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Sunday, November 18, 2012

Cornbelt Update



  • Corn prices.  Corn futures continue to fade, although there was a positive bounce on Friday with the announcement of continued support for corn-based ethanol from the EPA.  However, shrinking demand from exports and fewer cattle to feed have softened demand.  A wildcard in the corn market will be the potential closure of the Mississippi River to barge traffic due to low water.  Ironically, corn market analysts are saying there are legitimate arguments for $4 corn and $9 corn.  That will push many marketing plans to the options market, so brush up on your put and call strategies. There will undoubtedly be continued volatility, and with the expected demand for options, premiums may become higher priced than historically expect. In the past week, inspections for export shipment were 9.4 mil. bu., which puts the marketing year 42% behind 2011.  Export sales for the past week were 4 mil. bu. for the old crop and 8 mil. for the new crop.  Domestically, feed demand for corn took a hit on Friday when the Cattle on Feed Report indicated the lowest number of feedlot placements for October since the numbers were first reported in 1996.  That is three successive months of low numbers, indicating lower feed demand.  However, on Friday the Environmental Protection Agency underpinned the corn market and announced that it would reject numerous requests to reduce the Renewable Fuels Standard, which prescribes the amount of corn that can be converted to ethanol.  A reverse decision could have sent the corn market tumbling further and faster. The market’s continued focus on South American crop production expansion is already a damper to higher prices, as global buyers plan to obtain corn from South American ports after the first of the year.  
    1) Dec 12 corn closed at $7.27, up 5.75¢ for the day and down 11.75¢ for the week.
    2) Dec 13 corn closed at $6.0875, up 2¢ for the day and down 21¢ for the week. 
  • Soybean prices.  The soybean market continues to fade as well, and the worst possible outcome is that importers are cancelling previous purchases at higher prices and replacing them with purchases at the current lower prices.  They still fill their needs and it reduces US soybean stocks, but it certainly deteriorates the value of a bushel of soybeans.  Other bearish factors affecting beans include the increased production reported in the last Supply and Demand Report, as well as the reports of improved planting progress in South America.  But as US farmers learned in 2012 there is a lot of time between planting and harvest for negative dynamics to occur.  The market continues to ignore the diminishing supply, and allowed prices to continue to slide with a 64 mil. bu. export week, and another 20 mil. bu. sold for shipment in coming weeks. Shipments are now 38% ahead of 2011.  Foreign demand and the domestic crush seem to be consuming the supply faster than what can be sustained through the end of next August.  However, economists are projecting good crops in South America this winter and in the US next year quickly could push soybeans below the long term $11 per bu. average.   
  • 1) Jan 13 beans closed at $13.8325, down 18.75¢ for the day and down 68¢ for the week.
    2) Nov 13 beans closed at $12.625 down 8.25¢ for the day and down 57.25¢ for the week.
  • Wheat prices.  Wheat prices continue to decline, expectedly along with lower export numbers, but unexpectedly along with crop production ratings.  Shipments inspected for export totaled 10 mil. bu., some 13% less than last year, and export sales for future shipment were 11 mil. bu. for the old crop and none for the new crop. But the new crop is not in the best of shape. Kansas, which produces more wheat than any other state only has a 33% good to excellent rating. Also declining in quality are Oklahoma at 13% down 8% and Texas at 30%.  Dry soil is the reason for the continued declines in quality, but the May through October period was the driest in 118 years across the wheat states of KS, NE, & OK.   Winter wheat planting nationally is 95% complete and emergence is 79%, which are very near their five-year averages. South Dakota is behind normal for emergence with 43% compared to the five year average of 97% and Montana is only 63% planted with average of 90%.      
    1) Dec 12 wheat closed at $8.38, down 7.5¢ for the day and down 48.5¢ for the week
    2) Jul 13 wheat closed at $8.4575, down 8.75¢ for the day and down 42.75¢ for the week.
  • Regarding the markets, this will be a holiday-shortened week.  The CME will be closed on Thursday, as will all or nearly all elevators.  On Friday, Nov. 23, Chicago pit traders will also have the day off, but the CME’s electronic trading will occur from 9:30 CST to Noon CST.
  • On Thursday, the CME Group announced alternative provisions for grain delivery, should barge locations not be accessible for use due to low water levels and the resulting closure of a portion of the Mississippi.  The CME said it doubts that would happen but said sellers would be responsible for added costs of delivery. That has a significant impact on spread positions, and has already impacted the basis.  The Gulf basis has been climbing as exporters try to obtain corn for shipment.  The Midwest basis is described at all time highs for November as shippers try to get corn down the river before a potential closure.  The coming winter months will not contribute much water to the river system and the Army Corps of Engineers is planning to reduce the flow from the Missouri River into the Mississippi for conservation purposes.
  • The EPA on Friday denied numerous requests to roll back the Renewable Fuels Standard which were filed to reduce the amount of corn needed for the required production of ethanol.  EPA said, “The Agency recognizes that this year’s drought has created significant hardships in many sectors of the economy, however, the agency’s extensive analysis makes clear that Congressional requirements for a waiver have not been met and that waiving the RFS would have little, if any, impact on ethanol demand over the time period analyzed.”
  • #1 Yea.  National Corn Growers President Pam Johnson said, “The National Corn Growers Association supports the Environmental Protection Agency’s decision to deny the Renewable Fuel Standard waiver request.  We believe Administrator Jackson appropriately recognized petitioners did not properly prove severe nationwide economic harm had occurred thereby creating no justification for a waiver of the RFS.”
  • #2 Yea.  Renewable Fuels Association President Bob Dineen said, “The EPA made the right decision today.  We applaud the EPA for basing its decision on thoughtful analysis of the facts and not emotion or panic.  The RFS is working as designed.  The flexibility that is built into the RFS allows the marketplace to ration demand, not the government.  Indeed, the ethanol industry has responded to the market by reducing output by approximately 12%.  Other users of corn have responded to a lesser degree.  Maintaining the RFS is in the best interest of both U.S. agriculture and American consumers.  The RFS is resulting in greater energy independence and diversity, real job creation, lower gas prices, and a cleaner environment.”
  • #3 Yea.  National Farmers Union President Roger Johnson said, “We are pleased with EPA’s decision not to waive the Renewable Fuel Standard for this year. The RFS has helped reduce our dependence on foreign oil from 60 percent in 2005 to 45 percent today and currently supports almost 500,000 American jobs and generates $53 billion in economic activity each year. Furthermore, the existing structure of the RFS provides sufficient market flexibility in case of a drought or other market disruption.”
  • #4 Present. The American Farm Bureau did not issue a statement because its members were strongly divided between corn and livestock interests, but IL Farm Bureau President Phil Nelson said, “We support the EPA’s decision to not grant a waiver to the Renewable Fuels Standard. We realize it is a challenging time for livestock farmers dealing with high feed costs. We also believe this decision is in the best interests of the agriculture industry in providing feed stuff for livestock and a path forward for the renewable fuels market.
  • #5 Nay. A coalition of livestock groups said, “We are extremely frustrated and discouraged that EPA chose to ignore the clear economic argument from tens of thousands of family farmers and livestock and poultry producers that the food-to-fuel policy is causing and will cause severe harm to regions in which those farmers and producers operate.  How many more jobs and family farms have to be lost before we change this misguided policy and create a level playing field on the free market for the end users of corn?  It is now abundantly clear that this law is broken, and we will explore remedies to fix it.” The coalition is composed of livestock, dairy, poultry, feed, and meat promotion associations.
  • Feedlot placements for October were 2.18 mil. head, according to USDA’s Cattle on Feed report, down 13% compared to October 2011, and the lowest number since counting began in 1996. Marketings were 1.84 mil. head, 3% over 2011.  The total number of cattle and calves on feed for the US slaughter market was 11.3 mil., a 5% decline from Nov. 1, 2011.  TX & OK feedlots held less than 90% of the number of cattle compared to this time last year. OK placements were only 76% of 2011 and TX placements were 80% of 2011.
  • 230 agricultural organizations, ranging from the American Farm Bureau and high profile commodity groups, to the Bedminster Regional Land Conservancy and the East Quabbin Land Trust have sent a strong letter to House leadership on both sides of the aisle to pass a 5 year Farm Bill before the end of the year, saying, “any temporary extension would be a short-sighted, inadequate solution that would leave our constituencies crippled by uncertainty.
  • Despite the grass roots push the House leadership has not yet revealed what it will do with the lack of farm policy.  However, House Speaker John Boehner said in the past week that the lack of a Farm Bill will be resolved, but has not offered any details.  The current Senate and House Ag Committee five year bills could offer fiscal savings to address the “fiscal cliff,” but the bets are still on a one year extension, and let the new Congress write a new Farm Bill.
  • Among the bargaining chips being offered concern crop insurance premium payments.  Farmers would have a 5% increase in premium payments which Democrats would like to see, in return for only dropping the eligibility for food stamps to 135% of the poverty rate, since the Republicans want more cut.  Additionally, premiums would be charged for CAT coverage.
  • China is moving ahead with its farm program, designed to promote production.  China’s farm commodity support program is designed to increase corn production to the point of a 7% carryover. They plan to do that with a target price of $8.73 per bushel.  China also wants soybean production increased with a 15% carryover, and will pay over $20 per bushel.
  • If Russia has the money, it may be spending more of it for US agricultural commodities, if the Senate follows the House in repealing the Jackson-Vanick Act. That Cold War legislation prohibited normal US trade relations with Russia, but the House has voted 365-43 to repeal it.  House Ag Committee Chair Frank Lucas said, “We are pleased that our two countries will finally be trading on a level playing field. In FY2012, US agricultural exports to Russia exceeded $1.5 bil. This action will provide additional value and increased access into a growing market for our farmers and ranchers through lower tariffs and more certain trade rules."
  • Watch your mailbox for a USDA present.  NASS will mail out Ag Census forms in late December to collect data for the 2012 calendar year. Completed forms are due by February 4, 2013. After receiving a form, producers can fill out the Census online via a secure website, or fill out the form and mail it back. Respondents are guaranteed by law that their information will be kept confidential. Federal law requires every farmer and rancher, regardless of the size or type of operation, to participate in the Census. For Census purposes, a farm is any place from which $1,000 or more of agricultural products were produced and sold, or normally would have been sold, during the Census year.
  • The drought is easing says the National Climatic Data Center. “The Palmer Drought Index, whose data go back 113 years, is relied upon for drought comparisons before 2000. The October 2012 Palmer value of 49 percent in moderate to extreme drought is a decrease of about 3 percent compared to last month, and the percent area in severe to extreme drought decreased to about 34 percent.” Sandy provided moisture that helped the Cornbelt.
  • With the market watching South American planting, Cropspotters newsletter reports:
    1) Mato Grosso is 78% planted with soybeans and set to finish Nov. 29.
    2) Rio Grande do Sul is 12% planted, but planted area has increased 6% to 10.9 mil. acres.
    3) Parana is 70% planted.
    4) Argentina is 11% finished planting with its 48.7 mil. acres of soybeans.
    5) Heavy rain around Buenos Aires has already cut yields by 19% from last year.
    6) Argentine corn planting is only at 44% complete of the 8.4 mil. acre planted area.
    7) Rio Grande do Sul corn planted acreage has been cut 5.5% to 2.6 mil. acres.
    8) Parana corn planting is complete, with crop conditions at 94% good and 6% average.
    9) Mato Grosso is 45% finished with corn, and Minas Gerais is 30% finished with corn.
  • Are you producing Palmer amaranth? Even if you first noticed it this year, it may already be resistant to some of your herbicides.  It is moving northward (it likes warm climates.), and in southern climates it developed resistance to dinitroanilines, triazines, and PPO inhibitors and glyphosate.  NE weed specialists say using a herbicide with a soil residual such as atrazine, Balance Flexx, Callisto, Dual Magnum, Outlook, Prowl, Permit, Verdict, or Warrant at corn planting will help control early season emergency.  Following with a postemergent weed control with dicamba 2,4-D, glyphosate, Impact, or Laudis will help control late emergence.
  • For 7 consecutive quarters, pork exports have exceeded 20% of production, and despite a weak dollar to help the numbers.  MO livestock economists say it is a real plus for the industry to be diversified into so many markets.  China is one, but its imports are trending down. Retail prices are sideways, but consumers will have to pay more if pork can be profitable soon.
  • It warms my heart to see that folks of knowledge are recommending farmers adopt a scheme I pitched many years ago to create a “board of directors” for your farming operation.  The leadership of the Farm Business Farm Management Association in Illinois suggests the establishment of a board of advisors for you, the CEO.  They include: legal counsel, financial consultant/tax advisor, insurance agent, lender, agronomist, and others, i.e. veterinarian.
  • Farm Progress publications and the Farm Progress Show have been sold back to US ownership.  Owned for several years by an Australian publisher, they are becoming part of Penton Publications, which owns Farm Press, National Hog farmer, Corn & Soybean Digest, and many others outside of agriculture.  The selling price was about $80 mil. 

Cornbelt Update is a weekly publication by S2LS Ag Communications and Consulting.  Republication or distribution is prohibited without prior permission.  Subscription fee is $65 per year.  Address subscription requests to:  © 2012

Posted by Stu Ellis on 11/18 at 11:50 PM | Permalink

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