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Friday, December 12, 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.

A slowdown in exports and ethanol production has resulted in USDA raising its carryover estimates for the 2008 corn crop from 1.124 bil. bu. in Nov. to 1.474 bil. The December Supply and Demand Report dropped corn consumption by ethanol plants from 4 bil. to 3.7 bil. bu. and shaved exports from 1.9 to 1.8 bil. bu. USDA raised its estimate for feed use by 50 mil. and shifted downward the average price range to $3.65 to $4.35.

The Supply and Demand Report was generally neutral for soybeans, holding ending stocks at 205 mil. bu. The only change was shifting 50 mil. bu. out of the domestic crush and into the export column. However, farm prices were dropped to $8.25 to $9.75. Also, USDA dropped soymeal prices $15 on both ends, and soy oil prices 6.5¢ on both ends. The complete USDA report is here.

USDA raised US wheat stocks by 20 mil. bu. because of higher imports and lower demand, and 20¢ was knocked off the average price, to make it $6.40 to $7. Globally, wheat production is up with higher production in Canada, Brazil, and EU-27. World consumption will be down reflecting lower US demand. Two-thirds of the global ending stocks are in North America. Rains have reduced wheat quality in Argentina and Brazil.

USDA’s corn estimates included an observation about ethanol. “Financial problems for ethanol producers are reducing plant capacity utilization for existing plants and delaying plant openings for those facilities still under construction. Falling gasoline prices have also resulted in high relative prices for ethanol, reducing blender incentives.”

Negative economic news is keeping grain prices under pressure, says IL Extension’s Darrel Good, who says corn prices are the lowest in more than 2 years and beans are at the lowest level in one and a half years. He says corn has received some price support from ethanol, which has only fallen 20¢ while gas has fallen 70¢ in the past 2 months. Read his newsletter.

The nearly 1.5 bil. bu. ending stocks for corn means a reduced demand for more acres next year. Good said about 4-5 mil. more acres of corn were needed, until the 2008 carryout was raised 350 mil. bu. Soybean stocks over 200 mil. would have meant a need for 1.5 to 2 mil. fewer soybean acres in 2009, says Good, and USDA kept it at 205 mil.

Wheat export demand is being lowered by the larger Russian crop, a stronger US dollar that make exports more expensive, and a lower export tax in Argentina that increases world competition. Soft red winter wheat acreage will be reported by the USDA in Jan. and a decline in production will mean a potential reduction in the large wheat inventory.

What if, rhetorically asks Alan May at South Dakota State, the bidding war for acres never gets started before you go to the field next spring? May says, this “may make for an interesting summer if the economy begins to show signs of recovery into the end of 2009 and if planted acres do not match potential changes/improvements in demand.” He says acreage may truly depend on cost versus expected returns of various crops.

After corn hit life of contract lows last week, VA Tech economist Mike Roberts says delay pricing any new crop, while end users price 20% of feed needs on any downside moves. Read more.

With prices looking for a bottom, how do you cover cash needs? Iowa State’s Steve Johnson says use the loan program at FSA for any farm stored grain, or use a basis contract for grain stored at the elevator. A basis contract locks in the basis, leaves open the futures portion of the price, and you finish the contract when futures prices rise.

Another alternative to raise cash is Johnson’s suggestion for a minimum price contract. He says lock in the best possible basis, and retain ownership with a May or June call option. Your premium cost can be subtracted from the net proceeds from the crop sales.

Your marketing plan should also consider the market will likely retrace 40% to 60% of the July to October downtrend on the futures charts. Johnson also says make incremental sales of 5% to 10% of your total bushels when the spring rally begins. And he says $7 corn and $14 beans are no longer realistic price targets if you missed them last summer.

If you are still negotiating cash rent for 2009, and a flexible cash lease remains on the table as an option, use the flexible cash lease calculator provided by Ohio State as a tool to factor in all of the revenue and expenses to come to a reasonable cash rental rate. ">Find it here.

Less expensive feed will significantly benefit pork producers in the coming year says Purdue ag economist Chris Hurt. Compared to $4.60 corn in 2008, 2009 corn should average $3.40. Soybean meal which was $330 per ton in 2008, should be around $250 in the coming year. He says cost of production should drop from $53 to $47/cwt.

Pork producers should take advantage of pricing opportunities says Purdue’s Chris Hurt. He says knowing price direction is difficult to determine, but he says using the futures market to buy corn for 2009 and sell lean hog futures provides profitability.

Visitors to salad bars are familiar with miniature ears of corn, but they are not desirable in a cornfield at harvest time. Known as “arrested ear development,” the curiosity may have been solved by Purdue agronomist Bob Nielsen. He was able to duplicate the miniature ears with foliar herbicides and spray additives 1-2 weeks before tasseling.

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

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