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Wednesday, September 30, 2015

Limited Pork Expansion

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Limited Pork Expansion
Chris Hurt, Purdue Extension Agricultural Economist

The nation’s hog farmers have done a nice of job of not over reacting to last year’s record profits. Todd Gleason reports they’ve limited their expansion plans and consequently should see a good bottomline again for this year, and maybe next.

For all of 2015, pork supplies are expected to be…
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For all of 2015, pork supplies are expected to be seven percent higher than in 2014. That year the price of pork averaged $76 mostly because the PED virus wreaked havoc on the industry. This years supplies have been farm more stable and supplies for 2016 should only be about one percent higher than in 2015. Hog prices are expected to average about $51 on a live weight basis for this year. Current projections for 2016 are for a similar average price and it means hog farmers will make money says Purdue Extension Agricultural Economist Chris Hurt.

Hurt :29 …that further expansion plans remain moderate.

Quote Summary - After the record profits of 2014, there has been concern that the industry would over-expand. At this point that concern has not developed with supply and demand anticipated to be in balance for the coming 12 months. This also serves as a warning to the industry to make sure that further expansion plans remain moderate.

There seem to be growing threats in the future for the meats sector. Those include, says Chris Hurt, the continued expansion of total meat supplies into 2016 and 2017 with a rapid ramp up of poultry and increased beef production.

Hurt :63 …world economic growth and a strong U.S. dollar.

Quote Summary - The large drop in finished cattle prices in recent weeks suggest that retail beef prices could begin to drop this fall and provide added competition for pork. In the longer run, beef supplies will continue to expand for multiple years. Potential weakness of meat and poultry exports is also a concern with slowing world economic growth and a strong U.S. dollar.

A strong dollar makes it more difficult to sell U.S. products overseas as they become higher priced. Speaking of price, feed prices will remain low for the next 9 months due to strong yields for 2014 and 2015 crops and weakened exports. Animal product producers will want to take advantage of harvest price lows this fall states Hurt. However, he thinks longer-term, managers need to remain aware that low feed prices are not guaranteed if weather should turn more adverse in some important growing areas.

Thursday, September 24, 2015

Decreasing 2016 Cash Rents on Professionally Managed Farmland

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Decreasing 2016 Cash Rents on Professionally Managed Farmland
Gary Schnitkey, Extension Agricultural Economist - University of Illinois

Cash rents on professionally-managed farmland are set to decrease next year. That’s the conclusion of a survey in the state of Illinois. Todd Gleason has more…

Each year, the Illinois Society of Professional Farm Managers…
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Each year, the Illinois Society of Professional Farm Managers and Rural Appraisers asks its members how much, on average, they’re collecting for cash rent for the current year, and their expectations for next year. The survey provides a really good indicator of rents on professionally-managed farmland says Gary Schnitkey from the University of Illinois.

Schnitkey :16 …down $32 from the 2015 rent.

Quote Summary - We looked at that and for excellent quality farmland, 190 plus bushels per acre, the farm manages said rents in 2016 would be $318 per acre which is down $32 from the 2015 rent.

Schnitkey helps to develop the survey and tally the results. Those can be found on the Farm Doc Daily website categorized for farms with corn yields less the 150 bushels to the acre to those over 190. The move to lower cash rents is needed, and doesn’t surprise Schnitkey.

Schnitkey :34 …that farm managers say they’re charging.

Quote Summary - Farm managers rents to react more quickly to turns in operator and land returns. So, they come down and go up faster than the average cash rent. So, I am not surprised that they are coming down, but would note the amount of the decrease probably won’t leave the farmer with any return because the operator and land returns are still below the cash rent that farm managers say they’re charging.

The first year the Illinois Society collected cash rents on professionally-managed farmland was in 2007. The average was $183 per acre and $17 higher than the overall average for the state. The professional farm managers cash rent peaked at $396 in 2013. This would be the third year in a row they’ve dropped cash rents, but that trend does not translate to the state as a whole. Last year was the first year state wide cash rents in Illinois decreased.

Wednesday, September 16, 2015

How to Read the FSA Acreage Dump

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How to Read the FSA Acreage Dump
Darrel Good, Agricultural Economist - University of Illinois

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

First, it is really important to understand these numbers are raw…
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First, it is really important to understand these numbers are raw and come with no explanation. They are simply a monthly dump of the aggregated acreage figures reported to the FSA by those participating in federal farm programs. Participation requires them to report the number of planted, failed, and prevented plant acres of each program crop. These numbers are updated by FSA from August to January. University of Illinois Agricultural Economist Darrel Good explains how the raw numbers make their way into the official USDA reports.

Good :46 …tend to come together at the end of the season.

Quote Summary - NASS, the official estimator of major crops, basis their estimates on surveys of producers with the final estimated based on a very large agricultural survey in December, but they do use what they call administrative data, primarily this FSA data, to tweak their own estimates of planted acres. This is because theirs is based on a sample. They are not doing a census of acreage. Historically there has been a close relationship between the acreage reported to FSA an actual planted acres as reported by NASS. They use those numbers and so by definition they tend to come together at the end of the season.

Remember that’s not until January. So, it makes reading too much into the latest FSA numbers difficult, but it does offer what Darrel Good calls ‘hints’ as to what changes might be coming. USDA NASS will incorporate the FSA figures into the October 9 Crop Production report. However, that will be from an updated set of FSA figures that the public won’t actually see until October 14.

Good :51 …in October whether that happens or not.

Quote Summary - At this juncture, I think there is a tendency to try and read too much into what the FSA reports are saying in terms of trying to anticipate how NASS is going to change final acreage. Having said that, we do see through September of this year that the difference between the estimated of planted areas by NASS (for soybean) and certified acres reported to FSA so far is a quite large margin. Whether it narrows considerably in October or not is the question. If it doesn’t then there is may be a bit of a clue there that NASS will have to lower its estimated of planted acres of soybeans this year. But again that is just a clue you are trying to read out of the data and we’ll see in October whether that happens or not.

Typically the FSA acreage for soybeans is 1.5 to 2 million acres lower than USDA’s final number. The current FSA figures are off by 4.6 million acres. The October 9 Crop Production report could change, but we won’t know exactly why or if it needs to change more until the FSA report is released five days later.

Thursday, September 10, 2015

$100,000,000 of Blender Pumps for 21 States

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$100,000,000 of Blender Pumps for 21 States
U.S. Secretary of Agriculture Tom Vilsack
Paul Jeschke, Farmer & Illinois Corn Marketing Board - Mazon, Illinois

The U.S. Secretary of Agriculture held nothing back on the University of Illinois campus yesterday (Thursday Sept 10) when he talked about bio fuels and blender pumps for 21 states. Todd Gleason has more from the U of I’s Energy Farm just south of the Urbana-Champaign campus.

The Secretary of Ag came to the U of I campus…
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The Secretary of Ag came to the U of I campus to talk about two things. The importance or agricultural research and blender pumps. However, he started his press conference with a shot over the bow of the oil industry. He thinks it is fearful of competition from farmers. Competition that Tom Vilsack says is making gasoline more affordable.

Vilsack :22 …to create job opportunities in rural places.

Quote Summary - They know it is reducing the cost of gasoline to consumers by about $2.50 for every barrel of crude oil that is used in gas production. They know it is better for the environment, reducing emissions. And they know that it helps to stabilize farm economy and to create job opportunities in rural places.

To that end the Obama Administration has decided to free up $100,000,000 of federal funds, matched with another $100,000,000 from private partners to help develop the infrastructure to handle higher blends of ethanol.

Vilsack :14 …all for E15, E85, and higher blends of ethanol.

Quote Summary - Twenty-one states will be involved in expanding and providing assistance to petroleum marketers and convenience store operators to expand the number of pumping systems that will all for E15, E85, and higher blends of ethanol.

USDA wants to double the number of blender pumps available. He expects an additional 5000 pumps and systems to be installed. Consumers will need to be aware of the pumps and how they work, but Paul Jeschke an Illinois corn grower from Mazon says it shouldn’t really cause any problems.

Jeschke :23 …use at least E15 with know major problems in their opinion.

Quote Summary - As a general statement, cars made after 2001can probably burn E15 alright, but they should consult their owners manual and the local dealer they do maintenance with. EPA has determined most cars built after 2001 can use at least E15 with know major problems in their opinion.

The roll out of new blender pumps and systems will take some time. Consumers can expect to see the build out begin within the next year.

Tuesday, September 8, 2015

2016 Cash Rents May Need to Drop $100

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2016 Cash Rents May Need to Drop $100
Gary Schnitkey, Extension Agricultural Economist - University of Illinois

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.

Let’s start with this year’s income from an…
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Let’s start with this year’s income from an acre of corn. Today a central Illinois farmer that raises 200 bushel corn can expect, on average, to be paid $3.65 for each bushel. That’s an income of $730 per acre, plus any government payments - let’s make it $800 even. These are the numbers being used by Gary Schnitkey at the University of Illinois.

Schnitkey :41 …just be in the same ballpark of breaking even.

Quote Summary - We have $800 of revenue, and we have been running $580 of non-land costs; everything from seed, fertilizer, chemicals, overhead, and machinery costs. The 200 bushel land would be running (for cash rent) right at $300 per acre. The total expenses then are $880 an acre. Roughly then, if we want revenue at the same level as costs, on cash rented acres costs would need to drop by $100 per acre just to breakeven.

Cash rents on highly productive central Illinois soils - as the numbers stand today - need to come down sharply just so farmers can breakeven. There aren’t really any other expenses where the costs can be cut.

Schnitkey :42 …that’s just $30 of your $100 cost.

Quote Summary - We’ve already built in reductions for fuel costs. Even if you looked at halving the fuel cost it would be just $10 an acre. It is something, but not a lot. Fertilizer costs may come down some. We haven’t seen new nitrogen, DAP, and potash bids yet for this year, but they may come down $20. Seed is an open question, but no one is predicting large costs cuts there. So, even if you squeeze another $30 of non-land costs reductions out of the budget. That’s just $30 of your $100 cost.

…just to breakeven next year on some of the best corn producing farmland on the planet.

Friday, September 4, 2015

Labor Day (First Monday in September)

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Labor Day (First Monday in September)
Source: US Embassy Stockholm Sweden
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I’m Todd Gleason for University of Illinois…
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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.

Lower Pork Costs Driven by Lower Meal Costs

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Lower Pork Costs Driven by Lower Meal Costs
Chris Hurt, Agricultural Economist - Purdue University Extension

The retail price of a pork chop is getting cheaper. Todd Gleason reports the price of soybean meal is one of the reasons for the decline.

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Soybean meal is an important but an “economically” secondary feed ingredient in hog diets compared to corn. Purdue University Agricultural Economist Chris Hurt thinks soybean meal costs, as a feed ingredient, have been about 22 percent of the total costs of raising hogs over the past decade. This compares to 32 percent for corn. In recent years soybean meal has been high priced. For the calendar years of 2012, 2013 and 2014 USDA reports that Decatur, Illinois high-protein meal has had annual averages between $440 and $480 per ton. But with a record U.S. soybean crop in the fall of 2014 and with the second largest crop likely coming this fall, Decatur prices may drop to about $350 per ton and then, as fall turns to winter, even further to average near $325 per ton for calendar year 2016. He says it would be the lowest annual meal price since 2007.

Hurt :24 …per live hundredweight due to the meal price reduction.

Quote Summary - How much have lower soybean meal prices contributed to lower hog production costs? From 2014 highs at $480 per ton to the projected $325 in calendar 2016, costs of production would drop by $5.40 per live hundredweight due to the meal price reduction.

Livestock producers may adjust the corn to meal ratios in diets somewhat depending upon the prices of these two primary feed ingredients. For example, the 2012 drought caused corn prices to be very high relative to soybean meal prices. This relationship caused some shifting to higher protein diets because meal was relatively lower cost than corn. Then for the 2013 and 2014 crops, corn shifted to be cheaper relative to meal. This caused some to reduce their protein levels. In the coming year, corn and meal prices are returning to a more normal long-term relationship.

Hurt :34 …feed costs from 2012 to 2015 and 2016 is a major reduction.

Quote Summary - Estimated total costs of production for a hundredweight of live hogs reached the highest calendar year average in 2012 at $67 per live hundredweight. That dropped to an estimated $51 for 2015. Current projections for 2016 are that total costs will remain about $51. For 2016, lower meal costs are offset by somewhat higher anticipated corn costs, keeping total costs similar to 2015. Clearly a $16 per hundredweight drop in feed costs from 2012 to 2015 and 2016 is a major reduction.

Record costs of production was a contributor, says Purdue University’s Chris Hurt, to higher retail prices. These topped out in September 2014 at $4.22 per pound for USDA’s composite pork average. Of course, PED death losses also contributed to reduced pork production in 2014 as well. Lower priced feed and better control of PED has resulted in higher pork production and as a result consumer pork prices have now fallen to $3.77 per pound.

Given this, Hog producer margins are expected to be near breakeven for both 2015 and 2016. Estimated costs are near $51 and expected live hog prices are near $50. This means a $1 to $2 loss per head. Breakeven implies that supply and demand are close to an equilibrium and that all resources are receiving a “normal” rate of return. This implies that producers have little financial incentive to expand, or to contract. It also means that the lower feed costs over the past few years have been built into more pork production and consumers will now be the beneficiaries of reduced retail prices.