USFR Weekly Recap - October 1-2, 2011

October 3, 2011 09:14 AM

OCTOBER 1-2, 2011

JOHN’S OPEN: Hello and welcome to U.S. Farm Report, I'm John Phipps. A cold wind blew through Chicago this week, at least on Lasalle Street and the grain markets. The Friday stocks report which found more bushels of corn didn't help much either. Farmers who have wondered what might happen if all the outside money decided to leave may have gotten a glimpse of the answer. Certainly the fundamentals are still not showing an oversupply, but demand rationing is clearly taking place. Our market experts will certainly have more on this in a moment, but to me it looks like a significant opportunity for grain users to snap up some bargains at the expense of nervous commodity traders. Time now for the's Al Pell.

FARM BILL ASA: Thank you John. Facing the pressure of a cost-cutting congress, a variety of ideas on how to best-write the next farm bill are rolling into Washington. The American Soybean Association released its proposal this week. ASA calls it the "Risk Management for America's Farmers" program, or "RMAF." ASA president Alan Kemper - who farms in Indiana - says their proposal is commodity-specific with revenue and yield benchmarks for individual farmers. Those benchmarks are based on historical yields and prices and not based on yields found at county, district or state levels. ASA says their proposal would cost significantly less than the existing "acre", "sure" and "direct payment" programs.

ILLINOIS HARVEST: The national corn-growers association unveiled its plan two weeks ago. It would modify and replace the existing "acre" program. It also replaces the existing direct payment programs. Last week, I was in Auburn, Illinois at the Garry Niemeyer farm where harvest is in high gear. Effective this weekend, Niemeyer is the new president of NCGA. We discussed his new role and the importance of shepherding the next farm bill. In case you're wondering...Niemeyer is quite pleased with his yields so far, considering the growing season they faced in central Illinois.

ARKANSAS RICE: Rice harvest is more than half-way done. Most of the nation's rice is grown in Arkansas. During an average year, they plant about 300,000 acres. We talked to growers in Cross County, Arkansas. They said rice yields this year will be average at best. In most cases, yields are down 25%. McGee says the soybean crop looks better than rice. He says his soy crop will be decent, but not a record.

CROP WATCH: In Barber County, Kansas, a grower says wheat drilling has barely started. He says conventional tillers and no-tillers alike are both facing the fact that there is no subsoil moisture to carry the crop into winter months. A producer in Walsh County, North Dakota says some nice weather moved-in this week, which made for some beautiful harvest days. He says his wheat lost some test weight, but moisture levels are down. He's looking at 45 to 50 bushels an acre. In Jefferson County, Georgia, the "FSA" office says recent showers benefitted the entire county. Cattlemen were scrambling to plant some winter grazing crops for their hungry herds. And peanut growers say the moistures helps make peanut digging easier.

ROUND TABLE: Our round table guests Bob Utterback and Mike Florez. Gentlemen, Friday’s report was really a report, give us a quick summary, what happened? The report came in 166 million more than trade expectations and the market was already fragile, it was drug down by beans. Wheat was okay but was drug down by corn. The market was in free fall. In the last 23 days we have taken corn from $7.77 to $6.92 I think was the low today. We have now --pretty much wiped out the last six months and the bull’s heads are ringing, the cash flow is hurt. The farmers are in the middle of harvest. Seems like it's a surprise, I don't think anybody thought it would go this low. When you get into the number itself looks like the USDA over estimated last year's crop, ethanol and they played with the feed uses but this report’s back in the balance. Now you have the October report next week in two weeks as well. Seven trading days. The market will be close that Monday. The bears --then taking money goes sideline and wait for the report. Don't know what will happen. You hang on, I will talk to this man. You are a technical trader. Did you see this coming? No. I didn't catch the down. The markets --this past summer, this is the 4th one. Every time he’s on the show we have a crash. It does tend to come back. Liquidation is at a point where --about as low as it gets, over the past summer. I would say that most of the selling is probably behind us. You can't count on it and i don't think the market is as negative as it appears to be at the close of this Friday. I was going to call you a positive trader. Bob has been on the bear side. How can you --how can what you look at in terms of technical, say what you are saying, there will be feeling there. The funds have been the big pusher up also. They buy a lot and they --the market goes up, they sell a lot and it comes down. When they sell a lot they get to a level about --100,000 contracts and that's about as much as they tear back the positions. That's about where they are at now. They are probably not going to pare back much. On the one side probably a bulk of the celling behind us. Does that mean the market will take off to the upside? No not necessarily. I just don't think you have the big liquidation. It's behind. We talk about black swan, looks like we had two. Was it --six weeks ago or less we started having trouble in Europe and that's still not really settled yet and we blamed all the problems on the funds Bob and what was happening in Europe, it was the prices and --with little about our yield and what we were going to have as supply. Now we are talking about supply. The report --Friday wasn't really a pessimistic as the 40%. We start looking at the carry over. Progress --i was a bear and was kind of yelled at. The producer, he can buy corn almost at the cost of production. Why buy the land when you can buy it at the cost production. Either it has to come down or i think the feed buyer should start getting prepared to buy a buyer over the next two to three weeks. All end users will be in that situation. That's what you are talking about. When we come back I will talk about when the guys will stop planting corn and plant something else when we return with more in just a moment. Our guest today, Bob Utterback and Mike Florez, I told Bob I will go right to you and -- when will producers get their pencils together on determining how much they can afford to plant next year? Already two things, its cash rents we have been hearing this before the break were very high, bids coming in by landlords, cash rents and fertilizer prices have to come down now because the cost production for a lot is going to be in the $5.25 production. Either the cash rents have to come down or --they are seeing a lot of corn after corn. I see a lot of guys wanting to go to 1-4, 1-5 rotation. Those years where the rows indicate they will see a positive bounce. Yeah, 40, 50, bushels sometimes. We are heading the direction where guys are not going to change their mixes because of the rotation and we are not going to buy acres like we thought we could in April and May. So that spread between corn and beans could get blown up but I don't think you can take corn too much below $5.50 and get 94 million acres next year. Let's go --does what he is saying make sense? You said off camera you thought we were probably going to be in the five dollar range. I think --I think we will be at a higher range but we -- really since around April, May, we have had this big drop in the market. You know --$1.50 swings back and forth. To me, that is just the markets just --rejected 7-8-dollar corn. But also 6-dollar corn. It's trying to find a space. I think this is a multiyear bull market. Even when we come down like we have we are still making higher loads. We never go as well as we did before and then we go make new highs. We are still in the pattern. I think six months from now we will be in another up trend. Huge demand, you can make a lot of money, livestock prices at all-time highs here, exports pick up as prices come down. The use for corn is not going away, it's just increasing, we have a small storage and i don't see --borrowing that -- any long term downside. If livestock price is higher it's positive for livestock. And especially the chicken people are expert buyers, like I have heard from a good trend, east coast the high corn prices, this summer caused the wheat --the chicken producers to get wheat. We are getting wheat from Russia. We are getting --high price, best year for high price prices is high prices. When corn gets back to eight dollars again which I think will happen --here is the problem --the Black Sea area increase in wheat production, China want in the feed supply and I think they will rely on wheat. We have to watch it. Wheat will be the biggest competition for corn because of all the global wheat supplies. Overall I don't see the market below five, wheat can't compete above 7. Every year in the middle of the harvest we look to harvests go down. When that happens our international buyers look to the United States. China and the other countries that need the products will they be buying as much at these low prices. They did last time. They bought a lot of corn this summer on the last break we had, I would think that would show up again. I haven't heard they bought anything, that's usually what happens though. So --yeah, demand shows up at lower prices. China, there is a lot of stories, China will be up between four to five million metric tons above expectations. I think over the next three weeks you will hear a lot of unknown sales and a lot of it will be back to China. A lot will come out of Argentina. Yes, it's going to happen. That is what will lead us out of the bottom and the bin door is shutting. Farmers at this point if you have grain in the bin unsold you have to focus on putting it in the bin and forget about it. You know --now is not the time to panic and sell everything. Thank you, both of you for being here. We will be back with more in just a moment.

JOHN’S WORLD: Increasingly sophisticated technology has created some problems for common sense. Simple, easy to grasp solutions to problems of all kinds frequently the wrong results. Partly this is due to a world where the high-speed interlinkage brings far more forces into play than we can see. But I think it is mostly due to a reluctance on our part to do the hard work necessary to truly understand the causes of complex problems facing us. One of these is the idea of food miles - how food is transported from producer to consumer. Common sense would tell us nearby producers can provide food much more efficiently. But in several studies, this seemingly obvious truth is anything but. For example, it is more efficient for consumers in Britain to eat lamb from New Zealand than from their own country. This is mostly due to the methods of raising lamb, and the amazing energy efficiency of ocean transport. This is what economists call comparative advantage. It's why cars are assembled in Mexico, and why we can deliver corn to interior China cheaper than Chinese farmers. If markets are allowed to fully price in all costs, food miles are indicated in the price. That said, Jan and I are big fans of our local farmer's market. But the advantages there are freshness and flavor, not a lower carbon footprint. And as someone who works to make products for consumers around the globe, rather than counting food-miles, I support more inclusive energy pricing. Let us know what you think.... Send emails to or call and leave us a voice mail.

Hello and welcome to U.S. Farm Report, I'm John Phipps. I've noticed in the last few years how increased concentration of Ag production localizes the impact of bad events. This week the cantaloupe contamination problem has devastated one Colorado community where production is a big industry. Remember also the pumpkin pie famine of recent years where most of the pumpkins for the U.S. are grown in one small area of Illinois. For all the efficiency of centralized production, the risk of huge losses due to a localized quirk of weather or disease is considerable. I don't know whether this risk is worth worrying about, but I suspect spot shortages will complicate our lives again in the future as well. Let's get started with the headlines and Al Pell...

CANTALOUPE LISTERIOSIS: Thank you John. An outbreak of listeria - associated with cantaloupe - is now considered the deadliest food outbreak in the United States in a decade. And federal health official say it's not over yet. The head of the centers for disease control says the outbreak has caused 16 deaths and at least 72 illness in 18 states. The cantaloupe came from Jensen Farms in southeast Colorado. The CDC says the company shipped out more than 300,000 crates which contain anywhere from five to 15 melons. The last shipment was on September 20th. The FDA says this is the first known case of listeria in cantaloupe. It's more common in un-pasteurized milk and cheese.

VEGAN LAWSUIT: A vegan group is suing a group of dairy organizations, saying that organized dairy-herd buyouts are nothing more than price fixing. At issue is the "Cooperatives Working Together" program which is run by the National Milk Producers Federation. Their herd buy-outs took 500,000 dairy cows out of production. The activist group - called Compassion Over Killing - filed a class action lawsuit this week. The suit alleges that cow-culling unfairly allowed dairy farmers to earn more than nine billion dollars in additional revenue. The complaint also alleges CWT targeted smaller farmers to cull their herds, and allows "agribusiness giants" to unfairly increase profits.

FOOD PRICE: Food prices will continue to rise next year, but not as fast as this year. That's according to the latest data from the ag department. USDA's economic research service says there's "mixed news" when it comes to next year's food prices. The bad news for consumers - store prices will go up. In 2011, the consumer price index showed grocery store prices up 3.5-4.5%. Next year, the increase won't be as steep. And Volpe says those historically normal rates-of-increase are between 3-4%. Volpe says ERS is watching the meats section, which led the charge among food categories. He also expects bread and cereal prices will rise more than had been expected.

HEARTLAND LUCERO OIL: American agriculture comes in all shapes in sizes...especially in a state as versatile as California. It's there that you'll find a 4th generation farm that can thank a tiny fruit for its success. Clinton Griffiths takes us there...Lucero's is routinely honored by the industry. So far Dewey's Oil has taken in 120 statewide and international awards since 2005.

DAIRY APPRENTICE: As most young graduates eventually learn, it’s hard to find a job without real world experience. Which is why internships are so valuable. The same is true for licensed cheese makers in Wisconsin--lots of coursework plus an apprenticeship. In this report from the Wisconsin Dairy News, we learn how one family is taking on interns and helping train the next generation of cheese makers. Also, in Wisconsin, the World Dairy Expo gets underway in Madison this week. Our partners at Dairy Today will have complete on-line coverage through-out the week. When we come back, it's time for Tractor tales and our Country Church Salute...please stay with us.

TRACTOR TALES: Al, I know you're celebrating your birthday next week, so happy birthday to you. And today's Tractor Tales celebrates an anniversary as well. Thanks John. You're right. Beck's Hybrid Seeds in Atlanta, Indiana is celebrating its 75th anniversary this year. Beck's is a regional seed company serving Indiana, Illinois, Kentucky, Ohio and parts of Michigan. Last month, the company hosted its annual "Beck-nology Days". During the event company president Sonny Beck was presented with some aging iron, a gift from his children. The Farmall F-20 brought-back some memories. We talked with sonny and his son, Scott. Also on Tractor Tales this week, we have some sad news to report. Collector mark Upaw of Belle Plaines, Iowa was paralyzed after he was struck by a tree limb earlier this spring. We featured Mark on Tractor Tales in July 2008. He loves his 1940 Allis-Chalmers W.C. The family hosted a fundraiser this past week to help with the expenses related to mark's accident. They will have another event on the 19th of November. We'll post a link on our home page for more information.

CHURCH SALUTE: And now to today's country church salute. First off, we'd like to say hello to Bethlehem Lutheran in Pemberville, Ohio. This year the church is marking 150 years of ministry. In 1861, 25 families gathered and formed the church. Services were conducted in German and they continued until 1954. The present church was built using Ohio limestone. It was dedicated in 1909. The present pastor is reverend Matthew Musteric. Our thanks to Renee Farmer for sharing the history. Our second church is Trinity Lutheran of Walthill, Nebraska. The congregation is celebrating 75 years. It was organized in 1936 as a member of the Missouri Synod Lutheran Church under the helm of Reverend E. Norden. In 1942, Reverand J.G. Werner filled the position. He retired in 1985 after 43 years in the ministry. Pastor Brian Tolzman is the current pastor. 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....Bud Palin from Gaylord, Michigan has a query about farm subsidies: "I really appreciate your editorial comments and would like to hear your thoughts concerning the expense and 'value received' from farm subsidies." Bud, I have commented several times on subsidies, but your question is timely. The answer depends on your perspective. As a grain farmer, farm subsidies are a no-brainer. Especially now, when I can send Aaron down to the FSA office to do the paperwork. I get about $23 dollars per acre for having a temperature of about 98 degrees and not doing totally stupid things to my farm, such as plowing up fragile soils. For the rest of America, and coincidentally most other farmers, the picture is reversed. To be sure, the cost is trivial - a few cents per person per day - but multiplied over millions of taxpayers it amounts to billions. What they get in return is somewhat vague. Farm program payments no longer have much effect of what or how much is produced, and despite efforts to link them there is no evidence subsidized crops are safer or more abundant. Economists are hard pressed to find any evidence they have much effect on food prices either. The bottom line for me is a perfect scam for my profession - a legal skimming of tax revenues in exchange for doing what I would do anyway. Despite this, I am amused to watch even avid budget hawks like Senator Rand Paul knuckle under to the Ag lobby. As always, we want to hear from you, send comments to or leave us a voice mail at 800-792-4329.

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