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WILLAg Newsletter | January 28, 2018

January 28, 2018

It was a pretty good week for corn and soybean futures in Chicago. However, given the last six months of trade that’s not a huge accomplishment.

Presented below you’ll see two thoughts on where the markets might be headed. “Bad Weather Rising” lays out Scott Irwin’s longer term contrarian view. He’s of the opinion the markets over the next five years will reflect a higher mid-point. Irwin’s colleague at the University of Illinois, Todd Hubbs, takes the shorter term ‘marketing view’. His price outlook is less attractive. Again, one view is long-term and the other is short-term. Both have implications for farm and marketing decisions.
Further down in this letter you’ll find an article reposted from farmdocDaily. In it Iowa State’s Keri Jacobs details how the new tax law will impact grain marketing. You’ve likely heard a great deal about the 20% tax break farmers will receive if the first sale of their grain goes through a cooperative. Jacobs offers insight into how this works and the potential impact it will have on agricultural infrastructure.

There’s something a bit fun in today’s letter, too. The first corn harvest of 2018 in the United States has already taken place! Well, it’s actually the 2017 corn crop. Last Thursday I slammed my brakes on just outside of Jacksonville, Illinois to stop and watch Jon Brickey harvest five acres with an 1160 Case combine (he thinks 1969 vintage). I took a few photos and a made a little video.

Thank you for supporting WILLAg programming!
Todd Gleason






Bad Weather Rising

An agricultural economist at the University of Illinois is looking for a long-term recovery in the commodity markets. Commodity prices have been low since 2014, but the price of farmland has remained fairly strong. This is an indication thinks University of Illinois’ Scott Irwin that those buying farmland believe his contrarian view that prices will recover say to $4.00 for corn, $10.75 for soybeans, and $4.75 for all wheat. That’s at least one way to reconcile the firmness of land values. These long-run investors, whether they be farmers or outside investors, are looking for higher averages to restore profitability.



Irwin says there are two reasons for commodity prices to increase. One of them is slow. It’s the return of better economic conditions across the planet. The other he says is fast and violent, “I think it will be a series, in a fairly short period of time, of really poor weather that will be the big event that pulls us out.”

The ag economist is looking for the return of a more normal frequency of bad weather in the United States. Noting that the last twenty-plus years have been the best series in terms of corn belt weather since 1895.





Commodity Week
Panelists
- Merrill Crowley, Midwest Market Solutions
- Curt Kimmel, Bates Commodities
- Wayne Nelson, L&M Commodities

access past Commodity Week programs in the archive



Can Corn Prices Get Above the Current Range
Todd Hubbs, Agricultural Economist - University of Illinois
read the farmdocDaily article

March corn futures continue to trade between $3.48 and $3.60. This has been the case since the release of the November USDA supply and demand tables. It continues today despite the bearish information contained in USDA’s end of year reports released January 12. Todd Hubbs says corn prices continue to stay in relatively narrow range, and that pattern may remain for the next several weeks.


Listen to Todd Hubbs discussion of his farmdocDaily article with Univesity of Illinois Farm Broadcaster Todd Gleason

The University of Illinois grain markets specialist says the present outlook projects ample corn supplies in 2018. This will likely keep corn prices in the current range until information on spring planting is released. USDA’s Prospective Plantings report is due March 29th. Hubbs says a typical price pattern suggests a price rally in late spring or early summer associated with a weather issue. Summer weather and the impact it has on corn production will eventually determine the 2018 corn price.



Hey, Alexa! Teach your Amazon Echo to play WILLAg.

amazon.com

Do you want your Amazon Echo to play WILLAg and NPR programming at your voice command? It’s easy to set up!

First, enable NPR One. Just say, “Alexa, enable NPR One,” or search for NPR One in the Alexa app’s skill store. Then, follow the prompts to launch into your customized listening experience. After you have enabled NPR One follow these steps, and WILLAg will be at your beck and call!
  • To listen to the Closing Market Report: “Alexa, ask NPR One to play the Closing Market Report.”
  • To listen to the Commodity Week: “Alexa, ask NPR One to play Commodity Week.”
  • To stream WILL’s live broadcast: “Alexa, play AM580.”
  • To listen to The 21st (WILL AM580’s talk show): “Alexa, ask NPR One to play the 21st.”
  • To listen to any of our podcasts like the Bandwagon: “Alexa, ask NPR One to play the Bandwagon.”


http://www.sfarmmarketing.com/wp/
Pre-register and find full details of the upcoming Strategic Farm Marketing winter meetings at www.sfarmmarketing.com. Meetings run through mid-February. Be sure to check the full schedule online for a program near you.



The New Tax Laws & Marketing Grain to Cooperatives

A Discussion of the Sec 199A Deduction and its Potential Impacts on Producers and Grain Marketing Firms reprinted from farmdocDaily.

by Keri L. Jacobs
Department of Economics
Iowa State University

The newly passed Tax Cuts and Jobs Act of 2017 introduced substantive changes to individual and entity-level tax rates and deductions, many of them welcomed by individuals and corporations. One section of the Internal Revenue Code (IRC) in particular–IRC § 199A Deduction for Qualified Business Income of Pass-Through Entities (Sec 199A hereafter)–is getting a lot of attention, raising questions and eyebrows for its potential impacts on grain marketing decisions. In essence, language in this section of code gives producers marketing grain a significant incentive to sell to a cooperative rather than a non-cooperative firm.

The purpose of this article is to highlight the primary features of the Sec 199A deduction causing concern and discuss potential implications for producers and grain marketing firms. Note that at one month into the new tax year, there are ongoing efforts directed at modifying the language in the code to correct the unintended effects on producers and grain marketing firms.

What Does Sec 199A Do?

Sec 199A is a deduction that applies to income earned from the business activities of pass-through entities, like S corporations, sole proprietorships, partnerships, and so forth. These are businesses whose income is not taxed at the entity level, but passed-through to its owners. The intent in crafting Sec 199A was two-pronged: 1) to ensure that these pass-through, non-corporate entities had a deduction similar to the reduction in the corporate tax rate, which dropped from a maximum of 35% to a flat rate of 21%, and 2) to retain, for cooperative organizations, a prior deduction that was removed: Domestic Productions Activity Deduction (DPAD), or Sec 199. This is not a typo: Sec 199A replaces Sec 199 of the 2001 Bush tax cuts. Note that the DPAD was a jobs-creation deduction and available to manufacturing firms across many sectors, including agricultural cooperatives marketing farmers’ domestic production of grain.

The Sec 199A deduction for pass-through entities is based on qualified business income (QBI). There are restrictions on what qualifies as a business activity for this deduction (many services, for example, do not), and both the definition of qualified business income and calculation of the actual deduction are complicated. But in simple terms, the deduction is 20% of the qualified business income, subset to a wage limitation. Though complicated, this portion of the code is not contentious.
Sec 199A has a second feature, and this is the part that leaves open a number of questions about unintended consequences. In addition to the deduction related to qualified business income, it provides a 20% deduction on ‘qualified cooperative dividends.’ Typically we think of qualified cooperative dividends as the annual allocation of profits from a cooperative to its members–these are better called qualified cooperative patronage allocations. In this new law, those are indeed included in the payments eligible for 20% deduction and also not hugely controversial. However, another payment by cooperatives to its members is also included in the definition of ‘qualified cooperative dividends’: per unit retains (more correctly called per unit retains paid in money, or PURPIM). Per unit retains, in the simplest terms, are the payments from cooperatives to members for their grain or other agricultural production. Note the deduction applies only to the marketing or pooling functions (grain and other agricultural products) and does not include purchases by members for agronomy, seed, fuel, etc.

Per unit retains were defined as ‘qualified cooperative dividends.’ As a result, a producer selling grain can receive a 20% deduction of gross grain sales (before farm expenses) from taxable income less capital gains if s/he is a member selling to a cooperative. If instead the sale is to a non-cooperative marketing firm or processor (e.g., ADM, Cargill, or any number of independent grain marketing firms), the deduction is 20% of the net income. At the surface, this creates a significant effective basis gap between otherwise equal basis bids for grain or other agricultural commodities. A simple example, abstracting from the complexities of QBI and marginal tax calculations shows the potential.

A farmer has $500k in gross grain sales (140,000 bushels) and $100,000 in net farm income, all from selling grain. If she markets through a cooperative, she anticipates a patronage allocation of $0.025 cents per bushel, or $3,500.
  • Choice A: She markets the crop to an independent grain firm or processor and, through Sec 199A, she deducts up to 20% of her QBI: 20% x $100,000 = $20,000 potential deduction.
  • Choice B: If she markets the crop to her cooperative, she deducts up to 20% of gross sales (20% x $500,000 = $100,000) because they qualify as per unit retains, plus 20% of any qualified patronage allocation (20% x $3,500 = $700). The potential deduction is $100,700.
At a 22% marginal tax rate based on selling to an independent marketing firm or processor (Choice A), the deduction difference between these two choices is $80,700, which equates to $0.12 per bushel in taxes. Estimates from tax professionals working with producers is that the tax effect may range from $0.05 - $0.20 per bushel.

It is clear to see why producers are eager for clarification on this law and why independent grain firms and processors want it changed. Facing equivalent cash bids in the market, the signal is pretty clear that it is advantageous to market to a cooperative.

What if it stays as written?

The above example is meant for illustration, and there are a number of factors that might mitigate the true differential created by the law, and these are producer-specific. Still, contemplating its preservation, a cascade of questions emerge regarding grain and agricultural product movements, local capacity, optimal organizational structures for farmers, and the fate of independents. Below are my thoughts summarized in the two broader questions I receive, vetted with trusted colleagues and grain marketing experts. The perspective I provide here applies to agricultural producers and grain marketing in the Midwest, but certainly there are related or larger impacts for other types of ag cooperatives throughout the country.
  • Do cooperatives have the storage and transport capacity to handle agricultural products if all producers sell to a cooperative? What happens if not? What will be the local price impacts?
Generally speaking, it is unlikely that cooperatives have sufficient facilities currently to handle the harvest grain movements and other seasonal gluts that arise in the Midwest. But storage is a local phenomenon and each region will be different. In Iowa, for example, approximately 72% of the 1.4 billion bushels of licensed grain warehouse capacity (state and federally licensed) is held by a cooperative. If one considers on-farm storage, the argument could be made that this law wouldn’t create a significant grain-movement challenge in a number of parts of Iowa. In Kansas, approximately 70% of the grain storage is held by cooperatives or on-farm. Cooperatives in both states use ground piles to manage harvest gluts, and if this law sticks, that challenge may be exacerbated in the short term. But cooperatives and producers would respond to the economic incentives to invest in grain storage in that case. Condominium grain storage is another option for producers to mitigate storage constraints.

Grain storage facilities aside, a number of mitigating origination options are already used. In regions where processors and ethanol plants exist, producers use ‘direct-ship’ contracts to haul grain directly to a processor even though it is sold to the cooperative. Without recent data regarding the proportion of grain moving this way, it is hard to say whether we will see a significant change in those patterns, and even if so, grain movements and prices will find an equilibrium. Independent grain firms and processors likely will seek to establish marketing arrangements with cooperatives as a way to secure footing locally in the grain business.

Local price impacts are another unknown. On the one hand, some independents and corporations received a nearly 40% reduction in taxes (from 35% to 21%) via Sec 199A that cooperatives, which pass through member-based income to patron-members did not. The argument has been made that they can use those tax savings to be price competitive in the eyes of producers making the marketing decision. On the other hand, local capacity constraints at cooperatives may depress local basis, particularly during harvest, which partially mitigates the tax-differential created by Sec 199A.

Cooperatives typically do not turn away grain from members, which is why we observe large grain piles on the ground during harvest. Producers individually will need to weigh the potential tax deduction benefit with other costs associated with marketing grain: hauling distance, local basis differential, differentials in wait times at grain dumps, and so on. If net farm income is expected to be low, the per-bushel estimated tax difference created by Sec 199A dissipates.
  • Will producers form their own cooperatives or independents reorganize as a cooperative?
In local areas without grain/oilseed marketing cooperatives, the potential exists to see producers forming closed cooperative organizations to capitalize on the Sec 199A deduction. More likely, however, is that existing cooperatives acquire or build assets in those areas, or as mentioned above, form marketing arrangements with existing firms. In much of the Midwest, existing cooperatives are of sufficient size and capitalization and have the spatial presence to respond much faster to the need for capacity and changing grain dynamics than a start-up could accomplish. Alongside the temptation to form a cooperative, the new tax code creates incentives for producers to reconsider their own operation’s structure, potentially reorganizing as a C corporation or S corporation or changing from one to the other. Those details aren’t discussed here, but are complicating factors in determining how the farm economy might change if Sec 199A holds as written.

Effects on grain cooperatives

Producers will be impacted not only by the farm-level deduction of Sec 199A but, as members of cooperatives, stand to notice positive changes related to their cooperative’s patronage allocations and equity redemption. The tax savings to cooperatives on non-member business and the supply-side of their business are just like those for other corporations, and the new tax rate is 21% instead of a maximum of 35%. However, if the Sec 199A deduction for producers marketing through a cooperative holds, all producers selling grain to a cooperative will choose membership, effectively eliminating any non-member marketing business. That aside, tax savings on cooperative profits related to input supply or other non-marketing functions could be used to accelerate the cooperative’s equity redemption which gets income into the members’ hands more quickly. Alternatively, the tax savings could be used to improve facilities and service offerings to benefit members.

For those wanting more details, the fact sheet “Impact of Tax Reform on Agricultural Cooperatives” (Briggeman and Kenkel, 2018) dives into the expected changes in cooperative patronage allocation and member-level returns from the law using simulation.

Conclusion

The questions that fall out of the reality of the Sec 199A code as written are important ones, as their answers weigh on the potential for significant changes in the structure of the agricultural supply chain for crops, in grain movements, and in farm-level incomes.

In a statement on January 12, 2018, the U.S. Department of Agriculture’s Under Secretary for Marketing and Regulatory Programs Greg Ibach wrote, “The aim of the Tax Cuts and Jobs Act was to spur economic growth across the entire American economy, including the agricultural sector. While the goal was to preserve benefits in Section 199A for cooperatives and their patrons, the unintended consequences of the current language disadvantage the independent operators in the same industry. The federal tax code should not pick winners and losers in the marketplace. We applaud Congress for acknowledging and moving to correct the disparity, and our expectation is that a solution is forthcoming. USDA stands ready to assist in any way necessary.”

The agricultural industry–cooperatives, too–anticipated that the existing DPAD deduction would not stand in the tax reform negotiations, but thought a similar provision would replace it. Few, if any, anticipated that a cooperative deduction would be expanded to the producer-level, or believe it will stand as written. Organizations such as the National Grain and Feed Association (NGFA) and the National Council of Farmer Cooperatives (NCFC) are working jointly on a revision with Congress. Tax professionals, agricultural businesses, and producers are waiting for clarification on whether the law will stay as-is or be changed, and will then await guidance from the IRS on interpretation.




1969 Case 1160 Shucking Corn in January



Jacksonville, IL - Jon Brickey of Murrayville, Illinois decided to take advantage of the 50-degree weather January 25, 2018, to shuck corn with his vintage 1969 (circa) Case 1160 combine. University of Illinois Extension Farm Broadcaster Todd Gleason happened to be passing by and stopped to visit.



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Todd E. Gleason, WILLAg.org
University of Illinois Extension
(217) 333–9797 or tgleason@illinois.edu




Can Corn Prices Get Above the Current Range

read the farmdocDaily article

March corn futures continue to trade between $3.48 and $3.60. This has been the case since the release of the November USDA supply and demand tables. It continues today despite the bearish information contained in USDA’s end of year reports released January 12. Todd Hubbs says corn prices continue to stay in relatively narrow range, and that pattern may remain for the next several weeks.


Listen to Todd Hubbs discussion of his farmdocDaily article with Univesity of Illinois Farm Broadcaster Todd Gleason

The University of Illinois grain markets specialist says the present outlook projects ample corn supplies in 2018. This will likely keep corn prices in the current range until information on spring planting is released. USDA’s Prospective Plantings report is due March 29th. Hubbs says a typical price pattern suggests a price rally in late spring or early summer associated with a weather issue. Summer weather and the impact it has on corn production will eventually determine the 2018 corn price.

Bad Weather Rising

An agricultural economist at the University of Illinois is looking for a long-term recovery in the commodity markets. Commodity prices have been low since 2014, but the price of farmland has remained fairly strong. This is an indication thinks University of Illinois’ Scott Irwin that those buying farmland believe his contrarian view that prices will recover say to $4.00 for corn, $10.75 for soybeans, and $4.75 for all wheat. That’s at least one way to reconcile the firmness of land values. These long-run investors, whether they be farmers or outside investors, are looking for higher averages to restore profitability.

Irwin says there are two reasons for commodity prices to increase. One of them is slow. It’s the return of better economic conditions across the planet. The other he says is fast and violent, “I think it will be a series, in a fairly short period of time, of really poor weather that will be the big event that pulls us out.”

The ag economist is looking for the return of a more normal frequency of bad weather in the United States. Noting that the last twenty-plus years have been the best series in terms of corn belt weather since 1895.

WILLAg Newsletter | January 20, 2018

January 18, 2018
If you’ve been listening to the daily Closing Market Report you’ll know that many of the analysts have been on the road for the winter meeting circuit. I hope you get a chance to catch up with some of them or maybe me. I’ll be out next week with the folks from Farm Credit Illinois. You may see the dates and times here. These are crop insurance and marketing meetings. Strategic Farm Marketing will be doing a similar program. You may see their winter meeting list later in this letter. The farmdoc team will be out, too. Although that’ll happen in mid-February. Registration is already open for the “2018 Resilient Farm Roadshow | Building habits to become profitable Farm Managers”.
If you or your organization is still planning an event contact me at (217) 333–9697 or tgleason@illinois.edu. I’ll be glad to talk with about bringing a WILLAg Marketing Panel to your meeting. Or if you’d prefer, just to give you the contact information for the University of Illinois ag economist, weed scientist, entomologist, or plant pathologist of your choice. I can also put you in contact with any of the analysts you hear on WILLAg.
Todd Gleason, ILLINOIS Extension Farm Broadcaster
College of Agricultural, Consumer & Environmental Sciences

Commodity Week
Panelists
- Bill Mayer, Strategic Farm Marketing
- Joe Vaclavik, Standard Grain
- Mike Zuzolo, Global Commodity Analytics and Consulting 

It is dry in the United States from Texas to Illinois.
Frankly, that’s not a big deal right now or a marketing plan. It could become something later on in the year, but the odds don’t really correlate in any fashion. Here is proof from the USDA NASS National Average Yield database. What you see is the average national corn yield for each year since 2010 imposed on a January Drought Monitor map. The U.S. Drought Monitor is produced through a partnership between the National Drought Mitigation Center at the University of Nebraska-Lincoln, the United States Department of Agriculture, and the National Oceanic and Atmospheric Administration.



Spring rains, more often than not, alleviate dry conditions. You may view the National Average Corn Yield database going back to 1866 (24.3 bpa) using this link. Here’s a quick view of the National Average Yields database for corn going back to 2002.


Returning to the New Era Corn Price Mid-Point
The agricultural economists at ILLINOIS believe there are three recent historical commodity price eras. For grain prices, these run from post World War II to 1973, from 1973 to 2006, and from 2006 to the present. What they’ve found to date is that grain prices, unadjusted for inflation, tend to move within a range during these eras. 
The current range for corn is something like $3 dollars per bushel on the low end and $8.00 on the high. The highs come less frequently, usually driven by a weather-related shortfall. Consequently, prices spend more time on the lower end of the range than the top end. However, he doesn’t really know why the prices are so range-bound, “My own personal view is that it reflects relatively stable supply and demand dynamics. These are food commodity markets that don’t change very rapidly in terms of who’s producing and who’s consuming. As long as economic growth is not wildly high or low, we’ll tend to bounce around in a range.”
The mid-point of that range in Illinois since 2006 has been about $4.50 for corn. However, Irwin says corn prices over the last four years have averaged about $3.50 per bushel. He thinks this means corn prices are due to go higher. Marketing on that belief is difficult says Scott Irwin, “If you believe conventional wisdom, you should prepare for and project sub $3.50 corn prices for as far as the eye can see. This is not my view. I will be the first to admit prices have gone lower, longer than I expected when we came off the highs, but I still believe a projected average price over the next five years closer to $4.00, rather than $3.25 or $3.50 is more realistic.” 
Admittedly, Irwin has more confidence in his ability to predict the mid-point than the movement of prices. Mostly he says the upward moves are predicated on weather problems. 



Pre-register and find full details of the upcoming Strategic Farm Marketing winter meetings at www.sfarmmarketing.com. Meetings run through mid-February. Be sure to check the full schedule online for a program near you.

Annie’s Project

Women involved in agriculture and wanting to learn more about managing risk on the farm can sign up for Annie’s Project classes this winter. Annie’s Project was originated by Ruth Hambleton before she retired from Illinois Extension.
Annie’s Project – Education for Farm Women is a 501(c)(3) nonprofit organization dedicated to providing educational programs (Annie’s Projects) designed to strengthen women’s roles in the modern farm enterprise. Currently, classes are being taught in 33 states. Annie’s Projects foster problem solving, record keeping, and decision-making skills in farm women.
The six educational sessions of the course include topics from the five risk areas. As Annie’s Project has been localized to meet the needs of farm and ranch women across the country, topics or emphases may vary.
  • Financial Risk – women and money, basic financial documentation, interpreting financial statements, enterprise analysis, USDA programs, and record keeping systems
  • Human Resource Risk – communication and management styles, insurance needs, and succession planning
  • Legal Risk – estate planning, farmland leasing, and employee management
  • Market Risk – access to market information and grain or livestock marketing
  • Production Risk – Natural Resources Conservation Service, web soil survey, and crop insurance

Todd E. Gleason, WILLAg.org
University of Illinois Extension
(217) 333–9797 or tgleason@illinois.edu

Returning to the New Era Corn Price Mid-Point

The agricultural economists at ILLINOIS believe there are three recent historical commodity price eras. For grain prices, these run from post World War II to 1973, from 1973 to 2006, and from 2006 to the present. What they’ve found to date is that grain prices, unadjusted for inflation, tend to move within a range during these eras.

The current range for corn is something like $3 dollars per bushel on the low end and $8.00 on the high. The highs come less frequently, usually driven by a weather-related shortfall. Consequently, prices spend more time on the lower end of the range than the top end. However, he doesn’t really know why the prices are so range-bound, “My own personal view is that it reflects relatively stable supply and demand dynamics. These are food commodity markets that don’t change very rapidly in terms of who’s producing and who’s consuming. As long as economic growth is not wildly high or low, we’ll tend to bounce around in a range.”

The mid-point of that range in Illinois since 2006 has been about $4.50 for corn. However, Irwin says corn prices over the last four years have averaged about $3.50 per bushel. He thinks this means corn prices are due to go higher. Marketing on that belief is difficult says Scott Irwin, “If you believe conventional wisdom, you should prepare for and project sub $3.50 corn prices for as far as the eye can see. This is not my view. I will be the first to admit prices have gone lower, longer than I expected when we came off the highs, but I still believe a projected average price over the next five years closer to $4.00, rather than $3.25 or $3.50 is more realistic.”

Admittedly, Irwin has more confidence in his ability to predict the mid-point than the movement of prices. Mostly he says the upward moves are predicated on weather problems.

Returning to the New Era Corn Price Mid-Point

ifr18019–020
Returning to the New Era Corn Price Mid-Point
Scott Irwin, Agricultural Economist - University of Illinois

The agricultural economists at ILLINOIS have been championing a new era for grain prices since the rise of ethanol as a major player in the U.S corn market. Todd Gleason has more on why.

Scott Irwin is an agricultural economist…
2:44 radio
2:57 radio self-contained

Scott Irwin is an agricultural economist from the University of Illinois. He and his colleagues believe grain prices have achieved a new higher plateau era. An era that started just after Congress mandated renewable fuels be ramped up in the U.S. gasoline supply over a ten year period beginning in 2005. Irwin says it is the third such era.

Irwin :25 …within a range during these eras.

Quote Summary - The periods that I call eras of grain prices run from post World War II to 1973, from 1973 to 2006, and 2006 to the present. What we have found to date is that grain prices, unadjusted for inflation, tend to move within a range during these eras.

The current range for corn is something like $3 dollars per bushel on the low end and $8.00 on the high. The highs come less frequently, usually driven by a weather related short-fall. Consequently, prices spend more time on the lower end of the range than the top end. However, he doesn’t really know why the prices are so range-bound.

Irwin :29 …tend to bounce around in a range.

Quote Summary - No real good answers for that. My own personal view is that it reflects relatively stable supply and demand dynamics. These are food commodity markets that don’t change very rapidly in terms of who’s producing and who’s consuming. As long as economic growth in not wildly high or low, we’ll tend to bounce around in a range.

The mid-point, by-the-way, of that range in Illinois since 2006 has been about $4.50 for corn. However, Irwin says corn prices over the last four years have averaged about $3.50 per bushel. He thinks this means corn prices are due to go higher. However, marketing on that belief is difficult.

Irwin :38 …closer to $4.00, rather than $3.25 or $3.50 is more realistic.

Quote Summary - If you believe conventional wisdom, you should prepare for and project sub $3.50 corn prices for as far as the eye can see. This is not my view. I will be the first to admit prices have gone lower, longer than I expected when we came off the highs, but I still believe a projected average price over the next five years closer to $4.00, rather than $3.25 or $3.50 is more realistic.

Admittedly, Irwin has more confidence in his ability to predict the mid-point than the movement of prices. Mostly he says the upward moves are predicated on weather problems.

Looking for Anaplasmosis in Beef Cattle

Researchers at the University of Illinois are working with beef cattle producers in the southern third of the state to determine the prevalence of a disease that causes cows to become listless and die.



A cattle disease called anaplasmosis has been ramping up in southern Illinois, or at least that’s the way it appears. In short, it causes severe anemia. Illinois Extension’s Teresa Steckler, with funding from the Illinois Beef Association, has been pulling blood samples from herds in the area. She’s trying to determine if the strain of anaplasmosis is one called Mississippi that can be controlled by a vaccine, or if it is something else, “I’m just trying to see, with the movement of cattle throughout the United States, if we have a new strain? Is there a new agent transmitting the disease or is it just the tick that is causing the transmission? Is that linked to our deer population or some other population which the ticks may feast on and then move on to the cattle? It is related to the increase, and the guys are reporting to me, the big black horse flies”.

Cattleman, like Loy Hosselton in southern Illinois, don’t think there has been an increase in the tick population, but say the number of black horse flies has been on the upswing. Hosselton’s a vet and had ILLINOIS pull samples from his herd of about 50. He says herd-health is something that takes constant attention, even when the signs are there, “When they lose one head, they often times just throw that up to chance when it could be the sign of something more sinister”.

Something like a blood parasite that causes anaplasmosis. Something the University of Illinois is working to prevent through research and education.



Those in the southern 27 counties of Illinois can contact Teresa Steckler to schedule a blood draw from their herd. The work is sponsored in part by the Illinois Beef Association.

Corn, Soybeans, and Wheat Acres in Illinois



Between 1996 and 2017, the sum of acres planted to corn, soybeans, and wheat have varied within a tight band for the state of Illinois. It has ranged from 22.0 million to 22.7 million acres for the three crops. Over this period acreage planted to wheat has been small and declining. It has decreased from 1.7 million in 1996 to just half-a-million in 2017. University of Illinois Agricultural Economist Gary Schnitkey says most of the acreage switches in the state have been between corn and soybeans.



These are the historical facts for Illinois. In 1998, corn and soybean acres were each at 10.6 million. With some yearly variations, corn acres then increased and soybean acres generally decreased from 1998 to 2012. In 2012, 12.8 million acres of corn were planted and 9.0 million acres of soybeans. Since then, corn acres have decreased and soybean acres have increased. Corn acres declined from 12.8 million in 2012 to 11.2 million in 2016. Soybean increased from 9.0 million to that same 11.2 million over the same period.

IFES 2017: Crop and Livestock Price Prospects for 2018

read farmdocDaily article

by Todd Hubbs, Commodity Markets Specialist - University of Illinois

CROPS

Crop prices will remain below the high levels seen in the early part of this decade due to large global inventories. Global economic growth continues to build on the momentum seen over the last year. Growth in China and emerging market in Asia is projected to remain strong throughout 2018. The prospects of improved growth support commodity demand, but the significant changes to trade policy could mitigate some of this demand growth in export markets. Lower prices are expected to continue in 2018 barring a shortfall in one of the major production regions. The following price outlook analysis assumes a good 2018 growing season.

Corn prices continue to struggle with large crops and five consecutive years of growth in ending stocks. Domestic corn demand continues to see moderate growth in corn used for ethanol which has been supported by record levels of ethanol exports. Growth in livestock production and low corn prices provide support for increased feed usage during the 2017–18 marketing year. The potential for greater than 5.5 billion bushels in feed and residual use would be the largest amount since 2007–08. Corn exports currently lag the pace of last marketing year’s 2.29 billion bushels and are projected at 1.95 billion bushels by the end of the current year. Planted acreage of corn is expected to increase slightly in 2018 to 90.8 million acres. Assuming a trend yield near 172.3 bushels would result in a 2018 crop near 14.4 billion bushels. A projected total use of 14.5 billion bushels would result in the 2018–19 marketing year ending stocks near 2.44 billion bushels, a slight decrease from 2017–18 projections. Prices are expected to average near $3.30 during the current year and near $3.40 during the 2018–19 marketing year if production develops as expected.

Soybean prices remain strong relative to corn and wheat prices. U.S. soybean ending stocks continue a five-year pattern of growth with 2016–17 ending stocks ending at 301 million bushels. The lower than initially projected ending stocks benefited from very strong export numbers driven by continued growth in exports to China. Soybean exports are projected to exceed 2.2 billion bushels during this marketing year, up from last marketing year’s 2.174 billion bushels. Expanded soybean acreage and a 49.5 bushel yield for the 2017 crop are expected to increase 2017–18 marketing year ending stocks to 480 million bushels. Planted acreage of soybeans is expected to increase moderately to 90.6 million acres in 2018 due to the low prices of corn and wheat and the lower cost of producing soybeans relative to corn. A yield near 48.5 bushels would result in a 2018 crop about 52 million bushels smaller than the 2017 crop. With total use projected at 4.32 billion bushels, a further increase in U.S. stocks is expected by the end of the 2017–18 marketing year. Prices are expected to average near $9.20 during the current year and near $8.80 during the 2018–19 marketing year if world production develops as expected.

U.S. wheat acreage is expected to continue declining. Planted acreage decreased to 46.01 million acres in 2017. U.S. wheat production decreased by 508 million bushels in 2017 with average yield down by 6.3 bushels per acre. Soft red winter wheat production decreased to 202 million acres on 230,000 fewer acres nationally. Soft red winter wheat production is down 49 percent from 2010–2017 in Illinois. During the same period, wheat acreage in Illinois declined by 450,000 acres. World wheat production in 2017–18 is expected to decline slightly from the record levels of 2016–17. Foreign wheat production is expected to increase for the fifth consecutive year. U.S. stocks of wheat in all classes are projected to decline to 935 million bushels after hitting 1.18 billion bushels in 2016–17. U.S. soft red winter wheat ending stocks are expected to grow by 7 million bushels in 2017–18. The average price received for the 2017 crop is expected to be near $4.60. The Illinois price at harvest is expected to be near $4.75.

LIVESTOCK

Livestock markets continue to respond to the growing demand for meat globally and lower feed costs. Prices in the livestock sector look to level out after declining from the highs seen in 2014 and the subsequent supply response. Production levels are expected to increase in 2018.

U.S. beef production is expected to increase 4.6 percent in 2018 on higher levels of feedlot placements in last half of 2017 and the beginning of 2018. Beef production is forecast at 27.6 billion pounds in 2018, up 1.2 billion pounds over 2017. Beef export markets continue to exemplify U.S. competitiveness in foreign markets. Exports are projected at 2.97 billion pounds, up from 2.85 billion in 2017. Recent strength in export markets has been driven by strong demand from Japan. Domestic per capita beef consumption is projected to increase in 2018 to 59.2 pounds, up 1.9 pounds from 2017. Strong demand in 2017 moved cattle through feedlots at a rapid pace. Fed cattle prices look to move lower in the first half of 2018 on large supplies. Fed cattle prices average near $122 in 2017 but look to average near $117 in 2018. Feeder steer prices averaged $145 in 2017 and are projected to be around $142 in 2018.

U.S. pork production is projected to increase in 2018 to 26.9 billion pounds, up 1.2 billion pounds from 2017. Delays in hog slaughter levels in the fourth quarter of 2017 are projected to push first quarter pork production in 2018 up 4.7 percent of 2017 levels. Pork exports in 2018 are expected to increase from the 5.6 billion pounds exported in 2017 to 5.9 billion pounds. While increased exports to Mexico helped to support the export pace thus far in 2017, lower export levels to Japan and China is currently a drag on pork exports. Domestic pork supplies in 2018 are forecast at 52.1 pounds per capita, up from 50.4 in 2017. The average hog price is expected to decrease to $45.00 in 2018, down from $49.01 in 2017

What Is Up with Soybean Yields

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by Scott Irwin, Agricultural Economist - University of Illinois

Soybean yields in the U.S. have been very high the last four years. The U.S. average yield set new records in a stair-step fashion each year between 2014 and 2016. The 2016 yield reached the remarkable level of 52.1 bushels. While not a record, the 2017 yield (based on the November 1 USDA estimate) was 49.5 bushels, the second largest ever. On top of the high U.S. average yields are the numerous reports of field-level yields in the 70s, 80s, and even a few in the 90s.





The high soybean yields of recent years have sparked a debate about what is driving the exceptional yields. In thinking about this debate it is important to understand that there are only three possible sources of soybean yield gain. The first is weather during the growing season. The second is genetic improvement in soybean varieties. The third is a management, which encompasses all aspects of the soybean production process. Genetic improvement and management sometimes go hand-in-hand so that one requires the other.

It is a not an easy task to disentangle the complex and sometimes interacting impacts of weather, genetics, and management on soybean yields. One approach is to use a crop weather regression model to estimate the separate impacts of weather and technology on soybean yield, where technology is the combined impact of genetic improvement and management. I estimated this type of model for U.S. average soybean yields over 1970–2017. A linear time trend was used to represent technological change and summer precipitation and temperature variables were used to represent growing season weather. The modeling results showed that U.S. average soybean yields in 2014, 2015, and 2017 could be explained by a continuation of the linear improvement in technology and good growing season weather. The exception was 2016, when yield was substantially higher than what could be predicted based on a linear technology trend and good weather. It is not clear from this exercise whether we should view the 2016 yield like a 100-year flood or a permanent jump in soybean yield potential.

Agronomic data can be helpful in further disentangling genetic improvement from other sources of soybean yield gain. One recent study collected seed for over 150 soybean varieties released from the 1920s through the 2000s. Using randomized trials from across the country in 2010 and 2011, the study estimated “pure” genetic improvement in soybean yields. The results indicated a linear progression of soybean genetic yield gain from 1970 through 2008. This indicates that the historical pattern of soybean genetic gains in yield have been steady and marked jumps in the rate of improvement are rare. Soybean variety test results from the Department of Crop Sciences at the
University of Illinois provide relevant data through 2017. The yield of conventional soybean varieties relative to the older Williams variety shows no change of trend in recent years. Overall, there is little evidence to date that soybean genetics have been improving at a faster rate in recent years.

If we dig into the soybean yield data for the U.S. state-by-state an interesting pattern emerges that points to important changes in management practices. In general, soybean trend yields in the Southeastern U.S. have been growing at a much faster rate than in other growing regions. This non-linear trend appears to be related to a number of management practices, which can be roughly described as having the purpose of replicating Midwestern growing conditions. This includes planting much earlier in the past, planting earlier maturing indeterminate varieties, including corn in the crop rotation to increase organic matter in the soil, and using raised bed production systems. These management practices have allowed soybean yields in the Southeast to largely catch up with those in the rest of the country.

In sum, the data indicate that the biggest factor explaining high soybean yields in recent years is simply exceptionally good growing season weather. Improved management practices, particular in the Southeastern U.S., have also certainly contributed. A jump in the rate of genetic improvement in soybeans was not likely a big contributor to the surge in soybean yields.

U.S. Crop Acreage Still Moving to Soybean

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Todd Gleason reports on the move away from wheat and towards soybeans.

Corn is king in the United States. Soybean has been on a swift move upward. And wheat acreage has been on the decline for about 40 years. About half-way through those 4 decades two important things happened. Congress passed the 1996 farm bill - often called Freedom to Farm because it eliminated the last vestiges of supply controls for program crops and Monsanto introduced Round-Up Ready soybeans, that was 1995. The latter made it a whole lot easier to raise beans and the former, says University of Illinois Agricultural Economist Gary Schnitkey, let farmers react to the market.



From 1996 to 2012 U.S. farmers increased soybean acreage by 20 percent, corn acreage was up a bit more, but not much, and wheat acreage plummeted 36 percent. Schnitkey says much of the change can be explained by just looking at the relative profitability of the crops. Corn and soybeans are more profitable than wheat. Most would likely say the reason wheat acreage has declined in the U.S. is because of the ethanol build-out. It is, but it’s also not says Schnitkey, "You can attribute that to a number of factors. Probably the bigger one is that corn has increased its yields at a pace relatively faster than wheat. This has caused the relative profitability of corn to be higher than wheat and corn has taken over the feed grain market.
This has caused the relative profitability of corn to be higher than wheat and corn has taken over the feed grain market.
Wheat is/was the primary feed grain for much of the world. In the United States corn is fed to livestock and used to make ethanol. It is best managed when rotated with other crops, the most profitable of which is soybean.

This past year U.S. farmers planted about 90 million acres of corn and 90 million acres of soybeans. It is a new trend, says the University of Illinois ag economist, driven by continued strong export growth for soybean. The United States is projected to export over 50 percent of the soybean crop this marketing year.

Soybean acreage has substantially gained on corn acreage since 2012. While last year the acreage planted was equal, U.S. farmers actually harvested about 6 million more of the soybean acres than they did of corn. So, by harvested acreage soybeans are the number one crop in the United States and it’s not that first time that has happened. The soybean was king in 2015 as well.