March 05, 2015

Soybeans + Numbers

Those listening to the markets every day know there is a big difference between the number of acres the trade thinks will be planted to soybeans and the number of acres USDA is so far projecting. These aren’t as far apart as you might think and there may even be some positive wiggle room in them.



The trade has long thought U.S. farmers will plant about 86 million acres of soybeans. USDA thinks they’ll plant 83 and half million. Because USDA is using a much bigger national average yield the total number of soybeans raised is only about 56 million bushels apart…both in the 3.8 billion bushel range. USDA thinks that means the cash price of soybeans paid to farmers next year will average about nine bucks. University of Illinois Ag Economist John Newton has a brighter outlook.

Quote Summary - The big picture supply and demand fundamentals for next year, with production increasing and supply building naturally points to lower prices. USDA has pegged the soybean marketing year average price at $9 per bushel. This is a dollar and twenty cents below this year’s projections under similar conditions. There is opportunity, then, for the price to come up from there.

This opportunity lies in the soybean export market which is already on pace to set a record for this year and projected by USDA to be even better next year.

Quote Summary - So where is the potential for prices. Well, USDA has lower planted acreage of soybeans, but a pretty high yield. If yield is closer to U of I’s calculated trend of 44.3 bushels to the acre going back to 1960, then there would be a lower total production of soybeans with strong consumption. Stocks could be reduced, however highly unlikely, and we could see positive price pressure.

Farmers will add their take on how many acres of soybeans will be planted in the Prospective Plantings report to be released March 31st. USDA is now surveying them.


March 04, 2015

Pork’s Boom & Bust Price Cycle

Markets can take your breath away and the hog market over the past year has left many breathless says one Purdue University ag economist



March 04, 2015

Estimated 2014 ARC County Payments

Farmers throughout the nation are deciding which of the new farm programs to take. Another piece of that puzzle was put into place when USDA released the county wide corn and soybean yields late last month. These can be used to estimate some of the 2014 farm program payments.



County wide yields as calculated by USDA's National Agricultural Statistics Service along with the estimated season's average cash price - the marketing year average - can be used to forward figure 2014 ARC County payments. It is possible therefore to know a lot, if not everything, about the first potential crop year farm program payments before any farmer ever signs up for the safety net says University of Illinois Ag Economist Gary Schnitkey.

ARC County makes payments to farmers when revenue falls below a bench mark. It is calculated using county wide yields and a marketing year average price. Both are available and can be used to make estimates. The Marketing Year Average price won't be finalized until the fall. It is projected, however, each month in USDA's World Agricultural Supply and Demand Estimates report (WASDE).

The mid-point for corn is $3.65, but this could vary up or down. Using the county yields, it is possible to project fairly large ARC County corn payments for farms from New York and Ohio through Indiana, northern Illinois, Michigan, Wisconsin, Minnesota, Iowa and into the Dakota's.

Some of these areas may even receive the maximum payment from ARC County.

Other areas may not get a 2014 ARC County payment for corn. These include central and southern Illinois, parts of Missouri, eastern Kansas and southern Indiana. Only a few counties around the nation will receive an ARC County soybean payment.

These are found in Iowa, Wisconsin, eastern Ohio, and New York. Does it change anything as it relates to the ARC County vs PLC farm program decision? Not likely, but the only way to really tell is to run the numbers. That can be done using the online Farm Bill Toolbox and USDA's APAS website.

You may read Gary Schnitkey's article about 2014 ARC County and PLC payments online.


Farm Bill Deadline
Todd E. Gleason
February 27, 2015

USDA Extends first Farm Bill Sign Up Deadline

USDA has extended the deadline to update base acres and yields under the new farm bill until March 31, 2015. The final ARC/PLC decision remains due on that same date.


February 20, 2015

2015 USDA Agricultural Outlook Forum

Last week the United States Department of Agriculture presented its view of the commodity markets. Todd Gleason has this review of the numbers.

Thursday USDA Acting Chief Economist Robert Johansson made a plenary session presentation on the current agricultural landscape. Interestingly, he set the tone by showing how commodity prices have been trending downward for more than 60 years.

 

The next slide in the set showed how Americans have steadily spent less on food over the past 9 decades. Nearly 25% of disposable income was used to purchase food in the 1930’s. This number has now dropped to about 10%.

The Acting Chief Economist took up commodity crops in detail. He explained global supplies of wheat, corn, and soybeans are plentiful. The planet will have more than 113 days of soybeans at the end of the marketing year. This is a record supply. However, demand for the miracle crop remains very strong with most of the world’s soybean exports going to China. These are primarily supplied by the United States, Brazil, and Argentina.

 

The U.S. is expected to be the planet’s largest exporter of soybeans for the 2015/16 marketing year, but Brazil should take that title for 2016/17 and beyond. USDA projects Brazil’s market share of soybean exports will grow to 46% by 2024 while the U.S.’ share is expected to fall to 33%.

The U.S. is expected to remain the world’s largest exporter of corn with its share of the global corn trade growing from 40% in 2015/16 to 45% over the next 10 years.

This year the Agricultural Outlook Forum projects U.S. farmers are likely to plant 89 million acres of corn and 83.5 million acres of soybeans. Analysts have rolled those numbers into their 2015/16 marketing year supply and demand tables. They could produce a 13.6 billion bushel corn crop and result in an ending stocks figure of about 1.7 billion bushels.

USDA’s planting estimate of 83.5 million acres for soybeans is low by comparison to the trade expectations. It might mean next year’s ending stocks figure would be about the same as this years. That is 385 million bushels.

USDA Acting Chief Economist Robert Johansson says the marketing year average cash price for fall 2015 corn is expected to be $3.50 per bushel. The MYA soybean price is forecast at $9 per bushel.

Winter wheat seeding was projected down 1.9 million acres from last year. USDA sees an increase in spring wheat seedings. This should offset some of the decline. All wheat seedings are expected to decline 1.3 million acres.

The number of acres sown to coarse grains like barley, oats and sorghum are expected to go up based on strong demand from China. Chinese demand has propped up sorghum prices and export demand for these feed grains.

 

USDA reports overall acreage at about 255 million, down 3.3 million from last year. CRP acreage is also expected to decline.

2015 USDA Agricultural Outlook Forum highlights follow;

  • Total meat and poultry production at 95 billion pounds in 2015 would be a record setter with pork and poultry making the greatest gains.
  • Farm equity (assets minus debt) on average is the highest since USDA began reporting on profitability in 1960.
  • Land values are expected to decline by less than 1% in 2015. However, it is important to note data from the Chicago Federal Reserve Bank indicates year-over-year declines of 7% for farmland values in Iowa.
  • China is expected to purchase 60% of the U.S. 2014 soybean exports. Its purchases of DDGs should reach 5 mmt and, as presented in the baseline projections last week, sorghum buying is expected to continue.

February 18, 2015

Yield Exclusion and Crop Insurance

When farmers go to their federal crop insurance agents in March they may have a new decision to make. The new Yield Exclusion option may allow some producers to increase their covered yields.



Yield Exclusion, or Y-E, will not be available in every county or on every covered crop. We’ll explain how the availability is triggered in a moment. It was created in conference on Capitol Hill as part of the 2014 farm bill. Consequently, says University of Illinois ag economist Bruce Sherrick, it is a little quirky, but really valuable.

Quote Summary - The Yield Exclusion is really important because it provides the ability to drop a yield out of the APH calculation based on conditions triggered by the county’s experience, or the experience of a contiguous county.

Here is how Y-E allows a producer to exclude a yield from their APH calculation. If the farm is in a county or contiguous to a county that had a prior year yield less than fifty percent of its prior ten year average then the farm is eligible for a yield to be dropped from the APH calculation.

 

see USDA RMA APH Commodity Maps website

The yield dropped is from the year the county experienced the fifty percent or greater decrease. Because the database used to calculate rates still contains the original ten years of data the rate yield does not change, but the coverage amount does change.

Quote Summary - This is primarily explained by RMA as a change in the effective coverage. Instead of picking 65, 70, 75, 80, or 85 percent coverage of a number, you are picking bushels and calculating what the implied coverage would have been. It is not a very complicated program if you think about it in those terms.

 


see USDA RMA APH YE Overview of Premium Rating pdf file

However, while most might see this as a way to increase APH and consequently the revenue guarantee, it can sometimes have a detrimental impact.

Quote Summary - You can lose part of trend by electing to exclude a yield. This could be really important. Especially as a farmer picks up new ground. Maybe this ground was in a unit structure that makes the APH history unavailable. Farmers want to be careful about the impact of dropping a yield to increase APH because it could lose trend on all yields in the database.

The decision can be changed, and or updated in future years. However, like other crop insurance decisions, previous year’s decisions remain in play until a change is requested.


February 16, 2015

U.S. Soybean Production Prospects for 2015

There are lot of soybeans in the world. Last fall U.S. farmers harvested a record crop, and their counterparts in South America are doing the same right now.

The South American soybean crop should be about 400 million bushels bigger than it was last year, some six billion bushels in total. More than a third of it should still be around, about 2.2 billion bushels, when U.S. farmers go to the field this fall. Add that number to what USDA expects will be left from the U.S. crop and you get about 2.6 billion bushels... before the combines roll in the United States. It is a big number and can't be good for price, but maybe it's not as bad as many think either says University of Illinois Ag Economist Darrel Good.

Soybean prices have remained relatively high in the face of such large U.S. and world soybean supplies, with the un-weighted average price received by U.S. producers during the first five months of the 2014-15 marketing year likely near $10.25 per bushel. However, prices have declined by $0.50 to $0.60 per bushel over the past month. Going forward the price of soybeans will be determined largely by the expected size of the 2015 U.S. soybean crop. The first milepost will be the number of acres planted. USDA will release an estimate March 31st. This past year U.S. farmers planted almost seven million more acres of soybeans than they did in 2013.Given the large increase in soybean acreage over the past three years, a more modest increase might be expected this year if crop prices remain near current levels.

Planted acreage near 85.5 million seems a reasonable expectation thinks Darrel Good.

Since the beginning of the "freedom to farm" era in 1996 says Darrel Good, planting intentions reported in March have provided an unbiased forecast of actual plantings. Over the 19 year period actual acreage exceeded intentions in 10 years and was less than intentions in nine years. On average, actual plantings exceeded intentions by just 98 thousand acres. However, the difference (some negative and some positive) exceeded a million acres in nine years, two million acres in 4 years, and three million acres once.

The June USDA Acreage report will provide a clearer picture of soybean acreage. Good says if U.S. farmers plant 85 and half million acres of soybeans, and if the harvested acres yield 45 bushels to the acre, then the United States would harvest 3.8 billion bushels of soybeans. That would be162 million bushels smaller than the 2014 crop, but probably lead to an over all supply of about 4.2 billion bushels or 120 million bushels more than this marketing year.

Compared with the current marketing year, expectations for the 2015-16 soybean marketing year include increased acreage, a further increase in year-ending stocks, and lower prices. The expected price decline is moderated by the likelihood that stocks at the end of the current marketing year will be about 90 million bushels less than projected last fall. That is equivalent to two million acres. Given all this, Darrel Good says prices are not expected to be as low as the CBO baseline projection of $8.19 or even the USDA baseline projection of $8.50. The futures market currently points to a marketing year average near $9.50 per bushel for new crop soybeans.


February 13, 2015

Farm Program Sign Up Deadlines

Time is running out for landowners and farmers to decide what to do about the new farm programs. They have until the end of February to make the first two decisions, and must make a final choice by March 31st. There are decision aids available on the University of Illinois FarmDocDaily website.


February 12, 2015

2015 Corn Balance Sheet

There are likely to be fewer corn acres planted this spring. It is clear farmers and landowners are concerned about the high cost of corn production and the consequence may very well be a drop in the number of acres sown to the crop.
 
     
 
Anecdotal evidence supports the drop, however University of Illinois Ag Economist Darrel Good says the factual evidence suggests it may be muted. This is because U.S. farmers have already reduced the number of acres planted to corn over the last two years by nearly seven million acres. Add to this the two million acre reduction in winter wheat seedings last fall, likely not to be sown to corn this spring, and you arrive at beginning point for acreage planted to corn. Darrel Good expects a 1.25 million acre reduction. This would project U.S. plantings at 89.3 million acres of corn, with 81.8 million of those harvested this fall.
 
USDA and the CBO both have lower planted acreage numbers than Darrel Good. USDA in its February 11th Long Term Projection set it at 88 million acres with a 167.2 bushel to the acre average. CBO is using 89 million acres and 165.8 bushel to the acre yield. There are really two ways to go about figuring yield states Good in his February 9, 2015 Weekly Outlook article posted to the FarmDocDaily website. Analysis of trend-yield and yield-under-normal-weather-conditions puts his projection lower than either USDA or CBO.
 
A yield expectation somewhere around 164 bushels to the acre seems reasonable says Good. This is seven bushels less than the record set in 2014. The combination of acreage and yield would produce a crop of 13.4 billion bushels and ultimately create a total supply of 15.3 billion including the carryover stocks.
 
This total is 170 million bushels less than the amount tallied for the current marketing year. Good expects more corn to be consumed next year, than this year... in an amount greater than the total harvest. This, he says, should lead to some small decline in stocks by the end of the marketing year in the fall of 2016. His numbers bump up corn used to make ethanol by 50 million bushels to 5.225 billion, put corn exports at 1.85 billion, and he says the feed and residual number will stay steady at 5.275 billion bushels.
 
Taken together these projections point to consumption of 13.76 billion bushels and year ending corn stocks of 1.54 billion. This is down 300 million bushels from the expected ending stocks for this year. It points to a marketing year average price from September 2015 to August 2016 in the low $4.00 range. This price is higher than most other analysts projections and is just slightly higher than the price currently reflected by the futures market.
 
Factually, Darrel Good's 2015 season's average price is 50 to 70 cents higher than most other analysts' price projections.

February 10, 2015

Blown Away by the Soybean Export Number

The price of soybeans has been dropping and many in the trade are very worried about the potential for futures to continue to move lower. However, the February WASDE numbers may suggest some strength remains.


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