The late start to the growing season in the corn belt and the northern plains has farmers and traders worried. But, as a commodity marketing class at the University of Illinois found out there is much more to be learned from the data.
This 400 level agricultural college class taught by Scott Irwin includes guest lectures by Illinois alum involved in price discovery. In this case, Mike Tannura from T-storm Weather in Chicago is teaching them about how the weather and the markets work together. Right now he tells them is a good example of a weather market.
The cold, the snow storms, the damp air hasn’t allowed farmers from Ohio to North Dakota to really begin the planting season says Tannura, “In an ideal world, you would plant all your corn and all your soybeans in a very timely manner. It would all be wrapped up by sometime in the middle of May. Given where we are today, if it turns out to be wet in the first week or two of May, then everybody is going to fall behind”.
The trick is to find and use the weather data which might help determine what the whole of this growing season could be like. Tannura says this April will be one of the three coldest on record in the U.S. Corn Belt. There have been seven similar years since 1960, or the modern corn-growing era. Corn yields fell short in six of the seven.
The detrended yield for 2018 is about 171 bushels per acre. Most of those years had yields between 166 and 170. One of the worst years was 1983. That was an outlier though. We don’t think that is the one to focus on. It was much lower in the 140’s. - Mike Tannura, T-storm Weather
Those are detrended yields, which puts them on an even footing with today. The point is that this crop season is cold, wet, and late. If it stays that way, and the odds now favor late, then chances are very good that corn yield will be below the trend line.
The price of corn and soybeans has been swinging on trade threats and changing acreage mixes in the United States. However, those price movements have yet to change the relative profitability between corn and soybeans writes Gary Schnitkey on the farmdocDaily website this week.
Soybeans remain more profitable than corn in the University of Illinois agricultural economist’s crop budgets, but the difference between them has narrowed. Schnitkey says the risks of significant price declines have increased, particularly for soybeans and that hedging a large percentage of 2018 expected soybean production seems prudent.
Current prices are higher than earlier in the winter. The central Illinois fall delivery bids on April 6, 2018 were $3.80 for corn and $10.00 per bushel for soybeans. Budgets based on these fall delivery bids are shown in Table 1.
Panel A shows budget for high productivity farmland in central Illinois. The operator and land return for corn is $256 per acre for corn-after-soybeans and $295 per acre for soybeans-after-corn, indicating that soybeans are projected to be $39 per acre more profitable than corn. Corn-after-soybeans is projected to be roughly the same profitability as soybean-after-soybeans ($256 per acre for corn-after-soybeans and $260 per acre for soybeans-after-soybeans).
In lower productive areas, soybeans dominate corn. In southern Illinois, corn-after-soybeans has an $84 per acre return at a $3.80 price compared to $141 per acre for soybeans-after-corn at a $10.00 per bushel price (see Panel B of Table 1). Soybeans-after-soybeans has a $101 per acre return, higher than the $84 per acre returns for corn-after-soybeans. These returns comparisons suggest having more soybeans than corn in southern Illinois. In recent years, southern Illinois farmers have been planting more soybean than corn. Recent price moves increased the profitability of corn relative to soybeans, but not enough for a budget to suggest switching to more corn.
Price changes have increased corn profitability relative to soybean profitability, but have not suggested shifts in acres.
Higher risks suggest a prudent risk management strategy is to forward price more of the 2018 expected soybean production. However, pricing more production introduces the possibility of hedging losses if prices increase. If farmers have purchased an insurance product with a guarantee increase such as Revenue Protection (RP), offsetting payments will be received in cases when prices rise and yields are below guarantee levels.
Farmers who purchased revenue crop insurance policies will have downside price production. Given the $10.21 projected price and yields at guaranteed levels, the harvest price must fall below the following levels for different coverage levels to trigger payments on revenue policies (e.g., Revenue Protection (RP) and RP with harvest price exclusion):
$8.67 at an 85% coverage level ($10.21 x .85)
$8.17 at an 80% coverage level ($10.21 x .80)
$7.65 at a 75% coverage level ($10.21 x .75)
While these revenue products will offer downside risk protection, most farmers will face loss situations if prices fall enough to trigger insurance payments.
Low prices could also result in commodity title payments under Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC). ARC is a revenue program that makes payments based on county yields and market year average prices. Given yields near guarantee levels, ARC at the county level would begin to make payments around $8.70 per bushel for the 2018 production year. PLC has a reference price of $8.40. As a result, PLC will not make payments until MYA prices fall below $8.40 per bushel. The 2018 payments under ARC and PLC would both be made in the fall of 2019, a considerable distance into the future.
It is important to remember that ARC and PLC are based on base acres and not planted acres. As a result, planting decisions in 2018 will not impact ARC and PLC payments. Therefore, the size of ARC/PLC payments should not influence planting decisions.
Both crop insurance and ARC/PLC offer downside price protection if prices fall dramatically as the result of some event such as enactment of soybean tariff writes Gary Schnitkey. Still, he says, hedging a high percentage of production seems prudent, particularly given that a late planting season appears more likely now. The current cold and wet conditions could lead to later planting, and perhaps shifts to soybean acres. This switch could lead to further downward price pressures.
The trading floor at North Dakota State University is extraordinary. Extension uses it to teach day trading lessons to farmers who need to take a longer outlook on the marketplace. Todd Gleason has more from the Fargo campus.
Wednesday during a Senate Ag Subcommittee hearing Montana (D) Senator Jon Tester had a frank discussion with U.S. Secretary of Agriculture Sonny Perdue about trade and its potential impact on farm country.
President Trump has asked the Secretary of Agriculture to protect U.S. farmers from the trade dispute with China. However, there aren't many options for Sonny Perdue.
Last week Sonny Perdue was on the road for his second RV tour of farm country. His first tour was last summer. That's when he told producers he would be their salesman to the world. Now he's being asked to be their protector in the face of trade restrictions, some in place others proposed, as President Trump sets about rectifying what he sees as unfair trade with China. However, Perdue isn't saying what he'll do for farmers and there may be a good reason that's the case says University of Illinois Ag Policy Specialist Jonathan Coppess, "There are not a lot options for the Secretary when it comes to the covered commodities."
Typically USDA lawyers will explain there is flexibility in the original CCC charter act and the general powers to improve prices. Yet, because Congress has stepped in and directed spending for commodities via programs like ARC and PLC, the Secretary's administrative powers are limited. Most of the heavy lifting to protect farmers from any trade war blowback then, says Coppess, would need to be done by Congress.
The first week of April has been tumultuous for American agriculture. Todd Gleason talks with Jonathan Coppess about how the Trump Administration has been handling trade with China, the NAFTA negotiations, and biofuels.
The Chinese government has responded to the Trump Administration's list of products to be tariffed in order to halt intellectual property theft. The administration released the list of targetted products yesterday. China's response is to target soybeans imported from the United States among other products. None of the tariffs, U.S. or Chinese, are set to go into effect, yet. White House Trade Advisor Peter Navarro says “What China is doing, to try to weaken our will and resolve, is to target our agricultural sector because they think they can do that for political reasons and some how President Trump will not be resolute. That’s not going to happen.” Navarro made his comments during an NPR interview Wednesday morning.
As the growing season approaches it is important for farmers to understand how to use dicamba on resistant soybean varieties. Todd Gleason has more with University of Illinois weed scientist Aaron Hager.
The following is an excerpt from the March 23 farmdocdaily article posted by University of Illinois Weed Scientist Aaron Hager.
Steps for Successful Weed Management in Dicamba-Resistant Soybean
plant dicamba soybean seed into a weed-free seedbed
achieve a weed-free seedbed through the use of preplant tillage, an effective burndown herbicide(s), or a combination of tillage and burndown herbicides
select and apply within 7 days of planting a soil-residual herbicide that targets your most problematic weed species; if desired (and labeled), add dicamba and an appropriate buffer
for waterhemp or Palmer amaranth, select a product containing the active ingredients from one of the following categories of control:
Excellent: greatest efficacy on Amaranthus species and longest residual control
Good: good efficacy on Amaranthus species, residual control generally not as long
Acceptable: stronger on grass species but with some activity on Amaranthus species
scout fields 14 days after planting, apply dicamba at 0.5 lb ae/acre when weeds are less than 3 inches tall and when conditions allow for the application, consider adding an approved soil-residual herbicide to the tank mix
scout treated fields 7 days after the dicamba application; if control is not complete or another flush of weeds has emerged, consider using non-dicamba options for complete control; examples include alternative herbicides, cultivation, and hand roguing goal should be zero weed seed production