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April 30, 2009
Fundamental and Technical Dynamics Are At Work In The Hog And Cattle Markets.
The US pork industry has grown substantially over the past 23 years, but one dynamic, termed as “impressive” has been the growth in exports of US hogs and pork products. Today the pork industry is 27 million head larger than it would have been in 1986 without export demand from overseas customers hungry for US pork.
Actually, the growth in the pork industry has been due, not only to outward bound pork, but to a substantial decline in imported pork products. That is the contention of livestock economists Glenn Grimes and Ron Plain at the University of Missouri. Their analysis indicates US exports were at 86 million pounds in 1986, but had reached 3.1 billion pounds by 2007. When comparing imports and exports, the economists say the US had a pork trade deficit of 1.036 billion pounds in 1986, but a positive trade balance of 2.169 billion pounds in 2007.
The export business contributed substantially to the value of pork, climbing from $1.97 in 1986 to $41.49 per head in 2008. That money ended up in the pocket of producers, say Grimes and Plain, who said pork promotion programs, funded by producers made it possible, as well as the US meat packing industry. However, they also attributed part of the growth to government efforts to liberalize trade, as well as the economic growth around the world pushing demand upward.
The economists said it is difficult to calculate how much credit should be given to any one of the three, however the Pork Check-off has invested $69 million over the past 23 years to promote exports. They said total income for all pork producers would be $12.2 billion attributable to pork exports.
Grimes and Plain say the pork industry has grown substantially without lowering prices. They said they assumed producers increased the herd enough to offset any price benefits from net export growth in years when both prices and exports grew.
Increases in the size of the swine herd have long been the subject of discussion, and recent calculations by ag economists Jeffrey Dorfman and Myung Park of the University of Georgia may have clarified the lengths of the hog and cattle marketing cycles. Using data about the size of hog and cattle herds for the last 140 years, the economists attribute part of the complexity to the biological lags in accumulating breeding stock as a limitation of producers being able to more quickly respond to markets. Their effort eliminates the economics of production and marketing, and focuses solely on the inventory levels to determine the length of the hog and cattle cycles and the growth rate of cattle inventories.
Their survey begins with 1866 data on livestock numbers and continues through 2009. They found 141,981 cycles in the cattle data, with a minimal chance there were three different repeating cycles. However, they found a 37% chance of four repeating cycles, a 52% chance of five repeating cycles, and an 11% chance for six repeating cycles. Their characterization of the cattle cycle was “a very complex dynamic process.” Ultimately, they identified the cattle market as having cycles with lengths of 4.5, 6, and 11 years.
The hog market is dominated by five different cycles, according to the Georgia economists. Those have lengths of 4.5 years, 5.4 years, 6.8 years, 10.2 years, and 13.3 years.
Dorfman and Park say a better understanding of the cycles could lead to better risk management and higher profitability for both producers and processors. Additionally, they acknowledge references to a single multi-year cycle, but say there are a number of smaller cycles that are actually at work in the cattle and hog inventory. Both have a short cycle of 4.5 years and an 11 year cycle.
Summary:
A significant dynamic in the US pork industry in the past 23 years is a substantial shift from imports to exports, which has allowed the swine herd to expand substantially without lowering producer prices. This marketing effort has been jointly accomplished by USDA, the meat packing industry, and the pork check-off.
Marketing of livestock is frequently dominated by cycles that indicate herd expansion and contraction, and using data from the past 140 years of livestock herd numbers, there are similarities in the short and long cycles for both hogs and cattle. The cycles may be due more to biological lags in the development of breeding stocks, instead of economic-driven issues.
Posted by Stu Ellis at 12:43 AM | Comments (0) | Permalink
April 29, 2009
Alternative PCP: Your New Friend (Or Enemy) At The FSA Office.
Whether it is used or not, everyone loves USDA’s commodity loan program. It is simple, it is quick cash, and in recent years it provided more income opportunity with the Loan Deficiency Payment program. But just like the complexity of its big brother, the ACRE program, USDA’s loan program has new wrinkles as well.
The CCC non-recourse loan program has been around as long as grandpa, who made frequent use of it to finance spring crop input costs at loan rates less than what the bank charged. Convenient, and if the market price stayed low, the government took the grain (non-recourse) and neither the loan nor any interest had to be repaid. But to keep burdensome commodities out of government warehouses, the marketing loan program and the LDP provided cash benefits, and everyone learned about the Posted County Price. In fact, when prices were below the PCP many farmers became adept at working the formula to maximize the LDP. It was a way of making the bottom of the market pay off if the top of the market was too elusive.
But the 2008 Farm Bill has brought some new changes in the loan program according to Iowa State University ag economist Stephen Johnson. His recent newsletter says April 15 was the implementation date for USDA’s new system for determining repayment rates on non-recourse loans. Yes, the days of furiously faxing an LDP request to the FSA office after the market closed have gone the way of grandpa’s “sealed granary.” But never fear, everyone will soon figure out how the program works and begin smiling again.
Loan rates are key to understanding the new program, and there will be county loan rates that vary across the country. Although the national loan rates of $1.95 for corn and $5.00 for soybeans will remain steady, the county loan rates will be announced soon. With crop prices above loan rate levels, few farmers have been interested in the loan program at this time. But if prices venture toward loan levels, understanding the changes will be important.
Loan Deficiency Payments can still be obtained. They will be available at the FSA office when the Posted County Price falls below the Loan Rate. There is nothing new about this calculation.
Alternative Posted County Prices are new to the concept, and the Alternative PCP will be calculated daily to provide, what Johnson calls, “more stable system for determining non-recourse marketing assistance loan repayment rates and PCPs that determine the LDP.” The new method essentially smoothes out the market volatility and reduces the daily variations in Posted County Prices and LDP’s. Johnson’s expectation is that it will “minimize potential forfeitures, accumulation of CCC stocks, CCC storage costs, market impediments and discrepancies in benefits across state and county boundaries.”
The loan repayment rate will be determined by an average of price of the five prior days and an average of prices of the 30 prior days. The 30-day moving average will be calculated from all terminal market prices for the crop, adjusted by the difference between the national loan rate and the county loan rate. The 5-day moving average will be calculated from the terminal prices, adjusted by a county differential and any terminal price adjustments. The terminal prices are typically determined by feed demand, processor demand, or export demand and the two terminals used by a given county will reflect prices driven by consumption. The higher of the two prices will be the Alternative PCP. It will not have much impact, until it moves below the county loan rate.
In the last Farm Bill, a producer with grain under loan could “lock in” a repayment rate for as many as 60 days to minimize the amount required for repayment. Producers without grain in the loan program could maximize their income opportunities by taking the LDP at low levels. However, in the new program, those movements will not be as significant, since the Alternative PCP will be based on moving averages and not the daily close of a volatile market.
Summary:
The loan program remains one of the pillars of the Farm Bill, but changes have been made in the way that repayment rates are calculated, and the way that LDP opportunities are determined. Loan rates will soon be assigned to each county, but the calculation of the Posted County Price, now being called “an alternative PCP,” will be based not on daily closes of the commodity market but on 5 and 30 day moving averages of market prices. The impact will be a smoothing out of the daily changes of LDP’s and loan repayment rates.
Posted by Stu Ellis at 12:00 AM | Comments (0) | Permalink
April 28, 2009
Does The Public Get Its Money's Worth From Crop Insurance Subsidies?
Risk management is an integral part of every family, every farm, and every company or organization. Some risk is managed well and some is not. In agricultural production, the expense of managing weather and production risk traditionally has been borne by USDA to ensure farmers will financially survive to plant another crop and guarantee affordable food for the populace. But that process is complex, costly, and increasingly controversial. How would you answer the question of whether USDA should subsidize agricultural risk management tools?
The question of governmental support for farmers’ risk management will receive either strong support or opposition, and a lesser number of folks who ride the fence. One of those with strong opinions is Iowa State University ag economist Bruce Babcock, whose thoughts are published in the Spring edition of the Iowa Ag Review. Babcock describes the programs as complex in their administration, and adds that crop insurance agents are paid commissions fully funded by taxpayers, most of the RMA (crop insurance) program risk is borne by taxpayers, and all of the FSA program risk is paid for by taxpayers.
Babcock contends price support programs and crop insurance programs are expanding rapidly without being questioned, “Fundamental questions that never seem to be addressed by those who support taxpayer subsidies for risk management are whether the public receives any benefits from these subsidies, and if it does, whether the benefits outweigh the costs.”
The Iowa State economist says risk is a real production cost and will vary by region and crop; and should be treated as any other production input. Subsequently, Babcock says farmers should try to reduce the cost of managing risk, “If farmers fully understand the risks they face and private markets exist to allow them to pay for desired levels of risk reductions, then the efficiency with which agriculture operates cannot be increased through subsidized risk management. The reason we have so many subsidized risk management programs is either that the private sector is incapable of providing the kind of tools that farmers desire or that Congress uses the subsidies to meet some other objective.”
Babcock says the futures market is available to farmers to offset their price risk, and even weather contracts traded on the CME could be used as yield insurance. But he says farmers will not use those tools, “Because taxpayers fund a crop insurance program that offers insurance agents a large commission to get farmers to sign up for an insurance policy that pays out, on average, twice what a farmer is asked to pay as a premium. Private insurance companies are willing to insure a farmer's yield because a large portion of the risk of this insurance is borne by taxpayers. Why should a farmer care about weather contracts when taxpayers provide more reliable coverage against low farm yields at a small fraction of the true cost of insurance?” And he rhetorically asks why farmers would not sign up for the ACRE program and crop insurance to get “double compensation if harvest prices fall dramatically.”
Babcock believes farmers would participate in risk management programs if they were on their own to do so, and he wonders why US producers require risk management subsidies when those programs do not exist in other countries. He contends there are many areas of the US where crop production is a high risk exercise, and if risk management subsidies were eliminated, it would not hurt crop production in low risk areas because the risk cost is small. Babcock says, “a large proportion of the subsidies do not even flow to farmers but rather go to the crop insurance industry. Instead of looking at taxpayer benefits of expanded production in high-risk areas, it is more instructive to look at the political benefits of this expanded production, and at the lobbies that guard against changes in risk management policy.”
Babcock says Congress continues to support the status quo, which is not surprising if it maintains the industry of agriculture. But he says it is not easy to understand the support of the crop insurance industry, since it duplicates FSA programs. He suggests more public awareness will result in change or the need to save money to finance the rest of the federal budget.
Summary:
The cost of agricultural risk management is high, but for the most part has been borne by various government programs funded by taxpayers. Such programs have had Congressional support although they support crop insurance companies and agents, as well as the agricultural production industry. Alternatives exist for farmers to offset their risk through futures exchanges, however, may not have the incentive to do so if the government continues to provide subsidized risk management programs.
Posted by Stu Ellis at 12:27 AM | Comments (3) | Permalink
April 27, 2009
Is EPA's "Cow Tax" Real Or Just A Good Rumor?
We’ve all heard the coffee shop rumors that EPA will impose a cow gas tax on every livestock producer to reverse global warming. That is great fodder to chew, but what are the real proposals, what would they do, and who would be affected? Once those issues are clear, agriculture can make an appropriate response.
The issue involves greenhouse gases, abbreviated as GHG, and there are many, but for the purposes of livestock producers, the major ones are carbon dioxide and methane. Agricultural and Biological Engineers Ted Funk and Randy Fonner at the University of Illinois offer their analysis, saying the US EPA proposes a reporting requirement of facilities with manure management systems that have annual emissions exceeding 25,000 metric tons of carbon dioxide equivalent. Funk and Fonner say, “No other GHG emission source associated with agriculture is proposed to be covered.” Frankly, few farmers have the knowledge and equipment to have calculated GHG emissions at their facility. Funk and Fonner say EPA’s method of calculations indicates, “that 40 to 50 of the largest livestock facilities would be required to report at the 25,000 mtCO2e per year threshold level.”
If you are not managing one of the 40 to 50 largest livestock facilities, you probably are going to quit reading and think it does not concern you. However, this issue is like any dairy herd, and once the gate is open, the other cows will follow the leader through the open gate. In other words, all livestock producers may want to become familiar with the issue, since there may be subsequent regulations that would impact their operation.
Funk and Fonner believe the EPA regulations stopped where they do because of the challenges to estimate GHG emissions. They say measurements with current technology produce uncertain results at smaller facilities. At this point, the only gas being measured for reporting requirement is carbon dioxide; and methane produced in the digestive process is not included. That will upset some of the late night TV comedians.
According to the proposed EPA rule, the reporting requirement is applied to a “manure management system or facility.” Funk and Fonner list those as:
· Digesters
· Storage pits
· Liquid/slurry systems
· Uncovered anaerobic lagoons
· Feedlots and other drylots
· Manure composting
· Solid manure storage
· Other poultry production with litter
· High-rise houses for poultry production
· Deep bedding systems for cattle and swine
Such facilities include “physical property, plant, building, structure, source, or stationary equipment. Even if an access lane or even a township road separates them, the issue is who controls it and does it emit any GHG.
If you have no livestock, you are exempt from the reporting requirement. So if you are burning off crop residue, composting, or raising row crops you are not covered by the rule. If you have a large incinerator for some reason on your farm, and produce more than 25,000 metric tons of carbon dioxide equivalent per year, you would have to fill out the require paperwork. Funk and Fonner compare that level of emission to 2,200 homes, or burning either 58,000 barrels of oil or 131 railcars of coal.
So if you are one of those that have to comply with the reporting requirement, what has to be done in addition to paperwork? Funk and Fonner say there are no taxes or fees proposed at this time. Anyone uncertain if they are producing more than 25,000 metric tons of carbon dioxide per year is required to obtain the measuring equipment and determine if they must comply, which would cost about $900 per facility. The ag engineers also indicate there are ways of estimating, based on calculations that the EPA can provide, before having to spend the money. Data collection would begin next January, and the annual report would be due in March of 2011.
Summary:
Proposed regulations by the EPA would impact the largest 40 to 50 livestock operations by requiring them to annually report emissions of more than 25,000 metric tons of carbon dioxide. Taxes and fees are not proposed, however there would be a cost of data collection. Smaller livestock facilities and crop agriculture are not included in the reporting requirement. The specific point of carbon dioxide emissions would be manure management facilities, not individual animals.
Posted by Stu Ellis at 12:56 AM | Comments (2) | Permalink
April 24, 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.
If you have not noticed, USDA’s adjustments in its soybean use projections will have an impact on the ACRE program. Michigan St. marketing specialist Jim Hilker says the cut in carryout stocks to 165 mil. bu. and USDA’s raising of the average seasonal price to a $9.35 to $9.95 range were important, “This has ACRE implications, the higher the 2008-09 average weighted price, the higher the odds of ACRE paying off, other things equal.” Read his latest newsletter.
Hilker’s analysis of the soybean market includes the declining production in Argentina and Paraguay, leading to a world crop that is 165 mil. bu. smaller and fewer ending stocks. He says, “The disagreement between farmers and the government over several issues, such as an export tax and drought aid, has slowed the pace of exports.” And Hilker says since Argentina has threefold the stocks held by the US, our exports could change, and he adds, “Keep an eye on old crop soybean prices as we go through harvest, i.e., consider being ready to sell on a further rally if you are still holding 2008 soybeans.”
“In spite of poor world economic conditions, the USDA projects increased world use of wheat, corn and other feed grains over previous years,” says marketing specialist Melvin Brees at MO Extension. “The surprisingly strong demand along with reduced corn and wheat acreage intentions for 2009, dry conditions in the southern plains, the extent of freeze damage to wheat, planting delays for spring wheat, and wet Corn Belt conditions with possible planting delays make a case for higher price potential.”
“Managing risk is essential,” says Brees, because high price is hard to define, and farmers should plan to capture profits, rather than hold out for higher prices. Read more.
1) If the bean uptrend is broken, sell, or just below chart support at $9 Nov futures.
2) If the bean trend holds, watch for new crop prices near the Jan. highs of $10.50.
3) If Dec corn prices fall below support at $4, add to sales to protect a small margin.
4) If Dec corn moves above $4.40, delay any sales and raise the sale stop levels.
What marketing tools do you use? Brees says that is a hard question to answer:
1) With a normal growing season, new crop cash contracts offer profit margins.
2) Cash forward contracts will protect profits on crops sold at his suggested levels.
3) Futures hedges would accomplish the same, if you can afford the margins.
4) At-the-money options are expensive and would wipe out profit margins.
5) Lower out-of-the-money options are cheaper, but would not protect price levels.
6) Option spread strategies, such as fences and bear spreads, could be effective.
7) Any futures or option strategy should only be used if you are aware of the risk.
Ethanol plant closures continue, along with reductions in production. Iowa State’s Roger McEowen reports 37 of the 193 US ethanol plants are out of business, 23 of them built since 2005. He says that represents 19% of the plants and 18% of production capacity, totaling 2.2 bil. gal. Read more.
It may surprise you, but the stock market and the finished cattle market are nearly in lock-step with a 90% correlation, says Purdue livestock economist Chris Hurt. That is because both are driven by the general economy and macro economic conditions that reflect weak demand. Read more.
Chris Hurt says retail beef prices have not dropped along with producer prices, and that indicates producers are paying more, beef processing margins have increased, and retailer margins are even 13% more than they were early last year. He’s expecting finished cattle prices in the mid-$80 for the second quarter and a couple dollars higher this summer.
Cattle prices will increase over time, as the herd continues to shrink, exports improve, and the world economy grows. Purdue’s Chris Hurt says while beef has suffered, it has the potential to have one of the most dramatic positive responses when normalcy returns.
But the feeder cattle sector is expanding according to the latest USDA Cattle On Feed report. March fed cattle marketings were down 0.8% and placements were up 3.8%. But the April inventory was not down as much as it was in March, so Shane Ellis at Iowa State says the cattle feeding sector is rebuilding inventory. He says with moderating feed prices there are signs the fed cattle market may surpass $90/cwt, with higher futures.
“As seed prices increase, return to seed decreases. The best net returns occur with plant populations between 30,000 and 35,000 ppa,” say Iowa State agronomists. They note that not every seed germinates and 4-7% will fail to survive, so increasing seeding rates by 5% will ensure that proper plant population is achieved, but will sometimes vary. They say maximum grain yields occur between 34,500 and 37,000 per acre. Read more.
Emerging corn greeted with cold rain, melting snow, freezing rain, and any form of cold precipitation could show “imbibitional chilling injury,” say OSU agronomists. They said that was the case in 2005, but 2009 has been mild in comparison, and your corn is OK.
To assess potential freeze damage, check corn plants 5 days after freezing temperatures, if warmer temperatures have occurred. Look for new leaf tissue in the whorl, or look for the growing point just below the soil surface. If it is white, the prognosis is good.
If corn is germinating in cold, wet soil that is a prescription for seedling blights. Under normal conditions plants may continue to grow, but when other injuries occur, new roots cannot develop, and pythium or other fungi can kill corn seedlings that are stressed. Seed treatment and fungicide efficacy can be shortened, if saturated soil conditions persist.
In the sweep net, Extension bug folks are finding quite a few critters to watch:
1) There have been enough degree-days for alfalfa weevil in Cen. IL & IN, & So. IA.
2) Black cutworms will soon be feeding on weeds, awaiting corn seedlings.
3) Several varieties of aphids are in wheat, many of which transmit BYD disease.
4) Legions of armyworm moths are being found in KY & MO laying eggs, especially in thick stands of wheat, so prepare rescue treatments for thick stands before thin stands.
On the issue of alfalfa weevil, entomologists in the 3-I states are discussing them in their weekly newsletters. IN Extension specialists suggest scout fields in an M-shaped pattern, examining 10 stems in each of five areas of the field. Check the stems for problems:
1) Evidence of tip feeding by alfalfa weevil larvae; such as pinholes.
2) Maturity of the stem, i.e. pre-bud, bud and/or flowers;
3) Stem length and the average size of the weevil larvae.
4) Early season weevil problems can be treated with an insecticide with residual action.
5) Late season weevil problems should be addressed with short residual insecticides.
Ohio soybean growers are being warned about a potential aphid onslaught, based on 2008 collections of aphids in traps. OSU entomologists put an asterisk on the warning and said they did not find any colonies or eggs on the few buckthorn plants sampled.
Pay attention to what you are applying in the sprayer. Long days mean errors, and IL Extension’s Aaron Hager says some chemicals with similar names have very dissimilar formulations. He used the example of Balance Pro, which must be applied before corn emergence, and Balance Flexx, is applied after emergence. Consult his list of potential confusion chemicals.
Safety is first and last, says IA Extension’s Mark Hanna, even though wet, cold weather has delayed field work. He says if you feel rushed, you need to still beware of dangers:
1) Mechanically lock or block your planter or tillage equipment before getting under it.
2) Leather gloves prevent cuts and rubber gloves prevent chemical flesh burns.
3) Avoid planting fast to allow seed metering, depth control, and furrow closers to work.
4) While applying ammonia, use rubber gloves, unvented goggles, and water bottle.
Increases in soil compaction are being reported as farm and construction machinery get heavier. WI Extension’s Dick Wolkowski says that pressure impacts bulk density, porosity, aggregation, and drainage, but affects different soils in different ways. He says compaction creates a denser, less porous soil, slowing down gas exchange and keeping oxygen away from root systems. He says saturation only worsens the problem.
How do you address compacted soil? Wisconsin’s Wolkowski ways one suggestion is deep tillage, using a subsoiler with an L-shaped leg to lift the soil. He says the soil will loosen, but will not be restored to the point of having root and earthworm holes. The best advice is to avoid compaction in the first place, and stay off the soil or on one track. He says MN researchers have found compaction remaining from 1880’s covered wagons.
Deep patches of cornstalks may indicate the need for some soil conservation repair in the eyes of IL Extension’s John Church. He says waterways have deep gullies next to them, preventing water from entering the grassed area, and that is only going to worsen. He says check “small breaks in the sod, dead sod, small water channels, tillage damage to edges, flow restrictions, and other problems that could cause a waterway failure.”
With the soil full of moisture, warm temperatures will boost pasture growth, possibly ahead of livestock being able to keep it clipped and prevent seed head formation. MO forage specialist Rob Kallenbach says once a plant sets seeds, it stops growing leaves, and the secret to pasture management is to keep the forage in the vegetative stage. He says divide pastures into paddocks, and use some for hay harvest if you get behind.
Sudden Death Syndrome was prevalent in 2007 and rotated fields will be back in soybean production again this year. IA Extension’s X. B. Yang says soybean seedlings acquire SDS infection at the point of germination, and if the soil is cold and wet, they will be there longer and more likely to contact the SDS pathogens. Yang recommends later planting and says soybeans planted after May 15 rarely exhibit SDS symptoms.
Although it has caused insignificant damage, the “book” on soybean rust has yet to be written says KY Extension’s Don Hershman, and it “could be a big mistake” for farmers to believe that it will never be a serious problem. He says 20 years from now it might have been seen as “a flash in the pan,” but could also be seen as something that was a significant production factor a time or two during that 20-year period.
Soybean rust has successfully overwintered in Georgia, Alabama, and Louisiana for the first time since its arrival on US soil, says Don Hershman at the University of Kentucky. He says it can be found on low levels on kudzu, within warm, moist conditions it likes. He says the determining factor will be the weather conditions over the next two months. To keep apprised of soybean rust, watch the official website.
Posted by Stu Ellis at 12:10 AM | Comments (0) | Permalink
April 23, 2009
Grain Market Volatility: How Does One Survive?
The past two years when corn and soybean prices were higher, the volatility was not always appreciated. This year, after the volatility has disappeared and prices have found a sideways trend, they are still not appreciated. Current grain price trends, which have become the Rodney Dangerfield of the farm economy, are just not respected, but is that because they are not well understood?
Common questions revolve around the permanency of high prices, the tendency for volatility, and the impact on farmers, grain merchandisers, and end users. That is the perspective of agricultural economists Scott Irwin and Darrel Good at the University of Illinois, whose analysis is included in the current issue of the electronic magazine Choices.
Irwin and Good look back 35 years ago to the early 1970’s when the grain market last climbed to a new level, and compared that to the recent upward market trend. That period of volatility and a new price level was the function of exchange rates, Soviet grain purchases, higher energy prices, and rapid inflation. They believe, “As a starting point, if average monthly nominal prices in the new era that appears to have begun in late 2006 increase by a similar amount to those over the post-1972 period, averages would project to about $4.60 for corn, $5.80 for wheat, and $14.40 for soybeans.” That would put the corn/wheat ratio at 1.26 and a corn/bean ratio at 3.13, which they contend is too much for crop competition.
Since the shift to a higher price level, as seen in the late 1940’s, the early 1970’s, and the current period has been marked by volatility, the economists looked at how the range of volatility compared to prices when they finally settled down.
1) Low prices were 66 to 77% of the average price for corn.
2) High prices were 146 to 201% of the average price of corn.
3) Low prices were 71 to 81% of the average price of beans.
4) High prices were 161 to 166% of the average price of beans.
5) Low prices were 57 to 96% of the average price of wheat.
6) High prices were 162 to 175% of the average price of wheat.
Applying those average to today’s prices, the economists say, “To date, then, the average monthly price of corn and soybeans has been lower than projected for the new era. The average price of wheat has been near the projected average for the period.” But are those projections taking into account current market fundamentals? Irwin and Good say corn is being driven by the ethanol/crude oil market, “Not only do ethanol prices explain about 90% of the variation in corn prices, but the relationship is evident over the entire wide range of ethanol prices during the last couple of years.” They go on to say the simplest way to think about corn prices is the value of corn to an ethanol producer, and a rise in crude oil would shift both ethanol and corn to higher values, with wheat and beans having to climb as well to remain competitive for acreage.
What does that mean for the farmer? They say it means (1) that a shift to higher price levels has occurred, (2) peak prices have been well above projected prices, and (3) prices can still move lower. It also means average prices will impact the producer in the form of farm income levels, profitability, and value of land. The variations in prices from year to year also underscore the importance of using options contracts to protect profitable prices, while reducing chances for the use of forward cash contracts because of limitations imposed by cash grain buyers. Finally, they believe that such price levels will also have an impact on participation in government farm programs, including both revenue support programs and crop insurance programs.
What does that mean for the grain elevator? They say the higher potential prices mean the need for more cash to buy grain, and the magnitude of volatility will determine the amount of capital needed for margining hedged grain, and having good access to credit markets. It also means a potential for risk that grain sale contracts will not be fulfilled, if producers can obtain higher prices elsewhere.
What does that mean for end users? The end user is concerned about acquiring the cash grain commodity and the timing of the delivery. That means end users have to maintain profitability all the way from contracting for grain to be delivered through the pricing of the end product made from the grain. In the event they are unable to do that, they will have to rely on the spot market for both inputs and outputs, increasing their risk.
Summary:
Grain prices have undoubtedly taken a turn upward with a healthy dose of volatility. But market observers will also compare it to prior times, and say, “been there, done that.” The challenge is for market participants to understand the potential range of volatility in the market and be able to price both sales and purchases of grain at levels of manageable risk.
Posted by Stu Ellis at 12:17 AM | Comments (1) | Permalink
April 22, 2009
The Juggler: Balancing Replanting Versus SURE Disaster Benefits
You may not be a Kansas wheat farmer, but you may want to eavesdrop on their coffee shop debate about whether to plant a spring crop on failed wheat acres or hope for the best from the new SURE disaster program. The SURE program will be available for all farmers who signed up for crop insurance, and it may or may not benefit corn and soybean farmers later on this year in the event of a crop disaster. Some wheat farmers may take the program for a test drive, and everyone else will be able to see how it handles.
Currently, it is too early to determine if there is freeze damage to the winter wheat crop, but Kansas State ag economist Art Barnaby says as insurance companies settle claims, “Farmers need to be careful they don’t void their free SURE disaster aid coverage from the Farm Service Agency (FSA).” In his latest newsletter Barnaby suggests that planting a replacement crop of sorghum on failed wheat acres could jeopardize any SURE disaster program benefits.
Since crop insurance was required for SURE benefits, failed acres would have been insured. Insurance adjustors may require farmers to leave a test strip to determine later the extent of any loss, and allow them to plant the balance of the field in another crop, such as sorghum. That changes the level of coverage from a high wheat base price of $8.77 to the lower value of the sorghum crop. The performance of the wheat test strip will determine net revenue, which will be lower if the sorghum crop fails.
Barnaby alerts farmers that insurance companies will not release the wheat acreage until it heads, and at that time the sorghum will be considered by FSA to be a double crop, which will negate the disaster benefits of the SURE program. He says for the sorghum to be discounted by FSA as a double crop a farmer would have had to pay the $250 per crop premium for non-insured acreage or NAP. Few would have done that by the March 15 deadline, consequently, production of sorghum behind a failed wheat crop would eliminate the SURE payment.
There is a significant problem, however, which Barnaby says results from the lack of rules for the SURE program. They are expected sometime later this year, but they will be needed to determine the benefits of the SURE program. The general rules indicate part of the formula depends on the average price of the Marketing Year, similar to the ACRE program, and since marketing years end 12 months after harvest, delays can be expected in benefit payments.
Prior to the wheat forming heads, the Risk Management Agency allows farmers to pay 35% of their premium and receive 35% of their indemnity payment, close out their wheat insurance policy on wheat and then plant another crop, which will also be insured, if it was originally listed as a replacement in the event of a failed wheat crop. While that seems like a solution to the SURE controversy, Barnaby says it becomes a problem if landlords and operators went different directions on their crop insurance program, and one will lose out on the SURE disaster payments. He says another downside to the program is that it will force more crop share arrangements to switch to cash rents.
While the issue at hand has been potentially failed wheat acreage, and whether a follow up crop of sorghum is planted, move eastward into corn and soybean territory. Under Barnaby’s scenario, a farmer who plants corn, which might be flooded out in May or June, could follow it with a replacement soybean crop. His example suggests the planting of the soybeans would negate the opportunity to apply for a SURE disaster payment on the failed corn crop. However, before taking any action, always consult your crop insurance company, and check with FSA for any official information on program details.
Barnaby says since the provisions of the Farm Bill were not finalized in time for the 2008 crop, Congress allowed participation in the disaster program by opening a late sign up period. However, he says don’t count on that for 2009.
Summary:
A spring freeze after wheat emerged from dormancy may be the first test for the new SURE disaster program. Farmers who abandoned their failed wheat and plant a second crop of sorghum, may be jeopardizing their disaster benefits under the new SURE program. Similarly, planting soybeans following a failed corn crop might possibly be a parallel. One of the problems for the uncertainty is the lack of final rules for the SURE program.
Posted by Stu Ellis at 12:24 AM | Comments (0) | Permalink
April 21, 2009
Premium Grain Prices Have Shifted From Specialty Grains to Organic Grains
A decade ago Cornbelt farmers were signing production contracts to get an extra dime on a bushel of specialty corn, or an extra 50-cents for food grade soybeans. When corn was $2 and beans were $5, that extra 10% of value meant a lot. When the octane kicked in on the markets in 2007, very few specialty crops were grown because premium was not worth the hassle, and there was money to be made on basic commodity crops. With that glow dimmed, premium prices are becoming more attractive, particularly those offered for organic crops.
Organic production has grown exponentially in the past two decades, but still is only at the 4 million acre point. Organic producers suffered ridicule from neighbors for many years, but after continued profitability, their legions are increasing, along with their production. USDA reports 3,411 certified organic producers in Cornbelt states, including 905 in Wisconsin, and over 143,000 organic acres in North Dakota.
USDA’s latest report on organic farming says there are organic operations in every state, with 1.7 million acres of organic cropland. There may be no surprise the center of organic gravity is in California with over 2,000 organic farms and nearly a quarter million organic acres. USDA says there would be more interest, but the greatest obstacle is high management cost, risks of taking on a new venture, limited awareness, lack of marketing infrastructure and inability to capture marketing economies. But those producers who have shifted to organic production have done so to achieve what many farmers have tried, including lowering input costs, capturing high value markets, and boosting farm income.
The Organic Foods Production Act of 1990 set the federal standard, but USDA’s rules were not adopted until 2002, which bolstered certification programs and provided rules that farmers and buyers needed. Those regulations require organic growers to be certified if they have more than $5,000 in annual sales. And there are 53 different certification programs, including 19 different state programs that implement the rules and keep everyone on track.
If you doubt the potential profitability of organic production, consider price that were paid for organic grains, well before the highs for commodity grains in summer of 2008. Upper Midwest prices in 2007 ranged from:
1) $6.48 to $9.09 for feed grade wheat.
2) $6.31 to $11.26 for feed grade corn.
3) $14.59 to $17.00 for food grade soybeans
4) $13.36 to $17.43 for feed grade soybeans
April 9 organic grain prices were:
1) yellow feed corn $6.50 to $8.25
2) food grade soybeans $19.50 to $21
3) feed grade soybeans $17 to $19
4) feed grade HRW wheat $7 to $8
You may not be able to tell organic crops from conventional crops unless your neighbor admits to producing them, however there were 7,245 acres of organic corn in Illinois, over 11 thousand in Nebraska, and more than 20 thousand acres in each Iowa and Minnesota when USDA last reported state acreage in 2005.
USDA’s package of information on organic production would be helpful in researching opportunities as well as development of a business plan. The latest USDA market news report indicates sales of new crop feed grade soybeans are being reported from $16.00 to $18.00 per bushel. New crop food grade soybean contracts are from $19.00 to $24.00 per bushel. It is expected that fewer organic acres will be planted this year, compared to last year.
Organic crop production is not something you are going to decide today to implement for the current crop year, however, it is something that will take some thinking and planning time and that may become available as many Cornbelt farmers head to the fields in coming days.
Summary:
Organic crop production takes time and effort, however, organic acreage is growing steadily, and the number of organic producers is increasing annually. While prices for organic grains are at a premium to commodity level products, planning and work is required to achieve those prices. At a time when commodity prices have settled down, organic premiums are offering the potential for increased farm income.
Posted by Stu Ellis at 12:00 AM | Comments (1) | Permalink
April 20, 2009
With Farms Dependent On Off-farm Income, What Is The Rural Job Market?
Early forecasts indicated the current recession had not crashed into agriculture, but there might be some scrapes, cuts, and bruises. Economists projected that consumers would still need food, agricultural lenders were sound, and farmers were in generally good financial position. While Cornbelt farmers may be able to weather the storm, what about the communities where they buy inputs, send their kids to school, and go to church? And particularly, since many farms depend on off-farm income, are there jobs available?
Rural America, and particularly non-metropolitan counties, are showing serious wear and tear from the recession. Those are counties, which are outside the influence of urban economies and have a population under 50,000. Those counties are depicted in a recent assessment by the Rural Policy Research Institute (RUPRI). RUPRI’s Center for Regional Competitiveness is directed by economist Mark Drabenstott, who says, “The rural economy is now losing jobs at a faster rate than the rest of the nation, with a particularly sharp rural slide over the past two months.” He says the strong commodity prices and good demand held off the recessionary impact on rural America for most of last year. But when the calendar changed, so did the economic winds of winter.
One of the flashpoints of the recession is manufacturing in rural areas, which Drabenstott says has worsened and caused a loss of 3.4% of jobs in non-metropolitan counties, while metropolitan counties only lost 2.8% of their jobs over the past 12 months.
Drabenstott refers to the “farm boom” which pushed net farm income to nearly $90 billion, and helped job growth in many rural counties. But he says rural counties that are dependent upon manufacturing have seen jobs “tumble,” particularly after November 2008. And he says in percentage terms, rural America has lost more manufacturing jobs than urban America, which he measures at 5% since the start of the recession, and he compares that to 2% in other parts of rural America not as dependent upon manufacturing.
During the past two recessions, Drabenstott says rural America did not suffer as much as it is in this one. He says job losses over all of rural America are about 3%, compared to 1% in the 2001 recession and even less in the 1990-91 recession. The RUPRI economist does offer a “glimmer of hope,” and says the last two recessions ended after 8 months and the prior two ended after 16 months. So he believes the end must be in sight.
Drabenstott bases his analysis on economic data offered in chart form at the RUPRI website:
1) Compared to a year ago, job loss for urban areas turned into negative territory in July of 2008, but rural job loss was not negative until September. However, rural job loss has taken a steeper downward trend and now surpasses urban job loss.
2) Comparing non-metropolitan counties, which are either dependent on farming or manufacturing, those that are manufacturing dependent have been in a slow decline since January of 2008, which farming dependent counties were actually growing in economic power last summer and fall, before turning down in September. He says the “farm boom” insulated those counties that were more dependent upon farming than on manufacturing.
3) While both urban and rural counties have lost jobs, rural counties held a positive position through mid-summer of last year, after urban job grown declined a month or two earlier. The rate of decent has increased for rural counties at this point.
4) Job losses in rural counties dependent on manufacturing reached 4.75% in January, but for counties dependent on farming, job losses were at 2.3% in January.
5) While the last two recessions showed recovery after 8 months, the current recessionary index continues downward unchecked.
Summary:
The current recession has impacted rural areas significantly, primarily in the loss of manufacturing jobs, and with a greater impact than on urban counties where industry job losses have also be considered as significant. Non-metropolitan counties where the economy is more focused on agriculture than on manufacturing have been insulated from the recession, and its impact has not been as significant.
Posted by Stu Ellis at 12:26 AM | Comments (1) | Permalink
April 17, 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.
Will rationing be required? That is the question rhetorically asked by IL Extension’s Darrel Good in his latest newsletter. “Prospects for small year-ending stocks of soybeans and declining inventories of corn during the 2009-10 marketing year means that a generally favorable 2009 growing season will be needed to avoid rationing of use next year.” Read it here.
Darrel Good says, “For both corn and soybeans, the timing and extent of US and world economic recovery will be important in determining the strength of demand and the level of consumption.” And he adds, “With so much riding on the size of the 2009 crops, prices could well trade in a wide range over the next few months.”
If you feel financially nervous, IL Extension’s Nick Paulson knows why. He says farmers have twice as much money at risk due to higher volatility in the market:
1) The ag economy faces a different set of challenges than the national economy.
2) The national economic challenge is the availability or lack of credit.
3) The ag economy is challenged by higher production costs and commodity prices.
4) Government programs that once were a safety net are undermined by market volatility.
5) Farm programs no longer guarantee breakeven prices, or anything close to breakeven.
6) It will become increasingly important to lock in input costs when they are favorable.
7) With price volatility, it is crucial to control any possible cost of production.
It may be too late for this year, but fertilizer prices have fallen says NE Extension’s Gary Hergert. His data is in the NE Cropwatch newsletter.
1) Natural gas is cheaper and Yara, Mosaic, and Agrium have restarted ammonia plants.
2) World market urea and f.o.b. Gulf prices are now down to $310 per ton.
3) Anhydrous ammonia prices f.o.b. Cornbelt are currently around $550 per ton.
4) International tenders for 32-0-0 (UAN) are under $200 per ton.
5) DAP and MAP has fallen from $1,000 highs to nearly $200 per ton f.o.b. Florida.
You are applying ammonia based on a return to nitrogen, how about basing your corn population on a return to seed? That is the suggestion of IL Extension’s Mike Roegge who says using a seed cost of $2 per thousand or $160 per 80,000 kernel unit, the economic advantage is at 35,000 population when the price of corn is $4 per bu. He says if the seed is $3 per thousand or $240 per bag, the advantage goes to 30,000 population.
If you did not apply P & K last fall because you ran out of time and weather, should you do it now? IL Extension’s Fabian Fernandez says a soil test will be a critical tool in making a decision. He says if the field needs it, but the budget is not there, apply at least a portion instead of none. As an alternative, apply nutrients as a form of starter fertilizer.
Storm fronts blow through, and they drop out of the sky. Not raindrops, but black cutworm moths, ready to lay eggs on winter annuals. IL Extension entomologists say the eggs will hatch when the growing degree days reach 300 with a base temperature of 50. That means mid-May is the primary scouting time for the central part of the Cornbelt.
Corn and soybeans are among the black cutworm’s least favorite foods, say Purdue entomologists, who add, “It just so happens that these are the only plants remaining by the time larvae have emerged and weeds have been killed. Research has shown that cutworm larvae starve if weeds are treated with tillage or herbicide 2-3 weeks before crop emergence – an example of a case when controlling weeds can help manage insect pests.”
Farmer minds are being changed about weed control, as the result of increased weed resistance to glyphosate. Aaron Hager’s IL Extension survey found only 28% of farmers were using only glyphosate for soybeans, compared to 80% during the early days of Roundup Ready beans. Additionally 91% of 877 farmers surveyed believe that weeds becoming glyphosate resistant will change weed management in the next 5 years.
“Mudding in” a crop early to avoid planting late will almost always end up being an unwise decision, says Purdue agronomist Bob Nielsen, and so he says don’t succumb to fear mongering of delayed planting. (He says you have the machinery to catch up.) Nielsen says planting date is one of many “yield influencing factors” (YIF), and he adds, “It is possible for early-planted corn in one year to yield more than, less than, or equal to later-planted corn in another year depending on the exact mix of YIFs for each year.”
Test question: Are compacted soils better resolved with deep tillage or no-till? Ohio Extension’s Randall Reeder says yields will recover better in compacted soils with continuous no-till than deep tillage. Compacted with a 600 bu. grain cart, Reeder said soils had a 15% corn yield reduction when sub-soiled annually for 6 years, versus only a 9% reduction with no-till. For soybeans, the declines were 24% and 13%, respectively.
If seed beans are still on your shopping list, consult the variety testing results conducted by Extension agronomists in your state. The IL specialists report the beans in maturity group 2 had a 33.3 bu. yield span and group 3 had a 27.7 bu. yield span. Agronomist Vince Davis says a few good hours selecting seed is time well spent.
To treat, or not to treat, that is the question about soybean fungicides, and Iowa State Extension’s X. B. Yang says only 3% of seed was treated 10 years ago, but 50% of it is today, and the driving forces may be the cost of soybean seed and early spring planting. He says treatments can be beneficial in fields where there is an increased risk of soybean seedling diseases, particularly for Ohio soybean growers preventing phytophthora.
To make a decision on soybean fungicide, Iowa State’s X. B. Yang says do it when:
1) Seed quality is poor like last year, but this year soybean seed quality is much better.
2) Fields have phythphthora or pythium, the spring is wet and cool, & planting is early.
3) Replanting is one case where fungicide treatments are recommended for a good stand.
4) Early planting is not a reason for treatment, unless planting conditions are poor.
In addition to those recommendations, MO Extension’s Laura Sweets, says use a fungicide treatment if you have a concern the seed is infested with a seed-borne disease, or if the variety being planted is a high yielding variety that is disease-susceptible.
Stewart’s Wilt is caused by a bacteria carried by flea beetles, and can cause havoc in sweet corn fields, while many commercial hybrids carry resistance. The determinant of whether it will be a problem is if temperatures and snow cover allowed the flea beetles to survive. In parts of the Midwest winter temperatures averaged less than 24 degrees, and that indicates reduced survival and fewer problems with Stewart’s Wilt. If your winter was warmer, Gaucho and Cruiser have reduced the problem 50% to 85% in sweetcorn.
Do lower rates of pelletized lime equal higher rates of ag lime? Ohio Extension specialists say the comparison is total neutralizing power, fineness, and moisture, and they add, “Just because you needed twice as much ag-lime as pelletized lime does not necessarily make pelletized lime the best choice based on cost, especially when pelletized lime can cost 5-7 times more per ton than ag lime. More.
Farmers across the northern Cornbelt should be close to planting oats, if they have not already. IL Extension’s Jim Morrison says his colleagues in Iowa report yield drops of 10% per week after April 15, and his colleagues in Wisconsin say yields drop nearly 20% by May 14. IL Extension specialists encourage a fungicide seed treatment for oats.
For oat drilling, seed 2-3 bu. per acre or 30 seeds per square foot. For broadcasting oats, increase the rate by 1/2 to 1 bu. per acre. If the oats are planted with alfalfa, seed only 1 to 1.5 bu. per acre. Your fertility program depends upon your yield, and Morrison says oats remove about .38 lbs. of phosphate per bu. and.20 lbs. of potash per bu.
If you farm in Ohio, there is a 55% chance you are using at least one piece of precision farming equipment. OSU economist Marvin Batte says adoption rates have increased 27% since 1999, but adoption depends on farm size, sales, and types of crops produced. Lime and phosphorous variable rate application netted the greatest benefits.
Pork producers: Are you really reducing the breeding herd? MO livestock economists Glenn Grimes and Ron Plain say gilt slaughter has been running high, but sow slaughter is 12% less than this time in 2008. They report that breeding stock from Canada is down 16.5% from last year, probably due to the Country of Origin Labeling (COOL) law. All in all, they do not believe the breeding herd is changing very much, if any.
Regarding the beef market, Grimes and Plain report, “…a slowdown in the reduction of the dairy herd, which is a result of milk prices substantially less than cost of production. Why the slowdown is occurring is not clear. The beef cow slaughter indicates beef producers have slowed the decline in the herd if not stopped it. Additional reductions in both the dairy and beef industries are required to get prices at profitable levels.”
Posted by Stu Ellis at 12:47 AM | Comments (0) | Permalink
April 16, 2009
What Is A Hog Worth These Days? That Depends On How It Is Sold!
With Mandatory Price Reporting now in effect for livestock marketing, producers have the ability to compare their livestock sales receipts with the rest of the industry and determine if their sales arrangements are more or less profitable, and how they are performing. And with that yardstick available, how did you measure up?
An annual survey conducted by the University of Missouri has provided valuable information for 15 years. Livestock economists Glenn Grimes and Ron Plain have tallied the results of several pricing tools in their January report on marketing contracts for hogs. Recent federal legislation makes the comparisons easier, since the price reporting by slaughter plants is required, but Grimes and Plain say their statistics for 2009 are quite comparable to recent years because the same plants have been reporting prices to them under a voluntary system.
Their research covered over 9.1 million hogs, out of the total hog slaughter of 9.8 million under federal inspection. All of the hogs in the Mandatory Price Reporting system were barrows and gilts, and represented over 95% of those slaughtered in January.
As an indication of how hog market pricing has changed in a relatively short period of time, 62% of hogs in 1994 were sold on the spot or cash market with a negotiated pricing structure. However, in 2009, that defined only 8.1% of the hogs sold. In the 1990’s the change amounted to about 10% of the hogs per year that switched away from the cash market to a contracted price. During the current decade, the change has been much more gradual, losing about 1% each year since 2001.
If only 8% of hogs are sold on the cash market 92% are sold with a variety of other pricing formulas. In January 2009, over 41% were sold on a hog or meat market formula, which is tied to the spot market, negotiated hog market, or meat prices. That has been a consistent share over the past 10 years, usually varying less than 3-4% from year to year.
In January of 2009, the next largest group was packer-owned, which represented nearly 26% of hogs sold. That share has steadily grown from 16% in 2002. Grimes and Plain define that group as being produced by the same packer that slaughters them. They say integrators use formula pricing to determine what they will allocate to their hog production divisions. Grimes and Plain also report that some hogs owned by packers may be sold, without going through slaughter plants owned by those packers. Those hogs sold by packers without processing make up only 5% of the volume, but that has been a growing trend, and two years ago comprised nearly 7% of hogs slaughtered.
The economists say that hogs sold on the cash market and hogs sold under a swine or pork market formula make up 49% of hogs, or nearly half that are sold by a negotiated price. Analyzing the marketing agreements, Grimes and Plain say nearly 20% of hogs were purchased from a producer with a formula that reduces price risk for the producer, such as the nearly 8% of hogs tied to a futures contract. However, they indicate that the vast majority of hogs are sold under agreements that put the producer at more risk than the packer. They say the Mandatory Price Reporting system does not allow them to determine the extent of the use of ledger agreements that put individual producers at increased risk.
Grimes and Plain say they believe the 8% of hogs sold on the spot market represents a true supply and demand volume and determines a fairly accurate price for hogs. They say that is based on the fact that packer margins indicate they are buying hogs based on supply and demand.
Summary:
The significant changes in the livestock packing industry over time has lead to more hogs being owned by packers, and fewer hogs being priced with the spot or cash market. While the bulk of hogs are priced with a formula paid by packers to producers, producers seem to be taking more of the pricing risk than are the packers. With less than 10% of hogs sold on the open market, it may still be a sufficient number to actually determine hog values, since packer margins have been parallel to those few hogs sold for slaughter on the open market.
Posted by Stu Ellis at 12:30 AM | Comments (0) | Permalink
April 15, 2009
With Low Profit Margins, Will Livestock Producers Have To Compete For Feed?
As many Cornbelt farmers prepare for spring fieldwork, they are hoping for stronger grain prices to ensure a profit margin. But as livestock producers continue to cut production to ensure profitability, will they have to compete with ethanol and exports for feed? Will there be any "winners" in this market, or will it be a year of survival?
As noted in the April 14 edition of the farm gate planting intentions indicate a limit to acreage, and consumption may require 12.5 billion bushels of corn to supply demands of the livestock feeders and the ethanol market. With feed grain stocks declining, will there be sufficient feed for livestock feeders and will it be affordable? USDA economists have released their latest Feed Outlook following the recent supply demand report, which indicated the corn carryover would fall to 1.7 billion bushels. They are looking to identify that delicate balance desired by corn growers, livestock producers, and where it fits into the international demand for US grain. Compared to last year, the economists say overall feed grain demand will be down this year. US supplies will be down by 15 mmt compared to last year, but feed grain use will be down slightly more than that on a calendar year basis. On a marketing year schedule, feed grain and wheat use will be up reflected in heavier weights of feedlot livestock.
Projected corn use for the year will be down due to lower exports, feed, and residual use, partially offset by ethanol and other industrial uses for corn. Feed use will be up to 5.350 bil. bu., compared to 5.938 bil. bu. last year. The ethanol and industrial uses will be an estimated 4.990 bil. bu., with a fade in starch and sweetener use in addition to less ethanol refining. Ethanol will consume 3.700 bil. bu. which is still up 31% over the same period a year earlier. Exports will be 1.700 bil. bu., down 732 mil. bu. from the year earlier. Comparatively, sorghum is selling at a discount to corn, versus the premium price it demanded last year due to strong export demand. Barley and oat use will also decline as part of the lower livestock feed demand receding.
Internationally, the demand for US corn has been soft from burdensome supplies of low quality feed wheat in many foreign markets. USDA’s Wheat Outlook says there has even been a decline in feed wheat use in foreign countries because of the abundance of feed grains and non-grain feed ingredients. That has depressed the potential for corn exports and has made more US corn available for domestic feeders. The USDA economists say global production of coarse grains will reach 1.097 mmt, down from last months estimate due to changes in the way production is counted in some countries, and a cut on Chinese production.
Factors that will impact the global demand for US corn and what US livestock feeders have to pay for it, come in part from a decline in Argentine crops, where corn production has been cut by nearly one-third. USDA says global carry-in of stocks were down, but historical revisions in Chinese feed grain supply and demand will raise internal use. Globally consumption of coarse grains is down, with lower foreign use more than offsetting higher US use of corn and feed grains. Some of the lesser feed grain demand is the result of lower demand for meat. While global ending stocks are down, most of the reason is the lower US carryover.
The positive note for grain producers is USDA’s projection for increased world trade in feed grains, but most of the grain will come from ample supplies in eastern European countries. Brazil will export less corn, but only because more soybeans will be shipped out before the marketing year ends. US corn export projections of 1.7 bil. bu. remain in place, and USDA is not expecting that to increase, keeping US corn supplies available for domestic livestock feeders. However the pace of exports is expected to pick up in the later part of the marketing year due to the diminished crop in South America.
The positive note for livestock feeders is the apparent strong supply of all types of feed grains that are available at stable prices devoid of the volatility seen in the past two years. With slack demand from exports and ethanol refiners, the livestock industry should have ample supplies.
Summary:
For the livestock feeder, who is facing slim profit margins, the availability and cost of feed may be welcome news. Both domestically and internationally, the economy has reduced demand for meats and in the US, there has also been a weakness in demand for ethanol and exported grain, which reduces the competition for feed grains. Reduced production of grain, both here and abroad will not lead to burdensome supplies and low grain prices, but supplies will be more in line with demand in many nations, including the US. The reduced opportunity for grain price volatility may be the best news for livestock feeders.
Posted by Stu Ellis at 12:40 AM | Comments (0) | Permalink
April 14, 2009
What Potential Do You See For Corn And Soybean Prices?
USDA’s Prospective Plantings Report and Grain Stocks Report on March 31 and the April 9 USDA Supply-Demand Report both were newsworthy in their own right. But when you combine the results of the three reports, Cornbelt farmers, who have both old and new crop corn and soybeans to sell, certainly have new information to integrate into their marketing plans.
The planting intentions report indicated that corn and soybean acreage would not be expanding by any great degree. The stocks report indicated inventories were not surprisingly large and the supply-demand report indicated consumption would grow and carryover would decline for both corn and beans.
Purdue Marketing Specialist Chris Hurt, writing in his latest marketing newsletter, says the acreage report indicates the 1 million acre cutback in corn from last year “will reduce the national production potential, although yields on these acres are much lower than the national average. But, there will also be less intensive application of inputs this year that will somewhat lower yield potential on the planted acres.” As a result, Hurt is more optimistic about corn prices for 2009. “This means the prospects of overproduction in a period of weak demand have been reduced and provided a price strengthening tone for grains and soybeans. In addition, it increases the upward price movement that will occur if growing season weather should turn adverse this spring/summer, or world economic activity is not as weak as anticipated.”
Hurt does not want farmers to believe we will return to the prices of last year, because of all of the economic factors that have diluted the demand, such as a stronger dollar, a weaker global economy, slower ethanol demand, and lower prices for crude oil. But he says the combination of reports restore the possibility of higher prices, for corn and beans to levels “that come much closer to allowing producers to cover total costs in 2009 than looked possible all winter.”
Hurt’s colleague Darrel Good at the University of Illinois says in his newsletter with the increased use of corn for ethanol production and somewhat of a decline in corn use by livestock feeders, total use could still approach 12.5 billion bushels. And that means there will need to be a good growing season, “Prospects for small year ending stocks of soybeans and declining inventories of corn during the 2009-10 marketing year means that a generally favorable 2009 growing season will be needed to avoid rationing of use next year. Not much is known about growing season weather prospects at this point. The current La Nina is receding and neutral La Nina/El Nino conditions are expected for the summer months, but the correlation between those conditions and U.S. growing season weather is very low. The cool, wet start to April in some producing areas threatens to delay the start of corn planting.”
Good says that current projections for corn carryover would put stocks at 14.1% of use, which is well above the 9.4% of 2003-04. However, he says soybeans stocks would be at 5.5% of use, compared to the 4.5% in 2003-04, the least in modern history. He adds that South American soybean harvests will be smaller than last year and, “For both corn and soybeans, the timing and extent of U.S. and world economic recovery will be important in determining the strength of demand and the level of consumption.”
Good says corn and bean prices have been climbing above the prices guaranteed by revenue crop insurance products. Those levels are $4.04 for corn and $8.80 for soybeans. If you have revenue insurance, your prices are protected at those levels and below, but the span of prices between those levels and current futures prices are not protected, says Good, “That risk is about $.15 for corn and near $.45 for soybeans. With so much riding on the size of the 2009 crops, prices could well trade in a wide range over the next few months. Opportunities to price a portion of those crops at prices above those currently offered will likely be available.” He says Dec corn has already pushed up to $4.37 and new crop beans to $9.34.
Summary:
With the global economy limiting the demand for US grain, the March 31 USDA acreage and stocks reports indicates that supplies are not particularly burdensome and new crop production may not be all that large, leading to the prospect that a recovering economy could help push grain prices higher. Farmers already have the chance to price corn and beans above the guarantee levels of revenue insurance, and that potential should continue.
Posted by Stu Ellis at 12:32 AM | Comments (1) | Permalink
April 13, 2009
Planning For Successful Weed Control In Corn And Beans
All of your equipment is ready to head to the field. Your seed has been delivered and is ready for the planter. While you wait for soils to dry out, you are beginning to think about weed issues. You want to try some of that new stuff, but suddenly you wonder if it will mix with the other herbicide you already have. Oh, and what about application of 2,4-D, with that sense of urgency to get seed in the ground? Rather than an expensive “ooops” on your part, let’s get some help from the folks who know.
In addition to being mechanics and engineers, most farmers have a good handle on practical chemistry. But it is hard to keep up with what organic chemical will mix with another organic chemical and still kill weeds, but not the crop. If confusion reigns in your crop protection storehouse, we’ll sort out the important issues, first with 2,4-D, if you are trying to clean up a no-till field. Mark Loux at Ohio State University helps out in the latest C.O. R.N. newsletter.
Loux says 2,4-D will help with burndown of many large or tough winter weeds, and can also be added to glyphosate to control weeds that are becoming glyphosate resistant, as well as building ALS resistance. That is a tough assignment for soybean fields, unless the field is weed free at time of planting. Loux has several suggestions with regard to 2,4-D:
1) 2,4-D can be used preplant for beans and corn, but follow label directions to avoid crop injury.
2) Because of different manufacturers, labels will be different as a result of different formulations that allow a wide range of application to corn. However, 2,4-D application at planting may injure corn in some soils and when applied with certain herbicides.
3) Prior to soybean planting, 2,4-D can be used for burndown, but Loux recommends only the use of 2,4-D low volatility ester rather than an amine, which can leach into the seed zone. And 2,4-D ester needs at least a 7-day head start on planting.
4) If 2,4-D ester was used in a pre-plant application ahead of soybeans, the soil should not be tilled, unless it was a very early spring application and it has degraded.
5) If 2,4-D is applied to wheat, Loux says make sure it is prior to the boot stage, and if the wheat has jointed, use an amine formulation instead of an ester.
Aaron Hager at the University of Illinois turns his attention toward glyphosate, and what can or cannot be tank mixed with it. His newsletter indicates that the ability of glyphosate to be a stand alone herbicide will continue to decline for management of weeds in soybeans, and tank mix partners will be needed to manage those challenges.
He says sometimes a glyphosate tank mix will be good and sometimes it will not. For those advantageous times:
1) To fight glyphosate resistant volunteer corn in glyphosate resistant soybeans, Hager consistent control can be achieved with tank mixing certain ALS or ACCase-inhibiting herbicides with the glyphosate. The latter includes herbicides with the active ingredients of: clethodim, quizalofop, fluazifop, and sethoxydim.
2) To fight challenging broadleaves in glyphosate resistant soybeans, Hager suggests early application to small weeds, a sequential application 10-14 days later, or one application with a tank mix of herbicides containing: cloransulam, chlorimuron, 2,4-DB, fomesafen, lactofen, acifluorfen, dicamba, or 2,4-D.
3) For enhanced control of glyphosate resistant weeds, Hager says there has been success in tank-mixing glyphosate with Flexstar or Cobra/Phoenix, followed by a sequential application of glyphosate 3 weeks later.
4) But if waterhemp is the problem weed, Hager does not recommend using glyphosate as the primary herbicide for the entire field, and hoping to burn the waterhemp. He says if the patch of waterhemp is sensitive to PPO inhibitors, use that first, followed by glyphosate, but don’t tank mix the two for the first spray.
5) With waterhemp becoming resistant to PPO inhibitors also, a tank mix of glyphosate and a PPO inhibitor would not improve control of that patch of waterhemp over glyphosate alone.
Summary:
2,4-D remains a primary weapon in the crop protectant arsenal, however, careful timing of application and selection of either an ester or an amine formulation will be needed to protect a soybean crop and not damage it. Timing of the application, as well as reading label directions, will ensure its ability to protect corn. With the increased use of glyphosate for both corn and soybean protection, there will be an increasing opportunity for weed resistance and the necessity for tank mixes with PPO or ALS inhibiting herbicides. However, for farmers with waterhemp that is resistant to glyphosate, timing of application and careful selection of a tankmix partner will be critical to avoid expanding its resistance.
Posted by Stu Ellis at 12:53 AM | Comments (1) | Permalink
April 10, 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.
Farm Program sign-up dates have been reset by USDA. Farmers wanting to participate in the Average Crop Revenue Election (ACRE) program will be able to sign up as early as April 27, but no later than August 14. Participants forego 20% of direct and counter-cyclical payments and 30% of marketing loan benefits. Once a producer signs CCC-509 to enter the ACRE program, that is an irrevocable decision through crop year 2012.
Even though ACRE sign-up begins on April 27, Michigan State marketing specialist Jim Hilker says wait until the deadline to turn in your paperwork. He says fill out all of the necessary documents over the summer, but don’t sign it and turn it in until August 14. Read his rationale at his newsletter.
1) You will know the 2008-2009 average crop price within pennies.
2) The August Crop Report on Aug. 12 will give a good idea of the US crop situation.
3) You will know the likely 2009-2010 US prices and your state yield outlook.
USDA’s Supply-Demand Report bolstered interest in soybeans by reducing projections for the Argentine crop, raising US export forecasts, and lowering the old crop carryover 20 mil. bu. to 165 mil. Additionally, world ending-stocks were reduced from nearly 50 mmt to under 46 mmt. The average seasonal price was adjusted upward to $9.25-$10.05.
Corn usage projections were also moved upward by USDA on Thursday, with 50 mil. more bushels being fed, and a 40 mil. bu. cut in the carryover, which is now at 1.700 bil. An increase in world corn trade was also forecast which is expected to reduce the world corn ending-stocks. The average price range was raised 10 cents to $4.00 to $4.40. Find the full report.
The pork market has pluses and minuses says Purdue livestock economist Chris Hurt, who says hog prices should exceed costs in the second and third quarters of the year before turning downward next winter and spring. Hurt suggests that the pork industry continue to make cuts in the breeding herd to help the supply meet the demand. Read his newsletter.
The pluses in the pork market will help push market prices into the low $50 range.
1) Hog prices should soon increase into their typical seasonal patterns.
2) The breeding herd and farrowing numbers are smaller than had been expected.
3) Canadian export hogs will drop by 2.3 mil. due to high production costs in Canada.
The minuses in the pork market will push production costs toward $49 by summer.
1) Reduced plantings and grain stocks will result in high prices for corn and bean meal.
2) Pork exports will drop 14% or 700 mil. lbs. compared to 2008, with Chinese cutbacks.
Nitrogen application #1. Nitrogen prices have been fluctuating, and prices may be substantially different from one supplier to another. Based on the price per pound you pay for nitrogen and what you have forward contracted the corn to sell for, use the N rate calculator. The nitrogen rate calculator will accommodate producers in IA, IL, IN, MI, MN, OH, & WI.
Nitrogen application #2. IL Extension specialists caution against applying ammonia under the row shortly before planting as well as applying an N solution close to germinating seeds. If applied in strip till, seedlings can be burned if the soil dries out. They recommend use of GPS or assisted steering to apply N between the rows.
Nitrogen application #3. The most efficient application is when the corn plant is ready to use the nitrogen, which decreases loss. The Extension specialists say, “Claims that some forms of N are "more available" than others, or that the plants "prefer" some forms, are often shaky.” Read more.
If you want uniform corn emergence, OSU Extension provides tips on corn planters:
1. Keep the planting speed within the range specified in the planter's manual.
2. Match the seed grade with the planter plate.
3. Check planters with finger pickups for wear on the back plate and brush.
4. Check for wear on double-disc openers and seed tubes.
5. Make sure the sprocket settings on the planter transmission are correct.
6. Check for worn chains, stiff chain links, and improper tire pressure.
7. Make sure seed drop tubes are clean and clear of any obstructions.
8. Clean seed tube sensors if a planter monitor is being used.
9. Make sure coulters and disc openers are aligned.
10. Match the air pressure to the weight of the seed being planted.
11. Follow lubricant recommendations when using seed-applied insecticides
82% of IL Bt corn was planted in 2008 with a refuge, according to an Extension survey of producers. But entomologists say that means 18% was not, and they are concerned that thousands of corn acres without a refuge will hasten insect resistance, not only to Bt toxins, but also to the accompanying seed treatments for many secondary insects.
Spring weather has not been bad, but less than ideal for corn planting, says Extension’s Emerson Nafziger. However, he says March corn may have suffered from freezing, light snow, and may not have enough reserves to survive. That means potential replanting. Looking at optimum planting dates from 2005-2008, maximum yields resulted from April 9 corn planting in northern and southern IL, and April 19 in central IL.
What about delayed planting? Nafziger says, “Delays in planting until past the end of April, though they cost some yield, do not automatically mean large yield losses. Planting even two or three weeks after the optimum date might well produce higher yields than planting into cool, wet, compacted soils closer to, or before, the optimum date.” Read his weekly newsletter.
Rosettes at this time of year are not state fair ribbons but horseweeds (marestail) popping up in no-till fields, and IA Extension’s Bob Hartzler says the best time to control them and other winter annuals is as soon as you can get into the field. The more mature they are the more expensive they are to control, and may go to seed before a burndown.
Hartzler says adding a residual herbicide with a burndown treatment should give a clean seedbed, and may free you up from having to apply a herbicide at planting. He adds, “It is unrealistic under most situations to expect a pre-emergence herbicide applied several weeks prior to planting to provide full-season control. However, if properly selected for the weeds present in the field, the early application should allow the post-emergence application to be delayed long enough to require only a single post application.”
A timely application of an herbicide to wheat includes weather, according to IL weed specialist Aaron Hager, “Applications made to actively growing weeds and during periods of warm air temperatures generally provide more effective and complete weed control as compared with applications made during cold, cloudy conditions.”
Hager also warns against automatically applying an herbicide with liquid nitrogen. He says read the label, because, “Not all herbicides allow applications with liquid nitrogen as the carrier, and those that do might have specific recommendations with respect to including or excluding other spray additives or their application rates.” Hager provides an application rate chart.
A fungicide treatment comes already applied to RR2Yield varieties from Monsanto, but what about its use on other varieties. IL Extension’s Carl Bradley recommends it for poor quality soybean seed to improve the stand uniformity, but not improve germination. He also says it provides brief protection from pythium, phytophthora, rhizoctonia, and fusarium, particularly if the beans are planted in April or early May or in cool, wet soil.
Soybean producers will want to vote during May on whether or not the Secretary of Agriculture should conduct a referendum on the soybean check-off program. Cast ballots at FSA offices between May 4 and May 29. Ballots can also mailed or faxed or obtained via the Internet. A referendum will be held if 10% of the 589,182 US soybean producers vote yes during May balloting.
“Surprisingly as it may be,” MO livestock economists say their beef demand index for Dec-Feb was up 3.4% from a year earlier. “We do not have the data to accurately separate beef demand for steaks and roasts from hamburger. We believe the strong demand is for hamburger. Cull-cow slaughter was up as well as imported beef for January. Most of the weakness in beef demand is at the white-tablecloth restaurants.”
Mark your calendar for the National Small Farms Conference, Sept. 15-17 in Springfield, IL. Topics include USDA assistance to small farms, alternative enterprises, building community support, sustainable farming systems, business management, energy. Register here.
Posted by Stu Ellis at 12:55 AM | Comments (0) | Permalink
April 9, 2009
Farm Prosperity Depends On The Future Value Of The US Dollar.
In a lengthy report on the world economic crisis and its impact on US agriculture, a cadre of USDA economists suggests that the trade-oriented farmer become more aware of the growth of foreign economies and foreign exchange rates, which would indicate his potential profitability. Cornbelt prosperity turned when the falling dollar became the rising dollar.
For much of the current decade world GDP grew at a 3% rate and in the past two years, US exports climbed to record high levels, contributing to a 43% growth in farm income from 2001 to 2007. Agricultural goods comprised 27% of US exports in 2007, but during that year interest rate hikes and Central Bank action to improve market liquidity was the pre-cursor to the financial crisis say the USDA economists in an Economic Outlook. They say the world economic crisis was caused by a combination of world macroeconomic imbalances and severe weakness in the financial system of western economies. Such imbalances include negative trade balances, supported by foreign governments buying US treasury notes, and that kept their currencies artificially low, along with US interest rates. The economists also lay part of the blame at financial market practices of the past 20 years, which reduced transparency and increased risk.
The economists with USDA’s Economics Research Service say the direct impact on agriculture will be modest. Domestic customers will continue to buy food, although types may change including meat selections. The disruption of financial markets may inhibit lending and those with credit challenges may reduce purchases of inputs.
However the major impact will be indirect effects, stemming from the financial health of overseas markets, including the relationship of foreign currency to the US dollar. But the economists say, “U.S. agricultural exports of high-value agricultural products tend to be more sensitive to changes in foreign income growth and less sensitive to exchange rate changes than those of bulk commodity exports.” The global contraction means cuts in spending for food, primarily in developing nations, and cuts in spending for high value food in developed nations.
The value of the dollar, in relation to other currencies is another factor, which stems from US overspending and undersaving. The USDA economists say, “These imbalances could be corrected by a realignment of exchange rates involving an appreciation of the surplus countries’ currencies against the dollar. This would raise the prices of their exports in the United States and lower the prices of U.S. exports in their countries. U.S. imports and consumption would fall and exports to trade surplus countries rise, while trade surplus country exports would drop and their imports and consumption rise. The U.S. trade deficit would shrink.” Compared to Asian currencies, the dollar depreciated the past 3 years against the Chinese yuan by 18%, the Korean won by 40%, and against all foreign currencies by 17%. But in the last 6 months of 2008 the dollar appreciated by 17%.
The economists say if the dollar continues to be strong, the world could rebound from the economic crisis and agriculture would benefit from resumed world growth. On the other hand, if the dollar depreciates against the currency of countries with a high trade balance, the low dollar would result in a significant reduction of global imbalances and could lead to sustainable world economic growth, which would be a double benefit for agriculture.
Under either scenario, agricultural trade is seen declining in 2009 and recovering by 2011. By 2017 corn exports would grow from $55 bil. to $65 bil., however soybean exports would decline from $25 bil. to $19 bil. Wheat would remain steady, and meats would see very slow growth. Corn and wheat would be hurt by the high dollar scenario, but soybeans would be helped substantially. In the long run, the export value between the high and low dollar scenarios have substantial divergence. The economists say changes in the exchange rate generally help meat exports more than crops, because meats are a high value export and grain is a bulk commodity.
To farmers the bottom line benefit of either scenario is what happens to the bottom line, and farm income expected to fall 20% between last year and this year. The economists say the high dollar scenario means less exports and less farm income because receipts decline faster than expenses. And they add that livestock receipts will suffer the most. In the low dollar scenario farm income declines 26% this year, but will begin to climb above averages in 2010and be nearly twice as much as farm income under the high dollar scenario by 2016. Farmland values are not expected to be impacted as much, and they are expected to increase 5% in nominal terms, and 3% in real terms.
Summary:
As the world recovers from the global financial crisis, agriculture may be impacted, depending actions taken by Central Banks. If the dollar remains weak while global currencies and exchange rates are realigned, then US agricultural export volumes will be strong, along with commodity prices, farm income and farmland values. However, if exchanges rates are realigned with a strong value of the dollar, it will constrain the agriculture economy, along with commodity prices and farm income. However, US farmers will remain a major global source for high quality and large quantities of food.
Posted by Stu Ellis at 12:16 AM | Comments (0) | Permalink
April 8, 2009
What Is The Emotional Health Of Your Family, Friends, And Neighbors?
Survivors of the financial and emotional stress in the early 1980’s may think this is déjà vu “all over again.” However, an increase in reported suicides on dairy farms certainly signals that it is time for neighbors to watch out for the health and welfare of their friends. The livestock industry has been awash in red ink for too long. Equity may have been depleted. And some operators may see their life insurance as the way out of debt for the surviving members of their family. If you are a member of that family, a friend, or a neighbor, it is time to take action.
In the past decade it has become popular to learn the Heimlich maneuver to help someone choking, or CPR to help someone suffering heart failure. Within the agricultural community it may be time to recognize the symptoms of financial stress and know what to do. That is the contention of Ohio State University Specialist Chris Zoller, whose contribution to the April Edition of the Ag Manager newsletter provides an overview of what a good neighbor should do. Zoller cites first hand knowledge of farm fed depression and what goes through someone’s thought process. And he says the current margins on dairy farms feed that depressed mental state. Zollar urges anyone in farm community to be on the lookout for signs of difficulty. Some of those include:
1) A change in family routine, such as no longer attending church, dropping out of any community activities, no longer engaging in social encounters, and otherwise withdrawing.
2) If the family or farmer has livestock, depression can manifest itself in a neglect of the animals.
3) Depression can also foster more illness, aches, pains, and cases of flu.
4) The incidence of accidents also increases as fatigue sets in or minds wander when they should be paying attention to the task at hand. Small children in the family may become victims with lack of adequate care.
5) Farmsteads begin to look junky, as buildings and fences decline from lack of pride in the way the home looks.
6) Parental depression can easily be reflected in children, who suffer resulting behavior problems and begin to fail in school.
A prolonged period of financial difficulty can result in a prolonged period of emotional stress. Zoller says when that happens the individual or the family will have physical problems that include pains and lack of sleep. Emotional issues involve depressed feelings, anger, or anxiety. Irritability and withdrawal are types of behavioral issues. Another symptom includes memory loss, lack of concentration, and indecision. Self-esteem has declined when the individual starts blaming himself for problems.
Indicators of potential suicide include anxiety, becoming withdrawn, feelings of helplessness and hopelessness, abuse of drugs or alcohol, making a suicidal plan, and cries for help.
Those signs along with indicators of depression should be the launching pad for action by friends, neighbors or other family members. A positive response begins with a knowledge of what services are available in a community to help with depression and potential suicide, and be prepared to recommend an appropriate service. A potential victim may have many problems that only specialists can help solve, such as financial or legal issues, and may be in need of professional counseling. A visit with the individual or family and sharing your observation that something may be troubling, is the place to start, followed by a recommendation for a person or agency that might help with the issue.
A critical determination is whether the person is a threat to himself, herself, or others, and if so, then the initiative needs to be taken to call an appropriate agency for help and seek their immediate advice. Zoller says, “Many people are reluctant to get involved in these family situations because they are very personal issues. However, it is better to be proactive in getting help for the person/family than watching something tragic happen and wishing you had done something.” He recommends more information found here.
Summary:
The time is ripe for financial stress on many farms that can quickly deteriorate into states of depression and potential suicide. There are numerous signs that emotional challenges have gotten the best of someone and they are in a declining state of physical and mental health. Friends, neighbors, and other family members need to be aware of the dynamics involved and familiar with professional services that can be called up for help, particularly if the situation is deteriorating toward a life threatening crisis.
Posted by Stu Ellis at 12:02 AM | Comments (0) | Permalink
April 7, 2009
Index Funds: Are They Devils Or Angels?
Imagine that a journalist called or stopped you last fall and asked your opinions about the reasons for the rise and fall in the commodity market, including the crude oil market, and wanted to know your thoughts about the reasons for the upward climb and sudden drop. How would you answer? Would you lay blame at the feet of speculative investors, where conventional wisdom has placed it?
You will remember that crude oil prices last year pushed over the $145 per barrel mark and within a few weeks had lost $100 of that value. With the help of ethanol, corn prices were carried well over $7, and that pushed soybeans to the mid-teens, while wheat headed even higher in Minneapolis. Ag economists Scott Irwin of the University of Illinois, Dwight Sanders of Southern Illlinois University and a colleague from the Netherlands beg to differ with those who blame the index funds and other speculators for creating a bubble of prices that far exceeded their real value. Their research takes an opposing view, all while Congress is considering legislation to prohibit or limit index fund speculation in commodity markets.
Irwin and colleagues say the concept of a bubble may seem sensible, but markets don’t work that way. They say money flows in and out of the market at any given price level and prices will change as market participants revise their estimates of supply and demand, and if they are all equally informed. The economists say it is possible that traders saw the large flow of index fund money into the long side of the market, and thought that was the place to be, even at a higher price. But that was a fallacy because of the predictability of index trader actions.
While index funds use the futures market, they do not participate in the cash market and never take delivery of a commodity, so critics who contend index traders influenced the cash market do not have a valid argument, say the economists. They also remind proponents of the bubble theory of the traders who hedge to avoid risk and those who speculate for the purpose of taking risk. While the entities that engage in futures trading are becoming more blurred in their objectives, the economists say the index fund traders “did not disturb a sterile textbook equilibrium” and create a price bubble.
When Irwin and his colleagues looked at the data about who was hedging and speculating, who was long and who was short for the major commodities over the past two years, they found that index funds took long positions in all but one of the nine futures from early 2006 to early 2008. They found that index funds increased their long positions in corn by 250,000 contracts, while commercial firms increased their short positions by 500,000 contracts. Secondly, the economists found that the highest concentration of index fund positions in early 2008 was in livestock markets, which did not have large price increases, and not in the grain contracts that did. Thirdly, many commodities that did have large price movements, rough rice 162%, fluid milk 37%, apples 58%, and edible beans 78%, did not attract index fund investments. And fourthly, the economists say prices rose for corn, beans and wheat as inventories fell, but prices also rose for crude oil, even as inventory remained flat, which increases their skepticism of a bubble caused by index traders.
The economists acknowledge that their observations are circumstantial, and suggest a look at the actions of the index traders versus the real value of the commodity. Using their statistical tools, they found only a significant relationship between price movements and position changes in index traders in only 5 out of 30 futures contracts studied. And they said a further study by an investigatory panel using five years of data not available to the public, found no evidence that daily position changes influenced crude oil prices.
The economists say history has not been friendly to market speculators over the past 125 years, all the way from President Truman threat to limit trading, to banning trade in onion futures, and the blame placed on speculators in the early 1970’s when commodity prices took their last upward jump and resulted in an embargo on soybean exports.
Irwin and his colleagues conclude there is insufficient evidence to blame index fund managers and other large speculators for causing a price bubble last year, and after a supply-demand driven price rise, the favorable demand factors reversed because of the global market meltdown. They warn that the legislative proposals to curtail speculation “could severely compromise the ability of commodity markets to accommodate the needs of firms to manage price risks.”
Summary:
Despite the widespread notion that index traders pushed up commodity prices then pulled out to take profits as prices fell, there is no justification for believing that a commodity price bubble occurred which had no relationship to the actual commodity values. Evidence points to the fact that index funds were buying futures, while other hedgers were selling and such action is regular, predictable, and transparent. Additionally, a large number of other statistical tests on the market indicate that index funds had little to do with the price action, and attempts to legislate restrictions on speculative trading will be detrimental.
Posted by Stu Ellis at 12:09 AM | Comments (0) | Permalink
April 6, 2009
In What Part Of The Price Range Do You Market Your Grain?
Congratulations! Your marketing skills are not as bad as convention wisdom would have. There is a common belief that farmers sell two-thirds of their grain in the bottom third of the price range. Well, some will, but not the majority, and we have the evidence to prove it!
Out of curiosity, what is your track record for marketing grain? Do you regularly hit the top of the market, or are you somewhere else? For those of you in the latter group, your marketing skills are not as bad as conventional wisdom. As a former market educator and marketing club leader whose forehead has dented many walls in frustration with farmers who fail to write marketing plans or fail to follow what they pledge to do, some new research is refreshing. It is the effort of several agricultural economists at the University of Illinois whose study focused on wheat farmers in southwestern Illinois and southwestern Kansas. While the Kansas crop was hard red winter wheat and the Illinois crop was soft red winter wheat, there were many other similarities in the study that encompassed 1982 to 2004, which allowed the researchers to study numerous supply and demand situations.
To determine the marketing performance of the wheat producers, the benchmark price used spot market prices based on grade and quality, including protein content, test weight and other factors. Other calculations included storage costs and interest opportunity cost. Once the benchmark price was determined, it was used to compute monthly average cash prices using USDA’s statistics for farmer marketing volumes along with any marketing loan benefits.
The researchers used three marketing periods:
1) A 24-month period that begins in June of the calendar year before harvest and ends in May of the calendar year after harvest.
2) A 20-month period that ignores the first 4 months of the 24-month period.
3) A 12-month period that begins in June of the calendar year of harvest and ends in May of the calendar year after harvest.
The researchers found the average farmer benchmark price from 1982 to 2004 was $2.93 per bushel in Kansas and $3.02 in Illinois. And they said, “The results show that farmer benchmark prices for wheat in Illinois and Kansas fall in the middle third of the price range, not the bottom third, about half to three-quarters of the time. Averaged across all three marketing windows, farmer benchmark prices in Illinois fall in the top and bottom third of the price range 23% and 13% of the time, respectively. On average, farmer benchmark prices in Kansas fall in the top and bottom third of the price range 12% and 25% of the time, respectively.” Further, market performance of farmers in both states was the best when compared with the 12-month price range.
Statistics indicated that marketing performance was better for Illinois farmers than those in Kansas, and the researchers reconciled that with when wheat was typically sold. “Wheat farmers in Kansas, on average, market 24% of their wheat crop after December (postharvest), while farmers in Illinois market only 14%. The greater weight on sales after December and marginally higher penalty for sales during the last 5 months of the postharvest period in Kansas ($0.24/bu versus $0.20/bu) explains the tendency for Kansas wheat farmers to slightly under perform their counterparts in Illinois.” The researchers did conclude, “There is a tendency across crops and states for farmers to store too long relative to the storage returns offered by the market.” And they added, “It is also possible that crop farmers simply do not fully understand seasonal price patterns. There is a large amount of variation in prices from year to year and this may obscure longer-term seasonal patterns. At a minimum, the results indicate crop farmers could benefit by a better understanding of seasonal price patterns and the attendant impacts on marketing performance.”
Summary:
Although farmers are typically blamed for selling two-thirds of their grain in the lower third of the price range, statistics do not confirm that, and a study of Illinois and Kansas wheat farmers found that half to three quarters of the time average grain sales occur in the middle third of the price range. Researchers said the reason for not doing even better is a possible incomplete understanding of seasonal price patterns.”
Posted by Stu Ellis at 12:06 AM | Comments (0) | Permalink
April 3, 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 Prospective Plantings Report was the headline this week, indicating 7.8 mil. fewer crop acres would be planted this year. The largest cutback was a 4.5 mil. acre drop in wheat, 75% of that in winter wheat. Other reductions were nearly 660,000 fewer cotton acres, nearly 450,000 fewer sunflower acres, and a 1.3 mil. acre cut in sorghum.
USDA projected corn acreage at 84.986 mil. which is about 1 mil. acres less than last year, with the bulk of the cutback in marginal corn ground on the fringe of the Cornbelt. IL marketing specialist Darrel Good says that will mean 77.786 mil. harvested acres, and with a 152.8 bu. trend yield, 2009 corn production should reach 11.862 bil. bu. He says that will sharply reduce stocks because ethanol production and exports should increase.
USDA projected soybean acreage at 76.024 mil. acres, which is 306,000 more acres than 2008, and points to 75 mil. harvested acres. Paired with a 41.6 bu. trend yield, the 2009 soybean production should be 3.12 bil. bu., up 160 mil. bu. from last year. Read Good’s analysis.
USDA also released the Quarterly Stocks report, which projected corn stocks at 6.958 bil. bu. Good says exports for the quarter were off 262 mil. bu., domestic use dropped only 31 mil. bu., since ethanol use was larger, and feed use of corn was down slightly. Soybean stocks were 1.302 bil., with crush down 47 mil., and exports up 50 mil. bu.
On-farm stocks of corn climbed 8% compared to last year and off-farm stocks dropped 7% observes IA St. marketing specialist Chad Hart. He said farmers are also holding more soybean stocks which are up 11% compared to year ago levels, and off-farm bean stocks are down 23% versus 2008. On-farm wheat stocks are up 205% from 2008.
Corn and bean acres have been on the increase in recent years, says IA Extension’s Hart, “In fact, the amount of “other” crop acreage, not including corn, soybeans, wheat, and hay, has dropped from 50 million acres in 2002 to less than 40 million acres projected for 2009. Much of that decline has hit the cotton industry. So while the overall crop base has been in decline, corn and soybean area has been able to increase.”
The large cut in crop acres was attributed by Hart to result from higher input costs, “Some can be attributed to weather events, such as lingering drought impacts in Texas and late harvesting of fall crops in the northern Great Plains. Double crop acreage is also likely to decline in 2009. But if weather conditions cooperate, and crop prices look attractive, then some of this lost acreage could be planted in 2009.” He says the trade is now pointing to season average prices of $4.10 for corn and $8.50 for soybeans. Read Chad Hart’s newsletter.
“Soybean surprise” is what Mike Woolverton at Kansas St. called the USDA planting intentions report, since the market was expecting 79.25 mil. acres, and he wonders if enough beans will be produced. He says stocks are 9% under last year, and with exports better than expected, ending stocks will be 6% of usage, below the pipeline supply.
Woolverton says South America will not make up the shortfall. “Southern Hemisphere harvest is just now reaching the drought-damaged areas of Southern Brazil, Paraguay, and Argentina where reported yields are running 40% below last year,” Woolverton says. He expects USDA’s next report to show projected global supply low relative to global demand, even though demand has been weakened by the global economic downturn.
Kansas State’s Woolverton was also surprised with the “triple-digit declines in spring wheat planting intentions. Farmers in ND, MT, MN, and SD; the 4 largest spring wheat producing states, expect to plant about 700,000 fewer acres of wheat; and that was before the recent flooding that may prevent spring wheat planting in some areas.” Read his newsletter.
Purdue’s Chris Hurt says we are returning to a normal grain marketing situation, with aggressive bids for the new crop and with basis levels closer to historical levels. But while he says stability is returning, he says grain prices have probably hit bottom.
Pesticides have value says the CropLife Foundation in a report funded by crop protection firms:
1) Each year, approximately 45 mil. acres of US crops are treated with insecticides
2) Farmers annually spend $1.2 bil. on insecticides to prevent crop loss to insects.
3) If untreated, 31 of 50 primary crops would suffer production loss of 40% or more.
4) Seven of the crops would suffer nationwide production losses over 70%.
5) For every $1 spent on insecticides, US farmers gain $19 in production value.
We won’t tattle on you, but your pesticide storage may not be up to standards. IL Extension’s Jim Morrison says, “Pesticides on the farm should also be kept locked and the pesticide storage building should be labeled with a sign stating "Danger – Pesticides – Keep Out". Keep inventory records of pesticides up to date and easily accessible. Have a complete label and a Material Safety Data Sheet (MSDS) for every product on the farm.”
Alfalfa analysis #1. Evaluate your stand by plants in 1 square foot, and you should find: 1) Greater than 12 in the spring of the first production year, 2) Greater than 8 in the spring of the second year, and 3) Greater than 5 in the spring of the third year. Before tearing up the stand, consider forage inventory, cash flow, and available land.
Alfalfa analysis #2. The preferred method of stand evaluation is a stem count per square foot. This approach is a good indicator of potential yield. Stem counts can be taken when the plants are 4 to 6 inches or taller. Count any stem that would be cut at harvest. If there are fewer than 39 robust stems per square foot, consider tearing up the stand.
Wheat analysis. Evaluate your wheat as the soil dries out, particularly if you had little snow cover. Count wheat plants over a 20-foot span in five areas of your field for a period of several weeks to decide whether plants will outgrow injury and to assess any damage that may have occurred. One general guideline is 70 tillers per square foot are considered adequate for optimal yield, says IL Extension’s Loretta Ortiz-Ribbing.
Except for those being caught in traps, black cutworm moths are spreading across the Cornbelt, with females seeking suitable sites to lay eggs. IL Extension entomologists say fields with the greatest risk of black cutworm injury this spring include first-year corn infested with common chickweed and other winter annuals, especially where conservation tillage (including no-till) has been practiced. The annual threat from black cutworms has been reduced by the use of Bt corn, seed treatments and soil insecticides.
Yoo-hoo. Any soybean aphids out there? The every other year schedule no longer is any good, and specialists say the number of aphids they find in the fall no longer gives a good indication of the population the following year. IL Entomologist David Voegtlin says few eggs were found on buckthorn, but they will have overwintered somewhere in the Midwest and will likely expand into treatable populations in those areas. Read his observations.
Your soil type may dictate how you approach spring fieldwork, say IA State ag engineers. Managing corn stubble in continuous corn, which was not worked last fall, depends on soil moisture. They say avoid conventional tillage this spring.
1) Loess soils that are wet in the top 2-3 in. should be no-tilled using row cleaners.
2) In Glacial-till soils, run an empty planter with row cleaners to push residue aside, then
let the soil dry for 2-3 days prior to planting, which will improve corn germination.
3) Strip-till or disking to “dry” the soil will only result in compacted clods at planting.
4) If planting into wet soil, increase seeding rate 2-3,000 to compensate for stand loss.
If you are still juggling corn prices and the cost of anhydrous ammonia, consult the updated version of the corn nitrogen rate calculator, which helps your decision on how much to apply, taking corn prices and nitrogen costs into consideration. Find the calculator.
Increase your corn yield with 10 ideas from Ohio St. agronomist Peter Thomison:
1) Know the yield potential of the field, its yield history, and soil productivity.
2) Use hybrids with high ratings over many trials, using Bt if you have rootworms.
3) Use pest management practices that provide effective, timely pest control.
4) Begin planting before the optimum date if dry, and aim to finish by May 10.
5) Plant 1.5-2 in. deep, at 4.5 to 5 mph, and monitor to prevent uneven emergence.
6) Adjust seeding rate by field, and plant up to 32,000 on highly productive soils.
7) Use the most economical N rate, avoid N loss, and consider using stabilizers.
8) Use soil testing to adjust pH and guide P & K fertilization at optimum rates.
9) Till only when necessary and when soil conditions are right.
10) Take advantage of crop rotation to boost corn yield 10-15% after soybeans.
Posted by Stu Ellis at 12:34 AM | Comments (0) | Permalink
April 2, 2009
Any Cornbelt Farmer Who Has Been In The Field Should Consider Himself Lucky.
Sporadic sunny, dry days have allowed some Cornbelt farmers to catch up on anhydrous ammonia application, something that was rained, snowed, and frozen out last fall. However, soils are still plenty moist in many regions, and fertilizer application equipment is tip-toeing around wet spots. Few planters have begun rolling even in the southern reaches of the Cornbelt due to moisture and cool soil temperature. We’ll survey the Midwest for the first report of the season.
USDA released its state weather and crop bulletin for all states on March 31, indicating plenty of moisture in the Midwest.
ILLINOIS: Temperatures during the month of March averaged 2.5 degrees above normal across the state and precipitation averaged an inch above normal. Heavy rain and wet snow fell on many parts of the state over the weekend, causing delays in fertilizer application. Topsoil moisture was rated 50% adequate and 50% surplus. Winter wheat conditions stood at 67% good to excellent.
INDIANA: The state temperature for March averaged 3.4 degrees above normal. Precipitation in northern areas averaged 200% of normal causing flooding in low-lying areas while precipitation in central and southern areas averaged only 70% of normal. The winter wheat crop has begun to break dormancy and is reported to be in mostly good condition. Many operators were applying pre-plant anhydrous ammonia on intended corn acreage.
IOWA: Soil moisture availability rated 3% short, 65% adequate, and 32% surplus. However, saturated fields have limited activities in areas, as farmers must wait for fields to dry out. Farmers are anxious to get into their fields and get fertilizer applied and planting underway.
KANSAS: There were 20 days suitable for field work in March. Topsoil moisture 7% very short, 28% short, 50% adequate, and 15% surplus. Subsoil moisture 6% very short, 23% short, 64% adequate, and 7% surplus. 13% of the wheat has jointed, compared to 10% last year, and 20% for the 5-yr avg. Wheat condition was rated 79% fair to good.
MICHIGAN: March precipitation varied from 0.78 inches in western Upper Peninsula to 2.84 inches in southwest Lower Peninsula. Although a few areas remained under snow, above normal temperatures for the month ushered in spring. Early assessments revealed wheat wintered well with little to no winterkill.
MINNESOTA: March temperatures averaged about normal, but ranged from -30 degrees to a high of 69 degrees. Precipitation averaged from 0.89 inches below normal southeastern Minnesota to 2.35 inches above normal in north central Minnesota. Rain and melting snow, in addition to frozen or saturated soil, caused overland and river flooding in the Red River valley and in a few other parts of the state.
MISSOURI: March was warmer than normal and precipitation slightly above average at 3.75 inches.
NEBRASKA: March temperatures averaged near normal. Precipitation was below normal with most areas receiving less than 1 inch of moisture. At the end of March snow depth was limited to the Panhandle and the North Central region with one to two inches in those areas. Soil temperatures were above freezing across the entire state. Fieldwork was mostly limited to fertilizer applications and seedbed preparations. Wheat conditions were 68% good to excellent, above last year’s condition of 50% good or excellent.
NORTH DAKOTA: Average snow depth was 8.1 inches on with pasture and range remaining dormant. Hay and forage supplies were rated 84% short to adequate. Colder than normal temperatures and above normal precipitation were experienced throughout most of the state during March. Severe winter weather and flooding struck; and the entire state of North Dakota was declared a disaster area on March 24, with 34 of 53 counties designated to receive aid. Adverse weather delayed fieldwork and grain movement, and strained calving conditions and livestock feed supplies.
OHIO: The March average was 2.5 degrees above normal. Precipitation for the state averaged 0.31 inches below normal. Winter wheat conditions ranged between very good to poor. Before winter the plants achieved good growth, and were topped with snow cover for much of winter. There are some flooded acres that have been lost for the season.
SOUTH DAKOTA: Topsoil moisture is 99% adequate to surplus and subsoil moisture is 92% adequate to surplus. Winter wheat snow cover was 65% poor, and 23% is breaking dormancy. Range and pasture is 54% good to excellent. South Dakota agriculture was hit with extremes of major winter storms and in some places a week of above-average temperatures. Crop producers are expressing concerns about winterkill in winter wheat and alfalfa and excessive soil moisture in some areas.
WISCONSIN: Snow cover for the winter was limited to the northern-most part of the state. March precipitation was highest in the south-central part of the state, with 5 to 6 inches.
Summary:
Not unexpectedly, fieldwork has been quite limited due to wet soils throughout much of the southern two-thirds of the Cornbelt with snow cover in the northern third. Concerns were expressed in many states about the vitality of the wheat crop, either suffering from winterkill or flooding.
Posted by Stu Ellis at 12:02 AM | Comments (1) | Permalink
April 1, 2009
Farmers Have Spoken, And What They Say Makes Sense.
Tuesday’s USDA Prospective Plantings report is the second most anticipated report issued annually by the National Agricultural Statistics Service. The foremost report is the August First Crop Report, and in second place is the planting intentions report, which Tuesday indicated that total planting acreage in the US would drop 7.8 million from last year. Cornbelt farmers were happy to see acreage and stocks numbers that were friendly to both the corn and soybean markets. So let’s dig into the details.
USDA issued two primary reports on Tuesday, the Prospective Plantings Report and the quarterly Grain Stocks Report for March 1.
Corn acreage is projected at 84.986 million acres, down 1% from 2008. However, it would be the third largest corn acreage since 1949. Acreage cutbacks occurred in states with marginal production, possibly because of lower prices and higher production costs. However, farmers in major corn producing states found a few more acres to possibly plant corn, to nearly make up for the loss.
Soybean acreage is projected at 76.024 million acres, up from the 75.7 million in 2008, but well under the 80 million expected by the market. If all intended acres are planted, it would be the largest soybean acreage on record.
Corn stocks were estimated at 6.96 billion bushels, up 1% from year ago levels, with disappearance the past three months at 3.12 billion bushels, down 300 million bushels from last year. Soybean stocks were estimated at 1.30 billion bushels, down 9% from year ago levels, and disappearance at 974 million bushels up 5% from last year.
The market liked the reports, with May corn climbing 18.5¢ to $4.0475, and Dec corn rising 17.5¢ to close at $4.1475. May soybeans rose 47.5¢ to $9.52 and Nov beans climbed 50¢ to $8.92.
At the University of Illinois, Marketing Specialist Darrel Good said a trend yield for corn, matched against intended acreage would provide 11.862 billion bushels, causing a large decline in stocks by the end of the marketing year for the new crop. He expects both ethanol and exports to become larger consumers of new crop corn. Also, he says the trend yield for soybeans matched against the intended acreage would yield a crop of 3.12 billion bushels. While that would be larger than the 2008 crop, he says increased consumption would lead to smaller stocks by the end of the marketing year for the new crop.
Good says the combination of acreage and stocks are supportive of prices, with acreage for all crops being less than expected, and particularly for beans and wheat. Additionally, the March 1 stocks were less than what the market expected.
At the University of Missouri, Marketing Specialist Melvin Brees says, “The tight soybean supplies and small increase in intended acres appear to be bullish news for soybean prices. Some analysts are also calling the reports neutral to bullish for corn with strong corn use and a small decrease in expected corn acreage. In spite of concerns over high production costs, recent new crop bids have continued to offer a small profit edge for corn and it appears that most producers are not making changes to their acreage mix. Weather now becomes a major factor with concerns about wet conditions, lack of field work progress and worries about planting delays that could change planting intentions.”
Darrel Good agrees with the Brees’ thought that changes could still occur before planting, “Prices may show a modest response to these reports, but the market will also begin to anticipate how actual plantings may differ from intentions. In addition, financial, currency, and energy markets will continue to have an influence on crop prices as those markets influence over all demand prospects.”
Summary:
The intentions of US farmers are to plant nearly 8 million fewer acres this year, possibly because of lower prices, higher input costs, and the overall reduction in profitability. Their response to USDA’s survey earlier in March about planting intentions surprised the market and many observers with fewer soybean and wheat acreage than expected. Corn acreage in the heart of the Cornbelt will rise slightly, but marginal production areas will not be planting nearly as much this year. Grain stocks are also lower than market expectations, indicating strong export and ethanol use in past months. Heavy future use will also keep stocks at a minimum, drawing down both corn and soybean supplies.
Posted by Stu Ellis at 12:37 AM | Comments (1) | Permalink
