USFR Weekly Recap - January 7-8, 2012

January 9, 2012 07:23 AM
 

THIS WEEK ON U.S. FARM REPORT
EPISODE #2004
JANUARY 7-8, 2012

JOHN’S OPEN: Hello and welcome to U.S. Farm Report, I'm John Phipps. I have a lifelong friend who continues the tradition in agriculture of having a supply of wise sayings available for most every moment. These vary from adages about weather, to sage comments about people. He seems to have absorbed and retained every adage he heard when growing up. It frankly used to drive me crazy. My engineering mindset objected to the conclusions drawn from incomplete recollections of misunderstood history. But that reaction has changed over the years. When Dan solemnly recites a proverb vaguely related to the situation under discussion now, I hear voices from the past. It may not be wisdom, but it is history. Time now for the headlines.....here's Al Pell.

USDA REPORT: Thanks John. With a new year upon us, the commodity market prepares for an important update from the USDA. The much anticipated supply and demand estimate will be released first thing Thursday morning. In its pre-report estimate, Allendale expects ending stocks for corn to be lowered due to a moderate increase in feed demand. For beans, few changes are expected. And for wheat, Allendale expects winter wheat plantings to jump by more than two-million acres. The firm notes second quarter usage of wheat was the lowest since at least 1975. Even though 2011 marked a return to profitability for the pork industry, Purdue Economist Chris Hurt says many producers remain cautious about the future.

PORK PRODUCTION: Even though 2011 marked a return to profitability for the pork industry, Purdue Economist Chris Hurt says many producers remain cautious about the future. With feed prices still high, Hurt wasn't surprised herd expansion was only modest last year...and he doesn't believe any further expansion will occur until summer at the earliest. In all, pork production is expected to climb only about 2% in 2012. Even with the increased production, hurt believes strong export demand will equal another year of profitability.

FIRST CORN REPORT: For every farmer, half the battle of getting good yields is knowing which seed works best in that specific corner of the country. This weekend, we're introducing you to a company called "First" which spends every year trying to find that exact information. Clinton Griffiths takes us to Monticello, Illinois for a look at this year's corn results with "First" general manager Joe Bruce.

ROUNDTABLE: Our guests today, Tom Grisafi, Indiana Grain Company and Mike North. We were talking a little off the camera about what we should discuss today. So many things happening to agriculture that's affecting us and the first thing you brought up and I will ask you to point out, what happened last Wednesday because I was at the Beltwide Cotton Conference and I wasn't on top of everything. Something happened in Europe. Yeah. A bank made a dead offering, put bonds out and essentially offered a much lower than the last trade and that --just brings back to the forefront this conversation of the trouble that Europe is in and largely the weather led rally we have had throughout December, was allowed to go the distance because we didn't have a conversation. So, when you renew that conversation, it brings a little bit of concern back to the present and we saw the risk of trade, people pulling money out and Thursday’s markets reflected that. When we saw the market move lower it was confirmation there is concern. There is concern. The markets went down quite a bit. Yes. You saw the Euro make a 16 month low so you are seeing dollar strength and then today this morning when I talked to you, we had the unemployment report and things in America are getting better. They are getting better at a slow pace but better. They have been better in agriculture for a long time but the banking and housing sector is getting worse. When you look at Europe they are almost where we were a few years ago but are having a hard time getting organized. America and Europe are breaking away from an agriculture point some days corn goes up because of the stock market and then some days they say why do we want all this and they take risk. When I look at the first part of the week everybody was looking at South America, it won't rain and we didn't get that big rain and everybody wants to know why the prices went down. No. Obviously we will watch that as we go into this coming week because there is discussion they will get rains of a half inch to an inch in that area. No, no weather change. Okay. I didn't know what it was. Once again I was at the Cotton Conference. I wasn't out taking a look at the rain. I was in Florida and they had freezing weather from there. People don't realize how agriculture products in the United States can respond particularly now --lot of oranges and I don't know how much you know but I know you watch the market closely. I traded last year three orange juice contracts. On a limit move, maybe we were limit up for the second day and I sold some orange juice and bought it back a little and I figured that was enough. One good trade in your career in orange juice and that's it. There are opportunities and watching all the markets, even if you don't trade them. A grain trader should watch the milk or feeder market to see where a strength and weakness is coming out of the commodities. Last year from what I read milk was a hot commodity.
Obviously we came out really strong last year. You know from a historic perspective we made new highs in the number of months. It was a really good year on the dairy side. A lot of that credit given to hot weather, a squeeze on cheese because of some plastic found in a few loads, you know you had the export market continuing to grow there and so the dairy side had a great year, you know we are coming into a cycle now where we would expect to move into a cycle low. May not be as red hot as it was last year but we will see. There are a lot of things to work through. We have to have a few cows because they got rid of the one that weren't producing but they are producing more now. Exactly. We have a big replacement population and the cow numbers action even while they are grown the production per cow has grown even more.
When we come back I would like to talk about some of the changes that we are seeing in agriculture right now. When we return with more U.S. Farm Report in a moment. Tom and Mike, I promised we would talk about the changes you have seen and I don't --I like to give you like a five-year change, a two year after a one year, I think there has been a lot of changes in agriculture and Tom I will start with you. I don't know how long –I have never asked you that question, how long you have actually been trading and you are a trader, you are not a producer, you also don't buy for anybody else you trade for yourself.

I started trading on June 24th 1993. That was my 21st birthday when the exchange lets you trade. They have changed it now, you can be 18. I went on a high school field trip and I got roped in like a little calf and have been there ever since. Good and bad times.
One of the biggest changes you have seen in the business? Electronic trading has really thrown people for a loop. To me it's a positive thing. It's taken someone like me who was a small corn trader and now I can be a small trade America every pit. I'm --a small trade America the corn, bean, wheat and then the last five-years I broke out to the options. We were talking off camera about trading cattle and you get to trade contracts that weren't even at your exchange, then the global, I trade all this overnight and they are all open so then I can trade all the European --I can watch wheat and see how it works here and that's at one in the morning. As you remember from that Russian drought we were having massive limit up moves in the middle of the night. People would wake up to realize they were having a great or bad day. That's the biggest change, the 24 hourness of trading. You really respond on a 24 hour basis to what's going on. Have to. Absolutely. Right.
When we have hired extra people it's just to watch the markets, so I can go to sleep at night and say sleep from midnight to four, if someone happens to call me. You can get that rest in -- more times than not in the busy good market I don't mind the call because it means opportunities.
It's presented opportunities for him, for producers but when we bring it back to a risk management conversation that has created a greater need at the farm level to address risk and price and as we talked about 2012 and going forward the things we have seen change in the past that have made this something we need to hone in on and do a better job of in the future. You know we spend a lot of time on the camera talking about how to do it and why, the reason for it is the volatility. There is always the discussion of being in the new area of agriculture. If people believe that's a price change. It's not a price change as much as a change in how price changes. The change overtime has been that we have watched fundamentals be the core conversation and as we have gone worldwide that's changed. We have discussions about the Euro versus the dollar, we want to know about china, we want South American weather. All of this plays. We didn't used to do that it. No. All of this as we have gone worldwide, makes a producer come to the table to address his risk.
He has to and he meets that guy across the table we call a speculator and they exchange risk. That's what it's about. You know I bought a farm so I have more time to talk to farmers and I take off my suit and put on the Carrharts and we talk to markets. I think the interaction I have had with the farmers have been wonderful. You know in a few months we have having a big seminar and we are inviting a lot of farmers to talk, what do you see changing, if it's something about seed or hedging your risk in the worldwide aspect of the market. It's more opportunity to make a profit now if you do it right.

JOHN’S WORLD: This Sunday is choir appreciation Sunday. To be fair, it was not proclaimed by the President or Congress, but a handful of music companies, but that does not disqualify it as a bad idea. After over thirty years directing a church choir and a lifetime of singing with others I am prepared to testify to the surprising power of the experience of joining voices with others. In my time with a barbershop chorus - feel free to roll your eyes now - I recall the theme song we used to belt out every practice. "Keep America singing all day long, watch good will come a-winging on a song, smile the while you are singing, carry, o carry your part, keep America singing and singing in your heart". It's still hard to just read those words. Songs have a way of cementing in even failing memories emotions and experiences that shaped who we are. Technology may be an inadvertent adversary to homemade music, but I hope for succeeding generations to keep alive and even rediscover why singing together, not just merely listening together is important for our human experience. The two times I truly understood what it meant to be an integral part of a greater whole was during choir and supervising a submarine engineering watch. The power of multiplication of individual talents - not just addition was truly uplifting. I always believed that choirs minister first to those who sing, but if you have been touched or comforted by the voices you hear, be sure to let them know this week.

2ND HALF:
JOHN’S OPEN:
Hello and welcome to U.S. Farm Report, I'm John Phipps. Like many conventional producers, I have been following the organic trend with mixed emotions. While I remain politely skeptical of many of the more outlandish health claims, I am equally adamant that consumers be allowed to choose for whatever reasons they want. The crucial vulnerability of organic businesses has been the gulf between what consumers say they want and what they are willing to pay for. Unfortunately, ethanol production has single-handedly driven commodity prices to levels where organic crops struggle to compete, and organic proteins struggle with feed costs. We'll keep an eye on developments. Let's get started with the headlines and Al Pell...

ANTIBIOTIC BAN: Thanks John. America's livestock producers will soon be required to implement new antibiotic restrictions. Starting in April, the food and drug administration will prohibit uses of the drug class cephalosporin. The FDA says cephalosporins are important anti-microbial drugs for treating diseases in both humans and animals. It's worried about resistance to the drugs if they are over-used. In humans, they are used to treat everything from pneumonia to skin infections. The FDA is prohibiting extra-label or unapproved uses of the drugs in cattle, swine, chickens and turkeys.

RESTAURANT SALES: 'Tis the season to eat out as it appears more Americans are returning to their favorite restaurants. Topping the 100-point mark in November, the performance index from the national restaurant association hit its highest point in five months. The RPI tracks the health and outlook for U.S. restaurants. Building off their strongest sales results in more than four years, restaurant operators believe further expansion is possible in 2012.

PEANUT ACREAGE: It looks as if peanut production could expand in the year ahead, and it could come at the expense of cotton. Production dipped 13% last year due to drought down south. As a result, prices for peanuts used to make peanut butter hit nearly $1,200 a ton, up nearly three times from the year before. Some analysts believe such favorable prices could attract new production from outside the traditional growing region. Georgia leads the nation in peanut production, followed by Alabama and Texas.

LA PECANS: The end of the holiday season marks the end of the busy season for the nation's pecan growers. In this report from the LSU Ag Center, Tobie Blanchard shows us how a processing facility handles the holiday crush.

HEARTLAND; MU KIDS COMFORT: We're off to the show-me state this weekend to meet a young lady who doesn't let her age keep her from going after a very grown-up goal. In this report from the University of Missouri, Kent Faddis tells us about a 4-H project that is creating quite a legacy. If you would like to donate to the "Pocketful of Sunshine" project, head online to www.extension.missouri.edu. We'll be sure to post a link on our home page.

FIRST SOYBEAN REPORT: There's a company in Illinois that tackles a big job each and every growing season - and that's to determine which seed works best in each specific corner of farm country. In the first half hour, Clinton Griffiths talked with Joe Bruce, general manager at "First" about corn...and now, soybeans are the focus. Thanks Clinton. If you would like to learn more about the data and how it can improve your bottom line, head online to www.firstseedtests.com. We'll be sure to post a link on our home page. Up next - Tractor Tales and our Country Church Salute...please stay with us.

TRACTOR TALES: Al is back now with tractor tales...what do you have for us this week? John, we found a collector with a 1957 Case 600. This tractor was up for bidding at an event held by mecum auctions. The owner was hoping to find someone interested in adding a unique piece of equipment to their collection. Don't forget, if you like to watch Tractor Tales - you can download segments from our home page... www.usfarmreport.com. You can also pull down segments as podcasts from ITunes.

CHURCH SALUTE: Today's country church salute goes to the Green Springs Missionary Baptist Church of Guin, Alabama. First opening its doors in 1861, the church celebrated its 150th anniversary last year. It's located in what's called the "Pea Ridge Community" in Marion County. Yvonne Shell tells us she first visited the church in the 1950's...back then it was just one large t-shaped room. As you can see, there's been quite a bit of expansion since that time. Our thanks to Yvonne for telling us about Green Springs Missionary Baptist, and congratulations to everyone at the church for 150 years of ministry. As always we want to learn about your home church as well... Salutes can be sent to the address on the screen. Stay with us - the mailbag is next.

MAILBAG: Time now for our weekly look inside the farm report mailbag...We have several questions and comments about the MF Global bankruptcy, and this one is typical. "John Corzine used a loophole to take the funds entrusted to MF Global and buy long term European bonds. Supposedly that is where the money has gone up in smoke."
Phil Gallup Fort Wayne, IN. Phil, I don't pretend to be well-informed on the unfolding details of this growing economic bombshell, but judging from the trickle of information emerging from the investigation, I suspect we are looking at an Ag equivalent to the Lehman Bros. Collapse in 2007. But let me refer instead to Ag risk expert Art Barnaby at Kansas State University whose research into this problem has not enabled him to state definitively whether deregulation or violation of rules enabled customer money to be invested in European bonds. I'll post the link to his work. But the real question for those directly involved is not how much tar and feathers they need, but will their accounts be made whole, and by whom. As stockholders discovered in 2008, wealth can simply disappear, and I think this will be the lot of account holders at MF Global. Legal recovery is glacially slow, and a government bailout would be political poison. I think Barnaby is correct and this debacle will overshadow even the Farm Bill in economic importance. I'll have more to say next week on how I think farmers should approach this problem.
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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