USFR Weekly Recap - February 18-19, 2012

February 21, 2012 08:42 AM
 

THIS WEEK ON U.S. FARM REPORT
EPISODE #2010
FEBRUARY 18-19, 2012

JOHN’S OPEN: Hello and welcome to U.S. Farm Report, I'm John Phipps. Well, it happened again. Wandering the endless rows of vendors in Louisville, I stumbled across some slick product demonstrations and was mesmerized like a second-grader at a circus. There is something about a live show with smooth patter and effortless results. The incredible ladder that folds and contorts almost on its own. Magic drill bits plunge through tool steel. And a power sheet metal nibbler carves steel like butter. I'm not sure what I'm going to use the nibbler for, but I'll think of something. Many of my wrenches may soon have test holes in them, and the ladder should arrive next week. All told, that's better than I did last year. Here's Tyne Morgan with the news

NFMS SHOW: Thank you John. Another major farm show is in the books. And again, it appears there was record attendance. That seems to be a common theme at the farm shows and meetings this winter. Organizers of the National Farm Machinery Show run in Louisville, Kentucky say there was record attendance for the four-day show. Some were just browsing and others are ready to buy. The generally strong farm income is encouraging higher attendance. Commodity Classic - which starts March first- says it has a record number of pre-registrations.

COTTON PLANTINGS: U.S. cotton growers will plant fewer acres this spring, down about 7.5%. That's the forecast from the National Cotton Council. The council says cotton producers intend to plant 13.6 million acres. NCC says the drop in cotton plantings was expected as cotton prices have weakened against competing crops, like corn, soybeans and peanuts.

KC LAND VALUES: Strong demand and high grain prices continue to drive land values higher. And those surging values are enticing land-owners to make sales, especially to farmers. The Federal Reserve Bank in Kansas City released its fourth quarter and year-end totals for 2011. Some of the highlights show non-irrigated cropland surged 9% in the fourth quarter. And it rose 25% on an annual basis. The Kansas City Fed District covers a wide swath from western Missouri to Wyoming. And as far south as New Mexico.

CROP WATCH: Crop watch this week reveals the continuing problem with the lack of moisture this winter. A farmer from New Ulm, Minnesota says they had a bit of snow mid-week. It brings the total to about two inches of snow since December 1ST. A wheat grower in southern Manitoba Canada says they haven't had significant precipitation since mid-September. He has some concerns about the wheat crop. And in Bee County, Texas a farmer says he got an inch and a half of rain last week. They'll start planting corn next week. It looks like soil conditions have improved.

ROUNDTABLE: Here at the National Farm Machinery Show, I have been talking to a lot of people and Brian, they want to know where are corn prices going? Where are they going. I think we need to look at the corn market in a macral sense. You look at world stock numbers, record low stocks in the United States are low, 800 million-bushels, stocks -- second lowest, there is a lot of potential for corn prices to move higher. Farmers need to be prepared for that but I think there is a greater potential for corn prices to move lower on expectations of this year's crop to rebound. We have had two down years in a row. That's different; yield is down two years in a row. If we go back and use history as our guide you have to keep in mind that we have seen them pull a big crop out of down years, I would defend these type prices or any rally from here but I would be prepared, in case prices took off on weather events this spring or summer. Agree or disagree? I'm in the camp that I believe the American farmer is holding a lot of 2011 crops. They haven't marketed much for 2012, and I really believe what this market is trying to do is force out the inefficient producers. How do you do that? You get the price under the cost of production. I'm concerned you guys are holding one crop, about to grow another one, we have the March 31st report, if we show 95, 96 million acres we have had two years of lower trend line yield. If we just have that at or above, and you are still holding the crops, the market could make a big correction between March 31st and July 1st. That's going to be a problem. We would be defending the price that we have here today. Bob talking about lowering cost of production, going up or down or staying the same. I think cost of production has only one way to go long term and that's up. Inflation comes in, I agree that the prices are probably at a level that you won't have to worry about in the next 60 days. That could give you the spike that would let you be aggressively pricing. That's a short term spike, and then as a crop matures I could see it at or below the cost of production. What's the cost of production? Pick a neighborhood. Little different in Illinois and Iowa than in North Carolina or some other places. They are still high. I have some reports that are -- estimating between 4.50 and 5 a bushel. It's a high number and one I believe have you to protect. And another thing is the cash basis, we will go from the premium basis now. You will flip and wide basis. You could have a board price, not much below 4.50 but the -- that's the real risk is the basis behavior play. Everybody talks about corn, use that in as a guide. How about soybeans? The soybeans are an interesting market. We have relatively tight carry out there, 275 roughly. The fact is what we have seen in the soybean market, even with the relatively good carry out we have had the prices move up. What I believe is happening is the market is saying we need to buy bean acres back. We went from a sub 2.0 soybean, corn soybean ratio up to 2.5. I think we can get that up to 2.6 and it won't convince any American farmers to plant more beans this year. In my opinion if you get good spring weather which you haven't had in two years you will plant the corn, the relative price also have to be extreme in order to change that, the other big thing, is the crop insurance, we have only got two weeks left on this February period, right now there is a big advantage in planting corn over beans and I don't believe we can move prices enough in the next two weeks. When we come back we will talk about the cost of property, cash sense how to get more land if you want to grow when we return. We are at the National Farm Machinery Show, a lot of producers here and all of them want to grow and one of the ways to grow is to purchase more land. I’ll ask Bob to say whether they should buy now, put it off or sell what they have. Two years ago I said I think land values will go up and I think I have been vindicated in that. I think we have going into a period where we will have are a price correction in the market and I would say for the next two years I would say hold off. My greatest year is if we don't get the macro fundamentals in the conditions I think we will continue to grow the deficit, we will look at 20 trillion dollars, the only way to grow out of that is to inflate and that event is maybe a 78 to 81, the problem is 81 through 85 is so out there in front of us eventually. It's a short term good thing, short term buying land is good but you better have it paid for in a short time, not borrow heavy and I would want more by cash rent. Mark, go ahead. I will --on the cash rent. One of the things I think farmer is investigate if they are renting is the flex rent contracts where the --ask the own tore share in some of the risk. Give us how that works. Base prices just --$200, you may offer the land owner $175 an acre with the opportunity to pick certain bench points during the year of prices. Then the land owner shares in the opportunities to see some return, above $200 or 210 or 220. That way the land renter isn't taking all the risks jumping in at the high prices and then we see the markets take a dump you will be stuck with big contracts and it'll get ugly. I think the land decision is --you have to look at it from two standpoints. There is a business aspect and then the personal one. Many of you have been farming, do you want to give up that land? Probably not and that's understandable. Getting that land back is going to be hard. As a businessman I see 15,000- dollar land. I want to say sold. That is easy for me to say because I don't have the connection to the land. I think what you have to realize is that these people paying 15,000, maybe didn't go through the 80s. I did, and saw what happened to the farmer. If you believe as I do that we are trying to get this market back under the cost of production and force out the inefficient producers that are paying 15,000 for the land and my opinion in a couple years you’ll see the land come back at cheaper prices. Now, long term, ten, 20 years now is that 15,000 land going to be 25,000? Probably will. Can't you survive that shake out in a short run in the meantime? As a city guy I would say sell it now, go to Florida for two years, come back and see what you can buy back, may not be the same piece but I think you will get it cheaper. Let's move onto something that's affecting all of us, no because it's happening in the Middle East, in Europe, it's happening in Greece and things like that. How is that affecting our farm dollar? I think the biggest influence is the macro market. Europe is --I still think going to have significant problems, I think China will have growth problems and you have a money relationship and who will have the money to buy the United States debt. There will be a point in the future where interest rate also have to rally or we will have to cut spending, those are hard decision that are going to reflect. Agriculture culture is probably going to be better protected but eventually if we are doing too well and the consumer will hit we will have less --we will to pay more of the freight. The economic standpoint of what's happening in Europe, Greece, Italy, it's a major concern. China said they will try to prop up Greece. Greece is in serious trouble. If that card does fall, that is going to mean Europe and that will mean hurting our prices. Europe is a huge consumer of good from China, running short on money, that affects everybody. What in the end how it affects you is that our rallies aren't likely to be sustained. The market can't seem to find enough buyers above $6.50 in corn, $13 in beans, when the rallies happen have you to be ready.

JOHN’S WORLD: No matter how hard we in the ag media try to jazz it up, farmer interest in the new farm bill is pretty low. Even staunch defenders of direct payments like cotton and rice growers seem to have a resigned indifference. Partly this is due to price levels that make farm payments pretty small potatoes, if you will forgive the metaphor. There is a broader move toward a farm program shaped around beefed up crop insurance, since producers and legislators sense that would be an easier sell to budget hawks and the public in general. The rush to an insurance-based farm bill may face an overlooked obstacle, however. In an unprecedented warning directly to policy proponents like the AFBF and Cotton Council, officials in Brazil announced their intention to challenge such schemes at the WTO. After their win against our cotton program a few years ago, it is not a threat to be taken lightly. Exports have been a bright spot for ag, especially sectors like pork and ethanol. Triggering trade sanctions by writing a market-distorting farm bill is a bad idea just when we are climbing out of recession. In order for farm programs to do what producers seem to want most - protect farm income during down years, it will necessarily be market distorting, regardless of how you try to disguise it. Lower prices are how the market signals growers to adjust production. Remember, the WTO is why we got direct payments in the first place. Let us know what you think.... Send emails to mailbag@usfarmreport.com or call and leave us a voice mail.

2ND HALF:
JOHN’S OPEN:
Hello and welcome to U.S. Farm Report, I'm John Phipps. As you can tell from the mailbag, the controversy of the moment is all about intrusive regulations on agriculture by government. I think it is overblown, but more importantly I think it is a major distraction from the forces that will really shape how we do our work in the future.
Tyne has a story momentarily to illustrate my concern. It's one thing to storm congress to protest a rule you don't like. But what do you do when a major customer issues new standards of product quality or process? Arguing with a customer - especially the really big ones is poor strategy. I suppose we could lobby for congress to regulate them. Let's get the details and the rest of the headlines from Tyne Morgan...

MCDONALD’S PORK: Thanks John. The world's largest fast-food chain is taking a stand on the use of gestation crates in U.S. pork production. McDonald’s announced this week that it will require its U.S. pork suppliers to phase out the use of sow gestation stalls. This move is being applauded by the animal activist group "Humane Society of the United States." In a statement from McDonalds, the company says, "It believes gestation stalls are not a sustainable production system for the future." McDonald’s says it's beginning an assessment with their U.S. suppliers to determine how to reach that goal of zero gestation crates. The company has told its suppliers to provide plans by May. After that, the fast-food chain says it will assess those plans and develop its own timeline.


CHINA VISIT: The vice president of China spent a large portion of his U.S. trip in Iowa this week and the focus was agriculture. Xi Jinping helped launch the first-ever U.S. China agricultural symposium which was held in Des Moines. China is the number one importer of U.S. ag products, taking-in 20-billion dollars’ worth of U.S. meat and grains. China is actually running a large deficit in agricultural trade with the U.S.

AG EXPORTS: Speaking of exports, the U.S. Ag Department tallied-up the final numbers and 2011 ended-up as a record year for exports of agricultural products. Total agricultural exports for the 2011 calendar year hit 136.3 billion dollars. That's 20-billion dollars higher than the previous year.

BEEF EXPORTS: Much of the success in the overall ag export numbers comes from the livestock sector. The U.S. Meat Export Federation says exports of U.S. beef, pork and lamb reached 11.5 billion dollars for the three products combined. As far as dairy, it was also a record. Up 30% on value basis. Rodibaugh says the U.S. beef industry will benefit even further from exports when Japan eventually agrees to accept beef from animals 30-months or younger in age. Right now, they only accept animals 20 months or younger.

SUPERMARKET MEALS: Do you buy prepared meals at your grocery store? As it turns out, they're quite-the-competition for restaurants. The food marketing research firm "Technomic" just released the results of a survey about consumers buying prepared meals at their local grocery store. The research firm says prepared food offerings have evolved to the point that they are viable alternatives to all types of restaurants. The results showed 40% of consumers surveyed found that those meals are "restaurant quality" at better prices.

HEARTLAND HALVERSON: North Dakota farmer Greg Halverson has overcome many obstacles - both personal and professional - to grow his operation into one of the premier farming businesses in the country. The savvy businessman was recently named 2012 Top Producer of the Year by Top Producer Magazine. Clinton Griffiths takes us to Black-Gold Farms. Congrats to Greg and the entire farming family. And congratulations to the other two finalists - Michigan farmer Mike Stamp and Iowa farmer Tim Richter.

MIZZOU GIGGING: Fishermen are a hardy breed. They'll face any kind of weather conditions - at any time of year - to enjoy their hobby. And sometimes it's in the middle of the night. As Kent Faddis tells us in this report from the University of Missouri, some
Families bundle up and head for the water to take part in a tradition that goes back generations. By the way, the gigging season wrapped-up two weeks ago. Still to come - Tractor Tales and our Country Church Salute. Please stay with us.

TRACTOR TALES: Welcome back. Tractor Tales this week takes us to the great southwest. Phil Frandsen of Arizona grew up on this 1947 Farmall A. He says this tractor helps remind him of the good ole' days.

CHURCH SALUTE: And now to our Country Church Salute which takes us to Fort Defiance, Virginia. The Augusta Stone Presbyterian Church was established in 1740. THE founders of the church were the Ulster-scots of Ireland. They came to these shores seeking both religious and civil freedom. Many of the current members of "Old Stone" are descendants of the founders. Church member Shirley Moran says the congregation works hard to continue the legacy and mission of the church. Thanks for sharing the story. 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....One of our younger viewers, Alex Bernemann,. Objects to my stand on safety regulations on farms
"I am fifteen and have been working on a north Iowa dairy farm for almost a year with no problems whatsoever yet. The regulations... Would ban kids under 16 from handling chemicals, animals, or machinery. Where does that leave the future of farming?" Thanks for responding Alex. My short answer is there is no evidence that allowing children to work in higher risk farm tasks has any effect at all on recruitment for our profession. To begin with, there is an availability error at work here. Many people look at the demographics of agriculture, notice the average age and wring their hands at the lack of younger farmers. The reason, however, is not a shortage of young people wanting a farm career, but a lack of openings. We have young people stacked up behind every working farmer waiting for their chance. We just don't see them because they are in other industries now. While I am happy you have been able to avoid injury, we should balance your story against the 100 plus children every year who will never tell theirs. I think they should have had the same chance you look forward to. Finally, the skills farmers will require will clearly be different in the future, so I hope you are studying physics, finance, communications, psychology, and economics in addition to doing your job. 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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