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Comparison of 2016 ARC-CO and PLC Payments


link to full farmdocDaily article

The United States Department of Agriculture will issue farm safety net payments this month. Todd Gleason has more on the payments for this year, and projections for next year with University of Illinois Agricultural Economist Gary Schnitkey. You may listen to that conversation.



Schnitkey, his University of Illinois colleagues Nick Paulson & Jonathan Coppess, and Ohio State’s Carl Zulauf also explored how the 2016 ARC County payments would compare to those from its counterpart USDA safety net program, PLC. This exploration is a head to head look at how each program performed.

Check the farmdocDaily website for full details at www.farmdocdaily.illinois.edu.

The four academics compared PLC and ARC-CO payment levels per base acre in 2016. They looked at corn and wheat and then did a simple calculation for each to illustrate which USDA farm safety net program made the largest payments for 2016. They calculated by county, for the whole of the United States, the average county-wide ARC payment and then subtracted from it the calculated average county-wide PLC payment. The differences where mapped.

2016 Corn Payments | ARC-CO minus PLC

For corn, it shows ARC-CO payments per base acre exceed those from PLC in most of the counties in the western, Great Plains, and southeastern regions of the US. In more than 60% of counties where the ARC and PLC programs are available for corn base, the ARC-CO payment is at least $10 per base acre larger than the average PLC payment. The ARC-CO payment per base acre is more than $20 larger than the average PLC payment per base acre in more than 50% of counties.

The exception to this is in the Midwest. Many counties in Illinois, Iowa, Missouri, Wisconsin, Minnesota, and North Dakota would receive larger payments from PLC for the 2016 corn crop. Despite low prices, high yields in this region had an offsetting effect on ARC-CO payments. Average PLC payments exceed ARC-CO payments for corn by more than $10 per base acre in 27% of counties across the United States, and by more than $20 per base acre in 17% of counties. Most of those counties are in the corn belt.

This is not an unexpected outcome as ARC was projected to make much larger payments in the first years of the program, and then to taper off with PLC expected to make larger payments in the closing years of the current farm bill. It did this more evenly across the United States for the 2016 wheat base.

The vast majority of counties trigger larger PLC payments per base acre for 2016 wheat. The average PLC payment is more than $10 larger than the ARC-CO payment in nearly 92% of counties with ARC and PLC programs for wheat base. The average PLC payment is more than $20 per base acre larger than the ARC-CO payment in more than 57% of the counties. This large payment difference of more than $20 per base acre captures the main wheat producing areas of the country.

2016 Wheat Payments | ARC-CO minus PLC

Again, while low wheat prices had the effect of triggering PLC and ARC-CO payments, most wheat producing areas experienced high yield levels, offsetting the price effect for ARC-CO payments. Less than 1% of counties triggered an ARC-CO payment per wheat base acre larger than the average PLC payment.

In summary, the farmdoc team finds low commodity price levels led to PLC payments being triggered for a number of program crops in 2016, including corn and wheat. Their models show the size of PLC payments per base acre vary regionally by the size of PLC program yields for those crops, with larger payments being triggered in areas with larger program yields. This includes the Midwest region for corn, and the Midwest, Great Plains, and Western regions for wheat.

2016 Gross Farm Revenue & Income

It looks like this year is going to be better than last year for farmers in central Illinois. Todd Gleason explores how gross income has changed for row croppers in the middle of the prairie state.



The gross revenue for corn is $292 per acre. It is tallied from three income sources. The crop is worth $262. There was a $20 farm safety net payment from the ARC-County program and a $10 crop insurance indemnity. The total, again $292, is lower than last year says University of Illinois Agricultural Economist Gary Schnitkey, “Even though we are putting in a very high yield, we are using 231 bushels to the acre for the corn average - the same as in 2014, revenues will be down for corn in 2016 as compared to 2015”.



Schnitkey calculated the gross revenue figures for the farmdocdaily website.

The soybean figures add up in a similar fashion. The gross revenue is estimated to total $718 per acre. It’s a figure much higher than the 2015 gross says the agricultural economist, “We are including very high soybean yields for 2016. Record-breaking yields, in fact, of 73 bushels to the acre. The price is above $9.50, and this may actually turn out to be low as prices continue to climb. Overall, revenue on soybeans will be up from last year and much higher than total costs. So, our bright spot for the 2016 year will be revenue and income from soybeans”.



All in all, on the highly productive soils of central Illinois, 2016 will go down as a high-yield low-income year. Another year in which farmers just-get-by says Gary Schnitkey.
Quote Summary - Get-by year, but better than it could have been without the high yields. Most farmers will maintain equity, but may see some working capital declines. The declines will be more pronounced on farms working a higher percentage of cash rented land. It is better than 2015, but still not up to sustainable levels for the long-run. We need to see higher returns, particularly for corn prices in the future.
There are a series of graphics detailing 2016 central Illinois row crop farm gross income on the farmdocdaily website.

Crop Insurance Payments - an interview with Gary Schnitkey

Harvest prices used to determine crop insurance payments for corn and soybean policies in the Midwest are based on Chicago Mercantile Exchange (CME Group) futures settlement prices during the month of October. The 2016 harvest price for corn is $3.49 per bushel. This is 10% lower than the $3.86 projected price set in February. The soybean harvest price is $9.75 per bushel. That’s 10% higher than the $8.85 projected price. For the most part it means crop insurance payments to farmers will be relatively low says University of Illinois Agricultural Economist Gary Schnitkey.

Sell Soybeans for Cash Needs

The United States Department of Agriculture has reported the size of this year’s soybean crop and for the second month in a row it has increased the size of what was already a record breaker. That trend is likely to continue.

USDA, in its October Crop Production report, raised the average national soybean yield by eight-tenths of a bushel. It now stands at 51.4 bushels to the acre and about 4.3 billion bushels strong. It is already a serious record breaker, but not likely big enough, yet, says University of Illinois Agricultural Economist Darrel Good.

Well, I think, taking all the evidence together, saying now that we got bigger in September, and we got bigger in October on soybeans, and the crop is already very big…I think would point to another small increase in the yield forecast in November and perhaps in January as well. So, maybe not by a lot, but I certainly wouldn’t expect the number to come down from what we are looking at right now. –Darrel Good

However, even in the face of a record crop, the price of soybeans has remained fairly strong. This tells Darrel Good farmers should be a little patient as they contemplate when to sell. It might be worth waiting to see how the South American crop unfolds. Although, the U of I number cruncher does have a few caveats.

If I had to choose to sell one or the other, I would still be a seller of soybeans. –Darrel Good

For reference USDA has established, this month, the expected mid-point national cash price received for soybeans by farmers from now until next fall at $9.05, with corn at $3.25 and wheat at $3.70.

You may read Darrel Good’s thoughts on the markets each Monday afternoon on the FarmDocDaily website.

Not Much Chance USDA Will Change Corn Yield or Acreage

Early corn yield reports have been good, but pretty variable. There are more than few concerns about a disease called diplodia, too. Some are beginning to piece these items together to make a case for USDA to lower its corn yield estimate. This isn’t very likely thinks University of Illinois Agricultural Economist Darrel Good.

“The fact is”, says Darrel Good, “if you look at the last 20 years of history, there is a strong tendency of the corn yield estimate to get higher in January compared to what it was in September. This has happened 70% of the time in the last 20 years, and almost 70% of the time in the last 40 years. So, those looking for a lower estimate are bucking history, but you can’t rule it out.”

Maybe not, but even if the USDA yield changes it won’t be by much thinks Darrel Good. Certainly not enough to really alter the supply/demand balance sheet changing it from a surplus to a tight supply situation. He doesn’t expect USDA to change the acreage numbers much either. This is because the difference between the Farm Service Agency reported acreage figures released in August and then again in September was very small.

This tells Darrel Good reporting has occurred in a very timely fashion. Therefore, he doesn’t look for an FSA increase in subsequent reports. Historically when the dust settles on corn, NASS acreage is three to three-and-a-half percent higher than FSA, says the U of I number cruncher, and about two percent higher on soybeans. This is right in the range where the FSA numbers set today.

Consequently, Darrel Good does not expect NASS to change its corn acreage estimate very much going forward. If this is the case, it leaves the U.S. with record corn yield and production figures.

2016 Illinois Corn & Soybean at Mid-Season with Emerson Nafziger

Urbana - University of Illinois Extension Agronomist Emerson Nafziger discusses the potential of the corn and soybean crops at mid-season.

PLAYLIST

  • Corn (tipback)
  • Soybean (tall)
  • Growing Degree Days (frost)

Fewer Hogs and Higher Prices

The last Hogs and Pigs report is good news for pork producers. Todd Gleason reports it showed fewer hogs are being raised in the United States and that, in turn, should boost prices.

Pork producers say they’ll reduce the size of their breeding herds. Or at least that’s what the latest Hogs and Pigs report showed. Purdue Extension Agricultural Economist Chris Hurt says farrowing should begin slow this spring and summer. However, right now, the breeding herd is as big as it was at this same time last year. Still, it’s a pattern of change and reduction says Hurt.

Quote Summary - The herd had been in an expansion phase from the last half of 2014 through 2015. That expansion was largely because of record high profits due to baby pig losses from PED. That expansion phase seemingly has now ended.

This ‘ending’ is a bit uneven geographically. For the 16 states USDA surveys for the March report, the breeding herd is up nine percent in Oklahoma and 10 percent in Texas. Some of the primary Midwestern states reported a decrease in their breeding herds over the past year; Iowa down five percent, Missouri down four percent, and Minnesota down two percent. In Indiana, where corn yields were reduced by summer flooding, the breeding herd was down seven percent. Those are all the current breeding herd numbers. It’s the forward looking projections that provide hope for higher pork prices.

Pork supplies in the first quarter of 2017 will come from the three percent smaller summer farrowings. However, with more pigs per litter and heavier weights, pork production is expected to be only about one percent smaller.

Chris Hurt’s price forecast for market hogs then is in a range of $49 to $54 for all of 2016, about $1 higher than last year. He expects prices to rise to the $55 to $58 range for averages in the second and third quarters, normally the grill-out seasonal highs, and then to finish the year in the mid-to-higher $40s.

Allendale Releases 2016 Acreage Survey



Allendale, Inc. estimates US grain and oilseed producers will increase corn and wheat acres, while lowering the number of acres sown to soybean. All three survey totals are higher than USDA’s Agricultural Outlook Forum estimates. 
Corn planting intentions of 90.431 million acres would be the sixth largest acreage of the past ten years. Allendale’s production estimate would imply a production increase of 31 million over last year’s record.
Soybean planting intentions are seen at 82.575 million acres, the third largest ever. Allendale’s production estimate would be 207 million under last year’s record level due to a return back from record 2015 yields.
Wheat acreage is estimated at 51.769 million acres. This would be the smallest acreage since 1970. Allendale’s production estimate is 53 million under last year’s level.

The results are based on the firm’s 27th annual Producer Acreage Survey. Submissions were made directly by producers in 25 states by phone and online from February 26, 2016 to March 11, 2016.
The United States Department of Agriculture is now surveying some 80,000 producers on their cropping intentions for the year. USDA's 2016 Prospective Plantings report is due March 31st.

El Niño & 2016 Corn Yields | an interview with Scott Irwin

There continues to be an immense amount of discussion about the impact of El Niño on agriculture. Many are wondering what will happen to the Midwest corn crop this summer. Univesity of Illinois agricultural economist Darrel Good and Scott Irwin explored the historical data in order to develop some 2016 expectations. You may read their conclusions on the FarmDocDaily website. Irwin spoke at length with Univesity of Illinois Extension’s Todd Gleason about the research during WILLAg.org’s Closing Market Report.



tStorm's Midwest Summer 2016 Weather Prospects

Ethanol Production & 2016 Corn Consumption Prospects

Commodity traders are generally thinking last week’s EPA RFS rule making will cause more bushels of corn to be turned into ethanol next year. Todd Gleason reports University of Illinois Agricultural Economist Darrel Good is more doubtful.

Let’s start by building a corn for ethanol baseline to see why. The EIA, the U.S. Energy Information Administration, says U.S. production of fuel ethanol in 2014 totaled 14 billion 313 million gallons. That was about a billion gallons more than in 2013, and nearly 400 million gallons more than the record setting year of 2011. So, 14.313 billion gallons of ethanol were produced in 2014. During the first nine months of this year, writes Darrel Good on the Farm Doc Daily website, EIA shows production 3.6 percent larger than during the same 9 months last year. It appears October and November were on that same track, and while December looks to be off a bit, it should leave the yearly consumption at a whooping and record setting 14.745 billion gallons says U of I’s Good.

Quote Summary - Production at that level will require about 5.25 billion bushels of feedstock, mostly corn, for conventional ethanol production in 2015.

So the baseline is big, but let’s start back figuring for 2016 corn usage to make ethanol. U.S. EPA just released biofuels volumes for 2016. Those standards point to conventional ethanol consumption of 14.5 billion gallons for 2016. It’s about a 500 million gallon year-to-year increase says Good, however there is a second related factor. That factor is the blend wall, or how much gasoline is actually consumed in the United States .

Quote Summary - Based on EIA projections, consumption is expected to increase from 139.38 billion gallons in 2015 to 139.96 billion gallons in 2016. That expected increase of 580 million gallons follows an expected increase of 2.9 billion gallons in 2015. The conventional ethanol mandate of 14.5 billion gallons, then, reflects an expected small increase in the E–10 blend wall and a “push” to include larger quantities of higher ethanol blends (E–15 and E–85) in the domestic fuel supply. If the 2016 gasoline consumption forecast is correct, the E–10 blend wall will be 13.996 billion gallons.

Now, since some gasoline is consumed without ethanol and some with higher ethanol blends, the effective E–10 blend wall is actually thought to be 9.9 percent of consumption or 13.856 billion gallons. Here’s the back figure. Subtract from this number imported ethanol, add in a few additional E85 gallons, and total 2016 consumption of conventional ethanol says Darrel Good is not roughly 500 million gallons more than this year, but rather about the same as this year - though that 500 million gallon gap will still have to be filled.

Quote Summary - The difference between the RFS requirement of 14.5 billion gallons and the projected consumption of 13.903 billion gallons (597 million gallons) would have to be met with some combination of retirement of RINs stocks, additional quantities of E–85, or blending of additional quantities of advanced biofuels.

This outcome is very different from the initial reaction that an increase in the implied conventional ethanol requirement from the preliminary to final rule making for 2016 of 500 million gallons would result in a measurable increase in feedstock - corn - consumption.

An Early Jump on Computing ARC-CO Payments

Farmers and their bankers can get a jump on just how much income to expect from the ARC County program next fall. Todd Gleason has more on how NASS county yields can be used to anticipate the payments.



Farm income is down dramatically. It means farmers will be going to bankers for production loans this winter. Those loans will be used to plant next season’s crops. The bankers will be looking for every clue they can to help them make solid lending decisions. One source of income they’ll want to calculate comes from the farm programs. However, the ARC County payments won’t be figured until the fall.

It is possible to estimate these payments by substituting NASS county yields for the FSA computed yields says University of Illinois Agricultural Economist Gary Schnitkey, "So, there are likely to be 2015 ARC County payments, but this will depend upon county yield levels. FSA calculates those yields, but not until the autumn of 2016. However, we can use NASS yields to come up with a pretty good estimate of the FSA county yields. NASS will release its yields in February of this year. This will give us a pretty good feel for the 2015 ARC County payments because we’ll have a pretty good ideas of what the FSA county yields will look like."


NASS county yields do vary from the FSA numbers, but not by much. NASS calculates yields by dividing production by harvested acres. These are both numbers the agency collects via a statistical estimate. FSA uses a different calculation. FSA adds to acres the RMA failed acres. Therefore, FSA yields will most always be less than NASS yields. NASS county yields, then, will provide a conservative estimate of the ARC County payment.

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.