Global Trade of Agricultural Commodities Expected to Grow

China purchases two-thirds of the soybeans traded on the planet.

Over the next ten years, USDA expects global soybean trade to increase by 25% and that Chinese purchases will account for 85% of the increase. The numbers were presented at the Agricultural Outlook Forum in Washington D.C., (today, Thursday, Feb 23, 2017) by USDA Chief Economist Rob Johannson. He says the projections are based on the assumption the number of middle-class households in China will double to nearly 250 million by the year 2024, “Those households will start demanding more meat, protein, and processed foods in their diet. And looking to other potential markets that could provide significant new demands for food commodities, we note that the number of middle-class households in India is expected to triple by 2024.”

Johannson says the United States has not had nearly as much success in opening new markets in India as it has in China. He thinks poultry, eggs, fruit, and milk have the greatest potential. The estimated annual growth in poultry meat, he explains, could exceed eight percent. That kind of livestock trade across the planet the Chief Economist explains will require grain and oilseed farmers to expand acreage, "Based on projected yield growth, the world will need to allocate about 50 million more acres of corn, wheat, and soybeans at U.S. productivity growth levels to meet the increase in trade demand.

The United States says Johannson is expected to remain the world’s largest exporter of corn over the next ten years with the U.S. share between 38 and 39 percent. Brazil is expected to remain the world’s largest soybean exporter with its share of exports growing to over 50 percent by the year 2026.

February Application of NH3 O.K.

The warm weather in the Midwest has farmers itching to go to the field to get some pre-season work done. University of Illinois Extension Agronomist Emerson Nafziger says it is ok to apply anhydrous ammonia to corn acres. Nafziger says as long as soil conditions are good, a late winter anhydrous ammonia application should work just like a fall application.

2017 Corn Prospects | an interview with Todd Hubbs

sources
FarmDocDaily Article
Congressional Budge Office (CBO) Projections
USDA Long-Term Projections, February 2017

by Todd Hubbs, Grain Markets Specialist - University of Illinois

The time of year to develop corn balance sheet projections for the upcoming crop year is upon us. As we approach the halfway point of the 2016–17 marketing year, decision making regarding planting and new crop marketing get determined. The expectations for corn in the 2017 crop year put forth in this analysis show lower production leading to decreased ending stocks in 2017–18. The magnitude of reduced ending stocks provides important implications for corn prices moving through 2017–18.

Current market consensus projects farmers to plant fewer corn acres in 2017 than the 94 million acres planted in 2016. As discussed previously, numerous factors point toward greater soybean acreage and lower corn acreage in 2017. These include lower winter wheat seedings, a lower cost of production for soybeans, and the current perceived price advantage for soybeans over corn. Congressional Budget Office (CBO) projections for baseline farm programs released last month set planted acreage at 91.5 million acres. Current USDA long-term baseline projections to 2026 have 2017 planted acreage for corn at 90.0 million acres. A reduction of 3.5 million acres from 2016, which places planted acreage at 91.5 million acres, is used in this analysis. Planted acreage at 91.5 million acres would lead to around 83.2 million acres harvested for grain in 2017.

Yield expectations typically use trend yield analysis to generate yield projections for the next crop year. National average corn yield came in above trend for the last three growing seasons and culminated in an estimated 174.6 bushels per acre in 2016. CBO projections place 2017 corn yield at 170 bushels per acre. USDA long-term baseline projections set 2017 yield at 170.8 bushels per acre. We find a linear trend of actual U.S. corn average yields from 1960 forward to be the best fit. The trend explains 89 percent of the annual variation in corn yields from 1960–2016. Weather conditions, as one would expect, impact yields. Bad weather reduces yield by more than good weather increases yield. Since this is the case, trend estimations can understate yield expectations in an average weather year. The trend estimate for 2017 is 166.8 bushels per acre. By adjusting the trend estimation for weather influences, we generate a national corn yield expectation of 169 bushels to use in this analysis. At this yield level, the 2017 crop projection is 14.1 billion bushels. By including the current projections for ending stocks by the USDA of 2.32 billion bushels with 50 million bushels of imported corn, the 2017 corn supply comes in at 16.4 billion bushels. The 2017 corn supply estimate is approximately 509 million bushels less than the current marketing year supply estimation.

2017–18 marketing year expectations for consumption exceed projected production, which leads to a lower level of ending stocks by the end of the marketing year. The size of the decline is important for determining price as we move through the next marketing year. Exports, ethanol production, feed and residual, and other domestic uses determine the consumption of corn. U.S. corn exports vary considerably from year to year. In the last decade, corn exports ranged from a low of 730 million bushels in the 2012–13 marketing year to 2.44 billion bushels in 2007–08. Corn exports will be influenced by trade policy, world corn production, economic growth, and exchange rates. Current 2016–17 marketing year corn export projections sit at 2.225 billion bushels, which were helped by lower corn production in South America in 2016. Current corn production projections for Brazil (3.41 billion bushels) and Argentina (1.44 billion bushels) are up 29 percent and 26 percent respectively in 2017. World production projections come in 8 percent higher for 2017. While U.S. corn exports will continue to be strong, 2017–18 projections reduce corn exports in this analysis to 1.95 billion bushels on larger foreign corn production.

Corn used for ethanol production will be impacted by EPA rulemaking related to implementing RFS mandates, gasoline consumption, and ethanol exports. An expectation of increased fuel ethanol requirements and slight increases in gasoline consumption with a positive ethanol trade balance provide support to the continued increase in corn used for ethanol. Corn used for ethanol expectations increase to 5.4 billion bushels in the 2017–18 marketing year. Other domestic uses for corn do not vary significantly from year to year. With a slight increase, other domestic use expectations provide 1.45 billion bushels of corn use.

The pace of corn consumption for feed likely will continue to show strength in the 2017–18 marketing year. Livestock production growth in many sectors provides support for corn feed use during this marketing year. Despite strong livestock production, several factors may limit corn feed use moving forward. The increase in ethanol production increases distiller’s grain availability. Increased availability of feed grains across the board may suppress some corn feed use. Residual use of corn could be reduced if the 2017 crop is smaller than the 2016 level. Feed and residual use might be near 5.5 billion bushels.

Current expectations for corn consumption in the 2017–18 marketing year are 14.3 billion bushels. Ending stocks would be 2.131 billion bushels, which is 189 million bushels lower than the current 2016–17 marketing year projections. Based on the analysis of corn production and consumption expectations, season average market price comes in at the $3.65 - $3.75 range for the 2017–18 marketing year.

Casting a Data Science Company | an interview with Robb Fraley

Monsanto used to be a chemical company that made herbicides. It then transitioned to a genetic-traits company that produced seeds. Now, as it is set to merge with Bayer, the Chief Technology Officer for Monsanto looks to be casting the St. Louis based agricultural giant into the data-science world of Apple and Samsung. Todd Gleason has this interview with Robb Fraley from the 2017 Illinois Soybean Summit in Peoria.

2017 Projected Incomes on Illinois Grain Farms

Net incomes for Illinois grain farms are projected to be lower this year than last. If this University of Illinois estimate holds, writes agricultural economist Gary Schnitkey on the farmdocdaily website, the weakening financial position of farms in the state will worsen. The last half decade has really changed the financial picture for farmers says Schnitkey, “So we had high incomes from 2010 to 2012 and every year since 2012 we’ve been on a downward trend through 2015. This is when we hit a $500 per farm average net income on Illinois grain farms enrolled in FBFM. This is very low and the lowest through the entire period we’ve examined. Obviously this is not enough to maintain the financial position of farms.”

Schnitkey evaluated FBFM net income records going back to 1996. FBFM stands for Farm Business Farm Management and is a record keeping service for farmers. The service has not yet summarized net incomes for 2016. However it is projecting a substantial rebound.



It appears net income for grain farms in the service will average somewhere between forty and fifty-thousand dollars. There are three primary reasons for this says Schnitkey, “What lead to it was higher than trend line yields. USDA estimates the statewide corn yield at 197 bushels per acre. Just three bushels off the record yield set in 2014 of 200 bushels. Soybean yields averaged 59 bushels. It is a record setting yield. Both of those record setting yields lead to higher incomes in 2016 along with very good ARC County payments.”

Those are two of the three factors leading to a better 2016. The high yields and sizable ARC County payments - that’s the farm safety net from Washington D.C. - aren’t likely to be repeated this season. The third factor very well could be repeated. It is lower input costs including cash rents and fertilizer. It won’t be enough thinks Schnitkey.

Quote Summary - For 2017 we used trend yields and commodity prices of $3.80 for corn and $9.90 for soybeans that resulted in lower incomes for the year. Probably something in the $20,000 range per farm.

Schnitkey cautions it is very early in the season, and that at this same time last year 2016 was projected to be a very, very bad year. It rebounded. It is also important to note that while higher than 2015 incomes, the projected 2016 incomes do not result in the building of financial reserves on most Illinois farms. Schnitkey believes most farms will continue to see the erosion of working capital, potentially leading to the need to refinance outstanding operating loan balances.

2017 Soybean Prospects

farmdocdaily article

Farmers around the nation are expected to plant more soybeans than usual this spring. There are many reasons this might be the case, but only one price outcome if things on the planet remain the same.

2017 Soybean Prospects | an interview with Todd Hubbs

There are three points University of Illinois agricultural economist Todd Hubbs says farmers need to remember about soybeans this year; acreage, stocks, and price.

Buy Your Tickets Today

CLICK TO REGISTER ONLINE

or call 1-800-898-1065 between 8:30 AM and 5 PM

Doors Open
9:00am eastern / 8:00am central
    Beef House Rolls & Coffee Available

Opening Remarks
9:25am eastern / 8:25am central
    Todd E. Gleason, University of Illinois Extension

Weather Outlook
9:30am eastern / 8:30am central
    Eric Snodgrass, Agrible - Champaign, Illinois

Special Guest for the Day
     Todd Hubbs, Agricultural Economist - University of Illinois

Cash Grain Panel
10:15am eastern / 9:15am central
    Matt Bennett, Bennett Consulting - Windsor, Illinois
    Aaron Curtis, MIDCO - Bloomington, Illinois
    Brian Stark, The Andersons - Champaign, Illinois
    Chuck Shelby, Risk Management Commodities - Lafayette, Indiana

Break (30 min)

Soybean Panel
11:30am eastern / 10:30am central
    Ellen Dearden, AgReview - Morton, Illinois
    Bill Gentry, Risk Management Commodities - Lafayette, Indiana
    Pete Manhart, Bates Commodities - Normal, Illinois
    Bill Mayer, Strategic Farm Marketing - Champaign, Illinois

Lunch and Trade Show
12:15pm eastern / 11:15am central
    Beef House Lunch ​

Farm Policy, Trade, & the Farm Bill
Gardner Agriculture Policy Program
1:15pm eastern / 12:15pm central
    Jonathan Coppess, Agricultural Policy Specialist - University of Illinois
    Gary Schnitkey, Farm Management & Crop Insurance - University of Illinois
    Nick Paulson, Agricultural Finance & Policy Assessment - University of Illinois

Corn Panel
2:15pm eastern / 1:15pm central
    Curt Kimmel, Bates Commodities - Normal, Illinois
    Wayne Nelson, L&M Commodities - New Market, Indiana
    Mike Zuzolo, Global Commodity Analytics & Consulting - Atchison, Kansas
    Dan Zwicker, Zwicker Consulting - Waco, Texas

Consider Using ARP for Soybeans

farmdoc daily source article

It seems likely the price of soybeans at harvest this fall could be much lower than it is now. The options a farmer might consider because of this potential is choosing a different crop insurance plan.

Federal crop insurance comes in two basic revenue protection forms, R-P and A-R-P. R-P stands for Revenue Protection and A-R-P stands for Area Risk Protection. The difference between the two says University of Illinois Agricultural Economist Gary Schnitkey is simple enough to understand.

Gary Schnitkey - RP is what most people buy, Revenue Protection. It is a farm level product and makes payments based on what happens to farm yields. ARP is a county level product. So, it makes payments on what happens to county wide yields, county revenue, but it is the county yield that is entered into the equation rather the farm yield (as is the case) for RP.

It is the available coverage level under the ARP federal crop insurance option that put Schnitkey’s mind to work when he was considering how farmers should use the risk management program this season.

Gary Schnitkey - The reason why I think farmers should consider it is because they have a 90% coverage level in ARP versus only 85% on ARP. This year, you know, we are probably looking at some more downside risk on soybeans and a 90% guarantee would cover more of that price risk.

Moving up to a 90% coverage level increases the price below which crop insurance payments occur. Given a $10.20 projected February price and a 90% coverage level, harvest prices below $9.18 a bushel for soybeans in November ($10.20 x .90) would generate payments, given that the harvest yield equals the guarantee yield. The $9.18 price compares to an $8.67 break-even price at an 85% RP coverage level, and an $8.16 break-even at an 80% coverage level.

There are some caveats when switching from RP to ARP.

ARP does not have prevented planting or replant payments while RP does. The coverage on ARP begins when the crop is planted. Because ARP uses county yields in its calculations, a farm may not receive a payment if the farm has a poor yield and the county does not. The relative premiums on RP and ARP vary across counties. Not all counties will have a 90% ARP premium that is lower than the 85% RP policies.

Finally, here’s an important note about the crop insurance guarantee from Gary Schnitkey. The CME Group soybean contract for November 2017 delivery currently is trading around $10.20 per bushel. A $10.20 per bushel projected price would be $1.35 higher than last year’s projected price of $8.85 per bushel. In and of itself, a higher projected price will offer additional revenue protection on soybeans without the need to consider the merits of RP versus ARP.

UofI Alum Propst Elected IPPA President

A University of Illinois Animal Sciences alum has been elected president of the Illinois Pork Producers Association.

New Fertility Products for the Hog Industry

Martin Gleason poses with sow and litter (circa 1944).

Farmers raising pigs around the planet are always looking for ways to improve the productivity of their breeding herds.

University of Illinois Extension Swine Specialist Rob Knox explains PCAI, post cervical artificial insemination.

Corn Consumption Update

A University of Illinois agricultural economist has been thinking about the supply and demand for corn in the United States and elsewhere.

U.S. farmers harvested more than fifteen billion bushels of corn last fall. That’s a very, very big crop. It is expected there will be more than the usual amount leftover from it by the time the next crop comes in. Todd Hubbs has been thinking a lot about that and how the corn crop is used. He says exports have been strong. Factually 69% of what USDA thinks will be shipped out, has either been shipped or booked, already. And, we’re not even half-way into the marketing year.

Todd Hubbs - So, meeting that 2.25 billion bushels USDA projected for exports looks feasible right now, but we do have the South American crop coming on to compete. So far exports look strong. I am a little concerned about some of the policy issues surrounding our export market, but at this point it is a wait-and-see scenario in my mind.

Exports are the smallest primary component of corn consumption at a projected two-and-a-quarter billion bushels. Next up is ethanol at five-billion-three-hundred-twenty-five million. Those numbers suggest this sector is booming.

Ethanol production has hit record levels of over a million barrels per day for the last two months. However, over the last couple of weeks ethanol stocks have started to build. This means the ethanol margins are starting to deteriorate. Hubbs says production could slow, but maintains the consumption pace for ethanol will be pretty strong in the near-term.

The last and largest segment of corn consumption to explore is feed usage. USDA in January estimated five-point-six billion bushels of corn would be fed to livestock. It is a really hard number to calculate says U of I’s Todd Hubbs.

Hubbs - You never know how much corn is being consumed as we move through the marketing year. Still, livestock numbers are up almost across the board. The hog herd is up. Broiler placements and egg settings are up one to two percent a week. So, when we look at the livestock sector there is a lot of livestock production going on. Having said that, the initial number USDA projected at the beginning of the marketing year has been reduced by 50 million bushels.

Some of that is because of competition to use the corn in the ethanol industry and some because of substitution. There is more available sorghum to feed and it can be cheaper than corn. In the near term Todd Hubbs says the consumption pattern should keep the price of corn in Chicago mostly in its current trading range. That’s somewhere between $3.40 and $3.70 per bushel.

Assessing Argentina Soybean Yield Risks

by Todd Hubbs, Scott Irwin, and Darrel Good
source article

We recently began a series of articles to evaluate the history of corn and soybean yields and deviations from trend yield in Brazil and Argentina. The objective of the yield analysis is to provide a basis for forming expectations about the likely yields of the 2017 crops. The first six articles focused on the alternative sources of historical yield estimates, the selection of the appropriate series to use in the analysis for both corn and soybeans, the selection of the best-fitting trend model for each commodity and country, trend yield deviations in each country for corn, and trend yield deviations in Brazil for soybeans (farmdoc daily, November 2, 2016; November 9, 2016; November 16, 2016; December 14, 2016; December 15, 2016; and January 12, 2016). Today’s article examines soybean yield trend estimates and trend deviations for the Argentinian soybean crop. Since Argentina is the world’s third largest producer of soybeans and is the largest exporter of soybean meal and oil, yield and production prospects have important price implications.

Background

We begin by providing some perspective on regional soybean production in Argentina. The production map of Argentina from the USDA/FAS gives a visual sense of the concentration. The top three soybean production provinces consist of Buenos Aires, Cordoba, and Santa Fe. Table 1 presents soybean production by country from 1971 through 2016 and gives an indication of overall growth in soybean production in the world, and Argentina in particular. Soybean production in Argentina grew rapidly in the early 2000’s with a significant jump in 2001. Figure 1 presents the soybean acreage for Brazil and Argentina provided by USDA/FAS estimates from 1978–2016. Both nations exhibited large growth in soybean acreage over the sample period with Argentinian acreage leveling off at the end of the period. Current estimates place Argentina soybean acreage at 48.1 million acres this year.





Figure 2 presents the annual soybean yields in Argentina for the period 1978 through 2016. As previously discussed in the farmdoc daily article of November 16, 2016, we chose a linear trend to fit the soybean yield data for Argentina. Note that these yield estimates are provided by the USDA’s Foreign Agricultural Service (FAS) and are based on past trends, expert opinion, industry intelligence, and AgMin, the Argentinian Ministry of Agriculture, estimates. Yields have obviously trended higher over time. The linear trend indicates annual average yield increases 0.37 bushels for Argentina. A linear trend explains about 49 percent of the annual variation in actual yields in Argentina. The historical soybean yields in Argentina show large variation around the trend with an extended period of above trend yields from 1998–2003. The linear trend since 1978 explains a much smaller percentage of yield variation than is the case for the U.S. (81 percent) and Brazil (79 percent).



Historical Deviations

Historical deviations for Argentine soybean yields for the period 1978 - 2016 are shown in Figure 3. Over the 39-year period, the average soybean yield in Argentina was above trend in 22 years and below trend in 17 years. The largest deviation below trend was 9.79 bushels per acre in 2009. The largest positive deviation from trend was 5.80 bushels per acre in 1998. The average positive deviation was 2.66 bushels while the average negative deviation was –3.44 bushels. The deviation from trend is asymmetric with more years of positive trend deviation and larger magnitudes associated with negative trend deviations. This differs substantially from soybean trend deviations for Brazil. Since 2012, Argentinian soybean yields demonstrate a wide variation around trend with significant yield loss in 2012 and a large positive deviation in 2015. Based on the historical trend deviations, the unconditional probability of a negative deviation is 43.6 percent. If a negative deviation occurs, the unconditional probability of a negative deviation of greater than two bushels is 65 percent, and there is a 29 percent probability of a greater than four-bushel deviation. The probability of a negative yield deviation greater than two (four) bushels, then, is 28 (13) percent. Based on the historical trend deviations, the unconditional probability of a positive deviation of greater than two bushels is 59 percent, and there is a 23 percent probability of a greater than four-bushel deviation. The probability of a positive yield deviation greater than two (four) bushels, then, is 33 (13) percent.



Implications

An examination of the national average soybean yields in Argentina for the period 1978 through 2016 reveals an upward yield trend with substantial annual variation. The estimated linear yield trend points to a 2017 average soybean yield of 42.2 bushels per acre, 1.10 bushels below the 2016 average. Based on the projections of harvested acreage in the USDA’s January 12, 2017 World Agricultural Production report, yield at trend value for Argentina points to a 2017 crop of 2.03 billion bushels, 57 million bushels (2.73 percent) smaller than the 2016 crop. Using estimates of the historical yield trend deviations, we estimate there is an unconditional probability of 62 percent of a two bushel trend deviation. A trend yield deviation of two bushels per acre would add or subtract approximately 96 million bushels to our projection of Argentina’s 2017 production.

The USDA projects the 2017 Argentinian yield at 43.57 bushels per acre (1.37 bushels above the trend value) and production at 2.094 billion bushels, 7 million bushels larger than the 2016 crop. The USDA estimated production level for Argentine soybeans is 64 million bushels larger than implied by a trend yield. Recent reports in Argentina indicate severe flooding in many growing regions with the potential to reduce production by 100–150 million bushels. If the production reduction materializes in Argentina, 2017 will produce yields well below trend estimates. In the next article, we will examine the impact of La Nina events on Brazilian and Argentinian soybean and corn production.

Iowa Court Decision on Field Tiles | an interview with Jonathan Coppess

The Iowa Supreme Court has ruled drainage districts in the state cannot be sued for the cleanup of nitrates in drinking water. Justice Thomas Waterman authored the majority opinion, writing that policy deciding who pays for nitrate removal is the jurisdiction of Iowa lawmakers. This was a win for the drainage districts says University of Illinois Agricultural Policy Specialist Jonathan Coppess. However, he says the Clean Water Act implications of the suit, about whether or not field tiles are point sources that can be regulated, remains to be addressed.

“So the big question under the Clean Water Act, as I understand it, is the Des Moines Water Works is claiming that the agricultural stormwater exemption under the Clean Water Act does not apply to drainage districts. In this case, because once it comes through the pipes it becomes a point source.” –Jonathan Coppess, Agricultural Policy Specialist - University of Illinois

Again, the decision in the Iowa courts is that only lawmakers in the state can determine who pays for the cleanup of nitrates from drainage districts. It did not address issues related to whether or not field tiles should be subject to regulation under the Clean Water Act.

Is it Time to Sell Some 2017 Soybeans

by Todd Hubbs

January 23, 2017 - Soybean prices increased dramatically over the week ending January 20 on reduced production estimates for the U.S. and increased uncertainty in the prospects for South American soybean production. Old crop soybean cash bid prices in central Illinois ended the week at approximately $10.40. New crop cash bid prices for harvest in central Illinois range between $9.90 and $9.94. The 2016–17 marketing year for soybeans, as it is currently shaping up, has a striking resemblance to 2015–16 marketing year expectations at this time last year. Despite the positive price outcome in 2016, a prudent soybean marketing plan for this year may possess some selling of 2017 soybeans in this price rally.

Currently, soybean production estimates for the United States in 2016 of 4.307 billion bushels is down one percent from the November forecast of 4.36 billion bushels but is still a record level of production. December 1 soybean stocks of 2.895 billion bushels came in 40 million bushels below trade expectations and indicated strong demand. The stocks estimate for the first quarter of the marketing year indicates a disappearance of 1.61 billion bushels. First quarter 2016–17 marketing year estimates of exports and crush came in at 932.5 million bushels and 484.9 million bushels respectively. Both numbers indicated substantial increases from last marketing year.

At this time last year, expectations for an increase in the number of acres planted in soybeans during 2016 and a potential record South American crop set up a scenario of significant downside risk for prices through the marketing year. The USDA forecasted ending stocks of U.S. soybeans at 440 million bushels on January 12, 2016. U.S. exports were forecast to be 153 million bushels less than the previous marketing year. Brazilian and Argentinian production ended up to be 136 million bushels smaller than expected in the January forecast and the substantial increase in planted acres did not materialize. U.S. exports ended the marketing year 245 million bushels higher than projected in January 2016, and ending stocks came in at 197 million bushels. Soybean cash prices reflected these events as the monthly average price for central Illinois increased from $8.64 in the first seven months of the marketing year to $10.26 in the last five months.

Currently, the WASDE report forecasts soybean crush and exports for the U.S. at 1.93 and 2.05 billion bushels respectively. At 420 million bushels, the ending stocks forecast is the largest since the 2006–07 marketing year. Projections of the U.S. 2016–17 marketing year average price place it in a range of $9.00 - $10.00, which positions current harvest cash bid prices in the upper end of this range. Many market observers believe a dramatic increase in soybean acreage will materialize in 2017. Estimates see the possibility of soybean acreage eclipsing corn acreage in 2017 due to the lower cost of production and large price differential currently in place with corn. The January 12 Winter Wheat Seedings report offered some support to this notion. Winter wheat plantings of 32.38 million acres are down 3.75 million acres from the previous year. This is the lowest level of winter wheat planting since 1909, and one could expect some of those acres switching to soybeans.

Forecasts by the USDA of Argentine soybean production currently sit at 2.09 billion bushels for the 2017 crop year. Numerous reports out of Argentina indicate the substantial flooding in the region may reduce production by 100 to 150 million bushels. Argentina soybean export forecasts stayed constant at 330 million bushels while import levels increased by 25.7 million bushels. Alternatively, Brazilian soybean production forecast increased by 73.48 million bushels over the December forecast to 3.79 billion bushels. The expected increase in soybean production levels led to a 40 million bushels increase in the forecast for Brazilian soybean exports. Taken together, USDA forecasts 5.91 billion bushels of soybean production and 2.51 billion bushels of soybeans exports from Brazil and Argentina over the marketing year. Currently, a realization of substantial production losses in Brazil and Argentina are necessary for total production in the two countries to fall to the 5.63 billion bushels seen in 2016.

While possessing similarities to last marketing year, the possibility of a strong downward price movement through 2017 is substantial. Despite strong soybean demand and production issues in South America, the possibility of a large increase in soybean acreage planted and the continuation of excellent soybean yields hang over the rest of this year. The March 31 prospective plantings report will provide the next major indication for soybean acreage for 2017. With so much production uncertainty in the U.S. and South America over the next few months, the current bids for 2017 harvest delivery provide a pricing opportunity for locking in prices high in the expected marketing year average price forecast. If producers are considering increasing soybean acreage in 2017, the current prices offer an opportunity, at a minimum, to price soybeans on the expanded acreage.

USDA January Reports | an interview with Todd Hubbs

University of Illinois commodity grains analysts Todd Hubbs discusses the January 12th USDA reports including Crop Production, Grain Stocks, and WASDE.

New FarmDoc Tool Assesses Performance of Crop Insurance

by Gary Schnitkey
original source FarmDocDaily

A new “Product Performance” section has been added to the 2017 Crop Insurance Decision Tool. By using this section, users can examine per acre premiums and payments from alternative crop insurance products from 1995 to 2015, thereby allowing users to gain a feel for the historical performance of crop insurance products. For corn, users will notice that the 2012 drought had large impacts on crop insurance performance.

User Selections

From the 2017 Crop Insurance Decision Tool, users will select “product performance” from the menu and make the following selections (see Figure 1):

1. State. Any state in the nation can be selected.
2. County. Any county can be selected.
3. Crop. Information is available for corn, soybeans, and wheat.
4. Product. Data are available for Revenue Protection (RP), Yield Protection (YP), RP with the harvest price exclusion (RPwHPE), Area Revenue Protection (ARP), Area Yield Protection (AYP), and ARP with harvest price exclusion (ARPwHPE).
5. Coverage level. Choices are each available coverage level (50 to 85% for RP) and an “all” selection.

Figure 1 shows a Logan County, Illinois example where corn is selected. RP performance will be given for all coverage levels, meaning that data over the 50% to 85% coverage levels are averaged and reported.




Product Performance Output

Figure 2 shows output from selections in Figure 1. All data comes from Summary of Business, which is maintained by the Risk Management Agency (RMA). The 2017 Crop Insurance Decision Tool provides results from 1995 to 2015. Yearly performance rows will be blank if no use of the chosen product occurred during the year.




RP along with YP and RPwHPE came into existence in 2011. As a result, RP performance is reported from 2011 onward. Before 2011, Crop Revenue Coverage (CRC) and Revenue Assurance (RA) plans where in use. RP, CRC, and RA all are revenue insurances that allow guarantees to increase if harvest price is higher than projected price (RA had an option that excluded the guarantee increase, but this option was used rarely). Therefore, CRC and RA performance are reported for years prior to 2011.

The “product performance” section first reports acres insured using the selected combination. RP type products were first introduced in 1997 and 7,916 acres were insured in Logan County (see Figure 2). Use grew to 125,359 acres in 2014, decreasing slightly to 121,619 acres in 2015. RP is now the most used crop insurance product, having over 90% use in many counties (see farmdoc daily, January 4, 2017).

Next, the section reports premiums in three columns: total, subsidy, and farmer-paid premium. The subsidy represents the premium paid by the Federal government as specified by subsidy schedules written into statute. As its name implies, “farmer-paid premium” is paid by the farmer. Farmer-paid premium plus subsidy equals total premium. In Logan County, total premium was $40.56 per acre in 2015 (see Figure 2). Of the total premium, $19.79 per acre was subsidy and $20.77 per acre was farmer-paid premium.

Also given are per acre insurance payments. These are payments to farmers resulting from claims to crop insurance products. In 2015, insurance payments on RP products averaged $32.95 per acre.
The final two columns provide an evaluation of the crop insurance products. Insurance payments minus farmer-paid premium show insurance payments received from the products relative to farmer-paid premium. Positive values mean that insurance payments were larger than farmer-paid premium.

In high payment years, payments minus farmer-paid premium will be positive. For example, insurance payments were high in the 2012 drought year, resulting in payments minus farmer-paid premium of $302.26. In low loss years, payments minus farmer-paid premium will be negative. From 1997 to 2015, negative values occurred 13 out of 19 years. From 1995 to 2015, farmers received an average of $10.38 more in premium than in payments (see Figure 2). From 2006 to 2015, farmers received $22.55 per acre more in payments than they paid in premium (see Figure 2).

The loss ratio equals insurance payments divided by total premiums. In 2015, the loss ratio was .81. Loss ratios less than 1.0 mean that insurance payments were less than total premium. Conversely, loss ratios higher than 1.0 indicate that payments were greater than premium. Over time, RMA’s goal is to maintain a loss ratio near but below 1.0.

Interpretation

Past performance will not be entirely reflective of how the products will perform in the future. RMA makes adjustments to premiums over time. For example, continuing high payments on products will result in increasing premiums and vice versa. Moreover, RMA continually conducts studies of its rating procedures, which can cause premium changes. As a result, current premiums will vary from historical premiums even given identical conditions. As a result, future performance will not match historical performance.

Moreover, values are averages across many farms in a county. In 2015, average RP premium in Logan County were $20.77 per acre. Some farmers paid higher premiums depending on crop insurance choices and historical yields, and vice versa. The average RP payment in 2015 was $32.95 per acre. Again, payments vary across farms in the county. Some farmers did not receive payments in 2015 while other farms received payments much larger than $32.95 per acre.

Importance of 2012 in Illinois

The drought year of 2012 has a large impact on crop insurance performance. In 2012, the loss ratio for RP in Logan County was 5.84, much higher than the .89 average from 2006–2015 (see Figure 2). If 2012, had not occurred, the .89 average loss ratio for the 2006–2015 would have decreased to .46.

Payments minus farmer-paid premium averaged $22.55 per acre from 2006 to 2015. Without 2012 included, payments minus premium averaged -$8.53 per acre.

The drought has similar impacts on many Illinois counties. To illustrate, Panel A of Figure 3 shows average RP loss ratios for corn in each Illinois county for 2006 to 2015. The 2012 drought particularly impacted farms in southern and eastern Illinois, causing many counties to have loss ratios above 1.0. Panel B shows loss ratios for 2006–2015 with 2012 excluded. Without 2012, most counties had loss ratios well below 1.0.




These comparisons point out the importance of “extreme” years on overall crop insurance performance. Severe droughts like 2012 occur in the Midwest occasionally, with much debate concerning their frequency of droughts. The last drought of comparable magnitude to 2012 happened in 1988, 25 years previous to 2012, suggesting infrequent droughts. However, two additional, large yield shortfalls occurred in the 1980s: 1980 and 1983. Three severe events in a decade give a very different perspective on the frequency of droughts than the more recent history of the passing of 25 years. Which represents the future the best is an open question, with a blend of the 1980s experience and the recent more moderate losses likely to be the most appropriate answer.

Summary

The Product Performance section allows users to examine historical performance of crop insurance plans, thereby providing intuitions on the frequency of payments, the size of payments, and the net costs of the plans. While evaluating past performance is useful, future performance will not necessarily match historical performance as RMA is adjusting premiums over time. Moreover, the frequency of large-scale droughts has a large impact on insurance performance. Whether there are 0, 1, or 2 drought years in the next ten will dramatically influence crop insurance performance.

Revenue Protection (RP) Use on Corn in the Midwest

by Gary Schnitkey

Revenue Protection (RP) is the most used crop insurance plan for corn. Over time, RP use has grown to over 90% of corn acres insured in many counties in the corn belt (farmdoc daily, December 13, 2016). As illustrated by maps in this article, farmers in the corn belt typically select 80 and 85% coverage levels when using RP. Detailed statistics on a county basis are available from the “product use” section of the 2017 Crop Insurance Decision Tool). Overall, use suggests farmers prefer revenue insurances that allow guarantees to increase if harvest prices are above projected prices. Use of high coverage levels suggests farmers value protection offered by crop insurance.

RP Use

According to 2016 Summary of Business statistics from the Risk Management Agency (RMA), RP use on corn acres is over 95% in most counties around the western corn-belt. For example, over 95% use predominates in North Dakota, South Dakota, Minnesota, Kansas, Iowa, and Missouri (see Figure 1).




Many counties in Illinois, Indiana, and Ohio have lower RP use than in the western corn-belt (see Figure 1). In these eastern corn-belt counties, higher use of Area Risk Protection (ARP) occurs. RP and ARP are similar in that both are revenue insurances whose guarantees increase if harvest prices are above the projected prices. ARP uses county yields in determining payments while RP uses farm yields. In eastern corn-belt counties, the sum of RP and ARP use often is above 90%.

Two counties illustrate RP and ARP use in the eastern corn-belt. Sangamon County is in west-central Illinois and has 66% of its corn acres insured using RP, 32% using ARP, with the sum of RP and ARP use being 98%. Noble County is in the northeast Indiana. In Noble County, RP use is 43%, ARP use is 51%, and the sum of RP and ARP use is 94%.

Some counties outside the corn belt have more use of Yield Protection (YP) insurance, a yield insurance. For example, higher YP use occurs along the Mississippi River in Mississippi, Arkansas, and Louisiana (see Figure 1). Take Bolivar County, Mississippi as an example. RP is used to insure 71% while YP is used on 29% of the acres. Besides the Mississippi Delta, more use of YP also occurs in:

Counties in the middle part of Michigan, Western New York counties, Texas panhandle counties (see Figure 1). By far, RP is the plan most used to insure corn. In some areas, predominately in the eastern corn belt, ARP has significant use, with RP and ARP being used on over 90% of corn acres. In areas outside the corn belt, RP use often is above 50% of acres, but YP has a higher percentage of acres than in the corn belt.

RP Coverage Levels

In most counties, RP’s coverage levels range from 50% to 85% coverage levels in 5% increment. Figure 2 shows a weighted average coverage level for RP products in 2016. To illustrate weighted average coverage level calculations, suppose a county has 60% RP acres insured using an 80% coverage level and 40% using an 85% coverage level. The weighted average coverage level for this county is 82% (.6 use x .80 coverage level + .4 use x .85 coverage level).




Average coverage levels for RP in corn is over 80% in southern Minnesota, the northern two-thirds of Iowa, Illinois, and Indiana, and western Ohio (see Figure 2). Counties around this core of the corn belt typically have average coverage levels between 75% and 80%. Average coverage levels then decrease to between 70% and 75% the further away from the central core of the corn belt.

County Level Detail

More detail on crop insurance use is available from the 2017 Crop Insurance Decision Tool, a Microsoft Excel spreadsheet available for download from farmdoc. In the “product use” section, users make a state, county, and crop selection. Then, product use details are given.

Figure 3 shows an example of output for corn in Sangamon County, Illinois. In 2016, 197,535 acres of corn were insured. Of the acres insured, 66.3% of acres insured using RP, 32.0% used ARP, and 1.0% used YP. RP with the harvest price exclusion (RPwHPE) and Area Yield Protection (AYP) had much smaller percentages of acres. Within RP use, 47.9% of acres were insured using an 85% coverage level, 14.7% at an 80% coverage level, and 3.7% at lower coverage levels.




Figure 3 shows these use statistics for 2016. Users can change the year to any year from 1995 onward. The product use section of the 2017 Crop Insurance Decision Tool also includes graphs detailing crop insurance use over time.

Commentary

RMA offers different types of insurances including yield insurances, revenue insurances with harvest price exclusion, and revenue insurances with guarantee increase provisions. RP and ARP are both revenue insurances with guarantee increase provisions. High use of RP and ARP suggest that farmers prefer revenue insurances over yield insurances. Moreover, high use suggests that farmers value the guarantee increase associated with RP and ARP.

In the heart of the corn-belt, farmers typically purchase RP at high coverage levels. Weighted average coverage levels are above 80% in the center of the corn-belt, indicating that most acres are insured using either the 80% and 85% coverage levels. High coverage levels suggest that farmers desire risk protection offered by crop insurance.

Prospects for 2017 Ethanol Usage

Ethanol production in the United States ended the year on a record-setting note. It could mean an even bigger number for the corn-based fuel in 2017.

The U.S. ethanol industry ended 2016 on a high note. Ethanol production for the week ending Dec. 30 set a new ethanol production record with an average of 1.043 million barrels per day. The March futures price for corn moved higher last week to close at $3.58 in large part due to strength in the ethanol sector. Ethanol production and exports returned strong numbers over the first quarter of the marketing year. Currently, the World Agricultural Supply and Demand Estimates report forecast for corn consumption for ethanol production is 5.3 billion bushels. According to University of Illinois agricultural economist Todd Hubbs, when taking into account an increase in projected gasoline consumption in 2017 and robust ethanol export levels, the ability to surpass this projection is a strong possibility.

“Domestic ethanol consumption in 2017 will be influenced by domestic gasoline consumption, due to the ethanol blending requirement and the biofuels volume requirement associated with the Renewable Fuels Standard,” Hubbs says. “The EPA final rulemaking for the Renewable Fuels Standard for 2017 was released on Nov. 23 and is discussed in greater detail in the farmdoc daily article posted Nov. 30. In brief, the renewable fuels volume requirement is set at 19.28 billion gallons for 2017, which is up from the 18.11 billion gallons required in 2016.

“The conventional ethanol requirement is set at 15 billion gallons for 2017, 500 million gallons larger than 2016 and equal to the statutory requirement level,” Hubbs says. “If the gasoline consumption forecast used by the EPA is correct, the E10 blend wall will be 14.36 billion gallons in 2017. The EPA believes an ethanol supply of 14.56 billion gallons is reasonably attainable in 2017. Within the 14.56 billion gallons, E15 and E85 blends are expected to be 107 and 204 million gallons respectively. The ability to attain the E15 and E85 blend levels remains to be seen, but the increase in ethanol requirements provides support for greater corn usage in 2017.”

U.S. retail gasoline prices averaged $2.14 per gallon in 2016, which is 12 percent less than the price experienced in 2015 and is the lowest price since 2004. The December Energy Information Agency Short Term Energy Outlook projected an increase in gasoline prices for 2017 to $2.30 per gallon. Despite the projection of higher gasoline prices, gasoline consumption is forecast at 143.60 billion gallons in 2017, which is up from the 142.72 billion gallons consumed in 2016. Ethanol production is forecast to be 1 million barrels per day.

“If the EIA projection is correct, approximately 15.3 billion gallons of ethanol will be produced in 2017,” Hubbs says. “When considering the robust ethanol export trade currently in process, the U.S. ethanol industry is expected to produce a record level of ethanol in 2017.”

Ethanol export numbers are available from U.S. Census trade data for 2016 through November. U.S. exports of ethanol thus far are at 948 million gallons, which is up almost 27 percent from the similar period in 2015.

According to Hubbs, for 2016, the prospect of ethanol exports exceeding 1 billion gallons is not unreasonable.

Canada, China, and Brazil imported approximately 67 percent of the ethanol shipped from the U.S. through November. “The increase in ethanol exports is driven largely by increased volumes sent to China and Brazil,” Hubbs says. “China imported 179 million gallons through November, which far exceeds the 73.8 million gallons imported during the entirety of 2015. Brazil imported 224 million gallons through November, which is almost double from 2015. As we progress into 2017, the increases are expected to persist in Brazil because high sugar prices are expected to decrease ethanol production as mills allocate cane for sugar production in 2017. There is concern that China could raise ethanol tariffs and reduce ethanol imports in 2017 due to a possible trade dispute with the new administration.”

Hubbs says the implications for corn consumption during the 2016–17 marketing year can be seen in the USDA Grain Crushing and Co-Product Production report released on Jan. 3. Grain crushing for fuel alcohol is available through November. For the first three months of the marketing year, 1.34 billion bushels of corn has been processed for ethanol. This is up 3.2 percent from 2015 processing numbers.

“If corn used for ethanol production maintains this pace, 5.37 billion bushels will be processed in the marketing year,” Hubbs says. “Using EIA weekly ethanol production numbers, December ethanol production averaged over 1 million barrels per day. These production levels place corn use for ethanol production in a range of 455 to 460 million bushels for the month if corn use maintains the pace of the three previous months. With a conservative estimate of corn crush in December, total corn consumption for ethanol production through the first third of the marketing year would be above the current WASDE projection.

“Lower corn prices, strong ethanol exports, and greater blending requirements combine to make 2017 appear to be a strong year for corn consumption in ethanol production,” Hubbs concludes. “If the U.S. ethanol industry produced over 1 million barrels per day for the entire year, the ability to blend at requirement levels under an expanded gasoline consumption scenario and meet potential export market demand bodes well for corn use in the sector for 2017.”

Brazil Soybean Update | an interview with Kory Melby

The soybean crop in Brazil looks to be mostly in good condition, however, as you’ll hear in this interview by Todd Gleason some areas are under performing.

Kory Melby, Brazilian Ag Consulting Service - Goiania, Brazil