USFR Weekly Recap - June 23-24, 2012

June 23, 2012 09:43 AM
 

THIS WEEK ON U.S. FARM REPORT

EPISODE # 2028
JUNE 23-24, 2012

 

JOHN’S OPEN:

Hello and welcome to U.S. Farm Report. I’m John Phipps. Farmers have multiple distractions competing for their attention right now. Farm Bill action in congress, gyrating markets and advancing drought conditions. These could prove to be small ripples compared to global trends that may overwhelm them. Economies around the world are on the edge of recession while the US is still growing, slowdowns in India, China and Brazil remove much of the cushion. Keeping up with complex global economy is hard when it's all you can do to cope with no rain and a fractious government. It's never been more important to at least try. We will do our best to help. Time for the headlines. Here is Tyne Morgan.

 

HEADLINES:

It’s been a busy week for Farm Bill discussions and it ended with the Senate passing its version of the Bill late last week with a 64 to 35 vote. Senate Majority Leader Harry Reid said the Senate debated more than 70 amendments throughout the week. Among discussions was debate about the crop insurance inclusion in the Farm Bill. Ohio State University AG Economist Carl Zulauf says the big issue is how to design a program that’s complimentary to crop insurance.  He says the Senate discussions have been addressing more than just farm support programs. The issues will include the conversation program, the funding and type of conservation program, the degree of cuts if any, the limitations on payments to farmers by farm programs and the structure and support for the sugar industry and the United States. On Wednesday the Senate voted to not change the depression era program that protects United States sugar growers. The proposed amendment would have reduced the program and required the government to buy surplus sugar. The House said it'll likely start markups on July 11th after they come back from the upcoming recess. Russia will join the World Trade Organization or WTO by the end of summer. In a testimony before the House Committee on Way and Means last week, US Trade Representative Ron Kirk urged Congress to grant them permanent normal trade status. He said this would ensure groups like US farmers and ranchers receive the full benefits of Russia entering into the WTO. He said if the United States doesn't grant Russia the trade status then US businesses and exporters will be at a competitive disadvantage compared to other countries. Crop progress isn't looking much better in the eastern corn belt as many states are still begging for rain. The driest areas seem to be in Indiana. The latest crop progress report shows a continuing decline in the condition of the corn crop there. 32% of the Indiana corn is good, another 5% is excellent. That's a 12 point decline from last week and a 22 point decline in two weeks. Ohio has an 11 point drop from a week ago.

 

CROP WATCH:

Let's head to the Texas Panhandle where farmers are still adding up crop losses from recent powerful storms. We received photographs from Chris Gerber who works in AG in Moore County, Texas. He said the storm shredded the corn crop. Texas Agri-life extension says that County also lost about 100,000 acres of cotton. He also sent this photograph shot near Dumas, Texas. The wind was strong enough to blow over several segments of a pivot irrigation system. In Washington county Oregon “NASS” says most varieties of winter wheat have emerged heads. Stripe rust levels are moderate to low. Statewide more than half the winter wheat is good. Another 20% is excellent. When we come back Al joins us to talk market with Bob Utterback and Andy Shissler. It all gets going in just two minutes.

 

ROUND TABLE:

Round table guests, Bob, and Andy, we were kind of talking around here and I told bob that I was going to come to him and give me three things we need to discuss today and them we will let Andy discuss them. Okay. Andy will tell us first of all what the weather is going to be like in the next 60 days. Number one. Two he will tell us what USDA. report also will say and three what the election does in November. Okay. Real challenges. The weather is on everybody's mind at this point in time. It has affected the markets. Actually in the last two weeks looks like it'll stay around for a while. I do crop insurance this time of year so I was traveling around state and Illinois, particular next week I will go out to Iowa and in general I will say the corn looks pretty good and it's hanging on. That's where it's at today. The corn is pretty short, not tall like it was last year, not going to be tall. Doesn't mean it can't yield but it's really short. I have to say. The beans, are like three to six inches tall and they are just hanging on. They are waiting for rain. The crop will hold back, trying to produce it here but I just think from travel around that all the big potential yields are gone. Even if we start getting regular rains I think that's off the table and if we are going to start getting an inch a week, that's not in the forecast today, that's a little bit a problem. But I think that I think the yields dropped, six, seven bushels nationally and it can drop more if we don't get saved but it's a serious drought and my backyard is dry, my grass is dead. Just makes me bullish. Hard to get away from it.

 

This is what happens in a bull market. This is a once in a five-year event. These are --we are on power with 88 so 96 to 2004. These are bullish markets. When the market has degraded excitement for the bullish market and the bear has the weakest resolve is when the greatest opportunities exist. So it's in expectations market is trying to put premium in to the market to make --we -- just came out with the new profit index and it's got its yield to corn down to 158. A lot think it can get to 152. I think the super dangerous one is beans, bean carry over could get extremely low. If there is ever a time that you had a defense of a short position this is not a market in the next two to three weeks that you need to be short futures or cash. Is this to be a put, just a base be floor position because cash flow will be key in ability to have the emotions to pull the trigger to lock there in profits. It's not time to be a cowboy. I think you are right. I think really scary because we lost production in Brazil, over in Russia, we are going to lose production in Australia, wheat acres in Canada aren't big. Now we have this drought situation and I think --90% of the time we take out the January highs. So, 597 would be that place. It would be a magnet and I would be interested in selling corn there but it'll be hard to do because we go there because the weather will be bullish. That will be the toughest part. I have talked to the guys on AG Web radio, a lot of analyst say it and some say be careful, don't over sell the crop. We have extended dry weather; you may not be able to fill those needs. Is this where a lot of the contracts --are really coming in --the great opportunity here where they sell the cash but at the same time you sell it they get the premium to make the decision. They have --twice that many cash bushels. There is a lot of that around, six dollar corn and around the 14-dollar bean area. They will be in a net loss above that and if --I would exclude --a lost panicked buying but they are buying right at the cusp. I would say the corn markets, most of the bullishness will be offer by January 6th. You said January 6 is that right? July. July. July 6th. That's most of the corn bullishness will be over. For it to go higher it'll have to rely on beans. If we are going to exceed above the 6-dollar limit. I think in the September is -- everybody is talking it but its very tough resistance. Still a lot of people think beans will bring it up. Yeah. I think they will still be a play in July corn. Before it's all said and done.  We have more to talk about this in just a moment. Round table guest. Talking about a lot of thing that are going on. Not very far, we are talking agriculture here at this point in time. I have been told by a lot of the marketers that the dollar will continue going up. That's not good for us at I don't think. Also the --maybe the Europe markets aren't going to do so good. I'm getting in to what we call the outside markets and their effect on agriculture and the ability of the people in this country and the ability of the people that need our agriculture produce to be able to buy it. Is that a problem? Well I think this issue stems back a long way. I know in the last week everybody was like wanting like a two or three and I can remember there is a movie you can watch on HBO or something where the last line in the movie is we made, they printed the money but never lent it and we never had the money hit the public lie we wanted to and the mortgage situation stuck still until recently. We have seen some movement in mortgages and a lot of refinances, I refinanced a couple of houses in the last week and that thing is -- finally loosening up so they want that money to go out there. You wonder why banks get downgraded when I just signed a 30 year loan for 3.6. I would suggest that the market is going to ignore the outside markets as long as the dry weather continues. As soon as the weather becomes a nonfactor which would be here in the middle of the summer, July, August, then elections over I am worried about the macro market after elections, it's a political pressure, you want --the incumbent wants it to look good into elections which he will do all he can to keep a fuel price low, food prices low and economy looking good. If you artificially make it look good for a short period you will pay for it and I think most people are more worried for next February and that will lean to a dollar rally. That leans more to the fact that if we get the weather spike, the weather move you could see prices a lot higher, a lot lower in the fall so I would use it as a selling window. Thing this is --why we agree with bob and a lot of is like 2008 type of thing whether it was the china market really flat and negative and the stock market has been bad and they aren't making money and Europe has been the same place it’s been for a year and there is just not much growth and not going to be much growth any time so. Doesn't look like much growth here because the unemployment isn't going down. The economy is the new economy. This is what it's going to be for a while. You won't see the 90 --2001, 2008 extreme optimism. I don't think that's coming back for a long time. This is the new normal where you will have to have money, be conservative, debt is not a good word and people will live more conservative and unemployment will be harder to find a job. I don't think the banks can keep doing the 3.5 loans, I think that has to change. Go down. The interest rates also have to go up and nobody wants --. If that goes up that's bad --. More negative and that's all --the only way to is inflate. That's the thing that farmers long term are looking for is inflation but that is down the way. That's far enough that we can't talk about that. That's probably a year and a half down the way. We can talk about a year and a half because the farmer has to plan about next year and the year after and a lot of them will pass the operations on so what do they need to do? There is a --if you get corn below the cost of production. Yes. I would argue that --you have to buy corn to protect the rising input costs because it goes from $4.50 to $7. Nitrogen costs go from three dollars to a thousand. Buying corn is a way to offset or counter hedge the risks which is where we are talking inflation. You have to be a buyer, every spring a cellar. I think with --you want to get the corn price above your guarantee this year. We will have continues to do that. We have had many in soybeans. I think it you are getting it right now in corn. We will move above the guarantee. Right around there, for the crop insurance. You can get that priced in. It'll be a good deal. It's critical --we will be back with more in just a moment. .

 

JOHN’S WORLD:

The central feature of the passed Senate version of the new Farm Bill is the shift to a crop insurance based form of government support. While many are hoping this will mitigate some of the risks we are now facing I think they are   sadly mistaken. While the bill is good news for insurance companies it'll likely continue one tradition of farm bills by costing much more than advertised. Because of open end exposure during lower prices AG Economist Bruce Babcock has calculated the 5 billion dollar savings from ending direct payments could balloon to 8 to 14 billion. So much for austerity. While that seems like a good thing for farmers, we continue to forget these subsides always go to the scarcest resource, land. Here’s how it works. Suppose are you in central Indiana right now. The epicenter of the drought and negotiating to buy or rent farmland. Your bid will necessarily be adjusted for the risk now looking at you in the face but suppose you know your loss will be minimal because of the new insurance coverage. Both you and your competition will use that to bid up until your margin is razor thin in order to expand. Your insurance subsidy just became a land owner subsidy. Farmers are always little more than conduits for government money to flow through to land owners. This bill will offer minimal relief from risk for operators. Let us know what you think. E-mail, or call and leave us a voicemail.

 

2ND HALF OPEN:

Hello and welcome to US Farm Report, I’m John Phipps. There may be only one emotional situation to rival watching a desperately needed rain slide by the edge of your farm: being one of the few under such a tiny cloudburst. Thanks to highly accurate weather tools, my neighbors and I can tell almost to the field who got how much rain. And any relief we feel is rapidly tempered by our empathy for those who simply were not lucky this time. You can tell when a dry spell has turned into a drought. Few of us want to talk about it. Any mention of our situation can only add to a colleague's anxiety or our own. The progressive misery of a drought becomes the elephant in the room. Let's get started with the headlines and Tyne Morgan...

 

HEADLINES:

Thank you. More restaurants are saying no to the use of gestation stalls. In the last two weeks Sonic and Cracker Barrel said they will force producers to phase out of using the stalls. This adds to a growing list which includes McDonalds, Wendy’s and Burger King to only take pork from those who use open sow housing. The Pork industry says current production methods, including the use of sow gestation stalls is a decision based on sound science. Hunt says restaurant chains making the move to eliminate gestation stalls are going to have a wake up call when pork supply isn’t there. He says due to the small numbers of sows currently in open housing it'll take at least a decade to make the switch and meet the new demand. University of Missouri AG Economist Ron Plain says making the transition to new production methods will come at an added cost to producers and that will be passed onto consumers. As pork prices are expected to rise, consumers are already paying more for beef. Consumers are now shelling out 3 dollars a pound for ground beef. That's a new nationwide record. Attributing to the record prices are fewer cattle, higher exports, and less supply. The decrease in supply comes after many companies have moved away from lean finely textured beef trimmings. Not only is Michigan’s fruit crop hurting this year-- it's maple syrup production is also taking a big hit. This year's production is down a total of 47%. The warm winter and spring caused the maple syrup season to start and end earlier than normal. The warmer temperatures caused poor sap flow. Every maple producing state, except Maine, had lower than average maple syrup production this year. Nationwide, production is down 32% from last year. How do you know that the USDA certified organic sticker on fresh produce is accurate? New legislation has been proposed in the US House of Representatives to ensure organically labeled items meet organic standards. The bill is being called the organic standards protection act. The program would have more authority to police growers. It would let the department stop the sale of products that are mis-labeled. It would fine them up to $10,000.

 

SPIRIT OF THE HEARTLAND:

When you think of Missouri, Japanese vegetables probably don’t come to mind. In this week's spirit of the heartland, Tyne Morgan gives us taste of Japan in southwest Missouri from an 18-acre farm. And it's the journey and story of one grower that makes this Japanese produce so unique. Frank says Edamame is a green soybean that tends to e sweeter in flavor. He says it’s picked about 30 days before conventional soybeans and is unique in it has the vitamins of a vegetable and protein of a soybean.

 

LACTOSE TOLERANCE:

Some people cannot drink milk or eat ice cream without getting sick, so they remove it from their diet. If you consider yourself to be lactose intolerant, experts say you may to consider adding - not subtracting - dairy from your diet.  In this report provided by the American Dairy Association, Clark Powell tells us why. It is estimated there may be 30 million or more American’s who are lactose intolerant. Though it’s hard to know for sure since many are self-diagnosed.

 

TRACTOR TALES:

We met a collector in Michigan who loves the color blue. This Ford 4000 needed some work and some paint, but that was not a problem for this collector. Don’t forget you can find Tractor Tales online at USFarmReport.com or on Facebook. The segments can also be downloaded as podcasts from I-Tunes.

 

CHURCH SALUTE:

Today's Country Church Salute goes to St. Paul's evangelical Lutheran Church in Algoma, Wisconsin. Algoma is located in Scenic Door County, just off the Lake Michigan shoreline. It’s a member of the Wisconsin Evangelical Lutheran synod.  The church was first built in 1862. A second church was constructed in 1869 and a third in 1896. St. Paul’s has a congregation of more than 12-hundred people. Prompting its members to take an active role in the church, their website says "Be doers of the word and not hearers only". Our thanks to church member Ken Paral for sharing the news about St. Paul’s in Algoma, Wisconsin.

 

 

As always, we want to hear from you, send comments to mailbag@usfarmreport.com or leave us a voice mail at 800-792-4329.

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