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Friday, September 11, 2009

Cornbelt Update—UPDATED With September Crop Report


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.

USDA raised the ante by projecting a 12.955 bil. bu. corn crop in its September Crop Report, helped by boosting the average yield from 159.5 bu. in the August report to 161.9 bu. per acre. That would be a record yield and 8 bu. above the 2008 crop. The larger crop prospects came from the western half of the Cornbelt, since a dry August held steady the yields in the eastern part of the Cornbelt.

The Supply-Demand report for corn projects 13.025 bil. in usage, nearly a billion more than last year, helped by higher feed use and higher export demand. Ending stocks were raised slightly and the season average price was tightened to a range of $3.05 to $3.65.

Estimated corn yields in Cornbelt states were: IL 179; IN 163; IA 187; KS 144; MI 146; MN 167; MO 151; NE 169; ND 120; OH 165; SD 147; WI 137.

Soybean production was pushed up to a record of 3.25 bil. bu., a 10% increase from 2008. The average yield was estimated at 42.3 bu. raised slightly with the help of higher yields in all states except IN. The 76.8 mil. acreage estimate was raised slightly from the June estimate.

The Supply-Demand report for soybeans forecasts a record 1.28 bil. bu. in exports because of strong shipments in late August. Increased biodiesel production and meal exports will also be positive, leaving the new crop carryout at 220 mil. bu. The season average price slid 30¢ to a range of $8.10 to $10.10.

Estimated soybean yields in Cornbelt states were: IL 44; IN 43; IA 52; KS 40; MI 38; MN 40; MO 42; NE 51; ND 30; OH 47; SD 39; WI 39.

Ahead of the USDA September Crop Report, the market was looking for:
1) The August estimate for corn was 12.761 bil. bu. from a 159.5 bu. yield.
2) Trade estimates range from 12.697 to 13.127 bil. bu., averaging 12.932 bil. bu.
3) The August estimate for beans was 3.199 bil. bu. from a 41.7 bu. yield.
4) Trade estimates range from 3.186 to 3.309 bil. bu. averaging 3.256 bil. bu.
5) The August estimate for corn carryout was 1.720 bil. bu. for the old crop.
6) Trade estimates range from 1.690 to 1.720 bil bu., averaging 1.712 bil. bu.
7) The August estimate for bean carryout was 110 mil. bu. for the old crop.
8) Trade estimates range from 80 to 110 mil bu., averaging 102 mil. bu.
9) The August estimate for corn carryout was 1.621 bil. bu. in August 2010.
10) Trade estimates range from 1.557 to 1.989 bil. bu. averaging 1.768 bil. bu.
11) The August estimate for bean carryout was 210 mil. bu. in August 2010.
12) Trade estimates range from 178 to 304 mil. bu., averaging 226 mil. bu.

Purdue marketing specialist Chris Hurt says it was “bold” for the USDA to project a 159.5 bu. national yield estimate in the August Crop Report, but he now thinks the national average yield may end up closer to 161.5 bu. per acre. Hurt says not everyone may agree, but he says moderate weather conditions may repeat the 2004 mammoth crop.

If the crop is that large, Hurt says there may be new contract low prices on corn, and that means vulnerability on the downside of prices. Hurt says the market is probably not thinking about a number quite that high at this point; but the economist expects the crop to continue to look good and even improve a little unless there is a frost. “We're likely to see good returns for corn storage -- depressed prices at harvest time and above normal price appreciation going into next spring and summer," he said.

Hurt is also bullish on soybean yields and with the crop rating at its highest in recent years, he thinks the prior record of 43 bu. per acre can be surpassed. “This means there is going to be a lot of soybeans, and prices are going to decrease to get end users to come in and buy more of this crop,” says Hurt. He says South American could add more beans to the supply and $9 beans out of the field this fall will drop under $9 next spring. “However, he said a lot will depend on world demand, the value of the dollar and the ultimate size of the US and South American crops.”

The September production estimate will change believes Mich. State’s Jim Hilker and he adds the market is liable to remain very volatile given remaining production concerns about the corn crop. He says the US corn yield could be anywhere from 8 bu. per acre higher than the August estimate to 159.5 bu. to 6 bu. per acre lower than that. Read more of Hilker’s August newsletter.

Hilker provides some advice on evaluating a decision on storing your corn. He says Dec. futures are 32¢ under July futures, meaning the market is offering 4.6¢ per month to store, which would cover on-farm costs plus interest, but not cover commercial storage.

Hilker says the basis also helps makes the storage decision. He says the expected improvement of the December to July basis would be 20¢, on top of the 32¢ futures carry in the market. That is a total of 52¢ which would more than cover storage costs for on-farm storage, but the market is questioning the 45¢ value of commercial storage.

To achieve that return to storage, Hilker says the grain must be sold either with a forward contract which locks in the price or use a hedge to arrive contract or a futures hedge. He says if you think the market will rise or you have to use commercial storage, use a basis contract. If you think the market will drop, use a hedge to arrive or forward contract for farm-stored corn, or sell any corn that would have to be sent to the elevator.

Production risks remain with the soybean crop also, says Hilker, but a storage decision is not as clear cut. He says there is only an 8¢ spread from November to July futures and storage costs more than 8¢. Hilker adds that the basis may tighten about 20¢ between harvest and June, so the return to storage would total 28¢. Since storage costs and interest are more, Hilker says the market will not pay for storing soybeans. For marketing he says use a basis contract if you think the market will rise, or sell at harvest if you think the market will fall. Regardless, there is no return to storage for beans.

Crop insurance indemnity payments are great, but will require tax planning say MN farm business specialists. For a physical crop loss, the payment can be deferred for taxes until next year, if you are a cash basis taxpayer and typically market your crop the following year from production. However, indemnity payments received because revenue declined must be reported in the year the payment was received. Read more.

Farmland values across the Chicago Federal Reserve District are down 3% compared to year ago levels, caused by drops of 5% in IA & MI, and drops of 2% in IL & WI. IN values were slightly stronger than year ago levels. Fed economist David Oppedahl says corn and bean prices have become a drag on land values, and he adds that plentiful supplies and softer demand will keep downward pressure on farmland values.

The Chicago Fed reports credit conditions “worsened” April through June, with a drop in repayment rates on non-real estate loans. The rate would have been flat were it not for the dairy impact of Wisconsin, where 55% of lenders reported lower repayment rates.

The financial outlook reported by economist Oppedahl was stark: “The tone of comments by (lenders) communicated deep concerns for agricultural producers, especially if livestock and dairy prices do not increase soon and losses continue to mount.” Read more.

The late August hailstorm which shredded crops in a swath 10 miles wide and 200 miles long across northern Iowa is being blamed for a deterioration of crop quality and potential toxic molds in corn. But Iowa State grain quality specialist Charles Hurburgh believes recent weather enhancing crop drydown will minimize the problems. But still:
1) Kernels bruised by hail will shrivel, be moldy, and pass out of the combine.
2) Undeveloped corn will have free sugars, and have test weights as low as 40 lbs.
3) Aflatoxin risk may have been averted, but feed corn should first be tested.
4) Stalk strength will be weak, and corn should be dried in small batches.
5) Expect discounts for moisture, damage, test weight, and foreign material.

How should damaged corn be handled? Hurburgh says carefully dry and store it.
1) Do not mix any leftover 2008 corn with the less moisture stable 2009 crop.
2) Grain must be cooled when stored, then cyclically lower temperature to 30º’s.
3) Remove bin center cores to eliminate trash, possibly twice in larger bins.
4) Move light corn to the market as soon as possible, and store heavier test weights.

“Train” your yield monitor by calibrating it against a weigh wagon or commercial scale so it will provide a reliable record of your yield, particularly if it is connected to a GPS unit. Purdue agronomist Bob Nielsen says the process reconciles the grain flow rate and the flow sensor signal strength to electronically estimate low, medium, and high yields. He says the owner’s manual may only suggest one load, but more may be needed to fine tune the accuracy. That additional effort is the reason many monitors are not calibrated. Read more.

Visitors at the Farm Progress Show saw one combine in a field demonstration leaving about 100 kernels of corn per square foot, but another combine leaving no grain on the ground. Proper setting of your combine will have a major impact on your revenue for the year. Iowa State ag engineer Mark Hanna has numerous recommendations about that.
1) Scout your field to look for new erosion gullies and determine stalk strength.
2) Fields with wetter corn will have a delayed harvest, but weak stalks may change that.
3) A 1 bu. per acre loss equals 2-4 kernels per square ft. or 1 ear per 1/100th acre.
4) Start with a low cylinder speed and raise it only to minimize threshing losses.
5) Start with wide concave clearance and reduce it to minimize threshing losses.

Wheat planting is approaching and OH agronomists say 2009 seed is larger and more pounds of seed will have to be used per acre to get enough plants for a good stand. That is 1.2 to 1.6 million seeds per acre in 7.5 in. rows immediately following the fly-free date. If planting more than 2 weeks after the fly free date use 1.6 to 2.0 million seeds per acre.

When wheat is planted on time, the seeding rate has little effect on yield, but if planting more than 30 seeds per foot of row, there is a tendency to increase lodging, and you are spending more money on seed than necessary. Plant at the drill’s calibrated speed.

Unexplained damage to ears of corn may be the result of flocks of birds says Purdue agronomist Bob Nielsen, who says ears will have missing or damaged kernels and husks may be shredded, which can give rise to ear molds and rots, and potential mycotoxins. He says they are attracted to a field because of either the hybrid or the stage of maturity.

Does purple or reddish corn have your curiosity aroused? Those are pigments associated with stresses in the plants that limit their ability to use the products of photosynthesis created during the day. The tendency toward the purple color varies with hybrids which may not have any genes or many genes that trigger the production of the pigment that will turn the plant reddish or purple. Purdue agronomist Bob Nielsen says the color is not a problem, but is an indication of problems with ear size or kernel set.

Cattle slaughter is down says Iowa St. economist Shane Ellis because of lower supplies and weaker demand. He says fewer cattle are being fed and the supply of cull cows is down. While beef cattle slaughter has been down, dairy cow slaughter has been up with little impact on the retail meat market because consumers are opting for hamburger.

The reduced slaughter is due to more timely rain through cattle country say MO economists Ron Plain and Glenn Grimes. They say lower domestic and foreign demand contributed to the weak demand, and they add, “We are likely to see stronger fed cattle prices seasonally but stay below a year earlier. However, prices higher than a year earlier for fed cattle are expected this winter due to smaller production.”

If you sell cull cows, doing so immediately after weaning may not be the best time, says MO livestock specialist David Hoffman. He says cull cow prices are the lowest in the early fall and winter and highest in the late winter and early spring. He recommends adding some weight to them if you have high quality fall forage. He says carcass grade can improve on younger cows and that may mean a $5-8 premium per hundredweight.

Hog slaughter has been consistent says Shane Ellis at Iowa State, who adds that is not good news for producers who need a break in hog prices. He says most price forecasters suggest the low prices will continue into the fourth quarter of the year with steady volume going to market. He says instead of cutting the breeding herd, the industry will need more demand or lower feed costs to return to profitability. Read more.

The average loss per hog from Oct. 2007 through July 2009 is $16.98 for independent pork producers, say MO economists Glenn Grimes and Ron Plain, who say that means a $3.6 billion loss for the pork industry, compared to $4.4 billion in 1998 and 1999. But they say the record will be set, because losses will continue for another 10-11 months.

But Grimes and Plain say not every producer has lost that much. They say the average loss was $6.10 per head for the 9% of hogs sold using the packer marketing formula that is based on the futures market. And they say total losses have been reduced for the 13% of hogs sold with purchase agreement contracts tied to feed prices.

While milk cow numbers are dropping, milk production per cow is increasing according to economist Robert Tigner of Nebraska. The dairy herd was 115,000 less in July of 2009 than in July of 2008, and 34,000 less than in June of 2009. However, milk production was up 0.1% or 34 mil. pounds, which shifted from low to high production.

Posted by Stu Ellis on 09/11 at 05:34 AM | Permalink

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