USFR Weekly Recap - October 15-16, 2011

October 18, 2011 09:01 AM
 

THIS WEEK ON U.S. FARM REPORT
EPISODE #1992
OCTOBER 15-16, 2011

JOHN’S OPEN: Hello and welcome to U.S. Farm Report, I'm John Phipps. If there is one thing our low-rated congress has demonstrated a clear talent for, it is obstructionism. In the past few years legislators have made gumming up the works a top goal. This may seem like a good thing if you believe gridlock prevents more problems, but we've reached a point where the basic functions of government barely work. So it is we should celebrate when even widely popular legislation manages to be approved. Al will fill us in on some long awaited trade agreements that fit this category. It may take a little longer, but I’m betting America will realize a frozen government in a rapidly changing world is a bad combination. Time now for the headlines.....here's Al Pell.

FTA PASSES CONGRESS: Thank you John. President Obama says congressional passage of free-trade agreements is a big win for American businesses, like agriculture. The house - quickly followed by the senate - approved free trade agreements with South Korea, Panama and Colombia. The trade deals open new markets for the U.S. by boosting exports. The FTA’S will eventually lower or eliminate tariffs that American exporters face in all three countries. Major Ag groups say the FTA's will level the playing field against competing nations, which have been gaining market share, like in Colombia.

USDA REPORTS: USDA slightly lowered its projections for the 2011 corn and soybean crops in this country. Corn production is forecast at 12.4 billion bushels, down 1% from the September forecast. The national average yield is pegged at 148 bushels an acre, unchanged from last month. Soybean production is also revised downward 1% to just over three billion bushels. Average yields are placed at 41.5 bushels an acre. That's down a third of a bushel from last month.

SUPPLY DEMAND: In its monthly supply-demand report, USDA lifted its estimates for domestic corn inventories at the close of the current crop year. U.S. corn production was lowered 64 million bushels from last month, but carry-in from the 2010 crop was boosted 208 million bushels, based on the September first stocks estimate. So total supplies for the 2011-12 crop year rose 144 million bushels. USDA also made a cut on the demand side, lowering exports by 50 million bushel.

CROP WATCH: In crop watch this week we received this photograph from the Texas Agri Life Extension. That piece of ground is supposed to be a pasture. One export said there is not even stubble field. In east central Pennsylvania a crop reporter said combines are out in full force north of Harrisburg. Corn yields are off 30 to 50%. In Florida peanut growers are at various stages, in Holmes peanut digs was slow because of lack of moisture. In Columbia, it was delayed due to much rain.

ROUNDTABLE: Our round table guests, this week we have Brian Basting, and a new member, Darren Frye from Water Street Solutions from Illinois and first I will go to you because I know you were looking at markets and making markets report on the radio for just a little while ago. What happened today?
Just another day of chopping us out. Looks like the markets started out firm, particularly in soybeans, backed off during the sessions by the end beans were higher, double digit gains again. Corn started out choppy, bit of a gain and then sold off and by the end of the day was higher. I think there is a lot of indecision, we are seeing mixed yields, really good yields and yields that are disappointing. I think the market is struggling. We had a good export sales number for corn especially and of course this week we made sales to China. Just that choppiness continues now particularly with the supply demand report behind us.
Another thing was that supply demand report. I will go to you, and see how you can say what you can say about that report that comes out this week.
I think it gave the bulls and the bears something. Both sides.
Both sides. The bulls were looking for a reduction in yield and they got that in soybeans but they got it unchanged in corn. Obviously they got a reduction in acres they were looking for. The bears also got larger inventories in corn and wheat due to reduction in wheat. It looks like both got what they were looking for but the market has been higher since Wednesday’s report.
Was it -- you think it may be a positive.
I think we were probably over priced at $7.70 but we didn't need to be at $5.72 a week and a half ago. I think what they have to figure out is will the yield get lower and my gut feeling maybe the USDA will have to lower that. Wouldn't be surprising if the government has further reduced both corn and bean yields.
You are nodding your head. Does that mean you agree?
It's changing. I think that what the trend is the further north you get, southern Wisconsin the yield will be really good. I think the later harvested corn south of I-80 is disappointing in some cases particularly corn. It's all over the board for corn. We may see that creep up but I think the corn it's tough to tell.
I talk to people and get same thing that people say it's not as good as I thought but better than it could have be. I don't know what that means because you don't know what they were talking about. The 200-bushels or 250 or is it 180. How do you explain that?
It's what we all read. My question back to anybody that was writing that was you it's better than the farmer expected and that's a pleasant surprise but how does it compare to last year and what his five-year average was. I think that you know some of the earliest planted crops get on the best dirt, the best drain dirt, maybe the best hybrids, at least the hot hybrids and that's what we harvest first. I would not be surprised to see the second half of corn harvest tail off as far as yields per acre and wouldn't be surprised to see the beans follow suit. We have quite a few clients in northern Iowa, Minnesota area and those beans have been hurt by this freeze. Not many people talk about that but i really believe that the bean yield will get worse.
It’s going to be colder weather so maybe they should be done growing. Yeah. I think at this point we want to get the beans out of the field now and be done with that and move on and get to the corn. We have been blessed with great weather first half of October. Great progress down on bean harvest. Want to wrap that up and get done with corn.
Last year we were wrapping up.

We were. Great harvest pace last year.
And we had great yield to. No question about that. When we come back in the next segment I want to talk about what a producer needs to start thinking about for maybe next year, maybe 2013 and how it can use my profit he may or she may have made this year in order to do a better job. You agree to that? Think about that. We will be back with more in just a moment.
I will start with you and the thing I guess I want to ask you first is what is the number one thing that you think that a producer, I'm talking about a grain producer needs to do now in order to guarantee the rest of his good crop potential he has this year and the next year and the year after.
For ‘11 I think we will have opportunities to rally corn back up at least to the $6.80 area and maybe into the 7's again. Depends on china. We are coming to the end of a mature bull market. Unless we have a problem in Brazil or something I believe we have had a good run since August of 2010. So a guy has to look at how you get stuff pulled at these levels in ‘12, ‘13, how you get yourself protected. On the bean side we have spent a lot of time trades and we will get back up probably the under edge of that and between ‘12 and ‘13 is a great area to get a lot more sales offers. That's a great place and then again how are we going to hedge ‘12 and ‘13?
You said you think we are at the end of the bull spread.
I think not today in October but I think by the time we plant, February, march, if things go well in the spring season and we get the acres and have good weather we could see corn prices back in the mid40s by fall or lower.
A lot of producers after we had the high prices and they started going down they have been filling their granaries, they aren't marketing at the local elevator. What will they do with that if they haven't sold?
Critical point al is that every bushel in storage has to have downside price protection now. You know exactly what you have harvested, you know it's safely in the bin. Every one of those must have downside protection. There are a lot of different tools you can use, you can use the put option to provide protection, you can use a forward sale and a purchase of a coal option, at this point if that crop is in the bin and has no downside protection, will a lot of risk that something could come out of the blue and the market could go south. We saw it in 2008, just three years ago, great weakness in the market. Encourage that crop is in the bin, that does have some form of price protection in place.
You don't want to --there is something --that's what you said we look like we --the price could come down. What I'm having to do is try to figure out what the producers need to do. You say get protected.
I would disagree with what Brian said but there are other ways of doing it besides put protection. You could sell it and buy a spread or do a basis contract. Then you better have it either protected with puts, otherwise your long futures. You have to be careful up here. I think we are at the upper end of the range between here and eight dollars. We know that rationing takes place and I think there are opportunities between here and March but we have to get bushels folded at some point.
How about end users, what should they do? Now the prices coming down. Is now the time to buy or wait for them to go lower?
You make the same argument for price protection for end user and this case you look to maybe buy a call option in case you get something like a major export business to China. Another three, four, five million ton sale in the corn market goes to the upper end of the price range you want that upside protection in place so --purchase of a call option would be a great way, unlimited upside and if the market does collapse the only thing they will be out is the cost of premium. The country is there any way you use the basis to make money?
Basis sure you can. Obviously that's where farmers do some of their focusing but in the east I would look for it to stay firm throughout the next marketing year. We are starting out and not helping with the yield but I would imagine the basis between thank giving the second week of December is a great time to look at locking that in. We have gotten lured into thinking it's strong and stays strong. Nothing stays high and nothing stays low. Things move around. I think there will be great opportunities between now and the first week of December.
Now is when you start locking in and get everything in order so you know where you stand.
I think rally for sale and I don't know how we get a new high unless we see China come in or have a weather problem next year.
I would only add that one step decision is made to plant 2012 corn you decide to put down that this fall you must at the same time get price protection in place for 2012 in some form.

JOHN’S WORLD: The October crop report was another head-scratcher for most market watchers. Our experts have shared their views but one thing seems clear: it did not bolster the faltering confidence in USDA information abilities. I have been a critic of the agencies failure to improve both accuracy and speed of crop reports over the decades. I stand by that view, but have recently noticed this may be a larger economic problem. The department of commerce is having significant problems measuring critical performance indicators like GDP. We only recently discovered via revised figures that the economy was declining far worse than we thought early in the recession. More econometricians are wondering if the immense size and complexity of our economy have made such crucial measurements much harder. Certainly the size and increased sophistication of American farms and commodity markets exacerbate our accounting problem. But there is a larger and more ominous problem. As pointed out by Felix Salmon at Reuters, not only is the quality of economic numbers declining, so too is the quality of the statisticians who develop them. Intense anti-government attitudes do not encourage bright, aspiring economists to choose a career in NASS or BEA, I'll bet. Working for the government is rapidly becoming something you don't advertise, so we should not be surprised when critical government activities are not performed as well as they could be. 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. The growing disparities in income and wealth in the U.S. are the subject of intense debate, and economists are divided on how much of a problem it is right now. But the trend may soon lessen those differences. One of the most crucial measurements of income progress is food insecurity. On this score alone, things are not going well. Even here in the U.S., community food banks are being overwhelmed by demand from hard-pressed citizens. Farmers' link to food requires our profession to take more than a passing interest in this problem. It is a cause that can not only lift our image, but revitalize our link with those who depend on us. Let's get started with the headlines and Al Pell...

OK WHEAT: Thank you John. Despite some badly needed showers earlier this week in the southern plains, there are still concerns about this year’s winter wheat crop. Farmers from Kansas to Texas held-off planting because it's been so dry. They need moisture to germinate the seed. The USDA crop progress report says 59% of the winter wheat crop is now planted. Eight points behind average. In northeast Oklahoma, wheat grower Bob Goss is moving forward with his crop, even though the soil is very dry. Goss says the fields are usually seeded by September tenth. He's about four weeks behind. USDA says 47% of the Oklahoma wheat is planted. In Texas it's 41%. Both of those states are about 20 points behind. Kansas is on-pace with 69% planted.

FAO HUNGER: The United Nations says the risk remains high for food shortages. In its global hunger report, the UN's food and agricultural organization said high, volatile prices are likely to continue and could possibly increase. The FAO says this would make the world's poorest people more vulnerable to food insecurity. The organization says small, import-dependent countries - particularly in Africa - are especially at risk. The report stresses that investment in agriculture remains critical for long-term food security.  Later in spirit of the heartland, you'll hear from an Illinois farmer who's making global food shortages a personal mission.

BREAKFAST: Hunger isn't the only problem affecting proper nutrition. A new report says many Americans choose to ignore breakfast. One out of every ten of us won't have breakfast this morning. That's according to a recent study conducted by the food marketing research group NPD. NPD says men, age 18-to-34, are most likely to skip breakfast. They make-up nearly a third of the non-breakfast eaters. As far as children, high schoolers have the highest incidence of skipping at 14%. Top reasons for not eating include "not hungry" or "too busy". For those who do eat a morning meal, three-fourths have it at home.

HEARTLAND BUFFETT: World leaders gathered this week in Des Moines Iowa for the Borlaug Dialogue Symposium to discuss global hunger. The annual event brings together some of the greatest minds on how to address food in-security.

WORLD FOOD PRIZE: On Thursday night, the world food prize was awarded at the symposium. This year it goes to the former presidents of Ghana and Brazil who took significant steps to reduce hunger in their countries. One of the keynote speakers at the symposium was Howard G. Buffett, who's president of the foundation bearing his name. Buffett is also a supporter of Farm Journal's "Farmers Feeding the World" initiative. We traveled with Buffett earlier this year as he witnessed food in-security in Afghanistan.

INFRASTRUCTURE: President Obama addressed the nation last month, focusing on ways to jump-start the economy. Part of his plan is to pump 100-billion-dollars into infrastructure improvements...major upgrades to the nation's waterways, railroads and highways. As regional reporter Michelle shows us, it's an investment that could pay off nicely for agriculture. Michelle tells us lawmakers are also looking at the idea of a "transportation bank" where a public-private partnership would help fund some of the projects. When we come back, it's time for tractor tales and our country church salute...please stay with us.

TRACTOR TALES: It looks like we have a bit of a rare tractor this week. John. Earlier this year we talked to a collector in southern Michigan. Gibson manufacturing Corporation built these tractors from 1948 until 1952. Originally, the company built rail cars before finding interest in tractors. The first tractors were designed for small garden work, but later grew into something bigger. While in Florida this year, we came across a unique tractor that was only built for two years. This sears economy was one of a kind and the owner loves to talk about it. That's next week on tractor tales.

CHURCH SALUTE: And now to today's country church salute. We'd like to recognize the 175th anniversary of the First Baptist Church in Belvidere, Illinois. It started in 1836 with sixteen charter members. The current members stand by its motto - "Going for Christ - growing in Christ." Congratulations First Baptist Church in Belvidere, Illinois.  Our second church is St. Paul's Episcopal Church in Fort Benton, Montana. Started in 1881, it's the oldest Episcopal Church in the state. The congregation actually started in 1879 and held services in the school-house, the courthouse, even a local saloon. The building fund got a big contribution from their home church in concord, New Hampshire. So they carried the name to "big sky country". Congratulations to St. Paul's episcopal church in fort Benton, Montana. 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....William Joseph spots the hypocrisy in my opposition to farm subsidies: “Ag subsidies voluntary...are you like the many bold talking producers who say no government but at the end of the day seem to take yours as well!" Your accusation is essentially correct, William. I know a few farmers who have opted out, but it is not so simple as you may think. First of all subsidies accrue to acres - not farmers. Landowners therefore have a stake in the decision, either passively or actively. Only on the ground farmers own do they have the full say. Being enrolled in the farm program is an entitlement which therefore affects the value of the land. Less than it used to but still measurable. Most owners are hard pressed to give that up. Farm programs are five-year contracts with a one-time chance to join. Most of my leases are three or four years. This mismatch means I could make a decision contrary to the choice of a farmer who might replace me. Finally, it used to be granting a $30/acre head start to competitors by not enrolling was significant handicap in the land rental battle. This is not the case now, but because congress unexpectedly showers extra money via the farm program, you are not sure exactly how much non-participation may cost. All this does not refute your charge however, but I think it is better to speak against farm subsidies even if still receiving them than silently agree and cash the checks. 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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