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Friday, November 14, 2008

Extension Update


Extension 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.

Monday’s USDA crop report for Nov. was a minor adjustment pushing the corn crop 13 mil. bu. higher compared to Oct. estimates. Ethanol use of corn was raised 26 mil. bu., while feed use dropped 25 mil. bu. Exports will be 50 mil. bu. less, down to 1.9 bil., which is 536 mil. bu. less than 2007 exports. Ending stocks rose a bit to 1.124 bil. bu.

The Nov. crop report pushed soybean production down by 17 mil. bu. and USDA cut the domestic crush estimate by 15 mil. bu., leaving ending stocks and exports unchanged. USDA adjusted state average yields slightly, pushing IN up 2 bu., IL up 1 bu., and cutting 1 bu. in MN and NE, 2 bu. in ND, OH, and WI, and 3 bu. in SD.

Until the final report is released in Jan., IL Extension’s Darrel Good says prices will be a function of So. American production prospects, the pace of consumption, and the impact on overall demand by the financial, currency, and energy markets. He says they must recover “to fuel a meaningful post-harvest recovery of crop prices.” Read his newsletter.

There will be low stocks-to-use ratios for corn and beans in the coming year observes Chad Hart at Iowa State. He says corn ending stocks will put the ratio at 9%, well below the 15.2% average of the past 16 years, and the soybean stocks-to-use ratio will be 7%, which Chad Hart says is also below the 16 year average of 10.8% for soybeans. Read more.

To help your marketing plan, Hart says both corn and beans have price strength going into next summer. The Dec to July carry in the corn market is 42 cents, and the Nov to July carry in the bean market is 37 cents. However, he says commercial storage costs and interest will consume about all of the carry and expected basis improvement. As a result, Hart says paper ownership of the crop looks more attractive than physical ownership.

Despite the cut in bean production, Mike Woolverton at Kansas State expects USDA to cut more in Jan. He says that will be bullish, given the potential for Brazilian soybean production estimates to also be reduced. Woolverton says farmers there are curtailing some planting because of the difficulty in getting credit to buy soybean crop inputs. Read more.

Woolverton also takes note of ocean freight rates, which indicates weak global demand and says they have fallen to record low levels. He says tight credit could be part of the problem since exporters may have had trouble borrowing money to buy grain and ship it abroad, as well as some reluctance to accept letters of credit from overseas banks.

Tight grain stocks will support prices, says Extension’s Alan May at South Dakota State, who says, “If demand does not fall off significantly between now and the growing season next year supplies will remain tight until harvest of 2009. These more traditional supply and demand factors still should provide a foundation for buyers and sellers even though potential price rallies and price declines could be as pronounced as the price movement in the last year.” Read more.

Alan May agrees with his colleagues that prices will eventually be driven by market fundamentals, “Once buyers and sellers begin to take a harder look at market fundamentals, it seems apparent that they should realize that current price levels do not necessarily reflect how strong those supply and demand fundamentals really are. If this would be the case, then one might expect a bidding war for acres to begin for the 2009 cropping year.” He says it will take time to shore up the US and global economy.

In the meantime, Alan May says farmers will find conflicting crop budgets and marketing plans, “In addition, while the cost of inputs such as fuel and fertilizer has fallen, land values/rents along with other costs may not keep pace with the current decline in corn prices. This means that it may be more difficult to evaluate breakeven and profitability due to the more pronounced volatility in input costs and corn prices.”

Cash lease provisions were loosened in the 2008 Farm Bill says MN ag economist Gary Hachfeld. Previously, direct payments had to be split between operator and landowner, but he says the County FSA committee has the authority to review a lease and payments will not have to be split, if the committee determines the flexible lease is a cash lease.

Hachfeld says, a flexible lease under the 2002 Farm Bill that allowed base rents to be adjusted up or down by yield or price, required the direct payments to be shared because it was determined to be a shared lease. He says the 2008 Farm Bill eliminates that requirement, if the FSA committee considers it to be a “reasonable” base rent being paid.

If you are budgeting, check out the Nebraska Extension retail price list of herbicides for 2009 along with the comparative price from 2008. About the only herbicides without a higher price are the ones just now being introduced. See the list.

Diesel fuel prices should be lower each month for the next year, compared to that month a year earlier. That is the estimation of Kansas St. economist Kevin Dhuyvetter, based on crude oil futures. You’ll pay 11 to 18% less through February, then beginning with spring tillage season, diesel prices will range 28% to 40% less than 2008 price levels.

Corn quality is different this year because of the growing season, says grain quality specialist Charles Hurburgh at Iowa State, and he says breakage will increase, with a subsequent increase in the amount of BCFM. Hurburgh says discounts usually begin at 5% BCFM for #2 corn, and it has not been a major issue in recent years. However, he expects many elevators to be checking for BCFM this year due to breakage susceptibility.

The increased potential for BCFM also raises another nasty issue, and Hurburgh says that is increased chances for mold that produce fumonisin, vomitoxin, and other toxins. Farmers pulling cores out of bins to improve quality, speed drying, and lower mold potential can usually sell BCFM for 50%-75% of the price of corn. Hurburgh says it can be used by ethanol plants, but farmers should not be surprised at thorough mold testing.

Ethanol plants have seen their economics reverse, and now the DDGS co-product may help many of them keep their bottom line in the black, says Purdue swine specialist Scott Radcliffe. But he quickly adds the fact that DDGS nutritional content is different from plant to plant. He suggests future ethanol plant profitability may be keyed upon customizing DDGS for individual livestock species, since they are digested differently.

Corn drydown rates can vary widely, depending on hybrid, but also nitrogen deficiency and drought conditions can be blamed, say Ohio State specialists. They also blame premature plant death, stalk rots, and severe stalk lodging for grain moisture variation. Find more drydown information.

Winter weather should be close to normal, says Ohio State meteorologist Jim Noel. He looked back at his records for winters with minimum sunspot activity and neutral La Nina and El Nino conditions and found that temperatures will be close to normal, and trends for precipitation are near normal for the northern Cornbelt and transitioning to below normal in the southern part of the Cornbelt. Here are temperature and precipitation maps.

Farmgate milk prices have dropped 20% in the past 2 months and IL Extension dairy specialist Mike Hutjens anticipates another $2 drop in futures prices in 2009, because of the economic downturn. He says higher feed costs are contributing to a shift from 2007 profitability to a $2.25 loss for every 100 lbs of milk produced in 2008. Hutjens says consumers have not seen any reduction in prices for milk or other dairy products.

Hutjens suggests some cost cutting: Look at by-product feeds to lower feed costs, along with forage quality and supply. Dairy managers need to maintain high milk production which favors efficiency and profitability. Avoid making economically bad decisions such as pulling out minerals and purchased feeds from the herd's diet or feeding less.

The swine breeding herd for both the US and Canada is down 3.7% compared to October 2007 levels, with Canada alone down 8.3%, says MO livestock economist Glenn Grimes. He says, “A good start, but with productivity growth, it is not nearly enough decline to get production in line with demand and profitably for producers.”

Regarding exchange rates, he says, “The current rate shows 8% strength in the US dollar compared to the Canadian dollar. This is not good news for US hog producers. (Southbound hog numbers increase.) However, the Japanese yen has strengthened 5% in the last month compared to the US dollar. This is good news for pork exports to Japan.”

Posted by Stu Ellis on 11/14 at 01:51 AM | Permalink

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