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Friday, December 26, 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.

USDA will continue to cut corn usage projections for ethanol expects Mike Woolverton at Kansas St., even after a 300 mil. bu. drop in December. He says ethanol prices are abysmal, and with $30 oil and refineries locked into high corn price contracts, he says the industry will continue to struggle and expects USDA in Jan. to forecast slower growth.

The corn market may be keyed to wheat supplies says Kansas State’s Woolverton. He says there is a lot of low quality feed wheat in the world displacing corn for livestock feeding and wheat prices are down to $3 in Russia which is pressuring the wheat market. He says wheat is in abundance, but not the quality that is needed for milling flour.

Woolverton’s crystal ball says 2009 markets will be stronger than current demand, but not as high as seen earlier in 2008. He’s expecting corn to reach $4.00 to $4.25, beans to reach $9.00 to $10.50, and wheat to reach $6.00 to $7.50, IF there are no further economic shocks, abnormal weather, or military conflicts, and the economy improves.

Market prices are well above loan rates, but if the end of the calendar year is bringing a cash crunch for a rental or loan payment, your friends at the FSA office remind you that the FSA marketing loan is a source of cash that can be tapped. You will not likely be forfeiting your grain to satisfy the FSA loan, but it is low interest cash flow. For a refresher on using it, read more here.

Santa Claus lives at 14th and Independence Ave. USDA says the ACRE program will use market prices from 2007 and 2008 for its two year average price computation. That means higher price guarantees in the ACRE program than if 2006 and 2007 prices had been used. ACRE is an option to the FSA direct and counter-cyclical payment programs.

Residents of counties receiving presidential disaster declarations as a result of the June 2008 flooding may be eligible for several federal tax depreciation deductions. A full list of the Emergency Economic Stabilization Act benefits can be found at: .

The Economic Stimulus Act provides an additional 50% depreciation for qualified property put into service during 2008. Among the possible uses is replacement of a grain bin lost to the flooding, substantial damage to a farm building, damage to a rental home, or purchase of a combine from outside the disaster area to replace a damaged combine.

Additional qualifiers for the Economic Stimulus Act tax benefit include: equipment and machinery, breeding or dairy livestock, and machine sheds or shops, says economist George Patrick at Purdue. He says if you traded in equipment, both the tax basis on the old piece, as well as the additional cash that’s paid qualify for the 50% additional first-year depreciation.
Read more here.

The section 179 expensing limit which was raised to $250,000 can apply to both new or used property in the 15 year or less class, says Purdue’s George Patrick, that that includes dairy and breeding livestock, machinery and equipment, land improvements such as tile drainage, and single-purpose farm buildings. General purpose buildings are ineligible.

Income averaging may be one of your biggest tax friends this year, says Patrick. It takes the unused tax brackets from 2005, 2006, and 2007 and taxes part or all of the farm income for 2008 based on the prior three years’ rates. He says this may not work for all.

George Patrick says strive for a consistent annual income. If your income is lower than expected, look at selling commodities and postponing additional purchases until next year. If your 2008 income is higher than expected, consider prepaying expenses and putting off additional sales or at least arrange it as a deferred payment until 2009.

Purdue’s Patrick warns farmers not to get so wrapped up in trying to reduce the amount of tax you owe, but to focus on the basic economics of it. He also noted that the highest marginal income the tax rate is 35%, which means you will pay at least 65% of the cost of a tax deductible expense. And he encourages farmers to work with a tax professional.

Nitrogen prices tripled over the past 2 years, but collapsed in September and approach the 2006 lows says NE fertility specialist Gary Hergert. He says ethanol demand has dropped, softening corn demand, but a late harvest, high prices, and wet soils limited fall application to about 50% of normal and that has created an excess US and world supply.

Your nitrogen supplier has not dropped prices due to an excess of high priced inventory that has to move out first. Hergert says, “Many are not pricing until January. Barge traffic up the Mississippi is closed for winter, storage is full, and there are tanker ships sitting off Tampa full of ammonia that is being offered for less than $200/T, but there are no buyers and no place to move it.” Read more here.

DAP prices have also fallen says Hergert at Nebraska. Wholesale prices that were above $1200/ton, are now about $400, but he says, “There is too much excess supply for production cuts to affect prices in the short term.” Hergert anticipates fertilizer prices to fluctuate in 2009, and may be higher than 2008, but with some bargains materializing.

Livestock operators working on budgets for the coming year can obtain quarterly planning prices provided by Iowa State’s John Lawrence. The prices, which he says should not be used for price projections, are provided for the budgeting process. Find them here.

Lower grain prices will help the pork industry says MO livestock economist Glenn Grimes, who says if the weak economy does not weaken pork demand too much, 2009 should see breakeven to profitable prices for the average cost pork producer. He says retail prices are up 1.4% for Jan.-Nov., benefiting all segments of the pork industry.

Retail beef prices have declined slightly, says MO livestock economist Ron Plain, but he says prices were 3.8% higher for the first 11 months of the year compared to 2007. Plain says fed cattle prices were up 1%, packer margins up 14%, and retailer margins up 6%.

Beef exports are trying to keep up with pork exports. For the first 10 months of the year, US beef exports were up 35% and imports were down 22% compared to 2007. For the first 10 months, beef exports were 7% of US production and imports equaled 9%.

Your wish list for next Christmas might include a number of new genetics being developed by life sciences companies and analyzed by university researchers:
1) Monsanto is double stacking glyphosate with a second herbicide, such as dicamba.
2) DuPont is combining Roundup and sulfonylurea (Basis, Steadfast) crop tolerance
3) Dow is combining glyphosate, Liberty, and 2, 4-D crop tolerance.
4) Corn is being developed with 2 genes for root feeding insects and 2 genes for leaf feeding insects, which will reduce the EPA size requirements for refuge acreage.

Do you apply foliar corn fungicides regardless of identifiable need? Ohio St. specialists report, “Fungicide trials conducted by university researchers across the Corn Belt had similar results (to theirs). Depending on the fungicide, average yield differences between treated and non-treated were between -1.2 and 4 bu/A when foliar disease severity was less than 5% and between 1.6 and 10 bu/A when severity was greater than 5%.”

“Blending wall” is what Purdue ethanol specialist Wally Tyner calls it, and says it is a barrier to the growth of ethanol, which could cause ethanol production to level off in 2010. We are consuming 140 bil. gal. of gasoline, but the maximum 10% blend means a limit to ethanol consumption of about 12 bil. gal. He says we’ll be there by 2010.

Purdue’s Tyner says there are several factors preventing the industry from breaking through the blending wall: 1) too few vehicles capable of using blends exceeding 10%, 2) there are only 1,700 pumps capable of dispensing E-85 or 85% ethanol blends, 3) summer environmental restrictions because of ethanol’s evaporative emissions, 4) lack of ethanol to be shipped by pipeline because of its corrosive nature and water absorption.

To rise above the 12 bil. gal. ceiling, Tyner says the blending wall has to be eliminated, corn prices have to disconnect from oil prices, and oil prices have to rise. He says even with $160 oil, corn will never rise above $6 because you can’t blend any more ethanol.

Organic producers should mark their calendar for Jan. 21-22 for the Midwest Organic Conference and trade show in Indianapolis. Seminar topics include fertility, weed control, marketing, feed processing, and organic production tips for various livestock species. Get more information and register.

As you reflect on this season of giving, aware that your own blessings outnumber your tribulations, please know that a grateful world stands just outside your farm gate, needing to be fed, fueled, and clothed. While its members sometimes seem unappreciative, they depend on the Cornbelt farmer for their sustenance. Thank you, from one who knows.

Posted by Stu Ellis on 12/26 at 05:38 AM | Permalink


Stu, Your information here is excellent and always a benefit because you bring us the best ideas from other leading educators in addition to the U of I. We do not work in a vacuum and the ideas from others probably challenge our professors to achieve more than if they were our only source. Thanks for your closing reflection on the rest of the world needing our ag production and for all the work you do to write this blog. John Croft PS - Merry Christmas and best wishes for a healthy and successful 2009 for you and your family.

Posted by: John Croft at December 27, 2008 10:10AM

A lot of timely and useful information all in one place. Thank you for assembling this. We need to keep working on ways to make sure every Producer knows this site is here! Thanks, Bob! Extension Update is published here every Friday, and is available also in an e-mail newsletter. You would be welcome to request an electronic copy that could be forwarded to your list of friends, clients, etc. ~Stu

Posted by: Bob Rasmus at January 6, 2009 8:08AM

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