THIS WEEK ON U.S. FARM REPORT
NOVEMBER 12-13, 2011
JOHN’S OPEN: Hello and welcome to U.S. Farm Report, I'm John Phipps. It's not like NASS - the National Agricultural Statistics Service - has had a fun year to date. Virtually every major commodity report issued from their office has provoked a skeptical reception from the industry. Now budget cuts have prompted them to stop producing several reports altogether. While it remains to be seen whether these cuts really come to pass, it only adds to the dissatisfaction with NASS’s performance in the ag community. We have only ourselves to blame, however, as agencies like NASS scrupulously do only what the pertinent laws stipulate. The world, however, often moves faster than congressional script writers. Time now for the news with Al Pell.
PRODUCTION REPORTS: Thank you John. Production figures in the major crops were all reduced in USDA's November ninth report. And those numbers dipped below average trade expectations. USDA says the corn crop is forecast at 12.3 billion bushels, down 1% from the October forecast. Yields are down nearly a bushel and a half from October. The national average yield is six bushels lower than last year. The soybean crop is down slightly from October. The ag department lowered average yield by two-tenths of a bushel to 41.3. That pegs production at just over three billion bushels.
SUPPLY DEMAND: The USDA also made adjustments to carry over. For corn, it's projecting year ending stocks at 843 million bushels. That's down more than 20 million bushels from its October forecast.
GIPSA: In other news out of Washington, it looks like pieces of USDA's GIPSA rule are headed for the office of management and budget, although without some of its most controversial parts. Industry reports says the rule has been split three ways and what's left will have little impact on beef or hog producers. Poultry however may see changes, to things like the suspension of delivery birds, breach of contract and capital invest criteria. Missing are the pieces of the rule prohibiting packer to packer sales, and record requirements.
CROP WATCH: Crop watch this week...In southwest Oklahoma, a tornado touched down near the town of Tipton on Monday. This may look like an empty lot, but Oklahoma State University had an extension office here. It's now gone. A grower in Henry County, Ohio says he should just throw the 2011 calendar out the window. Beans planted on June 7th yielded 77 bushels to the acre. But beans planted in May yielded 30. And the corn planted in June is 50 to 70 bushels better than the May corn. And Christmas tree harvest is underway in Washington State. The "NASS" report shows growers in Thurston County are finding nearly ideal conditions for the harvest. And in Whatcom County, growers are tagging trees for export.
ROUND TABLE: Round table guests this week, we have Tom Grisafi and Mark Gold. Tom to you, how did the market wind up today? It's your first time over here I will give you a right chance. It didn't end up well for me. I trade grain markets off the outside markets and the outside market has a wonderful day where the stocks were up, they were still up when we came down here. Crude up, the dollar was really weak. Everything green on the board but for what I decided to buy and that was corn. Corn closed down seven, beans were up seven and wheat rallied toward the end but closed down three. Grain just didn't want to participate in the outside market. They don't have to. Sometimes they do, sometimes they don't. As we talked before the show that didn't work today. The outside markets you find it true? You know we have seen the markets following all the developments in Greece and Italy, that has an effect on the market early on. The most important thing was the report. They had lower corn production. Knocked the yields down but also feed use by 100 million- bushels, putting the carry out over 100 million. That was a surprise for the market. We moved away from that kind of $6.50 midpoint we had been at and started to close significantly under that. That's not a healthy sign for the market. Beans took it on the chin. The demand is the big fear issue out there coupled with the problems in Europe. You say demand is a big fear issue. Nobody knows. We are concerned we aren't seeing the China exports, into China over soybean. They aren't buying as much. They are slowing down and we are seeing problems, certainly if Greece and Italy fall and we have more problems in the European Union that will be a real knock for our demand for grains around the world. It's one world pot when it comes to grain. If the Europeans aren't buying Australian or German or whatever they can get chances are they aren't buying ours either. It's all playing into one big pot and that pot is the demand pot and that looks like it's lower. Hear you talking supply and demand. Talking about grain, about use and that kind of thing. I know you, you are taking account what happens to the outside. We probably should point out you are a speculator and don't represent other people in this but yourself. Yes. I fund my own account. Trade my own account and when I have an idea I put the trade on and seems like more times than not --by the end of the year it usually works and the opportunity for a speculator have never been so great. It's just a very confusing time. Thing you would be concerned about and I'm thinking, know you are --what goes on in Europe? You are interested in other places, maybe not related to grain, dollars and metals and things. I look at the grain market on a 24 hour level and look at my big thing in grain --we should have demand. We just crossed a --7 billion mark more people and who knows how many pigs are out there. We need to feed them and with crude at $99 and gold close to $1,800 again, I just don't see grain tapering off to much but they can. They can break away from the outside and that's how people lose a lot of money. They watch the outside and say grains can't go down and when you think something can't do it usually does. Are you kind of smiling. Never tell me what a market can't do. A market will do whatever it wants. One of my fears is that I just got back from the American Bankers Conference and they are saying the same thing, we are hearing from around the country and they are holding a lot grain. They have sold a lot and will protect it but they are seeing their neighbors holding it, storing it, a lot of the guys figure we haven't done the marketing for two years and it's paid off. Now they don't want to do this year. In any case two out of ten years not being a marketer may pay off. In the other eight out of ten years we feel you can do a lot better by being a consistent marketer. With the farmer holding much grain, they normally sell in the bottom third. That's a problem. When we come back I want to get into what some of the producers do in order to make a profit. I'm profit focused though I don't make it that often. We will be back with more in just a moment. Our guests, Tom and Mark, I have a question --I will ask you both. What are two key things that we need to watch to determine what is going to happen to the grain markets for 2012? The demand side is number one. We know the crop side, for the most part. There are plenty of professionals out there. We both know a Scott's man that's a good trader, thinks it's a little lower and I don't doubt we may see them come down more. The fact of the matter is without the demand the numbers can be lower. Six and a half dollar corn, $6.30 corn isn't cheap and with it being held with the high input prices of crude almost a hundred dollars, land prices, cash rent, farmers can't afford to be raising corn with all the inputs, and sell the crop at 3 and a half dollars.
Demand is number one and there is just too much grain in the farmer's hands in my opinion. They have to shake it out. One way or the other. What are the two things you will watch because you are watching some of the same things. Touching that --2012, one of the things on the market was that 2012 corn traded lower than the down 17-cents. I want to say 12 crop --that's not as good as the prices we are talking for this month’s corn. Into next year the farmer next to me they are optimistic but as we talk about the high input cost we know the feed cost goes up, the fertilizer cost, a higher energy cost. They have to run the numbers again and make sure the profitability is still there. I don't think --three dollar corn is coming back but five dollar corn may not be as profitable as they think so they need to run the numbers and make sure with the input costs the profit will be there. Are you both kind of talking about maybe we won't have this seven, eight dollar corn next year. You know one of the things we have to talk about today is --the global situation. How that may affect the American farmer. With all that speculative money frozen or out of the market and the funds being pulled in by some of the French banks lending, what we have seen is you have to feed it every day. Without some of the speculative money it'll be harder to sustain any kind of rally without a lot of the speculators buying. The other point is that yes, a farm can do something in my opinion that was criminal but you can't stop using the markets because of one bad apple. It's like the guy who is delivered grain to the elevator and went bankrupt, does that mean stop selling or being a farmer? No you have to find a good firm. All the firms – you have to know who you are dealing with and I think it's critical that you don't give up on using the markets because they have been around for 150 years. We had one bad apple. I guess I need to know--we only have a minute, what a producer should be doing now and I'm concerned about next year and maybe that grain in the bin. You know there is a lot. No secret the farmer has been building more storage and taking their profit and building storage and it's a great thing to do. One of the things in my career I have switched to options and I find it difficult not to trade the options and you can go to bed knowing what you can lose and that's that. Option trading you put the money there and it's there. If you buy a premium, you can also lose if you sell premium. I like that when I think the market is going down I buy puts and when I have that speculative bug that it’s going up I will be a call buyer again and where we are right now we are in limbo and --MF Global has changed the game. I will say we should take advantage of the high basis. What do you say? It's a gift. One of the things that farmers are saying is the basis is high because the grain isn't out there. It's high because there is no incentive for the cell evacuator to store. They are moving it out. It's a great opportunity. We will be back with more in just a moment.
JOHN’S WORLD: This weekend was marked by a numerically curious Veterans Day observance. Unfortunately its origins are almost completely lost to living memory along with the horror of the war it marks: the Great War - or World War I for Americans. It was the first time humanity had experienced what historians call total war. As a veteran, I often wonder what the armistice meant to the lucky few participants remaining on the eleventh hour of the eleventh day the eleventh month of 1918, but I am sure it is beyond my imagining. This Veterans Day, the appropriate solemnity should be leavened, I think, with some comforting news. According to meticulous research by the center for systemic peace, humankind is continuing a decades-long retreat from armed hostilities. Since the mid-nineties, both civil and international conflict has diminished steadily. It now is comparable to the level of the sixties, and far below its peak. Given the wide media coverage of conflict, it would be easy to assume war is more popular than ever. And in fairness, perhaps it is this exposure that helps to end conflict. But just as the Iraq war ended with little fanfare a few weeks ago, wars today seem to begin with a bang and end with a whimper. I was heartened by the information. Perhaps we are just moving our conflicts to economic or cultural arenas, but regardless, laying down arms in favor of words or finance is a step forward. I cannot help but think those Great War Veterans would wonder what took us so long.
JOHN’S OPEN: Hello and welcome to U.S. Farm Report, I'm John Phipps. Thanks to what is now typical journalism, a Check-off program to help promote fresh Christmas trees falls victim to populist tax aversion rhetoric. Al will have the details in a moment, but the outcome of this flap may have some implications for other commodity organizations, such as corn, dairy and soybeans. It is fair to argue that Check-off programs don't provide value for the money, but I will leave that defense to program backers. One thing is clear, and that is every effort should be made now to differentiate Check-offs from actual taxes. The easiest way is the one I have advocated for years: make it fully refundable. Let's get started with the headlines and Al Pell...
DOWNER CATTLE: Good morning John. It appears the U.S. Supreme Court will block a California law that would require meatpackers to immediately euthanize livestock that cannot walk to slaughter. In 2009, California voters approved a law that bars the purchase, sale and butchering animals that can't walk. In response, the National Meat Association filed suit saying the state law would violate a federal statute that sets national standards for meat safety. A federal judge agreed, but it was overturned by a federal appeals court. Now, it'll be up to the Supreme Court. The federal standards give USDA approved inspectors the final word on what to do about "non-ambulatory" livestock.
PECAN PRICES: If you plan on pecan pie for the holidays, you may be paying more this year. The tree nuts are in tight supply because of drought in the southern states. There's also been a jump in demand from Chinese consumers. Pecan prices are expected to hit 11-dollars a pound in supermarkets, up 22% from a year ago. According to USDA data, Georgia, Texas and New Mexico are the top three pecan producers.
CHRISTMAS TREE CHECKOFF: The agriculture department is backing-off on its plan to implement a "check-off" program for real Christmas trees. That decision came after the story went "viral" on the internet about a Christmas tax. Earlier this week the USDA said it would mandate a 15-cent tax on trees to help pay for promoting the industry. The money will go to a new Christmas tree promotion board--much like a check off program that we see in dairy, pork and beef industries. The 15 cent per tree tax was only for the big guys, producers or importers of fresh trees that sell or import more than 500 a year. Now after outside criticism, and despite grower support--the USDA says it will delay implementation of the tax and revisit the action later.
HEARTLAND ELK RUTTING: Fall is in the air. And at Rocky Mountain National Park, you can hear the rutting calls of elk echoing off canyon walls. September through October is mating season. Anne Herbst from the Denver Post gives us a look at love from these horned-giants. According to the Rocky Mountain Elk Foundation, Colorado is home to the largest elk herd in the nation...an estimated 300,000 head.
WATER RESTRICTIONS: While the lack of grazing has been a key driver is the Texas beef-herd liquidation, it now appears the lack of water is the next critical issue for producers. More than 90% of Texas is under a extreme or exceptional drought. Nearly a thousand public water systems have imposed restrictions on water use. That means ranchers cannot haul water from city systems to fill their stock tanks. During a Texas Senate Committee meeting last week, officials said there are dozens of municipal water systems in Texas that are within six months of drying-up.
TEXAS WATER RESEARCH: Managing water resources is becoming an extremely important strategy on farms and ranches across the nation. To that end, the Texas Alliance for Water Conservation is on the job - looking for ways to help producers maximize profits while minimizing the need for irrigation. Regional reporter Erica Goss has our story. To learn more about these resources, head online. We'll post a link on our home page for easy access. Tractor tales and our country church salute are next. Please stay with us.
TRACTOR TALES: Al rejoins us for tractor tales. Where we headed this week? John, we're off to the lone-star state. There's an old slogan ""Power when you want it - power when you need it. That's the power you'll find in an Oliver row crop 70." And the slogan still fits. During the 1930's and 40's, the Oliver row crop 70 was among the world’s finest and best performing farm machines of the world. They are indeed a beautiful stream-lined machine.
CHURCH SALUTE: And now to today's country church salute. It begins in Oxford Junction, Iowa at Saint Mark's Lutheran Church. It was started by a small group of Lutheran pioneers from Ohio who re-settled in eastern Iowa. The church was organized in December of 1861 with 32 charter members. The same building is still used today under the leadership of Reverend Keith Larson. Our thanks to Marlene Flory for sharing the news. By the way, Marlene is Chip Flory's mother - he's the editor of our "Pro-Farmer" newsletter and host for "Outdoors on the Farm" segments. And our second salute goes to Rock Springs United Methodist Church of Kingsport, Tennessee. It was organized in 1861. The founding members met for worship for several years in an old log school house. The first church building was built in 1886. Unfortunately it was destroyed by fire in 1905. Their present church was built in 1944. Church member R. Edward Cleek says fourth and fifth generations still attend services there. Congratulations on your 150 years of ministry in Kingsport, Tennessee. 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....Karen Collins is a frustrated hay buyer: "Tell me why the growers are exporting all our hay while we can't find any in the U.S. to feed our own stock. When are we gonna start taking care of our own country first?" Karen, virtually no hay is exported from anywhere other than the seven westernmost hay-producing states. In that market only about 4% is exported. Much of the problem stems from the historic drought in the southern plains. The effect is a double whammy: not only have pastures literally been made barren, raising the demand for hay, hay production in those areas is likewise devastated. This creates an expanding demand for hay that reaches all the way to the northern borders. But hay is not nutrient dense like grain and hence transportation looms as a huge relative cost. This is why hay markets are very localized. Meanwhile record prices for corn and soy have producers tearing up hay fields for those higher profits. Our major export customers are Japan, China, and other far eastern buyers. Some small sales have been made to the Mideast. Thanks to a huge shipping imbalance, it costs more to move hay from the Imperial Valley to the San Joaquin Valley than to China. The weak dollar grain producers love makes our hay exports a bargain as well. The bottom line: hay is expensive because of supply and demand, not exports. Curtailing them would have little effect.