USFR Weekly Recap - July 7-8, 2012

July 7, 2012 09:43 AM
 

 

THIS WEEK ON U.S. FARM REPORT

EPISODE # 2030
JULY 7-8, 2012

 

JOHN’S OPEN:

Hello and welcome to U.S. Farm Report. I’m John Phipps, just when you think old dogs and new tricks don't mix someone comes along with a better dog biscuit. Like most you Jan and I have been sweltering and dreading the electric bill. But thanks to an innovative program from our supplier called power smart pricing, we have some control over the cost, and are saving almost 40%.  All we do is agree to have a special meter installed, and check hourly price that are emailed to us. Today will vary from 2 to 11 cents per kilowatt hour. By timing the use to avoid the 3 to 6:00 p.m. slot we can save enough annually to buy a major woodworking tool or some stupid greenhouse stuff. Guess which is more likely.

 

HEADLINES:

As the heat and dry weather continues to blast across much of the U.S., the nation's crops continue to suffer. In the latest crop conditions report U.S.D.A. said less than half of the nation's corn, soybean and cotton crops are now rated good or better. The most recent crop progress report shows the nation's corn crops saw an 8 point drop in condition ratings from last week. 40% is good which is down 5 points from the previous week. Nationally, soybeans dropped 8 points and are now 45% good to excellent. 47% of the cotton crop is good to excellent. As crops deteriorate, so do pasture and range land conditions. 43% of the nation’s pasture and range conditions are now poor or very poor, a 7 point decline from last week. Only a quarter is rated good or excellent. Oklahoma State University's Derrell Peel says because the drought is so widespread the impact will be more widespread as well. Peel says producers need to assume the worst and start making a plan based on current resources and forage availability. He says the producers in drought stricken areas are already seeing quite a bit of cattle movement including in early marketing of calves. Meanwhile the drought could force future grain delivery contracts to be renegotiated between produces and buyers. Purdue University Economist Chris Hurt says lower yields could force farmers to buy back the bushels they aren’t able to supply. Hurt says not only does it mean they could fail to meet the contracts already negotiated, but producers could also lose additional dollars if grain prices rise above their locked in rate. The House AG Committee passed its version of the Farm Bill earlier this week. Similar to the Senate version, it eliminates direct payments to farmers and reduces food stamps, otherwise known as Supplemental Nutrition Assistance Program. The proposed cuts are 4 times what the Senate proposed. Overall the House version would save 35 billion over ten years.

 

CROP WATCH:

Not a lot of happy talk this week. In Crittenden County, Kentucky a farmer says his pastures and hay fields are totally gone. He said they have sold nearly all the calves that were big enough and are now feeding all of the Cows. In Stearns County, Minnesota, a farmer commented on how quickly corn can use up soil moisture. His fields got three inches of rain a few weeks ago but it's gone. Corn went from knee high to tasseling in 12 days. And finally a heart breaking picture of bovine blight in corn. This mysterious plague can strike anywhere. Allen Washburn in southwest Missouri sent us this timely warning.

 

ROUNDTABLE:

Round table guest here on U.S. Farm Report. We have Bill Biedermann and Richard Brock, Brock Associates. Friday was a real down day on the markets. Now what happened --you told me the markets up for the week off camera. They were, had a great week. Friday was down, profit taking. There was pressure from the outside markets. So we did take off some of the top end. 8 to 2 cents higher on beans, 51 on wheat. It was a huge week for agriculture. They were all over. The markets on Friday narcotic what drew the markets down? It was a big factor. How can it be that --one day of trading we didn't do anything on the 4th of July. We are in a classic weather market. This will continue for at least another month. This coming week's report will be a pretty big report and I think it'll be interesting to see what the USDA does on the demand side as well and on the production side. I don't think they will cut the production as much as most of us are anticipating that the crop is already been hurt but real key will be on the damped side. This kind of price I think is healthy for the market if we do get a small set back in here and Friday’s set back was really small. I would like to see something more, otherwise, you can stop this market quicker than most of us want to see it happen. Almost everybody trading the market looks at the government reports and this kind of sets a standard. You think a report will be real this point around because you are telling me kind of off camera it'll be lower than the government normally lowers the report? Normally the government in the worst of years will only lower this report by 3.8% in corn. I don't think any of us think it'll be close to 160. We are guessing that it's -- that the real yield today, probably around 150, if the drought continue itself will go down quicker because right now we are losing bushels fast. I think that --it may be in that 155 to 158 area. I don't think that number is civil I think the anybody numbers will they start adjusting their corn for ethanol use and their export numbers and their animal use. All of which we --will be lower than what they are forecasting. You look back in the last ten years we have had five weather markets started in June and -- in the faster they go up the faster they come down. We think this will be over with before we get through August and we also think it could be prices --quite a bit higher than right now. The damage will be done before we get through August. Yeah. Normally right now you are hearing about how high corn prices and bean prices will go. Reality is like what Richard said that we are going to put prices up high enough, fast enough where you know if we kept prices here demand would be toast. It would adjust and we would still have the 800 carry over. After it starts raining you will have all the speculators looking for a way out. When it starts raining, and depends where it starts raining. I know some areas the rain won't help unless they grow winter crop some sort. When we come back I will ask you both and --you can think about it. What should a producer do whether he is already made his decision or whether he hasn't because there is an opportunity to actually minimize your losses, or maximize your profits and sometimes they blend, when we come back with more U.S. Farm Report. I told you what the question will be and they will be what should people be doing to maximize profit and avoid losses. It's very different. If you were producer in --in Minnesota right now with a record corn crop coming on verses a southern Illinois or Indiana or Ohio farmer. Different answers. So, let me just do a blanket answer. First we are probably going to have --I think a 3 year top with in the next eight weeks. We will blow this thing off, cut demand, very bad thing to do. You have a short term and the long term. This is going to encourage huge ingrains in acres worldwide of corn, you are cutting demand allot wrong things in the macro," picture. One has to look and control their emotion, on --it's interesting just a couple days ago someone said will you be sure to give us the option strategy on how to lock in all of my 2013 corn and bean crop. You know we have seen producers in the last three years because of the volatility back away were using futures and options. A lot of those people wish they wouldn't have because it was not easy to get out of those three weeks ago. Now the market has gone up. People got out with hedges. I think a person would have to have option strategies combined futures in order to do a good job. Markets strategy I will ask you know what should a producer do? I think you need to protect yourself and get yourself into a comfortable position where you aren't freaking out because this is a scary situation. Freaking out over weather. With that, you know you can put on call spreads or do some things to manage a price range. The upside protection and it won't cost you much. Let's just say you spend 40- cents, that's 20-cents across the farm. It's not a big cost. Okay so that's a good management thing. The second issue that Rich brought up which is a serious one you better getta hall of your cash contracts and find what your commitments will be. There are two thing it’s going on. These new cash contracts can require margins and can require physical delivery even if you don't have it. Some of them won't have the out clause this year if they are in a bad area. We don't know that. I think that are things you need to tipped out and know what your risk is. So a lot of challenges out there and we need to do to right now. This is a good --a good plug for our regulated industry. This is where you know using your future options plan and sticking to it is --it's stress less. It'll be --in the last three years, most of them have been better off not using futures and options because of the kind of markets we have had. That won't be the situation this year. It'll have a diverse marketing strategy, using futures and options will pay off big dividends and those who don't I think are going to pay a big price. It’s awful the structures we have put together right now our structures are usually we have a floor price and then a ceiling price. So you know we --our floor price is close to the high of the market and now our ceiling price is at a great price and we still have upsides built in so we can gain verses a cash contract where are you just locked in. You know it's just --and you have to make delivery and you couldn't make the margins on that. The structures are just way bet management especially if we go out multiple years. Managers talking about actually takes a lot of book work and thinking not just making the decision by going to the elevator and saying do this. I think that the producer who doesn't have a crop this year, particularly doesn't have high revenue insurance will have a hard time making the decisions because he is in -- in a box right now in the old crop and it's hard to think about what to do over the next two year when is are you worried about getting this one grown. I'm going to you can what month will have the high price on beans this year? I think the high price by July 21st when we have and it'll rain. You agree? I think the top in both markets before the end of July. Both markets, that includes corn. Yes. You agree on corn? I just wondered. Guys will know what it is. Get that decision.

 

JOHN’S WORLD:

Last April, an event happened which had been predicted, but way ahead of schedule. During that month the amount of electricity generated by natural gas matched the amount generated from coal: 32%. Until that moment America had always depended primarily on coal for electricity. In fact, I spent all last winter alerting audiences that this changeover could occur as fast as 2016. The speed of this shift caught experts off guard, and certainly disrupts the energy business models. Big coal is alarmed, states like Wyoming and West Virginia are undergoing significant economic turmoil. Right now it looks like coal trains could be heading West to sell our vast supply to China. The explosion if you’ll pardon the expression, of gas and oil production due to new technology that frees tight supplies trapped in shale layers was expected to be a game changer, but the effects are arriving way sooner than predicted. By the end of this decade, our dependence on energy from outside our continent could be trivial. This is an enormous economic and even political event. It will alter life on farms and in cities. It will relieve pressure on energy prices and especially keep electricity a relative bargain. The consequences are hard to fully grasp. This good news is one reason to be careful when buying into apocalyptic warnings of any kind. We are a resourceful culture and with effort and ingenuity, I see no problem facing us that we can't tackle.

 

SECOND HALF OPEN:

Hello and welcome to U.S. Farm Report. It's becoming clear this year will not produce a lot of bumper crops, although I was mistaken 3 weeks ago about 2012 being the 4th below trend yield for corn, It would actually be the third. A series that has occurred only twice before. Before 2010 our industry became convinced we had shifted the trend line. Now it looks like we were more lucky than ingenious. The trend will shift this year, but not up.

 

HEADLINES:

The drought situation is a scary picture across much the United States and hasn't improved over the past week. The latest U.S. drought monitor shows 3 quarters of the United States is suffering some level of drought. The latest national drought monitor shows 76% of the contiguous U.S. is being hit by some form of drought. Last year, that number was 37% and mainly consisted of the Southern Plains and the Southwest. The drought monitor shows the drought taking its toll on most of the major areas in the corn belt. And although some of the Midwest saw scattered showers this past week. It wasn't enough to provide much relief in the 100 degree plus days. As the drought gets worsens livestock producers are forced to find alternative land for grazing. This is causing state farm service agencies to step in and help. State FSA’s have started granting approval for emergency grazing of CRP acreage. Included in the list is Colorado, Kansas and Nebraska. FSA grants states the authority to allow grazing on a county basis. This helps provide emergency relief to livestock producers under certain natural disasters like drought. Officials in states like Missouri are urging AG department heads to request authority for emergency grazing as well. The World Trade Organization says the U.S. country of origin labeling law violates global trade law. The WTO says the law is wrong because it gives less favorable treatment to beef and pork from Canada and Mexico, which filed the complaint. Currently, the U.S. labeling law requires grocers to put labels on various cuts of fresh meat. The ruling means the United States may have to stop forcing retailers to display the origin. The labels became mandatory in March of 2009 as part of the Farm Bill. Even though the picture for some major crops and livestock in the U.S. looks bleak. There is one crop heading for a record breaking year. California’s almond crop is projected to produce a record breaking 2.1o billion meat pounds. The latest report shows a  5% increase from the May forecast. The projection is based on 780,000 bearing acres. The record crop is forecasted spite an early March frost that left spotty damage.

 

HEARTLAND:

Horses are beautiful animals and their physical make up is fascinating. Some 4-H’ers are learning about horse biology through a unique exercise. In this report, from The University of Tennessee, Chuck Denney says the lessons begins with a bucket of paint. The blend of animal science and art. From rum are many to rib cage and beyond. A living, breathing, beautiful creature. Megan, Dot and her friend, teammates in the 4h horse project. They love this is exercise where kids highlight the bones and muscles of the animals. It's much easy to see each individual section of bone, each grouping and each bone in and of itself instead of on a sheet of paper. Horses are certainly bigger than people but they have about the same number of bones. The idea here is to use the painted body as a teaching tool. Appropriately named matt horse man says kids learn the animal with each brush stroke. You try to find a fun activity that really builds the confidence because a lot of them love to ride horses and you find ways to take the riding and build it down into an educational activity learning the importance of the musses and bones. We tried stickers --that just didn't work. Megan is Dot's human and a volunteer. It was her idea to try this and said once the horse is decorated the effect is startling. I think so. Each kid works on a separate area and when it was all done and everybody stepped back and saw what the others had done, it --the whole thing tied together. It was really great. Dot has been a very good sport about this. Don't worry. This is not a tattoo, the paint should wash off in a week or so. Call it a henna horse tattoo as the painting session ends and she is able to release her inner zebra. Now as she is lead around they can study her body and framework through her graceful move mints. A little paint, a steady hand and a willing subject and you have a outline for learning. Chuck said it took about 45 minutes to paint all the bones and muscles. We are not sure how long it took to wash off. The horse was unavailable for comment.

 

PORK EXPO:

The annual World Pork Expo wrapped up in Des Moines last month, an event that drew more than 20,000 to Iowa’s capitol city. A primary topic of conversation surrounded recent announcements by several major food companies including McDonalds and Kroger, to only use pork from operations that do not use gestation stalls. Regional Reporter Michelle Rook talked with producers and industry leaders about the impact this trend could have both on farm and at the grocery store. A storm is raging the push by food companies to ban pork in gestation stalls. Reporter: the Governor said it's unfortunate the groups are bulling the companies. Problem is the people behind this are people that are against people eating meat in the first place. So they are using misleading and smear information so try to --impact decisions. As a result brand plans to talk to them firsthand. In fact I’m going to go town and meet with the folks in Arkansas. Consumers drove it in Europe but it back fired and was an important lesson for the United States. 20 years ago some of the legislation was put in progress in England. You look at the industry today and its 50% of the size it was 20 years ago. They were self-sufficient. They are importing half of their product this year. However the legislation could be repeated in the United States. They are also pushing to legislation that could set a dangerous precedent. I would expect that if they think that the industry isn't moving fast enough they will look at legislative fixes whether it's on the state level or federal. Pork producers say the change is being driven by consumer pressure but was done without consulting producers themselves. In fact they found out about most of these decisions through press releases. We have been very disappointed in some of those announcements and the disappointment from sometimes making the announcement without getting producers engaged in to the decision. He said food companies are basing their decisions on misinformation. On the other hand it's unfortunate that after they make the announcement is when they call us and say what have we done? Right now they are just frightening to be able to control production practices. I have responsibilities each and every day to feed them, water them, make sure it's taken care of every day. With that responsibility in my mind also comes a right. A right to decide how i want to house that animal. We have the better means to make those decisions than some of these companies. Beyond that there has been no discussion on what kind of premiums producer also get for the production or who will pick up the cost for the changes. Really important to understand, more --what they want. What they are willing to pay for. What type of product they are buying because off of this is at a cost. That cost could change the face of the industry over the next few years. I think it'll. A --we will go we aren't building new buildings and we will phase out. They say it's their responsibility to satisfy their customers’ needs and they will work hard to do just that.

 

TRACTOR TALES:

From the northwest corner of Washington State we found a guy with a BR John Deere, who found it in a very unusual way. A 1945 BR John Deere. It's a regular. It was used on the farm. When I bought it, it was in pretty bad shape. It had chains on the tires and a snow blade on the front welded to it. I had no motor work. It was in good shape. Over did that --I use it some for fields and whatever. I use pretty much all my tractors. Guys come to the tractor show, you have a sign on the back of his back and the tractors that he was selling them. That was a tractor I was looking for at the time. I called him and --I got ahold of him and left it there and he said you know when you leave it there is eight feet of snow. I put a lot of anti-freeze in it and got it the next spring. You find more BR's because out here in this part of the country, they --there are a few more than BR's. This is the electric start and dashboard on it which the other one doesn't. They always want me to bring the BR. It's the same size as the B tractor, always have a wide front end. The axle is heavy.

 

COUNTRY SALUTE:

Today’s church salute goes to Kimberly Christian Church in Kimberly, Idaho. Located east of Twin Falls it's a town of about 2600 people. The congregation is celebrating its 100th anniversary this year. It was organized May 19, 1912 with 36 charter members. Its church building was completed in 1915 and it’s still in use today. Our thanks to church member Jim Call for sharing the news and congratulations to Kimberly Christian Church on your centennial.

 

MAILBAG:

Craig Copeland sent a response to my comments about public acceptance of global warming. “Ever farmer out there would do better without the agenda. Plus the show would be so much better if you would just stick to the facts.” Craig thank you for e-mailing. First, my agenda, as you call it is just my opinion. And offering this analysis is my job. The commentary is clearly labeled as such, and is not presented as news, although I make sure I can back up my positions with hard evidence. I am particularly cautious when speaking about climate change. If you read that script on our website, you may notice that I was actually talking about a curious change in public perception of climate change, not its validity. Basically we no longer use facts to decide issues like this. We sort through them to find those that justify positions we reach for other reasons –political, religious, group loyalty, and so forth. The poll I cited is a fact and hot weather has many people warming to acceptance of climate change. If you will forgive the pun. Since public consensus, unlike the scientific community is increasingly unlikely perhaps a better approach would be to make bets. We are betting our farm climatologists are correct. Others can put their money on different outcomes.

 

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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