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ARC/PLC Enrollment Closes September 30th

Landowners and farmers may still have one more piece of paper to fill out for the new farm bill. Even if they’ve signed up, they may still need to enroll in the program to receive payments.

The enrollment period for ARC and PLC coverage ends September 30th. This is different from the signup for the program held earlier. Without the final enrollment contract signed University of Illinois Agricultural Policy Specialist Jonathan Coppess says payments won’t be made for last year’s harvest short falls.

Quote Summary - When you made the election decision back in the spring you still had to signup for the program in order to receive the payment. That signup period is closing September 30th. So, farmers if you have not signed up, then you need to get into the FSA (Farm Service Agency Office) right away to get that taken care of.

Payments, if any, from last year’s ARC and PLC program will be cleared to go out starting October 1st, 2015. The payments, as outlined in the contract language, are subject to sequester cuts. If congress fails to deliver a budget, payments for the 2014 crop will be reduced by more than 7%.

Darrel Good Sep 11 USDA Report Reaction

This morning (Friday) USDA updated crop production numbers for corn and soybeans. Todd Gleason discussed the report with University of Illinois Agricultural Economist Darrel Good.

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

The U.S. Secretary of Agriculture held nothing back on the University of Illinois campus this morning (Thursday Sept 10) when he talked about bio fuels and blender pumps for 21 states.

2016 Cash Rents May Need to Drop $100

Farm income this year is going to be dramatically lower than in the past. Next year doesn’t look any better even on highly productive central Illinois soils. Todd Gleason reports farmers must cut costs to survive, and that cash rents may need to come down by as much as one-hundred-dollars per acre.

Labor Day (First Monday in September)

I’m Todd Gleason for University of Illinois Extension with a history of Labor Day in the United States. It’s adapted from a story found on the United States Embassy to Sweden’s website.

Eleven-year-old Peter McGuire sold papers on the street in New York City. He shined shoes and cleaned stores and later ran errands. It was 1863 and his father, a poor Irish immigrant, had just enlisted to fight in the Civil War. Peter had to help support his mother and six brothers and sisters.

Many immigrants settled in New York City in the nineteenth century. They found that living conditions were not as wonderful as they had dreamed. Often there were six families crowded into a house made for one family. Thousands of children had to go to work. Working conditions were even worse. Immigrant men, women and children worked in factories for ten to twelve hours a day, stopping only for a short time to eat. They came to work even if they were tired or sick because if they didn’t, they might be fired. Thousands of people were waiting to take their places.

When Peter was 17, he began an apprenticeship in a piano shop. This job was better than his others, for he was learning a trade, but he still worked long hours with low pay. At night he went to meetings and classes in economics and social issues of the day. One of the main issues of concern pertained to labor conditions. Workers were tired of long hours, low pay and uncertain jobs. They spoke of organizing themselves into a union of laborers to improve their working conditions. In the spring of 1872, Peter McGuire and 100,000 workers went on strike and marched through the streets, demanding a decrease in the long working day.

This event convinced Peter that an organized labor movement was important for the future of workers’ rights. He spent the next year speaking to crowds of workers and unemployed people, lobbying the city government for jobs and relief money. It was not an easy road for Peter McGuire. He became known as a “disturber of the public peace.” The city government ignored his demands. Peter himself could not find a job in his trade. He began to travel up and down the east coast to speak to laborers about unionizing. In 1881, he moved to St. Louis, Missouri, and began to organize carpenters there. He organized a convention of carpenters in Chicago, and it was there that a national union of carpenters was founded. He became General Secretary of the United Brotherhood of Carpenters and Joiners of America.

The idea of organizing workers according to their trades spread around the country. Factory workers, dock workers and toolmakers all began to demand and get their rights to an eight-hour workday, a secure job and a future in their trades. Peter McGuire and laborers in other cities planned a holiday for workers on the first Monday in September, halfway between Independence Day and Thanksgiving Day. On September 5, 1882 the first Labor Day parade was held in New York City.

Lower Pork Costs Driven by Lower Meal Costs

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

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

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

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

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

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

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

Free & Confidential Tile Line Water Test at Farm Progress Show

Nine states in the Mississippi River basin have developed strategies to control the amount of nitrogen and phosphorous making its way to the Gulf of Mexico. These plant nutrients contribute to the Hypoxia Zone. During the Farm Progress Show the Illinois Corn Growers Association is offering free tile line water sample testing to help make farmers aware of the plan and the problem.

Let’s start with the problem. The fertilizers used on lawns, gardens, and farms doesn’t always stay put. It leaches into streams and rivers and is carried to the Gulf of Mexico where the plant nutrients cause great algae blooms. These deplete the water of oxygen and aquatic life.

The plan is to voluntarily reduce the plant nutrient load. The first step says Illinois Corn Growers Director of Communications Tricia Braid is to make farmers aware of just how much nitrogen is being lost from their fields. That’s why the Corn Growers are offering free water sample testing at the Farm Progress Show.

Quote Summary - Because farmers want to keep the nutrients applied for the crop where the crop needs it. If it is starting to move out of your tiles, that is lost money for the farmer and also a potential problem for the water quality. So we are working at awareness here and helping people get an understanding of what nitrogen movement means on their farms.

This awareness campaign is also related to the recent release of the Illinois Nutrient Reduction Loss strategy. It is a document put forth by the Illinois Environmental Protection Agency and the Illinois Department of Agriculture that sets some clean water goals for all the stake holders in Illinois to achieve.

Quote Summary - So, agriculture plays a big part in that. We are not the only people involved. We understand that, but we certainly do have a role to play. The example we have for the Decatur area, the site of the Farm Progress Show, is that on average tile drained ground in the Sangamon River Watershed loses about 26 pounds of nitrogen per acre per year. That adds up. If it is leaving the tile, it is not helping the crop, and it is going somewhere unintended. We really want folks to understand how nutrients are moving at different times of the year.

Those wanting to have their tile line water tested can bring an 8 ounce sample to the Illinois Corn Growers Association tent at the Farm Progress Show. Collect the sample within 48 hours of arriving. Keep it refrigerated until you leave for the show. If you’d like more results you can do a flow test. Just count off how many seconds it takes the tile line to fill a five gallon bucket.

Corn Prices Reflect Export Concerns

December corn futures have been on roller coaster ride up and down this year. First it appeared there would be way to much of the grain, and then - because of the rains - maybe too little, and now it feels like the too-little might become just enough.

The just enough to meet the need has put pressure on the market to move lower. This weakness, writes Darrel Good in this week’s online Farm Doc Daily article, is coming from the supply side. There is a general agreement USDA’s corn production forecast will not increase. It, in August, put this fall’s corn harvest at 13.686 billion bushels. Instead, market commentary seems to suggest the trade is expecting the yield forecast to decline by as much as three to four bushels to the acre. So the crop is getting smaller, but so’s the price. It’s about demand says Good.

Continuing weakness in corn prices reflects perceived demand weakness. Concerns about demand may stem from two sources. First is the concern that exports of U.S corn will fall short of the current USDA projection of 1.85 billion bushels. Second, is the concern about slow economic growth domestically and globally.

Clearly, domestic consumption of corn during the 2015–16 marketing year is not of immediate concern. The USDA projection of 5.25 billion bushels of corn used for ethanol production is consistent with the 5.2 billion expected for the marketing year just ending and a modest increase in domestic gasoline consumption next year. The projection of 5.3 billion bushels for feed and residual use next year equals the projection for the current year. Another large crop implies large residual use of corn and low corn prices along with steady to higher animal numbers should support actual feed consumption of corn.

On-the-other-hand USDA projects corn exports during the 2015–16 marketing year that begins on September 1 at 1.85 billion bushels, equal to the projection for the current year. However, total outstanding sales of U.S. corn for export during the 2015–16 marketing year are relatively small says Darrel Good.

It is recognized that the magnitude of early sales is not a good predictor of marketing year exports. Since 2005, sales as of mid-August as a percentage of marketing year exports have ranged from about eight percent (2005–06) to 42 percent (2012–13) and averaged 18 percent. Current sales represent 12 percent of the USDA projection for the upcoming marketing year. Still, the small export sales total is concerning in the context of potentially weak world demand, the relatively strong U.S. dollar, and expectations of large supplies of corn in other exporting countries.

Factually, with nearly 55 weeks remaining until the end of the 2015–16 marketing year, export sales need to average about 30 million bushels per week in order for exports to reach 1.85 billion bushels. Here’s how this all plays out on the farm. Producers will need to evaluate the corn storage decision says Darrel Good. Current low prices mean farmers will likely choose to store much of the crop that has not yet been priced. The current basis in the cash market and the carry in the futures market give some indication about the potential return to storing corn. In central Illinois, for example, the average cash bid for harvest delivery reflects a basis of about -$.30 relative to December 2015 contract and -$0.52 relative to July 2016 futures. Good says if the July basis improves to about -$.05 by June 2016 (as it did this year) the market is offering about $0.47 per bushel to store corn for about nine months.

That return would cover the out of pocket costs of farm storage, but may be closer to breakeven for commercial storage costs for some producers. The only way to capture the storage return, however, is to forward price the stored crop in the cash or futures market. The spot price of corn will have to increase by more than $0.47 by next spring in order for the return on corn stored unpriced to exceed the likely return to a storage hedge.

Will the Corn Production Forecast Get Smaller

To this point in the season USDA seems satisfied there will be plenty of corn around for the coming year and it won’t be a worth a whole lot. However, possibilities remain that the crop could shrink in size, and that the price might consequently rally.

The price of corn can rally for two reasons. The trade might think the size of this year’s harvest is getting smaller, or there could more demand for the crop - no matter its size. Darrel Good has decided to take up both of those issues. Today we’ll hear what he thinks about the possibilities that corn crop might be smaller than predicted in August. The University of Illinois agricultural economist says a smaller supply projection could result from some combination of a lower estimate of harvested acreage or a smaller yield forecast.

The estimate of planted and harvested acreage should become more precise in October as the USDA’s National Agricultural Statistics Service (NASS) has a chance to review acreage data reported to the Farm Service Agency (FSA) by producers enrolled in federal farm programs. Last year, for example, the forecast of harvested acreage declined by 742,000 acres from August to October. For now, the FSA monthly reports of planted and prevented acreage will be monitored to form expectations about likely changes in NASS acreage estimates. The first of those reports was released today, with producers reporting 83.147 million acres planted to corn compared to the current NASS estimate of 88.897 million.

That’s a big difference, but the FSA acreage figure will grow as acreage reporting and processing is completed. It is important to remember the final FSA figure will be less than the final NASS estimate since not all producers are required to report acreage to the Farm Service Agency. So far FSA shows 2.3 million prevent plant corn acres have been certified. That compares to 1.54 million acres reported in August last year and the final 2014 report of 1.6 million. While big, Darrel Good doesn’t that that difference is significant.

The magnitude of prevented plantings reported so far this year does not point to a substantial decline in the NASS estimate of planted acreage of corn. It is possible, however, that the NASS forecast of corn acreage harvested for grain will decline. The current forecast of the difference between planted acreage and acreage harvested for grain of 7.8 million acres is only 300,000 acres larger than the 1996 to 2014 average.

The NASS August forecast of the 2015 U.S. average corn yield of 168.8 bushels was about four bushels above the average trade guess reflected in news service surveys. History suggests that the forecast will likely change in the coming month by enough to alter the expectations of year-ending stocks.

In the 40 years from 1975 through 2014 the yield forecast, says Darrel Good, changed by less than two bushels through the August to November forecast cycle in only five years. Since the August forecast was higher than expected this year, many have argued that subsequent forecasts will be lower. Looking specifically at the change in the yield forecast from August to September, the forecast has declined in 19 of the previous 40 years. The decline exceeded one bushel in 14 of those years and exceeded two bushels in nine years. None of this, unless weather conditions change, lead Darrel Good to believe USDA will find much different to report this September.

At this juncture, a case for a substantially lower USDA corn production forecast next month is difficult to make. That picture could change a bit based on actual weather conditions and crop condition ratings over the next three weeks.

The September USDA Crop Production Report is due Friday the 11th.

Will the Corn Production Forecast Get Smaller

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Will the Corn Production Forecast Get Smaller
Darrel Good, Ag Economist - University of Illinois

To this point in the season USDA seems satisfied there will be plenty of corn around for the coming year and it won’t be a worth a whole lot. Todd Gleason has more on the possibilities that the crop could shrink in size, and that the price might consequently rally.

The price of corn can rally for two reasons…
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Good :42 …compared to the current NASS estimate of 88.897 million.

Quote Summary - The estimate of planted and harvested acreage should become more precise in October as the USDA’s National Agricultural Statistics Service (NASS) has a chance to review acreage data reported to the Farm Service Agency (FSA) by producers enrolled in federal farm programs. Last year, for example, the forecast of harvested acreage declined by 742,000 acres from August to October. For now, the FSA monthly reports of planted and prevented acreage will be monitored to form expectations about likely changes in NASS acreage estimates. The first of those reports was released today, with producers reporting 83.147 million acres planted to corn compared to the current NASS estimate of 88.897 million.

Good :31 …is only 300,000 acres larger than the 1996 to 2014 average.

Quote Summary - The magnitude of prevented plantings reported so far this year does not point to a substantial decline in the NASS estimate of planted acreage of corn. It is possible, however, that the NASS forecast of corn acreage harvested for grain will decline. The current forecast of the difference between planted acreage and acreage harvested for grain of 7.8 million acres is only 300,000 acres larger than the 1996 to 2014 average.

Good :17 …crop condition ratings over the next three weeks.

Quote Summary - At this juncture, a case for a substantially lower USDA corn production forecast next month is difficult to make. That picture could change a bit based on actual weather conditions and crop condition ratings over the next three weeks.

The September USDA Crop Production Report is due Friday the 11th.

Marketing this Fall's Corn & Soybean Crop

The numbers from the August USDA Crop Production report have farmers reeling. They did not expect them to show bigger number for corn or soybeans and neither did University of Illinois Agricultural Economist Darrel Good.

Quote Summary - My reaction is much like the market. USDA projected larger corn and soybean crops in its August Crop Production report than what we were looking for. That came from higher than expected yields for both corn and soybeans and probably from higher than expected harvested acres for soybeans. So, the net affect is that the balance sheet for the upcoming marketing year now looks plentiful. There doesn’t appear to be prospects for a shortage of either corn or soybeans and it will be difficult for prices to rebound from the low levels coming into the fall of 2015.

USDA’s figures show a corn crop two bushels to the acre better than expected last month and 156 million bushels bigger. The soybean number was up nearly a bushel to the acre and is now projected to be a little less than four billion bushels in size. Darrel Good is not so sure the soybean crop will stay so big and urges patients as it relates to making flat price bean sales. Corn is a different animal.

Quote Summary - In terms of flat price prospects, there is probably not much room for movement in terms of corn prices until we get into the spring of next year and then we start the weather game all over again. So, if we are thinking of storing corn unpriced, it must be a longterm decision. If there is sufficient carry in the market to cover storage cost, then storing and forward pricing is still and opportunity on corn.

The carry in soybeans - that’s the premium paid to a farmer to store a crop for delivery at a later date - is rarely sufficient to cover storage cost says Darrel Good. But he adds there may be a little more room for the price of soybeans to rally in the near term.

Quote Summary - If we do loose a few of those expected harvest acres and if the yield is not quite as high as currently forecast, then we could see a near term bounce in soybean prices.

This bounce could occur just before or just after harvest dependent upon future USDA production reports.

USDA's Crop Yield Forecasting Method

USDA’s National Agricultural Statistics Service (NASS) will release the first survey-based yield and production forecasts for the 2015 corn and soybean crops this Wednesday (tomorrow/today). Even though a description of the NASS crop production forecast methodology is widely available, there always seems to be some misconceptions about how NASS makes corn and soybean yield forecasts. University of Illinois agricultural economists Darrel Good and Scott Irwin put together a brief overview of that methodology and posted to the FarmDocDaily website.

While they say their summary does not do full justice to the very comprehensive forecasting methodology, it is useful to place the upcoming yield forecasts in the proper perspective.

NASS corn and soybean yield forecasts are made in August, September, October and November. The final yield estimate is released in January based on the comprehensive December Agricultural Survey of producers. Two types of surveys are used each month to collect the forecast data.

The Monthly Agricultural Yield Survey (AYS) of producers is conducted in 32 states for corn and 29 states for soybeans with a total of about 25,000 producers surveyed for all crops in August. The Objective Yield Survey (OYS) is conducted in 10 states for corn and 11 states for soybeans. The surveys are generally conducted in a two week period ending about a week before the release of the forecasts.

For the Agricultural Yield Survey, a sample of farm operations to be surveyed is drawn from those who responded to the June acreage survey. While the sample of operations to be surveyed changes from year-to-year, for any particular year the same operations are interviewed each month from August through November. Survey respondents are asked to identify the number of acres of corn and soybeans to be harvested and to provide a forecast of the final yield of each crop. Based on these responses, average yields are forecast for each survey state and for the nation.

The goal of the Objective Yield Survey program is to generate yield forecasts based on actual plant counts and measurements .The sample of fields (1,920 for corn and 1,835 for soybeans) is selected from farms that reported corn (soybeans) planted or to be planted in the June acreage survey. A random sample of fields is drawn with the probability of selection of any particular field being proportional to the size of the tract. Two plots are then randomly selected in each field.

Data collected from each corn plot during the forecast cycle are used to measure the size of the unit and to measure or forecast the number of ears and grain weight. These data include (as available based on maturity) row width, number of stalks per row, number of stalks with ears or ear shoots per row, number of ears with kernels, kernel row length, ear diameter, ear weight in dent stage, weight of shelled grain, moisture content, total ear weight of harvested unit, lab weight of sample ears, weight of grain from sample ears, and moisture content of shelled grain from sample of mature ears. Corn yield is forecast based on the forecast (or measurement if maturity allows) of the number of ears, the weight per ear, and harvest loss.

Data collected from soybean plots (as available based on maturity) include row width; number of plants in each row; number of main stem nodes, lateral branches, dried flowers and pods, and pods with beans; weight and moisture content of beans harvested by enumerator; and weight and moisture content of harvest loss. The data collected are used to forecast yield based on a forecast (or measurement if maturity allows) of the number of plants per acre, the number of pods with beans per plant, the average bean weight, and harvest loss.

For both corn and soybeans, the state average yield forecast based on the Objective Yield Survey is the simple average of the yields for all the sample fields. In addition, a state yield forecast is also made by first averaging the forecast or actual yield factors (such as stalk counts, ear counts, and ear weight) and then forecasting the state average yield directly from these averages. This forecast is based on a regression analysis of the historical relationship (15 years) between the yield factors and the state average yield. State average yields are combined to forecast the U.S. average yield.

The NASS corn and soybean survey and forecasting procedures produce a number of indictors of the average yield. In August these indicators include: average field level yields from the Objective Yield Survey, average state level counts from the Objective Yield Survey, and the average yield reported by farmers in the Agricultural Yield Survey. Each of the indicators provides input into the determination of the official yield forecasts by the USDA’s Agricultural Statistics Board.

The accuracy of the USDA yield forecasts, write Darrel Good and Scott Irwin, relative to the final yield estimates varies from year to year, but as would be expected, improves each month through the forecast cycle as the crops become more mature.

Corn Price Fade may be too Early

The price of corn has dropped because the trade believes there will be plenty of it around. Farmers, generally, are not convinced that will be the case, at least east of the Mississippi River.

The price of corn in Chicago increased about $0.90 per bushel from mid-June to mid-July. The increase was driven by a combination of a smaller-than-expected USDA estimate of June 1 stocks and production concerns stemming from record June rainfall in much of the eastern Corn Belt. Over the past two weeks, corn futures prices have declined nearly $0.80 per bushel as production concerns have subsided. Today the trade thinks, based on price, the amount of corn available for the next year will be more than needed.

CME Group December Corn Futures - Daily Chart

There are couple of ways this could change. University of Illinois Agricultural Economist Darrel Good says a tighter supply and demand balance sheet for the coming year could be generated by a tighter supply of old crop corn carried into that new marketing year.

Darrel Good - Based on the current pace of ethanol production, for example, the use of corn for ethanol production during the current marketing year (ending August 31) could be about 10 million bushels more than the current USDA projection of 5.2 billion bushels. Similarly, exports could be slightly larger than the projection of 1.85 billion bushels if Census Bureau export estimates for June, July, and August exceed the USDA export inspection estimates as was the case in the first nine months of the marketing year. However, for carryover stocks to be lower than the current projection of 1.79 billion bushels by enough to meaningfully alter the 2015–16 supply and demand balance would require larger than expected feed and residual use of corn during the final quarter of the marketing year.

This won’t be known until the Grain Stocks report is released September 30th. A tighter supply and demand balance sheet for corn could also result from larger than expected consumption during the year ahead. Such a development would obviously take time to unfold, but opportunities for consumption to exceed the current projection appear to be limited thinks Good. This leaves the size of the crop in the ground as the primary lever by which prices might be pushed higher.

Darrel Good - The trade's average yield expectation appears to be near 165 bushels, 1.8 bushels less than projected in the July 10 USDA WASDE report. The August production forecast will also reflect the estimate of harvested acreage, but a large change from the June acreage forecast is not expected. Based on the projection of 81.1 million acres harvested for grain, a yield of 165 bushels would result in a crop of 13.38 billion bushels, about 150 million bushels less than projected in the July WASDE report. Still, if 2015–16 marketing year consumption is near the current USDA projection of 13.735 billion bushels, year-ending stocks would be abundant at about 1.45 billion bushels. On the other hand, a yield forecast of 161 bushels or less would likely be sufficient to push prices back to the mid-July highs.

Recent corn price declines indicate, says Darrel Good, that the market is removing the production risk premium from the price structure in anticipation of another year of surplus. The question is whether that removal is premature. The USDA’s Crop Production report to be released on August 12 will contain the first survey-based yield and production forecasts for the 2015 crop.

Projected 2015 Net Incomes on Grain Farms

by Gary Schnitkey, Extension Agricultural Economist - University of Illinois

Average 2015 net income for grain farms in Illinois is projected at around $15,000 per farm, down considerably from the 2014 average of slightly above $100,000 per farm (see Figure 1). Furthermore, the 2015 net income will be below incomes in 2010 through 2012 which were above $200,000 per farm. This decline in incomes raises questions.

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What do incomes in Figure 1 represent?

Historical values in Figure 1 are average net farm incomes of grain farms enrolled in Illinois Farm Business Farm Management (FBFM). These farms are located throughout Illinois and represent a variety of farm sizes, tenure relationships, and debt positions. Farms have increased in size over time. In 2014, average farm size was close to 1,500 acres, but the sample included many smaller farms and may larger farms. There were a relatively large number of farms of over 5,000 acres.

How was the 2015 net farm income projected?

Commodity prices, yields, input costs, and cash rents were projected for 2015. More detail on these projections are contained in the 2015 budgets which are summarized in the July 7th FarmDoc daily article. Key items impacting projections are:

Commodity prices are $4.20 per bushel for corn and $10.00 per bushel for soybeans.
Yields are presumed to be near trend line levels.
Non-land costs are projected to declines slightly from 2014 levels.
Cash rents are projected to decrease slightly from 2014 levels.

Can 2015 net incomes vary from projections?

Of course. Differences in prices and yields from those used in projections will change incomes. For example, corn price could easily be $.50 per bushel different from the $4.20 price used in projections. With higher prices or higher yields, 2015 net incomes could be above $50,000. However, it is difficult to build a case where 2015 incomes are not considerably lower than 2014 incomes.

Why are 2015 net incomes projected so much lower than 2014 net incomes?

The projected 2015 commodity prices ($4.20 for corn and $10.05 for soybean) are above commodity prices received for 2014 crop (likely $3.70 for corn and $9.75 for soybeans). Given higher prices, why then are projected 2015 incomes lower than 2014 net incomes? Two reasons:

Trend line yields are used in 2015 projections. Much of Illinois had above average yields in 2014, contributing to higher net incomes.
Marketing gains contributed a large amount to 2014 incomes. Grain produced in 2013 was valued at a lower price on the end-of-year 2013 income than it was sold in 2014. More detail is provided in the May 27th FarmDoc daily article.

Why is projected 2015 net income lower than averages between 2000 through 2005?

From 2000 to 2005, net incomes on Illinois grain farms averaged $57,500, higher than incomes projected in 2015. When making 2015 projections, a $4.20 corn price and $10.00 soybean price are used. These 2015 projected prices are significantly above prices from 2000 to 2005 when prices received by Illinois farmers averaged $2.18 for corn and $5.69 for soybeans. Given higher prices, revenue is projected higher in 2015 than from 2000–2015. However, costs are projected much higher as well. For example, non-land costs for corn have increased 224% from $256 per acre average from 2000–05 to $578 per acre in 2015. Cash rents have increased 205% from $139 per acre to a projected $286 per acre. These cost increases are the primary factor offsetting higher commodity prices, leading to lower projected incomes in 2015.

Will lower incomes signal financial stress?

These lower incomes suggest the need for continuing financial adjustments. More on the financial strength and need for adjustments will be covered in the July 28th FarmDocDaily article.

Soybean Supply & Demand Tug of War

FarmDocDaily Article by Darrel Good, University of Illinois

It looks like this year’s U.S. soybean crop may be a bit smaller than expected, but at the same time it appears there is a corresponding drop in need.

Although “need” might be a pretty strong term.

U of I ag economist Darrel Good has put the price tug of war related to supply and demand into context as positives and negatives. Here’s a list of items supporting a higher price for soybeans.

First, on the supply side, the smaller than expected June 1 USDA stocks estimate. It resulted in the agency lowering the projection of this year’s ending stocks (what’s going to be leftover when we get to the fall) to 255 million bushels. That’s 75 million bushels less than the month earlier and 220 million bushels less than what USDA thought might be left when the first projections started coming out last year.

Second on the list is the June 30 USDA Acreage report. It predicts harvested acreage of soybeans this year will be about 700,000 acres more than projected based on the planting intentions reported in March. However, there is a general consensus that not all of the intended acreage was actually planted due to extremely wet conditions in Missouri, Illinois, Indiana, and Ohio. In addition, flood damage may result in more than the usual amount of abandonment of acreage that did get planted. So while the acreage number is the largest on record right now, it is expected that will drop.

Thirdly, those same wet conditions should result in a lower average U.S. soybean yield. Something below the projection of 46 bushels per acre in the July 10 WASDE report.

In short, the 2015 crop is expected to be smaller than the current USDA projection of 3.885 billion bushels, but expectations are in a pretty wide range. USDA will release the first survey based production forecast in the Crop Production report August 12. That report will reflect the results of the re-survey of soybean planted and harvested acreage in Missouri, Kansas, and Arkansas.

Fourth, consumption of old crop soybeans remains strong and on track to reach record levels. This goes for domestic usage, called the crush, and the export market. Unshipped sales of 94 million bushels as of July 9 were sufficient to supply the necessary shipments to meet the export goal.

This brings us to the concerns, or the negatives, Darrel Good puts on the ledger.

The concern about soybean demand centers on potential export demand for the 2015 crop. USDA puts it 50 million bushels smaller than this year, but on-the-other-hand, this year is a record high.

Still sales for next year are dismal. They only represent 14 percent of the projection. Over the past three years, at this time, sales have been at least twice that big, and as much as three times. And, the number one destination is the cause. Sales to China, by far the largest customer for U.S. soybeans, stood at only 89.5 million bushels as of July 9. Sales to unknown destinations, which likely include China, totaled 120 million bushels. In the previous three years, combined sales to China and unknown destinations averaged 457 million bushels, compared to only 209.5 million bushels this year.

It is possible, says Darrel Good, that the slow pace of new crop export sales so far this year reflects a shift away from the recent seasonal pattern of export sales back to the pattern that prevailed during the period from 2006 through 2010. During those five years, new crop export sales as of about July 9 accounted for an average of only 14 percent of marketing year exports.

So, those are the positives and the negatives of the soybean market as detailed by Darrel Good on the Farm Doc Daily website.

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.