Extension Update is a weekly summary of news from Extension, government, and other attributable sources, focused on marketing, farm management, and other issues that are of interest to Midwestern farm owners and operators.

The link to crude oil has broken says economist Chad Hart at Iowa State and grain prices are stronger. Hart says the strength in corn and bean prices has come from weather concerns in South America, weakness in the dollar, and bidding for 2009 acreage. Read more.

Corn exports are significantly behind the pace of last year, despite weather problems in Brazil and Argentina that threaten the size of their corn crops. But soybean exports are stronger, running well ahead of early 2008 levels. Chinese purchases have been the key. With the stronger dollar hurting exports, Brazil’s trade could certainly benefit, says Hart.

The 2009 calendar year may be the first that ethanol production could be less than the federal mandates for production. Chad Hart at Iowa State says the ethanol industry has suffered financial stress as seen by the Verasun bankruptcy. He says that means there will be less DDGS produced and a greater demand for corn by the livestock industry.

Chad Hart is not expecting 2009 total acreage to expand has it has been for several years because of the higher production costs and lower profitability. He says some forecasts have been for record acreage of soybeans as farmers shift away from high priced fertilizers for corn. Hart says prices in the early part of 2009 and weather going into the planting season will ultimately decide the allocation of corn and bean acres.

The federal ethanol production mandates makes marketing specialist Jim Hilker at Michigan State think corn acreage will expand by 2.3 mil. over last year. He said 2 mil. more acres will be needed and the ethanol industry will bid up prices to buy some insurance acres. He says, “If you look at corn prices relative to soybean prices, corn yield relative to soybean yields, and you look at the huge drop in wholesale fertilizer prices, corn will deliver a higher return per acre. Thus more corn acres to be planted.”

Hilker says soybean acreage will drop by 1 mil. acres from last year because of better returns for corn. He says if they drop very little, soybean prices may struggle next year and he’s suggesting prices be locked in for fall delivery. His reasoning includes:
1) Ending stocks for the 2009/2010 crop will be 250 mil. bu. with trend yields.
2) Export growth & increased domestic demand will support prices for the new crop.
3) Increased acreage will result in 2010, and ending stocks will continue to build.

Mark your calendar for Jan. 12, when USDA will close out the 2008 production year estimates. The final projection will be made in crop size, along with a new supply-demand estimate, and the Quarterly Stocks Report. Winter wheat seedings will also be reported. Watch the farm gate website for a summary of the USDA crop reports.

Production cost: Fuel. Diesel fuel prices are down 28% from the highs and 25% in the last month, but only down 1% from year ago levels. Mike Duffy at Iowa State says tune engines, keep tires properly inflated, and consider energy efficient replacements.

Production cost: Seed. Duffy says 30% price variations on comparable products are not uncommon, as seed industry competition is reduced and prices rise. He says make sure you can benefit from a special genetic trait before buying seed with that trait.

Production cost: Fertilizer. Fertilizer and lime costs are up 64% from 5 years ago, and estimating costs is difficult with different payment regimes. Duffy predicts steady prices for N & P, but uncertainty for K, as higher priced products are sold before lower priced.

Production cost: Pesticides. Pest management costs have increased considerably says Duffy, who says one popular herbicide will likely double in price for 2009. Pesticide costs per acre were flat the last several years, but he says that trend will end in 2009.

Production cost: Rent. Average increases will be up by 8% says Duffy, which will follow land values. He says lower grain prices and higher input costs will lead to lower returns and that should lead to lower rent, which is up 30% over the past 3 years.

Continuous corn will cost $4.88 for 165 bu. and $5.10 for 145 bu. for non-land cost of production. Corn after beans will cost $4.21 for 180 bu. and $4.32 for 160 bu. for non-land costs. Soybeans will cost $9.64 for 55 bu. and $9.81 for 50 bu. for non-land costs.

Mike Duffy at Iowa State says prepare for volatile grain and input prices, and risk management is going to take on a new meaning and urgency in the years ahead. He thinks wild gyrations will settle down, but prices and costs will be at a higher level. He says the energy-related boom for agriculture has faded and the 2009 outlook is not bright.

One final note, says Duffy, “Remember that over the past 40 years there has only been one year when the top third farms in the Iowa Farm Business Association didn’t make money. Somebody is always making money in Iowa agriculture.”

To follow up on diesel prices, Kansas State economist Kevin Dhuyvetter tracks the NYMEX crude oil market which determines diesel prices. He says March prices should be 48% less than last year, and April through July, diesel prices should be more than 50% less than what you paid in 2008. Harvest prices should be 30-45% less than last fall.

No lower fertilizer prices yet, says Jim Hilker at Michigan St., but stocks of high priced fertilizer must be sold first. “Consider waiting to price fertilizer until you can price it at the lower prices. Urea in the mid $300's, wholesale NH3 in the $500 range, may find retail NH3 for $600, wholesale DAP around $600, and wholesale potash around $900, which is the smallest drop.” Read more.

Crop insurance indemnity payments will likely be taxable as 2008 income, since most of the revenue policies paid price declines, not yield losses. A yield loss payment can be deferred if it follows your normal marketing pattern, but any portion of the indemnity related to revenue cannot. An indemnity from a GRIP payment will not be paid until later this spring and will be considered 2009 income, says Iowa State farm management specialist Steve Johnson. He says any payment deferred must be all or none and cannot be split. Iowa State’s Johnson urges farmers to seek advice from a certified tax preparer.

Modest profits are in the future for the hog industry says Purdue economist Chris Hurt in his latest newsletter. However, that is dependent upon moderating feed prices and somewhat higher hog prices as production is anticipated to decline 1-2% during 2009. But Hurt says the 21% of production that was exported in 2008 to help out, may not be as robust this year.

With a 60¢ reduction in corn and a $25 drop per ton in bean meal, Hurt says cost of production should drop $3-4/cwt for live hogs. He says that may turn the $15 loss per head in 2008 to a gain of $3 per head in 2009, reversing 6 straight quarters of losses.

The 2009 beef market will be marked with the start of a consumer trend of less beef being purchased and purchasing less expensive cuts of meat, says Nevil Speer at Western Kentucky. He says the corn market will also interfere with profitability and the end result is continued turbulence, requiring careful decision making and risk management.

The sufficiency approach for P, K and S management allows for significant savings in short-term fertilizer costs, says NE fertility specialist Richard Ferguson. “With this approach, nutrient application is not recommended when the soil test level exceeds the critical level as the probability of yield response is low. With the crop nutrient removal approach, an additional $118.56 of nutrients per acre would be applied for situations of adequate nutrient availability and 200 bu/acre corn yield.” Read more.

Clay soils that are poorly drained have a long compaction memory say Ohio State soil scientists. On a no-till field, the compaction caused by one trip of a grain cart resulted in a 40% yield loss, with effects of the compaction continuing for 8 years. They determined that it is better to prevent the compaction initially, than struggle to eliminate it.

Preventing compaction can be accomplished, say Ohio State researchers:
1) Practicing minimal tillage techniques, such as chisel plowing or subsoiling.
2) Rely on earthworms for help, but compaction reduces their population by 70%.
3) Utilize alfalfa or other cover crops that have deep taproots to open compacted soil.
4) Crop residue left in the field acts as a buffer to dissipate any wheeled traffic.
5) Use dual axle equipment with wider tires to distribute weight over a wider area.
6) Practice controlled traffic to confine equipment traffic to specific paths each year.

The difficulty of defining sustainable agriculture has appeared again in a national effort to create standards for sustainable agricultural production, processing, and product handling, says IL ag law specialist Bryan Endres. In an effort to select an organization without preconceived ideas to write the plan, the input of a large segment of agriculture was ignored. Work is resuming on the standards with wider farmer representation. Read more.