October 15, 2015

Africa and Soybean Trials

The nations of Africa have struggled to feed themselves for decades. There are some places, like South Africa, that have successfully adapted some of world’s primary crops. Corn is a good example. Soybeans are also grown in Africa, but they’re not particularly high yielding varieties. Todd Gleason reports soybean breeders from three African institutions have been visiting the United States in hopes of making some improvements.



October 14, 2015

The Corn Crop is Unlikely to be Overestimated

After the Crop Production report was released last week some of the trade began to discuss the possibility USDA had overestimated the size of the U.S. corn crop. This is not very likely.


USDA’s October 9 Crop Production report forecast the 2015 corn crop at about 13.6 billion bushels. That was down 30 million bushels from September and 660 million bushels smaller than last year.

Commentary following the release of the report suggests some believe the corn crop is even smaller. One of the factors cited as evidence the crop may be smaller than forecast is the strong basis levels in many markets. This seems the make some sense. The argument is that a crop as large as forecast, particularly in the face of a rapid pace of harvest and a large soybean crop, would not support such a strong basis due to the resulting strong demand for storage space. That argument, however, is not completely supported by the current estimates of crop supplies thinks University of Illinois Agricultural Economist Darrel Good.

Basis levels are generally determined by the supply of storage space and an array of factors that determine the demand for storage capacity. Harvest-time basis levels at the point of producer delivery may be receiving some additional support this year from the recent expansion in grain storage capacity. The USDA’s December Grain Stocks report, for example, estimates that permanent storage capacity (on- and off- farm) increased by nearly 550 million bushels from December 1, 2012 to December 1, 2014. Additional capacity has been added in the past year. Basis levels at the farm may also be receiving support from the lack of widespread transportation delays and the increasing use of delayed pricing contracts. Both of these factors allow for more rapid movement of corn through the marketing channel. Darrel Good says the lack of widespread transportation issues may reflect, in part, the dominance of the domestic corn market relative to exports resulting in a larger portion of the crop moving by truck rather than by rail where delays are more common.

Basis levels are also influenced by the pace of corn consumption. A more rapid pace of consumption, all else equal, tends to strengthen basis in order to make storage less attractive. Domestic ethanol production in September and early October 2015 was nearly five percent larger than that of a year earlier, supporting the domestic demand for corn. Domestic feed demand for corn has also likely been supported by the four percent increase in the hog inventory this fall and the slightly larger number of cattle on feed, dairy cattle, and broiler placements. On the other hand, the pace of export shipments is well below that of last year. The relative pace of consumption in the various segments of the corn market may explain part of the regional differences in basis patterns this year.

Since corn basis levels and patterns are determined by a complex set of supply and demand factors, it seems to be a stretch to conclude generally strong harvest time basis levels this year point to a smaller corn crop than currently forecast writes Good in his Weekly Outlook. It can be found on the Farm Doc Daily website.

He says history is also not on the side of a smaller yield forecast than the 168 bushel forecast of last week. In the 40 years from 1975 through 2014, the USDA yield forecast increased from September to October, as it did this year, in 24 years. The January yield estimate was below the October forecast in only four of those 24 years. While higher corn prices as the marketing year progresses are possible, then, price increases are not likely to be generated by a smaller U.S. production forecast. Instead, Darrel Good says prices will be influenced by the pace of consumption and the development of the South American crop.


October 12, 2015

Working Capital on the Farm

Low commodity prices are quickly eating into the reserves farmers built up over the last several years. Listen to Gary Schnitkey to learn more on agriculture's 'working capital'.

original article from FarmDocDaily


September 16, 2015

How to Read the FSA Acreage Dump

Wednesday (September 16, 2015) the Farm Service Agency released a new set of numbers. While these are preliminary figures of acreage and crops, they do offer a hint of things to come in future official USDA estimates.



September 16, 2015

Revised 2015 Corn and Soybean Return Estimates

by Gary Schnitkey, Agricultural Economist - University of Illinois



As harvest is beginning, more information is available to project 2015 revenues and returns. Revised returns are presented in this article for high-productivity farmland in central Illinois. Similar estimates for northern, southern, and low-productivity central Illinois farmland are available in the 2015 Crop Budgets. Overall, returns for 2015 continue to be projected at low levels, with returns being below average cash rent levels.

Revised gross revenue

Table 1 shows revised budgets for high-productivity farmland in central Illinois. Much of the emphasis during this revision related to updating gross revenue estimates included yields, prices, Agricultural Risk Coverage (ARC) payments, and crop insurance payments.

Yields: When originally released, 2015 Crop Budgets contained yield estimates based on trend yields. At this point, the information available to update these yields estimates comes from the National Agricultural Statistical Service (NASS). NASS revised state yield estimates on September 11th. Obviously, yields will vary from expectations across Illinois. At this point, yield estimates for smaller areas are not available. As a result, estimated state yields are used to adjust 2015 budgeted yields.

The NASS state yield estimates for corn in Illinois is 173 bushels per acre. The 173 bushel yield estimate is one bushel higher than the 2015 trend estimate of 172 bushels per acre. As a result, corn yields in Table 1 are adjusted up by one bushel per acre from initial estimates.

NASS estimated the 2015 soybean yield at 54 bushels per acre. The 54 bushel yield is four bushels higher than the trend estimate of 50 bushels. As a result, soybean yields are adjusted up by four bushels per acre from their original estimates.

Commodity prices: Revised World Agricultural Supply and Demand Estimates (WASDE) were released on Friday (for a commentary see farmdocDaily, September 14, 2015).

WASDE’s range on corn price for the 2015–16 marketing year is from $3.45 per bushel to $4.05 per bushel, with a midpoint of $3.75. Current forward cash bids in central Illinois range from $3.85 per bushel for harvest-time delivery to $3.95 for spring delivery. A price of $3.90 per bushel is used in Table 1, reflecting an expectation in the higher end of the WASDE range.

WASDE’s range on soybean price is from $8.40 per bushel to $9.90 per bushel, with an average of $9.15 per bushel. Current central Illinois forward bids range from $9.00 for harvest-time delivery to $8.75 for spring delivery. A price of $8.90 per bushel is used in Table1, slightly below the mid-point of the WASDE range, reflecting the lower forward bids.

ARC payments: Revenue includes $35 per acre for ARC payemnts. This $35 value is an average over corn and soybean base acres, with procedures used to estimate ARC payments provided in an August 18th farmdocDaily article (http://farmdocdaily.illinois.edu/2015/08/2016-arc-co-payment-estimates-for-cash-rent-bid.html). Items to note about these ARC payments are:

  • ARC payments are paid on base acres, not planted acres. Therefore, a blended average of base acres are shown in Table 1. Since planted acres do not matter, the payment does not vary whether corn or soybeans are planted

  • ARC is a county-level revenue program. Therefore, payments will vary across counties.

  • Higher market year average prices will result in lower ARC payments and vice versa.

  • The payments shown in Table 1 will be received in 2016. ARC payments made this autumn relate to 2014 production. Farms in northern Illinois will receive 2014 ARC payments this autumn of about $35 per acre averaged across corn and soybean base acres. ARC payments for 2014 production will not be received in central and southern Illinois.

Crop Insurance: Projected prices for 2015 are $4.15 per bushel for corn and $9.74 per bushel for soybeans. The December 2015 corn contract currently is trading near $3.95 per bushel. If $3.95 is the harvest price, the harvest price would be 95% of the projected price, indicating that yields would need to be below guarantee yields before crop insurance payments would occur. The November soybean contract currently is trading near $8.90, with $8.90 being 91% of the projected price. Similar to corn, yields must be below guarantee yields before crop insurance payments occur.

There will be some areas where crop insurance payments occur, particularly in areas where large amounts of rain occurred this spring. To recognize these payments, budgets in Table 1 include $20 per acre in crop insurance payments.

Gross revenue: Given these estimates, gross revenues are estimated at $840 per acre for corn-after-soybeans, $801 for corn-after-corn, $603 for soybeans-after-corn and $656 for soybeans-after-two-years-corn (see Table 1). Operator and land return

Cost remain unchanged from pervious budgets. Given the above gross revenues and previously estimated costs, operator and land return estimates are $255 per acre for corn-after-soybeans, $217 for corn-after-corn, $233 for soybeans-after-corn, and $286 for soybeans-after-two-years-corn. These are the returns shared between farmers and land owners.

The projected 2015 operator and land returns are below those of recent years (see Figure 1). The last time corn had a lower operator and land return than projected for 2015 was in 2008. Soybean returns in 2006 were lower than the 2015 projected soybean return.

Figure 1 also includes average cash rents for this quality of farmland. Both the 2015 corn and soybean operator and land return are projected to be below the 2015 average cash rent.


Summary

Revised estimates of gross revenue for 2015 are presented in this article. Revised gross revenues point to low returns and low net incomes for 2015. Revisions to these estimates will be made as more accurate yield, price, and cost information is obtained.


September 08, 2015

2016 Cash Rents May Need to Drop $100

Farm income this year is going to be dramatically lower than in the past. Next year doesn’t look any better even on highly productive central Illinois soils. Todd Gleason reports farmers must cut costs to survive, and that cash rents may need to come down by as much as one-hundred-dollars per acre.


September 04, 2015

Labor Day (First Monday in September)

I’m Todd Gleason for University of Illinois Extension with a history of Labor Day in the United States. It’s adapted from a story found on the United States Embassy to Sweden’s website.



Eleven-year-old Peter McGuire sold papers on the street in New York City. He shined shoes and cleaned stores and later ran errands. It was 1863 and his father, a poor Irish immigrant, had just enlisted to fight in the Civil War. Peter had to help support his mother and six brothers and sisters.
Many immigrants settled in New York City in the nineteenth century. They found that living conditions were not as wonderful as they had dreamed. Often there were six families crowded into a house made for one family. Thousands of children had to go to work. Working conditions were even worse. Immigrant men, women and children worked in factories for ten to twelve hours a day, stopping only for a short time to eat. They came to work even if they were tired or sick because if they didn’t, they might be fired. Thousands of people were waiting to take their places.

When Peter was 17, he began an apprenticeship in a piano shop. This job was better than his others, for he was learning a trade, but he still worked long hours with low pay. At night he went to meetings and classes in economics and social issues of the day. One of the main issues of concern pertained to labor conditions. Workers were tired of long hours, low pay and uncertain jobs. They spoke of organizing themselves into a union of laborers to improve their working conditions. In the spring of 1872, Peter McGuire and 100,000 workers went on strike and marched through the streets, demanding a decrease in the long working day.

This event convinced Peter that an organized labor movement was important for the future of workers’ rights. He spent the next year speaking to crowds of workers and unemployed people, lobbying the city government for jobs and relief money. It was not an easy road for Peter McGuire. He became known as a “disturber of the public peace.” The city government ignored his demands. Peter himself could not find a job in his trade. He began to travel up and down the east coast to speak to laborers about unionizing. In 1881, he moved to St. Louis, Missouri, and began to organize carpenters there. He organized a convention of carpenters in Chicago, and it was there that a national union of carpenters was founded. He became General Secretary of the United Brotherhood of Carpenters and Joiners of America.

The idea of organizing workers according to their trades spread around the country. Factory workers, dock workers and toolmakers all began to demand and get their rights to an eight-hour workday, a secure job and a future in their trades. Peter McGuire and laborers in other cities planned a holiday for workers on the first Monday in September, halfway between Independence Day and Thanksgiving Day.  On September 5, 1882 the first Labor Day parade was held in New York City.


August 24, 2015

Corn Prices Reflect Export Concerns

December corn futures have been on roller coaster ride up and down this year. First it appeared there would be way to much of the grain, and then - because of the rains - maybe too little, and now it feels like the too-little might become just enough.

The just enough to meet the need has put pressure on the market to move lower. This weakness, writes Darrel Good in this week’s online Farm Doc Daily article, is coming from the supply side. There is a general agreement USDA’s corn production forecast will not increase. It, in August, put this fall’s corn harvest at 13.686 billion bushels. Instead, market commentary seems to suggest the trade is expecting the yield forecast to decline by as much as three to four bushels to the acre. So the crop is getting smaller, but so’s the price. It’s about demand says Good. Continuing weakness in corn prices reflects perceived demand weakness. Concerns about demand may stem from two sources. First is the concern that exports of U.S corn will fall short of the current USDA projection of 1.85 billion bushels. Second, is the concern about slow economic growth domestically and globally.

Clearly, domestic consumption of corn during the 2015–16 marketing year is not of immediate concern. The USDA projection of 5.25 billion bushels of corn used for ethanol production is consistent with the 5.2 billion expected for the marketing year just ending and a modest increase in domestic gasoline consumption next year.

The projection of 5.3 billion bushels for feed and residual use next year equals the projection for the current year. Another large crop implies large residual use of corn and low corn prices along with steady to higher animal numbers should support actual feed consumption of corn. On-the-other-hand USDA projects corn exports during the 2015–16 marketing year that begins on September 1 at 1.85 billion bushels, equal to the projection for the current year. However, total outstanding sales of U.S. corn for export during the 2015–16 marketing year are relatively small says Darrel Good.

It is recognized that the magnitude of early sales is not a good predictor of marketing year exports. Since 2005, sales as of mid-August as a percentage of marketing year exports have ranged from about eight percent (2005–06) to 42 percent (2012–13) and averaged 18 percent. Current sales represent 12 percent of the USDA projection for the upcoming marketing year. Still, the small export sales total is concerning in the context of potentially weak world demand, the relatively strong U.S. dollar, and expectations of large supplies of corn in other exporting countries.

Factually, with nearly 55 weeks remaining until the end of the 2015–16 marketing year, export sales need to average about 30 million bushels per week in order for exports to reach 1.85 billion bushels. Here’s how this all plays out on the farm. Producers will need to evaluate the corn storage decision says Darrel Good. Current low prices mean farmers will likely choose to store much of the crop that has not yet been priced. The current basis in the cash market and the carry in the futures market give some indication about the potential return to storing corn. In central Illinois, for example, the average cash bid for harvest delivery reflects a basis of about -$.30 relative to December 2015 contract and -$0.52 relative to July 2016 futures. Good says if the July basis improves to about -$.05 by June 2016 (as it did this year) the market is offering about $0.47 per bushel to store corn for about nine months.

That return would cover the out of pocket costs of farm storage, but may be closer to breakeven for commercial storage costs for some producers. The only way to capture the storage return, however, is to forward price the stored crop in the cash or futures market. The spot price of corn will have to increase by more than $0.47 by next spring in order for the return on corn stored unpriced to exceed the likely return to a storage hedge.


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