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April 2012 Archive for PFA Pioneer Blog

RSS By: Chip Flory, Pro Farmer

This is a private blog for Pioneer.

Senate farm bill and crazy corn spreads

Apr 27, 2012

Pro Farmer Extra

 

- From the Editors of Pro Farmer newsletter -

 

Senate farm bill; Corn spreads go crazy

 

April 27, 2012

 

No, Senate passage of its version of the farm bill didn't have anything to do with spreads going crazy in the corn pit today, but these are a couple of topics I want to cover in this week's update.

 

There is something bothering me about basing the farm program safety net on actual planted acres (eligible acres under this version of the bill). One of the reason Direct Payments were part of past farm policy is because those payments had absolutely nothing to do with current actual plantings or current actual prices. That's because, according to the World Trade Organization, farms can be subsidized as long as it doesn't "disrupt trade." Direct payments did nothing to influence farmers' planting decision, therefore did nothing to distort trade.

 

The new farm bill, with its revenue-assurance style safety net, will be very reliant on current actual prices and planted acres to determine payments. That means some growers could make planting decisions based on the safety net program... which makes the program potentially trade distorting.

 

If passed as it stands, the Senate version of the farm bill will very likely land the U.S. in the "court of the WTO" several times in the years ahead. (Yuck!)

 

Regarding the action in corn spreads, Pro Farmer editor Chip Flory continued his newsletter coverage on the topic in his blog to Pro Farmer Members titled "From the Editor" on www.profarmer.com. In that continuing coverage, Chip explained, "May corn futures go into delivery next week and the May-December spread went absolutely nuts today. May corn futures had a last tick on the day session that was up 30 1/2 cents; December corn futures were up 2 3/4 cents on the last tick of the day. That's a 27 3/4 cent move in the old-new corn spread in one day. Moves like this don't happen very often...

 

"But the wacky spread action doesn't end there. May corn 11 1/2 cents on July corn futures today and the old-old corn spread ended at a record 28 cents. That's the kind of price action that can only happen in a tight-supply, strong-demand market. Which is exactly what the corn market is dealing with right now.

 

"China bought more old-crop corn this morning... 120,000 MT for delivery in the current marketing year. That pushes China's total old-crop corn bookings well past USDA's current estimate of 4 MMT. That certainly suggests USDA will have to increase the corn export estimate in the May 10 Supply & Demand Report. That should drag 2011-12 corn carryover below the Feb.-Mar.-April carryover estimate of 801 million bushels.

 

"BUT... USDA could raise the export forecast and offset a bigger export number with a cut to another usage category. Specifically, USDA could cut feed & residual use. Specifically, USDA could cut the residual component of the feed & residual category.

 

"I've argued several times USDA is already working with a negative residual use estimate for corn. Maybe as much as a negative 200 million to 250 million bu. negative residual. That means feed use is actually 200 million to 250 million bu. bigger than the 4.6 billion bu. estimated in the April S&D Report. It's not much of a stress to imagine USDA's May 10 S&D Report including an even bigger negative residual use component, which would allow 2011-12 corn carryover to hold steady at 801 million bushels.

 

"In reality, supplies of 2011-crop corn are tighter than that. But, because of the negative residual and expectations that more than 900 million bu. of 2012-crop corn could find their way into the Sept. 1, 2012, corn stocks estimate, don't look for USDA's corn carryover to dip much more than it already has.

 

"We're not exactly sure how much more the old-old or old-new corn spreads will continue to widen. But combined with very tight exportable corn supplies at the Gulf (see News page 3 of this week's newsletter), stronger-than-expected demand for old-crop corn and talk that Argentina's corn crop estimate is headed someplace south of 20 MMT, odds are the bull spreads will continue to widen in next week's trade."


To see more of what Pro Farmer has to offer, be sure to visit www.profarmer.com.

Senate farm bill summary not much of a summary

Apr 20, 2012

Pro Farmer Extra

- From the Editors of Pro Farmer newsletter -

Farm bill summary barely a summary

April 20, 2012

The Senate today released a summary its version of the 2012 farm bill. The page 4 feature in this week's Pro Farmer newsletter includes many of the key details of the proposal, but we cautioned many times that any "detail" in the initial release is subject to change (especially in the current DC environment). The summary... well... leaves something to be desired. Shortly after posting the summary report to www.profarmer.com, Pro Farmer Washington consultant Jim Wiesemeyer added the following perspective:

"This is one of the weakest summaries of a coming bill I have seen. This general summary is just that -- general. It lacks specifics on key issues such as the consolidation of two remaining farm programs (presumably ACRE and SURE, but again, not specified) and strengthening of crop insurance. It does say there will be no direct payments, but the summary is mum on things like a specific program for cotton, whether there are target/reference prices and whether other farm program components such as marketing loans would continue. Others are reading this thin document as signaling there are no target prices under the new approach. So there’s a point that needs some clearing up.

"Some components of the effort last fall for the failed Super Committee effort apparently are there, such as consolidating 23 conservation programs into 13. Several efforts to improve SNAP operations which are aimed at a favorite congressional topic -- waste, fraud and abuse – but it does state it maintains benefits for families in need. The most "detail" appears under rural development areas where biofuels are mentioned.

"But the key now will be the legislative language that goes with this Committee Print. That's when the real nuts and bolts assessment of what is in (or not in) the effort will become much clearer."


To see more of what Pro Farmer has to offer, be sure to visit www.profarmer.com.

Cap Crop Insurance Subsidies?

Apr 13, 2012

Pro Farmer Extra

- From the Editors of Pro Farmer newsletter

Crop Insurance Cap?

April 13, 2012

The budget wrangling continues (at least for public consumption) in Washington and agriculture is still under the microscope for cuts. This week, Pro Farmer Washington consultant Jim Wiesemeyer covered another potential cut to ag spending in his daily update, Inside Washington Today on profarmer.com.


The Senate and House Ag Committees are getting suggestions from all over regarding budget cuts for farm policy spending, and the General Accountability Office (GAO) has weighed in. It's suggestion will likely be an increasingly frequent suggestion in the years ahead: Cut crop insurance subsidies by capping the payouts. The GAO study was conducted in response to a request by Sen. Tom Coburn (R-Okla.). Link to GAO report.

Taxpayers could save up to $1 billion a year on crop insurance if Congress capped the subsidies for the premiums paid by farmers and USDA took more aggressive steps to monitor for fraud and abuse in the program, GAO said in a report released Thursday.

The GAO estimated the savings from capping crop insurance subsidies to individual farmers at $40,000, the limit set for other farm programs. Without restrictions, the GAO said the federal government will spend an average of $8.9 billion per fiscal year from 2013 through 2022.

GAO cited recent record farm income as one of the reasons for its suggestion. "At a time when the agriculture sector is enjoying record farm income and higher farmland values, and the nation is facing severe deficit and long-term fiscal challenges, we believe that crop insurance premium subsidies — the single largest component of farm program costs — is a potential area for federal cost savings," the GAO report noted. These subsidies increased fourfold, from $1.7 billion in 2002 to $7.4 billion in 2011.

But Michael Scuse, acting USDA undersecretary for Farm and Foreign Agricultural Services, cautioned against congressional action to further limit or reduce premium payouts without additional study. "In recommending a $40,000 limit in premium subsidy per individual, the report does not fully account for all potentially negative impacts and costs resulting from such a change," Scuse said, in a response attached to the GAO report. He said the report fails to show "whether some commodities or regions of the country may be disproportionately impacted by a limit on subsidy," he noted that some higher-risk and higher-value crops, such as potatoes, cotton, sunflowers, canola and specialty crops, would be disproportionately affected. A steep reduction in subsidies, he said could have ripple effects throughout farm country.

House Agriculture Committee Chairman Frank Lucas, in a statement, warned that subsidy caps would discourage participation and endanger the crop insurance program’s integrity. "Over and over again we have heard from our farmers about the importance of crop insurance because it forms the backbone of the safety net," Lucas said.

U.S. taxpayers pay around 62 percent of policy premiums. It also provides underwriting subsidies to the network of private insurance companies that write the policies and to private insurance agents who sell and service the policies.

Regarding fraud investigations, GAO said Farm Service Agency (FSA) offices do not always complete reviews of anomalous claims that might suggest fraud. The GAO recommended that more of the inspections be completed and the results sent to the insurance companies. In turn, during their annual reviews, the insurance companies should focus on agents and adjusters with losses beyond the norm.

An often-repeated suggestion was also made – that USDA's Risk Management Agency, which oversees the insurance program, and the insurance companies need to share more information that could aid the federal agency’s data mining efforts. Those efforts, GAO calculated, could lead to more robust detection of waste, fraud and abuse.


To see more of what Pro Farmer has to offer, be sure to visit www.profarmer.com.

Still a chance to increase bean acres?

Apr 05, 2012

Pro Farmer Extra

- From the Editors of Pro Farmer newsletter -

 

April 5, 2012

After USDA's Prospective Plantings report revealed corn planting intentions of 95.9 million acres, it seems strange that some market- and crop-watchers believe there are still 1.5 to 2 million acres "unaccounted for" in the 2012 growing season. But when you push a little harder on these analysts, there is a reason.

The crop-watchers expect the winter wheat harvest to start very early this year... early enough to plant some "full-season-type" soybeans after the wheat harvest in areas like Kansas, Missouri and southern Illinois and Indiana. And with bean prices offering potential strong returns, there is plenty of incentive for wheat growers to harvest that crop and follow the combine with a bean seeder.

Of course, that depends on the weather. If the current dry conditions in traditional double-crop bean areas (and not-so-traditional areas, like Kansas) don't improve by the time those double-crop beans should be planted, it will be tough to work up the courage to invest the money in those acres.

And speaking of dry conditions, drought expanded in the northwestern Corn Belt and there is now an area of abnormally-dry conditions in Illinois showing up on the U.S. Drought Monitor. With La Nina fading to neutral (or even El Nino), rains should start to make their way to these dry areas soon... and the longer it takes the more anxious growers in those areas will become. The dry conditions aren't much of a market factor right now with traders believing "plant in the dust..." but if drought-relieving rains don't arrive before the end of April, the markets will start to build in some drought premium into corn and soybean prices.


To see more of what Pro Farmer has to offer, be sure to visit www.profarmer.com.

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