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Friday, December 18, 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.

USDA’s adjustments to corn supply and demand this week left the carryout for the marketing year where it began, at 1.675 bil. bu. That stemmed from a drop in corn exports, but IL marketing specialist Darrel Good says for the USDA export projection to be met, corn exports will have to maintain an average of 30 mil. bu. per week through Aug. 2010. He expects corn price strength from on-going harvest delays.

USDA’s adjustments to soybean supply and demand this week lowered the carryout to 255 mil. bu. because of the strength of business from China. But Darrel Good says China may soon stop buying US beans and switch to South America where the harvest is forecast at 1.1 bil. bu. more than 2009, all with the help of good weather and more acres. Read more.

Mark your calendar for January 12, when USDA will be issuing its final report on the 2009 corn and soybean crop. That same day, USDA will also release its estimates of the grain stocks on December 1 and its estimates of the winter wheat seedings. Until those reports are made, Good expects price influences from energy and financial markets.

Corn futures suggest the market will pay about 5¢ per month for storage says Jim Hilker at Mich. St., but he says that is for farm storage and not for commercial storage. He wonders if July at $4.30-4.40 is a good level to price some corn, especially if the market doesn't break through these resistant levels by or just after the Jan. 12 report.

Soybean futures continue upward says Hilker, and he adds, “Consider setting some pricing targets for soybeans, both above and below where we are. I don't like to fight an uptrend, but the market could drop sharply if the South American crop "grows". Read Jim Hilker’s periodic newsletter.

Soybean stocks-to-use ratio is 8%, according to Hilker, almost double that of last year, and he says prices are holding up really well given the 255 mil. carryout, “The fact the world (largely China) is hungry for soybeans has tempered the projected large South American crop, and that may well continue until we actually know more about what size the South American crop will actually turn out to be.”

Hilker says wheat stocks-to-use ratio is in the 43% range, the highest in this decade, and that explains low prices. He says don’t run up big commercial storage bills.

Roller coaster prices could level out as the economy recovers says Purdue economist Chris Hurt. He says crop prices increased from 2006 to summer of 2008, but production costs were not on the same track and so strong margins gave way to slim profits as input costs caught up. Hurt is looking at better news for the 2010 crop year.

Costs for fertilizers and fuels have moderated for 2010, says Hurt, and, “We’re back fairly close to equilibrium on the price of grains and the cost of production. Producers can expect better prospects for recovering costs and having reasonable crop returns.” Hurt says recovery is going to be fairly slow, but he is quick to warn against over optimism, “Since a recession means our economic activity dropped, recovery simply means we’re starting from a low level. It does not mean we are back to business as usual.”

Precision agriculture can lead to higher yield and profitability. IA farmer Clay Mitchell outlined his concepts to a MO agronomy conference, and noted several successes:
1) Controlling field traffic creates soil qualities yielding 30% above his county average.
2) Deep residue cover allows soil to mimic a forest floor protected from direct rainfall,
3) Water infiltration reaches 4 in. per hour, compared to 0.2 in. in neighboring fields.
4) GPS guided tractors exert 40% less effort driving on compacted lanes in the field.
5) Maps showing single row yield indicated an 83 bu. yield difference from a mistake.

Financial troubles in the pork industry will eventually hurt the consumer thinks MN ag economist Brian Buhr, who says a disorderly and extreme liquidation of pork operations could cause a 30% increase in retail pork prices. He says the $31 per head loss and the unending red ink make this the longest period of losses in modern pork history.

July 2010 could bring some degree of recovery for pork producers according to Buhr, who called for public policy responses to help pork producers in the short term:
1) Federal loan guarantees for pork producers who securing funding from local lenders.
2) Financial mediation for pork producers and training of professionals to help mediate.
3) Expand educational programs in marketing and business planning for pork producers.
4) Federal purchases of pork for school lunch programs and community food banks.

Demand was down for both live cattle by 8.2% and live hogs by 5% for the January to October period, however consumer demands were mixed for the same period. Livestock economists Glenn Grimes and Ron Plain say pork demand is up 2.6%, turkey is up 3.6%, beef demand is down 2.8% and broiler demand is down 3.4% for the past 10 months. They also say live hog demand is down because of smaller pork export demand.

If a cowboy is going to make money, Utah St. economist Dillon Feuz says there are only two ways. His December newsletter says:
1) The direction of the market must be up during the period of retained ownership.
2) The cost per pound of gain must be cheaper outside the feedlot than inside it.

Beef demand has several dynamics underway which deserve industry attention, according to the OSU beef newsletter.
1) Steakhouses are losing business: Ruth’s Chris -24%, Morton’s -16.8%.
2) 11 bil. burgers are served annually, 70% of customers want “high quality” beef.
3) 50% of hamburger customers want size variety: from mini-burgers to behemoths.

If you had white mold and SDS in your soybeans this year that was one more indication that 2009 was an extraordinary year. Iowa St. plant pathologist X. B. Yang says those two pathogens just don’t show up at the same time, and he said the 2009 frequency of both was “alarming,” but you should expect the problem to increase.

If white mold and SDS were both on your farm, you have a problem trying to eradicate one disease through cultural practices because it only serves to enhance the other.
1) No-tillage practices reduce white mold risk, but they increase sudden death syndrome (SDS) risk; and conversely tillage reduces SDS risk but increases white mold risk.
2) A corn-soybean rotation which lowers white mold risk would increase the survival of SDS, especially for a corn-corn-soybean rotation.

So what do you do to cure the problem? X. B. Yang, the specialist, says “I have found no clear solution for this problem.” He says if you have the two, prioritize them according to your farm conditions, despite the fact that both can severely cut yields. He urges farmers to start with resistant varieties of soybeans, and, “We need to stop the build-up of inoculum levels of these two diseases to prevent the same field outbreaks.”

If you are undecided about soybean varieties, WI agronomists Shawn Conley and Paul Esker have several ideas for decision making, particularly with the $30 - $70 price range:
1) To make the best variety decision today, collect yield data from several sources.
2) Compare yields from a wide range of locations and environments.
3) Choose seed with your needed disease resistance/tolerance characteristics.

El Nino finally became official on Wednesday when the 90-day Southern Oscillation Index (SOI) reached a required threshold level. Iowa St. meteorologist Elwynn Taylor says, “Expect January to March to be on the dry side of usual in the valley of the Ohio River and the temperature to average a bit above usual across the Corn Belt. For next summer, (there is) no estimate as most researchers feel the event will be short lived.”

What concerns you? OSU specialists asked that question of commercial farmers, who said 65% were concerned about the cost of health insurance, 61% about the cost of farm inputs, 58% about the cost of farmland, and 44% about farm income and about markets.

A similar survey was taken of rural residents, and 40% were concerned about the cost of health insurance, 40% were concerned about the cost of farmland, 29% about new housing developments nearby, 27% about county land-use policies, 21% about weather. Read the report.

Baby boomers are moving to rural areas to set up housekeeping according to NE rural sociologists, who say there are 83 million of them in the 45 to 63 age range, and where they reside will have major social and economic implications for the country. Read the newsletter.
1) Empty nesters want leisure, recreation, and a generally slower pace of life.
2) Many have an affinity for scenic locations with topography, water, and culture.
3) Many had parents or relatives from farms, and they retain a rural emotional tie.

Posted by Stu Ellis on 12/18 at 01:53 AM | Permalink

Comments

I would like to know the Price of Pork on the Hook in NSW. Troy: Challenging question. The first person with the answer either in $US or $A gets a free subscription to Farmgate. ~Stu

Posted by: Troy at December 18, 2009 2:02AM

As I have talked about, locally, on WDWS Radio (Champaign) and Nationally on RFD-TV's "This Week in AgriBusiness," a developing El Nino was indicated as early as last Spring and has steadily intensified through the Autumn season. A trademark of El Nino's in the warmer season is a trend towards cool/cold, wet patterns. Yes, a progressively milder, drier set-up northwest to southeast would be expected as El Nino builds to a "moderate" category.

Posted by: Greg Soulje at December 19, 2009 7:07PM

Not sure what NSW is; carcus and primal value can be found at: http://www.ams.usda.gov/mnreports/lsddhps.pdf Freeport: I assumed NSW was New South Wales. ~Stu

Posted by: Freeport, IL at December 20, 2009 10:10AM

It is going to be about currencies not production The “talk” is US exports to China is going to decline because of the “big” crop in South America. That large production may result in lower prices but currency relationship, transportation cost and basis levels will determine where China will import, if they import any more at all. There is a three way currency relationship that occurs when China looks to import (assuming the world trades soybeans based upon the dollar based futures at CME group). This study looks at the price changes in the March 2010 CME group soybean contract from March of this year (one year prior to expected South American trade activity this marketing year) and this past week. Value of Soybeans per bushel in local currency xxDate US Dollars Argentine Peso Brazilian Real Mar-09 x $8.20xxxxxx 29.32xxxxxxxx 19.52 Dec-09 $10.20xxxxxxx 38.76xxxxxxxx 18.16 For a relative feel of Change, values shown as $ Mar-09xx $8.20xxxxxx $8.20xxxxxxxxx $8.20 Dec-09x $10.20xxxxx $10.77xxxxxxxxx $7.63 Cost to China in Yuan Mar-09xx 56.32xxxxxx 56.30xxxxxxxxx 54.21 Dec-09xx 69.67xxxxxx 69.49xxxxxxxxx 69.83 For a relative feel of Change, values shown as $ Mar-09x $8.20xxxxxx $8.20xxxxxxxxx $7.89 Dec-09x $10.14xxxxx $10.12xxxxxxxx $10.17 These calculations are only looking at the future and currency relationship. (There may be errors in the calculations; any corrections are more than welcome.) Brazilian and Argentine basis levels are unknown to us. USDA’s resent report indicated the US has a transportation cost advantage over Brazil when looking at soybeans going to China. The currency relationship has resulted in US bean prices to China to be on par with Brazil and Argentina (excluding transportation and basis cost). The Argentine growers have seen an increase in soybean values in their currency as compared to earlier this year (March). The higher production and price may make them willing sellers. The question becomes whether they have their port issues (dock worker strikes) resolved. The Brazilians may be looking at a larger production but the value of soybeans per bushel in their currency has declined. Each additional million metric tons of soybeans exported reduces ending stocks by 36 million bushels.

Posted by: Freeport, IL at December 20, 2009 6:06PM

Mentally Swimming Einstein’s theory of Relativity is no less confusing than currency transactions. The process of studying either one of them, leaves the mind’s gray matter swimming in a light headed, euphoric state. This feeling results in the desire to take a nap or head to the cabinet for a strong belt. A concern for the correct interpretation of the current US’s Chinese currency relationship and soybean imports maybe wise given this state of mind, even without the snort. The yuan, the Chinese currency, has appreciated about 0.5% against the US dollar since the first of March of this year. The Chinese, it is said, has a policy of “tying” their currency to the US dollar. A stable yuan-dollar relationship allows them more predictable exports to the US. Many central banks have challenged the policy as trade distorting. (China may have some longer term internal issues with this policy should their currency value relative to the rest of the world not match their economic activities. The understanding of that topic would require another mental dip; this brain could not handle that right now.) The argument for discontinuing this practice relates to the differences in the economic activities of each country; China is growing and the US is not. Should China be concerned about this pressure, it maybe in China’s best interest to promote economic activity in the US. Economic activities here, that more closely matched their own, could help justify their currency matching. So, for now, the declining dollar means a declining yuan and visa versa. When China wants to import soybeans from Brazil, the relationship between the yuan and real (Brazilian currency) becomes important. The yuan has declined almost 28% against the real since the first of March. The dollar - real relationship also comes into play, assuming the world trades soybeans on the dollar based CME price. The dollar has declined a little over 25% versus the real since the first of March. (The differences in the rate of decline might be explained as the Brazilians have a mild preference for dollars over yuan. Maybe they already have more yuan around than dollars or maybe they would rather purchase high tech good from the US in dollar than Chinese goods in yuan.) This widening spread between the yuan - real and the dollar - real has resulted in a soybean price to China going from an almost 4% advantage for the Brazilian crop to a push with the US soybeans. (To our advantage, Brazil did not have beans to sell in March; a short crop, so China came here.) Transportation cost or basis issues have not been included here. It is interesting to note, USDA’s Agricultural Marketing Service in their December 3, 2009 weekly report noted that the US had an advantage in landed cost to China over Brazil. (http://www.ams.usda.gov/AMSv1.0/getfile?dDocName=STELPRDC5081257&acct=graintransrpt) For a couple day period, Gulf bids for March soybeans (about two weeks ago) matched the nearby at some locations; a possible indication of "bigger" export activity. The size of the “big” Brazilian soybean crop may mean less to the Chinese importers than the yuan, real and dollar currency relationship; outside of the price they pay (big crop / low price). (With their currency tied to the dollar, a declining/appreciationof the dollar may have minimum direct impact on their decision.) The managers of this “outside” money live and breathe these currency relationships. Do they know something we don’t? Will the three way currency spread continue to widen to our advantage? Does China have a willingness to stimulate US economic activity? Did the increase in March gulf basis hint at “bigger” export business? Will US soybeans maintain a transport cost advantage over Brazilian beans? Is that the brain swimming again? Brazil will ship soybeans; just don’t be surprised if the US gets some more as well. Time will tell where and if China imports her soybeans this spring and summer. A late lunch may be best served at the tavern. Jib aka Gibberish Ps The yuan appreciated faster against the Argentine peso (Yeah this currency is weaker than the dollar) than the US dollar, March to now. The three way relationship of currencies resulted in a push in soybean prices to China for both time periods. -This comment is resubmitted from Thursday afternoon. Freeport, IL may have sent a commit on same topic. Sorry for any confusion.

Posted by: Jib at December 21, 2009 1:01AM

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