Morning Commentary

March corn up 1 at $3.8225

Jan beans up 5 ½ at $8.765

The DOW is up

USD is weaker

Crude oil up $.99 at $57.09

Good morning,

Corn bulls continue to point towards nine million U.S. corn acres that are still thought to be unharvested. Most eyes remain on the acres in North Dakota, Michigan, and Wisconsin. But there are also still many unharvested acres in Illinois, Indiana, Iowa, Minnesota, and Ohio. Unfortunately, we still have to wait until January 10th before we get an updated USDA production estimate. The trend for March corn is negative. Consistent trade below 382.5 on a closing basis will position the market to trade 365.75. A close over 389.5 confirms additional corrective action. The trade count had the fund selling 1,500 corn Tuesday. Based on the trade count, funds are thought to be short 129,000 lots.

Soybean traders continue to debate Chinese negotiations. There’s obviously a large amount of political jockeying taking place and it’s next to impossible to differentiate fact from fiction. As time comes off the clock the market seems more concerned that U.S. exporters are losing their window-of-opportunity as early-planted South American soybeans will soon start being harvested and eventually available in the export space. Keep in mind, Brazil harvested about 117 MMTs of soybeans last year and the USDA is thinking more like 123 MMTs this year, with some private estimates being pushed higher. The trend for January beans is negative. Interesting to note that open interest in beans has risen over 158,000 lots since the end of October while prices have slid nearly 60 cents. The market’s inability to take out Monday’s low combined with the deeply oversold condition leaves the market vulnerable to a technical recovery. A close over 902.5 confirms a recovery phase. A close below 865 leaves the market in position to trade 843.5. The trade count had the fund buying just 500 beans Tuesday. Based on the trade count, funds are thought to be short 73,000 lots.

China’s state reserves bought 2,000 metric tons of cotton on Monday, its first purchase in five years, said the China Cotton Association on its website on Tuesday.  The cotton, all grown in major producing region Xinjiang, was sold at an average price of 13,259 yuan ($1,883.70) per metric ton. (Source: Reuters)

Italian pasta-makers have increasingly used U.S. and Canadian wheat for their spaghetti and macaroni. The trend is likely to continue after European growers planted less wheat and bad weather on the continent further weighed on production, foiling Italy’s efforts to protect its own farmers. Italian importers took advantage of U.S. and Canadian durum of “excellent quality” at “historically cheap values,” Niccolo d’Andria, vice president of the Rome-based grains group Associazione Nazionale Cerealisti, or Anacer, said in an email. A second round of imports may loom in April, he said. Exports of Canadian durum to Italy in the two months ended Sept. 30 almost tripled to 156,500 tons from a year earlier, according to the Canadian Grain Commission. Shipments from the U.S. in the nine months ended September more than doubled to 210,000 tons, the most since 2015, U.S. Department of Agriculture data show. (Source: Bloomberg)

 

African Swine Fever Continuing to Impact U.S. Pork Exports and World Protein Markets

Earlier this month, in its monthly Livestock, Dairy and Poultry Outlook, USDA’s Economic Research Service (ERS) explained that, “U.S. trade data through September indicate that in the first three quarters of 2019 total exports of red meat and poultry increased 1.1 percent. However, driven by a large increase in expected fourth-quarter shipments, exports for the year are forecast to increase more than 3 percent compared with 2018, followed by an increase in 2020 of about 7 percent.”

Livestock, Dairy, and Poultry Outlook, LDP-M-305, U.S. Department of Agriculture, Economic Research Service, November 15, 2019.

More specifically, ERS stated that, “Large year-over-year pork exports—about 11 percent in 2019 and more than 12 percent in 2020—are forecast, due largely to likely increased import demand from African Swine Disease (ASF)-stricken countries in Asia.”

With respect to September, The Outlook noted that, “September pork exports were 465 million pounds, 7.6 percent higher than a year ago. Shipments to most of the ‘usual’ large buyers were lower: Mexico (-3.7 percent), Japan (-6.1 percent), Canada (-1.4 percent), and South Korea (-9.9 percent).

Exports to ChinaHong Kong─more than triple last year’s volume—were largely responsible for holding the September total above exports of a year ago.

“Shipments to the 10 largest buyers in September are summarized below, along with their respective shares of September exports.”

Livestock, Dairy, and Poultry Outlook, LDP-M-305, U.S. Department of Agriculture, Economic Research Service, November 15, 2019.

“Strong year-over-year increases in U.S. exports to ChinaHong Kong are the result of continued liquidation of Chinese hog inventories, reduced pork production, and skyrocketing pork prices, brought about by African Swine Fever (ASF).”

Additionally, ERS pointed out that, “USDA forecasts that Chinese pork production will decline by 14 percent this year compared with 2018. By the end of October, Chinese pork prices had responded to reduced pork supplies by more than doubling, year over year. October pork prices averaged more than 60 percent higher than prices at the beginning of August (week 32 in the figure below).”

Livestock, Dairy, and Poultry Outlook, LDP-M-305, U.S. Department of Agriculture, Economic Research Service, November 15, 2019.

China has stepped up pork imports in response to reduced pork production. USDA forecasts that China’s 2019 imports will increase almost 67 percent compared with 2018, to 2.6 million metric tons. The table below shows January-September Chinese pork imports for 2018 and 2019. U.S. pork represented 10.5 percent of China’s imports during that period.”

Livestock, Dairy, and Poultry Outlook, LDP-M-305, U.S. Department of Agriculture, Economic Research Service, November 15, 2019.

The ERS Outlook added that, “Third-quarter U.S. pork exports were 1.516 billion pounds, 16.8 percent ahead of exports a year ago. Fourth-quarter exports are expected to be record-large at 2 billion pounds and largely reflect strong global demand for reduced supplies of animal proteins. Total pork exports this year will likely be just below 6.5 billion pounds, almost 11 percent above shipments last year. Exports next year—7.3 billion pounds—are expected to be supported by a continuation of largely similar factors that are currently driving global demand.”

Meanwhile, Reuters columnist Karen Braun pointed out on Friday that, “U.S. pork exports are seen setting another record in 2020, but production is predicted to do the same, and the numbers do not suggest a tightening in the domestic market given the projected demand. According to USDA, U.S. hog and pig inventory was record-high for the date back on Sept. 1, and 2020 pork production is seen rising 4% on the year to an all-time high of 13 million tonnes.”

Quarterly Hogs and Pigs. USDA, National Agricultural Statistics Service (September 2019).

In additional news regarding pork demand and China, Reuters writer Dominique Patton reported late last week that,

China’s pork imports in October doubled from a year earlier, as wholesalers stocked up on supplies after disease decimated the huge hog herd, customs data showed on Saturday.

“Pork imports for the first ten months of the year stood at 1.5 million tonnes, up 49.4% from the corresponding period a year earlier, data from the General Administration of Customs shows.”

The Reuters article stated that, “China has been opening up its market to new sources of meat, approving dozens of new pork processing plants in Brazil, Argentina and Britain in recent months to help alleviate its protein shortage.”

And with respect to beef proteinReuters writer Roberto Samora reported last week that, “Brazil’s famous barbecue is getting more expensive as Chinese demand is increasingly swallowing up the country’s beef supply, pushing Brazilian cattle prices to a record high.

“China’s hunger for foreign meat has shot up as an outbreak of African swine fever has decimated its domestic pig population and has sent it looking for substitutes. Chinese imports of Brazilian meat are up 23.6% for January to October against the same period last year, meatpackers association Abrafrigo says.”

Bloomberg writer Tatiana Freitas pointed out last week that, “While China has been increasing local poultry production and raising pork imports from several suppliers, Brazil is the only big beef exporter able to meet the Asian nation’s demand. Chinese importers are snapping up all types of cuts, inflating prices along the Brazilian chain from calves to animals ready for slaughter.”

“Brazil Is the Big Beef Winner From China’s Hunt for Protein,” by Tatiana Freitas. Bloomberg News (November 21, 2019).

Also late last week, Bloomberg writer Megan Durisin reported that, “The deadly swine disease roiling China’s hog farms is getting closer to one of its top overseas suppliers of pork.

“African swine fever was found in 20 wild boar in Poland’s western Lubusz province this month, putting the disease within 80 kilometers (50 miles) of Germany, the European Union’s biggest hog producer. While eastern Europe has grappled with the virus for several years, the latest cases show Germany is ‘increasingly exposed’ to a potential spread, the agriculture ministry said.”

“Deadly Hog Virus Nears One of China’s Top Pork Suppliers,” by Megan Durisin. Bloomberg News (November 21, 2019).

And Wall Street Journal writer Liyan Qi reported on Friday that, “China said it hopes to restore most of its pork supply in roughly a year, as worries about African swine fever continue to hurt the industry.

“The number of breeding sows edged up 0.6% in October from a month earlier, rising for the first time since April last year, Yang Zhenhai, an official with China’s Agriculture and Rural Affairs Ministry, said at a briefing Friday.”

International Grains Council@IGCgrains 

Global #soybean consumption is seen reaching a new peak in 2019/20, although the y/y increase will be below trend amid a slowdown in feed demand due to the impact of African Swine Fever in China.

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2:00 AM – Nov 22, 2019

The Journal article noted that, “The government aims to restore supply to about 80% of the level before African swine fever hit China by the end of next year, Mr. Yang said.”

Source: Keith Good, Farm Policy News

USDA’s Recommendations for a Safe Thanksgiving

Thanksgiving is a time to reflect on the things we are most thankful for and to enjoy a delicious meal with loved ones. Some take the lead for meal preparation while others share the responsibility. No matter how your meal comes together, everyone must work together to prevent foodborne illness.

“With large meals come food safety risks, so when I prepare my family’s Thanksgiving dinner, I keep food safety in the forefront,” said Dr. Mindy Brashears, the USDA’s Deputy Under Secretary for Food Safety. “Washing hands properly, keeping the raw turkey away from other ingredients, cooking turkey to a safe internal temperature of 165°F, and promptly refrigerating all of our leftovers within 2 hours after mealtime are all ways we keep our meal safe.” Follow these tips from USDA to ensure a food safe meal this Thanksgiving.

Tip 1: Wash your hands

The first step to safe food preparation is always handwashing. Handwashing reduces the risk of foodborne illness and is especially important after handling raw meat, poultry, seafood and egg products. In a recent USDA study, participants shockingly failed to wash their hands sufficiently nearly 100 percent of the time. Follow these five simple steps to wash your hands properly and keep your loved ones safe:

  1. Wet your hands with clean, running water, turn off the tap, and apply soap.
  2. Lather your hands by rubbing them together with the soap. Be sure to lather the backs of your hands, between your fingers, and under your nails.
  3. Scrub your hands for at least 20 seconds. Need a timer? Hum the “Happy Birthday” song from beginning to end twice.
  4. Rinse your hands well under clean, running water.
  5. Dry your hands using a clean towel.

Tip 2: Prevent cross-contamination

Turkeys can be large and hard to handle, which makes the risk of cross-contamination higher during Thanksgiving meal preparation. Turkeys may contain Salmonella and Campylobacter, common pathogens that can cause foodborne illness. Our recent study found that 60% of sinks were contaminated after handling raw poultry in the sink, so if you handle your turkey in the sink, be sure to fully clean and sanitize your sink and other surfaces after handling your raw turkey and before prepping any other Thanksgiving sides and dishes

To clean surfaces, wash them with soap and warm water to remove dirt and debris. Then use a solution of chlorine bleach or an alcohol-based solution to sanitize. Sanitizing will reduce the number of bacteria present on a surface and ultimately leave your sinks, counters, and other surfaces safe from harmful bacteria.

Tip 3: Cook the turkey to 165°F

The only way to kill bacteria is to fully cook your turkey and any other dishes with raw meat, poultry, or egg products. They must be cooked to a safe internal temperature as measured by a food thermometer. To properly take the internal temperature of your turkey, test it in three areas — the thickest part of the breast, the innermost part of the wing, and the innermost part of the thigh. Once all three locations reach 165°F, the bird is safe to eat. If one of those locations does not register at 165°F, then continue cooking until all three locations reach the correct internal temperature.

Tip 4: Follow the two-hour rule

It’s tempting to go back for seconds (or even thirds), but perishable foods are only safe out on the table or buffet for two hours. After two hours, food will be in the Danger Zone, temperatures between 40-140°F, where bacteria can rapidly multiply and cause the food to become unsafe. Make sure all leftovers are placed in the refrigerator within two hours to safely enjoy them later. Put them in small, shallow containers. If foods have been left out for more than two hours, they should be discarded.

Tip 5: Ask your questions!

If you have any questions this Thanksgiving, you can call the USDA Meat and Poultry Hotline at 1-888-MPHotline (1-888-674-6854) to talk to a food safety expert or chat live at ask.usda.gov from 10 a.m. to 6 p.m. Eastern Time, Monday through Friday. If you need help on Thanksgiving Day, the Meat and Poultry Hotline is available from 8 a.m. to 2 p.m. Eastern Time.

You can also visit FoodSafety.gov to learn more about how to safely select, thaw and prepare a turkey. For more Thanksgiving food safety tips, follow FSIS on Twitter @USDAFoodSafety or on Facebook at Facebook.com/FoodSafety.gov. Happy holidays!

Source: USDA

Weekly Outlook-Acreage in 2020

The 2019 crop year will live long in the memory.  A record amount of prevent plant acres, delayed harvest, and considerable dismay over USDA reports compounded the uncertainty associated with the trade war.   Speculation about the acreage levels in 2020 is already underway.  Current market conditions support acreage increases in corn and soybeans in 2020.  It appears only the magnitude of those increases is in doubt.

A variety of surveys and projections by industry analysts place 2020 corn acreage close to 94 million acres.  Soybean acreage projections come in around 84 million acres.  Prospects for 2020 crop acreage levels begin with expectations about planted acreage for principal crops.  In 2019, acreage planted in principal field crops fell to 309.3 million acres, down 10.3 million acres from the previous year.  A record level of prevent plant acreage led to this dramatic drop.  At 19.6 million acres of prevent plant acres, this crop year eclipsed the previous record acreage total of 2011 by almost 10 million acres.  Corn prevent plant came in at 11.4 million acres while soybean prevent plant sits at 4.5 million acres.  Among major field crops, acreage increases for corn, barley, and oats materialized in 2019 despite the tough planting conditions.  Other field crops acreage fell from the previous year.  Soybean acreage dropped by 12.5 million acres in 2019 under the complex prevent plant decisions that occurred in the spring months.

Any analysis of principal crop acreage requires considering 2019 as an anomaly.  The possibility of seeing massive prevent plant acreage in successive years seems remote.  In the four years leading into 2019, principal crop acreage averaged 318.9 million acres.  An expectation of principal crop acreage near this level seems reasonable for 2020.  As we move into 2020, the prospect of significant adjustments in crop acreage increasingly focuses on soybean acreage, while acreage changes among other crops may be in the form of acreage adjustments instead of acreage losses.  The environment across most field crops point to total planted acreage of principal crops near 319 million acres in 2020.

In 2019, the combination of corn and soybean acres decreased to 166.4 million planted acres, down from 178.7 million acres in 2018.  Over the three years before 2019, corn and soybean acreage averaged 178.7 million acres.  Corn and soybean acreage over those years accounted for close to 56 percent of principal crop totals.  For this analysis, principal crop acreage near pre-2019 totals and a similar percentage for combined corn and soybean acres is the expectation.  Corn and soybean acres near 177.5 million acres seems a reasonable estimate.  As we move into 2020, corn and soybean acreage shifts depend on the profitability of corn and soybean production relative to other crops.

Early surveys indicate winter wheat acreage is set to fall again this year.  After planting 31.16 million acres for the 2019-20 crop year, expectations place this year’s winter wheat acreage near 31.12 million acres.  Delayed harvesting of spring crops and relatively low cash prices may see this come to pass.  Wheat prices picked up recently and a continuation of stronger prices may incentivize wheat planting in the spring. Still, the USDA forecast of an average seasonal price near $4.70 for the 2019-20 marketing year may not provide enough incentive to see total wheat acres above last year’s 45.2 million acres if it comes to fruition.  Low cotton prices point toward a lower acreage than last year’s 13.76 million acres as well.  The prospects of cotton acreage between 10-11 million acres open up more acreage for other crops.  Even if other grains expand acreage, the magnitudes of the expansion may not amount to more than a million acres between sorghum, rice, barley, and oats.  The percentage of these reduced acres devoted to corn and soybeans remain an open question.  Expanded acreage appears likely barring a reduction in principal crop acreage in 2020 from pre-2019 levels.

At present, fall 2020 cash delivery prices in central Illinois yield a soybean-to-corn price ratio near 2.48.  Current market prices point toward a more robust expansion of soybean acreage than corn.  Corn acreage near 92.1 million acres and soybean acres at 85.4 million acres indicates a 2.2 million and 8.9 million acre increase in corn and soybean acreage, respectively.  A resolution to the trade war or substantial changes in current 2019 crop production levels may alter this scenario significantly.

The market will continue to form expectations about acreage devoted to corn and soybeans.  Preliminary surveys of farmer’s planting intentions for 2020 indicate an expansion of corn and soybean acreage.  Thus far, all surveys have indicated a reduction of wheat and cotton acreage.  Data availability on acreage prospects in 2020 begins with the USDA’s January 10 Winter Wheat Seedings report and will be followed by the March 31 Prospective Plantings report.

Source: Todd Hubbs, Farmdocdaily

USDA Agricultural Trade Outlook- FY20 Export Forecast Increased

On Monday, the USDA released its Outlook for U.S. Agricultural Trade, a quarterly report from the Department’s Foreign Agricultural Service (FAS) and Economic Research Service (ERS).  Today’s update includes highlights from the report, which was coordinated by Kamron Daugherty and Hui Jiang.

The Outlook stated that, “U.S. agricultural exports in Fiscal Year (FY) 2020 are projected at $139.0 billion, up $2.0 billion from the August forecast, driven by higher soybean, pork, and dairy export forecasts.  Soybean exports are up $1.2 billion to $18.0 billion as a result of higher unit values. Pork exports are raised $400 millionlargely due to demand from ChinaDairy product exports are up $300 million to $5.8 billion as volumes and unit values are expected to strengthen. The beef export forecast is reduced $200 million, reflecting lower unit values. Overall livestock, poultry, and dairy exports are forecast at $31.9 billion, $500 million higher than the August projection.”

More narrowly, FAS-ERS explained that, “FY 2020 grain and feed exports are forecast at $29.5 billion, down $600 million from the August forecast, due mainly to declines in corn and wheat.

Corn is forecast at $9.0 billion, down $400 million on lower volumes as U.S. exports face strong competition from Brazil, Argentina, and Ukraine.

“Corn producers in South America (Brazil and Argentina), Ukraine, and less so in Russia have been increasingly capturing the steady growth in global corn trade, and this trend is expected to continue. This shift in global corn production and exports in favor of these low-cost and favorably located corn producers has already altered global trade. The United Sates, once the foremost power in corn exports with a market share historically between 60 and 80 percent, has recently seen its share fall below 40 percent and is expected to continue losing its competitive edge to lower cost producers” (“A Deeper Look Into the USDA Crop Baseline Projections to 2028, With a Focus on Trade,” FDS-19k-02 USDA, Economic Research Service).

Sorghum is up $100 million to $500 million on higher volumes. Feeds and fodders are forecast at $7.7 billion, unchanged. Wheat is forecast at $6.0 billion, down $300 million on lower volumes and unit values in light of strong international competition. U.S. wheat exports in the coming months will likely be constrained by large supplies in Russia, the European Union, and Argentina.”

“In 2019 and beyond, the growth in export sales from the EU and Argentina was expected to be robust, averaging about 3 percent per year” (“A Deeper Look Into the USDA Crop Baseline Projections to 2028, With a Focus on Trade,” FDS-19k-02 USDA, Economic Research Service.).

Oilseeds and products are forecast at $27.1 billion, up $1.5 billion from the August projection. Higher unit values on lower U.S. production accounts for most gains, with value up $1.2 billion to $18.0 billion with a decline in projected U.S. production.

Additional sales to China since the beginning of the fiscal year have also strengthened U.S. prices. Despite these sales, soybean export volumes are unchanged.

“Soybean meal export volumes are lower on strong competition from Argentine exports. In addition, tight U.S. soybean oil stocks are expected to increase prices, limiting U.S. competitiveness.”

International Grains Council@IGCgrains 

Purchases made during progressing bilateral trade negotiations have helped push MY19/20 US #soybean commitments for delivery to China to levels well above a year ago.

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2:30 AM – Nov 22, 2019

Monday’s report added that, “Livestock, poultry, and dairy are forecast up $500 million from August to $31.9 billion as stronger demand for pork, dairy, and hides and skins more than offsets declines for beef and poultry products. Beef is down $200 million to $7.6 billion on lower prices. Pork is up $400 million primarily as demand from China boosts volumes. Poultry and poultry products are forecast $100 million lower to $5.2 billion on slightly weaker volumes for poultry meat. Dairy product exports are raised $300 million to $5.8 billion as volumes and prices for nonfat dry milk powder and other skim milk products are expected to strengthen.”

From a regional perspective, FAS-ERS pointed out that,

The export forecast for China is raised $3.5 billion from August to $11.0 billion, due to higher expected demand for soybeans and pork. Export sales of both are ahead of the same time last year.

“Forecast exports to Japan are lowered $300 million to $12.5 billion on reduced prospects for corn, pork, and beef. The forecast for South Korea is down $200 million to $8.3 billion as a result of lower beef unit value. Exports to Taiwan are forecast $200 million lower to $3.7 billion, on expectations of reduced export values of bulk commodities and beef.”

“Top Markets for U.S. Agricultural Exports in 2018.” (USDA-FAS, April 30, 2019).

“The export forecasts for Canada and Mexico are unchanged from August at $21.5 billion and $19.8 billion, respectively,” the USDA report said; adding that, “Exports to the EU are forecast at $13.3 billion, which is $300 million lower than the August projection due to reduced demand for soybean and soybean products.”

Source: Keith Good, Farm Policy News

Market Facilitation Program Payments and 2020 Cash Rents

Market Facilitation Program (MFP) payments have served as a significant source of revenue on grain farms in 2018 and 2019. Without MFP payments, average farmer returns would be negative in 2019, and far below any level since consistent records began in 2000. Without MFP payments, 2020 returns are projected to be negative. It is unknown at this time if MFP payments will occur in 2020, or the potential level of an MFP payment if the program continues. When developing cash rental rates, we suggest lowering cash rent levels if they are at or above averages for a productivity level, and then having the possibility of higher cash rents if MFP payments occur.

Historic Returns to Central Illinois

Figure 1 shows average operator and land return and average cash rent on high-productivity farmland in central Illinois, with historical values representing actual returns from grain farms enrolled in Illinois Farm Business Farm Management (FBFM). Documentation for values shown in Figure 1 is provided in Revenue and Costs for Illinois Grain Crops (click here for download). Historical and projected revenue assumptions also are given in a November 19, 2019 farmdoc daily article. Figure 1 shows returns for farmland given that 50% of the acres are in corn and 50% are in soybeans.

Two lines are shown in Figure 1. The first is operator and land return, representing a return to both the farmer and land owner. Costs for farmland are not included in operator and land return. If farmland is cash rented, the cost to the farmer is cash rent. Figure 1 also shows average cash rent in central Illinois. When operator and land return is above cash rent, a farmer will have a positive cash return on cash rented land. Losses occur when operator and land return is below cash rent.

Between 2006 and 2013, a period in which corn and soybean prices were relatively high, operator and land returns exceeded cash rents by large margins. This period was characterized by higher net incomes (see farmdoc dailyNovember 19, 2019). Cash rents were rising during this period in response to higher operator and land returns.

Average operator and land returns have been roughly the same as average cash rents since 2013:

  • 2014: Operator and land return was $290 per acre, cash rent was $293 per acre, and farmer return was -$3 per acre.
  • 2015: Operator and land return was $265 per acre, cash rent was $278 per acre, and farmer return was -$13 per acre.
  • 2016: Operator and land return was $291 per acre, cash rent was $273 per acre, and farmer return was $18 per acre.
  • 2017: Operator and land return was $250 per acre, cash rent was $267 per acre, and farmer return was -$17 per acre.
  • 2018: Operator and land return was $355 per acre, cash rent was $274 per acre, and farmer return was $81 per acre.
  • 2019 Projections are for an operator and land return of $273 per acre, cash rent of $274 per acre, and farmer return of -$1 per acre.

Lower returns after 2013 largely occurred because of declines in commodity prices.  Returns shown in Figure 1 suggest that cash rents should decline because farmers need to obtain a positive return for the risks, labor, and management of farming.  Likely reasons that cash rents farmers are paying have not declined are 1) financial reserves built during the period of high incomes from 2006 to 2012 are allowing farmers to continue paying high rental rates in hopes that higher commodity prices in the future will make those rates profitable (farmdoc dailyOctober 4, 2016 and October 23, 2018), and 2) positive returns from owned and share rented farmland are used to subsidize cash rent farmland (farmdoc dailyAugust 22, 2017).  Trade disputes, and other factors such as African Swine Fever in China, have considerably diminished chances of higher prices in the near future.

Impacts of MFP payments

In 2018, trade disputes between the U.S. and other countries began impacting agriculture, with the tariff battle between China and the U.S. receiving a great deal of attention. Soybean prices declined throughout the year as the trade dispute continued. On central Illinois farms, prices averaged $8.85 per bushel for soybeans produced in 2018, down from the $9.81 average from 2013-2018.

Although soybean prices were down, returns were positive for central Illinois farmers, at the highest level since 2013 (see Figure 1). In 2018, operator and land return exceed cash rent by $81 per acre. Both exceptionally high yields and MFP payments contributed to this higher return. In 2018, MFP payments accounted for $62 per acre of return, with most of that coming from soybean acres (see farmdoc dailyNovember 19, 2019). Without the MFP payments, farmer return in 2018 would have been $19 per acre, in the range of returns in other years since 2013.

In 2019, farmer return is projected at -$1 per acre. Returns are down in 2019 because of much lower yields. MFP payments have a large, positive impact on returns. For 2019, MFP payments for central Illinois grain farms are estimated at $82 per acre, up by $20 from average 2018 levels (see farmdoc daily July 30, 2019 for a list of payments by county). This $82 level assumes that all three tranches of MFP payments are paid. Two tranches totaling three quarters of the payment amount have been paid. The third tranche, if confirmed, would be distributed in early 2020 with the remaining quarter of the payment. Without a MFP payment, 2019 returns are estimated at -$83 per acre, the lowest farmer return since 2000 (see Figure 1).

Figure 1 also includes projections for 2020. Operator and land return is projected at $232 per acre, cash rent at $270 per acre, and farmer return at -$38 per acre. The 2020 projection is based on a return to trend yields. Exceptional yields like those in 2018 would be needed to get positive returns given prices of $3.90 per bushel for corn and $9.00 for soybeans. However, prices may fall to lower levels if exceptional yields occur. As a result, crop revenue increases alone likely will not lead to higher farmer returns.  Positive returns in 2020 may be dependent on some level of support, such as the continuation of the MFP.

MFP Payments in Perspective

In the last two years, MFP payments have been a significant source of revenue on Illinois grain farms. In 2018, MFP payments represented 8 percent of total gross revenue received from corn and soybeans production. In 2019, MFP’s share is presented at 11 percent (see Figure 2).

Government payments have not accounted for that large of a share of gross revenue on Illinois grain farms since the early 2000s. In the early 2000s, government support to farmers through the Agricultural Market Transition Act, Market Loss Adjustment, and marketing loan programs represented a higher share of gross revenue. For example, government payments were 25% of gross revenue in 2000, 23 percent in 2001 (see Figure 2)

Cash Rents

Corn and soybean prices fell and were at lower levels in both the early 2000s (beginning in 1998) and since 2018. Those lower prices then led to governments payments. In the early 2000s, those payments were legislated through Congress. The MFP payments come through different authority, with levels determined through a process that is not transparent (see farmdoc dailyNovember 21, 2019 for more discussion of the MFP program). Also, the levels of MFP payments from one year to the next are not known. For 2019, administrative officials indicated that MFP payments would not occur up to May 2019. In actuality, MFP payments on most farms will be higher in 2019 than in 2018.

Counterfactuals are difficult to prove, but it seems likely that farmers in the early 2000s would have had to make larger adjustments in response to lower commodity prices had government support not existed. In the end, land returns likely would have declined, and cash rents fallen.

Similarly, cash rents likely would have fallen in 2019 as a result of lower commodity prices in 2018 had MFP payments not existed. The extent to which they would have fallen depends on how participants view the permanence of lower soybean prices. If soybean prices will continue below $9.00 for several years, cash rents need to adjust downward if MFP payments do not continue.

2020 Cash Rents

The uncertainty of MFP payments presents an issue for setting 2020 cash rents. If MFP payments do not occur, farmers could face large losses if cash rents levels are set as if MFP payments will occur. On the other hand, MFP payments at the 2018 and 2019 levels could result in good farmer returns, particularly if yields are exceptional. This uncertainty obviously adds to the difficulty in making cash rent decisions for 2020.

As farmers and landowners negotiate rental rates for 2020, several factors should be considered. Cash rental rates have remained relatively flat despite a lower price environment since 2013.  The average central Illinois cash rental rate has put farmer returns below break-even in three of the last five years, and likely right at break-even in 2019 including the full MFP payment.

Given the uncertainty about MFP payment, an appropriate approach would be to set a cash rent without the MFP considered in budgeting and allowing for an increase in the rent if the MFP occurs. As an example, consider 2020 projections. Without an MFP payment, 2020 operator and land return is projected at $232 per acre.  This $232 per acre is considerably below the 2018 average rent of $273 per acre.  Setting a cash rent at $230 per acre would result in a $2 projected return to the farmer, not a desirable return, but better than a loss that would result with a cash rent at the $273 average for 2019.  The lease could then have a clause that shares the MFP payments 50-50 between the land owner and farmer. If an $82 per acre MFP payment is received — equivalent to the average projected payment for 2019 — the farmer would make an additional payment of $41 to the land owner, resulting in total rent to the land owner of $271 per acre ($230 base cash rent plus $41 payments from the MFP payment), and a $43 return to the farmer ($2 projected return with MFP pulse $41 from MFP).

Several notes about the above lease:

  1. A share-rent arrangement has risk sharing directly built into the lease.  As a result, MFP payments already are considered in share-rent arrangements
  2. The above lease is very close to a variable cash lease (see farmdoc dailySeptember 9, 2015 for a discussion of one-type of variable cash leases.  Click here for a lease). Variable cash leases would consider possible higher returns due to higher prices or yields.  Inclusion of MFP like payments in variable cash leases seems warranted if base levels are low enough such that farmers do not take large losses at base rent levels.
  3. Base levels need to be set low enough so that farmer risks are reduced.  Putting a clause for MFP sharing without lowering cash rents simply shifts returns from farmers to land owners, and adds risk to the farmer.
  4. The 50-50 sharing percent is dependent on having the base level low enough that farmer risks are reduced.  Given the current economic environment, base rent levels should be well below cash rent levels.  A method for determining average cash rents for different cash rent levels is presented in a November 7, 2017 farmdoc daily article.

Summary

MFP payments have had impacts on land rental rates. Moreover, uncertainty about the continuation of MFP in 2020 presents issues in setting cash rental rates. Given this uncertainty, we present the idea of setting cash rents at appropriate levels given the price and yield environment, likely lower than 2019 cash rent rates, with contingencies for cases in which MFP payments occur. By doing this, base cash rent is set at a level that allows the farmer to generate profits and leaves open the option for both parties to benefit if MFP payments occur in 2020.

YouTube Video: Discussion and graphs associated with this article at

References

Coppess, J. “The Market Facilitation Program: A New Direction in Public Agricultural Policy?.” farmdoc daily (9):220, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, November 21, 2019.

Coppess, J. “The Conservation Question, Part 3: Lessons in Settling Dust.” farmdoc daily (9):210, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, November 7, 2019.

Schnitkey, G. “Negative Cash Rent Farmland Returns Since 2014 Reduced Farmer Net Incomes.” farmdoc daily (7):153, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, August 22, 2017.

Schnitkey, G. “Financial Performance of Illinois Grain Farms: Deterioration in 2015.” farmdoc daily (6):187, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, October 4, 2016.

Schnitkey, G. “Parameters for a 2016 Cash Rent with Bonus.” farmdoc daily (5):165, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, September 9, 2015.

Schnitkey, G., K. Swanson and D. Lattz. “Projected Net Incomes on Illinois Grain Farms in 2019 and 2020.” farmdoc daily (9):218, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, November 19, 2019.

Schnitkey, G. and K. Swanson. “Incidence of Financial Stress on Illinois Grain Farms.” farmdoc daily (8):196, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, October 23, 2018.

Schnitkey, G., N. Paulson, K. Swanson, J. Coppess and C. Zulauf. “The 2019 Market Facilitation Program.” farmdoc daily (9):139, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, July 30, 2019.

Source: Gary Schnitkey and Krista Swanson, Farmdocdaily

Producers Have Several Methods for Weaning Calves

Now is a good time to wean calves, and producers should select the weaning method that best fits their operation, according to North Dakota State University Extension livestock specialists.

For the beef industry, weaning can be defined as “the process of causing a calf to stop feeding on its mother’s milk, to rely completely on other source of feed and to live without the cow’s company (at least temporarily) for the purpose of beef cattle production.”

“Weaning is a management practice inherent to beef cattle production,” says Yuri Montanholi, NDSU Extension beef cattle specialist.

Here are some reasons for weaning:

  • Results in better efficiency in nutrient use when calves consume nutrients directly from feed rather than in milk from the cow
  • Helps reduce the cow’s energy requirements, which is crucial to cows maintaining adequate body condition
  • Enables the management of market cows and the sale or backgrounding of weaned calves

Producers have several methods for weaning calves. These vary in cattle-handling requirements, and facilities, equipment and experience necessary. As a result, weaning methods provide distinct experiences to calves, impacting their well-being, which will affect their performance and health.

Types of Weaning

Corral weaning, also known as traditional or total-separation weaning, is a popular method that many producers consider to be “practical.” Under this method, cows and calves are separated abruptly. Most of the time, calves are kept in unfamiliar places and commingled with unfamiliar herd mates from different summer pastures. This method leads to excessive bawling and triggers other stress responses.

“Our research demonstrated a 75% increase in cortisol, a key indicator of stress, and a weight loss of 18 pounds after three days postweaning in calves subjected to the traditional method,” says Karl Hoppe, Extension livestock systems specialist at NDSU’s Carrington Research Extension Center.

Fenceline weaning, as implied, consists of separating cows and calves into adjacent areas. They can see and sniff each other, but suckling is not possible. Under this method, cows and calves gradually lose interest in each other.

Weaning experts recommend that calves be kept in an area (weaning pen or trap, or pasture) with which they already are familiar. After a few days of separation, the producer can evaluate if the cattle are sufficiently weaned and then move the calves away, as needed.

Good fencing for this option is essential. Some experts recommend fences with five strands of barbed wire plus electrical wire.

Nose flap weaning, also known as two-step weaning, is based on the placement of a plastic flap in the nose. The flap allows eating (grazing and feed at the bunk) and water drinking but not nursing.

Producers normally remove the flap within a week of its placement, when calves and cows are separated. In the market, you can find flat flaps and flaps with spikes.

“The flat flaps already do the work expected,” says Gerald Stokka, NDSU Extension veterinarian and livestock stewardship specialist. “I’m aware of some producers who apply the nose flap and then the fenceline method. This may be a good idea to further ease the stress of weaning.”

In general, research indicates that total-separation weaning will result in the poorest performance, and this is further aggravated if other procedures (dehorning, castration, etc.) are used at weaning, while two-step and fenceline weaning will result in similar productive performance. The difference could be 50 pounds or more of weight gain per calf within 60 days of weaning with a combination of the two-step and fenceline weaning, compared with the total-separation method.

“Regardless of the weaning method chosen, considering the weather forecast when selecting the day of weaning is important,” Montanholi advises. “Cattle also should be habituated to management and handling. Producers should use calm and effective handling practices.

“Once calves are weaned, they must be monitored daily for signs and symptoms of illness, and feed and water intake to make sure they are consuming the proper ration for optimum growth,” he adds.

Source: North Dakota State University

Lousy Harvest Conditions Call for Extra Safety Actions

The most recent crop reports suggest Wisconsin’s fall harvest and tillage schedule is two to three weeks behind the normal pace because of this fall’s weather. “We’re at a time when farmers are playing ‘catch up’ and may be tempted to overcompensate for lost time,” said John Shutske, University of Wisconsin-Madison Division of Extension agricultural safety and health specialist and professor in the Department of Biological Systems Engineering.

As the season wears on, farmers should carefully consider crucial safety actions that can save lives or prevent illness. Shutske noted that three areas where farmers should take additional precautions are extracting equipment stuck in the mud, working around grain dust and ensuring proper lighting on farm equipment.

Getting Unstuck

Soil moisture conditions are leading to tractors, combines and grain transport equipment getting deeply mired in mud – often up to their axles. This makes getting them “unstuck” a huge and potentially dangerous challenge.

“Unfortunately, every year, we hear of towropes, straps, cables, and even chains or attaching devices suddenly snapping and recoiling like a heavy-duty rubber band,” said Jim Versweyveld, Extension Walworth County agriculture educator. “As these snap forward or backward, they often bust through glass and fly toward the operator like a missile. They can strike an operator with the force that can easily lead to serious injury or death.”

He offered some critical reminders for getting unstuck:

  • High quality, appropriately rated chains of adequate length are usually preferred over ropes or cable.
  • Know the limit and capacity of chains used to pull stuck machines.
  • If a part fails while you are attempting to remove an implement that’s stuck, it will almost always fail at the weakest point – so avoid using chain that has been welded or repaired in other ways.
  • Always make sure you are using a clevis and pin strong enough to pull safely. In recent years, there have been concerns about inexpensive hitch pins on the market that look big and strong enough to withstand large loads but may not have been properly designed or manufactured. If in doubt, check with a trusted machinery dealer.
  • Only hitch to the drawbar if you are using a tractor – hitching higher can lead to a backward rollover before the tractor operator has time to react.
  • Only attach to a component on the stuck vehicle or implement that is designed to support the huge force exerted as you attempt to free it from mud. Consult the operator’s manual for the best location to connect.
  • Don’t put equipment back into service without a thorough inspection to make sure parts have not been damaged or become loose.
  • When in doubt, call a professional! Towing charges are insignificant when compared to a tragic mistake.
  • More information about correct procedures and equipment can be found at: http://bit.ly/WI-Stuck This web page also references content that may be useful for machinery dealers or towing companies.

Don’t Get Sick from Grain Dust

Late harvest often leads to having stored corn or other products that go into bins in poor condition with damage, low test weight, or still more wet than desired.

“Grain dust is a complex soup containing kernel particles, insect and rodent feces, soil particles, mold and mold spores, and bacteria,” said Shutske. “This mix can cause respiratory problems for farmers and workers exposed to dust including health concerns caused by toxic or allergic reactions.”

Shutske provided tips to keep from getting sick as harvest eventually winds down to its finale:

  • Have the correct and clean air filter in place when operating the combine. Use the appropriate setting on the blower in the cab whether you are using the heater. This will minimize dust concentrations that enter the cab.
  • Avoid direct exposure to dust whenever possible, regardless of your sensitivity. Stay in the cab when unloading. Use the wind to your advantage rather than standing directly in a cloud of dust any time grain is being moved.
  • Properly adjust your combine to minimize grain damage. This will help to also minimize the amount of dust being generated.
  • When you are going to be exposed to dust, wear a NIOSH-approved and certified “N-95” dust mask (respirator) that fits you properly. CAUTION: Wear a respirator only if you are free of health problems, particularly with your heart and lungs. Respirators are only effective if you are cleanly shaven. Local health professionals can be a great source of information and can recommend the type of respirator that can be safely worn.
  • If you work in a facility where worker safety regulations for respiratory protection apply, such as a grain elevator or feed mill, there are other regulatory requirements before a dust mask can be worn by workers. These same practices can also help protect farmers and their employees and are increasingly being required by large farms and their insurers.
  • Avoid dust exposure if you have a long-term respiratory health issue, including asthma, COPD, or existing respiratory infections or conditions. Individuals who have these conditions should be alert for symptoms, even when working in a relatively clean environment like the cab of a combine and should always minimize dust exposure.
  • If you feel sick, call your health care provider. If you find yourself working in a very dusty situation (like loading or cleaning out a bin or getting a heavy, prolonged exposure near a combine in the field) and end up feeling sick a few hours later, call for medical advice.
  • Other information can be found at: http://bit.ly/WI-GrainDust

Light Yourself Up (Like a Christmas Tree)!

The highway regulations for farm equipment (Implements of Husbandry, or IoH) are relatively complex and vary based on width of equipment and other factors. In addition, new federal highway regulations signed by the President in 2012 have additional requirements for any farm machines that are moved or operated on public roadways if they were manufactured AFTER mid-2017.

The Wisconsin requirements for IoH lighting and marking are summarized in this fact sheet at: http://bit.ly/WI-IoH

While these are some of the legal requirements, there are other best practices for roadway safety that may go above and beyond and that are especially important given how late the season has gone, the possibility of poor weather and highway conditions and the fact that we now have so few hours of good daylight as days get shorter and the sun gets lower in the sky.

Shutske said, “Use the correct lights and light your equipment up like a Christmas tree. You want your farm equipment to be highly visible.”

Versweyveld and Shutske offered these tips:

  • Regardless of state requirements, if your farm implements, tractors, combines and other machines defined as an IoH have flashing amber lights, always use them while on the road. It is critical that you attract the attention of others on the roadway as soon as is possible, giving them ample time and distance to slow down.
  • Most newer equipment with flashers also have turn signals. Use them. Many farm equipment-motor vehicle collisions occur when the slower machine is making a left hand turn as a motor vehicle is attempting to pass on the left.
  • As the season grinds on, double check the visibility of SMV emblems. They should be clear, bright, clean, and unfaded. The newer SMV emblems have greater visibility from the rear and are designed with embedded retroreflective materials that do a better job of catching light and reflecting it back to approaching motorists. Replace yours if needed.
  • If flashing amber lights, SMV emblems, reflectors and other lighting/marking is obscured (for example, if towed wagons block them on the tractor), it is critical – and required – that you provide adequate lighting and marking on the rear-most implements—even if you are only traveling a short distance on the highway.
  • On older equipment, consider purchasing flashers, lights and other equipment that can be easily moved from machine to machine if needed. New LED and battery technology is making this less difficult and can provide needed visibility at a relatively low cost without having to permanently mount and wire lighting equipment.
  • Even on older equipment, consider adding additional side marking on large machines and implements (combines, large wagons, etc.) – Retroreflective tape is cheap, easily installed, and can save a life.
  • A handbook showing ideal IOH lighting and marking, including that required by federal law and compliant with national standards and best practices can be downloaded for free at: http://bit.ly/AEM-LightingMarking

Source: University of Wisconsin

Wet Grain, Test Weight, and Late Corn Harvest

According to NASS, 20 percent—some 2 million acres—of the 2019 Illinois corn crop was still in the field on November 17. Following unprecedented delays in planting, the warm weather in September helped move the crop towards maturity, and frost did not come earlier than normal. So most of the corn in Illinois was at or close to maturity by mid-late October, but temperatures have been below to much-below normal over most of the past month, and this has delayed drydown of the crop. Most of the corn still standing in the field is in the northern third of the state.

One concern with late maturity and harvest of corn is low test weight, which in some cases can mean price dockage at the elevator. Test weight is “bulk density”, or the weight of corn grain per unit of volume, expressed as pounds per bushel (one bushel is 1.24 cubic ft.) The “standard” test weight for corn is 56 pounds per bushel, and this weight (not a volume of 1.24 cubic feet) is the standard unit for marketing corn grain. Test weight is easily measured, but is not easily understood: it’s a complex characteristic, affected by kernel shape, kernel density, and the slipperiness of seedcoats, which affects how well kernels slide past one another. These are all affected both by genetics and by how the crop grows, matures, and is dried for storage.

There are two main reasons for low test weight. The first is the premature end to kernel filling that can result from poor growing conditions, disease of leaves or ears, severe drought, or frost that comes early or that occurs before late-planted corn is mature. Starch deposition in kernels starts at the crown of the kernel and moving towards the base, and when the movement of sugars into the kernel stops before kernels are full-sized, the base of the kernel may be shrunken. The starch deposited under poor conditions can also be less densely packed on the endosperm. The result can be kernels that don’t weigh as much as usual and that don’t fit together very well, both of which can lower test weight. Such kernels have less starch and a lower starch-to-seedcoat ratio, but they might have higher protein and oil, since these are deposited before starch deposition ends.

The market typically rewards sound, dense kernels, so shrunken kernels may be docked in price, with the amount of dockage tied to test weight. Test weight acts as a proxy for harder-to-measure things such as starch content or kernel density. Kernels that don’t fill completely may also contains sugars that didn’t get converted to starch, and these can darken during heated-air drying, causing additional dockage due to kernel damage. The last time we saw a substantial amount of this was on 2009, when cool weather prolonged the season, and test weights were as low as the mid-40s in some fields. We don’t believe there was much of this in 2019, but some fields planted very late with normal-maturity hybrids might not have finished filling before freezing.

The other main reason for low test weights is having high grain moisture when test weight is measured. This is complicated—if all other kernel characteristics stay the same as kernels dry, loss of water weight might lower test weight. But loss of water from kernel starch usually causes starch granules to pack together more tightly, which increases kernel density and test weight. Dry kernels tend to slide past one another more easily, so they pack a little better, which can also raise test weight. As kernel moisture drops into the low teens, it might even be possible for kernels to lose test weight as water is lost but nothing else changes much.

We did a small experiment in 2017 to see how test weight responded as kernels dried down. We selected ears from several different trials, with different hybrids and management factors, including planting date, with the goal of starting with grain at about 30% moisture. Three grain samples were collected from each source, and grain was allowed to dry down in the open air in the lab. At the start and then every few days, samples were stirred, grain moisture was taken using a GAC tester, and test weights were taken using an official (funnel) test weight apparatus. Weights of one-pint volumes of grain were taken using an electronic balance. Testing continued for two to three weeks, and ended once grain moisture dropped to the low teens. Changes in test weight as grain moisture dropped are shown for five grain sources in Figure 1 below.

While responses of test weight to grain drying varied some among sources of samples, trends were fairly consistent. From about 30% to about 27-28% moisture, test weight tended to drop by a pound or two, presumably as kernel lost moisture (2 percentage points of moisture weighs about 1 pound per bushel) but little else changed. From 25 down to about 15% moisture, test weights tended to rise more or less as a straight line. The increase in test weight as moisture dropped from 25 to 15% ranged from 5.3 to 7.7 pounds per bushel, and averaged 6.1 pounds per bushel. As moisture dropped below 15%, the rate of increase in test weight slowed, but never stopped as moisture dropped to 10 to 11%.

I don’t know if corn grain delivered at, say, 28% moisture with a test weight (measured on wet grain) of 53 pounds per bushel gets docked in price, but if the grain is bright and sound, there is likely to be flexibility in assigning dockage amounts, especially if high-test-weight, dried grain is being delivered as well. Our results show that drying the grain (very gently, without heated air or mechanical disturbance) to 15% moisture should increase test weight of such grain by at least 5 pounds per bushel. Mechanical handling, such as moving grain through augers, rubs kernels together, which might increase test weight a little more.

To put this into perspective, a 56,000-lb truckload (1,000 “wet” bushels) of corn that gets dried from 25% down to 15% moisture loses 1-75/85 = 11.8% of its weight as water, so ends up as 882 bushels of “dry” corn. There is also some mechanical weight loss during drying—for example the “wings” and dust that scatter from driers—but that’s typically only a fraction of a percent, and we’ll ignore it here. If the test weight at 25% moisture is 53 lb/bu, that amount of grain would occupy 1,310 cubic feet, or 1,056 bushels, of bin space. If after drying the test weight is 57 lb/bushel, this grain would occupy only 1,075 cubic feet, or 867 bushels of bin volume. The fact that weight drops by 11.8% while the grain volume drops by 18% shows that about two-thirds of the decrease in volume is due to weight loss and about one-third is due to increase in test weight.

The price of corn and cost of drying may cause some to allow the corn to stay in the field for more days or weeks before they harvest it. If the crop is still standing well after some wind events we had over the past six weeks, and if ears remain firmly attached, then there may be little danger that harvest losses will increase very much or very quickly. Temperatures are expected to be somewhat higher over the next week or so than they have been in recent weeks, and this will help. But daytime high temperatures in the 40s are not going to speed up drydown by very much, and it could easily take a week to lose a point of moisture, although sunshine and some wind might increase this rate. We’ve all heard of corn staying out until February or March and being harvested safely with good quality. While that might mean no direct storage costs, we need to count as “storage” costs any grain that ends up on the ground and not in the bin once we do harvest it. It’s not an easy decision, but we need to stay alert and be ready to harvest as soon as that looks less risky than leaving the crop in the field.

Source: Emerson Nafziger, Farmdocdaily

Federal Reserve Ag Credit Surveys-2019 Third Quarter Farm Economy Conditions

Last week, the Federal Reserve Banks of Chicago, St. Louis, Kansas City and Minneapolis released updates regarding farm income, farmland values and agricultural credit conditions from the third quarter of 2019.  And earlier this year, the Federal Reserve Bank of Dallas released its Agricultural Survey for the third quarter of 2019.  Today’s update highlights core findings from the Fed reports.

Federal Reserve Bank of Chicago

David Oppedahl, a Senior Business Economist at the Chicago Fed, explained in The AgLetter that, “In the third quarter of 2019, farmland values for the Seventh Federal Reserve District were down 1 percent from a year ago, despite signs of strength in some areas. Moreover, according to the 170 District agricultural bankers who responded to the October 1 survey, values for ‘good’ agricultural land were 1 percent higher in the third quarter of 2019 than in the second quarter.”

Graph from the Federal Reserve Bank of Chicago, AgLetter (November 2019).

Noting variability among States, the Fed update indicated that, “Farmland values for Illinois and Wisconsin were down on a year-over-year basis (1 percent and 2 percent, respectively), while Indiana and Iowa farmland values were both unchanged from a year ago. The District’s agricultural land values were up 1 percent from the second quarter of 2019, although Illinois’s experienced a 1 percent quarterly decrease.”

The AgLetter stated that, “Challenging weather conditions during planting, a touch of drought in the summer, excess precipitation during harvest, and early frost all hampered District crop production in 2019.”

Graph from the Federal Reserve Bank of Chicago, AgLetter (November 2019).

“For the third quarter of 2019, the average price of corn was 16 percent higher than a year ago, based on USDA data, while the average price of soybeans was 5.7 percent lower than a year ago.

Still, given the reduced supplies of crops, the USDA recently raised its price forecasts for the 2019–20 crop year for both crops—to $3.85 per bushel for corn and $9.00 per bushel for soybeans. When calculated with these price estimates, the projected revenues from the 2019 corn and soybean harvests for District states would decrease from 2018 by 5.1 percent and 16 percent, respectively.

The Chicago Fed pointed out that, “In the third quarter of 2019, agricultural credit conditions for the District were yet again worse relative to a year ago.”

Farm Policy@FarmPolicy 

#Flood, #Drought and #Farming: AgLetter in Perspective November 2019, @ChicagoFed https://www.youtube.com/watch?v=1djIw0dZSHc …

 YouTube ‎@YouTube

8:13 AM – Nov 15, 2019

Mr. Oppedahl added that, “One responding banker from Indiana observed ‘an overall sense of unease among our farmers.’ Furthermore, a survey respondent from Illinois commented on ‘trade issues causing most of the uncertainty and stress’ among local bank customers.”

Federal Reserve Bank of St. Louis

The Agricultural Finance Monitor stated on Thursday, “For the twenty-third consecutive quarter, a solid majority of bankers reported a decline in farm income compared with the same period a year ago.”

Graph from the Federal Reserve Bank of St. Louis, Agricultural Finance Monitor (November 2019).

With respect to land values and cash rental ratesThe Monitor noted that, “Quality farmland values fell 1.7 percent in the third quarter from a year earlier, and a slight majority of bankers expect farmland values to decline further over the next three months…[and]…cash rents for quality farm- land and for ranchland or pastureland rose modestly in the third quarter, but a majority of bankers expect rents to decline over the next three months.”

Graph from the Federal Reserve Bank of St. Louis, Agricultural Finance Monitor (November 2019).

Graph from the Federal Reserve Bank of St. Louis, Agricultural Finance Monitor (November 2019).

The St. Louis Fed also indicated that, “Proportionately more bankers reported a decline in the rate of loan repayment in the third quarter. Bankers reported that, compared with the second quarter, interest rates were lower across all loan types in the third quarter.”

Federal Reserve Bank of Kansas City

Nathan Kauffman and Ty Kreitman, writing in Thursday’s Ag Credit Survey from the Kansas City Fed, noted that, “Farm income in the region remained relatively weak and continued to decline, according to the Tenth District Survey of Agricultural Credit Conditions. Despite slightly higher crop prices and support from trade relief payments, farm income decreased compared with a year ago.”

Graph from the Federal Reserve Bank of Kansas City, Ag Credit Survey (November 2019).

Thursday’s update stated that, “Ongoing reductions in farm income put further downward pressure on liquidity positions of crop producers. Working capital deteriorated at a modest pace throughout the District for the sixth consecutive year, but weaknesses were less severe than in prior years.”

Graph from the Federal Reserve Bank of Kansas City, Ag Credit Survey (November 2019).

Kauffman and Kreitman also noted that, “The strain on farm finances in the District has led to steady deterioration of agricultural credit conditions. The rate of farm loan repayments continued to decline, at a pace similar to recent quarters, while the number of renewals and extensions remained high.”

Graph from the Federal Reserve Bank of Kansas City, Ag Credit Survey (November 2019).

Turning to land values, the Kanas City Fed explained that, “Steady farmland values continued to provide support to farm finances amid an ongoing environment of weaker agricultural economic conditions. The values of all types of farmland (nonirrigated cropland, irrigated cropland and ranchland) remained similar to values a year ago.

Although land values, on average, have declined since 2015, the decrease has been modest relative to the sharp increases in preceding years.

“Moreover, farmland values have shown some signs of stabilizing since 2018.”

Graph from the Federal Reserve Bank of Kansas City, Ag Credit Survey (November 2019).

In summary, Thursday’s report stated that, “Bankers in the Kansas City Fed region expected agricultural credit conditions and farm income to continue to decline in coming months. Although numerous contacts indicated that government payments connected to ongoing trade disputes provided some support, most bankers pointed to an ongoing environment of low agricultural commodity prices and elevated costs as the primary factors contributing to the weakness. As profit opportunities have remained limited, borrower liquidity has continued to decline and most bankers expected a modest increase in asset liquidation. The stability of farm real estate values has continued to provide support to farm finances, and likely will be a key determinant of credit conditions in the year ahead.”

Federal Reserve Bank of Minneapolis

In last week’s Agricultural Credit Conditions Survey, the Minneapolis Fed noted that, “In contrast to recent years when bountiful harvests have offset some of the impact of low commodity prices, heavy precipitation throughout the growing season had a severe impact on crop production in the Ninth District this year. Meanwhile, low crop prices and trade woes didn’t let up on farmers from July through September 2019.”

Farm incomes fell relative to the same period a year earlier, according to lenders surveyed. Spending on capital equipment and farm household purchases also decreased. Falling incomes pushed the rate of loan repayment down, while renewals and extensions increased. Land values fell across district states, and interest rates on loans decreased from the previous quarter. The outlook for the fourth quarter is similar, with lenders in the district generally expecting farm incomes to decrease further.

Federal Reserve Bank of Dallas

Earlier this year, the Federal Reserve Bank of Dallas released its Agricultural Survey for the third quarter of 2019, which stated that, “Demand for agricultural loans continued to decline, with the loan demand index registering its 16th consecutive quarter in negative territory. Loan renewals and extensions continued to increase, and the rate of loan repayment declined to its lowest level since the end of 2016. With the exception of operating loans, which were mostly flat, loan volume fell across all major categories compared with a year ago.”

Graph from the Federal Reserve Bank of Dallas, Agricultural Survey (Third Quarter 2019).

The Dallas Fed added that, “District irrigated cropland values picked up notably this quarter, while dryland values were stable and ranchland values declined moderately.”

Graph from the Federal Reserve Bank of Dallas, Agricultural Survey (Third Quarter 2019).

“The anticipated trend in farmland values index was flat for a fourth consecutive quarter, suggesting respondents expect farmland values to hold steady,” The Survey said.

Source: Keith Good, Farm Policy News

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