CRP rent is ordinary income and subject to SE tax as of 12/06.
5) Payments from EQIP, WRP, CREP, are ordinary income and subject to SE tax.
With higher commodity sales income in 2007, many farmers will benefit from income averaging, that allows amended returns from the past two years to absorb some 2007 income at lower tax rates. Purdue’s Patrick says it is all still subject to the Alternative Minimum Tax. However, Congress recently adjusted the AMT upward for 1 year.
Everything you wanted to know about ethanol is compiled in a comprehensive 179 page report created by Univ. of IL ag economists available on the FarmDoc website. The report, covering economics, DDGS, and community impact, was downloaded 35,000 times in its first 3 weeks on the Internet. Get it here.
You have probably received your Ag Census form in the mail. If you are ambivalent about completing the form, USDA reminds everyone that it is a mandatory form, and farms not completing a form will be called or visited by enumerators who will collect the necessary data. It seeks information about agriculture unavailable elsewhere, and will be published in early 2009. Find out more.
Mark your calendar for a tillage seminar on Cornbelt strip-till and no-till systems 2/13 in Rock Falls, IL. Topics include: rotations, residues, auto-guidance, fertilizer placement, continuous corn management, and conservation cost-share. $15 fee and pre-registration is required by 2/6 or call 815/772-4075.
Phakopsora pachyrhizi is more commonly known as Asian Soybean Rust, and you have been preparing for its onslaught of your soybean crop since 2004. Luckily, it has not created havoc in your neighborhood. However, there is a new strain of soybean rust that has been found, called Phakopsora meibomiae, which has also been found in South America and the Caribbean on kudzu and other typical hosts. In future warnings the pachyrhizi will be known as the aggressive strain, and meibomiae as the mild strain. If you are keeping track, the first 2008 Asian rust finding was Jan. 3rd in northern Florida.
Posted by Stu Ellis at 12:13 AM | Comments (0) | Permalink
January 3, 2008
The Bellman, The Wealthy Aunt, And A Grain Storage Option
Your wealthy aunt lives in a condominium in the big city, and a building manager takes care of repairs, mowing, and changing light bulbs. You have just calculated that your stored grain is worth as much as your aunt, so why not park it in a condominium also? In condominium grain storage your elevator manager has the duties of a bellman, but don’t call him that and tips are probably not an issue.
As you begin the new year and look at ways to increase your profitability, expand your checklist to include investigate condominium storage for your grain. Essentially, you own the storage; you don’t have to put up a new bin to store your additional corn; and you don’t have to monitor the grain quality. That is done by the condo manager.
With the additional demand for grain storage in the wake increased corn production, condominium facilities may increase in popularity. To help you evaluate the particulars, Iowa State Extension Economist Roger Ginder published a factsheet that outlines common operational procedures.
Condominium grain storage may be offered by an elevator, but that is not a requirement. It could be a project by a Limited Liability Corp. established by several farmers. They would own shares and could store grain in proportion to their investment, consequently benefiting from the proportion of their investment. The co-owners share in the tax benefits, but also are responsible for hiring management that will maintain the facility and ensure grain quality is monitored.
An alternate arrangement may occur in conjunction with an elevator, which builds storage based on a long term lease from farmers, who get guaranteed grain storage for only a management fee after the construction cost is recaptured. Either the elevator manager merchandises the grain or the farmer can remove it for a handling fee.
Elevators which manage condo storage are paid a per bushel management fee that covers in and out charges, quality assurance, and other operational costs which may total 5 to 10 cents per bushel. Unused storage space can be leased by the farmer back to the elevator for a stated fee, or subleased to other farmers.
Condominium storage can be closely compared to on-farm storage, since the farmer is determining the amount to be built, and will have fixed costs more closely related to or lower than on-farm storage. It offers particular advantages to landowners not wanting the hassles of construction and to farmers with some uncertainty of tenure on a given farm. Another benefit is the lack of responsibility for grain quality. Since condo storage is on-farm storage at the elevator, it offers another benefit of reduced handling.
For an elevator condominium storage draws grain into its merchandising system with the attraction of a reduced cost for the farmer. The costs of construction are borne by the user, reducing the capital needs of the elevator. Grain is already in position for marketing if it is to be sold when road conditions are bad or farmers happen to be in the field.
Summary:
Condominium grain storage offers on-farm costs of storage, but within the elevator complex and with the benefits of commercial storage. The users of condo storage are responsible for paying for construction, but after the debt has been retired the storage cost is minimal and farmer-owners have great flexibility in how the storage is to be used. Elevators which host condo storage will have grain ready for the merchandising stream and can provide services to farmers who are not already having to pay commercial storage rates.
Posted by Stu Ellis at 12:15 AM | Comments (0) | Permalink
January 2, 2008
If You Buy Distillers' Grain, How Do You Know If You Are Paying A Fair Price?
The new federal Energy Bill continues to promote ethanol production, first with up to 5 billion bushels of corn, until cellulosic feedstocks can take over. But in the meantime corn demand at the growing number of ethanol plants will support higher prices of corn and likely push more livestock producers toward distillers’ grains as an abundant feed source piling up at ethanol plants. But how is the price risk in distillers’ grains managed?
Certainly, the Chicago Board of Trade has not opened a distillers’ grains (DG) pit, and neither has the MERC. In fact DG varies in content, quality, and other factors from one ethanol plant to another. Recently, the USDA’s Grain Inspection staff offered to establish standards for DG, but farm groups were unsupportive of the effort. Without an industry standard and the lack of standard pricing information, how can a DG user be assured of getting the best price while managing the cost? Feedlots typically hedge calves and corn, but in the case of DG, that is not possible. But is it even possible to establish a price relationship across the network of ethanol plants that produce DG?
That is what Kansas State ag economists Tyler Van Winkle and Ted Schroeder wanted to find out in their research on price discovery, dynamics, and leadership in the DG market. They believe that within the growing DG market, more information is needed abou