October 2008 Archive for Chip's Chore Time

Chore time for me isn't what it used to be when I was growing up on our eastern Iowa farm, but taking care of two horses in the morning before I head in for work gives me a little time to think about the day ahead. Each morning, stop at this spot to get a feeling for the "tone of the day" - and some attitude about agriculture and the markets.

I was thinking…

About the correction USDA will make to the October Crop Production and Supply & Demand Reports for at least one major commodity this morning at 7:30 a.m. CT.

Here's the announcement from USDA's Newsroom: "USDA's National
Agricultural Statistics Service (NASS) will release a corrected October
Crop Production report on Tuesday, October 28, at 7:30 a.m. CT. The World
Agricultural Outlook Board will issue an abbreviated World Agriculture
Supply and Demand Estimates (WASDE) Report at the same time. Revised
forecasts in the WASDE will reflect the updates in the Crop Production
Report."

USDA gave no indication in the announcement which crop(s) will be the subject of the correction. Checks with several market-watchers late Monday seemed to center on 2008 harvested corn acres. Because USDA increased harvested soybean acres 2.138 million in the October Crop Production Report, but trimmed just 93,000 from harvested corn acres, these market-watchers speculate USDA may have neglected to subtract acres from the corn tally that moved over to soybeans.

However, long-time USDA-watchers caution that even with a change in personnel, missing something "that basic" seems unlikely.

Obviously... the other "school of thought" on the correction was that USDA somehow, someway, double-counted some soybean acres to result in the eye-popping increase reported in the October Crop Production Report.

Everyone agrees the correction will be "significant" and will impact the Supply & Demand tables for corn, soybeans/meal/oil, cotton, rice OR sorghum. Reason: These crops get S&D tables, which excludes citrus from the mix and USDA's wheat, barley and oat crop estimates were released in the September Small Grains Annual Summary and were not part of the October Crop Production Report. Sugar is another potential crop that could see the correction.

Pro Farmer will provide reaction to the correction to it's Members shortly after this report correction is released this morning.

Chore time for me isn't what it used to be when I was growing up on our eastern Iowa farm, but taking care of two horses in the morning before I head in for work gives me a little time to think about the day ahead. Each morning, stop at this spot to get a feeling for the "tone of the day" - and some attitude about agriculture and the markets.

I was thinking…

... wow... that was some wind Oct. 26, wasn't it? It blew into the Midwest along with a cold front that brought the first snowflakes of the season with it. With all the corn still in the field, it felt strange to see some snowflakes flying with all the corn leaves also blowing around. There was some wind damage to the corn crop, but it stood up surprisingly well.

Corn yields are also still holding up... there hasn't been a lot of the late-planted corn harvested yet, but it will start to roll into the bin (by way of the drier) very soon. It looks like the early yield checks on the late-planted corn are -- as with the early planted corn -- above what most growers expected.

All the standing corn in Iowa made it pretty tough on this ol' pheasant hunter for Iowa's opener! But, many growers are rolling the dice on this year's corn crop and letting it stand in the field hoping to get a few more points of moisture out of it before rolling combines.

Don't forget about the marketing loan program...

Even though corn, soybean and wheat prices are still well above levels that would trigger a loan deficiency payment (LDP), that doesn't mean you should forget all about the marketing loan program. If you're looking for cash to finance 2009 production, the marketing loan program is a source of "cheap" money (3% in October) and it "buys" you some time for the markets to recover later this year and into 2009 as demand starts to come back to the market. I know this seems like an obvious source of funding, but some people I've talked with about the credit crunch seemed to have forgotten about the marketing loan program as a source of cash flow.

Have corn and soybean prices bottomed?

Without a doubt, that's the number one question I'm getting right now. Every now and then, the grain markets trade like they're actually looking at the fundamentals at play instead of just focusing on crude oil, the U.S. dollar and equity trade. That's a good sign for a return of stability to the market. But, chart formations (technical indicators) still haven't improved. In fact, the triangle formation in November soybeans is setting that market up for a major move. To make it a major up move, Nov. futures have to close above $9.50. To make it a major down move, Nov. futures have to close below $8.45. I know... that's a wide range -- but that's a symptom of the extreme volatility in all the markets. To trigger any technically based trade, markets must move significantly.

So... have the markets bottomed? They're working on it... but don't be surprised by one more spike of October lows before value-based buying really starts to drive prices back to the upside.

Have you decided who you'll vote for?

I'm not about to tell you to vote for McCain or Obama... but I've made up my mind. A couple weeks ago, we asked the Obama and McCain camps for answer to some of our comments and we ran their responses in Pro Farmer newsletter. If you'd like to see their comments, click here to send us a note and we'll be sure to get the two pages of the newsletter out to you. Oh... and you'll also get some information on how to get your Pro Farmer membership started.

Chip Flory

Chore time for me isn't what it used to be when I was growing up on our eastern Iowa farm, but taking care of two horses in the morning before I head in for work gives me a little time to think about the day ahead. Each morning, stop at this spot to get a feeling for the "tone of the day" - and some attitude about agriculture and the markets.

I was thinking…

... can you believe some of the corn yields being reported!?! Heck... can you even believe what your yield monitor is showing you when you open up corn fields!?!

So far, yield reports are coming in "above expectations." Of course, most growers were expecting a crop below their five-year average... so it's a little difficult to figure the real impact of "better-than-expected" corn yields. When we wrapped up the 2008 Midwest Crop Tour, we estimated the national average corn yield at 153.3 bu. per acre. Since then... based on September weather and a few other factors, we trimmed about 1.2 bu. from our yield estimate, to 152.1 bu. per acre.

We did that when it looked like Midwest would see an "average end" to the growing season -- a killing frost in the first week of October. Well... that didn't happen and even the latest-planted corn has reached black layer. The "extra" 20 days most of the corn crop in the Midwest saw added to the end of the growing season also allowed the crop to continue to gain weight. Test weights aren't any better than the last few years... but they are generally in the mid- to upper-50s. If the growing season would have ended on time, test weights (on average) might have struggled to get to 50 lbs. on some of that late-planted corn.

Still, there is a lot of variability from field to field, but that "variability spread" has narrowed in the last 20 days. That means the "best" corn out there is good, but the lowest-yielding corn is coming in better than most growers expected.

Where there doesn't seem to be much variability is in the moisture content of this year's corn crop -- it's too high in most major corn-growing areas. The equipment growers have in the field can handle about twice as many bushels per day than the drying equipment can handle. Drying bins handle some of the daily overload, but corn with moisture in the mid-20s can't stay in that holding bin for too long. That's going to drag out harvest and slow movement of corn for the near-term. And if the earliest-planted corn isn't drying down, it will probably be an even bigger challenge to get the late-planted corn to dry. Typically, slow movement of corn during harvest leads to some basis strength. So, watch for some basis spikes to take advantage of this fall.

Back to yield... are we still comfortable at 152.1 bu. per acre? Well... we're waiting for some actual harvest results from that late-planted corn before we update our corn yield estimate. But, when we released our first 2008 corn yield estimate back on Aug. 22, we put a plus-or-minus 1% on the yield to allow for a "poor" or "strong" finish for the crop. The last 20 days has made it a "strong" finish -- which would suggest a national average yield up to 1% bigger than 153.3 bu. per acre. That means a national average yield of about 154.8 bu. per acre is probably back in play.

Another thing I've been thinking about --

You probably know this is one of my favorite times of the year... not only is it time to "ring the cash register" and to deliver crops we've been working on since spring, it's also hunting season. I've fired a few shots already this fall, and so have my kids. It also means it's time for another round of Outdoors on the Farm on AgDay and U.S. Farm Report. This fall, I'm featuring an Illinois grower that is dedicated to rebuilding upland bird habitat, is using food plots to attract deer and turkey to his "happy hunting grounds" and I also had a chance to hunt his farm (literally... right behind the machine shed!) during Illinois' dove season. It was my first dove hunt... watch Thursday morning to find out what this ol' pheasant hunter thinks about dove hunting!

Market thoughts:

Don't get too excited when the market moves in your favor; don't get too frustrated when the market moves against you.

I know... easier said than done! What it really means is now is a good time to view the market's big picture. Stay informed, but don't get too caught up in the day-to-day price movement. Understand that we need more acres of corn in 2009 than we planted in 2008. Understand beans can give up a few acres from 2008, but not enough to satisfy corn's appetite for acres. September 1 Grain Stocks took some of the urgency out of the battle for 2009 acres (thanks to the discovery of those "extra" 2007 bean acres and bigger yields). The October Crop Production Report also took some spark out of the 2009 acreage battle. Still... these markets have some work to do to put some profitability back into the outlook for 2009 corn and soybean crops. Without the opportunity for profit, growers will "cut corners" (where they can) on inputs. First spot to cut -- fertilizer. Growers that I thought would never do anything that might threaten even 1 bu. of potential corn and soybean yields are talking about zero P&K application this fall or next spring. Of course, they've spent a lot of time building up the fertility on their ground and now they're thinking of tapping the fertility bank to ease input costs on the 2009 crop. If it happens widespread, it could develop into a "buyer's strike" on fertilizer for the year ahead. That should build up fertilizer stocks, driving prices lower. Some are looking for nitrogen and phosphorus prices to drop about 30% for the 2009 crop, but potash prices are sticking near this year's price highs. (Potash supplies aren't building.)

We detailed a fertilizer price outlook in last week's Pro Farmer newsletter. If you're not a Pro Farmer Member and would like a copy of our comments on 2009 input prices, click here to drop me a note and I'll make sure you get that page of the newsletter -- and (of course) some information on how you can get Pro Farmer newsletter each week!

Chore time for me isn't what it used to be when I was growing up on our eastern Iowa farm, but taking care of two horses in the morning before I head in for work gives me a little time to think about the day ahead. Each morning, stop at this spot to get a feeling for the "tone of the day" - and some attitude about agriculture and the markets.

I was thinking…

... there's really not much more to think about right now than everything that's happening in the credit crisis around the globe.

Fear, anxiety, rush to cash -- it's all happening in the financial markets right now. Right now, banks simply don't trust each other and until that trust is rebuilt, credit will remained seized up. But, credit is not as tight as some of the doom-sayers would have you believe. For example -- I know some people can get a car loan. According to some, you wouldn't think anybody could get a loan for anything.

Small banks... and especially rural banks... seem to be doing "okay." Many are still getting loan requests and many are still approving loans for everything from cars and trucks to boats, operating loans and land or house purchases.

That, however, does not mean "everything" is okay in the financial system of rural America. Business operators are dealing with the impacts of a credit crunch and it won't be surprising to hear stories of how some small businesses won't be able to make payroll, etc. And for every new car or truck that is sold, it will probably take a while before that dealership is willing to replace it.

I haven't talked to a lot of rural banks, but those I have talked with indicate they are still very willing to make loans to farmers for operating funds to harvest and market 2008-crop corn and soybeans and they are willing to write 2009-crop operating loans.

In last week's Pro Farmer, we asked the question, "Can agriculture get caught in credit crunch?" Here's how we answered the question:

"Absolutely... agriculture can get caught in the credit crunch. A more appropriate question might be, "Will ag get caught in the credit crunch?

"You know the old saying -- land rich and cash poor. After years of buying ground (with a lot of cash), U.S. agriculture is left with a very low debt-to-asset ratio of about 9%. A tight debt-to-asset ration does not, however, remove the need for operating loans... it just means growers have been able to repay those loans in full and on time. Farmers, on a whole, currently have a very good credit rating and are an attractive 'target' for lenders: Low debt, lots of assets, lots of revenue, lots of expenses (high borrowing needs) and the ability to repay loans."

USDA Sec. Ed Schafer last week said he is concerned the credit crunch could "have an effect on ag production." How? Well... if growers can't get the operating loans for 2009 production, they'll obviously have to cut back on some inputs... and EVERYBODY seems to be thinking growers will cut back on fertilizer use in 2009. Just look at the stock values of companies like Mosaic Companies, Potash Corp Saskatchewan and Terra Nitrogen Companies. While nearly all stocks plunged last week (and today), the stock prices on fertilizer companies really dove last week as nearly every "street analyst" is looking for lower U.S. fertilizer demand for 2009.

Pro Farmer crop consultant Dr. Cordonnier tells us Brazilian fertilizer use is down for the 2008-09 crop -- some growers are reportedly cutting fertilizer rates by as much as 25% to 30% from normal levels. If that ground built up some fertility reserves over the years (not likely), Brazilian farmers that have grown beans, on beans, on beans, on beans, etc... might not see much of a hit on this crop, but they could on next year's crop. And, it's not likely that ground built up much "reserve fertility," so they will probably see the yield hit this year if the reduced fertilizer use is an industry-wide happening.

But, let's get back to the credit crunch... and availability of credit here in the U.S. for farmers. So far, it looks like growers are able to get the funds they need to conduct business. So, while there is a meltdown happening in some U.S. industries, the ag industry still seems to be functioning. If you're hearing anything different, please let me know.