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Prevent Plant Soybean Acres in the United States

Rain from Missouri to Ohio has kept farmers from planting part of this year’s soybean crop, but nobody knows for sure - yet - just how many acres have been idled.

USDA has a term for land farmers planned to, but failed to sow because of the weather. It is “prevent plant”. This year rain has prevented farmers throughout the Midwest from planting some acres of soybeans. USDA has one figure already, but it is surveying farmers in Kansas, Missouri, and Arkansas to see if it needs to be updated. The figure is not for prevent plant, but rather for planted acreage. This year that is expected to be a record high 85.1 million acres. But there has been a lot of rain and the number will probably change. Gary Schnitkey wanted to know if history could act as a guide to how many acres might eventually not be planted to soybean.

Quote Summary - Just to give you a feel, from 1996 through 2014 on average there were 759 thousand prevented plant acres for soybeans in the U.S. There were four years when this number topped a million acres. The highest was 2013 at 1.69 million acres

The other three years in which prevent plant exceeded one million acres for soybean include 2001, 2010, and 2011.

Quote Summary - The common thing in all those years was either North Dakota, South Dakota, or Minnesota or some combination of the three having a large number of prevent plant soybean acres. Following those three it was Minnesota. The rank order is South Dakota, North Dakota, Minnesota, and then Missouri. These are typically the states you look at for large numbers of soybean acres going to prevent plant.

The Dakota’s and Minnesota are not the problem this year. It leaves, mostly, Missouri. And, historically, the highest number of soybean prevent plant acres in this one state is only 200,000.

Quote Summary - We are looking at something larger than that. The largest we’ve ever seen in the United States for a single is 450 thousand. So if we see something over half-a-million acres in Missouri, which we could well see, that would be record setting and a million would be way out there.

USDA will update the soybean acreage figures for Missouri, Kansas, and Arkansas August 12th along with the release of the Crop Production report and the monthly supply and demand tables.

Wheat Consumption Tracks USA Eating Habits

The following chart and commentary are posted to a USDA ERS website. Essentially it tracks how many pounds of wheat flour the average U.S. citizen has consumed per year since 1964. The ERS commentary on the reasons for the increase in consumption through the mid-1990's and sudden drop near the turn of the century reflect the eating habits of a couple generations of Americans.

Wheat consumption stable among U.S. consumers in recent years.

Per capita wheat flour consumption has been relatively stable in recent years, and is estimated in 2014 at 135 pounds per person, unchanged from 2013 but down 3 pounds from the recent peak in 2007. The 2014 estimate is down 11 pounds from the 2000 level when flour use started dropping sharply, partially due to increased consumer interest in low-carbohydrate diets. From the turn of the 20th century until about 1970, U.S. per capita wheat use generally declined, as strenuous physical labor became less common and diets became more diversified. However, from the early 1970s until the late 1990s, wheat consumption trended upward, reflecting growth in the foodservice industry and away-from-home eating, greater use and availability of prepared foods for home consumption, and promotion by industry organizations of the benefits of wheat flour and pasta product consumption. During this time, the domestic wheat market expanded on both rising per capita food use and a growing U.S. population. Relatively stable per capita flour use in more recent years means that expansion of the domestic market for U.S. wheat is largely limited to the growth of the U.S. population. This chart is based on the April 2015 Wheat Outlook report.

Still Uncertainty About New Crop Corn

The rain fall throughout the corn belt has built a great deal of uncertainty around the size of this year’s corn crop as predicted by the United States Department of Agriculture says University of Illinois Ag Economist Darrel Good. He thinks the amount of this “uncertainty” is more than usually the case.

Crescent City, Illinois corn field July 15, 2015

USDA released projections for the 2015–16 corn marketing year July 10th. The next update is due August 12th. The new crop corn marketing-year ending stocks of corn are currently expected to be 172 million bushels smaller, and the average farm price is expected to be $0.25 higher, than projected a month earlier. Those are the numbers in question. Both are related to the size of this year’s crop, and the ILLINOIS agricultural economist has some thoughts on the “unknowns” as it relates to risk and price.

Quote Summary - In years with substantial production uncertainty, prices tend to be above the subsequent marketing year average during the growing season, offering producers the opportunity to forward price a portion of the crop. That pattern seems to be unfolding this year. New crop corn prices are currently above both the spring price for crop revenue insurance and above the upper end of the range of the USDA’s marketing year average price projection. Still, prices could trade in a relatively wide range over the next 10 weeks. Pricing decisions remain difficult for producers, particularly for those with substantial production uncertainty.

This price risk for corn, says Darrel Good can be mitigated with a combination of incremental sales at higher prices and options-strategies that provide a floor above the crop revenue price of $4.15 for December futures.

The Consequences of a Foot of Rain in June

The rainfall in May and June has put the corn crop in a difficult position this growing season. Late in June the corn crop in eastern Illinois north of Interstate 74 was under water. It looked bad, really bad. Oh there was some of it that looked pretty good, but not much. Things across the border in Indiana aren’t much better, and neither, apparently, is a large part of Missouri and southern Illinois. The crop has just gotten way to much water says University of Illinois Extension Agronomist Emerson Nafziger.

Quote Summary - This is one of those times when the consequences of having a foot of rain in June is not something we would want to ever have and this year it is going to have a serious affect on the crop.

There are two primary concerns related to corn. The moisture is a great haven for the development of disease. The other concern, and this may be more important moving through July and August, is that the root system of the crop hasn’t had any need to develop…not just the roots of the corn under water, but of the whole corn crop from Missouri to Ohio.

The closer we get to pollination the slower this root regrowth is and the less potential there is to recover a healthy root system on this crop say Nafziger,

This could come back to hurt the crop later in the season because it won’t be very resilient during periods of dry weather. A crop in the first week of August cannot grow its root system deeper. It does not have that capability.

If the system has been damaged, even if there is nitrogen and water left deep in the soil, it may not be able to access it and produce higher yields. There in lies a new concern for the water logged corn crop. It looks now as if there may be a change in the weather pattern. Mike Tannura of tStorm Weather in Chicago has been talking about this on the radio.

Quote Summary - A hot area of upper level high pressure is going to drive the U.S. weather pattern over the next couple of weeks and probably beyond that. It’s location is key. Right now we think it will center somewhere near Nebraska / Kansas and on to the west, which would just keep things warm, but not too warm. Any deviation in that system would lead to dramatic changes in weather forecast over the next few weeks.

So, too much rain has stressed the corn crop from Missouri to Ohio. It’s about to pollinate, and then begin grain fill. Even if the weather only turns hot, it could be a compounding problem.

Higher Feed Costs Could Mean Pork Industry Losses

Weather damaged corn and soybean fields are also harmful to hog producers. Todd Gleason has more on the reason why.

Rising feed prices mean higher production costs for the pork industry. Recent higher corn and soybean meal prices have increased anticipated hog costs by about $10 per head says a Purdue University Extension ag economist. These higher feed costs shift the pork industry outlook from one of modest profits to losses says Chris Hurt of about $6 per head over the coming 12 months.

Rising feed costs is a new concern for producers. December 2015 corn futures, as an example, rose from about $3.80 on June 24 to about $4.30 on July 6. This increases the cost of hog production by around $2.25 per live hundredweight. In a similar time period, meal futures have risen about $40 PER ton, which increases cost by about $1.25 per live hundredweight. So, recent increases in corn and soybean meal prices have increased costs by about $3.50 per live hundredweight, or by nearly $10 per hog.

Weather is a primary driver of feed prices right now so no one knows if feed costs will get much higher or more moderate from here.

In June it costs about $50 to produce a hundred pounds of pork says Chris Hurt. With current higher feed prices, costs are expected to be closer to $53.50 for the last-half of 2015 and the first-half of 2016. He cautions, of course, that feed prices can change considerably depending on weather for the rest of the growing season. Right now it means pork producers will likely breakeven this quarter, and lose about $18 a head on those hogs marketed in October, November and December.

Hog prices averaged about $48 in the first quarter of this year, with an estimated loss of $11 per head. Second quarter prices were near $56, for an estimated profit of $14 per head. Third quarter prices are expected to average about $53 per hundredweight, which is near breakeven. The final quarter this year is expected to see prices drop to near $47 with losses estimated at $18 per head.

For all of 2015, losses are expected to average about $4 per head. Recent feed price increases are the primary reason the 2015 outlook has shifted toward expected losses. What is the outlook for 2016? Hog prices are expected to be around $47 per live hundredweight in the first quarter of 2016 and rise seasonally to $54 in the second quarter. Given current corn and meal prices, this would mean an estimated loss of about $17 per head in the first quarter and a profit of $10 per head in the second quarter.

Here’s how Chris Hurt puts all this data in perspective.

First, he says pork producers and their allied industries are to be commended for dealing with the PED virus in late–2013 and 2014.
Secondly, the industry is to be saluted for only modestly expanding the breeding herd after record high profits in 2014.
Finally, Hurt says the higher price of feed should remind the industry to be cautious about expansion, and to follow through on intentions to reduce farrowings this summer and fall.

Farmers Overwhelmingly Choose ARC County

Original Article

The U.S. Department of Agriculture, Farm Service Agency (USDA, FSA) recently released enrollment data on commodity program choices made under the 2014 Farm Bill. This article summarizes how farmers split program acres between Agricultural Risk Coverage - County Option (ARC-CO), ARC - Individual Option (ARC-IC), and Price Loss Coverage (PLC). Overall, ARC-CO was the overwhelming choice. ARC-CO was elected on 76% of program acres. PLC was next with 23% of acres, followed by ARC-IC with less than 1% of acres. There were differences in program choices across crops, as discussed below.

Program Choices

Farmers choose ARC-CO for 97% of soybean base acres and 94% for corn base acres (see Figure 1). Analysis indicated that expected payment from ARC-CO were larger than from PLC for both corn and soybeans (see farmdoc daily January 27, 2015 for more detail), suggesting high use of ARC-CO. However, the fact that ARC-CO accounted for over 90% of program acres for both corn and soybeans is astonishing. The large share suggests:

Farmers did not split decisions between ARC-CO and PLC. One strategy was to choose ARC-CO on some farms and PLC on other farms, splitting protection between a revenue program whose guarantee will change over time and a target price program with a fixed reference price. Most farmers did not follow the strategy of splitting choices.
Farmers raising corn and soybeans placed little value on having the option to purchase Supplemental Coverage Option (SCO). SCO is a county-level crop insurance program that rides on top of individual plans. SCO is only available if PLC was chosen.
When making decisions, the default was PLC. Farmers had to make an active decision to sign up for ARC-CO. Most farmers raising corn and soybeans made an active decision to choose ARC-CO.
The large percentages suggest that farmers raising corn and soybeans were comfortable with revenue-based programs. Some questioned this because ACRE - a revenue program available in the 2008 Farm Bill that preceded ARC-CO - was chosen by few farmers. The decision to use ARC-CO also mirrors crop insurance decisions made by corn and soybean farmers, where farmers overwhelmingly choose to use revenue insurances.

On corn, farmers used ACRE on 8.1% of base acres in 2013. Hence, revenue program use on corn increased from 8.1% in 2013 up to 94% after 2014 program choices. There are a number of reasons that could have caused this change:
To enroll in ACRE, an individual had to give up 20% of direct payments and loan rates were reduced by 30%. Since direct payments were eliminate and loan rates were the same no matter the choice in the 2014 Farm Bill, this tradeoff did not exist for ARC-CO.
ACRE was more complicated than ARC-CO, especially as ACRE required two triggers to be met before a farmer could receive payments. Farmers had to provide yields to FSA when enrolling in ACRE. This was not the case for ARC-CO.
Given the elimination of direct payments and the choices posed in the 2014 Farm Bill, farmers likely gave the choices more consideration in 2014.
Price expectations were different in 2014 than when ACRE decisions were made. There also are expectations for larger up front ARC-CO payments.

At the other end of the spectrum, near 100% of peanut and long grain rice base acres were enrolled in PLC (see Figure 1). These large percentages are not a surprise as studies suggested that PLC would make larger payments than ARC-CO for these crops (see farmdoc daily January 27, 2015 for more detail). Reference prices for these crops are well above market-level prices, leading peanuts and rice farmers to overwhelmingly choose PLC.

Perhaps the surprise in rice is the fact that ARC-CO was elected for a relatively high percentage of acres for Japonica rice. ARC-CO was selected on 34% of acres, ARC-IC was selected on 4%, and PLC for 62%. Note that yield and price dynamics are different for japonica rice than for long grain prices and Japonica’s reference price was set at 115% of the long and medium grain reference price. Also, all Japonica rice base acres are located in California, and the drought situation may be playing a role in program choice.

Wheat choices were split relatively evenly between ARC and PLC (see Figure 1). ARC-CO was used on 56% of base cases, ARC-IC on 2%, and PLC on 42%. Studies of expected payments suggested that ARC-CO and PLC were near one another, potentially leading to the relatively even split.

ARC-IC was used on the fewest program acres. Crops having the most use of ARC-IC include large chickpeas (11% of base acres), small chickpeas (9%), lentils (7%), dry peas (6%), mustard (6%), temperate japonica rice (4%), barley (4%), and safflower (3%). There is a geographical dimension to where these crops are raised, with most of the states being located in the northwest. Oregon had the highest share of base acres enrolled in ARC-IC, with 12% of base acres enrolled in ARC-IC. Oregon was followed by Montana (9%), Washington (4%), Idaho (4%), Wyoming (2%), Minnesota (2%), South Dakota (2%), North Dakota (1%), and Colorado (1%).

Geographic Distribution

Overall there was a geographical pattern to program choice, as would be indicated by signup by crop. Figure 2 shows states giving percentages of base acres enrolled in PLC. In general, PLC was used more in states in the south and west. Highest PLC use occurred in Arizona (95% of program acres), New Mexico (87%), Texas (84%), and Utah (82%). PLC use in Corn-Belt states were small. For example, PLC was used on 2% of program acres in Iowa, 3% in Illinois, and 2% in Indiana.

Summary

To a large extent, program choices followed predictions made prior to sign-up. Two facts, however, stand out. First, ARC-CO was the overwhelming program choice across program crops, particularly on corn and soybean acres. This suggests that farmers will use revenue-based programs, particularly those of relatively straight-forward design. The second was the relatively small use of ARC-IC. While ARC-IC has the desirable feature that it protects farm yields, ARC-IC also is a more complicated program relative to ARC-CO and PLC, combining all crops when determining payments and requiring farmers to report yields to be FSA. These complications may result in its unpopularity.

Perspective for the Soybean Market

We’ll know a lot more about where the price of soybeans is headed at the end of this month. Still, it is useful to understand how price arrived where it is today.

Last fall USDA projected there would be about 475 million bushels of soybeans leftover by the close of the marketing year. That’s this fall. The agency has trimmed that number back over time. This month the target is 330 million bushels.

Usage has been really strong and it is important to remember says University of Illinois Ag Economist Darrel Good, but it did not change the balance sheet very much in this one month. Over time it has, however, been really supportive to the price of soybeans - keeping them above $9 a bushel on the board. Demand has held the bottom end of the market.

Supply, in the coming marketing year on-the-other-hand, is the problem at hand. The June 30th Acreage report is supposed to help clarify this matter. The spring rains, especially in Kansas and Missouri, may cause that not to happen says Good.

Quote Summary - The June acreage report will be interesting this year, for those two states and maybe more, because it will in fact still reflect some intentions for those acres not planted at survey time. How will producers report those intentions? Are they still planning to plant all the soybean acres if it dries out? Or have they already made a decision to abandon and go to prevent plant? So, even after the June number is released, uncertainty about acreage will remain. It will make the August and September FSA Prevent Plant acreage reports an important way to tweak the June number.

A tweak of three to five million acres of prevent plant for soybeans, thinks Darrel Good, would be enough to change the balance, shifting the overwhelming supply of soybeans that so far appears to be coming - consequently now pegged at 475 million bushels just like last year - to something far more supportive of price.

EPA’s RFS Puts Biodiesel in the Drivers Seat

The nation could be running on a lot more biodiesel in future. The latest U.S. EPA proposal would firmly set a path to create a second biofuels industry in the United States.

The United States Environmental Protection Agency, by the authority of congress, sets mandates - within some congressional parameters - for the amount of renewable energy the nation should consume. Part of this energy plan has allowed U.S. farmers to build and deploy corn based ethanol as a gasoline additive. Phase two, as set out by congress and proposed by EPA in May, may do the same thing for biodiesel made from oilseeds says University of Illinois ag economist Scott Irwin, "If one takes the EPA policy as given and projects for the remaining life of the RFS through 2022, essentially going forward biodiesel is in the driver’s seat rather than corn based ethanol."

Biodiesel is made mostly from vegetable. Essentially the same cooking oils found on store shelves… mostly this oil is pressed from the soybean. The new proposed rules, which again follow the direction of congress to make the United States less dependent on foreign oil for its energy supply, would push U.S. vegetable oil crushing capacity to its limit.

U.S. EIA estimates current production capacity for biodiesel in the United States is around two-point-three-billion gallons. There is a good chance by 2016 or 2017 demand would surpass that number.

Maybe or maybe not depending on how much soybean oil crushing capacity currently idled can be brought back online and or how much biodiesel can be imported to meet the mandate. Either way it is clear more biodiesel made from soybeans, and some other crops, is now coming into play. The big difference may be that there is already an existing infrastructure to handle most of the increase. The ethanol industry had to be built and deployed. Farmers took on that burden. The oilseed crushing industry already exists and simply needs to be targeted.

Why USDA Lowered the Corn for Ethanol Number

This week (June 10th) USDA lowered its estimate of how many bushels of corn would be used to make ethanol. It surprised the market. However, there is an explanation.

Once a month the United States Department of Agriculture releases a report predicting how corn will be used in several different categories; how much will be fed to livestock, how much will be exported, and how much will be used to make the gasoline additive ethanol. This month it dropped the number of bushels of corn to make ethanol by 25 million. It’s still a big number at 5.175 billion bushels, but the trade didn’t like it. University of Illinois ag economist Darrel Good says it may mean less than the surprise it gave the trade. This, he says, is because the number is calculated in a new way.

Quote Summary - USDA sited its new Grain Crushings and Co-Products Production survey instituted last fall. It shows the number of bushels of corn being consumed to produce ethanol isn’t as large as previously forecast. This suggests the efficiency of ethanol production has in fact increased. So, there is a situation where ethanol production is up four-percent year-over-year, but USDA is only projecting a one-percent increase in corn use. This is because of the new survey data.

Consequently, the new data caused USDA to raise the estimated number of bushels leftover from this market year to go up by 25 million bushels. The increase did not surprise the marketplace. It was looking for a 25 million bushel increase. It just didn’t come from the place it thought it would says Darrel Good.

Quote Summary - They were looking for a lower feed and residual number, not a lower ethanol number.

The trade had dialed in a lower feed and residual category number based on bird flu, the number of turkeys and chickens euthanized because of avian influenza, and therefore no longer consuming corn. This may still show up in the end of the month Grain Stocks report. Even then, it may not be clear thinks Good. Historically, the numbers in the June Grain Stocks report have been noisy.

Quote Summary - It is pretty noisy. The June report in recent years has had some big surprises. We just never know the direction of the surprise. The market needs to be aware of that. The market, at this juncture, seems to be thinking the feed demand is a little weaker than what USDA has projected.

This year USDA has a better corn for ethanol number than in the past, though it doesn’t quite fit with trade perception. They’ll need to adjust. The June Grain Stocks report isn’t likely to help. The feed and residual category, which the trade expects to be smaller, is just an educated guess and includes a big buffer - the residual part of the name.

Crop Insurance Loss Performance in 2014

Last year federal crop insurance performed really well. This means it covered losses in the way it was designed to do the job. Over time crop insurance is meant to even out the ups and downs in annual income experienced by commodity farmers.

It does this by paying out one dollar for every dollar of premium a farmer pays in to the system to purchase the insurance. The farmer can expect there will be many years when a payment is not made, but when the income from crops drop, a crop insurance payment will help alleviate the gap. Here’s another explanation from University of Illinois Extension Ag Economist Gary Schnitkey.

Quote Summary - The crop insurance program was designed to have a loss ration of about one. The loss ratio equals payments-made divided by premium-paid. Over time the federal crop insurance program is supposed to pay out roughly the same amount it collects in premium. A loss ratio of one is about the target. A loss ratio of less than one means payments were less than the premium collected and if the payments made are more than the premium paid, then the loss ratio is greater than one.

Last year, for all covered crops harvested in 2014, the loss ratio was point-nine. This is slightly above the annual yearly average of the last decade. The long run average is point-eight-two.

Quote Summary - Overall you would say 2014 was an average year. The high happened in 2012. That year the loss ratio was one-point-six-two. The low year is point-five-three which happened in 2007.

The 2014 loss ratio for corn was one-point-zero-five. Wheat losses nearly topped that chart at one-point-one-three. Rice had a bad income year. Its loss ratio was one-point-four-nine. By contrast the soybean loss ratio was just point-five-four.

Last year Gary Schnitkey says the data shows most of the corn belt state payments were made in Iowa and Minnesota. Many of the counties in the northern two-thirds of Iowa and in Minnesota had loss ratios above two. Losses in those parts of the country were quite high.

The reason is because we had price declines on both corn and soybeans and those areas last year were not as good as the rest of the corn belt. The remainder of the corn belt had very low loss ratios. The loss ratios were below one in Illinois, Indiana, Ohio, Missouri, and the Dakota’s.

Link to Original Article

Pork Industry Continues to Adjust from PED

The price of hogs is on the rebound. It appears to be the economic remnants of a widespread disease outbreak in 2014.

The pork industry continues to adjust from the supply shock created by the PED virus last year. Live hog prices peaked in the summer of 2014 as Porcine Epidemic Virus losses mounted and then fell into the late winter of this season. Looking back it seems prices overshot on the high side due to PED, thinks Purdue University Ag Economist Chris Hurt, and then undershot early this year as market supplies were restored. He says the third phase of this cycle now seems to be the recent recovery in prices - up from the $45 low made in March.

Quote Summary - Now, they have recovered to the low $60s. The low prices in March were clearly related to 14 percent higher production for that month compared to year previous levels and market concerns that pork supplies were going to remain higher by ten percent or more into the spring.

The recent recovery in hog prices, apparently, is related to the fact supplies have not been that high. April pork production was up eight percent. May was about six percent higher. Both are in alignment with the last inventory count from USDA. If those inventory counts continue to hold, then second quarter pork production will be up by six percent, the third quarter up by seven percent, and the final quarter of the year up only four percent says Chris Hurt. He says not only are fewer hogs coming to market, but that they weigh less, too.

Quote Summary - I would guess we’ll average one percent lower weights for most of the rest of this year.

Fewer hogs at lower weights are causing a mid year bump in prices. Live hog prices in the first quarter of the year were $48.47 according to USDA. Prices are expected to average near $58 in the second and third quarters. Hurt thinks it will drop to about $51 in the last quarter of the year, and decline to the high$40 level for the first quarter of 2016. These numbers mean hog producers will make money this year, but lose money starting in 2016 unless the price of corn stays on the bottom of its trading range.

The next important benchmark for the pork industry is USDA’s June Hogs and Pigs report due the 26th. It will show how the industry has grown or contracted since March.

Quote Summary - Producers reported in the March update that they intended to reduce this summer’s farrowings by two percent. This was a surprise given the generally profitable industry since mid–2013. If farrowings should actually expand, this would increase pork production early next year and keep a bearish cast over the industry to start 2016.

If you’d like to learn more about the livestock sector, in particular the pork industry, from Chris Hurt, you may read his thoughts on the Farm Doc Daily website.

Reducing Illinois Cash Rents Imperative

An ag economist on the University of Illinois campus is continuing his calls for farmers and landowners to lower cash rents.

Monitoring Soybean Consumption & Production Prospects

The trade has turned its primary attention to the soybean crop being planted across the United States, but that doesn’t mean it has fully discounted last year’s harvest as market maker.

This year the United States Department of Agriculture expects about one-point-eight billion bushels of soybeans will be used within U.S. borders. This is more than last year and it appear USDA is on target with its projection. The pace of domestic crush has steadily picked up as the fiscal year has passed. University of Illinois Ag Economist Darrel Good says the pace needs to pick up a bit more to make the target.

Quote Summary - To reach the USDA projection, the crush during the last four months of the marketing year needs to exceed that of a year earlier by 7.7 percent.

The NOPA crush estimate for May is scheduled for release on June 15, and that’ll offer more insight into domestic usage. The other primary point of usage is the export market for soybeans.

Quote Summary - The USDA projects that U.S. soybean exports during the current marketing year will reach a record 1.8 billion bushels, 9.3 percent more than the previous record of last year. With about 14.6 weeks remaining in the marketing year, cumulative USDA export inspection estimates have reached 1.722 billion bushels. For the first seven months of the marketing year, export inspections tracked Census Bureau export estimates very closely. To reach 1.8 billion bushels for the year, exports during the final weeks need to total about 78 million bushels, or about 5.35 million bushels per week.

The last five weeks have seen exports above 10 million bushels each. It very likely, thinks Darrel Good, that USDA’s export projection for soybeans will be easily met. This brings him to the ending stocks figure, or the number of bushels to be leftover at the end of the fiscal year in September. That number will be calculated and it could result in an adjustment of the size of last year’s crop, and then there is this year’s crop.

Quote Summary - Until very recently, few concerns have been expressed about the 2015 soybean production season. Planting has proceeded at a pace that exceeds the previous 5-year average pace and expectations have been for acreage to exceed intentions reported in the USDA’s March Prospective Plantings report. The recent weather pattern, however, has generated a few issues. In particular, the area of extreme rainfall amounts in Texas and Oklahoma that extends into southern Kansas and parts of Arkansas have raised a few concerns about the timeliness of planting and the potential for some prevented planting. The focus is on Kansas due to the combination of the slow pace of planting (17 percent as of May 17) and the magnitude of soybean acreage (3.8 million) intended to be planted in that state.

For the U.S as a whole, there is some measurable yield loss as the percentage of the crop planted after May 30 increases. For the period from 1986 through 2014, the percentage of the crop planted after May 30 has ranged from nine percent (2012) to 66 percent (1995) and averaged 34 percent. With 45 percent of the crop reported planted as of May 17, the percentage of the crop planted after May 30 this year will not likely exceed the average of the previous 29 years due to the rapid pace of planting in northern growing areas. The impact, if any writes Darrel Good in his Weekly Outlook posted online to Farm Doc Daily, of the extreme wetness on the magnitude of planted acreage of soybeans should be revealed in the USDA’s June 30 Acreage report.

Negative Returns & Down Pressure on Cash Rents

Original Article

Todd Gleason talks with University of Illinois ag economist Gary Schnitkey about cash rents. As it stands today farmers on highly productive land in central Illinois are likely to loose about $70 for every cash rented acre planted to corn.

by Gary Schnitkey
Univeristy of Illinois

Surveys conducted by the Chicago Fed and the Illinois Society of Professional Farm Managers and Rural Appraisers indicate that 2015 cash rents have decreased between $20 and $25 per acre from 2014 levels. If these reductions occur, the majority of farmers still will have negative returns from cash rent farmland given current corn and soybean price levels. At a $3.75 per bushel corn price and a $9.50 soybean price, cash rents need to decrease from 2014 averages by around $70 per acre before farmer return is zero. Even given mid-$4.00 prices for corn, farmers will not have positive returns given cash rents at 2014 averages.

Operator and Land Returns

Table 1 shows estimates of 2015 operator and land returns. Operator and land returns represent the returns that can be split between the landowner and farmer. If operator and land returns are $300 per acre and cash rent is $250 per acre, the farmer will have a $50 per acre return. Operator and land returns are based on revenues, yields, and costs shown in the 2015 Crop Budgets and are averaged over the corn and soybean crops.

Operator and land returns are given for four different regions: Central Illinois with high-productivity farmland (Central-High), Northern Illinois (North), Central Illinois with low productivity farmland (Central-Low) and Southern (South) Illinois. In Table 1, regions are arrayed from the highest yielding on the left (Central-High) to the lowest yield region on the right (South). Operator and land returns decrease with lower yields. Even though these are Illinois specific regions, returns shown in Table 1 are generalizable to a wider geographical area.

There are five price scenarios in Table 1. The first is a $3.75 per bushel corn price and $9.50 per bushel soybean price, slightly above current bids for delivery of 2015 grain. These prices are used to determine crop revenue given the expected yields for each region. For example, the expected yields for the Central-High region are 198 bushels per acre for corn and 57 bushels for soybeans (see Table 1). Gross revenue also include ARC/PLC and crop insurance payments, both of which decrease with higher prices.

At a $3.75 corn price and a $9.50 soybean price, the operator and land return for the Central-High region is $226 per acre (see Table 1). The average cash rent in 2014 is $293 per acre, implying a farmer loss of $67 per acre ($226 operator and land return - $293 cash rent). Other regions have similar levels of loss: -$77 per acre for the North region ($188 operator and land return - $265 cash rent), -$73 in the Central-Low region ($170 operator and land return - $243 cash rent), and -$71 in the South region ($92 operator and land return - $163 cash rent). Note that $20 to $25 per acre decreases in 2015 cash rents do not lead to positive farmer returns given that cash rents started at average levels.

Longer-Run Price Levels

Current price levels may be below long-run prices. Previous analyses (farmdoc daily, February 27, 2013) suggest that longer run prices may be around $4.60 per bushel for corn and $10.60 for soybeans. Obviously these higher prices will result in higher operator and land returns, as is illustrated in Table 1. Take the $4.50 corn price and $11.00 soybean price. These prices give $298 per acre of operator and land return in the Central-High region. Note that the $298 operator and land return is near the 2014 cash rent of $293 per acre. At this price level, the operator and land returns for all regions are near the average 2014 cash rent levels. The nearness suggests that cash rents would need to decline if long-run prices are in the $4.50 per bushel range for corn and $11.00 per bushel range for soybeans. In the past several years, increases in cash rents likely overshot levels supported by long-run prices.

Note that the above analysis is based on non-land costs remaining at current levels of roughly $600 per acre for corn and $370 per acre for soybeans. These cost levels are at historically high levels (farmdoc daily, March 29, 2011). Decreases in fertilizer, seed, and chemical costs could reduce the need for decreases in cash rents.

Setting 2016 Cash Rents

Table 1 can be used to gain a feel for the relative size of downward pressures placed on cash rents in 2016. Given that costs do not change, operator and land returns shown in Table 1 will be accurate for 2016.

Expected 2016 commodity prices during the fall of 2015 will have a bearing on pressures place on cash rents. If corn and soybean prices respectively remain near $3.75 and $9.50 per bushel, cash rents will need to decrease by around $70 per acre from 2014 average levels before farmer returns are near zero. Obviously larger decreases would be needed before farmer returns become positive. Pressures will be reduced with higher price expectations. Take the price scenario having respective corn and soybeans prices of $4.25 and $10.50 per bushel. Under this scenario, rents would have to be decreased by $19 to $37 per acre, depending on region, from 2014 average levels to have farmer returns at $0 per acre. For farmers to have positive expected returns without cash rent of non-land costs, corn and soybean prices respectively need to be in the high-$4.00 and mid-$11.00 range.

Summary

Given current price levels, avenge cash rents levels need to decrease by over $70 per acre for farmers to have returns near zero. Continued pressures on cash rents will occur in 2016 unless significant increases in prices occur from their current levels. Unless non-land costs decrease, prices must be in the high $4.00 range before downward pressures are not placed on average cash rents.

Central & Northern IL Black Cutworm by Memorial Day

The black cutworm may do damage in central and northern Illinois corn fields over the Memorial Day weekend. Farmers should begin scouting soon because not all Bt corn hybrids offer adequate protection.

University of Illinois entomologist are estimating, based on black cutworm moth flights, that farmers might find the overnight work of the moth’s larval stage offspring beginning in late May. The larvae can cut a corn plant off. Farmers should scout for early feeding damage this week and next says University of Illinois Extension Entomologist Mike Gray.

Quote Summary - Growers should look for early signs of black cutworm activity. There will be small pin hole sized areas on leaves. These have been removed by very small caterpillars in the one to three instar stage. Once the caterpillars reach the fourth larval instar stage they can begin to cut plants.

Based on some heat unit calculations U of I entomologists project cutting dates will begin in Ford County (May 24), Mercer County (May 25), Lee County (May 31), Whiteside County (June 1), and Henry County (June 3) Illinois. Plants in the one to four leaf stage are most susceptible to cutting. It is important to note that not all Bt corn hybrids adequately protect against the black cutworm.

Marketing Advice from Darrel Good

Now that USDA has released its first official look at the balance sheet for new crop corn and soybeans, farmers are under the gun to make some marketing decisions. The easy ones are related to what’s left to sell from last year.

This week USDA estimated the average cash price farmers will receive for the coming corn crop will be fifteen cents less than last year at $3.50 a bushel. It makes the decision to sell what’s left from last year’s crop pretty easy thinks University of Illinois Ag Economist Darrel Good.

Quote Summary - I think you just give it up, meter it out, and let it go.

Pretty much the same advice goes for old crop soybean sales.

Quote Summary - There is no opportunity at this juncture, beyond a summer weather problem, for prices to recover.

Sell old crop corn and soybeans at your discretion, but probably sooner rather than later. However, Darrel Good is much more cautious as it relates to new crop sales.

Quote Summary - Prices are low enough, certainly below the crop insurance price, and I’d bide my time on new crop corn.

He’d do pretty much the same for soybeans.

Quote Summary - Probably in the same category. You are seeing prices right down at the $9.00 level for harvest delivery, about what USDA expects for the year ahead. There is probably no urgency to get aggressive at these levels.

Again, that’s sell the old crop and stand to the sidelines on the new crop. You may read Darrel Good’s thoughts on the commodity markets each Monday afternoon on the Farm Doc Daily website.

USDA WASE May 2015 Numbers

University of Illinois Ag Economist John Newton discusses the May 2015 World Agricultural Supply and Demand Estimate report numbers for new and old crop corn and soybeans.

First Day First Field

USDA describes Pat Whalen as a new and beginning farmer. I think he's just having fun planting his first farm field ever.

More Red Meat Available Per Person this Year

The supply of meat in the United States is on the upswing this year. It had fallen off by about twenty pounds per person between 2007 and 2014, but now it’s making a come back says Purdue Extension Agricultural Economist Chris Hurt.

Quote Summary - USDA estimates are that per capita meat availability could surge by nearly nine pounds this year. Chicken and turkey lead the way with over five pounds of increase and pork adds an impressive increase of near four pounds per person. This means that the meat industry in one year has restored about 45 percent of the lost meat availability from 2007 to 2014.

This calculation does not include any reduced availability due to the Avian Influenza outbreak. It is likely to reduce total poultry (chicken and turkey) meat production in 2015.

RFS Matters for Biodiesel

The United States Environmental Protection Agency now says it will not update the Renewable Fuel Standard mandates until November. This year’s RFS, no matter when it is released, is really important to the biodiesel industry.

More often than not when the federal government’s Renewable Fuel Standard is discussed people are thinking about corn based ethanol or other feedstocks that can produce ethanol. However, when U.S. EPA finally releases the RFS mandates it may be the biodiesel industry that pays the most attention says University of Illinois Ag Economist Scott Irwin.
Irwin :36 …to find out what happens.

Quote Summary - The industry for which the RFS is really a life or death matter is biodiesel. Because if the EPA would choose to go back to the RFS statutory level mandates, at least for a few years in the short run, it would launch - likely - the biggest boom in biodiesel’s history. But, if they choose to stay on the path of the proposals from 2013 it would cut the knees out from under the industry. The biodiesel industry is waiting on the edge to find out what happens.

This edge made the industry unhappy with the federal government earlier this year when it opened the door for biodiesel imported from Argentina to qualify as an advanced biofuel under the U.S. RFS mandates. Scott Irwin sees this move far more favorably the industry.
Irwin :41 …outside the United States to fill the mandates.

Quote Summary - I favor the position that EPA is likely to move the mandate levels back up near or to the statutory levels this year, or at least by 2016. This would necessitate a tremendous boom in biodiesel production. It would be more than current U.S. production capacity. So, one view of the Argentine biodiesel announcement is that it is a precursor of the statutory requirements and related documentation of enough registered biodiesel both inside and outside the United States to fill the mandates.

It may be, then, that the January announcement allowing Argentine biodiesel to qualify as an advanced biofuel in the United States sets the stage for U.S. EPA to follow the letter of the law as written by congress. It is not possible to do so without additional gallons of advanced fuel from some source.

Poultry Research & the University of Illinois Campus

Illinois is not known as a key chicken production state. Regardless of this fact, the state’s Land Grant university is a primary player in the poultry industry. Todd Gleason has this review of ILLINOIS’ applied research prowess and its relationship to the state’s agricultural feed production history.

Farmers in the Prairie State raise corn and soybeans and they do it really well. These crops are used to feed animals and birds; chickens. Lots of chickens, but most of them are reared in other states. Much of the feed comes from Illinois and so does the research that supports the nation’s poultry industry says Ken Koelkebeck (coal-keg-beck) from the University of Illinois.

Quote Summary - One of the first things we did was to develop a specific line that allowed the color sexing of baby chicks. This was very important because it made it easy to do research. We had two breeds, back in the 1950’s, when crossed together that produced chicks that came out color sexed males or females.

All the female chicks are brown and all the male chicks are yellow. It is really hard to tell the sex of the chick otherwise. The research breed is maintained and used on campus still today.

Quote Summary - It has been very important over the last thirty or forty years. We’ve developed nutritional programs like the non-feed withdrawl molting program. The industry, after ten years of research at ILLINOIS, has adopted it as the standard method for molting laying hens. This happened starting January 1, 2006.

Today more than eighty-five percent of the commercial egg laying operations molt their hens using the University of Illinois developed method. The history of the specialized research breed along with the powerhouse production of poultry feed stocks in the state, corn and soybeans, continue to converge to make the Urbana Champaign campus one of the top five poultry research universities.

Cost of Diesel & the Farm

The price of diesel has dropped and this should be helpful to U.S. farmers.

U.S. farmers struggling to find ways to cut cost will find the price of diesel fuel somewhat comforting. It is one of their larger input costs for the production of a row crops like corn or soybeans. This year that fuel cost will be sharply lower says University of Illinois Ag Economist Gary Schnitkey.

Quote Summary - Since 2011 on through 2014 diesel fuel prices have average about $3.50 per gallon. Today’s cost is about a 36% decline. It is a significant decline in the cost of diesel fuel from the last four years.

Here’s how that costs translates directly to the farm. Last year fuel cost Illinois farmers, on average, $24 per acre of corn production. A 36% drop puts that estimated cost this year at $15 per acre. It’s a nine dollar savings, but certainly not enough to really ease the coming income woes of the American corn farmer comments Schnitkey.

Quote Summary - The total cost to raise an acre of corn is about $600. So, the fuel savings is a relatively small portion of the total cost of producing corn, and for that matter soybeans in the state.

Schnitkey thinks producers should certainly consider taking advantage of the diesel fuel prices today. The other two items of note related to energy costs concern drying corn in the fall and nitrogen fertilizer. The ag economist thinks drying costs should be much lower this fall. As for the cost of nitrogen fertilizer - and this would be for next year - well he says…

Quote Summary - Patients, relative to nitrogen fertilizer and buying it, might be a good thing. Because maybe someday that will come down.

The cost of nitrogen fertilizer this year is actually higher than it was last year. Its primary creation cost is for natural gas.

Beef Industry Continues Lower Production Trend

The beef industry stands alone in 2015 in its continued reduction in supplies available to consumers.

2014, by contrast, was a special year for the animal production industry. It set record high farm level prices for cattle, hogs, broilers, turkeys, milk and eggs. 2015 should see much lower annualized prices after the surprisingly fast expansion of the poultry, pork and dairy industries. Beef stands alone in the continuation toward lower production. This does not necessarily mean the price of beef will remain record high. Live cattle futures are suggesting a return to a more normal seasonal price pattern this year. This would mean that while beef cattle have so far traded higher than last year, that pattern would end now says Purdue University Extension Ag Economist Chris Hurt.

Hurt :26 …a couple of dollars lower than 2014.

Quote Summary - The futures tone stays weak through summer with prices falling to the middle $140s by the end of summer and then rallying to the low $150s toward the end of the year. With prices so far this year and futures estimates for the remainder of the year, finished steers would average $153, a couple of dollars lower than 2014.

That’s Chris Hurt’s view, however, USDA has a different take. Agency forecasters in the April 9 WASDE (wahz-dee) report took a much more bullish path with $163.50 at the mid-point of their annual estimated range. Also of note is that USDA analysts increased the potential range of prices as the year progresses. One reason to increase a price forecast range is because of greater uncertainty says Hurt.

Hurt :19 …with annual prices near last year’s $155.

Quote Summary - My judgement is that ultimate prices may be somewhere between these two. Current high $150s prices could drop to the very low $150s by late summer and recover to the mid-$150s by the end of the year, with annual prices near last year’s $155.

One thing seems certain, explains Chris Hurt in his May 4th article on the farmdocdaily website 2014 was an extraordinary year for the animal industries. So comparing this year’s prices to last year’s prices may bring inherent dangers. The beef industry, he says, is the only one which will not increase production this year and therefore has a reasonable chance of seeing annual price averages near 2014 levels.

Black Cutworm Early Season Threat to Corn

Corn farmers should pay attention to the spring migration of the black cutworm. The moths wing their way into the Midwest every year.

The black cutworm rides the southerlies north into the Corn Belt. The female moths look for farm fields lush and green mostly with weeds. Winter annuals are the favored nesting ground says University of Illinois Extension Entomologist Mike Gray.

Quote Summary - They go into those fields and lay eggs. They lay eggs on those weeds. Eventually, once the fields are planted with corn, many of the surviving black cutworm larvae will move off the weed hosts onto corn seedlings. Corn fields in the one-to-four-leaf stage are very susceptible to cutting.

If those cuts are made below the growing point of the corn plant, then it dies. Most of the cutting, says Mike Gray, takes place over night or occasionally on a very overcast dark cloudy day.

Quote Summary - Growers are encouraged to look for early signs of black cutworm activity. This would be small pin hole areas on leaves that have been removed by the caterpillars in their one to three instar stage. Once they caterpillar reaches the fourth larval instar stage it can begin to cut plants.

Many insecticides can be used as rescue treatments if needed to combat the black cutworm. Most Bt corn is also capable of protecting the crop, but not in equal measure.

Quote Summary - Not all Bt hybrids offer the same level of protection when it comes to black cutworms. Some are quite good, but finding that trait can be confusing. I encourage growers to use the Handy Bt Trait table put out annually by Michigan State University. Search Google for “Handy Bt Trait Table ”. It is very informative and identifies if the hybrid chosen offers black cutworm protection.

If the hybrid chosen does not protect against the black cutworm, then the farmer will clearly, urges Gray, need to pay much more attention to the lifecycle of the insect and potentially gear-up for rescue treatments as needed.

2015 Gross Revenues for Corn Using RP85% + ARC Co

A University of Illinois Ag Economist has back figured how the new farm program would have performed over the last 40 growing seasons when coupled to crop insurance. The calculations can be used as a guidepost to 2015 farm incomes.

The exercise coupled RP crop insurance at the 85% level to the ARC County farm program to see how it would have supplemented farm income on a highly productive central Illinois farm located in Logan County. The numbers were run for crop years starting in 1975 all the way through 2014 says Gary Schnitkey. He’s an ag economist at the University of Illinois and explains, to begin with, how this combination would have handled the years farmer are most likely to remember; 1980, 83, 88, and 2012.

Quote Summary - So those are the drought years, and while in 1988 we didn’t have the crop insurance products we do now, we can figure what income would have looked like if a producer had purchased RP at the 85% level and took ARC County. Those years would not be bad from a gross revenue stand point. Crop revenues would be low, but crop insurance and ARC County payments would bring those back so that if, for instance 2015 looked like 1988 or 2012, the gross income would be at the top end of our distribution over the 40 year period.

Yields and prices in each of the 40 years are calculated using 2015 projections, but the actual year offsets. 2012, then. would show a lower actual price (because this years crop insurance price is lower than 2012’s) but a higher actual yield. Essentially you pick a year, adjust for 2015, and calculate the gross income.

The middle point (where the distribution is not quite evenly split above and below but close) is $828 per acre. The low revenue year forecasts correlate mostly with trend yields and lower corn prices. So, with a somewhat normal growing season that has below average prices. That could be caused by large residual supplies, big carryouts, or by poor demand.

Quote Summary - Poorer demand or something along that lines. Those types of years will be the ones that cause low revenues in 2015.

The ten middle years of the set project 2015 gross revenues from $825 to $831 per acre for corn. They were each characterized by harvest prices and yields relatively close to expected levels - the February crop insurance price and trend yield. Those years include 1984, 1990, 1991, 1996, 2002, and 2009.

Link to original FarmDocDaily article

Corn Market Expects Large Supply & Weak Demand

The price of corn is as low as it has been since last fall. It reflects the large size of last year’s crop, and surprisingly little concern about this year’s crop.

December corn futures in Chicago, at the time of this writing, were priced in the low $3.80’s. That’s about twenty cents better than the contract low set last fall, but still not nearly strong enough to reflect the $4.25 season’s average cash price the University of Illinois ag economists are using in their supply and demand table for the coming year. Darrel Good sums it up this way.

Quote Summary - Current prices appear to reflect minimum production risk and surprisingly weak demand prospects.

Let’s take that statement apart. We’ll start with price. The price of old crop corn, while at the lowest level since last October at the futures exchange in Chicago, isn’t nearly so cheap in the country. Last fall corn for July delivery in central Illinois was priced 70 cents under the July contract. It is 14 under now. Here’s what that, in relative terms, means. The cash price for the same delivery time, at this point, could be as much as 70 cents better today than it was last fall. The supply and demand of corn have changed since last fall, too. However, looking forward Darrel Good says the current price of corn reflects expectations for a combination of prolonged demand weakness and another year of ample supplies.

Quote Summary - Expectations for demand weakness center on the ethanol and export markets. It is generally argued that plateauing domestic ethanol consumption, a stronger dollar that could favor ethanol imports and discourages exports, and low crude oil prices will limit the price of ethanol and the demand for corn. Similarly, abundant world grain supplies and a stronger dollar are expected to create a weak demand environment for U.S. corn in the world market. In contrast, domestic feed demand for corn should be supported by ongoing expansion in livestock and poultry numbers, even with some loss of poultry numbers to bird flu.

The combination of expanding livestock numbers and low corn prices, writes Good in his FarmDacDaily website posting of April 27th, should generate a high level of consumption. That’s demand. Supply will be largely dependent on the number of acres of corn farmers plant this spring, and weather this summer. We’ll no more June 30th when USDA releases the Planted Acreage report. Here’s how those numbers have changed from March to June since 1996.

Quote Summary - From 1996 (the beginning of the freedom to farm era) through 2014, the final estimate of planted acreage of corn exceeded the March intentions estimate in seven years and was less than the March estimate in 12 years. In most years, the difference was within the range of sampling error, estimated at one to three percent. The exception was 2007 when actual planted acres exceeded intentions by nearly 3.1 million acres.

There is already a lot of discussion again this year about the direction and magnitude of the difference between actual and intended acreage of corn. Chances are, says Darrel Good, the difference will not substantially alter production expectations.

All else equal, the larger percentage of the crop that is planted in a timely fashion the higher the U.S. average yield potential. However, all else is rarely equal Good claims, with the magnitude of yield ultimately determined by summer weather. Unless an unusually large or small percentage of the crop is planted late this year, yield expectations should continue to focus on trend value in the range of 164 to 165 bushels. The USDA will report an expected yield in the May 12 WASDE figures. That yield expectation is based on a weather adjusted trend model that reflects expected planting progress at mid-May.

As for current prices, these appear to reflect minimum production risk and surprisingly weak demand prospects.

Protect Backyard Chickens from Avian Flu

More people than you might think are keeping chickens in their backyards. These birds, just as those grown commercially, are at risk to the H5N2 Avian Influenza virus. Todd Gleason has more on why and what keepers of backyard flocks can do to protect their birds.

Turkeys and chickens along the Mississippi River flyway in the Midwest are at risk to catching the flu every year. This year a new highly contagious version of the virus called H5N2 has developed. It’s nasty and a bird killer. This is why the U.S. government is taking so much care to control its spread. The farm manager of the University of Illinois’ poultry research facilities, Chet Utterback, says commercial flocks aren’t the only birds at risk.

Quote Summary - I would encourage everyone, whether you have two chickens or twenty chickens or two-hundred chickens, or two-hundred-thousand chickens or two-million chickens to be very, very diligent in staying away from areas where there are Canadian geese nesting, where there are any water fowl what-so-ever.

Migratory birds of all types stop along their routes at water sources. It doesn’t matter much how busy the area is, if there is a pond there are likely to be at least few Canadian Geese around. They could be carrying the flu, and it could be the H5N2 version and you could walk right through it… though that, to this point, wouldn’t be a problem for your personal health… it could be a load of problem for your birds.

Quote Summary - The biggest thing people need to be aware of is how many viruses are there. According to a microbiologist at Penn State involved with the outbreak in 2006, in one gram positive sample of manure from a wild waterfowl, about the size of a dime, there can be more than one-million flu viruses with the potential to affect other birds.

The point is bio-security measures need to be taken to protect backyard flocks as well as commercially raised birds. It’s a big word, but in this case simply means not wearing the same clothes or shoes into the coop that you might have just been wearing at the shopping center, or the pond, or any place wild waterfowl gather.

Will Soybean Consumption Reach USDA Projection

Last year U.S. farmers harvested a record sized soybean crop. The price of soybeans plummeted, but not yet as far as the most negative nellies expected. There is a glimmer in some of the USDA numbers that might explain why.

This glimmer won’t raise the current cash price of soybeans. There are plenty of them around, and that’s not going to change writes University of Illinois Ag Economist Darrel Good in his April 20th Weekly Outlook. You can find it online at the Farm Doc Daily website.

It could lend a supportive hand, however, to the price of new crop soybeans. Frankly this isn’t very clear, but here is the short version. If USDA has consumption of soybeans for this year right, and the uncertainty in the March 1 stocks on hand for soybeans has correctly hinted at a smaller harvested crop last fall, then a correction would be due in the September 30th release of the Grain Stocks report. This happened last year says Darrel Good.

Quote Summary - September 1, 2014 stocks were 38 million bushels smaller than expected just three weeks before the release of the stocks report. The level of uncertainty this year is magnified by the March 1, 2015 stocks estimate that hinted that the 2014 crop may have been overestimated.

How much of an over estimate remains to be seen. It’s a glimmer of hope for the price of new crop soybeans. A glimmer that depends greatly on the pace of old crop soybean consumption. About 45 percent of the soybeans raised in the United States are exported. So we’ll focus only on that number. USDA in the April estimates said this marketing year 1.79 billion bushels of soybeans would be shipped out of the country. The total export commitments have already reached this number says Good.

Quote Summary - However, some current outstanding sales may be cancelled and it is typical for some sales to be carried into the next marketing year. Additional net sales of about 60 million bushels are probably needed if exports are to reach the USDA projection for the year.

So the export number looks safe as does the domestic crush figure. USDA could adjust either of these going forward in the monthly reports, but today this looks unlikely. It leaves the quarterly grain stocks number as the tipping point. There are two more of those reports remaining for the old crop - June and September. Even when those numbers come out, it isn’t clear how USDA will use them until the following WASDE or supply and demand table is released. So it will be October before any glimmer could be truly identified.

RFS Matters for Biodiesel

Soon the United States Environmental Protection Agency should release its annual update to the Renewable Fuel Standard mandates. This year’s RFS is really important to the biodiesel industry.

More often than not when the federal government’s Renewable Fuel Standard is discussed people are thinking about corn based ethanol or other feedstocks that can produce ethanol. However, when U.S. EPA finally releases the RFS mandates - supposedly sometime this month - it may be the biodiesel industry that pays the most attention.

Quote - The industry for which the RFS is really a life or death matter is biodiesel.

That’s University of Illinois Ag Economist Scott Irwin. Biodiesel, by-the-way, is mostly produced from soybean oil.

Quote Summary - Because if the EPA would choose to go back to the RFS statutory level mandates, at least for a few years in the short run, it would launch - likely - the biggest boom in biodiesel’s history. But, if they choose to stay on the path of the proposals from 2013 it would cut the knees out from under the industry. The biodiesel industry is waiting on the edge to find out what happens.

Quote Summary - I favor the position that EPA is likely to move the mandate levels back up near or to the statutory levels this year, or at least by 2016. This would necessitate a tremendous boom in biodiesel production. It would be more than current U.S. production capacity. So, one view of the Argentine biodiesel announcement is that it is a precursor of the statutory requirements and related documentation of enough registered biodiesel both inside and outside the United States to fill the mandates.

2014 Loss Experience for Revenue Protection Products

by Gary Schnitkey

Most of the 2014 insurance payments on COMBO products have been entered into Risk Management Agency’s Summary of Business, allowing us to calculate loss performance for individual products accurately. This article describes loss performance for Revenue Protection (RP), a revenue insurance plan used to insure most acres in the United States.

Corn, soybeans, and wheat had loss ratios of 1.04, .54, and 1.12, respectively. Loss ratios were above 1.0 in many counties of Iowa and Minnesota for corn and soybeans. Counties in the southern Great Plains had loss ratios above 1.0 for wheat. In Illinois, RP loss ratios were .40 for corn and .24 for soybeans.

Corn

In 2014, RP was used to insure 69.9 million acres of corn in the United States, representing 88% of total acres insured with crop insurance. Total premium on RP products was $3,350 million and total crop insurance payments were $3,484 million, giving a loss ratio of 1.04 ($3,484 in losses divided by $3,350 in total premium). A loss ratio above 1.0 means that insurance payments exceeded premiums. Over time, average loss ratios should equal near 1.0. On a per insured acre, insurance payments equaled $49.86 per acre (see Table 1).

Loss experience varied tremendously across states. For the eleven states with the most insured acres, RP’s loss rate was the highest for Minnesota at 3.01 and the lowest for Missouri at .11 (see Table 1). Iowa had a loss ratio of 2.21 while Illinois had a .40 loss ratio.

For Midwest states, the 2014 projected price was $4.62 per bushel while the harvest price was $3.49 per bushel. The harvest price was 75% of the projected price, meaning that coverage levels of 80% and 85% would have crop insurance prices if the actual yield did not exceed the guarantee yield. While much of the country had above average corn yields, there were areas of the country where yields were at or below guarantee yields. These areas included northern and central Iowa, Minnesota, and Wisconsin. As a result, RP products had high loss ratios in these areas, as illustrated in Figure 1 which shows RP loss ratio by county (see Figure 1). In most other areas of the country, loss ratios were well below 1.0. As one would expect, loss ratios were higher in areas with lower relative yields.

Soybeans

In 2014, RP was used to insure 65.2 million acres of soybeans in the United States, representing 88% of total acres insured with crop insurance. Total premiums were $2,092 million and total payments were $1,126 million (see Table 2). Total payments were far less than total premiums resulting in a loss ratio of .54. Since 2008, loss ratios for soybeans across all policies have not exceeded 1.00. On a per insured acre basis, insurance payments equaled $17.27 per acre.

Loss experience for soybeans had less range than those for corn. For the eleven states with the most insured acres, RP’s loss ratio was the highest for Minnesota at 1.25 and the lowest for South Dakota at .18. Iowa had a loss ratio of 1.07 while Illinois has a .24 loss ratio.

For Midwest states, the 2014 projected price was $11.36 per bushel while the harvest price was $9.65 per bushel. The harvest price was 85% of the projected price. Even at an 85% coverage level, farmers had to have actual yields below guarantee yields before insurance payments were made.
Most counties across the United States had loss ratios well below 1 (see Figure 2). Areas with loss ratios above 1.00 included counties in northern and central Iowa, Minnesota, northern Wisconsin, and some counties in Michigan, and New York.

Wheat

In 2014, RP was used to insured 40.8 million acres of wheat, representing 85% of total acres insured with crop insurance. Total premiums were $1,330 million and total payments were $1,490. The loss ratio was 1.12 and payments averaged $36.60 per insured acre.

Figure 3 shows a map of county loss ratios for wheat RP polices. As can be seen, many counties in Texas, Oklahoma, and Kansas had loss ratios above 1.00. Many farms in this area had low yields. Other areas of payments occurred in Washington, Wisconsin, Illinois, and along the Mississippi Delta. Large areas with low loss ratios include Montana, North Dakota, South Dakota, Virginia, North Carolina, and South Carolina.

Summary

Lower prices for corn and soybeans resulted in RP payments for corn and soybeans. These payments were made in northern and central Iowa and Minnesota. Because of above average yields, loss ratios were low in most of Illinois, Indiana, and Ohio.

LINK to FarmDocDaily Article: 2014 Loss Experience for Revenue Protection on Corn, Soybeans, and Wheat

More Hogs than Expected

The USDA March Hogs and Pigs report did little to help explain why numbers were high, other than to simply admit that hog inventory counts from previous surveys were too low.

Pork supplies in the first quarter of 2015 were expected to rise one percent. In reality, first quarter pork production was up five percent. This is because they were 4.5 percent more hogs that weighed about a half percent more than their year earlier counterparts. More hogs at heavier weights has pushed prices down says Chris Hurt, and that’s not the end of it.

Quote Summary - There is an even more price depressing force coming to the market as the number of hogs coming to market in the most recent four weeks has remarkably been ten percent higher than year-ago levels. Higher than expected current numbers may mean that the breeding herd expansion is larger than USDA surveys have indicated and/or that PED death losses were smaller than producers reported to USDA.

If there has been an undercount of animals, the possibility remains says Chris Hurt for higher market numbers than anticipated for the rest of the year.

As a result of the higher actual marketings in the first quarter, USDA revised last summer’s pig crop upward by nearly three percent. As always, “the proof is in the pudding” meaning that if actual winter slaughter is higher than accounted for by last summer’s pig crop, last summer’s pig crop has to be revised upward. USDA did this by increasing the estimated number of farrowings. Hurt has been wondering, based on USDA’s numbers, if the breeding herd has been expanded.

While USDA raised the size of last summer’s farrowings, the size of the breeding herd was not increased. This still leaves unanswered the question of whether the breeding herd is actually higher, which would indicate that the breeding herd has expanded more rapidly than indicated by USDA survey numbers. If the breeding herd has expanded more rapidly than future animal numbers may also be higher than indicated by the USDA counts.

More pigs coming to market in the first quarter than expected must have come from a larger breeding herd thinks Hurt. He says current marketing numbers have been averaging ten percent higher. If the marketing herd is larger, then marketing numbers could continue to surprise the market on the high side and hog prices will stay depressed.

April WASDE Big for Corn

The March 31 USDA reports resolved some questions for the corn market, but left a couple of items hanging. The April 9 supply and demand tables will give the report some true balance.

Most traders saw last week’s USDA reports as a bad sign for the price of corn. The acreage figure was on the high end of trade expectations and the grain stocks number appears to show a slower than estimated pace of consumption. University of Illinois Ag Economist Darrel Good has a different take.

Quote Summary - Taken at face value the corn stocks number implies less feed and residual usage during the first half of the marketing year than the trade expected. It is about 69 percent of USDA’s projection for the year, 5.3 billion bushels. Over the last four years the first half feed use has been 74 percent and if the market assumes the actual uses is factually 74 percent then the 5.3 billion is not reachable.

However, Darrel Good goes on, if you look at the history prior to the past four years, which he considers anomalous, first half feed usage averaged something between 65 and 68 percent - not 74 percent .

Quote Summary - If we are on that path this year, then 5.3 billion bushels is still reachable, and we might do even more given the expansion in livestock numbers. Broiler numbers are up 3 to 4 percent. The winter pig crop is 7 percent larger than last year. It mens core feed demand should be very robust the last half of the marketing year.

Clearly says the ILLINOIS ag economist the market did not interpret USDA’s Grain Stocks report in this fashion. It, he says, likely expects the April 9 WASDE estimates to show a lower feed usage number and consequently an increase in the year ending stocks for corn.

Quote Summary - Personally, I wouldn’t be surprised if the WASDE number is a bit lower in the April report. They may come down 100 million bushels on the feed and residual use projection and put all of that into the projected year ending stocks number. I think that is the way the market is leaning. Unfortunately, we won’t get another real read on that until we get the June Grain Stocks report three months from now.

Between now and then the trade will mostly forget about old crop corn feed usage as it concentrates more energy on divining how the 2015 corn harvest will affect the price of corn.

The Footprint of Chinese Demand for U.S. Soybeans

One out of every four bushels of soybeans harvested by U.S. farmers last fall, if the trend continues, will be shipped to China.

Two University of Illinois agricultural economists have measured the footprint of Chinese demand for soybeans. John Newton, along with Todd Kuethe (keeth-ee), say this one nation takes 13 bushels from every acre of soybeans produced in the United States.

Quote Summary - The Chinese are bringing in more than a billion bushels of soybeans a year from the United States. That’s more than the states of Illinois and Iowa produced combined. Their total needs from around the world amount to more than 60 million acres. Twenty-one million of those come from the U.S. This is more soybean acres than can be found in Illinois, Iowa, and Michigan. The Chinese have a very large footprint in the U.S. soybean market.

Large today, but twenty years ago China imported just 18 million bushels of soybeans from the United States, or 2 percent of U.S. soybean exports. Demand from this one nation grew from that meager amount to more than a billion bushels, 65 percent of the exports, because of double digit growth in its economy. This growth has slowed, and for some it is now a caution sign…but not for John Newton, yet.

Quote Summary - The world bank is projecting the Chinese economy is going to grow at about 6.9 to 7.4 percent through 2017. This is greater than the United States. Their economy is still growing at a significant rate. They have just plateaued some in recent years. So, you look at the growth rate in the Chinese economy as one indicator. Another indicator is crushing margins in China. Part of the reason they’ve increased their consumption of U.S. soybeans is because they’ve increased crushing capacity in mainland China. So long as their crushing margins are favorable it is still possible to bring U.S. soybeans to China and crush them.

These projections support China maintaining soybean consumption at or above current levels.