USFR Weekly Recap - July 21-22, 2012

July 21, 2012 09:43 AM
 

 

THIS WEEK ON U.S. FARM REPORT

EPISODE # 2032
JULY 21-22, 2012

 

 

JOHN’S OPEN:

Welcome to US Farm Report, I’m John Phipps. Be careful what you wish for. This spring while I was watching fields only miles away get rains that sputtered out at the edge of my farm, at least my crops were driving roots as deep and fast as they could to survive. While fields around me aren't flourishing their decline has been gradual compared to those areas where suddenly the water stopped and root systems was less developed. So I think with parts of the Midwest where the drought is late arriving, and where the temperatures are more extreme, markets are now responding to the fading promise of the western crop. It could come down to a race between maturity and plant death.

 

HEADLINES:

The drought in farm country has caught the eye of the White House. AG Secretary Tom Vilsack briefed the President this week about the damage drought is causing to crops and livestock. Following that meeting Vilsack said the AG Department needs the tools to help farmers and ranchers during what he called a very difficult and painful situation. “The most important thing is for congress to take action to provide some direction and assistance so people know what’s going to happen and what kind of protection they will have. That is really important and that's whether you want to get to work on the Food Farm and Jobs Bill. They want to develop a separate disaster program, or the extension of existing programs, having that done as soon as possible would be quite possible.” He also announced that another 39 counties in 8 states have been declared AG disaster areas. That’s on top of the 1200 plus counties already announced. This means one out of every 3 counties in this country now has that AG disaster status. Secretary Vilsack also says livestock producers could get hurt most by the drought. He says since there isn’t a disaster program in place like there is for crops with crop insurance, there is a lot of uncertainty among livestock producers. In Arkansas 70% of the state is now in extreme drought. A rancher said he can no longer afford to feed his cattle forcing him to sell off a large portion of his herd. A local livestock auction has seen their numbers double or even triple from this time last year. Meanwhile USDA reports the condition of the US corn crop dipped another nine points in just a week. Less than a third is good to excellent. While the western corn belt had been holding on the area is now seeing significant declines. Iowa and Minnesota are both down 10 points. The condition of the soybean crop is similar to corn. A third is good to excellent which is a 6 point drop from last week. 16% of the crop is setting pods. There is better news for the cotton crop. Almost half is rated good to excellent. Almost holding steady with last week.

 

CROPWATCH:

We start crop watch in the greater Chrisman, Illinois area and my own farm. Our corn has somehow endured surprisingly well with less than 3 inches since May 1st. The crop is now about a month ahead of schedule and could reach black layer by mid-August. We received a photograph from one of our biggest fans, John Morgan from Lexington, MO. Of Course that’s Tyne’s dad. He says these soybeans look decent but it’s deceiving because there are no bean pods setting or even flowering. In Idaho 84% of the winter wheat is gauged as good to excellent. Harvest hasn't started yet. Most of the state has adequate top soil moisture.

 

ROUNDTABLE:

Round table today, we have Gregg Hunt and Joe Vaclivek. Standard grain and we had a very unusual week. I think this is going to be a record year, maybe not a good record year but what happened last week. We had record high prices posted in corn market, posted in the soybean market. From a trader's perspective, it's exciting stuff we are seeing here. Not so exciting from the agriculture community. We have farmers with poor republicans, lie crops. It's turning into a dire situation. You are setting --you know kind of nodding a little bit that you agree. It's a bad situation. Who is it good for in anybody? No. Not really. Talk about it eventually going to get to consumers, is that true or not? We will have to ration demand. Through ethanol, we are going to see how far we go until someone cries uncle to get feed uses down from the last number, at least another 600 -- bushels. We will have to take exports down a hundred and that's on a deal that somewhere around 132. That's where the trade is somewhere in this -- 135 to 130 area. The yield bushels per acre on corn. That's where their heads are at right now. Then we will have to see what happens in the western corn belt. That will be the next when we come in Monday, predicated they already know the crop ratings will be done. The beans onto other hand -- whistle thinks we will get rains there. 88, we did have normal rains, four inches in august and trying to put a perspective back to corn, probably have to see a yield like 125 to get somewhere below where we were to make that comparison. I talked to a lot of guys --they say it'll have to get high enough to put a real limit on demand. We are talking act world demand as well as livestock, represent knowledge, that sort of stuff. I have been --do we have a lot of upside to go. What happens when we get to that top number? I don't think there is a number. Fundamental guy looking at supply demand situation. There is no clear cut answer to where demand will be choked off and if you are a guy --there is nothing up there but air on top of the soybean chart. It's very difficult to put a top on it. A lot of money in the market. Talking earlier --the trader doesn’t have the biggest situation they have had in the corn market. I can't put a number on it. Who is trading the market then? We don't have as many funds that we are in there but who is it? I think we will -- enter a phase shortly, where spreads are --we are already seen versions in these markets and that's --what --I think that will be the function of the market, the rash and it's going to be the possibilities to some of the spreads in corn, just have to keep moving pounding higher until --someone calls uncle. We did not see rationing by the livestock industry back in 2008. They --have obviously made good money here over the last few years and a lot of different sectors but --I do not think and I don't have evidence but my gut here, the way the market went up and I think it caught a lot of people in the feed industry that's basically flat footed. It was --you know --. We thought we were going to have a big yield. Five weeks ago. Most of these guys, can buy corn. Lower, I’m a happy camper. I think that's gotten away from us. The evidence would be open interest hasn't gone up, you -- this whole run up. The funds have only added at least as of last Tuesday and that 50,000 contracts, from where they were when I was here five weeks ago. When I was down 9 dollars. That's nothing. So, so that respect you don't have that crazy long up here scared to death. You see guys like the China section probably going to cancel. We were getting ready and you --Russell going to come to you Joe. Talked about who is going to buy internationally. Can China continue to pay more for what they have to have? Well, actually they will probably --be certain guy that haven't done it this week that just made the market score around, just showing you how firm the market is, some of the smaller guys --probably cancel cargoes of corn. That would have knocked the market --not in this market. Ten, 15-cent breaks, snap right back. They obviously have bought the corn around 5:25. Now they can replace that with the wheat out of Australia, that's economical thing to do. You won't be able to buy that. If they sold it they won't get it back. If they think they can they won't get it done. We need to ration on all sides, here now the easiest thing probably going to be --the exports come down more, ending carry, this crop up --just on the lack of ethanol produced last few weeks, that will go out to the new crop. Soon that last year or this crop year, the users knew they had the threat of corn so they --the next two months. Or get them in September. It's after September that I would be concerned about. These guys will start watching, feeder pigs Geffen way two weeks ago. What the feeder cattle market has done here. This is all the functions of the star but the most important thing is the inversions. We are in a demand market at this point in time. The March bean spread. $1.25. Run out of beans number one. Now the corn, just find out about yields, just see how the spreads hold together and the more they go up. What is he going to do? What does he fled to do in order to plan. We have another year out there.

One of the things we talked about was crop scout. Higher crop scout. See what's out there and see what crop potential he had. Even if you are really good. Even if you are really --have a good handle producer. A lot of guys --just think some of them may have sold more than they --. Last thing in the world you would want to have to do is have to make a sale and buy it back at nine or ten dollars. That's the worst case situation.

We are going through that it now. But it's a savings. Pull the trigger even now. You know without doing what Joe said there. You know taking a big risk. Better talk to crop scout, to a banker and seaway funs you have available if you are going to hedge. Make sure you have the cash. If not I think options are a real strategy. Some of the put options for a seven dollar strike have gotten to the point where I think it's affordable. Around 30-cents a day. That will be different by next week. That's a good way to lock in a profit. Concern this time act the next government report? Are they going to try to measure things out? This year it --it'll be a pretty live meeting on what is going on. And then if there is something insanely scary that comes out of that, I --we are --you will start hearing stuff about wins on ethanol and start here and the mandate thing was probably the biggest thing this week that they have kept that off the table, that told the agents, five seconds, producers, positive one. Hedge your risk, know what you have out there.

 

JOHN’S WORLD:

I probably won't be watching much of the Olympics this year. To start with it won't fit into my regular TV schedule and could even interfere with my nap time. The larger problem that was brought to my attention by a friend that just left for a tour of northern Europe and will end up visiting his daughter in London during the games. Before he left,he asked if I had been following the weather across the pond. Since I don't care about the weather on the other side of the county right now, I was clueless. Well folks if you are wondering where all the rain and cool temeratures are watch the Olympics. Northern Europe is experiencing one of the coolest and wettest summers ever. The famed 150-bushel wheat fields in Denmark are behind schedule and clearly at risk of being unharvestable, for example. The whole European crop is in danger of low yield and poor quality. Even the unflappable Brits are wearing out their umbrellas. European Meteorologists point to a stubborn jet stream that has remained well south of its normal summer position. This keeps much of the continent and British under soggy skies and temperatures in the 60s. Their weather woes are not unrelated to ours. As Mike has pointed out our storm track is way too far north compared to normal and like Europe it's not budging. SO given my current weather anxieties, watching runners splash around a track has little allure to me. I may make an exception for beach volleyball though.

 

JOHN’S 2nd OPEN:

Hello and welcome to US Farm Report. The knock on effects of very short crops are suddenly receiving intense scrutiny by all kinds of media. Food price inflation is a real possibility as crops in India, Europe and central Asia have their own problems. Corn users are positioning themselves as well. Watch the media battle unfolding between livestock and ethanol organizations for example. While it may make for entertaining coverage, these battles between agriculture groups and up and down our food industry are fraught with danger. I think what we don't need now are angry words and self-serving propaganda. Let's get started the headlines.

 

HEADLINES:

The drought-continues to be the top story on US Farm Report. The USDA is accessing damage firsthand across the eastern corn belt. USDA Under Secretary Michael Scuse toured the drought impacted farms in Ohio and Indiana. He saw and heard how this record drought is impacting farmers in much of the Midwest. In Paulding County Ohio it's a double whammy for some farmers. On top of crop damage some farmers were hit with structural damage from a powerful wind storm 2 weeks ago. The Under Secretary told US Farm Report Ohio affiliate WLIO that he is confident agriculture will pull through this, but Congress needs to take action to help. In Ohio about a quarter of the corn crop is good to excellent. About a third is poor to very poor. With the poor outlook on crop food prices making headlines. With record corn prices and tighter beef supplies, economists expect food prices to spike higher. USDA says while its true consumers shouldn't feel the hit to their pockets immediately. “If you look at the futures contract; all the nearby contracts for live cattle and lean hogs are all down. If you go out to the next year they are up. And that I think tells you a little bit about how this filters in to the food situation. That is we won't see the impacts on prices immediately but will see the inflationary pressures in 2013.” AG Secretary Vilsack said this week that if consumers see any immediate increase in food prices, that’s from price gouging and not the drought. Meanwhile the debate of food verses fuel is heating back up. In a press conference this week, Representative Bob Goodlatte of Virginia said the renewable fuels standard hasn't provided any relief for consumers. And livestock groups agree it’s time to revisit the standard. While rumors have been circulating that the Federal Government will temporarily cut the ethanol mandate, the EPA director says this isn't true. He says EPA hasn't received a former waiver petition at this time. Meanwhile, NCGA President Gary Niemeyer says now isn't the time for changes to the standard. He says the renewable fuels standard is working and revitalizing rural America. As beef supplies grow tighter, one company predicts lean finely textured beef or LFTB, will make a comeback to store shelves. Rabobanks research and advisory group says processors won’t be able to afford to waste any beef. Rabobank says LFTB makes up 2% of the beef supply and all of that will need to be used. In the report, Rabobank says LFTB entering back into the market is contingent on needed changes to the product’s formulation and USDA approval. Meanwhile, the environmental protection agency has decided to withdraw its proposed livestock reporting rule focused on concentrated animal feeding operations, or CAFO’s. The proposed rule would have required large feedlots to report a long list of information about their operations to EPA. Some of those specifications included the type and number of animals confined, as well as latitude and longitude of the production area. The National Cattlemen’s Beef Association thought this was serious “over reach” by EPA.

 

SPIRIT OF THE HEARTLAND:

A theme park in southern California isn't big on thrill rides but it is big on healthy eating. The former Marine Corps Air Station at El Toro is now the Orange County Great Park. The land is returning back to its roots as farmland. Tracy Sellers has the details in this report from the California Farm Bureau. “The park is being built on a decommissioned marine base. Farming returning to the land after a 70 year absence. Before becoming home to the marines this area in Orange County was once a thriving farm area and home to one of the largest lima bean area fields in America. When we started the process of building the mark the heritage of the park was important and this having been an agriculture area we are focused on that. It really is the kind of space that invites all kinds of activity and here in orange which is an urban county for people to be able to get out in the fresh air, to be able to work with nature, that's a great thing. In addition to typical park attractions for the young and old to enjoy, the park also has a food truck alley and has earmarked 114 acres of farmland for the future. Some have gotten a head start and it's started leasing land right now. One is growing everything from strawberries to car rots to lima beans and is he providing his produce at the weekly farm he's market which is also a feature attraction at the park. We are getting -- once we can get that kind of excitement. That can be a good part of how the market plays out. While organizers respect the agriculture legacy of the past they are keen on watching the future as well. In the farm and food lab master gardeners are teaching people how they can grow their own food. They can have fruits, flowers, vegetables and herbs. Garden there is great teaching, you know --we teach the kids with the seed in the right location, taken care of, they can produce a yield of fruits. It's something that people can get excited about and that's what we want here people to be excited about food. Myself I see it as the heart and soul of Orange County and a lot of others do too.”

 

MIZZOU BIOTECH:

For most kids summertime means a break from school. Days spent playing outdoors and soaking up the sun. But a group of high schoolers traded their days at the pool to help teach other kids how science can help feed the world. Kent Faddis has more on students teaching students about biotechnology in this report provided by the University of Missouri. “Gum drops don't scream science but for a group of high schoolers candy is a powerful teaching tool. Brenda is teaching students how to build DNA models, using these treats but she isn't your average teacher, by teens teaching other teens about biotechnology. We want urban youth trailed it's not going to the store and getting what you get. There is a big process behind the materials and the food that we get on a daily basis. Reporter: in this workshop called bio tech to feed the world students learn how advances in science can be used to reduce world hunger. The extension youth development specialist said they will take what they learned to create science lessons for 4H clubs in their home town. The coolest thing is watching our youth grow, watching confidence grow, watching them educate each other and learn from each other, to me that's really cool. Stats show that the youth are 70% more likely to go onto college. Most people in the United States don't understand that it is other people in --and other countries worry about how they are going to eat every day. We are trying to help inform people in how we are trying to help them grow more food and so they can eat like we can. 4H programs like bio tech to feed the world will get today's youth hooked on science and they may be the next generation of scientists and engineers.”

 

TRACTOR TALES:

Al joins us for a special Tractor Tales, I noticed these guys aren't in air conditioned cabs. You're correct. The Tri State Association teamed up with Farm Radio station WNAX in South Dakota for their annual ride. Nearly 200 tractors and tractor lovers from all over the country took part. Regional Reporter Michelle Rook has the story. “Tractors took part in this year's tractor ride. We had about every brand and color you could think of, Ford, John Deere, International, International is always dominant. Regardless of the brand there is a certain pride associated with a tractor that's been in the family for years. This tractor was bought by my dad in 1966 and it's never left the farm. There may be no better way to tour the countryside than behind the wheel of your favorite tractor. You can drive by something every day in your truck, when you come on the tractor, I will be darned, I can't believe that --I missed that. We look at different routes every year and we try to go to a town where we haven't been if we can work it out to run about 70, 75-miles a day. As the name would suggest most of the participants in the tractor ride are from Iowa, some from Nebraska but people who have come from as far as Missouri, Oklahoma and even New York. In fact this is Jim and Brenda’s 4th year participating in the ride. Something different to do. We --enjoy meeting all the people and its a good way to see the beautiful state. They like the wide open spaces verses the narrow roads in New York which make tractor rides there rare. That's why they are already planning the 1200-mile trip to participate next year. In South Dakota. And from our Facebook page. We received a photograph from Josh Villa of Ohio. His grandfather and great grandfather bought this John Deere in the 50s. They used it on the farm until the 80s. Thank you Josh for sharing a picture of your favorite tractor on our Facebook page.

 

CHURCH SALUTE:

Today's country church salute goes to All Saints Chapel in Stony Point Virginia. Built in 1929, it was one of several mission chapels built in central Virginia to serve the rural population. This is the only one left standing. It's outside is covered with rough boards, church members say the boards are painted white as a sign of purity. The chapel has been renovated by the congregation which numbers about 20 people. Congratulations to All Saints Chapel in Stony Point Virginia.

 

MAILBAG:

I think I managed to confuse more than inform about the Libor financial scandal last week. “You talked about Libor Bank that loans money on farms, 401ks etc. which bank or banks is it? This is from Sharon Tharp. Sharon, while this is a complicated issue, let me try to explain better. Libor is short for London Interbank Offered Rate. It is an interest rate benchmark like our prime rate here in the US that's used to measure what the market rate for money is. It's not a bank, but it’s calculated by the British Banking Association from numbers provided by a few large banks, notably Barclays. It turns out that the bankers weren't giving honest appraisals of rates being paid, but fudging the numbers, mostly down. This meant that while borrowers got lower rates on mortgages and loans, savers were frankly cheated. The bottom line is this chiseling may be impossible to stop. But it does put blood in the water for lawyers around the world. Some experts think that the outcome from lawsuits by angry investors could dwarf the tobacco settlement. Of course, people who borrowed money got a good deal, but too many people have been forced to put off retirement or tighten their belts due to lower returns on their savings. From the information already released, it is clear this shady practice was known and widely tolerated even by those who did nothing wrong. This is the mark of a morally bankrupt profession.

                           ​                         ​                         ​                         ​                         ​                         ​                         ​            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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