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Thursday, October 29, 2015

Farmland Prices and Farm Solvency Then & Now

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Farmland Prices and Farm Solvency Then & Now
Gary Schnitkey, Agricultural Economist - University of Illinois

Years of low commodity prices, and losses on the farm, have some wondering whether the agricultural boom-bust cycle of the 1970’s and 80’s is repeating itself. The balance sheets, as Todd Gleason reports, say probably not.

There are some big differences between the farm crisis…
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There are some big differences between the farm crisis of the 1980’s and the current situation in middle America. Then, as now, commodity price had slumped after soaring for a few years. The price of farmland had skyrocketed, too, just like now. However, unlike today interest rates were high and farmers were deep in debt when the price of farmland finally bottomed 42 percent below its high. Gary Schnitkey wanted to know what would happen today in that kind of worst case scenario. So he ran the numbers.

Schnitkey :25 …

Quote Summary - The solvency issues today differ. If we look at the same sort of price decline on farmland, actually a little bit bigger (50%), that we had during the 1980’s and applied that to the typical balance sheet on our farms today, what we would see is the debt to asset ratio go from point-two-zero, which is what it is today, to point-two-six.

This is an increase, and it would cost the typical grain farmer in Illinois $1300 an acre, but it would not lead to insolvency or bankruptcy issues.

Schnitkey :32 …are not being subjected to that price decline.

Quote Summary - A lot of this has to do with the lower debt now. We typically have much lower debt to asset ratios. Also, many of our farms own a relatively small portion of their land base. A typical grain farm in Illinois has about 26% of its acres owned. So, even if that 26% declines in value, there are still a lot of acres controlled that are not being subjected to that price decline.

Over a seven year period in the 1980’s the value farmland fell 42%. The University of Illinois agricultural economist used a decline of 50% for his calculations. The resulting debt to asset ratio moved the needle from the great to ok mark; not even as bad as the early 2000’s on the farm.

Wednesday, October 28, 2015

World Health Organization Oversteps with Red Meat Assertion

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VOICER
World Health Organization Oversteps with Red Meat Assertion
John Erdman, Food Scientist & Professor Emeritus - University of Illinois

While it has been known for quite sometime that processed meats… things like bacon and sausage and jerky… might slightly increase your risk of colorectal cancer. A professor emeritus of food science at the University of Illinois says the World Health Organization may have thrown up too much of a red flag on them, and certainly did so on red meat.

Erdman :19 …overstep their bounds a little bit on that.

Quote Summary - The W-H-O report then went into the red meats, the unprocessed meats, and suggested there is an increased risk of certain cancers. I think they did overstep their bounds a little bit on that.

The W-H-O report admits it was unable to say the 800 studies they looked at correlated eating red meat with the development of cancer. The increased risk of contracting colorectal cancer from eating processed meat every day, puts the total risk at about one in two-million.

Interview with Illinois Professor Emeritus on W-H-O Red Meat Release

Interview with Illinois Professor Emeritus on W-H-O Red Meat Release
John Erdman, Food Scientist & Professor Emeritus - University of Illinois

Discussion with Food Science Professor Emeritus John Erdman about the World Health Organization’s red meat, processed meat as carcinogens 2015 release.

Crop Insurance Undercut by Budget Deal

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SPOT NEWS VOICER
Crop Insurance Undercut by Budget Deal Jonathan Coppess, Agricultural Policy Specialist - University of Illinois

The federal government is expected to vote on the budget deal, maybe as soon as today. If it goes through unchanged one of the safety net programs for agriculture, crop insurance, will most definitely fall to the axe says University of Illinois Ag Policy Specialist Jonathan Coppess.

Coppess :11 …getting changes at this hour is an uphill climb.

Quote Summary - I’ve heard that this saves about three billion dollars and that it is part of a big budget package. Getting changes at this hour is an uphill climb.

Coppess is in Washington, D.C. today. He says the deal would not eliminate crop insurance, but might force premiums higher, and shrink the number of places capable of providing it.

Crop Insurance S.R.A. Capped at 8.9% Under Budget Deal

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Crop Insurance S.R.A. Capped at 8.9% Under Budget Deal
Jonathan Coppess, Agricultural Policy Specialist - University of Illinois

The federal government is expected to vote on the budget deal, maybe as soon as today. If it goes through unchanged one of the safety net programs from agriculture will most definitely fall to the axe. Todd Gleason has more on what will happen to crop insurance.

University of Illinois Ag Policy Specialist Jonathan Coppess…
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University of Illinois Ag Policy Specialist Jonathan Coppess is in Washington, D.C. He says the deal would require the Obama Administration to renegotiate the Standard Reinsurance Agreement or S.R.A. and take 3 billion dollars out of the crop insurance program over a ten year period.

Coppess :44 …getting changes at this hour is an uphill climb.
Quote Summary - And within that renegotiation put a cap if you will, or a limit on the rate of return for crop insurance companies at a very low rate, about 8.9%. What is surprising about this is that it seems the ag committees were not consulting, and I think you’ve seen the reaction from the ranking members and the chairs that they oppose this move. So, as of going into last night they were talking to leadership to see if they could get this revised somehow, but I’ve heard that this saves about three billion dollars and that it is part of a big budget package. Getting changes at this hour is an uphill climb.
The change, says Coppess, would not mean the end of crop insurance, but rather some serious changes in how the program is priced and delivered to farmers around the nation.

Coppess :28 ...could be a real problem with the program down the road.
Quote Summary - So that is the big concern. If you set the rate of return to low. It is just not possible for the companies to stay in. And we are still trying to sort out and dig through this determine exactly what it may do. It should have implications for reinsurance. This is always the issue with crop insurance. If you want to look for savings, it is much more complicated than making changes to a program to get savings. There is a lot more to it and this is an indicator of one of our worst fears going all the way back to the super committee in 2011; that budget negotiators will make cuts to programs without fully understanding the ramifications just because they can save money. This could be one of those instance where what looks like savings up front could be a real problem with the program down the road.
If the deal goest through Coppess thinks some of the companies approved to provide insurance may have to get out. It might also increase the cost to the farmer. It could even impact the ability of the private system to deliver crop insurance.

Tuesday, October 27, 2015

SPOT NEWS: World Health Organization Classifies Red Meat "Probably" Carcinogenic

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SPOT NEWS
(see feature story one more down)

World Health Organization Classifies Red Meat “Probably” Carcinogenic

Red meat causes cancer. That’s what the headlines are saying, but as you’ll hear from Todd Gleason the W-H-O study doesn’t quite come to that conclusion.

Monday (October 26, 2015) the World Health Organization suggested…
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Monday (October 26, 2015) the World Health Organization suggested it would be good to limit the amount of red and processed meat we consume. There has been quite a firestorm in the media declaring “red meat causes cancer”.

That’s not actually what the W-H-O said in its press release. It actually classified the consumption of red meat as “probably” carcinogenic to humans. Going on to point out that processed meats, things like ham & sausage or hotdogs & corned beef, if eaten every day does increase the chance of getting colorectal cancer by 18%.

Again - red meat, steaks, pork chops and the like, “probably carcinogenic” but the 800 studies reviewed were inconclusive as a whole; processed meat - “carcinogenic”, but you’d need to eat about two ounces of it every day to increase your chance of getting colorectal cancer by 18%.

How dangerous is processed meat, then? WHO, in the paperwork, points to estimates by University of Washington’s Global Burden of Disease Project. It is an independent academic research organization that attributes about 34,000 cancer deaths per year worldwide to diets high in processed meat. By comparison the Center for Disease Control estimates 6 million people die from tobacco causes worldwide; 480,000 in the United States from smoking cigarettes.

FEATURE - World Health Organization Classifies Red Meat "Probably" Carcinogenic

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FEATURE
World Health Organization Classifies Red Meat “Probably” Carcinogenic

Red meat causes cancer. That’s what the headlines are saying, but as you’ll hear from Todd Gleason the W-H-O study doesn’t quite come to that conclusion.

Monday (October 26, 2015) the World Health Organization suggested…
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Monday (October 26, 2015) the World Health Organization suggested it would be good to limit the amount of red and processed meat we consume. There has been quite a firestorm in the media declaring “red meat causes cancer”.

That’s not actually what the W-H-O said in its press release. It actually classified the consumption of red meat as “probably” carcinogenic to humans. Going on to point out that processed meats, things like ham & sausage or hotdogs & corned beef, if eaten every day does increase the chance of getting colorectal cancer by 18%.

Again - red meat, steaks, pork chops and the like, “probably carcinogenic” but the 800 studies reviewed were inconclusive as a whole; processed meat - “carcinogenic”, but you’d need to eat about two ounces of it every day to increase your chance of getting colorectal cancer by 18%.

So, what does W-H-O mean by “probably carcinogenic”? Fortunately the press release, which you can find online, has links to the classifications. Red meat falls into group 2A: The agent is probably carcinogenic to humans.

Here’s the definition verbatim - “This category is used when there is limited evidence of carcinogenicity in humans and sufficient evidence of carcinogenicity in experimental animals. Limited evidence means that a positive association has been observed between exposure to the agent and cancer but that other explanations for the observations (technically termed chance, bias, or confounding) could not be ruled out.”

Processed meats are in Group 1: The agent is carcinogenic to humans. Again here’s the definition: “This category is used when there is sufficient evidence of carcinogenicity in humans. In other words, there is convincing evidence that the agent causes cancer. The evaluation is usually based on epidemiological studies showing development of cancer in exposed humans. Agents can also be classified in Group 1 based on sufficient evidence of carcinogenicity in experimental animals supported by strong evidence in exposed humans that the agent has effects that are important for cancer development.”

W-H-O happens to put asbestos exposure and smoking tobacco into Group 1, however, the processed meat paper work explains this does NOT mean these are all equally dangerous. The classifications describe the strength of the scientific evidence (what the research reports studied say) rather than assessing the risk.

How dangerous is processed meat, then? WHO, in the paperwork, points to estimates by University of Washington’s Global Burden of Disease Project. It is an independent academic research organization that attributes about 34,000 cancer deaths per year worldwide to diets high in processed meat. By comparison the Center for Disease Control estimates 6 million people die from tobacco causes worldwide; 480,000 in the United States from smoking cigarettes.

Monday, October 26, 2015

Beef: High Prices Cure High Prices

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Beef: High Prices Cure High Prices
Chris Hurt, Purdue Extension Agricultural Economist

The adage that the cure for high prices is “High Prices” sure looks right for the beef market this year. Todd Gleason has more with Purdue Extension Agricultural Economist Chris Hurt.

The price of beef cattle reached a record high…
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The price of beef cattle reached a record high of about $170 for a hundred pounds in late 2014 and early 2015. It has plummeted since, dropping 50 bucks. Interestingly, hogs took a similar nose dive from mid-last year to this year and it seems likely the price of eggs, which skyrocketed last spring because of Avian Influenza, is destined for the same fate. Or so thinks Purdue Extension Agricultural Economist Chris Hurt. He says it is all part of agriculture’s boom/bust cycle.

Hurt : …now seeking to better evaluate equilibrium.

Quote Summary - When analyst look back on these boom/bust price patterns, the supply and demand data never seem to fully justify how high prices go in a period of shortage, nor how quickly they fall afterward. The tendency for prices to “overshoot” on the upside and then to “undershoot” on the downside is repeated often. The excesses on the upside may be related to the human emotion that is inherent in agricultural markets when there is uncertainty with regard to food shortages. Regardless, cattle markets seemingly overshot to the upside, then undershot to the downside, and are now seeking to better evaluate equilibrium.

Certainly some of the roller coaster price action in the cattle markets can be explained by basic supply and demand relationships captured by the statement “the cure for high prices is high prices” says Chris Hurt. Here’s how that has happened in the beef market; with higher cattle weights, sharp increases in beef imports, declining beef exports, and by consumption shifts due to high retail beef prices.

Hurt : …as well as for supply of our industries.

Quote Summary - Retail beef prices probably have also contributed to the record drop in finished cattle prices this year. Retail beef prices rose to a high of $6.42 per pound in May (USDA). These record high prices sent signals to consumers to consider looking for beef substitutes and they found them in growing pork supplies at declining prices and abundant chicken at prices similar to those in the previous year. Again, given time, high prices provide a cure for high prices for demand as well as for supply.

After cattle prices have seemingly overshot and undershot, the market is now attempting to find the “correct” equilibrium. Of course that “correct” price is never known and one of the primary functions of markets is to discover it.

Hurt : … the highest cattle prices on this cycle are behind us.

Quote Summary - Using current futures prices as a forecast suggests a strong recovery will occur into the end of 2015 into the low $140s. Then, prices would be expected to reach their 2016 highs in late winter or very early spring in the mid-to-higher $140s. Seasonal weakness would drop prices back to the mid-to-higher $130 by the end of summer. Most likely, the highest cattle prices on this cycle are behind us.

Finished cattle averaged near $155 in 2014. They are expected to be near $150 for 2015 and then moderate even more into the high $130s or low $140s for 2016.

Meanwhile high prices are continuing to do their job of stimulating expansion of the cow herd, with female slaughter (heifers and cows) so far this year down ten percent. Indeed, given enough time thinks the Purdue agricultural economist, high prices will solve the dilemma of high prices.

Friday, October 23, 2015

Argentina's Presidential Election Important for Soybean Market

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Argentina’s Presidential Election Important for Soybean Market
Michael Cordonnier, Soybean and Corn Advisor - Hinsdale, Illinois

This Sunday’s presidential election in Argentina is important to soybean farmers in the United States. Todd Gleason has more.

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The vying candidates have differing views on the commodity export tax. If it is removed, South American agricultural expert Michael Cordonnier of Soybean and Corn Advisor says farmers in Argentina will plant corn rather than beans.

Cordonnier :28 …will go out there and plant some more corn.

Quote Summary - That would be a game changer in Argentina. If they take off those export taxes, the farmers would like to plant more corn. Because right not there are six times more acres of soybeans than corn. They want to rotate more because the government is forcing them to have a mono crop of soybeans. So, if they take off the export tax. I think instantly the farmers will go out there and plant some more corn.

It is springtime in Argentina. The leading opposition candidate opposes the export tax. Argentine presidential elections take place Sunday, with a possible runoff election slated for November 22, if needed. Cordonnier made his comments during Commodity Week, a radio program produced at the University of Illinois.

Wednesday, October 21, 2015

2016 Farmland Price Outlook

2016 Farmland Price Outlook
Todd Kuethe, Agricultural Economist - University of Illinois

While farmland prices likely will continue to see downward pressure into 2016, the capitalized values do not suggest the price of farmland is too high or in a bubble. Todd Gleason has more from the agricultural economists at the University of Illinois.

Three agricultural economist at ILLINOIS have written…
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Three agricultural economist at ILLINOIS have written an article about the value of farmland for the Farm Doc Daily website. It, in simple terms, says two things. First, the price of farmland is not too high, or even in an economic bubble. Secondly, the downturn in commodity prices does not point to a situation like the farm crisis of the 1980s. Here’s one of the co-authors of the article, Todd Kuethe.
Kuethe :41 …those movements always getting pushed down the line.
Quote Summary - So the two parts to that are, first, obviously cash rents. Which we expect to come down as incomes decline. Although the rental market is relatively sticky. It does not move as fast as income in aggregate moving. So, we expect to see downward movement, but not a bottom-falling-out drastic movement in cash rental rates. The second side is the interest rate. The Federal Reserve continues to state it expects to raise rates in the future, with those movements always getting pushed down the line.
Kuethe and his colleagues used the capitalization value to make their assessment. They say small increases in interest rates could have a dramatic impact on capitalized value. Because farmland is a long-lived asset, farmland faces larger potential price decreases than other assets if interest rate increases occur that translate to changes in the real capitalization rate. On the other hand cash rents would have to fall considerably before the capitalized value is below the current farmland price. This is because while farmers actually held the line on what they paid for farmland, cash rents did not hold that same line. Farms, for a while, were worth more than the top prices, but cash rents rallied most of the way. Those can drop back and not have any effective impact on the underlying value of the farm. Here’s what Todd Kuethe thinks will happen in 2016.
Kuethe :24 …as fast as the appreciation was leading up to it.
Quote Summary - I think we will continue to see downward pressure. Those declines will be slight and within a few percentage points. We won’t see a corrective response that is as fast as the appreciation was leading up to it.
It being the new higher price of farmland. You may read more on the Farm Doc Daily website.

Tuesday, October 20, 2015

The Regular Climate Pattern of Brazil

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The Regular Climate Pattern of Brazil
Mike Tannura, tStorm Weather - Chicago, Illinois

They say it is best to keep your friends close and your …let’s go with competitors in the soybean market… even closer. Todd Gleason has this story on how weather patterns in Brazil generally unfold year in and year out.

The Brazilian climate is unique…
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The Brazilian climate is unique. It is unlike anything that occurs in the United States. However, this country is poised to become the world’s most productive source of soybeans. It is expected to unseat the U.S. in 2017, though that could happen as early as next year. Farmers in the state of Mato Grosso grow most of soybeans in Brazil. Their winter months, unlike what happens in the United States from New Orleans to Minneapolis and Columbus to Omaha, are bone dry says University of Illinois alum and agricultural meteorologist Mike Tannura.

Tannura :20 ..somewhere around ten inches of rain per month. .

Quote Summary - Remember their winter is in June, July, and August. During that entire period they only receive from one to maybe one-and-one-half inches of rain. You go forward into the middle of their summer, which would be again December, January, and February, and they are getting somewhere around ten inches of rain per month.

Crops in the United States are strained in the summer if more than 6 inches of rain falls per month says Tannura. His Chicago based company, tStorm Weather, specializes in agricultural weather forecasting. During the spring time he says U.S. farmers plant on schedule, by the calendar, when the weather is open. This is not how things work in Brazil.

Tannura :30 …is going to rain, it is a matter of when.

Quote Summary - Since it is basically bone dry during the winter, you need some rain in the beginning of the season to get planting started. If you don’t, the seed will just sit there and it won’t do anything. It needs moisture. They have a very sandy type of soil that is unique to them as compared to us. This is a monsoonal type climate that they move into. They do not see longterm droughts as frequently as happen in the United States or the rest of the world. So it is not a matter of if it is going to rain, it is a matter of when.

A delay in the rainfall doesn’t have a great impact on the first crop planted for the season. This is generally soybeans. However, a delayed planting does have an impact on the second crop Brazilian farmers plant. Sometimes this is corn.

Tannura :13 …rain at the end of its growing season.

Quote Summary - If the early crop, being planted now or shortly, is sown way too late, then the second crop may have problems because it would not get enough rain at the end of its growing season.

The take away then is this. Soybean farmers in Brazil will plant a crop every year. It could be delayed as they wait for rainfall to replenish soil moisture…even deep into December. Brazil rarely suffers growing season droughts, so that first crop is likely to be a good one. The second crop, should the first have gone in late, is far more suspect and could seasonally run out of water.

Monday, October 19, 2015

Which Way for Soybean Prices

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Which Way for Soybean Prices
Darrel Good, Agricultural Economist - University of Illinois

Soybean prices have been on a roller coaster over the past three months. Todd Gleason has more on which direction is most likely to maintain control.

The price swings reflect changing expectations…
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The price swings reflect changing expectations about the size of the U.S. soybean crop, uncertain U.S. export prospects, and the potential impact of the weather as it relates to El Niño. Depending on how those factors unfold, soybean prices could move substantially in either direction over the next six months. Here’s the case University of Illinois Agricultural Economist Darrel Good says that can be built if one believes the price of soybeans will move lower.

Good :40 …as was the case this year.

Quote Summary - The case for lower soybean prices starts with the expectation that the U.S. average soybean yield for the crop currently being harvested will exceed the 47.2 bushels forecast in the USDA October Crop Production report, resulting in a larger crop forecast. That expectation is based on continuing reports of high soybean yields in many areas as harvest progresses. In addition, there has been a history of the final soybean yield estimate in January exceeding the October forecast in years when the September forecast exceeded the August forecast and the October forecast exceeded the September forecast, as was the case this year.

That pattern has happened 11 times in the past 40 years, with the January estimate above the October forecast in nine of those 11 years. Those expecting lower prices, also, point to the potential for another record soybean harvest in South America. Early estimates put Brazil on pace for a 100 million metric ton crop, much of which would be exported to China. That combination would point to U.S. soybean exports during the current marketing year less than the current USDA projection of 1.675 billion bushels. A larger crop estimate and smaller exports, then, would point to larger year-ending stocks and lower prices.

Naturally, there is the other side of the market. The one that points to a higher price for soybeans.

Good :45 …shortfall in production there based on the El Niño weather event.

Quote Summary - The case for higher soybean prices starts with the expectation that harvested acres of U.S. soybeans will be less than the USDA’s October forecast, limiting any future increase in the estimated size of the crop. The second argument for higher prices is that export demand for U.S. soybeans has actually been quite strong in recent weeks and points to stronger overall export demand. While current export activity is encouraging, the potential for U.S. soybean exports this year will hinge at least in part on the size of the 2016 South American harvest. Those friendly to soybean prices have expectations of a shortfall in production there based on the El Niño weather event.

This friendly stance is enhanced by what some see as the tendency for USDA to underestimate U.S. soybean exports early in the year. USDA’s forecast of marketing year exports in the October WASDE report, factually, have been less than actual exports in 17 of the past 25 years. The difference was 50 million bushels or more in 14 of those years and exceeded 150 million bushels in five years. Finally, those building a case for higher prices point to the end of the El Niño. It could result in late summer weather that is adverse for U.S. soybean yields.

As for Darrel Good, well he sums it up this way. The uncertain soybean supply and consumption prospects suggest soybean prices may continue to trade in the wide range of the past three months. Fairly dramatic changes, however, would be required to alter prospects for abundant U.S and world inventories and push prices above the high experienced in July. Prices at that level will likely only be generated by production issues and are not expected in the near term. Modest short-term rallies based on other factors, however, are more likely.

Don't Bet the Cash Rented Farm on a Loss

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Don’t Bet the Cash Rented Farm on a Loss
Gary Schnitkey, Extension Agricultural Economist - University of Illinois

It is very difficult to give up a farm, even one that is losing money because the cash rent is too high. Todd Gleason has a few simple guidelines one might follow to help them make that decision.

Those farmers thinking they can withstand a loss…
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Those farmers thinking they can withstand a loss on a farm next year because the cash rent is too high should put things in a longterm perspective to see if it is viable strategy. First and foremost says University of Illinois Agricultural Economist Gary Schnitkey realistic expectations of future returns should be used.

Schnitkey :28 …question if those rents are sustainable. If they are not, then lower those rents.
Quote Summary - It is about long run prices. It has been suggested $4.60 corn and $10.60 soybeans. Some years we will be above that and some years below that. But if we are looking at our cash rent levels and plug in $4.60 corn and $10.60 soybeans and there are losses, or only small gains, then you must question if those rents are sustainable. If they are not, then lower those rents.
Here’s the thing about using the long run corn and soybean mid-point prices. Those are calculated for thirty years worth of trade. USDA’s price outlook through 2020 doesn’t even get close. It’s a lot more like current prices and that’s a whole different set of expectations. Even if you thought, “just one more year, and the cash rent will come down to a more reasonable level”, that might not be the case.

Schnitkey :44 …high yield level compared to other parts of the corn belt.
Quote Summary - At our long run prices, $4.60 for corn and $10.60 for soybeans, an appropriate cash rent for central Illinois would be about $250 per acre. That cash rent would generate a loss at the budgeted prices we are using for 2016, which are $3.90 for corn and $8.90 for soybeans. So, if we are at those prices even a $250 cash rent would cause losses. Rents would need to go below $220 per acre in central Illinois. Obviously this is at a very high yield level compared to other parts of the corn belt.
Even if a farmer believes the University of Illinois long-run prices of $4.60 corn and $10.60 soybeans are accurate, there could be a relatively long period in which prices are below the long-run average. These risks suggest using a variable cash rent lease might be the best answer.

Schnitkey :25 …it allows the landlord to share the upside.
Quote Summary - Variable cash leases vary the cash rent based on revenue. There is a base cash rent and if revenues go above a specified level the landlord will get more return. This is a good idea in this time of low prices because things happen in agriculture and it allows the landlord to share the upside.
You can read more about the risks of high cash rent farmland and variable rate leases on the Farm Doc Daily website.

Thursday, October 15, 2015

Africa and Soybean Trials

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Africa and Soybean Trials
Abush Tesfaye, Jimma Agricultural Research Institute - Ethiopia
Godfree Chigeza, International Institute of Tropical Agriculture - Zambia

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.

The Soybean Innovation Lab is on the third floor…
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The Soybean Innovation Lab is on the third floor of Mumford Hall at the University of Illinois. It is just an office space in the agricultural college. Well, not really just an office space. The lab works to find better ways for Africa to feed itself and grow local economies. This is much easier said than done. For instance, this fall three soybean breeders came to Illinois to learn how to set up better field trials. They face some unique and basic problems

Tesfaye :09 …there are no companies doing these envelopes.

Quote Summary - We cannot easily access the envelopes in our condition. We do not have many breeding programs, so there are no companies doing these envelopes.

That’s Abush Tesfaye (uh-bush tess-fay-ee) from Ethiopia and you heard that right. He can’t get envelopes… the little seed packet sized manila envelopes. It’s the way plant breeder keep different seeds separated from each other. They’ll have to make their own from cloth. But that’s not the biggest problem says Godfree Chigeza (chih-gay-zuh) from Zambia.

Chigeza :10 …is infrastructure. Moving from one site to another site.

Quote Summary - I think the major challenge for Africa is infrastructure. Moving from one site to another site.

Africa doesn’t have an infrastructure. There are so few roads it takes longer to get from one field to another, than it does to plant, care for, and harvest the field. Although they don’t have much equipment to carry. Here at Illinois U of I plant geneticist Randy Nelson took some time to show the Africans a how to use a one row push seeder.

Natural Sound :21

Nelson discussing hand held seeder.

The African breeders hope to adapt higher yielding varieties with the aid of the Soybean Innovation Lab. It is the fastest growing crop on the continent. Farmers with 2 to 10 acres are growing it to feed their chickens and send their kids to school. They grow other crops to feed themselves says Zambia’s Godfree Chigeza, but the soybean is meant to improve their lives.

Chigeza :07 …for farmers to move from being the poor, from poverty, they need also to have income.

They can raise and eat chic peas and maize and they do, but with the soybean they can sell and reinvest in their families. If you’d like to learn more about the Soybean Innovation Lab you can find it online. Just search Google for Soybean Innovation Lab.

Wednesday, October 14, 2015

The Corn Crop is Unlikely to be Overestimated

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The Corn Crop is Unlikely to be Overestimated
Darrel Good, Agricultural Economist - University of Illinois

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. Todd Gleason reports this is not very likely.

The USDA’s October 9 Crop Production report forecast…
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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.

Good :29 …from December 1, 2012 to December 1, 2014.

Quote Summary - 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.

Good :41 …

Quote Summary - 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.

Monday, October 12, 2015

Working Capital on the Farm

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Working Capital on the Farm
Gary Schnitkey, Extension Agricultural Economist - University of Illinois

Low commodity prices are quickly eating into the reserves farmers built up over the last several years. Todd Gleason has more on agriculture’s ‘working capital’.

Farmers built up working capital reserves over…
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Farmers built up working capital reserves over a six year period lasting from 2006 to 2012. Those reserves have been tapped each year since then in order to keep operations running smoothly says University of Illinois Agricultural Economist Gary Schnitkey. However they’re still well above the average from little more than a decade ago.

Schnitkey :25 …2004 when it was average close to $200.

Quote Summary - The average grain farm enrolled in the Illinois FBFM record keeping service had $588 of working capital per acre at the end of 2014. Working capital is current assets minus current liabilities. This is up considerably from 2000 to 2004 when it was averaging close to $200.

Those numbers are a bit deceiving. The spread isn’t $388, but in an equivalent world more like $188 per acre. Meaning today’s farmer has about fifty percent more working capital than his counterpart of the early 2000’s. That was at the beginning of this year says Schnitkey.

Schnitkey :15 …erosion of half of the working capital that exists out there.

Quote Summary - And we are estimating something like an $80 loss in working capital for this coming year. So, we are likely to see an $80 loss or roughly an erosion of half of the working capital that exists out there.

By this coming year, he means the end of the current marketing year for the crop just harvested and things begin to spiral from there. If 2016 is like 2015 then the working capital left on the farm will be very similar to the turn of the century period.

Schnitkey :26 …income and subtract out family living withdrawals.

Quote Summary - To come up with working capital you look at the income from the farm, subtract out land costs, any changes in financing that happened during the year, and any machinery purchases, then add back in other income and subtract out family living withdrawals.

Here’s how that calculation differs across acreage classes in Illinois. On owned acres working capital is down $11 this year from last. Working capital for cash rented property is estimated to be down by $121 per acre. Working capital on share rented acreage declined by $72.

Friday, October 9, 2015

TPP Will Create 76,000 Ag Related Jobs

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TPP Will Create 76,000 Ag Related Jobs
Tom Vilsack, U.S. Secretary of Agriculture

The Obama administration is working to inform the public about the benefits of the new trade deal called the Trans-Pacific Partnership. To that end the U.S. Secretary of Agriculture has been talking about job creation. In general the U.S. Trade Representative’s office reports every billion dollars of U.S. exports creates fifty-eight-hundred jobs. However, Tom Vilsack says every billion dollars worth of agricultural exports creates sixty-five-hundred jobs.

Vilsack :33 …supporting thousands of good paying jobs.

Quote - And those jobs are generally higher paying jobs. Anywhere from 13 to 18% higher in income. So, this is really about creating jobs and it is estimated, anticipated, there will be about 130 billion dollars in additional trade will take place in terms of our exports going to other countries. Nine-percent of that, on average, is usually agriculture, so you can do the math. You are talking about billions in ag exports, stabilizing farm prices, which will help to stabilize the rural economy in those towns where farmers are doing better and at the same time supporting thousands of good paying jobs.

By Secretary Vilsack’s math the agricultural exports would create about 76,000 U.S. jobs. TPP as a whole is expected to create nearly three-quarters of a million U.S. jobs.

Thursday, October 1, 2015

Sell on Short Term Rallies - Darrel Good Interview

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Sell on Short Term Rallies - Darrel Good Interview
Darrel Good, Agricultural Economist - University of Illinois

Wednesday, September 30th USDA tallied how much of last fall’s harvest was still left in the bin. Todd Gleason spoke with University of Illinois Agricultural Economist Darrel Good about the figures. He started the conversation by asking which of the numbers were most important.

There are three numbers I think everybody looks…
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That was Todd Gleason talking with University of Illinois Agricultural Economist Darrel Good by the final Grain Stocks report for the 2014/2015 marketing year.