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February 27, 2009
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.
Is the convergence issue solved? IL Extension’s Darrel Good says it was a problem in 2007 & 2008 when futures and cash prices would not come together at delivery markets. He says the basis is currently strong and March futures appear to be converging. Read his newsletter.
Good says the year over year change in convergence has been dramatic for soybeans, and corn seems to be back on track. He attributes the strong basis levels this year to:
1) Lower price levels reducing the cost of owning, hauling, and storing crops.
2) A rapid pace of soybean exports while farmers held grain declining in value.
3) Improved profits for grain merchandisers, as the financial pressure of buying and storing high-priced crops and meeting margin calls on short hedge positions has subsided.
For unpriced soybeans, Good says the old crop basis is stronger, but there is little to gain in storing until July. With interest at 4¢ per month, he says storage costs will not be covered. Good suggests any market speculation should be done with futures or basis contracts, but the economy and the South American crop make that a stretch.
For unpriced corn, Good says there is more carry in the market and a return to storage. But farmers are holding corn and if 2009 acreage is high the basis will weaken. The new crop basis remains weak, discouraging new crop sales. With prices below the crop insurance guarantee, aggressive pricing of new crop corn and beans is discouraged.
There are bullish fundamentals in the grain market, but Kansas State’s Mike Woolverton says they continued to be overshadowed by other economic reports. He says the greatest uncertainty is the demand, because the global economic squeeze is forcing consumers to change food consumption patterns, including eating less pork and beef. Read more.
Woolverton says the ills can be cured with “stabilization of the global financial situation, resumption of speculative investment in commodities, a return to economic growth that will give consumers more money to spend, and a return to the food consumption patterns developed in the years before the economic difficulties. But he says, when that will occur is very difficult to determine, and history is of no help.
Farmers with corn near ethanol plants may be able to benefit from those with a positive basis, says Michigan St. specialist Jim Hilker. He says deliver now and use a basis contract or a call option if you want to stay in the market. Hilker says, “In some parts of the country, ethanol plants are offering subsidized calls, check it out.”
The market expects higher soybean yields, says Hilker; “But it is also saying we will plant quite a few more soybean acres. Given the variable costs of corn versus soybeans, if your search around pretty hard to get the deals, the relative prices and yields, and the results suggest corn will have a higher return per acre, but just by a little. And this will vary as the market’s opinion of what acres will be planted changes with new information and the relative prices fluctuate.” Read more.
Regarding wheat, Hilker says, “The market doesn't want your wheat, and doesn't want to pay you to store it. While new crop bids are higher than old crop, it is not by enough to store it commercially. With respect to new crop, just wait on any forward pricing.” He says the wheat market has disapproved of the CBOT’s additional delivery points and increased storage rates, since convergence of cash and futures has still not happened.
Jim Hilker’s analysis of ethanol reports, “When wholesale gas prices were near their peak of $3.60, wholesale ethanol prices were up to 70 cents lower, but still pulled corn prices to record levels. As gas prices fell to near present levels in early October, ethanol prices climbed over gas prices tempering the corn price drop. Corn/ethanol now appears to again be moving with oil/gas prices, but at near the 45 cents blender credit above gas.”
Biofuel profits may depend on the quality of your pond scum in the future. Algae will be a credible source of biomass to produce biodiesel and ethanol says IL ag engineer Lance Schideman, who gets 45-75 gal. of biodiesel and 300-500 gal. of ethanol per acre of algae. He says under the right conditions, the future may produce 10,000 gal. per acre.
Algae can be processed with thermo-chemical conversion. TCC speeds up the process that squeezed swamps and dinosaurs into oil deposits and what the ag engineers have used to convert hog manure into crude oil. Schideman says algae can be produced on wastewater, and it will grow on nutrients that would otherwise wash from a watershed.
Concerns are being expressed about the lack of infrastructure for timely application of fertilizer that should have been applied last fall, but due to the season, delayed it to this spring. Will there be enough toolbars, nurse tanks, and floaters available to cover the required acreage? If not, side-dressing nitrogen may be the most efficient alternative.
Make your fertilizer dollar go as far as possible by calculating your economic return to nitrogen. You can pencil it out using nitrogen prices versus the price of corn forward contracted, or consult Iowa State University's nitrogen website.
Iowa topsoil is as deep as ever, but it is deteriorating in quality. Iowa St. researchers went to 89 locations evaluated in the 1950’s to assess changes, and found the soil tightly packed and less capable of allowing water and air to move through it. They compared the soil particles to a cupful of dice, when it should be a cupful of marbles as it was 50 years ago. The reason for the change was attributed to tillage making it more dense.
Indiana farmers are being advised by spray specialists about a growing suburban practice that could become an issue for farmers with sprayers. That is the potential for spray to hit non-target vegetation. In addition to crops like vegetables, grapes and greenhouses, a new structure is a high tunnel, which is used to cultivate crops outdoors as early as February. That means plants will be growing in them when burndown chemicals are applied and any spray drifting over to housing developments will be a liability suit. It probably could apply to farmers in any state.
The Cattle on Feed report indicated a 6% drop in head from a year ago, but placements were up 4%, and lightweight calves going on feed were up 8%. That was attributed to calves being pulled off wheat pasture early because of the lack of moisture for wheat.
2008 pork exports were 49% higher than in 2007, and consumed over 16% of production. MO livestock economist Glenn Grimes says exports to China were up 140%, Japan up 15%, South Korea up 12%, Russia up 76%, and Taiwan was up 71%. But USDA believes pork exports in 2009 will be down 15% compared to 2008.
Domestic pork profitability depends on the size of the herd, and Glenn Grimes says current farrowing intentions are down only 3.4%, with April-June down only 2.6%. He says with increases in litter size and a weak consumer demand, more reduction is needed.
2008 beef exports were up nearly 32% compared to 2007 and imports were down 17%, says Grimes. Mexico imported 11% more, Japan was up 45%, Canada up 15%, South Korea up 95% and Taiwan was up 21%. USDA believes 2009 beef exports will drop.
If you want to save on fuel, follow some recommendations from Kansas State:
1) Avoid unnecessary driving and handle the task with a phone call, not a trip.
2) Match the vehicle to the task, and take the car to get parts and not the pick up.
3) Clean the junk out of a vehicle, which adds weight and decreases fuel mileage.
4) Maintain engines, since clogged filters and injectors rob power and efficiency.
5) Check tire pressure since under or over inflation increases rolling resistance.
6) Reduce tillage, since fewer tractor passes through a field means less fuel use.
7) Match the tractor to the task, and not use a field tractor for a utility tractor’s job.
8) Check tractor ballast, since tires will slip and use more fuel than necessary.
9) Gear up and throttle back, since ¾ power saves 5-15% fuel use over full throttle.
10) Avoid engine idling, since unnecessary idling accounts for 15-20% of fuel use.
11) Paint fuel tanks white, since dark ones heat up and can vent out evaporated fuel.
It may seem like an oxymoron, but if you want to add value to corn stover, shred the stalks instead of chopping them. Purdue ag engineer Dennis Buckmaster says shredded stalks need 40% less energy to convert into ethanol, than do chopped stalks. Shredding increases the surface area of the biomass and then produces 11% more cellulose products.
The $787 billion stimulus package will not have a check in the mail for agriculture says NE economist Tina Barrett, but employees receiving paychecks will get an extra $400 from an adjustment in their withholding spread out through the year. Farmers unable to obtain the benefit because of the lack of a paycheck or through quarterly estimates, will receive a $400 credit when paying 2009 income taxes, according to Barrett.
Posted by Stu Ellis at 12:33 AM | Comments (0) | Permalink
February 26, 2009
The Strong Trade In US Meat Will Resume With A Stronger Economy
The world loved US beef until a wayward Canadian cow with BSE wandered into a Washington state feedlot and destroyed the US beef export business on her own. Then the world discovered US pork, and ate so much of it in the past year that export demand pushed pork producer revenue up to almost the level of profitability. Of course a recession-scared global economy sudden does not have the money to buy meat. But will international meat trade recover to the benefit of the US livestock producer?
Red meats crisscross the world, connecting producers and consumers, if governments can agree on prices, product quality, and lower trade barriers enough to feed hungry consumers. And that is a mouthful as explained by USDA economists in the latest Meat Trade Outlook.
As grain producers know, the value of the dollar has had a lot to do with export trade, and when it was weak the past several years, meat exports were relatively high. Since 1970, US consumption of meat has grown 20%, but most of that has been consumption of imported meats. US consumers have consumed gradually less domestic meats in the past 10 years. But since 1970 the quantity of US red meat to be exported has increased more than 3,200%, including beef and veal by 2,700% and pork by 3,500%. USDA says 75% went to just Canada, Mexico, Russia, South Korea, and Japan.
The growth of meat trade depends on the type of meat and USDA says there are different dynamics that control demand.
US Beef enjoys the reputation of a high value product and exports increased steadily until the BSE issue in 2003. Lower quality, grass fed beef is used in processed meats which is a significant import, primarily for hamburger.
US pork exports are a function of cost and concentration of the industry has reduced production costs to the point that pork exports are competitive in many global markets. Currently, Canada supplies many imports of live hogs coming into the US for immediate or later slaughter.
Lamb exports are minimal, and usually of lower quality meats. However, the domestic market consumes high quality lamb produced in the US, along with a substantial amount of imported lamb meat.
Some of the export volume can be traced to the presence of trade agreements, such as the 1988 agreement with Japan that eliminated quotas on US beef. NAFTA expanded US meat access to the Canadian and Mexican markets by reducing tariffs and phasing out other barriers to US red meat.
Another incentive or barrier to foreign demand for US meat is the exchange rate, as well as the exchange rate for US competitors in the global meat markets. For example, prior to 2006 the currencies of Canada, Australia, and New Zealand were fairly stable in relation to the US dollar. Then the Canadian dollar depreciated in value, allowing US consumers to buy more for less and Canadian beef imports were in an uptrend. As the Canadian dollar appreciated in value the past several years the meat trade leveled off.
Pork is another story. US pork imports are primarily from Canada, and to a lesser amount Poland, Denmark and Hungary which are in the European Union currency system. The Euro is tightly controlled, but has strengthened in recent years against the US dollar. The USDA economists say when the dollar recently weakened pork imports became more expensive, but the European changes in the exchange rate may be a “significant determinant in fluctuations in trade of pork products.”
A detriment to meat trade is disease, and the BSE issue eliminated about one billion pounds of US beef that would have been sold abroad. On the other hand, pork exports have expanded in part due to the beef issues, as well as with concerns about Avian influenza in poultry meat.
The USDA economists conclude that expanding global economies will result in a robust income growth that will expand consumer demand. They report that the US is exporting more and importing more as well.
Summary:
The overall growth of US meat exports has approached 3,000%, which have been high value cuts of beef and a variety of pork meat. However, the strong business is dependent upon consumer perceptions of value and prices, staying away from disease issues such as BSE, and food safety concerns.
Posted by Stu Ellis at 12:58 AM | Comments (1) | Permalink
February 25, 2009
Increased Biofuel Production Will Come With Extra Baggage
Grain originating in the Cornbelt destined for livestock feedlots may be trucked down the road or railed to the Southwest. Grain destined for the export market is loaded on barges on the Illinois and Mississippi Rivers, towed to the Gulf and loaded on Panamax ships for overseas destinations. But grain produced for the biofuels industry has a different future that spills into the region around the farm and the nearby ethanol refinery.
The federal policy initiatives that sparked biofuel production has not only set targets in future years for production of ethanol and biodiesel, but have caused some dominoes to fall in the meantime, say USDA economists Scott Malcolm and Marcel Aillery writing in the current issue of Amber Waves electronic magazine. The 36 billion gallon goal by 2022 and the 15 billion gallon goal for ethanol by 2015 results from the Congressional attempt to make energy resources more secure. By 2016 that means ethanol will consume 35% of US corn production, but also that year the mandate requires 4.25 billion gallons of ethanol made from cellulose-based feed stocks. Subsequently, the growing demand for corn and other biomass will change the agricultural landscape as cropping patterns adjust and production practices change. The USDA economists say that may lead to conversion of land, more intense cultivation practices, and increasing the potential for environmental degradation.
The increased amount of corn shipped to ethanol plants has increased the net cost of feed for livestock producers, but softened the hardship with added supplies of DDGS at lower prices. Other biomass crops, such as forestry waste, municipal solid waste, and algae, would not compete for farmland like corn. As crop prices rise, cultivation expands, and it will do so the most in the Northern Plains and the Cornbelt, which USDA calculates will supply two-thirds of the 90+ million acres of corn anticipated by 2016.
The expansion of corn production anticipated by the USDA will raise nitrogen use by 2% and pesticides by nearly 3% over prior estimates, with additional nitrogen running off into waterways and down the rivers. USDA is not predicting changes in water quality, but is estimating increased nitrogen runoff along with the higher biofuel target. Additionally, 2% more erosion is anticipated with sheet erosion from more corn acreage.
The USDA economists also expect the added corn acres will involve added emissions of greenhouse gases, from a combination of increased tillage, more fertilizer usage, and more reduction of stored carbon in the soil. More corn acres will also increase the demand for water, including for irrigated areas. They also expect idled land converted to corn production will also strain wildlife resources and reduce wildlife habitats.
The economic study predicts 170 bushel average corn yields by 2016, resulting from planting on good soils, higher yielding seed, use of irrigation, and planting less ground that is of average production. Some of the poorer land will also be planted to switchgrass, relieving better land for food grains and providing another income source, as would harvesting of corn stover. Such actions also have an environmental impact with soil erosion, loss of soil nutrients, reduced soil carbon, and reduced soil moisture.
The economists say conservation programs such as EQIP can mitigate some of the environmental impact of producing biomass for ethanol production. Nutrient and soil management programs could offset potential soil loss and leaching of nitrates, and the use of no-till systems will further reduce soil loss. They say CRP could be part of a larger program for biofuel production, as could riparian buffers that could produce forage to replace higher priced livestock feeds. And the economists say USDA must manage conservation compliance rules and the allowance of CRP grazing as part of the change.
Summary:
The demand for biofuels will increase the demand for corn as well as biomass feedstocks for cellulosic ethanol. But along with that change will come application of more nitrogen and pesticides, the potential for more soil loss through erosion, and some changes in water quality as a result. Most of the change will occur in the Cornbelt and Great Plains where the production increases will occur. The additional harvesting of biomass such as corn stover adds new issues for consideration, such as soil loss, loss of soil nutrients, reduced moisture, and reduced soil carbon.
Posted by Stu Ellis at 12:13 AM | Comments (0) | Permalink
February 24, 2009
Fine Tune Your Risk Management Program For 2009.
With corn and soybean prices insufficient to cover operating and land costs for 2009, the financial risk for many farmers will be a burden. Lenders are/will be pushing for a strong risk management program that may include crop insurance, a marketing plan, and the ACRE farm program and SURE disaster program. Rain or heat in the wrong week will be unwelcome in 2009 with such thin margins, and could result in a financial disaster.
What are your plans to disaster-proof yourself for 2009? There are a variety of tools to use and Kansas State University risk management specialist Art Barnaby has several recommendations to take advantage of changes in crop insurance programs and combining them with other risk management tools.
Barnaby’s first recommendation is for those using crop insurance to switch to enterprise units by crop, which is made possible with a pilot program the next three years. Your coverage is increased, but your premium is reduced. He says it increases the total dollars of revenue coverage and increases the free coverage from the SURE disaster program. But he still recommends hail insurance coverage, if you do not raise your coverage level. Also, the premium subsidy is being reduced on GRIP and he says farmers with GRIP policies should also switch to enterprise units. He believes the savings from the switch will provide more financial cushion than any ACRE or SURE payments. Barnaby says the downside to the fact it is a pilot program is that it could see subsidies reduced in future years, and you would need your records to return to optional units.
A second recommendation is to maintain eligibility for the SURE disaster program, which can be triggered by both price and yield. There is no sign-up but eligibility requires insurance or $250 per crop fees paid for all crops by March 15. Barnaby says the SURE coverage works best on a non-diversified farm, such as Great Plains wheat, or continuous corn, but not a corn and bean rotation. This gives the farm the same crop insurance characteristics as an enterprise unit with the same crop throughout the county.
A third recommendation from Barnaby is wait until May to take any action on switching to the ACRE farm program, which of course, is a permanent decision. Delaying your decision allows more information about the potential yield information. He says the decision to participate depends on if the ACRE “strike” price is higher than the expected 2009/2010 marketing year average price. Barnaby says, “ACRE is simply a “put option” on expected state revenue. A Chicago (CBOT) put is an option on expected price. ACRE works like the put so the odds increase for payment if ACRE is in the money. At signup (before June 1) one would have to assume average 2009 yield (state yields do not vary as much as farm yields) but one will know if there is a current “loss on price” at signup, i.e. if the ACRE is in the money.”
He says one would not want to enroll in ACRE for 2009 if ACRE is “out of the money” and a payment would not be expected. “If ACRE is in the money then odds of an ACRE payment increase but it does not guarantee it. In the money put options expire worthless too. If ACRE is “deep” in the money then one could buy call options and reduce the risk of no payment, i.e. one would either collect from the call or ACRE.”
Barnaby says the ACRE program makes a payment only if there is a state revenue loss, and if so, then the farm must also show a revenue loss below a benchmark to collect. He says there is only a small chance of any counter-cyclical payment or a loan deficiency payment on corn or soybeans, “Therefore the tradeoff is a potentially large ACRE payment in return for a 20% reduction in direct payments and a 30% reduction in the loan rate for the next 4 years.”
While farmers were lobbying hard for USDA to use the 2008/09 marketing year price for corn, which would raise the ACRE payment, Barnaby thinks the recent slide in corn prices may have neutralized the effort. And he says wheat looks like a better bet than corn for ACRE, but he wants to wait until June 1 for a verdict. Anyone signing up for ACRE will be committed to that program through the end of the Farm Bill in 2012, and may not return to the conventional program featuring direct and counter-cyclical payments, as well as a full loan rate.
Summary:
Risk management tactics for 2009 crops will depend on fine tuning of crop insurance and switching to enterprise units to take advantage of higher coverage at lower premium rates. Also, consider the ACRE program, but not sign up until as late as possible to get as much information about crop conditions and potential pricing.
Posted by Stu Ellis at 1:30 AM | Comments (1) | Permalink
February 23, 2009
The News On Fertilizer Prices, And Its Not Friendly To Farmers
Some farmers have it, and other farmers don’t. Some have paid high prices for it, and others are hoping they will not have to. Fertilizer is the topic of many coffee shop conversations, as well as hours spent on working on crop budgets, and probably a few sleepless nights. Tough decisions will soon have to be made, but prices will depend on the demand this spring.
The upward move in fertilizer prices can be traced back about 7 years says USDA economist Wen-yuan Huang in the latest Fertilizer Outlook, but they increased sharply the past two years. In 2008, nitrogen climbed about one-third in price, while phosphate and potash doubled, which Huang says resulted more from global economic issues than from domestic supply and demand. US production of fertilizers has declined and farmers have had to depend upon imports of either fertilizer or ingredients to supply the growing demand.
In the 10 years prior to 2008, domestic fertilizer production capacity declined 42% and annual production dropped 37%. The infrastructure had been underutilized and was being idled about the time that natural gas prices began to rise, which pushed up nitrogen production costs. Similarly, US production of phosphate declined along with production capacity because of low profits and declining export demand. The US only produces 16% of the potash it uses and imports the rest, primarily from Canada. Consequently, fertilizer is a global commodity, but the US is one of the largest importers, leading the world in nitrogen consumption, and is in second place for potash imports.
With the nitrogen price linked to the price of natural gas, but its cost to agriculture is also dependent on the cost of electricity and petroleum, both of which have experienced volatile pricing structures. Since 2000, natural gas has risen 550% and oil by 970%. Transportation cost is 22% of the expense in getting ammonia shipped from the Caribbean into US Gulf ports and 50% of the cost of Russian ammonia. In the past 3 years rail rates increased 63% along with a 44% railroad fuel surcharge added last July.
Complicating the matter had been the falling value of the dollar, which made imported ammonia and potash more expensive. Another issue is the fertilizer export associations, and since they are global in nature, are shielded from anti-trust rules according to USDA economist Huang. And yet, another factor is the concentration of fertilizer production in just a small group of countries. Canada, Russia, and Belarus control potash, and the US and China control phosphate.
When the global economy expanded in 2007 and food demand outstripped the immediate food production capacity, the demand for fertilizers increased as well. The current weaker demand is expected to strengthen and fertilizer demand will increase over the long run. US farmers used high commodity prices in 2007 and 2008 to increase their purchases of fertilizer and maximize returns. Those commodity prices insulated farmers from the impact of the higher costs of fertilizer. But now commodity prices have fallen and the insulation is thin against the fertilizer prices, which have not fallen in tandem with grain prices.
Currently, fertilizer inventories are low, in part because of the additional 15 million acres of corn and 3 million acres of wheat planted in 2007, consuming 15% of the normal nitrogen carryover, 27% of the phosphate carryover, and 49% of the potash inventory. Huang says the US fertilizer industry is not equipped to meet a surge in demand, and when foreign demand entered 2008, fertilizer prices rose rapidly.
Huang says September's nitrogen prices were 36% above April 2008, with phosphate and potash about 93% higher, before the price decline began in October. The softer winter market was attributed to lower global demand, reduced US application last fall due to weather, increased supplies created during last summer, a decline in natural gas prices, and farmers postponing purchases hoping for lower prices. But the USDA economist says prices may not remain soft:
(1) Many of the causes of the recent spike in fertilizer prices, such as natural gas price movements and expected growth in global demand, could still place upward pressures on fertilizer prices in spring 2009;
(2) In response to low fertilizer prices, the U.S. fertilizer supply is expected to decline due to production cutbacks by manufacturers and worker strikes in potash plants in Canada;
(3) U.S. fertilizer imports are expected to decline given the current low prices and congested distribution supply chains in the United States
(4) Fertilizer demand will likely stay high. Current low fertilizer prices, projected relative crop prices and the government’s continuing ethanol mandate may favor corn planting in the spring.
For the spring, USDA's price predictions are:
Nitrogen—because of strong Chinese and US demand expected from feed and food grain production, tighter nitrogen supplies are expected in spring 2009, and there could be some additional upward pressure on nitrogen prices.
Phosphate—Tight supplies due to limited U.S. production of DAP and MAP, coupled with high production costs and expected strong global demand, may keep phosphate prices above their historic trend levels this spring.
Potash—Most of the potash consumed in the US is produced in Canada, which may not be able to produce enough to meet short run demand. However, a recent supply contract of $817 per ton is expected to become the benchmark wholesale price for potash marketed in 2009.
In the long term, USDA says demand for fertilizer will continue because of the growing world population and a return to a better economy, but higher energy costs will keep upward pressure on fertilizer prices. The US access to supply is good, and future coal gasification plants will help increase the supply of natural gas to produce ammonia.
Summary:
The global nature of the fertilizer industry, along with current economic forces here and abroad, have combined to make agricultural fertilizers more scarce and higher in price. While winter prices were soft, spring demand is stronger and costs of fertilizer are not expected to decline much, if at all.
Posted by Stu Ellis at 12:38 AM | Comments (2) | Permalink
February 20, 2009
Extension Update
Extension Update is a weekly summary of news from Extension, government, and other attributable sources, focused on marketing, farm management, and other issues that are of interest to Midwestern farm owners and operators.
Corn and soybean prices will be driven by acreage this spring believes IL Extension’s Darrel Good, but he says acreage uncertainty stems from questions about profitability, cost of production, and declines in winter wheat and cotton acreage. Read his newsletter.
Darrel Good says biofuels will play a role in determining the need for corn acreage, but sorghum is replacing corn as a feedstock in some ethanol plants in the Southern and Central Plains states. He says the federal biofuel mandate calls for 10.5 bil. gal. in 2009 and 12.0 bil. gal. in 2010, but marketing years don’t line up and the use of sorghum puts a new twist into the analysis of how much corn acreage is required for ethanol refining.
Overall, ethanol’s thirst for corn will be large, with at least 3.6 bil. bu. this year, 4.0 bil. bu. next year and up to 5 bil. bu. by the 2015 marketing year. Good thinks 2009 planted corn acreage needs to parallel 2008, but bean acres may not need to expand. However, he expects the Mar. 31 Prospective Plantings to predict more soybeans.
Despite periodic positive news, the grain markets have regularly been rewarded with losses every day says South Dakota Extension marketing specialist Alan May. “What is at play here is the heavy pressure of outside markets; particularly crude oil, the dollar index market and the stock market. As these markets continue to either weaken or simply remain stagnant, grain commodities ignored the positive news of stronger corn export sales and expectations of greater export volume of soybeans.”
Brace yourself for a weekly storm, advises OSU meteorologist Jim Noel, because we are in a weather pattern that is typical for this time of year. He says weak La Nina conditions are getting weaker and should be gone by spring. But he says all of the ice on the Great Lakes makes for a cooler and wetter spring in the Eastern Cornbelt.
Farm program eligibility depends on your Adjusted Gross Income (AGI) and Adjusted Gross Farm Income (AGFI), so compute it carefully says Iowa St. ag law specialist Roger McEowen who provides a factsheet.
1) A non-farm AGI cannot exceed $500,000 to receive farm program payments.
2) An AGFI cannot exceed $750,000 to receive direct and counter cyclical payments.
3) An AGI cannot exceed $1 mil. to get conservation payments unless 2/3 is farming.
4) The average for the AGI for 2009 is the average for tax years 2005, 2006, & 2007.
5) AGFI is net farm income, plus sale of capital goods, rentals, and royalties.
6) AGI and AGFI are reported to FSA on Form CCC-926 and page 3 gives guidance.
7) AGFI is a “net income” concept, not a producer’s gross farm revenue.
Caution is being advised by TN Extension economist Daryll Ray if farmers are considering the USDA’s ACRE program. He’s not convinced of its benefits, and says:
1) The 2009 price guarantee is the average of 2007 & 2008 prices, but 2008 is unknown.
2) Are farm and state-level yields used in revenue estimates really attainable?
3) Signing up for ACRE requires proof of income, so farmers will surrender their 1040.
4) Converting to ACRE irrevocably through 2012 is another headache.
5) Obtain the paperwork and study it well before the June 1 deadline for signing up.
6) Get legal help in defining “active involvement” is your farm is a partnership.
7) Assemble your records in one place to document yields and acreages.
8) Calculate worst-case and other scenarios for your farm using your own data.
9) Your calculations should include the low end of USDA’s estimated price range.
10) Base your decisions on your own farm, not on the estimates of other farms.
11) Obtain opinions from your CPA and banker about their perception of risks.
Is there an advantage to leasing farm equipment? NE Extension’s Tim Lemmons says among the advantages: lower up-front, down payment costs compared to purchasing; payments often are less than traditional loan payments; less liability on the balance sheet; equipment available for short-term needs; access to and use of latest technology; and lease payments are considered production expenses for tax purposes.
Is there an advantage to buying farm equipment? Nebraska’s Tim Lemmons suggests: owned equipment may be easily replaced or sold at the owner's discretion while replacing leased equipment may be more difficult; owned equipment has asset value and may be used as collateral against other loans; purchases do not require security deposits, although down payments to secure financing may be higher; purchased equipment has no use limitations while some leases specify the number of hours a machine may be used before a penalty is imposed; and increased asset value on the balance sheet.
Increases of soybean seed price of 25%-100%+ may push some farmers to plant bin-run seed, but WI soybean specialist Shawn Conley says 90% of soybeans are glyphosate tolerant and federal patent laws prohibit that. He expects an increase of field monitoring this year to “catch” growers who recycle their soybeans into the planter box.
Soybeans that are not herbicide tolerant fall under the Plant Variety Protection Act says Conley, and while that allows seed to be saved for planting, it restricts the amount of seed that someone can save to an amount that would serve the needs of his own farm. Read more.
But planting bin-run seed can create agronomic issues, and if the seed was not harvested with the intent of being seed the following year, there will likely be quality issues related to harvest timing, storage conditions, and handling says Conley. He says if you are planting bin-run seed, have it custom cleaned or conditioned, including the application of seed treatments and inoculants, if the law allows for that seed variety.
Adverse winter weather can have an adverse impact on young livestock says Extension veterinarian Russ Daly, particularly problems that may not show up for some time after cold spells and blizzards. He warns of frostbite, pneumonia, and several viruses that can incubate for several days then be aggravated by other stressors such as weaning and transporting. He suggests consultation with local veterinarians to diagnose problems.
The sagging global demand for beef may be out of the hands of the beef industry to control according to a study by Kansas St. and Michigan St. livestock economists.
1) While price is important, small price adjustments have minimal impact on consumers.
2) Recent food safety recalls adversely affect domestic and foreign demand by 2.6%.
3) Consumer influence by health articles linking fat and heart disease cut demand by 9%.
4) The media frenzy about low carbohydrate diets boosted beef demand by 2%.
5) Convenience of preparation benefits poultry and pork, but hurts beef demand.
So, what should the beef industry do to bolster demand? Researchers decided:
1) Conduct research that identifies positive impacts from consumption of beef.
2) Present those findings to health professionals, nutritionists, and consumers.
3) Develop production or processing techniques to enhance beef nutritional qualities.
Is the US beef herd overestimated? That is possible say MO livestock economists Glenn Grimes and Ron Plain, who say if that is correct, there is no further need to reduce the cow herd further. They say those who doubt USDA numbers believe the cut in the cow herd has been covered up by the speedup in marketings of steers and heifers by putting them on the market earlier, even though they had reached market weight. But Grimes and Plain side with USDA’s statistics and the benchmark 2007 Ag Census.
It is too early now, but it may be time to order legume seed for bolstering pasture vitality with the help of frost seeding. The seed depends on freezing and thawing for soil incorporation along with later winter moisture. IL crop specialist Jim Morrison says medium red clover provides the best success but requires inoculation and proper pH.
Taking a soil test will allow you to make educated decisions on your farm rather than adding fertilizer that is not needed, particularly on pastures, says KY forage specialist Ray Smith. In pastures approximately 80% of the nutrients consumed in the forage are returned to the pasture in the manure and urine. Therefore, fertilizer requirements on pasture are lower than for hayfields, but this is only true in well-managed rotationally grazed pastures where manure and urine are equally distributed throughout the pasture.
Has your poly tank failed and created a catastrophe? They are versatile and tough, but failure is a potential, so inspection and maintenance need to be part of your routine in using them. Get poly advice.
Have you lost a poly tank while traveling down the roadway? Securing a poly tank is not hard, but must be done correctly because lost cargo is not easy to reload on a truck or trailer. There are governmental requirements for securing loads, including poly tanks. Get the proper techniques.
Posted by Stu Ellis at 12:33 AM | Comments (1) | Permalink
February 19, 2009
Can The Ethanol Industry Be Sustained At Current Corn And Oil Prices?
The US ethanol industry is in a financial pinch. Some plants and some multi-plant companies have had some fits, and starts, and burps in the past year. Some are history and others are living on their past financial laurels. Economic factors have changed since the go-go days of 2007 and 2008 when oil prices were rocketing upward, carrying ethanol and corn on its back. With oil prices playing on both sides of the $40 mark, can ethanol remain financially viable?
The future of ethanol is ruled by many masters. Federal mandates require 10.8 billion gallons of production this year, enroute to 15 billion gallons by 2015. EPA rules call for fuels that cannot be blended without ethanol. And the motoring public and friendly farmers would not know what to do if the gas pump did not have an ethanol decal on it.
But ethanol economics are being squeezed in a vice with one jaw that is the oil market and the other jaw that is the corn market. And Nebraska economist Richard Perrin says something has to give, as he writes in the current issue of Cornhusker Economics. He’s not only concerned about the economics, but the parade of academic studies that assail ethanol, blaming it for everyone’s ills. He questions the sustainability of the ethanol industry without mandates and subsidies, pointing to the current cost structure to refine ethanol at a profitable level.
Perrin says a recent survey of 7 ethanol plants in the Cornbelt found a surprising degree of efficiency, as he evaluated operating costs. The costs of making ethanol, which include electricity, natural gas, a denaturant (to remove water) enzymes, labor, maintenance, and miscellaneous costs totaled 45.4¢ per gallon, corn at $1.06 per gallon, and subtracting DDGS sales at 22.9¢ revenue per gallon, combined to total $1.288 in operating costs per gallon of ethanol. Adding the capital cost of 35¢ per gallon requires the product to sell at $1.638 per gallon.
The key is the cost of corn, and Perrin says today’s cost of corn is higher than the example, adding 20¢ to the total cost. He says profitability at that level is even more at risk if the plants have to operate with mandates and subsidies, which can be politically removed.
The current oil price of $40 per barrel puts wholesale gasoline at $1.30 per gallon. Since ethanol has a lesser energy value, pricing it at $0.85 per gallon. Adding the blenders’ credit of 45¢ per gallon makes ethanol $1.30 per gallon, and gives corn a value of $2.50 per bushel. Perrin says corn ethanol cannot compete with $40 oil unless the corn price is below $2.50 per bushel with the blenders’ credit, or $0.85 per bushel without the blenders’ credit. With corn at $3.55 per bushel, Perrin says oil prices have to rise to $55 per barrel for ethanol to be competitive, but as high as $80 per barrel if ethanol did not have the blenders’ credit.
As the federal mandate pushes ethanol production to 15 billion gallons in 2015, Perrin says price premiums for ethanol will rise until the quantity is achieved. While corn will be profitable, Perrin says the mandates and the blenders’ credit could be removed by public outcry. And if that happens, the ethanol industry will only be profitable and continue as a dynamic in the corn market if the price of oil rises to $80 per barrel. At that point the ethanol industry will be able to pay $3.50 to $4.00 for corn.
Summary:
While the demand for corn is dependent upon the ethanol industry, ethanol cannot remain profitable at current corn prices when crude oil is $40 per barrel. Due to ethanol production costs and the lesser energy efficiency of ethanol, $3.50 corn makes ethanol an unprofitable venture unless crude oil is selling for $80 per barrel. The ethanol mandate and blenders’ credit will be required to sustain the ethanol industry.
Do you agree with the economics? Should the mandate and the blenders’ credit be maintained? What other issues are involved, from your point of view?
Posted by Stu Ellis at 12:02 AM | Comments (5) | Permalink
February 18, 2009
Quick Question: Will There Be Financial Stress On Farms In The Near Future, And Will You Be Able To Handle It?
Your grain farm income for the past two years has likely covered production costs, allowed some investments, and to improve the quality of life for your family. However, heading into 2009, your production costs are projected to be higher than potential marketing revenue, and you have a hollow feeling in your stomach about your financial position at this time next year. You are not alone.
Market volatility and high financial risk were prevalent last year and will remain close to you this year as well, say ag economists from Minnesota, Nebraska, Texas, Washington State, and Delaware. They surveyed farm lenders, ag educators, crop insurance agents, crop consultants, elevator managers, commodity market advisors, and others who are close to farmers. The responses paint a fairly clear financial picture of the 2009 farming year.
Of the 2,300 ag professionals who were surveyed, 84% believe farmers will experience financial stress in the next three years; with 45% believing the chance is high, and 39% believing it is very high. The remaining 16% think there is a moderate chance of financial stress on the horizon.
When lenders are broken out of the mix, 54% think the chance of financial stress is high in the next three years, and 26% give odds on it being very high. Only 20% think there is a moderate chance of financial stress, with none in the category of a low chance for stress.
But what about right now? Are producers feeling financial stress at the outset of 2009? Nearly 25% of producers say there may be 5% of farmers who are feeling the pinch, and another 25% say it is more like 10% under stress now. About 12% think more than 30% of farmers are feeling pressure. But when farmers were asked about the future, nearly 30% think farmers will feel financial stress in the next 3 years, and more than 45% say between 10% and 30% of farmers will feel the pressure by 2012.
What is contributing to the financial stress? The cost of inputs and market price volatility are the top two reasons, and both have a high to very high impact on farm stress. In the moderate impact category are such issues as negative cash flows, inadequate business planning, lack of management skills, and a tighter credit market. Factors that cause stress, but in a declining rank, are, machinery decisions, loss of off farm income, failure of input suppliers, failure of commodity buyers, changes in farm policy, rising interest rates and declining land values.
As farmers visit their lender, many of them are finding stricter requirements to obtain credit. While not all producers have found that lenders want more documentation, 56% say the requirements have changed slightly and 17% report substantial increases.
As the changes affect farmers, the question becomes how well equipped they are to weather the financial storm, if there is one. Unfortunately, only 8% of farmers feel they are well equipped with financial management skills to manage their business during a period of financial stress. 74% say they are moderately equipped, and 18% admit being poorly equipped. Combining the first two categories indicates over 80% feel some skill in managing their financial future if there are hard times ahead.
Summary:
No one really knows what will happen to the agricultural economy in the next three years, but most of those close to farmers believe there will be difficult financial times ahead. And they doubt that farmers are really able to weather any financial storm. While farmers also feel there will be difficult times for their farm in the next three years, more than 3 out of 4 think they will be reasonably equipped to handle whatever comes their way.
Posted by Stu Ellis at 12:51 AM | Comments (0) | Permalink
February 17, 2009
USDA's Fine-Tuning Of Crop Insurance May Affect Your Choice In 2009
How are you planning to manage production and revenue risk in 2009? Some of your neighbors will be utilizing well-thought crop insurance and marketing plans. Some of your neighbors will be using “seat of the pants” marketing and hoping for the best when that feeling in their gut says they should sell. With markets below the levels of the past year and production costs higher, will you tailor a crop insurance program to fit your farm?
If you are waiting for new crop insurance programs to be announced for 2009, don’t wait any longer. You have the same choices you had last year, but some changes have been made that may make some more attractive and others less attractive. That is the essence of a newsletter prepared by University of Illinois Farm Management Specialist Gary Schnitkey. While he writes it for Illinois farmers, other Cornbelt farmers will be able to apply many of his principles to their farm as well. Schnitkey says CRC, RA, and GRIP were the top choices for farmers last year, and will probably be this year as well. But of course, GRIP is a county level product that pays an indemnity if a yield on a farm falls below the county average. CRC and RA are farm level policies that pay an indemnity if the yield falls below the farm average. Within the three, USDA has made some minor changes that could have major impact for some farmers, depending upon their state and how the various policies were rated for their states.
Changes to Enterprise Units for CRC and RA
Crop insurance veterans know that farms can be insured by basic, optional, or enterprise units, the latter of which combines all farming units in a county, but divided by crops. When the insurance is spread over a larger area, the cost declines. What USDA has done is raise the subsidy levels for enterprise units, meaning USDA will pay more of the cost of insuring a given crop in a single county than it did last year. For coverage of 70% or less, the subsidy will be 80% of the cost, and it declines to only 53% of the cost for an 85% policy. USDA will be paying about 15-20% more of the cost for enterprise unit insurance in 2009. Consequently, farmers using CRC or RA and selecting enterprise unit coverage will be paying a lower premium than last year.
Biotech Yield Endorsement
Monsanto’s BYE product for 2008 corn has been expanded to include Herculex by Pioneer and Dow AgroSciences, and Agrisure by Syngenta. The insurance is available for farmers who plant at least 75% of their corn to one of the eligible hybrids which feature triple stack technology for control of weeds, rootworm, and corn borers. While the BYE insurance was available to a limited number of farmers in 2008, it has been expanded to include the remainder of the Cornbelt for 2009. There is no requirement to stay with one hybrid, since any eligible hybrid among the three brands can comply. However, there is paperwork involved to certify the use of the eligible seed or USDA will not allow the premium discount for the program.
Subsidy decrease for GRIP
Schnitkey says the USDA will be paying less to subsidize GRIP policies compared to 2008. Most of the coverage levels will have USDA paying 4-6% less of the subsidy, however, because of other changes in the policy, the overall premium that farmers will have to pay will decline, anywhere from $3 for 70% level coverage to $20 for 90% level coverage. But again, that depends on your state.
Harvest price change limits
From the beginning of CRC and GRIP, the harvest price of corn could not rise or fall more than $1.50 above the spring guarantee and for beans the limit move was $3. But RA had no limits on moves. In 2008, the harvest price for soybean dropped more than the $3 limit for CRC and GRIP, forcing the USDA to make higher indemnity payments on RA policies than on CRC policies for the same yield and coverage level. The change for 2009 is to eliminate the limits on price declines if the spring guarantee is more than the harvest price, but place an upper limit on price rises of twice the spring guarantee. Schnitkey says this levels the playing field for CRC and RA when it comes to indemnity payment, so the only difference is the premium going into the season.
Summary:
Refinements have been made by USDA on several of the more popular crop insurance programs, which could impact both premium costs and potential indemnity payments for farmers who typically sign up for them. CRC and RA will have similar indemnity payments as a result, GRIP may have a lower premium cost, the Biotech yield program includes more hybrids and more states, and farmers using enterprise units will be paying a lower premium for CRC and RA.
Posted by Stu Ellis at 10:02 PM | Comments (0) | Permalink
February 16, 2009
USDA's Farm Income Forecast For 2009 Provides A Hint Of What To Expect On Farms.
How will agriculture financially perform in 2009? Will the recession keep a lid on demand and market prices? Will production expenses continue to rise? When the income and outgo are totaled at the end of this year, will farmers have earned any income? Or will farm household vitality be dependent upon off-farm income?
At first glance, USDA expects 2009 net farm income to be $71.2 billion, down 20% from 2008. Net cash income will not be down as much because it reflects farm commodities produced in 2008 and carried over to 2009 for sale. The statistics are reflected in the latest USDA report on Farm Income and Costs. The USDA economists say the 2008 record farm income was driven by the higher value of crop production, aided by a weak dollar that enhanced export demand. But those factors have reversed.
For 2009 USDA expects 12-13 billion bushels of corn and 3 billion bushels of beans, along with strong demand for grains and oilseeds. Compared to 2008, receipts from grain sales will be down 22%. Wheat income will be down 26% because of lower acreage and reduced exports.
Corn revenue will be down more than 15% reflecting the weaker demand by ethanol refiners and for exports. Soybean receipts will be down more than 6%, in part from the lower price of oil and the lesser willingness to pay high prices for soy diesel. But there are abundant global supplies of oilseeds to meet the demand.
A substantial cut in milk prices will lead the $11 billion decline in livestock receipts, which will be down a total of 8% for the year. Feed costs for livestock producers will be high because of the demand for grains and oilseeds. But softening world economies will result in a lower demand for meats. Beef production will maintain 2008 levels and with falling grain prices, feedlot margins will improve. Cattle prices may move slightly higher, along with hog prices; both are the result of lower production.
While production expenses increased over 14% in 2008, they are expected to drop over 4% in 2009. The $290.6 billion for 2008 expenses would diminish to $277.1 billion in 2009. Compared to gross farm income, expenses make up 79% and that is more than in 2008.
USDA says 10 of its 17 expense categories should fall this year, with feed, fertilizer, fuel, and oil dropping more than $3 billion each. There will be a 3% drop in overall inputs, interest, taxes, and wages, the first time that has happened since 2002. Feed expenses that went up 19% last year will be down nearly 10% this year.
Interestingly, USDA has some difficulty in gauging fertilizer prices. The economists say, “Farmers who did not pre-purchase fertilizer in late 2007 could not avoid the runup in fertilizer prices during the first half of 2008. However, as prices continued to rise through September, farmers probably curtailed purchases. This tendency was reinforced by plummeting wholesale fertilizer prices during the last 3 months of the year. Many farmers probably held off purchasing fertilizer as they waited for retail prices to come down.”
Fuel and oil prices will be down 33% this year following six consecutive double-digit percentage increases. USDA says the fall of fuel prices in the latter part of 2008 is significant because more than 50% of farm fuels are purchased in that part of the year.
While crop input outlays will go down, other expenses will rise, such as cash rents that will climb 7%, interest outlays up slightly, and farm wages up slightly as well. Government payments will be down about $1 billion to $11.4 billion and 27% below the five year average. USDA expects part of the drop to be a result of farmers signing up for the ACRE program that clips 20% off direct and counter cyclical payments.
Summary:
There will be less money in the pockets of farmers at the end of 2009 compared to 2008, with a forecast 17% drop in income, but remaining well above the ten year average. Expenses for crop and livestock production are also expected to decline, but would still be higher than in 2007. Part of the drop in income would be a decline in crop receipts, the first since 1999, after rising 20% each of the past two years. Government payments will also be down to the lowest level since 1997.
Posted by Stu Ellis at 12:15 AM | Comments (2) | Permalink
February 13, 2009
Extension Update
Extension Update is a weekly summary of news from Extension, government, and other attributable sources, focused on marketing, farm management, and other issues that are of interest to Midwestern farm owners and operators.
The South American soybean crop has deteriorated from dry weather says IL Extension marketing specialist Darrel Good and the result will be cuts in exports and ending stocks. Argentine production will be down 150 to 200 mil. bu. from January, and Brazilian beans will be down 75 mil. bu., but without much impact on expected export business. In the meantime, he says US soybean exports have been strong, helped by Chinese demand.
Argentine corn production, most of which is exported, will be reduced from 590 mil. bu. last year to 355 mil. bu. this year. Brazilian corn production is expected to be 15% down from the 2 bil. bu. crop last year. US corn exports have picked up slightly, but Darrel Good says shipments lag behind the pace needed to reach USDA projections. Read more.
USDA’s February Crop Report held few changes, says Kansas State specialist Mike Woolverton. Despite trade expectations for adjustments in the corn balance sheet, USDA left the January numbers in place. Woolverton speculates that the lack of change in ethanol demand reflects USDA’s thinking that better times are ahead for ethanol refiners.
The strength in soybean exports helped USDA push soybean carryover down to 210 mil. bu. at the end of the current marketing year. Woolverton says USDA might have dropped the carryout to 205 if the domestic crush had been more robust. The lower ending stocks pushed upward the USDA price range to $8.75 to $9.75 per bushel. Read more.
Kansas State’s Woolverton says planting decision time is near, but wet fields in the Eastern Cornbelt may delay fieldwork, giving producers more time to decide. He says the world weather impact may cause some price bullishness that may offer good selling opportunities, but the harvest soybean to corn price ratio is at 2.23, under the long term ratio of 2.3. The next report on March 11 may give more guidance for decision making.
The La Nina weather pattern is still waffling says meteorologist Elwynn Taylor at Iowa State, who advises that it needs to be watched closely because we are nearing the end of the cycle that could bring a drought. He’s not predicting one, but says 23 years is the record long gap between major droughts and 23 years after 1988 is 2012.
Elwynn Taylor also advises farmers to watch the weather maps for precipitation in Arkansas beginning February 15. He says if the next 45 days are wet, there is an 80% chance at lease that the planting season will be wet. But he says if Arkansas is dry for the next month and a half, the chance for a dry planting season is also at least 80%.
Climate extremes are often blamed on global warming says KY soybean specialist D.B. Egli, but he says every farmer knows there is a lot of variation in the weather, and he wondered if global warming will affect corn and soybean yields this year. His weather station at Henderson, KY, indicated summer rainfall in the past 31 years ranged from 5 in. to 15 in. and high temperatures ranged from 94 degrees in 1980 to 84 degrees in 2004. He says the 31 years of records don’t show any evidence of warmer, wetter, or drier.
Is your corn still in good condition? Iowa State grain quality specialist Charles Hurburgh asks because last fall’s soft, wet corn has only half the storage life as normal #2 corn. Elevators and farmers who stored 24% moisture corn, but kept it below 30F with aeration, should have good quality corn. But he says unaerated bins and piles may be spoiled. He says the active period for grain spoilage begins in mid to late February.
Hurburgh says corn over 17% which cannot be maintained below 30F has to be dried or sold because it will spoil rapidly. And he says ethanol plants will reject mold damage, as should livestock feeders because of the potential for mycotoxins. He says the bottom line is act now to check the quality, and either dry the crop or move it out of storage.
Crop insurance premiums and indemnities reached record highs last year and could be duplicated this year says Iowa State economist William Edwards. He says calculate your needs carefully because high input prices and lower indemnity prices means you will have to choose a higher percentage level of coverage to protect production costs.
The Biotech Yield Endorsement which had limited availability in 2008 has been extended to other Cornbelt states, and not only covers YieldGard, but also Herculex and Agrisure genetics. Discounts averaged 13% or $3 last year if 75% of your insurance unit was planted to eligible hybrids. However county-level GRIP and GRP is not eligible.
USDA subsidies have been changed for some crop insurance policies which may cause you to adjust your decisions on coverage. William Edwards at Iowa State says whole farm and enterprise units used to have lower premiums than basic and optional units. For 2009 they will have the same dollar value subsidy, which will be 55% for basic units, 77% for enterprise units, and 80% for whole farm units when selecting 75% coverage.
Hog producers who have balanced their books are finding they averaged $47.85 per cwt in 2008, according to an IL Extension study of hundreds of farm records. Economist Dale Lattz said feed costs averaged about $38.75 per cwt, and non feed costs were $19.70, with total costs of production at $58.45. He is expecting production costs to drop during 2009, and says breakeven prices may be seen, depending on corn and bean prices.
If you are cutting back on pork production, MO livestock economist Glenn Grimes says keep going. With pork demand down 3.5% last year, the weaker demand and high feed prices means the hog herd needs to be reduced more than it has been. Grimes says there is a need to cut the breeding herd at least 5% and maybe 10% if demand remains weak.
Milk prices are in the tank and IL Extension’s Mike Hutjens says the reason is the recession here and abroad, the strong dollar, fewer meals eaten away from home and a decline in dairy exports. Compared to the $19 per cwt last November, Hutjens says the price of raw milk by the end of February will probably be in the neighborhood of $13.
Dairy managers should consider several strategies says Hutjens, including the use of by-product feeds to cut feed costs by 9 cents per pound, maintain milk yield, increase quality premiums, and sign up for the MILC program to get $1.20-$1.50 more per cwt.
A soybean fungicide application paid off 55% of the time in 2008 and 40% of the time in 2007 says IL Extension pathologist Carl Bradley. That is based on contracted price, and the increased yield needed to break even from the fungicide cost. Bradley says 2008 yields were –8 to +12 bu. compared to control plots, with the average at 2.6 bu./A.
Bradley’s guide for application indicates a higher risk for fungus when planting back to back bean crops, susceptibility of the soybean variety to frogeye leaf spot, increases in wet and humid weather, and when you are not monitoring for crop diseases.
If your fields are typically wet like many in 2009, some nitrogen application research at Iowa State may be valuable. Using a wet research plot, Agronomist John Sawyer reports, “The fall timing resulted in a yield increase to the highest applied N rate (200 lb N/acre), but the spring/sidedress response had an economic optimum rate at 173 lb N/acre. With the wet spring/early summer conditions, the fall application was apparently more at risk of loss than the spring application. However, due to loss of soil-derived nitrate with the wet conditions, the overall N fertilization requirement was also increased.”
Killing weeds under 4” should be your goal if you want to maximize corn yield, says WI weed scientist Chris Boerboom, but he adds, that does not seem to be happening. He says a 2008 survey found over 75% of fields receiving glyphosate had an average weed height of 6”, which meant some weeds were well over that height, and cutting yield.
Research on corn yield loss from weeds, indicates weeds more than 6” when sprayed have already eaten 6.5% of your corn yield. Boerboom bases that calculation on 150 bu. corn at a $4 price, which he says means a loss of $39 in profits. Read his newsletter.
You’ll need your best binoculars to see 10 years ahead, but that is what the USDA’s Office of the Chief Economist reported this week, in its Agricultural Projections to 2018:
1) Prospects for agricultural will depend on the global economy and the US recession.
2) Over the next several years, livestock will continue to adjust to higher feed prices.
3) The global ag economy will continue to respond to US and EU demand for biofuels.
4) US ethanol refining will slow, but demand will remain high, and affect farm prices.
5) Expansion of EU bio-diesel raises demand for vegetable oils in global markets.
6) Steady economic gains support increases in consumption, trade, and prices.
7) Net farm income will decline from the recent highs, but will remain strong.
8) US retail food prices rise more than inflation through 2011, then fade lower.
Posted by Stu Ellis at 12:49 AM | Comments (1) | Permalink
February 12, 2009
Have You Been Watching The Soybean Market Dynamics?
March and July soybeans have spent a good part of 2009 around the $10 mark. November beans were above $10 for a brief time in early January, and have faded lower. But since the futures contracts have come off their highs, more information has become known about the South American drought that may reduce soybean yields in Argentina, Paraguay and in Southern Brazil. Is this a time to sell or hold soybeans, or is it a time to pay more attention to the weather-driven market?
USDA’s Oil Crops Outlook for February, released on Wednesday, focused on the lack of rainfall in South America and the impact it was having on US soybean exports. And farmers with unpriced soybeans are watching for marketing opportunities. USDA economists are raising their export forecast because of the strong demand from foreign buyers. Marketing year exports could reach 1.15 billion bushels while the domestic demand is expected to weaken.
Soybean prices will be up and down this year, as they are every year, but the successful marketer will consider the timing of the market dynamics. USDA analysts expect the poor crops in South America will cause producers there to store their soybeans and wait for better prices. However, the global soybean demand expected to be supplied in the next couple months from South American ports. In the absence of available supplies from South America, they are increasing their purchases from the US, and could match last year’s record.
While the export market is on fire, the domestic market is barely smoldering. With Gulf prices pushing toward $11 and interior processors bidding below $10, it shows a slow livestock demand compared to exports. Even less soybean oil is being refined into bio-diesel because of cheaper alternatives, over capacity within the industry, and potential disqualification from foreign markets.
While the outlook for the soybean oil market is not as vibrant as in 2008, the demand for soybean meal is improving and prices have been rising. Meal prices are up about $40 per ton from last month and USDA has increased its estimated price for soybean meal.
The export demand for US beans is rooted in the Argentine drought, which is said to be the worst in more than 50 years. Reduced plantings and spotty rains have diminished the potential crop, and USDA says the amount of rain in the next two months will determine continued rates of abandonment. In addition to the drought, late planted soybeans are at risk from frost beginning in May. The impact of the weather will be on reductions of available soybeans for immediate export and reduction of carryover stocks for later export.
In Brazil, soybean production has been reduced by a combination of adverse weather and economic conditions. While the Brazilian weather has not been as harmful as that in Argentina, rainfall has been below average is major soybean production areas. The expectations for a smaller harvest will also mean that stocks will be reduced.
Summary:
The primary dynamic in the US soybean market is a function of the drought in the Southern Hemisphere. Hot, dry weather, mostly in Argentina has curtailed production of soybeans, not only in reduced plantings but increased abandonment of fields. The soybeans that are produced will likely be held back for sale at a later time when prices may be even higher. The reduced competition and available supply have combined to increase global demand for US soybeans. With nearby and harvest futures prices flirting with the $10 range, analysts indicate the strength of the market is due solely to export demand, since the domestic crush is weaker and demand for livestock feed is soft.
Posted by Stu Ellis at 12:28 AM | Comments (0) | Permalink
February 11, 2009
If Creating New Corn Revenue, Try Creative Weed Control
If falling commodity prices have pushed you toward producing non-GMO corn under contract, you may have some additional production choices to make in cultivating a weed-free corn crop. Your non-transgenic seed will not be glyphosate resistant, so brushing up on alternative weed control programs will be your priority, and our service for you today.
With the help of Ohio State University weed specialist Mark Loux we’ll focus on pre-emergent and post emergent weed control outlined in Vol. 3 of the C.O.R.N. newsletter from OSU agronomists. He says recent advances make PRE and POST weed control for non-GMO corn about as economical as glyphosate on commodity GT corn. Loux divides the strategy into Pre-emergent, Pre- and Post-emergent, and Post-emergent, which he says any can provide effective weed control, depending on your typical crop of weeds.
Pre-emergent strategies can be effective where weed pressure is low to moderate, and generally void of perennials or late germinating weeds. And Loux warns that a pre-emergent herbicide program depends on rain within a week after application, or your post-emergent program may become more expensive.
The Pre and Post strategy provides the most consistent control of weeds that emerge throughout the season such as ragweed, waterhemp, annual grasses and other perennials. He says it works better than the other choices in fields that have very heavy weed pressure. Loux rhetorically asks, “Am I better off spending money on a broad-spectrum total PRE program, or spending the same amount or a little more on a PRE + POST program that can provide more consistent control of the weeds that I am dealing with?” He says the keys to success include:
1) Use a PRE herbicide treatment that includes a true “grass” herbicide, and use a rate equal to at least 75% of a normal full-season PRE rate.
2) Use a POST herbicide treatment with activity on both grass and broadleaf weeds.
3) Apply the POST treatment when corn is not more than 12 to 14 inches tall, or before weeds exceed about 3 inches in height. Where the PRE herbicides have controlled weeds well, so that none are evident in 14-inch corn, it is possible to delay POST applications. However, corn is competitive with weeds once it reaches a size of about 20 inches tall, and POST herbicides should be applied before this size.
The total Post-emergent program may not protect yields quite as well as the Pre- and Post-, and it is less effective in fields with perennials and late emerging weeds. Loux says success depends on:
1) It is essential that weeds are no more than 1 to 2 inches tall at the time of POST herbicide application, to ensure that they are not a yield-limiting factor.
2) Include broad-spectrum residual herbicides, and take a similar approach with rates as indicated above the PRE + POST program. Reducing rates too much or failing to use a broad-spectrum approach can result in weed problems later in the season.
3) Make sure that the herbicides applied will effectively control the weeds present in the field.
Summary:
The need for creative weed control need not scare you away from growing non-GMO corn as a potential new profit center. While conventional wisdom may say glyphosate applied to glyphosate tolerant corn will produce revenue, the cost for conventional herbicides can be as economical if used judiciously. Such herbicide programs would be either a pre-emergent program, a post-emergent program, or one that combines the two.
Posted by Stu Ellis at 12:51 AM | Comments (0) | Permalink
February 10, 2009
Uncertain Market Prices. High Production Costs. How Do You Cover Your Risk?
You are operating in a new era of financial risk in agriculture. The bullish market of the past two years is history. But the high cost of production is the present. How do you manage production, marketing, and revenue risk in the current environment? Is the answer a wing and a prayer? Is the answer a seat of the pants marketing plan? To manage today’s risk will take some expense, but it will also take knowing what crop insurance programs to select. And there are many decision aids available.
Farming was simple for Dad. It is complex for you. But managing the financial risk in an era of weak markets and strong production costs is a challenge that can be met with the proper tools. Many of those tools are available from the Farmdoc crop insurance program, created by University of Illinois ag economists, which cover multiple Cornbelt states.
The Premium Calculator will provide your crop insurance premium regardless of the county in which you farm in the 12 North Central states plus Maryland. After entering your state, county, and crop into the calculator, along with your 2009 APH yield, you will be provided with a table that indicates crop insurance premiums for various coverage levels and your yield and revenue guarantees for both farm-level insurance policies and county-level products. The Biotech Yield Endorsement is also detailed. The advantage of the premium calculator will help you create a crop budget before you have to meet with your crop insurance agent early in March. The Premium Calculator can be downloaded into Microsoft Excel software on your computer, or you can use the online calculator.
The Payment Simulator will evaluate a range of insurance products for both corn and soybeans in Minnesota, Iowa, Illinois, Indiana, and Maryland. The Payment Simulator will detail the premiums for various coverage levels, then shows the percent of years that a certain coverage level will make an indemnity payment, along with the average payment. It will also provide data for policies with the Biotech Endorsement. The Payment Simulator is available as an online decision aid.
Farmers wanting to explore a variety of options with crop insurance programs will be able to use the “What If” analyzer. It is a spreadsheet tool that you can download onto your computer, if you have Microsoft Excel software. The “What If” tool will compute your crop insurance premium, calculate your payment from various crop insurance products with prices and yields that you supply. It will also compare your farm yield to a county yield, if you want to consider the use of a county-level crop insurance product, such as GRIP. It will be of particular value to corn and soybean producers across the Cornbelt.
An extensive resource is also available which will provide background on types of insurance, how they are calculated, their benefits, and their limitations. Various examples are also provided, which address CAT, Crop Revenue Coverage, Revenue Assurance, and Group Risk Income Plan. One of the particularly important factsheets combines the use of crop insurance and making marketing decisions. Farm Management Specialist Gary Schnitkey outlines which of the common crop insurance tools are applicable for producers who make limited use of pre-harvest hedging or who aggressively hedge prior to harvest, as well as those who have either strong or vulnerable financial positions.
All of the decision aids can be used reliably between now and the crop insurance sign-up deadline on March 15. Premiums are already set, so costs are known. The only unknowns are the price guarantees for revenue products that depending on futures closes during the month of February.
Summary:
Financial fears can be eased somewhat with the use of crop insurance in a year when production costs are high and prices are not as high as in recent years. To help with a crop insurance program, there are many decision aids that will indicate the level of premium under different crops, coverage levels, and on various farms. The decision aids will also provide the opportunity to explore different levels of risk, and potential payments.
Posted by Stu Ellis at 12:55 AM | Comments (1) | Permalink
February 9, 2009
How Does Your State Score On Environmental Restrictions On Hog Operations?
As a new federal Environmental Protection Agency begins to examine its policies, will it find that its regulations are more lax or more stringent than current state regulations on large swine operations? They seem to be the lightening rod for agricultural environmental complaints, but how do federal laws compare to state regulations on pork producers, and for that matter, how do major hog states compare to each other?
Over the past several decades there has been a substantial change in the complexion of the pork industry, and producers who were marketing a couple thousand head per year as “mortgage lifters” have given way to large operations that have their own strata of specialization. Along with the transformation has come a variety of regulations, which the January 28 edition of Cornhusker Economics reports as focused around zoning and environmental restrictions.
The Nebraska economists report that the regulations have caused increased expenses, which could not be borne by the smaller producers, yet heavy restrictions in some stations have caused producers to become more concentrated in other states, which lead to the explosive expansion in the North Carolina pork industry.
Federal regulations, which began with the Clean Water Act in 1972, have continued to become more stringent over time. Recent revisions have required Nutrient Management Plans and identified Best Management Practices, which all states must adopt by the end of this month. But many states have also imposed regulations on non-point source pollution. State level regulations have been widely variable, particularly in the top 10 pork production states:
1) Waste Management Plans are required by each of the top ten.
2) Facility Design Approval is required in the entire top ten.
3) Construction and Operation Permits are required by all ten.
4) Mandatory Record Keeping is required in all ten.
5) Odor Abatement Plans are required by all ten
6) Zoning is required in NC, MN, NE, and KS
7) Carcass handling is controlled in all ten states.
8) Hydrogen Sulfide is controlled in MN and IL.
9) Reports on Waste Spillage are required in all ten states.
10) Nutrient Management Plans are required in all ten.
11) Cost Share Programs are offered in all ten.
12) The federal location setback requirement is more restrictive in IA, NC, IL, MO, OK, and KS.
13) The federal manure application setback requirement is more restrictive in IA, IL, IN, and OK.
Based on an index of 2008 requirements, all of the top ten pork producing states either met or surpassed the restrictions set by the federal government, which had a score of 9. States with a score of twelve, included NE, MO, and OH. States with a restriction score of 13 included, IA, MN, IN, OK, and KS. NC and IL were the most restrictive with a score of 14.
The Nebraska researchers make the observation that the environmental regulations have the effect of protecting small hog operations, and any tightening of those regulations will be seen as an effort to save small hog producers. The impact of any regulation is felt in the cost of meeting the regulation for both large and small producers.
Summary:
A wide variety of environmental and zoning regulations are in place both within federal law and within the statutes of the states with the larger volumes of pork production. While many of the states have similar types of regulations, not all states address all of the issues and there is little duplication between states. Regulations are seen as a means to protect the smaller pork operation and any tightening of the regulations will be seen as an initiative in that direction.
Posted by Stu Ellis at 12:24 AM | Comments (0) | Permalink
February 6, 2009
Extension Update
Extension Update is a weekly summary of news from Extension, government, and other attributable sources, focused on marketing, farm management, and other issues that are of interest to Midwestern farm owners and operators.
Ethanol throttled the 2007& 2008 corn market, now it put on the brakes. Marketing specialist Chad Hart at Iowa State says that is because of the shutdown in several ethanol plants. But the industry is still growing, and he says it should have exceeded 9 bil. gal. last year. He says the federal mandate is for 10.5 bil. gal. of ethanol this year. One industry leader recently estimated 2.7 bil. gal. of capacity is currently idled.
Corn exports will fall 661 mil. bu. behind the export levels of last year and beans will fall 61 mil. Iowa State’s Hart says the value of the dollar continues to be a problem for US exports. He says it will strengthen against most major currencies, except those of Japan and China, which are currently the top corn and bean export markets. Read more.
Argentina is suffering the worst drought in the past 50 years, estimates Mike Woolverton at Kansas St., who says its government has estimated production with a 50% loss, and curtailed all wheat exports. He says the drought has cut 43% of soybean production in Paraguay, and reduced soybean yields 10% in southern Brazil.
Woolverton says the Argentine drought and farmers’ strike should show up in USDA’s February 10 world supply and demand report. He says market speculators have begun building long positions as a result of the issues, and US farmers with stored crops may be major beneficiaries of the South American drought and political issues.
US soybeans will be helped, since this is the time of year that global buyers turn to South America for soybeans, but the supply will be short and price will have to ration the supply, says Woolverton, adding that will become a dynamic in the acreage decision this year, but a soft demand from the recession will prevent any wild price moves.
Focus on the demand, says Alan May at South Dakota State. “Consumption will continue. Demand has, and will likely continue to be, the key component in price direction. People still need food, livestock still need to be fed, and the ethanol industry will still need to buy corn to meet the demand for ethanol. The issue is the performance of demand in the months ahead and the corresponding production we will have in 2009.” He says prepare to make sales when the opportunity arises and control input costs. Read Alan May’s grain newsletters.
A weaker economy still wreaks havoc on fundamentals, says Mike Roberts at VA Tech.
1) Any corn strength is limited by bearish speculators. He’s pricing up to 30% new crop.
2) Funds are adding to net bull soybean positions. He’s pricing up to 40% of new crop.
3) Funds have reduced net bear wheat positions. He’s pricing up to 15% of the new crop.
If you are uncertain about ACRE, IL Extension’s Gary Schnitkey says the 30% cut in loan rates may be a moot point, since, “It is unlikely that prices will fall below national loan rates between now and the end of the Farm Bill in 2012. Hence, the chance of receiving LDPs is low under both the traditional and ACRE alternatives.”
If you are uncertain about ACRE, which will cut Counter-Cyclical payments by 20% for those signing up, Schnitkey says, “Trigger prices in 2009 are $2.35 for corn, $5.36 for soybeans, and $3.40 for wheat. The chances of receiving counter-cyclical payments are low because it is unlikely that commodity prices will average below trigger prices.”
If you are uncertain about ACRE, Schnitkey says, “ACRE will pay for corn in 32% of the years and average $17 per planted acre. For soybeans, ACRE will pay in 16% of the years and average $6.50 per planted acre. These average payments will vary across farms based on the farm's average yield relative to the state's average yield.” Read more.
The national cattle inventory is 1.6% under January of 2008, with beef cows down substantially, lighter heifer retention, but a slight rise in the dairy herd. The national herd is 31.7 million, the least since 1963, and with heifer retention down 2%, the herd will continue to decline into next year says Iowa State livestock economist Shane Ellis.
Shane Ellis says cattle feeders have started to push back on prices they are willing to pay to regain profitability. “Compounded by lower feeder cattle prices, there will continue to incentive for producers to reducer their herds to exit the business.” Read his newsletter.
Cattle numbers are down, yes, but Purdue’s Chris Hurt says be patient on prices. “The USDA (Cattle on Feed) report will increase cattle prices in the short-run, but more central to a price turn around will be the perceived progress of the general economy. On that front, consumers are not likely to feel better about their budgets for several more months as unemployment continues to rise into the spring and summer.”
Hurt does not give much hope for a rapid recovery. “The improvement in the economy is still months away, and may well be late 2009 and 2010. This leaves the possibility that finished cattle prices only return to the mid-to higher $80s this spring with mid-$80s this summer. If so, prices might not move back above $90 until very late in 2009 and early 2010. Read more.
Consumer demand for meat is weak, according to MO livestock economists Glenn Grimes and Ron Plain. They say 2008 pork demand was down 3.5%, beef demand was down 4.1% compared to 2007. Export-driven live hog demand is up 6%. They say consumer demand will remain weak in 2009, but fewer chicken supplies will help pork.
Your New (crop) Year’s resolution may need to be better weed control. IL Extension crop specialist Jim Morrison says herbicide resistant weeds need special attention:
1) Regular field scouting can identify stands of weeds that just won’t go away.
2) Rotate herbicides, which work on different parts of weeds (site of action.)
3) Combine mechanical weed control with herbicide applications.
4) Clean tillage and harvest equipment regularly to prevent weed transfers.
Weeds rob your nitrogen say Michigan St. specialists, who add that a 95% control can be achieved when weeds are 9 in. tall, but corn yields are cut by 25 bu. per acre. They say there is no yield loss when weeds are 4 in., but 12 in. weeds produce a 9% yield loss. In terms of nitrogen, the Maximum Return to Nitrogen (MRTN) rate was 96 lbs per acre when weeds were controlled at 4 inches, compared with an MRTN rate of 200 lbs per acre when weeds were controlled at 12 inches. Bigger weeds absorb more nitrogen.
Your combine is too efficient and may not be leaving enough corn on the ground to sustain the cattle you turned out on the cornstalks. NE forage specialist Bruce Anderson says 4% of the corn was left in the field 10-15 years ago, but today it is about 1 lb. less grain per acre for every bushel harvested. He says cattle already need extra protein.
OH corn yields were 5 bu. under trendline, but OSU agronomist Peter Thomison says they could have been worse. He says the wet spring and protracted dry spell hurt the crop, but he says if August had been blistering hot, which it was not, then corn yields would have been comparable to 2002 when the state average yield was a paltry 89 bu. Thomison also says Hurricane Ike clobbered corn stalks, causing widespread lodging.
Does stacked trait corn yield better than non-GMO corn? Not really say Ohio St. agronomists, who note that 2/3 of the state last year was planted to transgenic corn and it is getting harder to get non-GMO corn. They say some farmers believe stacked traits are matched with high yield hybrids, but the agronomists say different genetic backgrounds respond differently to genes and there is no research indicating the stacking traits increase yield. Read their current C.O.R.N. newsletter.
Your thoughts about the pros and cons of 2,4-D are being solicited by the US EPA which has been asked by the National Resources Defense Council to cancel the 2,4-D registration based on the fact the EPA cannot prove it does not harm anyone and human health effects were not all considered. Information about submitting comments is here.
“Question everything,” say Michigan State fertility specialists in their latest newsletter, including the way you fertilize crops. They are strongly advocating soil tests, given the current prices. And they say if you take your own soil test, consider the soil compaction, and question if it may be limiting the crops ability to absorb water and nutrients.
“The number of farms hit bottom, and is increasing slightly,” says Greg Preston who heads up the NASS office in IN. He was describing the 2007 Ag Census released by USDA, which indicated the turnaround of a 60 year trend. With the ever-increasing age of farmers, Purdue’s Kevin McNamara expects more land transitions in the future, including sales to other farmers, subdivisions of farms, and housing developments.
Posted by Stu Ellis at 12:45 AM | Comments (1) | Permalink
February 5, 2009
The Ag Census Is Out, And You Are In It!
Two years ago every farmer either had to fill out a questionnaire, or was called by an Agriculture Census taker, or was paid a personal visit. Despite the fact that most folks do not like the intrusions on their privacy, the statistics collected have been compiled and now the US government can begin to formulate responses to problems that were identified in the Ag Census data. But what does that data really show?
Hundreds of numbers were collected from every farm and farm family, and when aggregated with your neighbors, with other farmers producing the same commodities, and with other farmers in the same demographic group, those numbers will identify trends when compared with past Ag Census data. Rural sociologists, ag economists, and others will be analyzing the numbers for years to come, so a comprehensive report is beyond our scope today. Let’s look at some of the early information on the Cornbelt farmer, but don’t worry, there is no way to identify your individual farm.
USDA’s Ag Census data is available in numerous reports. The Farm Numbers report indicates 2,204,792 farms in the US, up 4% from 2002, reversing a trend that began in the late 1940’s. The definition of farm requires the sale of $1,000 or more agricultural products. 39 states recorded increases, while 11 states recorded decreases in numbers, including SD, NE, and OH. Other Cornbelt states were in the growth sector.
Operations that declined included: beef enterprises, grain and oilseed farms, dairy farms, nursery and greenhouses, swine operations, cotton farms and tobacco farms. Operations that grew in number compared to 2002 included: hay and other crop farms, aquaculture, fruits and nuts farms, sheep and goat farms, poultry and egg farms, and vegetable operations.
Farms that recorded sales between $1,000 and $250,000 declined in number. Farms with sales under $1,000 and over $250,000 all increased in number. Since the 2002 Ag Census, 291, 329 new farms began operations. They were generally smaller than the average farm, which had 418 acres and $135,000 in commodity sales. Only 45% of operators list farming as their primary occupation. Farms which had sales over $250,000, which were identified as family farms, made up only 9% of the total, but produced over 63% of all ag products sold.
In the demographics section of the Ag Census, USDA says, “One of the most significant changes in the 2007 Census of Agriculture is the increase in female farm operators, both in terms of the absolute number and the percentage of all principal operators. There were 306,209 female principal operators counted in 2007, up from 237,819 in 2002 – an increase of almost 30 percent.”
Farmers are also growing older. The average age is 57.1 years, up from 55.3 in 2002 and 50.5 in 1978. In the past 5 years there was a 20% increase in the number of farmers over 75 years old, and a 30% decrease in the number of farmers under 25.
The economics portion of the Ag Census indicates a 48% increase in the market value of products sold, and a 43% increase in the average per farm, since 2002. Production expenses rose in that 5 years by 39% nationally and 34% per farm. Net cash income climbed 84% nationally and 78% per farm to $33,827.
Contract production expanded by 55% since the 2002 Ag Census, but only 2% of farms were engaged in contract production. They produced 16% of the total value of all ag products sold.
Nine states produce 50% of the total value of ag products, including the Cornbelt states of IA, NE, KS, IL, MN, and WI. California and Texas are at the top of the list and North Carolina is in 8th position.
Summary:
There was no surprise in the 2007 Ag Census that US agriculture has grown since the last count was made in 2002. But a major surprise was the fact that the number of farms has increased, reversing a 60 year trend. The typical farmer is growing older, but has more sales. The commodity farms that produce corn, beans, cattle and hogs have declined in number to make way for farms producing vegetables, fruits, aquaculture, and specialty animals.
(Take a look at some of the data, and share your observations, whether you are surprised, concerned, or whether you had predicted the trends.)
Posted by Stu Ellis at 12:23 AM | Comments (1) | Permalink
February 4, 2009
You Asked For Change, And Change Came.
USDA listened. Or at least someone on a Capitol Hill staff listened, and when the 2008 Farm Bill was written, rules were changed that will enhance the widespread use of flexible cash rent leases. Just a stroke of the pen, actually some computer keystrokes, was all it took to eliminate one of the major barriers to the use of flexible cash rent leases.
Flexible cash rent leases have provided the opportunity for thousands of farm operators to manage their risk, based on the variable rent paid to land owners which might be determined on commodity prices, crop yields, both, or many other innovative formulas. But under the rules of the last Farm Bill, the innovation was stifled by the requirements that determined flex leases were really crop share leases. No longer, will that cause a problem, according to Farm Management Specialist Stephen Johnson at Iowa State University.
Johnson’s February newsletter indicates the new FSA rules state, “For 2009 through 2012, a lease that provides for the greater of the guaranteed amount or share of the crop or crop proceeds shall be considered a cash lease if the lease provide for guaranteed amount and share of the crop.” Sure, the language could have been written in terms that were more understandable, but Johnson says, “With this change, the burden of many flex leases as crop share leases, and therefore requiring the government farm programs to be shared with the landowner, has been removed.”
That may spur some farm operators and land owners to launch into a rousing chorus of “Ding, dong, the witch is dead,” from the Wizard of Oz movie. No longer will land owners with a flexible lease be required to sign up for the Direct and Counter-Cyclical payments, and instead may have a life without the Farm Service Agency.
Johnson suggests the change will expand the use of flexible cash rents that he says will guarantee a minimal base rent or bushels of grain, and then let farm yields or gross revenue to trigger a flexible rent payment. What could those triggers be?
1) Actual farm yield, verified by bin measurements, scale tickets or grain monitor.
2) FSA’s Posted County Price, which is shifting to a 30-day moving average.
3) Average of harvest delivery bids at local elevators, or quarterly prices with mid –month calculations.
4) And a multitude of other factors.
Establishing the gross revenue for a crop is a basic necessity in the calculation, but Johnson says if production costs are too high or too low, then adjustments need to be made to protect the financial interests of both the land owner and the farm operator. He says for the current year, “consider not triggering the flex payment until gross revenue exceeds the total cost of production, including the base cash rent.”
On the horizon, Johnson says the yield information required by the new ACRE program could serve as the basis for a flexible lease, if the operator signs up for that program. He says the information required by FSA will be transparent, and could serve as the basis for a lease that will extend for the life of the ACRE program. That will allow the operator more flexibility in addressing fertility and other issues that require a longer term horizon.
Summary:
USDA rule changes will allow more farm operators and land owners to use flexible cash leases because the owner no longer has to sign up for and receive Direct and Counter-cyclical payments. The new FSA rules for variable leases will create more opportunity for innovation in determining base rent and trigger points for any premium payments based on yield, revenue, or other factors.
Posted by Stu Ellis at 12:16 AM | Comments (0) | Permalink
February 3, 2009
Has The Recession Hit Your Farm Yet? If Not, Are You Prepared If It Does?
Some sectors of agriculture have elected to not participate in the recession, but if the economic slowdown captures just about everyone, how should farmers plan to manage their financial affairs? Where will credit come from and what will be the requirements to qualify for it? Many questions could be asked, but let’s start with those and get a look at the big picture.
The collapse of major banks, insurance brokerages, investment houses, and other financial institutions started the dominoes falling last summer. Other than a rise in production expenses, and a drop in commodity values, agriculture has been “like an island of tranquility,” says Extension economist Bob Jolly at Iowa State University. Writing in the February issue of Ag Decision Maker, Jolly says farmers, lenders, and agribusinesses wonder when the recession will be felt and what can be done now to soften the blow. Regardless of the route you eventually take, Jolly says the degree of uncertainty about the future warrants the need for various contingencies.
Jolly notes the significant rise in asset values in agriculture over the past 20 years; and while debt loads have risen modestly, net worth has reach record highs. He says that is a critical asset during hard times, because is provides a credit reserve and less income is needed to service debt.
Jolly looked at the financial records of several thousand Iowa farms to put them in various credit categories, based on their assets, liabilities, equity, income and other factors. 65% had strong financial status and 26% more were financially stable, thanks to strong grain prices the past two years. Inquiring of lenders, Jolly found that less than 5% will require some type of financial restructuring or debt rollover, but a significant number of farms will be reducing input costs, delaying purchases, and re-negotiating rents.
He says the consensus is that farmers and lenders will be able to withstand the stresses of 2009, but if conditions worsen, the capacity of farm businesses will decline without major adjustments. And he says that why contingent plans are so important.
One of Jolly’s colleagues, Iowa State economist William Edwards, writes in the same newsletter that farmers have a variety of financial tools in their tool box that might come in handy this year:
1) An accurate set of financial statements with current inventory values and land prices will be important for a lender to see.
2) A detailed cash flow budget, with high input costs and rents will show where operating credit lines will need to be increased.
3) Input prices may vary, depending on when suppliers booked them, so shopping around may yield some lower prices.
4) While reducing nitrogen will cut costs, it may also cut revenue, so the use of a decision aid on the amount to apply would be wise.
5) Lock in profitable commodity prices, and watch for price breaks on inputs.
6) Falling prices triggered many revenue insurance policies late in 2008, and adverse weather provided opportunities to collect SURE disaster payments, so documented yields could result in additional revenue.
7) With higher costs of production, you have more invested in the crop and that warrants higher levels of crop insurance coverage. Additionally, livestock insurance programs allow price floors to be set.
8) Consider enrollment in the ACRE program for guarantees based on higher price levels and current yields.
9) Try to negotiate leases that allow flexible payment arrangements, based on prices or yields.
10) Until you know revenue opportunities, defer capital purchases, such as machinery replacement, land purchases, or new grain bins.
11) Consult your tax advisor about early depreciation, deferring crop insurance payments, income averaging, and other ways of leveling out your income.
12) Various lenders may have a wide range of interest rates, so survey the opportunities and don’t forget USDA loan programs.
13) Discuss with your lender the possibility of refinancing long term loans, which may be available at lower rates of interest.
14) Keep savings in liquid accounts to pay production expenses or family needs, rather than investments that are hard to convert to cash.
15) If you have equity in land, livestock, and equipment, they may serve as collateral for lenders to increase your credit line.
Summary:
While the US and much of the world are in a recession, agriculture has escaped to some degree, giving farmers a chance to make plans to weather any storm that might result in financial damages. Surveys indicate most farmers are in good financial position, but could be in trouble if a recession is long lasting. Many actions are available for farmers to take that will help insulate them from any economic onslaught, and consultation with lenders and tax advisors are among the priorities.
Posted by Stu Ellis at 12:13 AM | Comments (0) | Permalink
February 2, 2009
Are You Looking At Nitrogen Alternatives?
Whether you are using a sharp pencil or an Excel spreadsheet to work on crop budgets for 2009, it is nearly impossible to pencil in much of a profit if any. The killer has been fertilizer costs, and although everyone is having to pay premium prices to move the high priced product out of the pipeline before the lesser priced fertilizer is available, that still won’t convert red ink to black. But you’ve have recently heard some talk about using lower priced urea to supply nitrogen to corn. Does that make any sense?
Urea and UAN typically are more pricey than anhydrous ammonia, per pound of N, but prices have recently converged, and with some application advantages to urea, there may be some benefits. Purdue agronomist Jim Camberato balanced the pluses and minuses for urea in a new fact sheet. He says urea will be attractive to many farmers who did not get a chance to apply anhydrous last fall, and application this spring can be done in short order. But he says it is not quite as good a source of nitrogen as anhydrous ammonia, and he says urea is comparable to UAN, if the urea is incorporated into the soil.
1) If urea is applied to the surface of the soil, the ammonia will evaporate and is lost, which means 60% of your nitrogen is gone. A more typical loss will be 30%, which is still more than UAN, since UAN has only half of the nitrogen content as urea. Camberato says that degree of lost nitrogen can mean corn yield will be reduced 16 to 21 bushels per acre. And he says where the ammonia is evaporating, the pH of the soil will be raised significantly causing another detriment to good fertility.
2) Urea left on the soil surface is going to perform better if banded than broadcast. The more concentrated application will work deeper into the soil before runoff. Camberato says Ohio researchers found a 9 bushel increase when corn was banded with UAN rather than broadcast, and 5-6 more bushels in Illinois research.
3) To reduce the transition of urea to ammonia and delaying its evaporation, Camberato suggests the use of an inhibitor, such as Agrotain. He says Illinois research found a 19 bushel per acre improvement with an inhibitor used in UAN broadcast applications.
4) Elimination of the evaporation problem can be achieved with incorporation 1-2 inches into the soil. Rain and irrigation will help achieve the same results, as long as the urea has not converted to ammonia and it has not evaporated. Warm temperatures will necessitate a quick incorporation, but cool temperatures will retard the urea conversion.
5) Urea will convert to nitrate quicker than anhydrous ammonia, which makes it a poorer substitute and more susceptible to leaching, says Camberato. He says there was a 15 bushel lower yield with urea when it was applied prior to planting in a comparison with anhydrous ammonia.
6) Urea is a neutral molecule, so it is not attracted to soil molecules and will leach as water percolates through the soil. Although that reduces the ammonia evaporation, the amount of nitrogen remaining in the root zone depends on the amount still in urea form.
7) An alternative to the uncontrolled degradation of urea is a polymer coating, that will slowly dissolve with moisture, but requires moisture for release of the nitrogen. It is less susceptible to ammonia evaporation because of the lower impact on soil pH.
Summary:
Urea is an alternative to anhydrous ammonia, when comparing the cost of the nitrogen. It may provide ease of application, but it will also yield up its nitrogen to evaporation and leaching more than will anhydrous ammonia. Methods of application may provide some alternatives for limiting the downside problems of urea.
Posted by Stu Ellis at 12:09 AM | Comments (1) | Permalink
