Navigate to « July 2009 | Main | September 2009 »
August 31, 2009
The Financial Crystal Ball Is A Bit More Clear, And You Can See A Lot Of Red Ink.
You have probably penciled in your own estimates for 2009 income, based on high production expenses and low commodity prices. Some of you will have a lot of red ink and some will have a small amount of black ink. Compared to your income for the past several years, there will be a lot of income averaging going on when you file your next tax return. That is because farm income will be off nearly 40% from 2008 as USDA figures it.
Rising prices in 2007 and high prices in 2008 are being met with lower prices in 2009 that will eaten up by relatively high production costs. The net effect is farm income at $54 billion for the US, compared to more than $87 billion in 2008. And compared to the average of last 10 years, USDA’s estimate for 2009 farm income is $9 billion below that average. USDA economists released a preliminary estimate of farm income for the current year, saying:
• 2007 increase in farm expenses of $34.8 billion and 2008 increase in farm expenses of $22.5 billion were the largest year over year changes on record.
• 2009 expenses will be down $9.2 billion from 2009, but still 5% more than 2007.
• Cash receipts will decline $40.3 billion from 2008.
• Crop receipts have increased more than 20% in each of the last two years, but will drop $18 billion below 2008 levels.
• Livestock receipts will decline $22.2 billion from 2008, which is nearly 16%.
2008 income was helped by a strong global demand and expanded markets, before falling late in the year due to recessionary pressures. Farm income began to fade late in 2008 when farmers were forced to accept lower commodity prices. With abundant crops and high prices in 2008, crop receipts were high, but in 2009 the value of crop production is expected to decline 9.8% from last year. With a substantial drop in milk prices and declining export demand for US meat products, the value of livestock production in 2009 is projected to be down 15.6% in 2009.
For grain sales, cash receipts will be down almost 29%, pushed hard by a 35% drop in wheat receipts alone. Corn receipts will be down 19.6%. Soybean and other oil crop receipts will be about level from 2008, says USDA because of forward contracts early in the year when prices were lower. Cash receipts for livestock are forecast at $119 billion, a 15.7% drop from 2008, due in large part to a soft milk market that has receipts some 34% lower than 2008. USDA looks for a 10% drop in cash receipts for cattle and calves and a 13% drop in cash receipts for hogs.
USDA says the cost of inputs in 2009 will be lower than the $290 billion in 2008, particularly for feed, fertilizer and fuel, but the reduction in gross income will far exceed the reduction in production costs, leaving all measures of income below the records established in 2008. The drop in production expenses would be the first since 2002. Despite the decrease, forecast expenses for 2009 would constitute the largest percentage of gross farm income, 84%, since 1984.
Feed costs will be lower by nearly 7%, after rising 67% the past two years. While corn and soybean meal make up most of the feed price, and they are both down 16% for the year, the cost of complete feed is up 15% for the year.
Crop production expenses went up 21% in 2008 and will fall 6% for this year, primarily from 25% lower fertilizer prices. Seed expenses climbed 26.5% in 2008 and another 15.5% in 2009. Specifically, seed corn is up 31.5% over last year and seed beans are up 24.5%. Fuel and oil expenses will be 30% less this year than last year, after a 207% jump between 2002 and 2008.
Something going up in 2009 will be payments made to landowners, laborers, and lenders, and that increase will be slightly less than 6%. Labor will cost 5% more this year, interest costs will be up 7% over 2008, and cash rents and other payments to landowners will be up 11%. While government payments will be up $400 million from 2008, the $12.6 billion being paid out is 20% under the average of 2004 to 2008. The bulk of the payments will be for milk, tobacco, cotton, rice, and peanuts. Direct payments are $5.15 billion.
Summary:
Farm bank accounts will be taking a major hit in 2009 because of lower commodity prices and the fact that production expenses did not drop as much as commodity prices fell. USDA’s projection for 2009 income will be 38% under 2008, and will be less than the average for the prior 10 years. While expenses such as fertilizer and fuel are considerably less expensive than in 2008, and feed prices are down for livestock operators, the market prices for commodities declined at a faster rate, including a 35% decline in wheat, and nearly 20% decline in corn receipts.
Posted by Stu Ellis at 12:10 AM | Comments (0) | Permalink
August 28, 2009
Cornbelt Update
Cornbelt 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.
Despite a big 12.7 bil. bu. corn crop, demand is strong and both USDA and FAPRI are projecting a nearly 12.9 bil. bu. demand. MO marketing specialist Melvin Brees says carryover may well be 1.6 bil. bu., which is large, but he says not excessive, and with the large demand the ratio of ending stocks to usage will be below average. Read more.
There are positives and negative “ifs” which impact the grain market says Brees,
1) Corn use could be limited by increased DDGS feeding if ethanol refining increases.
2) USDA’s corn export projections will be met, if world demand consumes its stocks.
3) Soybean exports should remain strong, if China’s appetite for soybeans remains.
Don’t be mislead by USDA price estimates of $3.50 for corn and $9.40 for beans for the marketing year. Melvin Brees says those estimates include grain that had been forward contracted at higher price levels earlier in the year and they do not suggest that cash prices will return to higher levels. He says that is a corn/soy price ratio of 2.7 to 1 and current new crop futures are suggesting almost 3 to 1. Since the market indicates it wants more soybeans, South American farmers will respond to that message first.
Store or sell? Brees says that decision may be depend, in part, on the ability of the crop to mature. He says if it matures without damage, then watch for market signals for storage. He says new crop corn is breakeven at best and March corn has a 13¢ premium over December, but that won’t cover storage costs, unless the corn/soy ratio changes.
The downside risk for soybean prices could increase says Melvin Brees. He says the November to March spread is 10¢ which offers no return to storage and if the US crop escapes the frost only to see production increases in South America, that downside risk will increase. He is not yet ruling out an improvement for post harvest basis gains. He’s looking at selling beans at profitable prices and storing corn, if a decision has to be made.
Soybean exports would be helped if China keeps buying says SD marketing specialist Alan May. He says USDA may have to increase its export projection if that happens, “The challenge for soybeans however, is that the projections for world production and supplies are higher for this coming marketing year and while demand for US soybeans remains strong, the balance of world supplies will determine where US exports settle.”
Most corn should have silked by now, which OH agronomists say means maturity is 7 to 8 weeks away, and with temperatures averaging 60º lows and 80º highs, that 20 GDD credit should get corn from the blister stage to maturity in 52 days, from the early dough stage to maturity in 39 days, from the early dent stage in 25 days, and full dent in 12 days. If temperature averages drop to 55º and 75º, then GDD accumulate at 15 per day.
If your corn is in the early dent stage today it needs 510 Growing Degree Days to reach black layer and be safe from frost, despite potential 30%+ moisture. The potential for accumulating that many GDD’s depends on your latitude. If you are north of the OH-MI border, your average frost date of Oct 10-20 will provide 538-622 more GDD’s.
If your corn is in the early dough stage today it needs 775 more GDD’s to reach the black layer safety threshold. While you may not have that much heat remaining in the season, Purdue agronomist Bob Nielsen says late planted corn has the ability to adjust its maturity requirements and reach black layer 200-300 GDD earlier than expected.
Do you have Blunt Ear Syndrome? It is also known as “beer can” ears, and makes corn ears about that size, but no one knows why. Purdue’s Nielsen says he’s leaning toward the effect of a cold shock during ear size determination that either injures the ear shoot or changes the hormonal balance within the developing ear shoot. If you find BES, fill out his questionnaire.
September temperatures should parallel the prior segments of the growing season in the mind of OH meteorologist Jim Noel. He says, “Temperatures should return toward normal or even slightly above this week and then resume the below normal tendency by this weekend into next week followed by normal the week of Sept. 6-12. Also, note that after a very cool weekend, indications are this coming weekend into early next week will be quite cool too with some lows in the 40s by early next week!”
July had record cool temperatures, but what happened to yields in parallel crop years? That is what IA meteorologist Elwynn Taylor has been studying and he reports:
1) Seasonal heat accumulation trends in 1992, 2003 and 2004 through mid-August all experienced significantly colder weather than average, similar to the current season.
2) Crops have a yield advantage with early heat and late season cool temperatures.
3) In 1992 crops were immature when it frosted early and grain quality was an issue.
4) In 2004 Sept was dry with above average GDD and yields were highly variable.
Elwynn Taylor says, “The delay in reaching silk and setting pods is an issue and although we are filling kernels and pods now, we are racing the season to get to maturity. Barring an early frost, things should be OK, but dry-down may be an issue as it was in 1992. The difference is that August 2009 has been more favorable for grain fill.” Read more.
The world’s farmers will converge on the Farm Progress Show Sept. 1-3 at Decatur, IL. The all-weather Progress City site has been expanded to accommodate more companies with bigger exhibits. BASF and Bayer have exhibits for the first time, joining Monsanto and Dow which have substantial biotech layouts. Attend marketing seminars, get a free health check-up, and watch livestock and horse handling demonstrations. Yes, there will be harvest and tillage demos, since an early planted corn field is ready to combine. Find maps, ticket details, exhibitor lists and more.
Equity losses for pork producers may be exceeding those from 1998-99, says Purdue livestock economist Chris Hurt, who says the current downturn is longer and more severe. Part of the reason is the slower reaction to cut the breeding herd, which has only dropped 3%, compared to 10% a decade ago. But why has the industry reacted slowly:
1) High feed prices are the current problem, and they have not declined as expected.
2) The export surge by China was a one-time event, and demand has diminished.
3) The current pork producers have not had to make such a large adjustment downward.
4) The industry has enjoyed profitability and built equity and decided to live off of it.
Pork production will remain in the red this fall and winter with prices in the $40-42 range and production costs near $45. Chris Hurt says if prices rise to the upper $40 range next spring with costs just below that level, then profit opportunities may appear early in 2010. For the balance of next year, Hurt expects $2 to $5 profits per head.
Regarding pork exports, they were 14% of production for Jan to June, compared to 17.8% for the same period last year. Most of the decline in pork exports is attributed to the H1N1 flu, falsely called “swine flu,” says MO economist Glenn Grimes. During that time frame, imports from Canada were down 33% compared to year ago levels.
Although meat prices are stronger they are not being passed onto the producer. Grimes and his colleague Ron Plain say processors and retailers are the only segment of the industry benefitting. For the first 7 months of the year the processor and retailer margin for beef was up 9.6% from 2008, and up 15.4% for pork processors and retailers.
Lower commodity prices are holding down inflation in the grocery store says Purdue economist Corrine Alexander. She says 2010 food prices would increase 2.5% to 3.5%, not the 5.5% increase seen in 2008 when corn approached $8 and wheat was $13. She says restaurant prices rose 3.2% in July 2009 over 2008, much less than normal. Regarding meat, she says meat prices can’t rise with domestic supplies so high.
If alternatives are needed for 2010 credit sources, FSA has a variety of lending options for farmers who cannot obtain credit from commercial banks or the Farm Credit System. Details are here.
1) Direct loans finance land & buildings up to $300,000, with 50% coming elsewhere.
2) Operating loans finance input purchases & living expenses up to $300,000,
3) Emergency loans help recover from disaster, restore property, and pay living costs.
4) Beginning farmers can get direct and guaranteed loans to start up an operation.
5) FSA loans will help socially disadvantaged farmers buy and operate family farms.
6) Youth loans of up to $5,000 help age’s 10-20 finance income producing enterprises.
Farm Storage Loans are also now available from FSA which will cover grain storage. The loan limits have been raised to $500,000 and the loan term has been extended from 7 to a 12 year payoff period. Funds will able be available for the construction stage.
Were you able to cover your production costs for old crop wheat? USDA thinks 90% of farmers were able to, based on the $6.80 average marketing year price. A global wheat shortage and adverse weather bolstered the US wheat market. USDA says that 25% of producers had production costs of $3.20 per bu. or less, and 75% had production costs of $5.17 per bu. or less. Costs did not include labor and land, but read more.
What is your debt load per acre? You may never have figured it, but that is a tool used by South American farmers, who say the average Mato Grosso farmer has $50 per acre in debt servicing, on top of his $65 per acre production cost for soybeans. Because of the heavy debt cost, policy initiatives may be developed to reduce Brazilian interest rates.
Soybean rust has been on the move in the early part of August, but remains in AR & MS as its most northern reaches. Confirmed infestations are only a few counties south of the major parts of the Midwestern soybean belt, meaning soybean growers should monitor the alert system: www.sbrusa.net . It will help make decisions on rescue treatments.
More disease problems are showing up. MN plant pathologist Dean Malvick is warning soybean growers that yields may decline from Sudden Death Syndrome, Brown Stem Rot, downy mildew, and white mold. He says the weather is favoring those fungi and there is no effective treatment that can be applied at this time in the growing season.
In NE the problem is grasshoppers which are decimating newly emerged wheat. Specialists are warning farmers to plant high risk fields as late as possible with the hope populations will decline after a frost. Seeding rates are also being recommended along field margins to compensate from a partial stand. Foliar insecticides are alternatives.
Another NE problem is Goss’s Wilt in corn, particularly in the western counties where high winds, hail, sandblasting, and other issues occurred to create tissue wounds that allowed bacteria to enter. Severe yield losses are associated with the disease. The problem cannot be controlled with foliar fungicides, but use resistant hybrids next year. Compare the symptoms with your own crop.
If you are concerned about soybeans being delayed and not maturing before a frost, agronomist Mike Staton is telling MI farmers that the vast majority of MI soybeans should mature before a killing frost. His rule of thumb is that for every 3 days of planting delay, physiological maturity is delayed by only one day. He says with shorter days, soybean plants are moving through reproductive stages more quickly than normal.
Soybean aphid thresholds are causing OH entomologists to scratch their heads, if the aphids arrive in the late reproductive stage. They do not yet have a good handle on economic injury level, and say the 250 aphid per plant threshold earlier in the season is likely too low for late season infestations. They say monitor the population trends.
Check your calendar and geography for the optimum date for seeding alfalfa, to ensure it has 6-8 weeks of growth before a killing frost, says IL crop specialist Jim Morrison. Cool-season perennial grasses can be seeded 1-2 weeks later. Warm-season perennial grasses should not be seeded until the spring. Review all of his recommendations. Morrison suggests you create a forage replay checklist which would include:
1) Ensure there is no residue carryover from previously applied herbicides.
2) Have perennial weed problems been adequately controlled?
3) Corrective limestone and fertilizer should have been applied.
4) No-till forage seedings can be successful, and plant at the spring seeding rate.
5) Use high quality seed and fresh Rhizobium innoculant.
Posted by Stu Ellis at 12:35 AM | Comments (0) | Permalink
August 27, 2009
Is There Any Opportunity For Commodity Profitability In The Near Future?
When the global economy turned south a year ago, the baseline of agricultural prices was quickly recalculated by the Food and Agricultural Policy Research Institute at the University of Missouri, whose economists released their 10 year forecasts in early 2009. That was then and this is now, and FAPRI says the “outlook for many agricultural commodities has changed markedly” since earlier this year. Has the outlook gotten better or worse?
The FAPRI economists report crop prices remain above pre-2007 levels, despite their recent decline. The observation is made that lower petroleum prices has lowered production costs, but also lowered the demand for biofuels. They expect oil prices to rise in the next 5 years, but remain well below the peak price once seen. Along with that the US economy will expand in 2010 and economic growth reaches 3% in 2011. Additionally, the livestock and dairy sectors, which are in a bleak financial situation, have experienced lower meat and milk prices at a time when production costs are at record levels. They look for a 2010 price recovery in meat and dairy, but which is dependent upon a recovery in the general economy and continued reductions in supply.
Corn:
Acreage will increase to 87 million in current year to 90.4 million in 2014. With a 164.7 bu. yield trend in 2014 production will reach 13.7 billion bu. Feed use will remain steady at 5.2 billion bu., ethanol use will climb to move than 5 billion, and exports will top out at 2.1 billion bu. The average farm price will be $3.47 this year and remain under the $4 point through 2014. Gross revenue per acre will climb from $553 this year to $654 in 2014, with variable production expenses climbing from $296 this year to $350 per acre by 2014.
Soybeans:
Acreage will remain steady around 78 million through 2014, with yield slowly climbing to 43.2 bu. per acre. Production will remain steady at 3.2 to 3.3 billion bu., with the crush slowly increasing from the current 1.6 billion bu. to 1.9 billion bu. Exports will remain under 1.3 billion bu. and ending stocks will remain steady at 220 million bu. The average farm price of $9.44 per bu. this year will fall slightly in the next two years and climb back to $9.74 by 2014. Gross revenue will be around $400 per acre, with variable expenses of $135 this year and climbing to $159 in 2014. The soybean to corn price ratio is at its peak of $2.72 this year and remains around the $2.50 mark. Meal prices remain under $300 per ton and oil prices under 40 cents.
Wheat:
Acreage will slowly decline from the current 59 million to 58 million by 2014, as yields climb gradually from the current 43.3 to 44.8 bu per acre. Production will remain about 2.2 billion bu., food use will slowly climb toward 1 billion, and exports will remain just above 1 billion bu. The average farm price of $5.04 this year will fall below $5 next year and remain in the low $5 range. With slowly rising production costs, net returns will remain in the $90 per acre range.
Cattle:
The beef herd will slowly decline from 31.7 million cows this year to 30 million in 2014, with the calf crop remaining in the 35 million range. Cattle on feed will range from 13.9 million this year, to a low of 13.5 million and return to 13.9 million in 2014. Beef production will remain steady in the 29 billion pound range, as carcass weights gradually decline. Nebraska steer prices will be $85 this year and climb to the $100 range, with feeder steers rising to the $130 mark. Net returns that are nearly a $40 loss per head currently will show a profit in 2010 and reach a $70 high in 2013.
Swine:
Farrowings will drop from the current 12 million to 11.5 million then climb back above 12 million in 2014. The litter rate will continue to climb toward 10 pigs pushing the pig crop to 120 million by 2014. Pork production will be in the 22 billion pound range until 2013 when it will climb back above 24 billion pounds. Prices for lean hogs will average in the $50 range through 2014 with net returns reaching a $2 profit next year, climbing to $8 per head by 2012, then falling back to less than $1 per head by 2014.
Summary:
The explosive prices for grain are history, believe economists, who say corn will average under $4 and beans under $10 for the next 6 years, but with the help of that stability, livestock profitability will return gradually and both pork and beef prices will move away from red ink in the coming year and stay just above the break even mark through 2014.
Posted by Stu Ellis at 12:46 AM | Comments (0) | Permalink
August 26, 2009
Recovery Of The Ag Economy: Lessons From Prior Years.
With the White House announcement of the reappointment of Federal Reserve Chairman Ben Bernanke, financial analysts will be moving from the “whys” of the recession to the “what’s next,” as the economy recovers. Since agriculture is a major part of the economy, there will be impacts on individual farmers in the months ahead.
While the overall agricultural sector was healthy in 2008, as the rest of the economy was coughing and wheezing, agriculture could feel a shiver or a sniffle before the economic medical team deems us fit and ready to return to the game. Kansas State Economist Allen Featherstone reports some “ominous features on the horizon” that may impact farmers. Featherstone’s report to farmers says the financial crisis can be traced to the housing market and the conditions were similar to those that hurt the farm economy in the early 1980’s. He says housing prices have another 0.6% decline before reaching a long term trend line, assuming they do not over adjust.
Featherstone says the farm economy and the general economy do not always move together, since the linkage is an inverse one that has farm income low when the US GDP is higher. He points to the relationship between the US stock market and the Illinois corn price and says the correlation has been nearly neutral since 1960, “Therefore, while the general U.S. economy may be slow there appears to be little long term evidence that there will be major spillovers into the U.S. farm economy. In fact, based on history, it is more likely that the agricultural economy and the general economy are inversely related.”
The Kansas State economist says the overall strength of the farm economy is as strong as it has been in nearly 20 years, with the average probability of default of 1.84%, compared to more than 3% in the early 1980’s. But he says the probability of default is a combination of the leverage ratio, the net working capital ratio, and the capital debt repayment capacity, and he says decreases in land values or farm income are factors that are most likely to increase the chance for default. Featherstone suggests that if farm income remains high, so will land values, but if incomes fall, there is a good chance for declines in land values, and he says USDA forecasts have a lot of uncertainty about future farm income.
And he says interest rates are also another uncertainty that could influence the health of the farm economy. While doubts they will increase much in the near term due to the Fed’s management of the recession, he says one of his concerns is credit availability. He says an index of requests for farm loans in the second quarter of 2009 indicate a weaker farm economy, but says it shows farmers are adjusting their investment plans downward to reflect uncertainty about future income. While he says credit supply is more than the demand, the ag credit market continues to be unaffected by the liquidity crisis that plagued the rest of the economy. Within the credit market statistics, Featherstone says average loan repayment was lower in the second quarter of 2009 than in the comparable period of 2008, which tells him there is an indication that underwriting standards have tightened over the past year. While he says credit is available for those with good risk, borrowers will need more collateral, those with marginal credit will have difficulty getting renewed, and there will be a wider spread of interest rates charged. Interestingly, Featherstone says, “The lack of opportunities to make loans in other sectors of the U.S. economy has benefited the agricultural sector given its relative strength.”
Given Featherstone’s warning about declining farm income and land prices, does he think farm income will drop? He says US agriculture has been reliant on trade, but the trade surplus agriculture enjoys will decline more than 50% this year due to reduced overseas demand. That will impact different commodities and will impact farmers who produce those commodities, “A reduction in agricultural exports may lead to a building of commodity surpluses (stocks) and a reduction in crop prices and ultimately net farm income.” And he says the two prior “busts” in the land market were caused in part by a softer global demand for US farm products.
On the other hand Featherstone says a potential mitigating factor is the ethanol industry, which has the potential to buffer lower commodity prices. He says ethanol profitability is currently low, but federal policies can assist that industry, which can assist the farm economy. Another issue is the cost of inputs, but Featherstone says credit conditions will not prevent the application of crop inputs. While there were input cutbacks in the Depression, he does not expect a repeat. However, he says credit availability may impact the farm equipment industry, because of the needs for financing equipment purchases.
Summary:
Agriculture was not hurt as bad as the rest of economy in the current recessionary downtrend, but there is little economic linkage between the two. Farmers will need to watch for changes in farm income, which could push land prices in the same direction. Credit availability is another key indicator, and while it will not affect crop production, it may reduce the purchase of farm equipment.
Posted by Stu Ellis at 12:57 AM | Comments (0) | Permalink
August 25, 2009
Small Farms? Who Said They Were Going Out Of Business?
The 2008 Farm Bill created the ACRE program to target farm support at the combination of yield and price risk, giving farmers a chance to protect their revenue, without encouraging additional production, which had been an international complaint about US farm programs. Critics of farm programs want support pulled from large farms and targeted toward small farms. Others who weigh into the debate promote specific commodity supports, since they are staples of the US diet, such as corn, wheat, and soybeans. But the folks who have to do the work to figure out just who should be supported and those who should be ineligible do not have an easy job. That is quite evident in USDA’s report on “small farms.”
Everyone in agriculture has their own definition of a small farm, a large farm, a family farm, a corporate farm, and every definition is different, since it is compared to one’s own farm. But USDA agricultural economists who are forced to set parameters and specific financial boundaries have provided a glimpse into the foggy world of definitions when they reported to an international economics conference on whether small farms in the US were declining or persisting. (And they report that a fair share of them is doing quite well, financially, thank you!)
There have been quite a few dynamic forces in US agriculture in the past 25 years, and the so-called “small farm” has been one of those. As critics of US farm policy became louder for various reasons, they have continued their support for small farmers, which are usually seen as those with a few hardscrabble acres, a milk cow, some chickens, and a poor family trying to eke out a living with 50 year old two row machinery. Despite that Norman Rockwell version of US agriculture, USDA uses a definition of small farms based on sales from $10,000 top $250,000. The 2007 Ag Census found 676,160 of them in the US, but that was a 40% decline in the past 25 years. Some observers may say that is a function of the financial parameters, and commodity values increasing over time. But USDA also reports the number of farms with less than $1,000 in sales increased by 171% and make up one-third of all farms.
Between 1982 and 2007 the number of farms with sales exceeding $1,000,000 grew by 239%, which means that larger farms are producing more foods. For those large farms in that 25 year period, average corn acreage grew from 200 to 600, soybean acres grew from 243 to 490, and wheat acres grew from 404 to 910. In that same category, the average number of broilers grew from 300,000 to 681,000, the average number of hogs grew from 1,200 to 30,000, and fat cattle grew from 17,532 to 35,000 head.
But the nearly 700,000 small farms still contributed substantially to US production, with total sales of $42.6 billion in 2007, equal to that of IL, IA, and IN. Small farms generally focus on beef cattle, poultry, grains and oilseed production and together produce 70% of the production in each of the three classes in that category. Small farms account for over 55% of poultry production and 40% of hay production, along with 20% of cash grains, but handle only small percentages of cotton, high value crops, and dairy. When it comes to receiving farm program payments, the USDA economists report, “Large farms ($250,000-$999,999) account for nearly half of program crop production and they received over 40% of all payments. Small commercial farms received 27.4% of commodity-related payments.”
Small farm operators tend to be older, say the USDA economists, with 37% over the age of 65 years, compared to 15% of farmers older than 65 who operate farms in the largest classes. And when USDA looks at the operator, he is winding down. “When we add in occupational choice, we see that most operators in the smallest classes report that they are retired or that their principal occupation is off the farm. Many small farms are in transition; while some may be aiming to transition to a larger operation, others are run by older farmers who are cutting back their activity and transitioning to retirement.”
Are small farms barely scraping by, or doing well financially? Their financial performance in 2007 shows a growing operating profit margin that increases with gross cash farm income. Those with the least income generally have negative operating profit margins and return on equity, but that turns around once gross income reaches $100,000. However, those small farmers who are operating in the red, are not necessarily in poverty. USDA say substantial amounts of off farm income are reported in households where farm earnings would not be sustainable. USDA adds, “Many of these households with the smallest farm operations may farm as a consumption activity—farming is how they spend their money.”
The analysis indicates that favorable returns and off-farm income have helped small farms to survive and persist, despite being small, and being family operated businesses. They still dominate US agriculture, but the major bulk of production continues its shift to larger sizes of family farms.
Summary:
Small farms were one of the fastest growing segments of agriculture in the last five-year Ag Census, but over the past 25 years, small farms have declined in numbers, but not totally in productive capacity. Small farms focus on beef, poultry, and grain and oilseed production and contribute 70% of the production in those categories. However with changing dynamics in agriculture, the production will shift to larger farms, although still those that are family operated.
Posted by Stu Ellis at 12:20 AM | Comments (2) | Permalink
August 24, 2009
Perspectives On The Future Of Ethanol.
Since the farm gate blog was initiated in the late fall of 2005, ethanol has been one of the most powerful dynamics driving farm policy, economics, and marketing in the Cornbelt. On this 1,000th installment of the farm gate blog it is appropriate to take a closer look at how well ethanol is driving this bus and check the roadmap to see what hazards lie ahead.
About this time two years ago the grain market took off with the help of the oil market, which pushed rapidly higher and took both ethanol values and corn prices with it. That spurred bids for acres by other commodities, higher land prices, and more expensive farm inputs. After the oil and economic bubble burst 13 months ago, the ethanol link between the Cornbelt and the economy remains strong. Within this context, ag economist Paul Westcott visits the future of ethanol in the August Issue of Amber Waves electronic magazine published by USDA. He attributes 2007 federal policy to promote biofuels as fostering the demand for more corn, which was easily attained. But he says any future shift of that magnitude will depend on other technologies, both in ethanol production and the capacity of the auto industry to respond to changes in fuel formulation.
In 8 short years, ethanol grew from 1% of the fuel supply to 7% with the help of numerous policy decisions by Congress and state governments. While that was happening, the amount of corn used for ethanol production climbed from 6% to 24% and will level off in the next decade at 30-35%. While most row crop farmers say they are willing to meet that demand, the technical goal is to reach 36 billion gallons of ethanol available for the motor fuel supply by 2022. That includes both corn-based ethanol and biomass-based or cellulosic ethanol. Westcott says the mandate “would require significant expansion of biofuel production and use from current U.S. levels. However, major challenges in both supply and demand may limit future growth in the industry.”
First among the challenges is achieving the technology needed to manufacture cellulosic ethanol, including production, storage, transportation, and refining. Profitability is the key word for farmers, and that will be based on yields, market prices, and production costs. Next among the challenges is the need to change government and automaker policies that limit basic reformulated gasoline to a maximum 10% blend with ethanol, other than variable blends for flexible fueled vehicles. The urgency to change policy stems from the so-called “blend wall,” which will soon be reached. Ten percent ethanol, or E10, will likely reach the saturation point in the market soon, since the motoring public is burning about 140 billion gallons of gasoline per year, and the current US ethanol production will soon be 14 billion gallons, or 10%. Interestingly, economist Westcott says the movement toward improve fuel efficiency “will mean that the volumes of biofuels set forth in the (latest renewable fuels standard) will account for even greater shares of fuel use, necessitating a larger market penetration by biofuels.” However, the mandated production of 36 billion gallons of ethanol by 2022 will be more than enough to achieve a 10% blend of the anticipated 160 billion gallons of motor fuel used by that date.
While E-10 is the dominant ethanol blend, E-85 has the potential to consume much more ethanol, but the number of flex-fuel cars available to use it is quite limited, and E-85 is only about 1% of US fuel consumption. Among the challenges to E-85 is its sparse availability in most US gas stations, metropolitan gas stations do not have room for additional pumps and tanks, and dispensing equipment has been slow to be licensed. Because of those issues, Westcott says there is more opportunity for mid-level blends, such as E-15 or 15% ethanol, and that would generate a demand for as much as 24 million gallons of ethanol annually. The economist says it would have to overcome the challenge of consumer acceptance, and difficulties with small motors and off road engines. While these are negatives, there are activities underway to address the challenges, including research by the USDA and Department of Energy, and federal policies to promote biofuels.
Lurking on the horizon is the federal policy that allows states to be flexible in their requirements for motor fuel, and California’s Air Resources Board has taken a dim view of ethanol, by alleging it causes the loss of soil carbon in South America. In brief, ethanol critics say is pushes corn production up, soybean production down, and the result is more tillage for Brazilian soybean fields. The California standards are even being considered for implementation by other states including Illinois, which would diminish ethanol use—particularly that made from corn.
Summary:
Ethanol provided high levels of octane to the grain markets in 2007 and 2008, but the recession and the softer oil market depressed ethanol values and corn prices. Nevertheless, federal policy and research support for biofuels will keep ethanol as the prime alternative to hydrocarbon fuels as ethanol begins to shift its feedstock from corn to biomass products. In the meantime, the 10% ethanol blend is reaching a ceiling or “blend wall” causing proponents to push for the maximum to be raised to 15% ethanol in reformulated motor fuel. Some environmental challenges remain in the future of ethanol, however its current path retains its dynamic nature in the corn market.
Posted by Stu Ellis at 12:43 AM | Comments (1) | Permalink
August 21, 2009
Cornbelt Update
Cornbelt 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.
“Big crops get bigger,” is the likely mindset of the grain market with USDA’s forecast of 12.761 bil. bu. of corn which is 4.6 bu. above the trend yield for 2009 corn, and IL marketing specialist Darrel Good says there is evidence that large yield forecasts in August are followed by larger forecasts in following months. Read his weekly newsletter.
However, the crop will be challenged with the severe hail damage in Iowa, dry weather in other growing areas, and the modest deterioration in crop conditions that peaked in late June at 72% good to excellent and have recently faded to 68% good to excellent. Based on those conditions, Good’s team forecast is now at 158.2 bu. national yield. But he says crop estimates may still grow and will put pressure on harvest prices.
USDA’s forecast of 3.199 bil. bu. of soybeans is not considered large by Darrel Good, and is a half bushel below the trend line yield. He says August weather has not been perfect and his crop weather model points to a 44.1 bu. national yield. But he says while the crop is at more risk to late season weather, there is still an opportunity for larger yield and production forecasts, which would likely cause more price weakness into harvest.
New crop corn carryover will be 12.6% of use, compared to the 14.3% for the old crop. Marketing specialist Jim Hilker at Mich. St. says he believes the futures market price average of $3.20 more than the USDA weighted price estimate of $3.50, unless the crop shrinks, the demand grows, and/or oil prices spike; with few marketing opportunities.
If new crop soybean carryover is only 6.8% of use, why is the USDA average price at only $9.40? Jim Hilker says part of the reason is a projected 15% increase in the size of the world soybean crop, and projected world ending stocks of beans up 25% from last year. That is the result of larger crops in the US, Brazil, and also in Argentina.
If you want to estimate your corn yields, there are some important rules to follow:
1) Count the number of harvestable ears in 1/1000 of an acre. (17.5 ft. for 30 in. rows)
2) On every 5th ear, count the number of kernel rows per ear and determine the average.
3) On each of those, count the number of good kernels per row and average.
4) Yield equals ear # times ave. row # times ave. kernel #, then divide by 90.
5) Repeat the process at four sites across the field, and average the results.
Any ACRE payments are 14 months away for the 2009 crops. But based on current price and yield trends, KS economist Art Barnaby has been estimating potential payments.
1) Wheat: MO-$41.02, IL-$47.55, SD-$30.40, MI-$39.12, WI-$35.89, MN-$26.59,
IN-$33.12, OH-$18.73, ND-$1.83, KS-$0, NE-$0.
2) Corn: WI-$76.70, ND-$53.10, MI-$59.94, IL-$74.60, MN-$57.22, IN-$53.62,
MO-$41.75, KS Dry-$26.84, KS IR-$51.85, NE IR-$49.90, IA-$36.51, OH-$23.02
3) Soybeans: ND-$13.47, IN-$13.93, IL-$11.43, MI-$2.66, MN-$1.44, Others-$0
4) Sorghum: IL-$41.85, MO-$40.33, KS-$24.56, NE-$21.44, SD-$0.
FAPRI has revised its price forecasts for commodities over the next few years as University of MO economists updated their 10 year economic baseline:
1) Recovery of meat and dairy prices depends on the economy and supply reduction.
2) Petroleum prices will be down with demand, taking down the demand for biofuels.
3) When the economy recovers, commodity demand and prices will rise with oil.
4) Oil prices are projected to average $61.31 in 2009/10 and $94 by 2015.
5) Omaha ethanol will climb from $1.65 in 2009 to $1.76 in 2011 and $2.09 in 2015.
6) Corn prices will average $3.47 this year and $3.98 by 2014.
7) Corn plantings will be 88.5 mil. acres in 2010 and 90.4 mil. acres in 2014.
8) Soybean plantings will be 77.9 mil. acres in 2010 and 78 mil. acres in 2014.
9) Soybean prices will be $9.44 in 2009, $9.12 in 2010, and $9.74 in 2014.
10) Fed cattle will be $85 in 2009, $93 in 2010, and $98 in 2011.
11) Feeder steers will be $103 in 2009, $115 in 2010, and $123 in 2011.
12) Hogs will average $57.59 in 2011, up from $42.82 in 2009.
13) The all-milk average of $12.47 in 2009 will be $16.37 by 2011.
Economists at University of Missouri’s Food and Ag Policy Research Institute have tried to quantify the impact of the Cap and Trade climate legislation on MO farms. Their preliminary study adds operating costs of $30,000 by 2050 on a 1,900 acre diversified farm, assuming fertilizer costs were exempted from rising until 2025.
Cutting a half million sows from the breeding herd is not the answer to pork profitability says John Lawrence at Iowa State. He says the pork industry needs more demand, lower feed costs, or lower supplies to be profitable. He suggests there are some short term solutions that might be better than cutting sows to reduce the pork supply.
1) Remove the incentive for heavy carcasses and run packing plants more efficiently.
2) Finishers must be willing to sell at lower weights pursuant to market signals.
3) Cull pigs should not be passed on to the next level for inefficient feeding.
4) Adjusting carcass weights and slaughter numbers will be faster than culling sows.
Pork profitability may key upon the relationship between fixed and feed costs. Iowa State’s Lawrence says fixed costs are now smaller than feed costs, so increasing pigs or pounds out the door is not as important as reducing feed costs per pig. “Fewer, but more efficient, pigs in the barn will increase profits compared to more pigs at less efficiency.”
A red flag alert is being issued by MO agronomists about saving wheat seed to plant the 2010 crop. They are concerned about the extent of fusarium head blight or scab that was severe in some fields in 2009, and are finding germination rates at only 50% to 60%. They say if infected seed is planted, it will infect the stand of the new crop.
You may have heard your state had record cold temperatures in July. That includes: IA, IL, IN, OH, PA, and WV. The entire eastern half of the nation was much below normal, except for FL, LA, & TX which were above normal and OK that was near normal. That comes from OSU meteorologist Jim Noel, who says expect an early September that has temperatures that are slightly below normal and rainfall that is at or below normal.
Hail damaged corn will not only cut quantity, but quality as well, say IA plant pathologists Alison Robertson and Gary Munkvold, who fear a risk of mycotoxin contamination in hail damaged corn, particularly from fusarium and aspergillus fungi. They say ear rots may lead to toxins, but not always; however inspect fields before harvest and delivery of the corn to avoid surprising dock or complete rejection. Read more.
If aspergillus mold affects your corn, and aflatoxin is produced, it will be rejected at levels above 20 parts per billion due to FDA regulations. MO specialist Allen Wrather says the mold can grow quickly in the field and in storage if the corn is at 18-20% moisture. He says to cut the risk, dry corn to 15% within 24 hours of harvest.
There will be fewer aflatoxin problems in Bt corn says Wrather, because they will be more resistant to ear worm damage in the kernel. He says Bt varieties do not resist ear worms, but there will be less feeding injury from ear worms.
White mold remains an issue in soybeans, where a cool wet summer has been the perfect environment. Fungicides are not an option, and the damage you see began a month ago within the soybean plant. For future management, IA specialists say consider no-till if rotating soybeans with corn, or use Contan after harvest to control it for 2010. Planting seed that is tolerant to white mold is a prime recommendation from them.
Ohio farmers are in a garden spot says OSU agronomist Jim Beuerline, due to good growing weather. Wheat yields averaged 71 bu., 1 bu. shy of the record. He says corn yields are estimated at 165 bu., which would break the record by 6 bu. One of the reasons is increasing final corn populations to over 30,000 on 34% of the acreage. And despite some white mold, soybean yields are expected at a record tying 47 bu.
Ensure your calendar is marked for the Farm Progress Show on Sept. 1, 2, & 3 at Decatur, IL. The Show site is at Exit 144 on I-72 on the northeast corner of the city. Access to the all-weather site and ease of parking are unsurpassed.
Cornbelt Update circulates in Brazil and Argentina, and a parallel newsletter published at: www.cropspotters.com this week carries several interesting articles, including:
1) Gov. Blairo Maggi says Mato Grosso can double food production without clearing land, but by switching pasture to cropland, since 8% is cropped and 25% is in pasture.
2) Brazilian biodiesel has increased its soy content from 3% to 4%, with production increasing from 322 mil. gal. in 2008 to nearly 500 mil. gal. in 2009.
3) Japanese investors are financing a 600 mi. ethanol pipeline from Brasilia to Sao Paulo.
4) Current prices: gas (25% ethanol) $5.37, ethanol $3.52, diesel (4% biodiesel) $4.12.
By the way, join the farm gate blog on Twitter http://twitter.com/stusAgNews
Posted by Stu Ellis at 12:21 AM | Comments (0) | Permalink
August 20, 2009
What Is Your Cropland Really Worth?
What is your cropland worth? No, what is it really worth? If there were no farm program payments, such as Direct and Counter-cyclical payments, Marketing Loans, ACRE payments, and hunting leases, what would be the basic value of your farmland? You probably wish the tax assessor would calculate it that way.
Since farm program payments began 80 years ago, those additional dollars have made farmland a little more valuable every year. Economists say farm program payments have been “capitalized” into land values. Among them are Kansas State economists Terry Kastens and Kevin Dhuyvetter who have calculated how much land values would drop, were it not for farm program payments. Their research looked at values in 39 states and demonstrates how farm program payments have significant raised values of non-irrigated cropland.
The economists say if land was valued only as a farming input, its agricultural capitalization rate would be determined by dividing cash rent by the land value. They looked at rent to value ratios from 1951 to 1972 which was determined to be a time that land values were equal to what revenue would be generated from farming only. Those rates were then compared to today’s land values. Kastens and Dhuyvetter say, “It is not surprising that farmers in many states regularly note that they see little connection between farming returns and land values in their areas.” Within the Cornbelt, those values attributed to agriculture are:
Illinois 59%
Indiana 52%
Iowa 62%
Kansas 65%
Michigan 22%
Minnesota 56%
Missouri 52%
Nebraska 68%
North Dakota 67%
Ohio 46%
South Dakota 58%
Wisconsin 26%
That percentage of land values attributed to government payments varies from 18% in Kentucky to 100% in Texas. However the heavy hitters are all generally below the Mason-Dixon line. Across the Cornbelt those government contributions to land values range from 53% in North Dakota to 25% in Indiana. The heart of the Cornbelt is within a few percentage points of 30%.
If government payments were eliminated, how much would land values potentially fall? Kastens and Dhuyvetter say the Great Plains, from North Dakota to Texas would all see land values fall from 27% to 36%. Within the heart of the Cornbelt, the elimination of farm program payments would cut land values by 19% in Iowa, 15% in Illinois, and 13% in Indiana and Ohio. However, the economists say the drop would probably not be that drastic, and would be less than 10% throughout most of the Cornbelt, but the Great Plains would probably see drops from 13% to 18%.
The economists say their colleagues estimate that government payments are capitalized into land values anywhere from 25% to 75%, but certainly less than the 100% rate for Texas. They suggest that about 50% of land values are dependent upon government payments, or maybe less, given current commodity prices, production technologies, and farm consolidation.
Summary:
The value of land is composed of its productivity, both in crop production capacity and in the money that may come from government farm programs. The agricultural value of the land can be determined with comparison of the decade of the 1950’s and 1960’s when farm program payments were not likely to influence land values. Based on those ratios, the value of land in many Cornbelt states could fall if farm program payments were eliminated.
Posted by Stu Ellis at 12:35 AM | Comments (0) | Permalink
August 19, 2009
What Does The Brazilian Rain Forest Have To Do With US Ethanol Policy?
There is no one whose name causes a Cornbelt ethanol advocate to spit and cuss more than that of David Pimentel of Cornell University. Even Bruce Babcock at Iowa State University, who has written some economic analyses of ethanol that make a corn grower grimace, acknowledges that Pimentel’s credibility is up for debate. The Cornell Ecologist contends that ethanol consumes more energy than it returns, which Babcock says is based on suspect data. But the Pimentel contentions continue to show up in public debates, most recently within the Environmental Protection Agency and the California Air Resources Board, which believes ethanol does not qualify as a low carbon fuel. The future of ethanol is on the line here, and it could have a major impact on corn market dynamics.
The latest challenges to ethanol involve conversion of forest and grasslands around the world to produce crops and feed livestock, which ethanol critics decry. In the Summer edition of the Iowa Ag Review, Bruce Babcock says the ethanol critics at EPA say the loss of carbon stocks on the converted land would more than offset any benefits of ethanol in the way of greenhouse gas emissions. This has generated considerable rural debate over whether US ethanol policy should even be driven by what might happen in another country, and how would such changes ever be accurately measured.
The EPA has employed help from Purdue, Iowa State, and Texas A&M Universities to analyze the measurement process, which looks at corn demand from US ethanol refineries. Such demand results in higher prices, more corn acres, fewer acres for beans and wheat, and conversion of Brazilian forests into cropland for soybean production. At least that is the theory in a nutshell that is being evaluated. Babcock says each step has to be analyzed, such as:
• Which crops will U.S. farmers decrease in response to higher corn prices?
• How much U.S. pasture and forest land will be converted to crops?
• How much will farmers increase yields in response to price?
• How much will prices, demand, and production change in each important producing or consuming country in response to a change in U.S. production and exports?
Babcock says the economists have a good idea about US farmer responses to such change, but not such a clear idea of how a Brazilian rancher would respond to changes in the US beef market. He says it is easy to say more Brazilian beef would be produced if US beef prices rise, but then Brazilian and international trade policies cloud the equation.
Babcock says if the theory is correct that more US ethanol production would cause more conversion of rain forest to cropland, then US soybean acreage should decline along with fewer exports of corn and beans. But that has not been the case. Since 2005, ethanol production has increased by 6 billion gallons, corn acres are up 6%, soybean acres are up 7%, corn exports are flat, but soybean exports are up over 25%.
Babcock engages in a lengthy evaluation of creating economic models to make predictions that the EPA and the California Air Resources Board could use, but says the models never work out to equal the real world. However, he says “expansion of U.S. biofuels will result in more land being devoted to crop production on an aggregate worldwide basis. However, given all the forces that affect agricultural production decisions, it is impossible to attribute any given agricultural development project to U.S. biofuels expansion, which is why CARB and EPA have to rely on models that attempt to isolate the effects of U.S. biofuels.” And he adds that the need for using economic models will increase as land use policy is created, particularly for offsetting carbon use.
Summary:
US biofuels policy, at both the federal and state levels, has created concerns among ethanol supporters that policy assumptions are being made based on erroneous data. However, where data cannot be collected, economic models are created, but can themselves differ from the eventual outcome. Recently, environmental regulations have been proposed that are rooted in the assumption that greater US ethanol production will result in the loss of carbon from Brazilian rain forests and grasslands. While those assumptions are difficult to measure, policymakers may have to rely on economic models in lieu of data.
Posted by Stu Ellis at 12:34 AM | Comments (0) | Permalink
August 18, 2009
Broadband Internet: Is It Really That Important For Rural America To Have It?
Right now you are reading a blog on the Internet. That is something that you would not have known anything about 15 years ago, may not have had access to 10 years ago, but may still have an inefficient connection that takes too much patience to appear on your computer screen. Some farmers in rural America are very efficiently connected and others have no way of getting an Internet connection. This so-called “digital divide” not only puts some farmers behind their counterparts, but also impacts entire communities, which lose out on health, education, and economic development. But as we approach the end of the decade, has rural America really achieved satisfactory broadband connectivity?
The Internet has allowed humanity to talk to itself, learn about itself, and communicate in ways that no one imagined just a few birthdays ago. You are facebooking, twittering, blogging, and texting many people, but there are many more who cannot learn about you because of the lack of cable down their lane, or because pairs of telephone wires just can’t handle the load. It may be the result of costs, which may be a bargain to some, but are exorbitantly priced for others. The issue received extensive study by USDA’s Economic Research Service which tries to measure the economic impact of Internet access on rural America.
Broadband is a term that indicates a high capacity of information flow. We probably all began with a dial-up system and many of our rural neighbors are still limited to little more than text e-mail messages. Even the colorful banner atop this page will prevent many folks from reading what you are reading. While computer modems will carry 56 kilobytes per second, the actual speed in rural areas remains at 14 kilobytes per second. The minimum broadband speed is generally defined as 200 kilobits per second in one direction, but other technologies allow faster data flow. At the last survey of households in 2007, 55% had broadband access, with 46% using DSL and 39% with a cable modem. 12% used wireless connections.
Broadband Internet business had taken many new positive turns in recent years:
• Online retail sales have grown from $31 billion in 2001 to $107 billion in 2007.
• Online wholesale trade comprised 16% of sales.
• Online wholesale trade in farm products was $5 billion in 2006 or 4% of all wholesale farm product sales.
• Crafts that were once limited to state fairs, are now marketed year round to wide audiences.
• Banks that used to be local, have been deregulated, attracting customers from wide areas, and that has hastened consolidation of the financial markets recently.
• Citizens have been able to pay taxes and fees to governments, lodge complaints, and apply for various programs.
While all of these opportunities are available to some, they are not available to all. A 2008 survey found 69% of adults who used the Internet had access at home. However, only 41% of adults in rural households had broadband access at home. The survey also details that broadband users are well ahead of dial-up users when it comes to common Internet uses, such as getting news and weather, blogging, downloading podcasts, and using social networking sites. Geography plays an important part in Internet use, which ERS indicates is less frequent in the South than in other parts of the country. Household income has little to do with Internet use, but income is a major factor in whether a household has in-home Internet access, and the USDA 2007 survey reports 84% of urban households had broadband access, while it was only available to 70% of rural households.
One of the problems created with the lack of broadband access in rural areas is the impact it has on education. Youngsters benefit from educational program availability on the Internet, but without broadband access, many rural youngsters will not have that privilege. Another problem increases in its importance in the current recessionary economy, and that is the capability of the Internet to assist in job searches and bolster home businesses.
Broadband access can be defined by zip code, according to a survey by the Federal Communications Commission. Metropolitan zip codes are smaller than rural zip codes; urban areas have more population and subsequently they have more Internet providers than rural areas by a nearly 2 to 1 ratio.
The USDA economists analyzed data from 114 pairs of rural communities, where demographic and economic data were parallel with another, and the only difference was the extent of the broadband access. The findings for the years 2002 through 2006 were:
1) Employment grew faster in counties with better broadband access.
2) Wage and salary jobs, and proprietors grew faster in counties with early broadband access.
3) Income showed a mixed result, but USDA said the survey did not account for farm earnings due to weather and market volatility.
With the ability of the Internet to provide large amounts of information over a wide area quickly, USDA says Internet use may lead to greater efficiency in agricultural and rural businesses. “They found that total nonfarm employment growth was significantly related to broadband lines per capita. The results for GDP were not statistically significant. The strongest effects of broadband Internet on employment growth were in finance and insurance, real estate, and education services.” While many rural retailers benefitted from the availability of broadband service, farm businesses had some different statistics.
Respondents to a 2007 USDA survey indicated 63% of farms had a “high-speed” Internet service and over 60% had broadband access. Successive surveys found that the greater the income and skill levels of farmers the greater the chance they would have Internet access. Additionally, the greater an individual’s educational attainment the greater the likelihood of Internet use at home or at work. Also the average age of farm operators with no Internet use in 2007 was 62%, compared with 54% for those use accessed the Internet with broadband services.
Just like rural banks finding themselves fighting for a market beyond their local community, the Internet has allowed farmers to look beyond the nearest town to define his local area of operation, particularly for the purchase of inputs.
Summary:
Broadband Internet service is something that is expected in urban areas, but it is not always available in rural areas, and that fact means differences in the communities, particularly the degree of economic development. Broadband access has aided the success of both retail and wholesale businesses, as well as increased the educational capacity of a community.
Posted by Stu Ellis at 12:36 AM | Comments (0) | Permalink
August 17, 2009
How Should Congress Respond To The Cost-Price Squeeze In Agriculture?
Every farmer has felt the impact of the cost-price squeeze, and likewise has had a difficult time explaining it to his city cousins who ask challenging questions about tax-supported farm programs, the farm economy, and why farmers have so much trouble making money. They look at 2007 and 2008 commodity prices, assume every farmer is wealthy, and wonder why the dairy industry is in financial collapse. Congress, which is being asked for financial support for the livestock industry, has been given a new report from the Congressional Research Service which sets out a clear perspective of that cost-price squeeze.
Economist Dennis Shields of the Congressional Research Service (CRS) says the cost-price squeeze concept began in the early part of the last century, when farmers began purchasing commercial feeds, fertilizers, and other crop inputs, rather than using homegrown inputs. And he says livestock producers are currently facing low or negative returns based in part on feed prices, which have not fallen as fast as output prices. At the same time crop producers have had to deal with volatile costs of energy and fertilizer which affect their returns. He says crop inputs climbed after the commodity price boom of 2007 and 2008, and have not returned to prior levels, although grain prices have.
Shields has told Congress that after periods of higher commodity prices, production typically expands, followed by higher input prices. Once profitability is lost, production declines or farmers go out of business, if they cannot make up the income shortfall with part time employment. Other farmers try to reduce input costs by increasing the size of their operation and spreading out fixed costs, which creates many other issues.
One of the dynamics influencing the trend is rising productivity, which Shields says allows more output from less input. And that, says the CRS economist, puts economic pressure on smaller operators unable to take advantage of those inputs. He says the end result is declining farm prices resulting in the loss of some farmers. Shields suggests the need for a yardstick that will measure the cost-price squeeze, which could be the comparison of prices paid versus prices received, and for now, put the issue of technological developments on the back burner. Shields proceeds to compare milk prices to feed prices on a per pound basis and that the ratio is 2, which means the value of two pounds of milk is equivalent to two pounds of feed. Within the dairy industry two would be negative profitability and the likelihood of herd liquidation. Shields also says the cost-price squeeze could also be measured with an index of current prices received, divided by an index of prices paid, and if the ratio declines it indicates financial difficulty.
The CRS economist notes that using data collected by the National Agricultural Statistics Service would be a good source, but they will end up being industry averages, and some producers may be better off and others worse off than what the statistics suggest.
Using current data, Shields points to the dairy industry and says 2007 saw record high milk prices stemming from export demand, which increased the milk-feed price ratio. But once feed costs climbed higher in 2008, the ratio fell from 3.0 to 2.0 and weakened further. His charts all indicate that livestock to corn ratios are at the lowest levels of the decade, many of them below the point at which herds are liquidated. The crops ratio has been climbing, and after a peak, current prices are equivalent to 2007 prices.
When farm prices do not keep pace with production costs, Shields tells Congress that farmers have a variety of tools:
1) Marketing tools allow price risk to be managed, and management decisions can reduce input costs.
2) Low prices for certain commodities will result in fewer acres or head of that commodity will be produced. However, production cycles are so long that such responses take time to implement.
3) Farmers may be able to take advantage of some federal programs, but those are limited to a few program crops. Other programs include crop insurance and dairy price supports. However, the economist says farm programs distort production incentives that originate from consumers, and keep inefficient farms in business. Shields says, “The counterpoint to limited or no government intervention is that markets are, at times, too volatile and can unnecessarily destroy farms that otherwise benefit society.” And he notes that smaller farms which have higher production costs are better suited to carry out conservation and other environmental programs that benefit the long term productivity of the land.
4) Off farm income is one of the keys to survival seen by Shields, since for the past 20 years, off farm income as a share of total household income has been at least 80%, and some years over 90%.
Shields says the farm policy created in the Great Depression has helped farms weather financial difficulties, but technology has resulted in a transition from many high cost producers to a few low cost producers. Public opinion supports continuation of farm subsidies, but with payment targeted to smaller producers instead of larger ones. However, that is an incentive for some farmers to either grow to the point of not needing any farm program payments, or contracting in size and depending on farm program payments and off farm income. He says the US is not going to have a food shortage because land, labor, and capital will all continue to be available. But he rhetorically asks if federal farm policy should address the trend of large farms producing an increasing share of agricultural output; and should Congress let family farmers financially fail or help them toward a more economically efficient transition? Shields says farm policy used to be rural policy, but the growth of rural industries has reduced the importance of farming, so he says Congress must decide how does farm policy complement its goals for rural communities and rural life in important agricultural areas? He says some policy critics have suggested that current farm policy is reinforcing or accelerating trends in farm structure and making worse the cost-price squeeze.
Summary:
Much of agriculture, and particularly the livestock industry, is in the midst of a financial squeeze caused by rising costs and declining commodity prices. Farmers have several ways of relieving the pressure, including receiving farm program payments. However, Congress is challenged on how to structure those supports, both on amount and to whom they are paid. But in the end, are those payments keeping inefficient farms in business and exacerbating the cost-price squeeze.
Posted by Stu Ellis at 12:47 AM | Comments (1) | Permalink
August 14, 2009
Cornbelt Update
Cornbelt 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.
August 14 is the ACRE sign-up deadline if 2009 crops are to be enrolled in the USDA’s new risk management program. Records are not required at sign-up, only the signatures of operators and owners, or operators with power of attorney for owners. The program is designed to compensate if farm revenue fails to match state revenues.
Based on Wednesday’s crop report, Purdue marketing specialist Chris Hurt expects ACRE to provide a payment for 2009 IN corn. “With current information, and assuming the 163 bushel yield will hold, this means if the US average farm price for the 2009 crop is below $3.58/bushel the state ACRE payment would be triggered. USDA estimated on August 12 that the US farm price would be between $3.10 and $3.90. The midpoint of that range is $3.50. At $3.10, the average Indiana corn ACRE payment would be $65/acre of corn planted in 2009. At $3.20 it would be $51/acre; at $3.30 $37/acre and at $3.50-the midpoint of their estimate, 2009 corn ACRE payments would be $10/acre.”
Chris Hurt thinks soybeans will also earn an ACRE payment. “USDA on August 12 estimated that IN soybean yields would be 45 bu. per acre. With current information, and assuming the 45 bushel yield will hold, this means if the US average farm price for the 2009 crop is below $9.71 per bu. the state ACRE payment would be triggered. USDA estimated on August 12 that the US farm price would be between $8.40 and $10.40. The midpoint of that range is $9.40. At $8.40, the average Indiana soybean ACRE payment would be $49/acre of soybeans planted in 2009. At $9.00 it would be $27 per acre; at $9.40-the midpoint of their estimate, 2009 soybean ACRE payments would be $12/acre.”
The biggest surprise in the USDA crop report this week was the fact USDA did not lower planted corn acres, after announcing that 7 states would be resurveyed for planted acreage. KS marketing specialist Mike Woolverton says harvested acres were cut by 100,000, but USDA stayed with the June 30th estimate of 87 million acres planted.
Yields are the biggest questions now, says Woolverton at KS State. He says USDA raised the projected yield to 159.5 bu. compared to the 153.9 bu. yield of 2008. Woolverton says corn was planted late in the eastern Cornbelt, which normally cuts yield. And he says 1/3 of the Cornbelt has been dry for several weeks, and the late August forecasts which call for cooler temperatures will slow crop development.
The USDA Supply-Demand report held bullish news for soybeans in the mind of Woolverton. With USDA adjusting estimates for planted and harvested acres, plus the crush and export demand for 2010, as well as the residual category, Woolverton says USDA was trying to keep new beans above the bare minimum pipeline supply. He says any cut in soybean yield in future reports will tighten stocks and ration the supply.
A large corn crop and a drop in prices may stimulate the ethanol industry, says Purdue’s Chris Hurt, “The big question that will determine whether we can turn some of those ethanol plants back on is the blending wall with E10," Hurt said, "Whether the EPA does or does not allow us to go to E15 is going to be critical in this market."
Corn yield prospects continue to improve, say IL crop forecasters basing their numbers on weather data and crop conditions. The trend yield is 154.9 bu. for corn, but depending on August weather they say they national yield could range from 158.5 to 171.1 bu. Read more.
1) Illinois corn yields could range from a low of 164.2 to 180.6 for a high.
2) Indiana corn yields could range from a low of 160.0 to 174.1 for a high.
3) Iowa corn yields could range from a low of 188.1 to 201.1 for a high.
4) Based on current conditions, US corn production could reach 12.9 bil. bu.
Soybean yield prospects are improving say IL ag economists Darrel Good and Scott Irwin, and meteorologist Mike Tannura. The trend yield is 42.2 bu., but depending on August weather they say they national yield could range from 41.4 bu. to 45.6 bu. Read more.
1) Illinois bean yields could range from a low of 44.7 to 49.6 for a high.
2) Indiana bean yields could range from a low of 46.4 to 49.9 for a high.
3) Iowa bean yields could range from a low of 51.8 to 57.4 for a high.
4) Based on current conditions, US soybean production could reach 3.37 bil. bu.
Wheat exports will have to hustle to make USDA’s target, based on shipments since the marketing year began on June 1. The target is 925 mil. bu. and the total export inspections to date are 130.7 mil. bu., which are already nearly 100 mil. behind the pace of last year. However, IL economist Darrel Good says 2008 was a fast paced year.
Wheat futures were near $7 in early June, but spot cash prices for soft red winter wheat are in the low $3 range, which is a function of the weak basis. Darrel Good says there is a poor export demand for US wheat, but it could pick up if a strong El Nino dries out the Australian wheat crop or if low prices curtail US wheat plantings this fall. Read his weekly newsletter.
Good wheat crops around the world are offsetting a reduction in planted acreage says KS State marketing specialist Mike Woolverton, who adds global production will be down only 3%. US production will be down 13% due to smaller total area planted. He says USDA’s marketing year average farm wheat price will be $4.70 to $5.70 per bu.
Are you hedging or speculating? IL ag law specialist Gary Hoff says 1,700 more auditors have been hired by the IRS to increase audits, and hedging transactions will be among their points of interest. Hoff says hedging losses must be accompanied by a transaction to deliver the grain to fulfill the contract. Farmers without sufficient grain storage, who “store on the board,” are engaging in speculation and deductions change.
Soybean aphids #1. IL researchers have found soybean genetics that allow soybeans to resist a threat by aphids—2 US public varieties and a Japanese variety. The US varieties were not adaptable to the Midwest, so breeding programs have expanded the seed supply and a commercial variety with glyphosate tolerance should be on the market in 2010.
Soybean aphids #2. The IL soybean breeders however found a new aphid specie that is not impaired by the US varieties, but the Japanese variety still has resistance to this new aphid. Researchers say the Japanese variety will be released commercially as a non-GMO bean to help organic soybean growers avert serious problems with aphids.
Soybean aphids #3. Aphid densities for 2009 throughout most of the Cornbelt are well below economic thresholds of 250 aphids per plant with 80% of plants infested, says IL crop specialist Jim Morrison who adds, “I urge growers not to treat soybean fields that are below the economic threshold because of the questionable yield benefit and the certain negative effects an insecticide application will have on natural enemies.”
Soybean aphids #4. OH State entomologists want you to, “Remember that the threshold for treatment is an average of 250 aphids per plant with the population rising. Economic damage will not occur until you reach 700-800 aphids per plant. The level of 250 aphids per plant is a very conservative threshold.” That threshold was established to give a grower time to arrange for the crop to be sprayed before the large threshold was reached.
Soybean aphids #5. Winged aphids are reported by IA entomologist Erin Hodgson to be moving, and she urges continued scouting because fields that might have been clean last week could have aphids this week. Hodgson says as plants mature they become less attractive to aphids, but they will feed on plants that are at the R7 stage.
Soybean aphids #6. Is there an economic advantage for treatment to late stage soybeans that have aphid infestations? Hodgson says treatments pay to the R5.5 stage, and research on aphid treatment at R6 yielded mixed results. She says soybean plants at R6 may be able to tolerate more aphids without experiencing a yield loss.
Don’t try to order them for 2010, but soybeans with a Bt gene to protect them from soybean aphids and Japanese beetles may be available in future years. That is the prediction of IL entomologist Mike Gray following successful research in Georgia to develop Bt beans that fight insects indigenous to Southern states.
Volunteer Bt corn may be creating monsters in your soil say entomologists. Purdue’s Christian Krupke has found numerous fields with volunteer corn, which had rootworm Bt genes and other traits, which he said was an unforeseen consequence of gene stacking. At IL Mike Gray says that escalates the evolution of resistance for rootworms to Bt genes, since they are feeding on plants that have reduced levels of the Bt toxins.
Volunteer corn not only is a threat to create resistant rootworms, but creates weed control issues as well, says IL agronomist Vince Davis, in his latest newsletter. Davis cites two issues:
1) You may be spending too much money for a second herbicide to control herbicide resistant weeds, since the cost is the result of planting the first herbicide resistant crop.
2) Concerns are becoming more prevalent that the inability to control volunteer corn that is glyphosate tolerant will help convey Bt resistance to corn rootworms.
Volunteer corn cuts soybean yields according to a variety of researchers quoted by NE specialists. 5,000 volunteer stalks per acre will reduce bean yields by 20%. Also bean yields are cut by 1% for every 75-115 clumps of corn per acre. The NE specialists say any delay in controlling volunteer corn requires higher rates and higher costs.
After vacationing on the Gulf Coast, soybean rust is venturing northward, and has returned to work with jobsites in southeastern Arkansas and central Mississippi. Those states were added to the USDA Asian rust website. Since the Aug. 10 finding in those states, more counties in Florida and Georgia were added.
An early harvest of 19% moisture corn with a 75ºF starting temperature is fraught with peril if your drying system fails. NE specialist Tom Dorn says a full market grade can be lost in only 5 days if the grain is allowed to heat and deteriorate. Dorn also says:
1) Stored grain insects cannot live on extremely dry grain of less than 10% moisture.
2) It is impractical to dry grain below the mold threshold of 15% winter, 14% summer.
3) Insects are generally inactive below 55ºF and will not reproduce.
4) Incrementally warm grain in the spring or moisture will condense in the bin middle.
Park your herbicide sprayer, say Purdue specialists who say soybeans are setting pods and it is too late for both Liberty Link and Roundup. They say leaf burn on mature plants is worse than on young plants, which grow out of that problem. And they add that most weeds are going to be too tall for any effective control at this time in the season.
Western bean cutworms may be cutting into your corn ears, but unless you have a high value food grade corn Purdue specialists say a rescue treatment may not pay:
1) Control, in corn that has already pollinated, will likely be less than 50%.
2) 1 larva/ear at dent stage corn is approximately equal to a 4 bushel/acre loss.
3) Ear damage opens the door for molds, a concern in food grade corn.
4) Larvae in the ear will NOT be controlled, larvae exposed or that exit the ear can be.
5) Larvae become less mobile as temperatures increase.
6) Increased carrier volume will improve the canopy penetration into the ear zone.
7) Insecticides will provide about a week of efficacy, depending on the environment.
8) Pre-Harvest intervals for insecticides must be followed (most are 21 to 30 days).
9) YieldGard® does not prevent or control western bean cutworm, Herculex® does.
How long did your corn silks grow? They typically emerge a couple days after tassel emergence, but Purdue’s Bob Nielsen says the cool weather brought some out early and he’s measure silks up to 9 inches long. Nielsen says many farmers have expressed concern about the long silks impeding fertilization, and he says if they began emerging before the tassel and began to deteriorate, their kernel may not develop. Read his comments.
Pork producers should buckle their seat belt. That is the advice of MO livestock economist Glenn Grimes who says marketings are not current, there is extra tonnage, and the number of hogs backed up for fall and winter marketing “will be brutal for hog producers. Prices in the lower $30’s for 51-52% lean hogs are likely. There is a relative high probability that losses in 2009 will exceed 1998 losses.”
Posted by Stu Ellis at 3:24 AM | Comments (0) | Permalink
August 13, 2009
Will Big US Corn And Soybean Crops Find Global Demand?
Nearly 13 billion bushels of corn and more than 3 billion bushels of soybeans will be produced in the US this year, according to USDA’s August Crop Report released on Wednesday. Along with the larger than earlier estimated wheat crop, those will significantly bolster the world grain supply. While US crops will have potential for export trade, will they be needed? Another report released Wednesday by the USDA gives an indication.
USDA’s World Agriculture Supply and Demand Estimates were also updated Wednesday and reconciled with the field estimates obtained by the National Agriculture Statistics Service.
Coarse grains. Globally the supply of corn and other feed grains will be 8.3 million tons higher than calculated last month, helped by US supplies and better crops in Ukraine, India, and the European Union. However, the corn crops in Mexico, Russia, South Africa, and Argentina will be smaller, and that will boost corn import and export business. USDA says Mexico and Taiwan will be buying more and the US will be exporting 3.8 million additional tons. That was also reported by USDA when it forecast corn exports would be 2.150 billion bushels, up 200 million from earlier projections. When the marketing year comes to an end in 12 months, stocks are expected to be higher, reflecting the larger corn carryout here in the US. USDA says other changes in the supply and demand of feed grains concern sorghum, barley, and oats, with production increases forecast in all. Canada has a smaller oat crop, so trade will decline and ending stocks will be lowered.
Oilseeds. Global oilseed production for the current year is forecast at a record high, despite world production being slightly lower this month than last. Chinese soybean production is expected to be slightly smaller due to lower yields from excessive moisture. On the other hand increased production in the EU and the Ukraine will offset the lower production in China. European rapeseed production will be at record high levels from better yields, and a large sunflower crop in the EU. In the US, oilseed production estimates declined slightly to 94.5 million metric tons, because of lower soybean and cottonseed production. That correlates to the 3.199 billion bushel soybean crop estimated for 2009. US soybean exports are expected to decline slightly to 1.265 billion bushels, with Argentina shipping more beans and meal to offset the US drop in oilseed trade. USDA raised its estimates of soybean and product prices in the August forecast. While soybean prices will be up 10¢ per bushel, the average price of soybean meal was raised $5 per ton, and the average price of soybean oil was raised a penny per pound.
Wheat: Global production and supplies are better than once expected, says USDA, which pushed up the world production estimate by 5 million tons, with a larger carry-in and more overall production. 2009 production grew by 2.8 million tons, with the help of larger crops in the US, EU, China, and the Ukraine. Production would have been larger, but for lower production in Russia, Argentina, Canada, and Kazakhstan. Indian production reached a record of 80.6 million metric tons. In the EU, some countries reported higher production and others reported less, with an overall gain. In both China and the Ukraine, production was raised by 1 million metric tons. The production cuts were attributed to dryness and extended July heat, as well as rain coming too late to help the Canadian wheat crop.
Global wheat exports are expected to be slightly less than prior years, but only by 600,000 tons. However, there will be significant drops in export business for Russia, India, Argentina, and Kazakhstan, and similar increases in trade for the EU and the Ukraine. Global consumption is expected to be only 2.7 million tons more, held back by reduced feeding of wheat in Europe and Canada. Ending stocks will be higher by 2.3 million tons, helped by the larger carryover from the old crop.
Summary:
Global grain and oilseed production will record numerous pluses and minuses this growing season, and as a result many countries will have to import, making opportunities for exporters, such as the US, to sell surpluses. US corn exports are expected to be 2.150 billion bushels of the new crop, and soybean exports are expected to be 1.265 billion bushels. Both are in the neighborhood of the past two years, and should help support domestic grain and soybean markets.
Posted by Stu Ellis at 12:40 AM | Comments (0) | Permalink
August 12, 2009
USDA's August 1 Crop Report
The most anticipated crop report of the production year was released earlier today by USDA’s National Agricultural Statistics Service, which forecast the second largest corn crop and fourth soybean crop on record. But USDA also said the Cornbelt was not going to produce as much as would be expected.
USDA’s first objective yield estimate, in which statisticians took field surveys, found 5% more corn than last year and 8% more soybeans compared to 2008. But USDA also said corn “Yield prospects are lower in the central Corn Belt where excessive spring moisture delayed planting and below normal temperatures slowed corn emergence and development.” Regarding soybeans, USDA said, “With the exception of Illinois, yields are forecast higher or unchanged from last year across the Corn Belt and Great Plains.” And UDSA also said ear counts were unusually high in most states, “The August 1 corn objective yield data indicate a record high number of ears per acre for the combined 10 objective yield States (Illinois, Indiana, Iowa, Kansas, Minnesota, Missouri, Nebraska, Ohio, South Dakota, and Wisconsin). Record high ear counts are forecast in all objective yield States except Illinois, Missouri, and Wisconsin.”
USDA also expressed its concern about the delay of the corn crop, particularly in Illinois, “Double-digit silking progress was evident mid-month throughout much of the Corn Belt; however, large phenological delays remained in Illinois and Indiana. In Illinois, the second largest corn-producing State, silking was 2 weeks behind the normal pace on August 2. Seven percent of this year’s corn crop was at or beyond the dough stage on July 26 and had reached 14 percent complete by August 2, slightly behind last year and 15 points behind the 5-year average. Doughing had yet to begin in Minnesota and North Dakota, leaving progress over 1 week behind normal in both States. Overall, the condition of the corn crop declined 3 points during July, with 68 percent rated good to excellent on August 2.”
Based on the corn yield and production estimates of 12.761 billion bushels, USDA revised its consumption forecasts. With the upward bump of 471 million bushels of corn from the July estimate, USDA pushed feed demand up 100 million bushels to 5.300 billion, pushed up ethanol demand by 100 million bushels to 4.200 billion, and pushed up exports 150 million to 2.150 billion bushels. The carryout was raised from 1.550 billion in July to 1.621 billion at the end of August 2010. USDA revised the national average price range down by 25¢, and reset the range to be $$3.10 to $3.90 per bushel.
Compared to the USDA report, a survey of commodity traders indicated they had been expecting a 12.554 billion bushel corn crop (in a range of 12.3 to 12.8 billion), with a national average yield of 157.1 bushels per acre. The market had also expected the new crop corn carryout to be 1.697 billion bushels.
The August report comes just two days before Friday’s deadline for signing up for the ACRE program, and many farmers had awaited the report’s estimate of state production to help determine their strategy, whether or not to sign up their 2009 crop into the irrevocable ACRE program. USDA’s Cornbelt state estimates for corn yields were:
Illinois: 175 bu.
Indiana: 163 bu.
Iowa: 185 bu.
Kansas: 143 bu.
Michigan: 140 bu.
Minnesota: 167 bu.
Missouri: 146 bu.
Nebraska: 166 bu.
North Dakota: 118 bu.
Ohio: 165 bu.
South Dakota: 141 bu.
Wisconsin: 135 bu.
Based on the soybean yield and production estimates of 3.199 billion bushels, USDA revised its consumption forecasts. With production being lowered from the July estimate of 3.260 billion to 3.199 billion bushels, USDA nudged the crush down 10 million bushels to 1.670 billion bushels, and also pushed exports down 10 million bushels to 1.265 billion bushels. The August 2010 carryout was estimated at 210 million bushels, down from the 250 million forecast in July. USDA revised the national average price range up by 10¢, and reset the range to be $8.40 to $10.40 per bushel.
The market had been expecting a 3.213 billion bushel soybean crop (in a range of 3.0 to 3.3 billion) with an average yield of 42.1 bushels per acre. New crop ending stocks in August of 2010 were expected by the market to be 212 million bushels.
USDA’s Cornbelt state estimates for soybean yields were:
Illinois: 44 bu.
Indiana: 45 bu.
Iowa: 52 bu.
Kansas: 38 bu.
Michigan: 37 bu.
Minnesota: 40 bu.
Missouri: 40 bu.
Nebraska: 49 bu.
North Dakota: 29 bu.
Ohio: 47 bu.
South Dakota: 37 bu.
Wisconsin: 39 bu.
USDA also revised the soybean acreage in many Cornbelt states based on planting difficulties when the June 30th report was being prepared. The latest estimates are:
Illinois: 9.100 million.
Indiana: 5.500 million
Iowa: 9.800 million
Kansas: 3.600 million.
Michigan: 2.000 million.
Minnesota: 7.200 million
Missouri: 5.400 million
Nebraska: 4.700 million
North Dakota: 4.050 million
Ohio: 4.600 million
South Dakota: 4.350 million
Wisconsin: 1.640 million
Total US acres for soybeans were reset to 77.723 million, up slightly from the June estimate.
Summary:
The August 1 Crop Report from USDA forecast corn production at 12.8 billion bushels, 2% under the 2007 record crop, partially from poorer yield expectations in the Eastern Cornbelt. The national average corn yield was project at 159.5 bushels per acre. Soybean production would be the fourth highest at 3.20 billion bushels, with a 41.7 bushel per acre average. USDA also revised the soybean acreage up slightly from June.
Posted by Stu Ellis at 8:21 AM | Comments (1) | Permalink
August 11, 2009
Is An Economic Recovery In the Offing For Agriculture?
US agriculture is in the business of producing food and fuel for the domestic market, and exporting the surplus to the foreign markets. While that objective is noble, the global recession has cut into the demand for all three of those markets. And less demand means lower commodity prices and less farm income. No surprises there. But what you really want to know is when all of this fun will be over and we can get back to business.
The demand for agricultural commodities has been on the decline for a year now. Americans are avoiding high priced restaurants, and opting for lower priced food, when and if they venture away from home to eat. And grocery purchases are for even lower priced foods as well. With such a change in food demand, along with reduced travel that consumes biofuels, the demand for agricultural products has fallen says Jason Henderson, Vice President of the Federal Reserve Bank at Kansas City, in the August issue of the Iowa State Ag Decision Maker.
Henderson says Americans are not eating less, but they are eating more of lower priced foods in an effort to cut their food bill. That is a significant change in the past three years, which saw 4 to 8% increases in food expenditures above the prior year. For 2009, that began as a 2% decline from 2008. Such a change impacts meat purchases, replacing higher priced cuts with lesser priced meats, and even replacing meat with lower priced vegetables. That says beef is replaced by pork, which is replaced by poultry.
Not going out to eat at a fancy restaurant is one example of cutting back on discretionary driving, and as a result, less fuel is used, including ethanol. That puts a downward pressure on gasoline prices, which makes ethanol blending more expensive and reduces the overall production of ethanol. Economists say retail gas sales declined nearly 5% in 2008. This contributed to the idling of several ethanol plants and lower ethanol prices, which pushed down the price of corn. Since ethanol at $1.50 per gallon will support a $3.20 corn price, that means current lower ethanol prices are not willing to pay that much for corn. That impacts soybean and wheat prices which compete for acres.
Also falling sharply was export demand, despite the value of the dollar which last year provided US commodities to the global market at bargain basement prices. Henderson expects more export decline before a 2010 rebound and more of a rebound in 2011.
When food and fuel prices and lower exports resulted in 25% lower commodity prices, farmers responded with a lower demand for land and machinery, and a willingness to cut production outlays as much as 5%. Even with lower production costs, profitability will be down. But when will it all turn around? Henderson says, “After a global expansion of monetary and fiscal stimulus, current forecasts suggest an economic recovery in 2010. The farm rebound hinges on renewed strength in food and fuel consumption.” He says current forecasts point to some stabilization in the last half of 2009 and recovery in 2010. Henderson believes world economies will be on the same track, with a moderate rebound in 2010 forecast by the World Bank. Such a recovery would be dependent on increased restaurant sales and more consumption of higher valued meats, with strong demand for fuel pushing up gasoline prices and ethanol blending rates. Globally, higher caloric intake will be recorded in developing countries where a better economy quickly translates to better food consumption.
While a moderate recovery is anticipated in 2010 by USDA and the University of Missouri Food and Agricultural Policy Research Institute, they are not expecting farm incomes to return to 2008 levels for several years. That will be dependent upon the value of the dollar, and it is not expected to remain at the 2008 levels when export business was at its high water mark.
Summary:
The recession has taken the steam out of the farm economy by cutting food and fuel demand and dampening export trade. While some recovery is seen in the last half of 2009 and more so in 2010, the recovery may be more limited to domestic markets than global markets. Exports will recover, but not to 2008 levels until the dollar returns to its prior levels at the height of the boom.
Posted by Stu Ellis at 12:01 AM | Comments (0) | Permalink
August 10, 2009
Farm Expenditures: How Do You Compare With The Averages?
You and your neighbors have all said at some time or another that the 2009 crop was the most expensive you every planted. The cost of fertilizer probably ensured that fact and seed corn prices had a lot of input as well. Certainly 2009 production costs were above that of the two prior years, but after the big jump up in 2007, production cost for 2008 did not rise as rapidly, aiding profitability. USDA has just calculated your 2008 production costs, and while high, the upward trend slowed a bit.
Farm production expenses were $307 billion in 2008, up 8.3% from 2007, but 2007 farm production expenses were up more than 19% compared to the prior year. The USDA survey indicated that higher machinery costs lead the way for 2008 expenses, both in the tractor & combine category that was up 32.6% and in the “other machinery” category that was up 34.1%. However, output for machinery and vehicles was only 7% of total farm outlays.
The major category was chemicals, fertilizer, and seed, which was 16% of the outlays, and totaled more than $49 billion. Feed expenses were next highest at nearly $47 billion. While fuel expense was only 5.2% of total outlay, USDA economists delved into the $16 billion that farmers paid for energy. Diesel fuel was nearly 62% of that, with gasoline at nearly 19%, LP gas at 13%, and other fuels about 7%. The average fuel cost per farm approached $8,000.
Over the course of 2006 to 2008, all categories of expense climbed incrementally, except for the outlay for livestock and poultry. Livestock producers paid more for feeder calves and feeder pigs in 2007 than they did in 2008. Specifically the 2007 total was $33 billion, compared to only $28.3 billion in 2008. Notable is the fact that interest expenses held steady from 2007 to 2008.
Over the five year period from 2004 to 2008, total farm production costs have risen from just under $212 billion to just over $307 billion. The cost of feed is the largest expense, rising from $29.7 billion in 2004 to $46.9 billion in 2008. The next highest category, farm services, includes all crop custom work, veterinary custom services, transportation costs, marketing charges, insurance, leasing of machinery and equipment, general and miscellaneous business expenses, and utilities. Farmers saw those costs rise from $26.8 billion in 2004 to $38 billion in 2008. For 2008, labor expenses of $29.7 billion slipped ahead of fertilizer at $22.5 billion. However, as a percentage of the totals both farm services and labor fell slightly.
For crop farms, which reported an average of $175,141 in total expenses, the farm services bill consumed $23,000, fertilizer consumed $20,000, the cash rent bill was nearly $20,000, and labor was more than $21,000, all for 2008. The seed bill last year was over $14,000 and the chemical bill was just under $11,000.
For livestock farms in 2008, which averaged $113,390 in average expenditure, the feed bill was just under $35,000, the cost of feeder stock was just over $20,000, and farm services was nearly $13,000.
Across the Cornbelt the average expenditure per farm was $145,555 with feed outlay at $17,558, cash rent at $16,919, farm services at $14,621, and fertilizer at $14,525. Interestingly, Cornbelt farmers spent nearly $7,500 on new machinery in 2007, versus nearly $10,700 in 2008.
Summary:
There is no surprise that farm expenses have risen in every category except for interest payments. However, the surprising fact about USDA’s survey of farm outlays is the deceleration of the increase from 2007 to 2008. Following the 19% increase in expenses from 2006 to 2007, the rate climbed only 8% more in 2008. The report on 2009 expenses will not be issued until August of 2010. While fertilizer and seed costs rose expectedly in 2008, the largest jumps were in the costs that farmers had to pay for farm machinery.
Posted by Stu Ellis at 12:11 AM | Comments (0) | Permalink
August 7, 2009
Cornbelt Update
Cornbelt 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.
One week is left before the 2009 sign-up deadline for ACRE, the Average Crop Revenue Election farm program. August 14 is the final day to enroll your farm, and signatures of operators and owners are all that is needed at this time. Your historical yield records data will be needed July 15 to qualify for any payments that might be earned from the 2009 crop. Find help here.
155 bu./A with the corn crop at 12.403 bil. bu. is the forecast of Michigan St. marketing specialist Jim Hilker when the August Crop Report is released August 12. He adds, “If the report varies much from expectations, you could see some significant price swings. If they shoot up, have some price targets in place, if they shoot down, I really hope you are signed up for the ACRE program.” Read more.
Hilker’s soybean forecast calls for a below trend yield of 42.2 bu./A and a total crop of 3.234 bi. bu. And he says that could drop, “given how last year’s late soybean crop did. But I also think we may find a few more soybean acres.” And he adds, “My pricing suggestion are the same as with corn, have pricing targets in place if the report is price positive, and consider waiting to price if the report is price negative.”
The futures market has again offered $10 for Nov beans, and MN marketing specialist Ed Usset reminds soybean growers that this is the third chance to sell $10 soybeans from the 2009 crop. He says, “We greeted the new year with prices above $10 for nearly a week. We enjoyed a second rally above the $10 mark in mid-May, an opportunity that stuck around for nearly 6 weeks. And now this week – back above the $10 mark. I’m a baseball fan and I can’t help but remind you that it’s three strikes and you’re out.”
The crop could expand says Iowa State’s Chad Hart, “The outlook indicates more seasonal weather will return in the fall. Currently, corn production is projected at over 12 bil. bu. and soybean production is targeted at nearly 3.3 bil. bu. But conditions have been improving over the summer, with the crop ratings both for the US exceeding last year.”
Hart says most of the long range forecasts point to a continuation of the relatively mild summer conditions, and “Given the improving crop conditions, there is significant anticipation that USDA will increase their yield projections in the August reports.” He says feed and ethanol demand is less than prior years, but export projections are high.”
Lower crop prices should spur a reversal in the weaker demand trend, according to Hart. He says the 25% decline in prices is providing buying opportunities for end users. While feed projections remain below 2008, the rate of decline has slowed for the livestock industry. And since the fall in ethanol prices has slowed, blending is more profitable. Hart adds that gasoline prices have climbed, but ethanol prices are stable. Read more.
Fibonacci numbers help identify sell signals in Dec corn says Iowa St. ag economist Stephen Johnson. He says between the June 8 high of $4.73 and the July 20 low of $3.15 there are important retracement points at $3.75, $3.94, and $4.13. Read his marketing letter.
Johnson says, “These different levels serve as good indicators of where the December 2009 corn chart may find technical resistance. Placing sell orders, buying puts or forward pricing when the market reaches these levels can help with market discipline.” He says the technical Fibonacci chart points can be used to show resistance and support levels.
Watch the weekly crop conditions, says Iowa St. meteorologist Elwynn Taylor to see if current corn crop conditions total above 50% for the good and excellent categories. Currently, it is at 68% for the 18 primary corn states. He says if the number remains above 50% at the end of August, there is a consistent record of yields above trend line.
Based on similar weather years Purdue agronomist Bob Nielsen thinks the corn crop may be doing reasonably well at this point, although “the fat lady has not yet sung.”
1) Late planting and uneven stands are not good, but the crop has escaped heat stress.
2) Moderate temperatures are favorable for kernel set and kernel weight development.
3) The crop needs to avoid drought stress into September and a frost into October.
Regarding the killing frost potential, Nielsen says premature leaf death results in yield losses because photosynthesis stops, and while the plant may be able to shift some of its carbohydrates to the ears, yield potential will still be lost. If the stalk survives, frost at the dough stage will cut yield by 36%. Frost at the full dent stage will cut yield by 31%. And Nielsen says if frost occurs at the half milkline stage it will cut yield by 7%.
Soybean yields depend on flowers, but IL agronomist Vince Davis says yields could go in two directions because of the weather. Davis’ newsletter says he wants to be optimistic that yields will be good. Read more.
1) Early canopy closure (not this year) means a longer time for pod set and pod fill.
2) Cool July weather was less stressful and fewer flowers and pods were aborted.
The days of waterhemp may be numbered due to a new genetic identification process at the University of Illinois which can help researchers determine which herbicides may be effective on populations in fields that are showing resistance. The evolution of waterhemp genes has been unusually rapid and weed scientist Pat Tranel says taking a weed’s genetic fingerprints will help farm operators better control waterhemp.
If weeds are growing above the soybean canopy it may be too late for a shower of glyphosate because of the lateness of the growth stage of the beans. Labels allow glyphosate to be used throughout flowering which is the R2 stage. But the R3, which is too late, begins when there is a 3/16 in. pod showing on the uppermost stem nodes.
What is your weed attitude? Extension weed specialists around the Cornbelt surveyed farmers to determine if glyphosate resistance was becoming a problem on their farms.
1) Awareness of potential resistance ranged 75-88% depending on farm size.
2) No more than 30% believed glyphosate resistant weeds were a serious issue.
3) Less than 20% had experienced a resistance problem on their farm.
4) 43% -65% (depending on farm size) had taken action to minimize resistance.
If you bought SCN resistant seed beans, check your soybean roots for performance. That is the recommendation of IA plant pathologist Greg Tylka, who says look for SCN females on the roots, which are small, white, and round, and about the size of the period at the end of this sentence. If you have numerous females, he says the SCN strain should be tested. Learn how.
Your volunteer Bt corn from last year has a small amount of the Bt toxin, but just enough for your corn rootworms to potentially build up some resistance. That is the thought of Purdue entomologist Christian Krupke who says the volunteer Bt corn was emitting a sublethal dose, but had substantial root damage from corn rootworms.
Some OH entomologists are about to pull the trigger on spraying for soybean aphids based on some fields in the northeastern part of the state having nearly 100% infestation. They say populations are not very high, but all plants have aphid colonies. And they say since aphid colonies can double in size rapidly, spray thresholds may soon be reached.
Dry areas of Wisconsin are becoming stressed from spider mites, which may be near or at economic thresholds for soybeans. The WI Crop Manager newsletter tells farmers:
1) Drought stress pushes mites to soybean fields as alfalfa fields as they are being cut.
2) Drought stress improves the food quality of the soybean plant for spider mites.
3) Drought halts the pathogens that normally suppress spider mite populations.
4) Hot temperatures hasten mite reproduction faster than predators can keep up.
It is rejuvenation time for pastures and forage crops says OH agronomist Mark Sulc who suggests a soil test to dictate lime and fertilizer needs, and a firm seedbed with shallow planting. He says seedlings need 6 to 8 weeks of growth after emergence to have sufficient vigor to survive the winter. But don’t harvest any of it this year.
Meat markets are not passing on the savings to consumers like auto dealers are promoting the clunker discount says Purdue economist Chris Hurt. He says finished cattle prices are down 10%, but retailers have charged higher prices in the past 6 months, and not until June were they reflecting the lower wholesale prices that began in 2008.
Hurt says the cattle herd is slowly shrinking, and is down 4% over the past 3 years. And “help is on the way.” Read more.
1) Finished cattle prices rise toward late summer when the weather cools down.
2) Lower retail prices will encourage more consumption.
3) Slaughter rates will moderate with small supplies coming from feedlots this fall.
4) Competitive poultry and pork supplies will decline 3% in the last half of this year.
5) Domestic beef demand will increase as consumers sense a stronger economy.
The worst may be over says Hurt, but profits may be elusive until next spring. He’s looking for finished steers in the mid to high $80’s in late summer. Hurt believes calf and feeder cattle prices will be higher also, but with feed price uncertainty.
For 20 of the last 22 months, hog margins have been below breakeven prices according to calculations by Iowa St. economist John Lawrence. And the bad news is their projections are for 6 more months of red ink before variable costs will be covered and 3 additional months before breakeven prices will be reached. Read his newsletter.
Lawrence says domestic and export demand can be boosted by organizational initiatives, but producers determine supply, and the only reason supply has dropped 1.5% this year is due to fewer hogs coming from Canada. He says sow slaughter rates have decreased and “US producers appear to be pushing on the accelerator rather than the brake.” His newsletter strongly urges sow liquidation to avoid the loss of 50% more equity by 2010.
To help pork producers improve profitability Iowa St. economists have created a decision making tool to track hog finishing gross margins, based on 2010 futures prices. Find it here.
What is the outlook for the livestock producer? Ag economists from across the country gathered last week to compare notes. Livestock economist Dillon Feuz of Utah State summed up the consensus, saying, “The reality is that the dairy industry, swine industry, and cattle feeding sector of the beef industry have lost a tremendous amount of equity in the last year. Domestic demand and export demand probably are going to remain week for much of this year and maybe most of 2010. Uncertainty is not likely to be reduced either. Therefore, all of the factors that got us in the present condition are still with us. Without some fairly significant reductions in supply (number of sows, number of milk cows, number and weight of fed steers) the losses will continue and equity will continue to dissipate. We may be reaching a time when many lenders will cease to finance these struggling operations and they will be forced to liquidate.”
Based on the latest estimates, MO economist Glenn Grimes says sow slaughter remains low and he sees no sign the breeding herd is being reduced very much. “It now looks like it will require bankruptcy by a substantial number of producers to get the sow herd reduced enough to get back in a profitable situation for the average cost producer.”
Cornbelt farmers are invited to IL Agronomy Day on August 13 from 7 am to 12 noon. Details are here. Urbana, IL, field tours address:
1) Waterhemp, mechanical weed control, balancing P & K, spring N for wheat.
2) Sweet corn, soybean pathogens, tomato diseases, aerial fungicides for corn.
3) Switchgrass, biomass markets, biofuel crop pests, input price volatility.
4) Soybean aphids, corn nematodes, Japanese beetle injury, corn rootworm control.
Posted by Stu Ellis at 1:20 AM | Comments (0) | Permalink
August 6, 2009
Crop Insurance and CRP. Distant Cousins That Have An Intriguing Relationship.
Although land retirement programs have long been an instrument of US farm policy, most involved supply management to ensure sufficient grain existed, but not too much to drown the market. The 1985 Farm Bill brought the advent of the Conservation Reserve Program (CRP) which allowed up to 35 million acres to be converted to grass or trees, in return for USDA rental payments. The CRP contracts soon included an Environmental Benefits Index (EBI) to prioritize land that had the most vulnerability to wind or water erosion, for owners wanting to park land in the CRP. But while the environmental benefits were all ranked for importance, one factor was left out of the formula, and that is how much savings to the taxpayer there would be if that land no longer required subsidized crop insurance. Now, there’s a twist!
Just think for a moment. The land that is most environmentally vulnerable and which should qualify for inclusion in the CRP, is probably the land that is most likely to have crop failures and require heavy subsidization of crop insurance. That is the contention of Iowa State University ag economist David Hennessy. He wants you to consider how land retirement programs integrate with crop insurance, since the CRP will pay out $5 billion per year through 2017 and crop insurance subsidies have cost $11 billion from 2000 to 2007. He says the EBI includes many factors which push up the amount of CRP rent a producer could collect. But he says omitted from the formula is a reduction in crop insurance subsidies “that would occur were the land to be removed from production.”
Hennessy points to the concentration of CRP acres in the southern Cornbelt, eastern Dakotas, Montana, the Great Plains, and parts of the Palouse, and he says CRP enrollment costs are low while environmental benefits may be high. Those erosion prone regions are more vulnerable to nutrient losses and water pollution, and Hennessy says the factors that make them more likely for CRP enrollment also make them more likely for owners to regularly collect indemnity payments from crop insurance due to crop failures. The Iowa State economist says farmers in most of those geographical areas receive twice as much in crop insurance indemnity payments as they pay into the system in premiums, while in states such as Iowa, Illinois, and Indiana the reverse is true.
There are two concerns Hennessy has about omitting crop insurance subsidies from the financial formula for tallying CRP rental rates. He says federal tax dollars spent or saved have equal weight in the budget deficit calculation, and if the CRP rent formula included savings on crop insurance subsidies there would be better choices made for enrolling highly erodible land into the CRP. Hennessy seems to suggest—using economic terminology—that a change in USDA practice would be unpopular and could create some political issues. He says USDA has long histories of crop performance down to the farm and field level, used for rate setting for crop insurance, and is even planning to include carbon sequestration in the EBI, although that data is more foggy.
Hennessy raises the issue of restricting application of nitrogen and pesticides on such land, which may make yields more variable, and therefore more prone to receiving crop insurance subsidies. He observes, “On balance, we conclude that restrictions on the use of inputs that are protective in function would likely increase the cost of an insurance subsidy policy. It may be that, rather than restrict input use when producing on land that is marginal as cropland, is environmentally sensitive, and has high yield variability given output level, it would be better to remove the land from production entirely.” He adds that the reason CRP contract formulas do not intersect with crop insurance is political in nature, and being administered in different parts of USDA, they would have priorities that do not correlate well with each other over time.
Summary:
Highly erodible land scores high on environmental scales when it comes to enrollment in the Conservation Reserve, but such land is also highly variable in its productivity and subsequently becomes more costly for crop insurance subsidization. However, the formulas used by USDA to determine CRP rental agreements do not consider such savings, possibly for political reasons.
Posted by Stu Ellis at 12:48 AM | Comments (1) | Permalink
August 5, 2009
Land Values And Rents: How Did The Recession Affect Them?
What has the recession done to farmland prices, farmstead values, and cash rents? Without too much thought, the recession has likely turned around rising values for real estate and improvements and affected cash rental rates to some extent. But for Cornbelt asset values, how deep or shallow has the drop been?
Nationally, USDA says farm real estate values at the outset of the year were $2,100 per acre, a 3.2% decline from 2008. And that is the first decline in more than 20 years. USDA’s annual survey of farmland prices and cash rental rates reported a wide range, from no drop to an 11% decline based on regional dynamics.
Farm real estate values declined in the Eastern Cornbelt, but rose in the Great Plains. Values were up 1.3% in ND, up 3.3% in SD, up 1.5% in NE, and up 2.0% in KS. But values were down 3.5% in OH, 2.0% in IN, 2.5% in IA, 4.3% in MO, and 0.4% in IL. The Great Lakes states also dropped by similar amounts for aggregated farmland.
For cropland, the national average that was at $2,760 in 2008, fell to $2,650 in 2009. In the Cornbelt, cropland values were more varied, and ranged from a 6.3% gain in NE, to a 5.8% decline in OH.
Pasture values dropped about $20 per acre over the past year, averaging $1,070. Throughout the Cornbelt and Great Plains pasture values declined, but were steady in KS and ND.
While real estate values generally dropped, combined values of farmland and improvements increased 8.1% across the nation, but most impressively in the Cornbelt. IL and IN both recorded increases over 12%, but IA values rose over 17%. The Northern Plains saw values rise 16.7% in NE, 18.5% in SD, and 19.5% in ND.
Despite the drop in land values, the cost of renting cropland went up by 5.3% from 2008 to 2009. Specifically, pasture rents remained unchanged, but rents for cropland rose from $85.50 in 2008 to $90 for 2009. USDA said, “The increases in cropland rental rates are the result of producers receiving strong commodity prices, while pasture cash rent is affected less by commodity prices and more by land values.” In the Northern plains, rents rose 7.6% from last year. Cornbelt averages were $146 for the stretch from IA to OH. The Cornbelt has nearly half of cash rented farms in the US. The highest rents were the $141 in IN, $170 in IL, and $180 in IA. Rental rates rose 4.4$ in IN, 4.3% in IL, and 5.9% in IA. Because of the different dynamics affecting pastureland values, pasture rent has been more variable than rent for cropland. Rent is $10.50, which is steady from last year, and is an average of the past five years. Few Cornbelt states have sufficient information to report pasture rents, which range from a $43 high in IA to $14 in ND.
Summary:
For the first time since 1987, US farmland values declined, when comparing 2009 with 2008. Cropland values went down in states from IA through the eastern Cornbelt, but rose in the Northern Plains. Despite the overall drop in land values, cash rental rates climbed slightly.
Posted by Stu Ellis at 12:49 AM | Comments (2) | Permalink
August 4, 2009
US Farmers Are Feeding The World, But Why Does Hunger Remain?
Years of supply-management agriculture gave way to the Freedom to Farm and FAIR policies prior to the past decade. US farm policy was in high gear to produce for the market, with the hope that international markets would be open and full of hungry people. The hungry people are there all right, but markets apparently are having some problems, well beyond the current global economic challenges. And those systemic problems have impeded the goals of many US farmers to feed that hungry world.
The thriving economies of India and China, both considered to be in the “developing” world, were major engines that drove grain and commodity prices higher in 2007 and 2008. But while their GDP’s were growing at 8% and 10%, there were problems with many other developing nations where food just wasn’t getting to the population. So what are the answers? USDA economists have completed rather extensive studies that seem to have a connection, although it is not a direct quid pro quo or tit for tat. And that connection seems to draw the issue of hungry folks to a problem with currency exchange.
Food security is today’s formal name for hunger, and USDA’s assessment is that more than 800 million people in 70 developing nations suffer from increased food insecurity. That is up 11% from 2007. Although prices of food have declined, there are growing deficits, higher inflation and other issues that prevent them from getting a minimum of 2,100 calories per day. The recent 33% decline in food prices was seen as positive for this group, many of which is dependent on imported food and imported food ingredients. For example, those nations where per capita income averaged less than $750 per year, the dependence on commercial grain imports nearly tripled between 1990 and 2007.
The current economic crisis is deepening the problems for those nations. One thought is their reduction export earnings and the cut in import capacity will result in a decline in food consumption. A second thought is that food security decline further when there is a cut in capital inflows along with the reduced growth in export earnings. Even in the long term, when the developed world climbs out of the current economic morass, the hungry population in the developing nations will remain flat through the next decade. USDA economists say these nations have few safety nets in place for the population, and international programs are inadequate.
As the USDA was projecting continued hunger problems for developing nations, other USDA economists were looking at the problems of price food in the markets of the developing countries because of exchange rate volatility. Most Cornbelt farmers watching the 2008 rise in grain prices knew one of the contributing factors was the lower value of the dollar that made it easier for foreign nations to buy US commodities. But when those commodities are distributed to interior markets in other nations, merchandisers have difficulty putting a price tag on a bushel of corn, beans, or wheat because of the exchange rates. USDA economists describe the problem by saying, “If the exchange rate change were fully transmitted, importers would pay 50 percent less for commodities purchased from the exporter, all other things equal. However, the exchange rate change might not be fully transmitted because the exporters might exercise market power to increase their markups in response to the exchange rate depreciation.”
The USDA study of the exchange rates says about one-fourth of US agricultural production was sold abroad in the past 15 years, one of the goals of 1990’s farm policy changes. But that volume could have been larger, USDA says, were it not for the systemic economic problem with translating exchange rates from international shipments to retail quantities. USDA says many developing countries liberalized their agricultural policies to accept more imported food products following the 1994 Uruguay Round of trade talks, but the process broke down in trying to get food to the actual market place.
Government policies are one of the reasons for the system to break down, such as the variable levies imposed by the European Union which became trade quotas. Another barricade are the state trading agencies, such as the Canadian and Australian Wheat Boards and others around the world. Tariffs are more transparent and add a percentage of the price which flows down to the consumer, without impeding the process.
So what is the impact of the problem posed by the exchange rate issue? Looking at the recent spike in commodity prices, the economists say, “The price surge likely affected developing countries asymmetrically, in that their food consumers were hit hard, with little offsetting advantage of higher prices to farmers.”
Summary:
World agricultural trade policies have improved, but not to the extent that hunger issues are declining. Food security remains a problem in 70 countries, and one possible reason is a systemic problem with adjusting food prices from exporters to retailers when those prices have been subject to exchange rate complexities.
Posted by Stu Ellis at 12:50 AM | Comments (0) | Permalink
August 3, 2009
How Will You Be Impacted If A Carbon Tax Is Imposed To Reduce Greenhouse Gas Emissions?
Climate change legislation was approved in the U.S. House of Representatives last month and the Senate will consider similar legislation when Members return after Labor Day. The contentious debate saw most agricultural organizations in opposition because of higher costs that farmers would have to pay, versus the uncertainty of any real financial benefits from carbon sequestration payments. But until the latter is calculated, what is the real cost?
The sources of agricultural costs and benefits are known, so Iowa State economist Bruce Babcock says those can be calculated, even before the final language for the legislation is approved. In his article in the summer issue of the Iowa Ag Review, Babcock says the effects of higher costs for fuel, electricity, fertilizer, and pesticides will determine the change in net farm income. If farmers are limited on how much greenhouse gases can be emitted from their operation that will have a cost as well. Such a cap on other industries may provide the opportunity for farmers to sell emission credits. An alternative is a carbon tax, which would be paid by companies that cannot reduce their consumption, but would encourage others to reduce their consumption of fuels that emit greenhouse gases.
Agriculture contributes 6.7% of the total greenhouse gases emitted by the US, but the legislation so far does not penalize agriculture. However, higher energy prices would be felt in the form of higher production costs. Babcock looks at an Iowa corn and soybean farm, which produces the following statistics:
• Four gallons of diesel fuel per acre used to cultivate, plant, and harvest crops.
• 60 lbs of N, 50 lbs of P, and 65 lbs of K per acre across two crops.
• Propane is used to dry corn.
One gallon of diesel fuel emits over 10 kilograms of carbon dioxide, and if a $20 per ton tax is applied on carbon dioxide emissions as proposed, that would result in an additional 80¢ per gallon of diesel fuel.
Since natural gas is the primary feedstock for fertilizer, its carbon dioxide emissions must be calculated per pound of fertilizer. Babcock says it totals about 0.14 tons of carbon dioxide per acre across corn and soybeans, and at the $20 per ton tax rate, that would amount to $2.85 per acre in additional fertilizer costs.
To dry corn from 19% moisture to 15%, it requires 0.088 gallons of propane, and with a 180 bushel yield, 15.84 gallons of propane would be required per acre of corn. The propane emits 5.525 kilograms of carbon dioxide per gallon, and at the $20 per ton tax rate, the cost of drying corn would increase by $1.75 per acre. Or $0.87 per acre for both corn and beans, assuming beans do not require drying.
The total would be $4.52 per acre for a corn and soybean farm, and if the combined cost of corn and soybean production averages $300 per acre, the increased costs of a carbon tax would be 3.3%. Babcock’s colleague John Lawrence at Iowa State says livestock farms would be impacted as well, since the cost of fuel, repairs, and utilities add 5% to hog confinement costs. A 20% increase in that cost sector would add 1% to the cost of producing hogs.
On the benefit side of the ledger, Babcock says the adoption of no-till farming allows 0.4 tons of soil carbon to be retained in one acre of soil, and based on the $20 carbon tax, that would increase income potential by $8 per acre. Tree planting sequesters two to nine tons of carbon dioxide per acre per year, which would yield $40 to $180 per acre per year. However Babcock says Cornbelt land would be closer to $80 per acre, and that requires a halt to crop production in favor of tree planting. The benefits to livestock producers would come if there is an investment in manure digesters, which would capture greenhouse gases with an income rate of $100 per cow per year.
Babcock says the negative impact of a cap and trade policy on agriculture will be relatively small, but if production costs around the world rise, then so will commodity prices, which would compensate farmers for higher costs.
Summary:
Under a carbon tax program to reduce carbon dioxide emissions, agriculture’s consumption of fuel and fertilizers will result in higher production costs for corn and soybean production, estimated at $4.52 per acre or a 3.3% increase in average production costs. Livestock costs would be higher by 1% on hog confinement operations. Beef and dairy operations which install digesters, could recapture $100 per cow per year savings because of the various proposals for reducing greenhouse gases.
Posted by Stu Ellis at 12:47 AM | Comments (0) | Permalink
