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Monday, June 25, 2012

Cornbelt Update


This edition of features the current issue of Cornbelt Update, a weekly Cornbelt digest of marketing, economic, agronomic, and management information. Subscriptions are available to this weekly publication. Subscription information follows the weekly summary of news.

Corn prices.  Unlike the weather, which has been constantly hot and dry, the market was both warm and cold this week in its concern about declining crop conditions and potentially diminishing supplies of corn and soybeans.  At the outset of the week, traders focused on weather that was adverse to pollination, and on Thursday that was old news and they moved on to bigger concerns, such as international financial issues.  During the week, Dec corn traveled 60¢ higher on production concerns, but the market softened, although it closed 48¢ higher.  Traders are increasing their calculations on declining yields and 1 bil. bu. less in production, which could push corn into an even supply-demand balance, and that means the same 800 mil. bu. left over in August 2013, as is expected in August 2012.  That potentially pushes global stocks down to a 53 day supply, the least since the drought year of 1973.  At that point livestock producers are forced to alternative feed sources, and there may be insufficient global wheat supplies to fill the gap.  Currently, the weather is forcing the market to play a high stakes game with increased volatility and rationing being the operative words in the next marketing year.  Foreign buyers have purchased 1.525 bil. bu. with 1.264 bil. shipped and 200 mil. of that to China.  Interestingly, Japan, which has been the largest single US corn customer for many years, is now using the least corn in its livestock rations and the most wheat in 20 years.  Although the old crop supplies are scarce, the performance of the July contract was a function of the options expiration last Friday and the delivery notice day next Friday.  Subsequently, values stayed near the $6 options strike price, pulling back from a $6.17 high.  And with traders rolling out of July contracts, prices softened.  While the next several weeks will determine the size of the crop, weather models have disagreed on where there will be moisture and if tropical storm Debbie might move through the Midwest.  Consequently, traders were unwilling to carry positions over the weekend given the weather, but they will be watching Monday’s crop conditions and Friday’s Stocks and Acreage reports.   
1) Jul 12 corn closed at $5.91, up 4.5¢ for the day and up 11.5¢ for the week.
2) Dec 12 corn closed at $5.54, up 4¢ for the day and up 48¢ for the week.

Soybean prices.  To be blunt, old crop soybean supplies are short, and the new crop will see diminished production, both in yield and in acreage.  With the problems of the South American crop, the US has to produce the typical 3 bil. bu. and make up the South American shortfall.  But yields are under pressure with drought fostering bloom abortion and jeopardizing pod fill and seed size.  Additionally, dry soils have prevented the planting of as many as 2 million acres of soybeans that would have been double-crop acres. New crop beans exploded out of the gate on Tuesday, gapping 6¢ higher and trading as much as 50¢ higher as traders expressed concern about a squeeze on soybeans before the Brazilian harvest next spring.  The next chance to fill the global soybean orders will not be until new-crop Brazilian supplies reach the market.  There are projections for a 15% increase in acreage, which will certainly put a ceiling on the soybean market after the October and November planting period.  That may be the reason that Brazilians have already sold nearly 30% of their production, which is highly unusual so early in the marketing year for South American production.  Keep tabs on the reports from newsletter, which are a regular feature of Cornbelt Update.  Export buyers have purchased 1.358 bil. bu., down 12% from last year, with shipments at 1.191 bil.  China has purchased 839 mil. bu. and taken delivery on 776 mil. old crop bushels. With hundreds of ships waiting to dock in South America, heavy rains, labor strikes and farmer strikes, many countries have turned to the US for relief and supplies. There is even speculation that Brazil is buying soybeans from Paraguay to fill its needs.  Fundamentals are positive, and now technicians have taken interest in soybeans.  A triple-top November chart formation with peaks at April 1 and May 1 and the current peak all at the $13.90 level implies the market will turn higher, and that has invited more money and open interest.  Continuing focus on the weather and the June 29 acreage and stocks reports will keep the market’s interest.   
1) Jul 12 beans closed at $14.425, up 4¢ for the day and up 66.5¢ for the week.
2) Nov 12 beans closed at $13.755, up 4.25¢ for the day and up 61.5¢ for the week.

Wheat prices.  Wheat prices are being pushed higher by two dynamics, one of them is the threats to the corn market and increased demand for wheat as a livestock feed, and the other is the growing concern about global weather that has threatened wheat crops in other world production regions.  Both old and new crop wheat rose more than 60¢ for the week.  Wheat is catching the attention of traders who see corn production could be losing more than 1 bil. bu. which will push prices higher and foster rationing of feed grains.  But any turn in the weather could cause both corn and wheat prices to quickly decline.  Wheat stocks are abundant, but increased feed demand by domestic and foreign livestock feeders will cut the surplus.  Weather concerns in China, Russia, and Australia have helped boost wheat prices, and Russia’s Deputy Minister of Agriculture says the new forecast on total grain production likely will be “considerably lower” than the existing 94 MMT projected previously.  USDA has cut its wheat forecast from 56 to 53 MMT, and Russia is currently at 50 MMT.  Moisture stress is the issue, and forecasters have indicated the prospect is dim for rain very soon in the Black Sea region. The technical marketing charts remain supportive for the wheat market to move higher also.   
1) Jul 12 wheat closed at $6.7325, up 11.5¢ for the day and up 43¢ for the week
2) Jul 13 wheat closed at $7.2975, down 2¢ for the day and up 9¢ for the week.

Closing prices will be closing prices, beginning Monday.  Friday was the final day on the Chicago Board of Trade in which the open outcry pits halted trade 1:15.  The parent organization CME Group has been given authority to extend the pit-trading until 2:00 p.m. Central time, which is when it’s Globex electronic trading platform halts for the day.  The two closing times and different prices had created questions of which was the real closing price.

While the drought impacts your revenue, keep in mind that your farm is not the only one.  The Drought Monitor indicates over 60% of the Cornbelt is abnormally dry, “The percentage area of Midwest states having short or very short topsoil moisture and poor to very poor condition pastures and rangeland jumped 10 to 20 points compared to the previous week.  According to June 17 reports from the USDA, more than two-thirds of the topsoil was short or very short in Illinois (70%), Arkansas (71%), Ohio (77%), Missouri (82%), and Indiana (85%), while a third or more of the pasture and rangeland was in poor or very poor condition in Illinois (33%), Indiana (41%), Missouri (47%), and Arkansas (56%).”

But, ironically, heavy rains drowned out crops in some areas of the upper Midwest and scattered in other parts of the Cornbelt.  The Midwest Climate Watch reported, “Heavier rains fell in the west with most locations topping 0.50” and some areas with 3.00” or more extending from western Iowa to southeast Minnesota. Southeast Minnesota had several stations topping 6.00” and a couple that topped 8.00” on June 14th. On that date, dozens of daily precipitation records were set from Missouri to west central Wisconsin. 

The warmest spring on record for Missouri, continues according to the records of climatologist Pat Guinan, “The lack of rain is reaching a dire point for drought-stricken areas. In May, preliminary data indicated Missouri only averaged 2.30 inches of rain, ranking it as the eighth driest on record since 1895 for what is typically the wettest month of the year.” 

Ohio reports the same, according to OH St. meteorologist Jim Noel.  He says, “Finally, spring 2012 will go down as the warmest in Ohio out of 118 years of records. It will go down as a little drier than normal, 30th driest out of 118. Our friends in Indiana experienced the 8th driest spring in 118 years.”  Noel says 50% of OH has below normal rainfall for June. He says in the coming week, there will be a cluster of storms, but rain locations will vary widely.

Indiana’s State Climatologist Dev Niyogi says, “Spotty rains can relieve the plant stress, but we will need sustained widespread rains to get the drought stress reduced. It would mean at least an inch or two of good rain over a wide region for a number of days.”  But Niyogi says the long term outlook is dry, “The outlook for July is for continued above-normal temperatures and below-normal precipitation. A return to more normal amounts of rain is possible in late July or early August.”  He says most of northern Indiana is in a severe drought.  An in Owensville, IN a drought-related community church prayer service was held Friday night.

If you are keeping track, the National Climatic Data Center reports that the month of May was the second warmest on record globally, at 1.19ºF above the 20th Century average, and the average temperature for the contiguous US during May was the second warmest on record at 3.3ºF above the 20th Century average of 64.3ºF. April had been the fifth warmest globally.

Critical moisture times for soybeans are at germination and seed development, says IA St. soybean specialist Andy Lenssen.  He says roots will continue to grow and search for water in dry soils, although vegetative growth is diminished or stopped.  He added, “Short-term, moderate drought stress during vegetative growth stages generally does not impact soybean yield. Conversely, longer-term severe drought stress can cause irreversible plant cell death causing low growth yield.”  But during reproduction, Lenssen says drought results in increased flower abortion, reduced pod production, reduced seeds per pod, and reduced seed size.

Drought also impacts nitrogen fixation in soybeans, says Andy Lenssen.  He says, “Nitrogen fixation can be severely limited or completely halted by even moderate drought stress. Once nitrogen fixation has been stopped, substantial precipitation and soil water accumulation is required to reinitiate the process. Compensatory reproductive growth rarely will occur in soybeans under moderate drought stress at reproductive growth phases.”

Is it a potassium problem, or a potassium uptake problem?  IL fertility specialist Fabian Fernandez says the edges of corn and bean leaves seem to yellow, but new growth is normal.  And while that is a sign of potassium deficiency, he says blame the poor growing conditions that have impeded uptake.  He says there is not an immediate cure, but to ensure that a potassium deficiency is not present in the soil with subsequent post-harvest soil sampling.

Given the drought or near-drought status of much of IN and the poor prospects for wide-spread rainfall in the near future, Purdue agronomist Bob Nielsen says the pending arrival of the critical pollination period for the IN corn crop is of concern to many corn growers right now. That concern is well-grounded because success or failure of the important flowering period for the corn crop greatly impacts the potential for yield at harvest. As my father used to say after nearly losing IL corn crops in 1953 and 1954, “It rains just before it is too late.” 

Bug battle #1.  Japanese beetles should be expected in the next couple weeks, with rescue treatment warranted in beans if defoliation levels reach 30% prior to bloom and 20% between bloom and pod fill.  Along both corn and bean fields, evaluate whether they are throughout the field or just along edges before applying rescue treatments.  In corn, the concern is silk clipping, since drought-stressed corn has difficulty producing silks faster than they are clipped.

Bug battle #2. Corn rootworm beetles are emerging a month ahead of schedule and are a danger to silk clipping and tassel damage.  But they will eat epidermal cells from leaves in corn until your silks and tassels have emerged.  The leaf damage will restrict photosynthetic activity.  While scouting for the adult beetles, look for lodged stalks or goose-necked plants that may have substantial root loss from the larvae.  If found in Bt corn, call your seed rep.

Bug battle #3. Two-spotted spider mites thrive in drought conditions because of the lack of rainfall to control populations, and a richer plant juice to expand populations.  The indicator of infestation is brown areas along field edges, where plant tissues have been damaged and photosynthesis has diminished.  A rescue treatment is recommended if the drought continues. 

Weed warning #1. Weed growth has slowed with lack of moisture, but will spurt after any rainfall. IL weed specialist Aaron Hager says rescout your field to determine how much weed growth has occurred and if the herbicide application rate should be adjusted accordingly.

Weed warning #2. Any precipitation could promote more germination of summer annuals and Hager suggests application of a post emergence herbicide to control existing summer annuals when possible, and not delay an application for more to germinate and emerge.

Weed warning #3. During dry conditions weeds will build a thicker cuticle or skin, which reduces water loss but also the waxy-like layer will protect from herbicide penetration.  Hager says some will penetrate during the driest of times, but it may not be enough to control them.

Weed warning #4. In adverse environmental conditions, such as they are, the full rates are recommended for foliar applied herbicides, says Hager.  But he says if weeds not controlled by the initial application, it may prove even more challenging with a second application.

Weed warning #5. You may have giant ragweed, waterhemp or marestail that are two feet taller than your soybeans and escaped spring tillage and initial burndown for one reason or another.  That includes insect tunneling in the stem to disable translocated herbicides.  Hager says it is time to teach the next generation how to use hoes and corn knives for weed control.

Total your machinery value, then divide that by your total acres.  What is your machinery value per acre?  Currently, it is about twice what it was in 2000 in both total machinery value and value per acre, according to a survey taken of IL farmers by economists looking at 5,500 farming operations.  They say the difference stems from higher machinery prices plus a farmer-friendly tax policy in the form of bonus depreciation and section 179 expensing.

The Animal Agriculture Alliance and the Humane Society of the US (HSUS) both have the Bank of America in common.  Consequently, when the BOA created a new VISA credit card honoring the HSUS with holders contributing money to it when purchases were made, the Animal Agriculture Alliance came unglued because it, too, used the Bank of America. The Alliance said it was reconsidering where it banks and urged its members to do the same.

When elephants fight, the vibrations are felt far away, and they may be felt by farmers when a court suit is fought between Pioneer and Monsanto.  Monsanto claims Pioneer is using its “seed chipping” technology that allows a genetic sample to be taken and the seed is still viable to plant for tests.  DuPont says Monsanto is just trying to limit competition.  The seed chipping technology was demonstrated by Monsanto at the Farm Progress Show in 2009.

EPA has approved E-15 use, but where is it?  Apparently the oil industry makes different gasoline to blend with E-10 than with E-15, and is only providing the former to gas stations.  So until the oil industry provides the proper blending stock, E-15 ethanol won’t be available.

Brazilian national corn production is projected to soar 18%, says the newsletter, which compares to the 17% forecast by USDA.  Domestic consumption will climb 4% from last year, and exports are expected to increase by 16%.  The balance of the crop will be stored, increasing the carryover by 73%.  Some of the exports may hit southern US ports.

The Senate has tossed the Farm Bill to the House.  With a 64-35 bi-partisan vote, the Senate approved the proposal of the Senate Ag Committee after considering 73 amendments.  Several of the floor amendments approved will impact crop insurance and the safety net:
1) Cut premium subsidies by 15% for those with adjusted gross income above $750,000.
2) Require conservation compliance in order to receive subsidized crop insurance premiums.
3) Limit market loan gains and loan deficiency payments to under $75,000.

The House GOP Leadership was not impressed by headlines from the Senate that its Farm Bill cuts $23 billion from the 10-year budget baseline and received bi-partisan support.  In fact House leaders want more than $30 billion cut, but most of those cuts sought by the House Budget Committee are from USDA nutrition programs, which were not cut in the Senate.  Even if those cuts do not come out of the Ag Committee, many Congressmen unfriendly to various facets of agriculture and USDA spending will zealously attempt to amend the proposal. 

The House and Senate versions of the Farm Bill could end up with a lot of differences, not only in cost, but in philosophies, and all of those will have to be sorted out by a conference committee to be appointed from the members of the two agriculture committees.  They will take up that challenge, possibly as late as after Labor Day, if the House vote is delayed.  If the different bills reflect the impact of amendments, Sen. Tom Harkin of Iowa says the outcome can be predicted by how the committee members themselves voted on the amendments.

Thirty years ago a novice, non-farm reporter asked me, “What is the cost of the Farm Bill?”  Cost was no concern then, and it was never reported.  Now, cost is the major concern as the Farm Bill will be taken up by the House Ag Committee on July 11 to assemble its proposal to the full House.  However, when the full House of Representatives will act is uncertain.

EPA Airlines was left grounded with two failed amendments.  Sen. Barbara Boxer (D-CA) proposed an amendment to authorize the EPA to use pilotless drones to monitor agricultural operations, but that was turned down.  Subsequently, Sen. Mike Johanns (R-NE) proposed an amendment to prohibit EPA from using drones to monitor livestock operations.  Being neither authorized nor prohibited from using drone aircraft, what will EPA plan to do?

Cornbelt Update is a weekly publication by S2LS Ag Communications and Consulting. Subscription fee is $65 per year.  Hundreds of subscribers receive this e-mail newsletter every weekend filled with important information usable on their operation.  Agribusinesses also use special branded editions of Cornbelt Update for clientele and prospective customers.  Address subscription requests to:   Cornbelt Update © 2012

Posted by Stu Ellis on 06/25 at 12:40 AM | Permalink

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