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December 2013 Archive for From the Editor

RSS By: Brian Grete, Pro Farmer

Pro Farmer Editor Brian Grete takes time to talk with Pro Farmer Members about some of the key issues in each week's Pro Farmer newsletter.

What makes me optimistic about 2014

Dec 20, 2013

Hello Pro Farmer Members!

Merry Christmas! I'm looking forward to the days ahead as we celebrate the birth of our Savior Jesus Christ! I've got kids home already and we'll be traveling to see family over the days ahead and it's just really tough to imagine a better time of the year than we've got in the days ahead.

We had a great time at the Mankato, Minnesota, Profit Briefing Seminar and we're looking forward to the Western Corn Belt Profit Briefing in Lincoln, Nebraska, in January and the Eastern Corn Belt Profit Briefing in Peoria, Illinois, in February. Those are the two remaining Profit Briefing Seminars we have planned for this winter, so make plans now to attend. (Click here for the details.) This year's Profit Briefings are in a two, half-day format (afternoon-morning), leaving plenty of time for you to network with other farmers from the area and to swap ideas with your Pro Farmer editorial staff. We look forward to seeing you in either Lincoln or Peoria in early 2014!

The "attitude" among attendees at the Profit Briefing in Mankato was wide-ranging. The past two years were filled with optimism, even after 2012's dreadful drought. This year, even the most optimistic are just cautiously optimistic. And that's probably a good thing. What it means is even farmers that are relatively debt-free are looking to pull-back on spending... at least a bit.

Those most pessimistic and anxious about the year ahead are those carrying the heaviest debt load. In the past two years, even a heavy debt load couldn't squash the optimism in farming. This year, debt-heavy farmers are seriously looking at cutting production costs. That means the speculation of a move in corn acres back to soybean production for 2014 is probably right. And even on the corn ground, some growers will be looking to cut costs by evaluating the potential returns of some "costly" inputs... things like starter fertilizer and P & K.

P & K has been banked in the soil the past two years and the only way a farmer can monetize the investment in "extra" P & K applications in previous years is to reduce applications (or skip a year all together). That seems to be a fairly widespread plan for 2014... even for those with a relatively light debt load. There's no way of knowing right now what kind of impact that might have on corn yields in 2014, but it does increase some of the uncertainty about 2014 yields.

And there are reasons to be optimistic for the year ahead. Demand for soybeans remains excellent and demand is steadily coming back to the corn markets. Wheat demand is still an unknown for 2014, but recent export demand signals importers are looking for quality supplies and that means coming to the U.S. for assured good quality wheat.

Pork demand will go through a major transition in 2014 as more and more of the pork produced in North Carolina heads to China. That will change the supply flow of pork to the East Coast and major markets along the Atlantic will be pulling more pork from the Midwest than in the past several years. This change in the dynamic of the market is one of the reasons we selected Smithfield Foods, Inc., CEO Larry Pope as our Ag Person of the year for 2013. We realize not everybody with be happy with that choice, but there is no denying he was the guy at the center of a major story in agriculture in 2013. The sale of Smithfield to a Chinese meat processor really drives home the fact that China is struggling to provide the food it needs to feed a growing population... and a rapidly expanding Middle Class in China.

Yes, China's hog herd is something like four-times the size of the U.S. herd, but it's scattered across the country and is in "herds" of a few hogs held by about 900 million people in rural China. Feeding rural China with pork isn't the issue... the issue is feeding a pork-hungry urban population and the purchase of Smithfield is clearly designed to increase the flow of pork to urban areas.

And just as importantly, with every pound of pork that's grown and processed in the Smithfield facilities and exported to China a little bit of U.S. grown corn and soybean meal will be going with it. China is farming out its needs for soybeans to the U.S. and South America... is farming out more of its corn needs to the U.S., Argentina, Ukraine and Brazil... and is farming out more of its pork demand to the U.S. Feeding China (and an increasingly wealthy Chinese population) will continue to be one of the major challenges (and opportunities) for U.S. agriculture in the year ahead. I won't base all of my ag-optimism on Chinese demand alone, but China's buying of U.S. ag products is at the base of a lot of my optimism for the year ahead.

We'll talk more about this issue early in the new year...
 

That's it for now...

... Merry Christmas and have a very happy New Year!!

Follow me on Twitter at @ChipFlory

To join Pro Farmer, click here!

Corn market has more 'bad news' coming

Dec 06, 2013

Hello Pro Farmer Members!

The lead markets item in this week's Pro Farmer says it's a tough time of the year for ag trade... sometimes good news is bad for the markets, sometimes bad news is good for prices. That's because there is plenty of position squaring and profit-taking that has to take place between now and the end of the year. That should help support corn and wheat prices, but could be price-negative for soybeans and meal. And the reason "bad news" can be good for prices is that corn and wheat traders will look for an opportunity to cover short positions in a down market. Once the short-covering gets started, fresh selling dries up and all of the sudden a moderate loss can turn into short-covering price gain.

Of course, the opposite can happen in soybeans. With funds long soybean futures, they're looking to liquidate longs (take profits) on up days... so price gains can reverse once the long liquidation starts to turn moderate price gains into a liquidation price loss.

See... good news can be bad and bad news can be good.

And it looks like the corn market has more bad news coming...

China has been routinely rejecting shipments of U.S. corn after finding traces of Syngenta's Viptera GMO trait. All other Asian corn importers have approved Viptera, but China has been dragging its feet on approving the trait. Approval is expected in early 2014, but that won't help to offload corn that is headed to China right now. It's thought there are between 1.5 million and 2 million metric tons of U.S. corn headed to China right now... all of which will likely be rejected.

So far, China's rejects have found a new destination someplace in Asia. New homes for orphan corn, however, will be harder to come by in the near-term. That's why China's import policies on the Viptera trait will likely be a bigger story in the weeks ahead than it has been in the past few weeks.

Most likely, China has been slow to approve the GMO for "tactical reasons." Importing countries (especially countries "new" to the World Trade Organization) typically use artificial trade barriers as a supply-side management tool. Throw up some resistance to a GMO trait or to ractopamine in beef or pork and all of the sudden those markets are more dependent on domestic supplies. That reliance on domestic supplies is supportive to domestic prices. So, instead of imports weighing on domestic prices, a trade "issue" suddenly turns into a domestic price-support program.

After China's domestic corn crop estimate was increased this week to 217.5 MMT, it probably shouldn't be surprising that the country would throw up some trade barriers to help support domestic corn prices in an effort to artifically support their farmers' revenue stream.

No government support for Brazilian farmers?

Yeah... right. It's always "interesting" when countries that have taken the U.S. to the WTO woodshed for providing what they call "market-distorting" policies start distorting their markets, too. That's going on in Brazil right now. The Brazilian government is buying corn in Mato Grosso in an attempt to strengthen prices, says Pro Farmer South American consultant Dr. Michael Cordonnier. Most likely, the corn will be used to make ethanol... reducing Brazil's potential imports of U.S. corn-based ethanol.

Mato Grosso corn prices are only about $2.40 (before transportation costs, which run about $3.00 per bu. to get it to southern export locations), so it's not like the Brazilian government's buying is having a major impact, but still... it is a government support. Brazilian farmers made the decision to plant all that corn last year in reaction to drought in the U.S. and now the government is at least partially bailing them out for growing a big crop, creating a price-negative situation for the global corn market. Oh... and that's a big crop they really had no way of getting out of the country in the first place. Nevertheless, that Brazilian corn is acting as a wet blanket on global (and U.S.) corn prices.
 

That's it for now...

... cold temps have moved into the Midwest right in time for Iowa's first regular gun deer season. It's going to be a cold weekend ahead, but I'll be out chasing the whitetails around Jones Co., Iowa, for the next few days. I'll have my son and daughter with me as well as buddies I grew up with. It's always a fun time... but I'd prefer 20 degrees in the morning instead of zero!

Follow me on Twitter at @ChipFlory

To join Pro Farmer, click here!

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