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Friday, February 27, 2009

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.

Is the convergence issue solved? IL Extension’s Darrel Good says it was a problem in 2007 & 2008 when futures and cash prices would not come together at delivery markets. He says the basis is currently strong and March futures appear to be converging. Read his newsletter.

Good says the year over year change in convergence has been dramatic for soybeans, and corn seems to be back on track. He attributes the strong basis levels this year to:
1) Lower price levels reducing the cost of owning, hauling, and storing crops.
2) A rapid pace of soybean exports while farmers held grain declining in value.
3) Improved profits for grain merchandisers, as the financial pressure of buying and storing high-priced crops and meeting margin calls on short hedge positions has subsided.

For unpriced soybeans, Good says the old crop basis is stronger, but there is little to gain in storing until July. With interest at 4¢ per month, he says storage costs will not be covered. Good suggests any market speculation should be done with futures or basis contracts, but the economy and the South American crop make that a stretch.

For unpriced corn, Good says there is more carry in the market and a return to storage. But farmers are holding corn and if 2009 acreage is high the basis will weaken. The new crop basis remains weak, discouraging new crop sales. With prices below the crop insurance guarantee, aggressive pricing of new crop corn and beans is discouraged.

There are bullish fundamentals in the grain market, but Kansas State’s Mike Woolverton says they continued to be overshadowed by other economic reports. He says the greatest uncertainty is the demand, because the global economic squeeze is forcing consumers to change food consumption patterns, including eating less pork and beef. Read more.

Woolverton says the ills can be cured with “stabilization of the global financial situation, resumption of speculative investment in commodities, a return to economic growth that will give consumers more money to spend, and a return to the food consumption patterns developed in the years before the economic difficulties. But he says, when that will occur is very difficult to determine, and history is of no help.

Farmers with corn near ethanol plants may be able to benefit from those with a positive basis, says Michigan St. specialist Jim Hilker. He says deliver now and use a basis contract or a call option if you want to stay in the market. Hilker says, “In some parts of the country, ethanol plants are offering subsidized calls, check it out.”

The market expects higher soybean yields, says Hilker; “But it is also saying we will plant quite a few more soybean acres. Given the variable costs of corn versus soybeans, if your search around pretty hard to get the deals, the relative prices and yields, and the results suggest corn will have a higher return per acre, but just by a little. And this will vary as the market’s opinion of what acres will be planted changes with new information and the relative prices fluctuate.” Read more.

Regarding wheat, Hilker says, “The market doesn't want your wheat, and doesn't want to pay you to store it. While new crop bids are higher than old crop, it is not by enough to store it commercially. With respect to new crop, just wait on any forward pricing.” He says the wheat market has disapproved of the CBOT’s additional delivery points and increased storage rates, since convergence of cash and futures has still not happened.

Jim Hilker’s analysis of ethanol reports, “When wholesale gas prices were near their peak of $3.60, wholesale ethanol prices were up to 70 cents lower, but still pulled corn prices to record levels. As gas prices fell to near present levels in early October, ethanol prices climbed over gas prices tempering the corn price drop. Corn/ethanol now appears to again be moving with oil/gas prices, but at near the 45 cents blender credit above gas.”

Biofuel profits may depend on the quality of your pond scum in the future. Algae will be a credible source of biomass to produce biodiesel and ethanol says IL ag engineer Lance Schideman, who gets 45-75 gal. of biodiesel and 300-500 gal. of ethanol per acre of algae. He says under the right conditions, the future may produce 10,000 gal. per acre.

Algae can be processed with thermo-chemical conversion. TCC speeds up the process that squeezed swamps and dinosaurs into oil deposits and what the ag engineers have used to convert hog manure into crude oil. Schideman says algae can be produced on wastewater, and it will grow on nutrients that would otherwise wash from a watershed.

Concerns are being expressed about the lack of infrastructure for timely application of fertilizer that should have been applied last fall, but due to the season, delayed it to this spring. Will there be enough toolbars, nurse tanks, and floaters available to cover the required acreage? If not, side-dressing nitrogen may be the most efficient alternative.

Make your fertilizer dollar go as far as possible by calculating your economic return to nitrogen. You can pencil it out using nitrogen prices versus the price of corn forward contracted, or consult Iowa State University's nitrogen website.

Iowa topsoil is as deep as ever, but it is deteriorating in quality. Iowa St. researchers went to 89 locations evaluated in the 1950’s to assess changes, and found the soil tightly packed and less capable of allowing water and air to move through it. They compared the soil particles to a cupful of dice, when it should be a cupful of marbles as it was 50 years ago. The reason for the change was attributed to tillage making it more dense.

Indiana farmers are being advised by spray specialists about a growing suburban practice that could become an issue for farmers with sprayers. That is the potential for spray to hit non-target vegetation. In addition to crops like vegetables, grapes and greenhouses, a new structure is a high tunnel, which is used to cultivate crops outdoors as early as February. That means plants will be growing in them when burndown chemicals are applied and any spray drifting over to housing developments will be a liability suit. It probably could apply to farmers in any state.

The Cattle on Feed report indicated a 6% drop in head from a year ago, but placements were up 4%, and lightweight calves going on feed were up 8%. That was attributed to calves being pulled off wheat pasture early because of the lack of moisture for wheat.

2008 pork exports were 49% higher than in 2007, and consumed over 16% of production. MO livestock economist Glenn Grimes says exports to China were up 140%, Japan up 15%, South Korea up 12%, Russia up 76%, and Taiwan was up 71%. But USDA believes pork exports in 2009 will be down 15% compared to 2008.

Domestic pork profitability depends on the size of the herd, and Glenn Grimes says current farrowing intentions are down only 3.4%, with April-June down only 2.6%. He says with increases in litter size and a weak consumer demand, more reduction is needed.

2008 beef exports were up nearly 32% compared to 2007 and imports were down 17%, says Grimes. Mexico imported 11% more, Japan was up 45%, Canada up 15%, South Korea up 95% and Taiwan was up 21%. USDA believes 2009 beef exports will drop.

If you want to save on fuel, follow some recommendations from Kansas State:
1) Avoid unnecessary driving and handle the task with a phone call, not a trip.
2) Match the vehicle to the task, and take the car to get parts and not the pick up.
3) Clean the junk out of a vehicle, which adds weight and decreases fuel mileage.
4) Maintain engines, since clogged filters and injectors rob power and efficiency.
5) Check tire pressure since under or over inflation increases rolling resistance.
6) Reduce tillage, since fewer tractor passes through a field means less fuel use.
7) Match the tractor to the task, and not use a field tractor for a utility tractor’s job.
8) Check tractor ballast, since tires will slip and use more fuel than necessary.
9) Gear up and throttle back, since ¾ power saves 5-15% fuel use over full throttle.
10) Avoid engine idling, since unnecessary idling accounts for 15-20% of fuel use.
11) Paint fuel tanks white, since dark ones heat up and can vent out evaporated fuel.

It may seem like an oxymoron, but if you want to add value to corn stover, shred the stalks instead of chopping them. Purdue ag engineer Dennis Buckmaster says shredded stalks need 40% less energy to convert into ethanol, than do chopped stalks. Shredding increases the surface area of the biomass and then produces 11% more cellulose products.

The $787 billion stimulus package will not have a check in the mail for agriculture says NE economist Tina Barrett, but employees receiving paychecks will get an extra $400 from an adjustment in their withholding spread out through the year. Farmers unable to obtain the benefit because of the lack of a paycheck or through quarterly estimates, will receive a $400 credit when paying 2009 income taxes, according to Barrett.

Posted by Stu Ellis on 02/27 at 01:33 AM | Permalink

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