Many of the House Agriculture Subcommittees are still holding hearings about issues that will be included.  One of those was the Subcommittee on General Farm Commodities and Risk Management, which Thursday heard from witnesses who testified about a safety net for their particular commodity, as well as whether crop insurance should be the primary safety net in the Farm Bill or part of a larger safety net.  One of those witnesses was University of Illinois Farm Management specialist Gary Schnitkey, who outlined six observations about the use of crop insurance to supplement widely-used farm programs.

1) Prices have increased for many crops since 2006. Since that year, corn has increased 1.97 times of the average corn priced from 1975 to 2006.  Soybeans have increased 1.77 times the long-term price of beans, and wheat has increased 1.89 times the long term price.  He says such higher prices make target prices and loan rates relatively inconsequential.

2) Production costs have risen.  Pointing to Central Illinois, he says non-land production costs the past two years have been nearly double what they were from 2000 to 2005, and that does not include cash rent.  He says the breakeven price of corn will be over $4 per bushel on 200 bushel-yielding corn, and financial stress will occur if prices are low or corn does not reach lofty yields.

3) Crop insurance has become a prime crop insurance program.  Schnitkey says its use has increased over time to the point that 80% of planted acres are covered for corn, beans, wheat, and other primary commodities.  And he says it has become the most important risk management tool on many farms.  Schnitkey says crop insurance may cover revenue loss from lower yield, but does not cover other issues facing farmers, and he says the USDA’s Risk Management Agency should continue with its effort to provide more equitable loss ratios.  As an example nearly twice as much in premiums are submitted for corn than for indemnities received, but peanut farmers get back $1.20 for each $1 in premium paid. 

4) Gaps exist in crop insurance coverage.  Schnitkey says crop insurance covers revenue loss within a production year, but not from one year to the next.  And he added that if prices slowly edge down, then farm revenue levels will erode without any protection.  The current term for that is “shallow losses” and he says that is what caused financial stress in agriculture in prior years.

5) Farm bill commodity programs based on revenue can aid in covering multi-year revenue declines.  He said the Senate Ag Committee’s Agriculture Risk Coverage program is such an example, in which a revenue drop below 89% of a five year average would be covered as a supplement to crop insurance.

6) Revenue-based commodity program spending would be roughly proportional to crop value.  He says payments as a percent of crop revenue are likely to be within a narrow range of one another—suggesting that costs relative to the value of the crop are near one another.

Summary:
A program that bases its payments on revenue can provide effective coverage that will mitigate risk. Designed properly, these programs can complement protection by crop insurance, and result in expenditures roughly proportional to crop value.

Many of the House Agriculture Subcommittees are still holding hearings about issues that will be included.  One of those was the Subcommittee on General Farm Commodities and Risk Management, which Thursday heard from witnesses who testified about a safety net for their particular commodity, as well as whether crop insurance should be the primary safety net in the Farm Bill or part of a larger safety net.  One of those witnesses was University of Illinois Farm Management specialist Gary Schnitkey, who outlined six observations about the use of crop insurance to supplement widely-used farm programs.

1) Prices have increased for many crops since 2006. Since that year, corn has increased 1.97 times of the average corn priced from 1975 to 2006.  Soybeans have increased 1.77 times the long-term price of beans, and wheat has increased 1.89 times the long term price.  He says such higher prices make target prices and loan rates relatively inconsequential.

2) Production costs have risen.  Pointing to Central Illinois, he says non-land production costs the past two years have been nearly double what they were from 2000 to 2005, and that does not include cash rent.  He says the breakeven price of corn will be over $4 per bushel on 200 bushel-yielding corn, and financial stress will occur if prices are low or corn does not reach lofty yields.

3) Crop insurance has become a prime crop insurance program.  Schnitkey says its use has increased over time to the point that 80% of planted acres are covered for corn, beans, wheat, and other primary commodities.  And he says it has become the most important risk management tool on many farms.  Schnitkey says crop insurance may cover revenue loss from lower yield, but does not cover other issues facing farmers, and he says the USDA’s Risk Management Agency should continue with its effort to provide more equitable loss ratios.  As an example nearly twice as much in premiums are submitted for corn than for indemnities received, but peanut farmers get back $1.20 for each $1 in premium paid. 

4) Gaps exist in crop insurance coverage.  Schnitkey says crop insurance covers revenue loss within a production year, but not from one year to the next.  And he added that if prices slowly edge down, then farm revenue levels will erode without any protection.  The current term for that is “shallow losses” and he says that is what caused financial stress in agriculture in prior years.

5) Farm bill commodity programs based on revenue can aid in covering multi-year revenue declines.  He said the Senate Ag Committee’s Agriculture Risk Coverage program is such an example, in which a revenue drop below 89% of a five year average would be covered as a supplement to crop insurance.

6) Revenue-based commodity program spending would be roughly proportional to crop value.  He says payments as a percent of crop revenue are likely to be within a narrow range of one another—suggesting that costs relative to the value of the crop are near one another.

Summary:
A program that bases its payments on revenue can provide effective coverage that will mitigate risk. Designed properly, these programs can complement protection by crop insurance, and result in expenditures roughly proportional to crop value.

The winner in the modern day food fight has not been decided, but each has scored punches, believes Robert Paarlberg, a Wellesley University ag economist, who recently spoke at Purdue University.  Addressing “Food Politics” Paarlberg said there are several fundamental disagreements, including:  what farms should look like, the most important challenge to farming, agriculture’s relationship to nature, and about who should make decisions about food and agriculture.

Dividing the two sides into advocates for conventional agriculture and advocates for alternative agriculture, Paarlberg said large specialized farms are OK for conventional agriculture, but not for the alternative group.  He said the first group finds the primary challenge is to produce much more food by 2050, but the alternative group wants to preserve traditional rural livelihoods, protect biodiversity, and provide ecosystem services.  Regarding their relationship with nature, conventional agriculture sees nature being protected by high yields to reduce the area being cropped.  The alternative group believes the best systems are those that imitate nature.  And regarding decision making, conventional agriculture accepts governments, technical experts and the market, all of whom are not to be trusted by the alternative group.

The current movement toward “local food,” promotes the fact that the number of farmers’ markets has doubled since 1998, and the number of community-supported agriculture enterprises has risen from 400 in 2001 to 4,000 today.  However, food sales by those entrepreneurs represent only .04% of all agricultural sales in the US.  Similarly, only 4% of all food sales is organic, only 7% of farmers’ market sales is organic food, and 45% of all organic food is produced in only 2 states.  In 2008, harvested organic cropland made up only .51% of all US cropland.

Within nations belonging to the Organization for Economic Cooperation and Development (OECD) the period from 1990 to 2004 saw a 5% increase in the volume of food production, along with a 4% decrease in land farmed, a 9% decrease in irrigation used, a 17% drop in excess nitrogen use, a 5% decrease in pesticide use while the contribution to increased greenhouse gas production was only one sixth of the rest of the economy.  Since 1980, US agriculture has engaged in precision agriculture for more precise irrigation, fertilizer use, reduced pesticide use and reduced tillage, which saves diesel fuel.  Paarlberg pointed to his home state of Ohio and said while 30% of all farms had GPS systems in tractors, that technology was used by over 78% of farms in the large category with over $1 million in commodity sales.  The same comparison was made for yield monitors, which are used by 25% of all farms, but 80% of large farms, and for geographically-referenced soil mapping that is used by 23% of all farms, but 56% of large farms.

Crop protection chemicals are becoming more precise in their use says Paarlberg since the 1972 ban on organochlorine insecticides and the 1990 introduction of variable rate application.  In 1996 glyphosate was introduced replacing more toxic herbicides, and in the same year Bt corn and cotton was introduced to reduce the insecticide use on those crops.  He also said significant reductions in the use of diesel fuel and loss of soil began in the 1980’s with the use of no-till planters and in the 1990’s with the introduction of glyphosate that required less mechanical cultivation.

However, Paarlberg said confined animal feeding operations or CAFOs have become significant targets recently for opponents.  While CAFOs have reduced the cost of food to consumers and reduced the frequency of food contamination, CAFOs work less well for waste disposal, dependence upon antibiotics and raise animal welfare complaints.  He noted the increasingly hostile environment for CAFOs, in which court and FDA actions have been against the use of antibiotics, there have been state-level bans on gestation crates for gilts and sows and small cage space for laying hens.  And he said a growing number of food service companies have taken voluntary action against gestation crates.

So who is winning the food fight?  Paarlberg concludes that alternative agriculture has become dominant in the elite cultural marketplace.  Conventional crop farming has given up none of its dominance in the commercial marketplace.  And conventional livestock farming is being forced to accept new restraints from the commercial and political marketplace.

Now that ethanol has been weaned from financial support, but still relying on mandated use and an increased blend allowance, the University of Missouri’s Food and Agricultural Policy Research Institute (FAPRI) conducted an economic analysis on how ethanol would weather the storm over the next ten years, given demand issues, along with the competition from Brazilian ethanol.  The FAPRI report draws numerous specific conclusions. 

Among those is a projection that ethanol production will grow, but much slower than over the prior ten years, particularly since conventional corn-based ethanol does not qualify to meeting the qualifications of advanced biofuels.  The subsequent slowdown in production of corn-based ethanol is expected to reach a maximum annual use of corn at 5.6 billion bushels, after the 2014-15 marketing year, with more corn available for the food, feed, and export markets.

FAPRI believes that ethanol will be driven more by mandates than the market, and the market for ethanol will be driven more by E-85 than by the 15% blend, if E-85 availability and use will catch on.  Their forecast is for the overall amount of ethanol in gasoline will only be at 13.2% by the year 2021.  The economists determined that a higher use will only occur with more E-85 use, and that will only happen if the price of ethanol falls below the gasoline energy equivalent.  They say once the flex fuel fleet grows enough, the ethanol price returns to its energy equivalent level.

The economists predict that the demise of the ethanol tariff barriers will result in a rapid rise of imported ethanol, resulting from incoming Brazilian sugarcane ethanol, since it meets the requirements of advance biofuels.  The US has been exporting ethanol to Brazil to meet its domestic needs, but a switch in Brazilian internal policies regarding sugar refining will mean some degree of change.  Ironically, FAPRI says the US will continue to export corn-based ethanol to Brazil at a low price, but the US will be buying higher priced Brazilian sugarcane ethanol because it meets the standards of advanced biofuels.

Cellulosic ethanol—made from biomass—will eventually see increased production after 2015-16.  However, levels of production will be well below what the federal mandate requires and that mandate will have to be changed to accommodate existing production capacity and the state of technology.

FAPRI’s analysis is based on renewable fuel production that is currently just under 14 billion gallons per year, and expands to more than 22 billion gallons by 2021.  However, those additional gallons are comprised only of 3 billion gallons of cellulosic ethanol and 1.2 billion gallons of biodiesel.  The FAPRI staff based their conclusions on crude oil prices that average just over $100 per barrel through 2017-18 then fall just below $100 for the remainder of the 10-year projection period.  At the end of the period, corn will be supplying 15.8 billion gallons of ethanol, along with 2.3 billion gallons from imported sources, and 3.5 billion from cellulosic sources.  Average ethanol prices will remain in the $2 range, generally below $2.30.

Among the sources for cellulosic ethanol, 1 billion gallons will come from corn stover and 2.1 billion from warm season grasses.  That will require 19 million tons of corn stover, and 6.5 million acres of grasses.  FAPRI’s numbers are based on corn production utilizing about 90 million acres annually, with average yields growing to 182 by 2021, with average annually prices all below $5 per bushel.  The impact on US soybean production will allow soybean acreage to float in the 74-75 million acre range, with soybean yields rising to 48 bushels per acre and annual prices averaging in the $11 range.

Summary:
Changes in federal ethanol policy designed to promote its growth and use will see ethanol only reach a 13% national blend by 2021, in part because of the slow growth of advance biofuels, such as from biomass.  Interestingly, the promotion of advance biofuels and the elimination of import tariffs will see low-priced corn-based ethanol being exported to Brazil, and high-priced sugarcane-based ethanol being imported from Brazil.  The ethanol economy will consume move than five billion bushels of corn per year for the next decade, but corn prices will average in the $4 range based upon ethanol market dynamics.

The price of gasoline pushed to $4 per gallon earlier in the spring in many areas, and above $4 in many large cities where demand is more concentrated. But without ethanol being blended into the gasoline, the price of gas would be closer to $5, say economists from Iowa State University and the University of Wisconsin.  Their study of how ethanol has impacted the price of gas in the past year indicates the US motoring public would be spending much more of their family budget on gas than is the case.

Their report updated a prior study, and incorporated 2011 data, which included $95 per barrel oil prices and a 13.9 billion gallon volume of ethanol blended into gasoline.  However, they found that the impact was significantly different in different regions of the US because of the petroleum markets.  They report they growth in ethanol production in 2011 resulted in a national average savings of 29 cents per gallon off the price of gasoline.  In the Midwest, the savings for 2011 alone was 45 cents, while the East Coast, West Coast and Gulf Coast all had savings of about 20 cents per gallon.  In the Rocky Mountain region, the savings was about 30 cents per gallon. 

The economists report, “The (regions) are also very different in terms of their economic conditions, oil and petroleum characteristics, oil related pipeline infrastructure, and local product supply and demand conditions. Therefore one would expect different gasoline price impacts for each region.”
1) The East Coast has the highest demand for refined products in the country, but it has very limited refinery capacity. Its regional demand is largely satisfied by the Gulf Coast and by foreign imports.
2) The Midwest is distinct in its coexistence of a highly industrialized section and a rural agricultural section. Much of the crude oil used in the Midwest is piped in from the Gulf Coast and Canada.
3) The Gulf Coast region, including Texas, Louisiana, New Mexico, Arkansas, Alabama, and Mississippi, produces over 50% of the nation’s crude oil and 47% of its final refined products. This region also serves as a national hub for crude oil and is the center of the pipeline system. It also exports gasoline.
4) The Rocky Mountain region has the smallest and fastest-growing oil market in the U.S. With only 3% of national petroleum product consumption, it has the lowest ethanol penetration.
5) The West Coast region is independent of other regions since it is geographically separated by the Rocky Mountains. In addition, the refinery market of this region is highly concentrated.

In a broader picture, the economists say that the 10% contribution of ethanol to expanding the nation’s fuel has allowed the US to switch from being a major importer of only petroleum to being an exporter of both petroleum and ethanol.  And when compared to Europe, which is only the former, ethanol has actually lowered the average cost of gasoline by $1.09 per gallon.  When that is applied to each of the petroleum distribution regions in the US over the past decade, the economists say that is a savings of 76 cents per gallon on the East Coast, $1.69 per gallon in the Midwest, 73 cents on the Gulf Coast, $1.11 per gallon in the Rocky Mountain region, and 86 cents per gallon on the West Coast.

Summary:
Ethanol is only consuming 5 billion bushels of corn and raising the price of that commodity, but is also saving money for the US motorist.  Based on gasoline prices and ethanol fuel production increases in 2011, ethanol saved motorists 29 cents per gallon.  However, based on the past decade, the impact of ethanol has provided an average of $1.09 savings per gallon to motorists.

The La Nina impact on South America reduced the global supply of soybeans by reducing yields in a year that many Brazilian and Argentine farmers shift away from soybeans to more corn acres.  However the recent USDA World Supply-Demand report indicated a larger US soybean crop would make up part of the shortfall.  Following that report, the USDA’s Oilseeds Outlook report indicated that despite a 3.2 billion bushel crop, the carryover would be historically tight and still nearly half of the crop would be exported.  Looking toward the South American production season beginning in six months, USDA expects production to increase 15% to 271.4 mmt. USDA says there are brighter prospects for South American expansion.

Domestically, soybean production is expected to produce a 43.9 bushel average yield on 73 million acres, lower than many years because of the larger 2012 crop acreage for corn.  In 2011 the crop was trimmed to 41.5 bushels from the hot dry weather of La Nina.  Even with the lesser acreage, the higher yield would make the 3.205 billion bushel crop the third largest.  Good planting weather in the US has allowed soybeans to be planted much earlier than usual, and so far twice as many soybeans have been planted compared to the normal amount.

With an early maturing crop, which had the potential for satisfying immediate needs, there may be an early boom in export sales.  However, with higher prices, diminishing domestic stocks, and an expected large South American crop, the pace of US exports could decline early in 2013.  USDA says a competitive export market will draw soybeans away from crushers, which are expected to use 1.655 billion bushels, 150 million more than the export demand.  At the end of the marketing year in August of 2013, USDA is forecasting only 145 million bushels, a 4.4% stocks to use ratio, well under the 5% traditional floor.  That is one of the reasons for the expected season average price range of $12 to $14.  Markets will be sensitive to any weather threat against the good production scenario, as well as any other supply or demand disruption which may occur.
Currently, new crop soybeans are above the $13 mark for November and January delivery, but quickly erode to the $12.80 to $12.60 range for the period when South American soybeans should be available.

The South American soybean crop is expected to lead a strong worldwide recovery in soybean production beginning in 2013.  USDA projects a 15% crop output increase, but there will be low South American soybean inventories in the meantime, with some rumors that Brazil may have to tap US soybeans to fulfill its domestic needs.  During the period of shortfall, USDA says the US share of the global soybean market would grow from the present 40% to 42%.

USDA says a good US crop is needed in 2012 and good crops are needed in Brazil and Argentina next spring to satisfy the global demand for soybeans in the 2012-2013 marketing year.  During that period a 7% increase in global imports is expected, with much of that coming from China.  Record high prices for soybeans in Brazil have spurred increased production for the coming year, with a switch back to beans from corn. 

USDA economists report, “A favorably strong price ratio could expand soybean area in Brazil by 6 percent to 26.5 million hectares. On that higher area, the soybean yield trend for Brazil suggests a potential crop of 78 million tons, up from this year’s drought-reduced harvest of 65 million.” Comparatively, for Argentina, USDA economists report, “Argentine harvested area for soybeans is anticipated 11 percent higher to 19.7 million hectares. Late last year, extreme heat and drought devastated soybean yields throughout Argentina, slashing the 2011/12 crop to a 3-year low of 42.5 million tons. Assuming that Argentine soybean area and yields rebound, production for 2012/13 could increase to 55 million tons from 42.5 million this year.”

The increased global demand for soybeans is a function of the increased feed demand in China, which USDA says may continue to grow unchecked, while other importers, such as Europe, may ration their supplies due to prices.

Summary:
Soybeans have a significant story to tell with a growing demand, but with supplies that are struggling to keep up with the demand.  A return of better production weather will be needed to produce a good soybean crop in the US this summer and in South America six months later.  While the US crop is limited by the need to share acreage with corn, substantial increases in acres for soybeans are anticipated in South America due to higher prices.  The primary demand for soybeans will be coming from international feed demand, primarily China.

At Iowa State University, grain marketing specialist Chad Hart said the upward adjustment to old crop carryover was noteworthy, “Old crop feed demand was lowered 50 million bushels, based on alternative feed availability. That change put 2011/12 ending stocks at 851 million bushels, nearly 100 million bushels above trade expectations.”

In addition to the hike in old crop ending stocks, the new crop ending stocks will be quite large, but along with production and consumption, says Hart, “For the new crop, this report sticks with the planted acreage from the March Prospective Plantings report, but the yield for corn been adjusted by 2 bushels to reflect the rapid planting thus far. Corn production is projected at 14.79 billion bushels, another record crop projection. Feed, residual, and export demand are all expected to increase for the new crop. So we are looking at record demand as well. But the surge in supply is greater than the increase in demand and ending stocks are projected to increase by over 1 billion bushels. With higher stocks come lower prices and the midpoint of USDA’s 2012/13 season-average price range for corn is $4.60 per bushel, 40 cents lower than the unofficial estimates in February and $1.50 lower than the 2011/12 price.”

At the University of Illinois, marketing specialist Darrel Good says there are some problems in the way USDA downshifted livestock feed needs for old crop corn, then floored the accelerator for livestock feed needs from the new crop.  Good says, “The projections for corn consumption during the current and upcoming marketing year continue to appear inconsistent. Feed and residual use appears under-stated for the current year and over-stated for next year. Prospective exports also appear under-stated for next year. On the production side, the USDA has started with very aggressive yield and production forecasts. It is not clear why 2011 was not included in the trend analysis of yields. Still a build-up in stocks appears likely next year and suggests prices will continue to moderate back to the levels of 2007-08 through 2009-10.”

Farm Futures market analyst Arlen Suderman was surprised by the quantum leap made by USDA from its projected 158 bushel yield last year to 166 this year, all in an effort to reach the 14.8 billion bushel production, “So how did USDA come up with the big increase? It used a 20-year trend yield, just as it did last year, adjusted for the early planting pace. However, this time it decided to exclude last year’s low yield of 147.2 bushels per acre when it calculated its trend yield. That provided the convenient increase that it needed. It’s not unusual for a statistician to exclude an outlier low number, but then they will also exclude an outlier high number as well. That is apparently not what USDA did this time.

Suderman also said that while many agencies are lowering the South American crops, USADA actually raised the estimate for the next soybean crop, “USDA surprised the trade by increasing Brazil’s corn crop by 5 mmt, but only increased Brazil’s exports by 1 mmt.”

Another big surprise is the USDA pushing new crop soybean carryout well below the 5% expected floor.  The 145 million bushels on a 3.2 billion bushel crop represents a 4.4% stocks to use ratio.  With higher expected prices, Hart says it would be the third consecutive year of setting a higher record price.

For the old crop, ending stocks were pushed higher by USDA to 851 million bushels because of slower use in feed and residual, along with the expected increased use of wheat for livestock feeding.  Additionally, there will be increased corn availability at the end of the current marketing year because of the early planting and expected early harvest of the new crop.  USDA says that will displace old crop usage and boost carryout.  Specifically, feed use from the old crop is estimated at 4.55 billion, ethanol at 5.0 billion, and exports at 1.7 billion, with the 851 million carryout.

Globally, corn production for 2012-13 is projected to increase by 75 million tons, setting a record for production for the 6th consecutive year.  Compared to the expected 946 million ton production, consumption is forecast at 921 million tons.  That leaves global ending stocks at the highest level in more than a decade.

USDA forecast new crop soybean production at 3.205 billion bushels, up 200 million from last year because of higher yields in the face of lower planted acreage.  The soybean yield was forecast at 43.9 bushels up 2.4 bushels per acre from last year.  The crush was projected at 1.655 billion bushels, about the same as the current marketing year, but exports are forecast at 1.505 billion up 190 million from the current year to fill the shortfall from South American production.  Total soybean use is projected at 3.285 billion, compared to 3.076 for the current crop.  USDA placed ending stocks at 145 million bushels, down 65 million from the current year, and said the season average price would range from $12 to $14 per bushel. 

Globally, soybean production is expected to increase by 15%, spurred by higher prices and a yield rebound that will result in more acreage in South America for the crop to be planted later this year.  USDA expects record crops in both Argentina and Brazil.  China is expected to import about 61 million tons, up 5 million from the current year.

In the May crop production report, USDA forecast winter wheat production at 1.693 billion bushels.  That includes 1.032 billion for hard red winter wheat, 428 million for soft red winter wheat, 14 million for white wheat, and 219 million for soft white wheat.  That is up from 1.493 billion a year ago, helped by a 111 million bushel increase in the Kansas wheat production, and an 84 million bushel increase for Oklahoma.  Percentage-wise, total production is up 13%, area to be harvested is up 10%.  The average yield was placed at 47.6 bushels, up 1.4 bushels from 2011.

The market anticipated large production and large carryover following the 2012 crop, subsequently July corn dropped 15.75¢, and December corn dropped 11.25¢.  July beans fell 8¢ and November beans declined 7¢.  July wheat fell 15¢ and July 2013 wheat even declined 14¢.

Dow Jones Newswires survey many of the CME traders to get a sense of what they anticipated the May Supply-Demand report would say.  The market is expecting old crop corn stocks to end the marketing year at 758 million bushels, and the 2012 crop to have more than 1.7 billion bushels left over when the next marketing year concludes in August of 2013.  In the Southern hemisphere, Argentine corn production is expected to be 20.7 mmt, and Brazilian corn at 62.7 mmt.

For soybeans, the market is expecting old crop stocks to conclude the marketing year with 221 million bushels on hand, compared to only 170 million bushels of carryout when the next marketing year ends in August 2013.  The trade anticipates Argentine soybean production this past season at 42 mmt and Brazilian soybean production at 65.5 mmt.

The All wheat number expected by the market is 2.196 billion bushels, with winter wheat at 1.634 billion, hard red winter at 990 million bushels, and soft red winter wheat at 413 million bushels.

Keep those numbers in mind when the USDA report is issued at 7:30 a.m. CDT.

By the way, the USDA’s Chief Economist announced several minor format changes in the report:
1) There will no longer be a methyl ester breakout for soybean product supply and use, because of the unavailability of reliable data.  It will be lumped in with domestic disappearance.
2) Vietnam is being added to the list of “major importers” of soybeans.  China and Eastern Europe are being removed as major importers of soybean meal, but Japan is taking their place.  Pakistan is no longer a major importer of soybean oil, but is being replaced with North Africa.

Summary:
For Thursday’s USDA Supply Demand report, the market is anticipating an old crop corn carryout of 758 million, and a new crop carryout of 1.7 billion.  The market is expecting the old crop soybean carryout to be 221 million bushels, but the new crop bean carryout is expected to be 170 million.  New crop wheat production has been pegged by the market as 2.196 billion bushels.  Official numbers will be released at 7:30 Thursday morning.

The corn market has expressed its opposition to the concept of carrying charges.  Those simple elements of storage and interest have been tossed out with May corn closing at $6.66 Tuesday, while July closed at $6.23, September at $5.38, and December at $5.28.  Kansas State marketing specialist Dan O’Brien says the market has become inverted, indicating that the “market anticipates a marked drop in corn futures once early harvest supplies become available from the Southern US in late summer and that corn futures will drop even further once the bulk of the US harvest begins in earnest farther north in the US Cornbelt.” Although the May contract is in delivery status, the July contract is 85¢ above September and 95¢ above the December contract.

December futures exceeded $6.70 last August, and have faded to as low as $5.15.  That is a function of large crop expectations, early planting, good planting weather, and the potential for a yield above the trend, says University of Illinois marketing specialist Darrell Good. While supply points to lack of concern, there are concerns about demand, one of which is a stagnating demand curve for ethanol, and the other is the growing European debt crisis.  With a slowing of demand and a growing of supply, Good says there could be a substantial build up of corn inventory and a return to the lower prices close to $4.

On the other hand are the futures prices for the remaining months in the old crop marketing year.  They have experienced a $2 swing from last August to April, with a slight recovery to date.  July futures have shown some weakness because of the prospect for new corn being early enough to supply market demand.  Export demand for the old crop has been good, but whether they can reach the USDA target remains questionable, according to Good.  With ethanol refineries slowing due to availability and reduced demand for gasoline, the target for ethanol refining may fall short; along with meeting the target for livestock feed demand.  Darrell Good says, “In general, the old crop price premium provides an incentive for users to delay consumption as much as possible until new crop supplies are available.”   

But immediate needs of the cash market are yet another personality.  Your elevator may have offered substantial incentives to draw corn out of your storage because of spot shortages that are developing.  Feedlots and ethanol refineries need a steady supply of corn, and even the export market has been paying $1 over July futures to get corn at the Gulf of Mexico.  That is for corn delivered immediately.  O’Brien said the basis at the livestock feeding center at Garden City, KS has been historically high, ranging up to 20¢ above nearby futures contracts.  He says that is as much as 85¢ higher than it has been at times in the past several years.

Good says declining futures prices for deferred contracts indicates expectations for plentiful supplies, but he says the current strong basis—particularly for some deferred contracts—raises questions.  The basis can be strong, but not for an extended period of time as is the current scenario.  He questions if that indicates slow sales by producers, higher rates of usage than revealed, or the market’s expectations for tight stocks at the end of the marketing year.

Summary:
The current corn market is showing very tight stocks now—moderately tight stocks in the intermediate future—and plentiful stocks in the distant future.  Since the basis is strong, indicating very short stocks in some regions, but because of the inversion of the market for many months to come, questions are raised about just how short those stocks might be.

• Soybean prices.  Practically every day brings a new and lower estimate of South American production, with the latest dropping the Argentine soybean crop below 40 mmt, 5 mmt under USDA’s estimate, which could be adjusted in the May 10 USDA Supply and Demand Report.  US exporters are being asked to make up the shortfall and shipments have reached 1.089 bil. bu., still 270 mil. bu. behind the 2011 pace.  Chinese purchases were limited to new crop beans, an order in response to short South American supplies. Export sales totaled 64 mil. bu. for the prior week, including 22 mil. in old crop beans.  Marketing year sales have reached 1.25 bil. bu.  801 mil. of that has been Chinese purchases, including 262 mil. from new crop supplies.  May contracts pushed over the $15 mark before July took over front-month responsibilities.  There is still some attractiveness of new crop bean contracts with the thought that farmers will get so wrapped up in corn planting they will forget to put seed beans in the planter boxes.  That has given new beans some spark, and served as a challenge to marketing the crop. Strong fundamentals have buoyed the bean market even in the wake of strong technical signals.  At the end of the week weakness in outside markets pulled commodities down, even while tightness is acknowledged in both new and old crop beans.  There was a rumor in the market that Brazil would not have enough soybeans to meet its domestic demand and may need to import some from the US before the next harvest.     
1) Jul 12 beans closed at $14.7825, up 4.75¢ for the day and down 15.25¢ for the week.
2) Nov 12 beans closed at $13.6675, down 10¢ for the day and up 4.75¢ for the week.

• Wheat prices.  Wheat began the week boosted by stronger corn prices. Marketing year shipments are up to 916 mil. bu., 214 mil. under the 2011 pace.  Marketing year sales slipped over the 1 bil. bu. mark, down 282 million from last year.  Crop tours began their seasonal assessment earlier in the week. Reports of good quality and a larger crop, combined with lower corn prices spelled bearishness in the wheat market.  Tour participants also wheat that needed rain badly and with yields that reflected heat and lack of moisture.  Early heading has helped the quality but two-thirds of the excellent Kansas crop is being treated for stripe rust.  The market is looking to put in a bottom along with the USDA crop report on Thursday.  Reports of dryness in US wheat areas and the Former Soviet Union helped provide support to the market.  The market was also pressured by the impending harvest of winter wheat and some of the first fields were cut late in the week.  Friday’s bearish action in outside markets also pulled wheat lower, even with a dip below the $6 mark in July contracts, which quickly recovered.  The wheat market is expecting a large production estimate with the May 10 USDA WASDE report.  But at this point wheat needs the corn market to pull prices higher.
1) Jul 12 wheat closed at $6.095, down 6¢ for the day and down 40.5¢ for the week
2) Jul 12 wheat closed at $6.905, down 5.5¢ for the day and down 19.5¢ for the week.

• A major change of operations was announced across all major agricultural commodity exchanges with a expansion to a 22-hour trading day.  Beginning with the May 21st session the trading session will begin at 6 p.m. and end at 4 p.m. the following day.  The two hour hiatus will provide the opportunity to settle up. The action by the CME, KCBT and MGEX was spurred by the 24-hour InterContinental Exchange adding corn, wheat, and bean contracts.

• Reaction to the longer trading day was not favorable by the National Grain and Feed Association, which represents grain elevators that are looking at the requirement for having merchandisers available for longer than typical hours.  Concern is also being expressed about the release of USDA’s price sensitive reports during the trading session, since large investment houses would have the resources for instant receipt of the data, but farmers would not have immediate access.  USDA said it would be studying the issue of disadvantaged data users.

• “I am not overly concerned about added volatility so long as everyone has access to the data at the same time,” said ag economist Scott Irwin at the University of Illinois.  “There are many other examples where markets are open when government announcements are made, especially in the stock market.  In commodity markets, export sales are announced during trading hours and the cotton market has been open during WASDE and crop report announcements.  ICE has electronic hours on a different cycle than CME.  My main concern is equal access to the information for everyone at the moment of release.  USDA servers have been slow and tied up for many high profile announcements in the past.”

• If $13 soybean prices hold, that will set a record for season average prices, says IA St. market specialist Chad Hart. In his monthly newsletter, Hart says, “Current futures prices are offering strong prices for both crops. And what had been a sizable return advantage for corn has shrunk to nearly an even tradeoff between corn and soybeans.”  He says based on IA St. production cost estimates, 2012 will be another profitable year, “Given trend-line yields with these prices, corn and soybeans could return $100-150 per acre above production costs.”

• What is your marketing plan for new crop beans?  That’s the question posed by IA St. economist Steven Johnson as a result of the $2.75 gain in new beans since December and solid resistance at $14.  He says good weather means a 3 bil. bu. crop and big acreage in South America, with the potential of those 2 crops overwhelming global demand for beans:
1) Bullish fundamental factors are already reflected in new crop bean prices.
2) New beans will steal corn acres, more double-cropping, and get prevented plant, and CRP.
3) New crop November futures are more than $1 above the $12.55 insurance guarantee.
4) Seasonal price trends indicate that November bean futures peak in the spring months.
5) Many farms have not generated adequate cash flow for next fall and winter.

• Hasta la vista La Nina. The National Weather Service officially proclaimed La Nina to be history for the time being, and many Cornbelt farmers may have been doing their happy dance on Thursday.  Equatorial Pacific waters have been warming in recent months, wiping out the ability of the weather system to bring dryness to major agricultural growing areas.  Neutral conditions are expected through the summer.  Next up could be El Nino, which has its own characteristics, among them cooler, wetter conditions in the upper Midwest, dry in the South.

• How is your diesel fuel budget?  May prices should be a few cents under last May, with prices through harvest a few cents higher than the same month in 2011.  December 2012 and January 2013 will be 6-7% higher than the same month a year earlier, say KS St economists. 

• Iowa cash rents continued upward in 2012 say IA St. ag economists, whose annual survey indicated the largest one year increase for cash rent between 2011 and 2012.  Their average was $252 per acre, which was a $38 gain, but that represented an 18% increase in cash rent.  Their survey was based on crop reporting districts and increases ranged from 9% to 26%.

• If you are wondering about under- or over-compensating your employees, watch for USDA’s annual report on Farm Labor.  It will be released May 17 and include regional data on hours worked, wage rates, and will be featured on http://www.farmgateblog.com .

• Brazil #1-ethanol competition. Currently, 243 mmt of sugar cane goes for ethanol, but Brazil leaders say 1.2 bil. tonnes are needed by 2020.  Cropspotters newsletter says that is a 9% increase per year, and 70 new refineries are needed, with only 3 in the planning stage for 2014 start-up.  While cane growth has exceeded 10% annually, the industry is in debt.

• Brazil #2-big bean plant.  Brazil has a contest for a soybean plant with the most pods and Pedro Beppler took top honors this year with 14,769, only 3,025 pods behind last year. Sorry.

• Brazil #3-potash demand cut. Expanded production in South America has pushed up demand for fertilizer, but Brazil has announced development of a new potash mine that will help reduce its dependence on import fertilizer.  Currently it imports 90% of its potash.

• Cutworms.  If you don’t have them, prepare to share your secret, other than not having any cornfields.  Entomologists urge immediate scouting, looking for larvae and cut off corn.  If you have the signs of black cutworm damage, work through the yield loss fact sheet, which includes cost of control, preventable loss, price of corn, and potential yield before spraying.

• If your herbicide and insecticide have a fight to the death, it is the death of your corn, not the weeds or bugs.  That is the warning of IL weed specialist Aaron Hager, who offers a very poignant chart which indicates which of the two pest control tools, when applied on the same crop, will either not harm your corn, or harm it in varying ways from minor to unacceptable.  FYI—many of them you have or will be applying to your corn this spring.

• Has the window closed for corn planting?  Typically many Cornbelt cornfields are planted well into mid-May, but we are now almost 2 months after some of the first fields were planted.  IA St. agronomist Roger Elmore says soil conditions are most important for getting a crop off to a good start, and he notes soil temperatures are improving. While yields begin to drop in early May, those are based on average responses and it is not possible to tell what the rest of the year will bring.  If you are planting corn in mid-May and beyond, adjust plant populations.

• An increasing temperature, which causes greater corn yield variability in some production areas, will have a greater impact on price volatility with federal ethanol mandates, says Purdue economist Thomas Hertel.  He calculated a 50% increase in corn price volatility between 2020 and 2040 compared to recent history, if the ethanol mandate conflicts with higher temperatures.  He said corn and energy market relationships could buffer the volatility, as long as the current ethanol mandate were not in play. A co-researcher from Stanford said a one or two degree increase in heat “is a big hammer” particularly in low yield years for corn.

• Crops needing heat, such as corn, may do better in wind farms. Researchers studying temperature change around Texas wind farms report an increase of .72º C more than the increase over the rest of the state over the past 10 years.  The researchers say, “Wind turbines modify surface-atmosphere exchanges and transfer of energy, momentum, mass, and moisture within the atmosphere.  These changes, if spatially large enough, might have noticeable impacts on local to regional weather and climate.” 

• What would happen, if the Governmental Accounting Office was successful in getting Congress to adopt a $40,000 payment limit on crop insurance indemnities?  The GAO is pushing that concept as a means of saving money, despite how much crop insurance a farmer might buy.  IL ag economist Gary Schnitkey says the limit would be reached with as few as 1,600 acres for Illinois farmers, because risk subsidies paid by USDA vary from year to year.

• Schnitkey’s analysis says the limit would likely be first encountered by sole proprietors who have few individuals involved in the operation. He says restricting benefits would not only be a change for the Risk Management Agency, but the relationship between total payment and expected costs would have an impact on rate setting.  “Farms with high cash rented acres would reach the ceiling quicker than others, and since risk subsidies are a percent of total premium, farms in riskier situation will reach limits quicker than farms in less risky situations.”

• Here is an update on several livestock issues pending from recent weeks:
1) A leader in the British pork industry says his colleagues had to abandon gestation stalls or become uncompetitive, and they are all scrap metal now.  He told the Animal Agriculture Alliance Conf. the rest of Europe is facing the same challenge faced by US pork producers.
2) The California dairy cow which tested positive for BSE had a still born calf and a live offspring, which was euthanized, and tested negative for BSE.  Another dairy associated with the dairy holding the BSE animal has been placed under quarantine by California officials.
3) Prior to the announcement of the discovery of the BSE cow live cattle futures dropped the 3¢ limit on the CME and the Commodity Futures Trading Commission wants to know how the information was released to the market.  An investigation on the news release is underway.

• Iowa State University calculations estimate the average breakeven live price for barrows and gilts in the first quarter of 2012 at $64.46/cwt, down $1.66 from the fourth quarter of 2011, but up $3.76 compared to January-March 2011. MO livestock economist Ron Plain reports the average Iowa hog was sold at a profit of 55 cents in the first quarter.

• Cattle prices have weathered the fourth US cow with BSE quite well. The June live cattle futures contract ended the week at $115.37/cwt, up $2.52 from last Friday. August settled at $118.50/cwt, up $2.95 for the week. October fed cattle ended the week at $123.80/cwt, up $3.08 compared to the week before. December fed cattle settled at $127.15/cwt.

Cornbelt Update is a weekly publication by S2LS Ag Communications and Consulting.  Republication or distribution is prohibited without prior permission.  Subscription fee is $65 per year.  Address subscription requests to:  StuAgNews@aol.com © 2012

While the General Accounting Office is urging Congress to put a $40,000 cap on crop insurance indemnity benefits, ironically Congress may use the program as a club to enforce compliance with conservation requirements.  With the demise of direct payments, counter cyclical payments, ACRE payments, and SURE disaster payments, the only benefit left is a crop insurance check, should your crops be destroyed.  But Congress also is forcing farmers and landowners to observe soil conservation requirements and practices or the large payment for crop insurance would not be received, no matter how hard the wind blew. 

Agriculture program analyst Megan Stubbs works for the Congressional Research Service, and analyzed the impact if crop insurance payments were withheld from farm owners and operators who violated conservation requirements.  She said currently the reduction in soil erosion continues, but progress is slower now than it was after the implementation of the 1985 Farm Bill when the CRP and other programs were put in place.  She says, “The leveling off of erosion reductions leaves broad policy questions related to conservation compliance, including whether an acceptable level of soil erosion on cropland has been achieved; whether additional reductions could be achieved, and if so, at what cost; and how federal farm policy should encourage additional reductions in erosion.”

Detailing the Sodbuster, Swampbuster, and Sodsaver programs, Stubbs says conservation compliance applies to most farm program benefits, including the marketing loan program which may be the only benefit holdover into the next Farm Bill, along with crop insurance. Producers will be denied any conservation incentives, if they are out of compliance with program rules, but under a consideration of some members of Congress, crop insurance would also be denied, even though premiums had been paid.

Stubbs says conservation advocates worry that without direct payments, farmers would have little incentive to comply with conservation requirements, and they suggested the crop insurance linkage.  However, opposing the concept is farm organizations and the crop insurance industry who said they have worked hard to gain voluntary compliance and do not want to see it changed into a penalty.  She says USDA’s “Economics Research Service has determined that if crop insurance became the benefit that could be lost for non-compliance with conservation issues, the incentive for compliance would vary depending on location.” In the northern plains it would be an even larger incentive than direct payments, but in the Mississippi Delta there would be less of an incentive.

Is soil erosion serious enough to require a program with benefits that could be withheld for non-compliance? USDA’s Natural Resources and Conservation Service says during its 2007 soil inventory, 99 million acres or 28% of all cropland is eroding above tolerable rates (T).  That is an improvement from 1982, when it was 169 million acres or 40% of cropland.  NRCS says, “Compliance provisions could be responsible for approximately 295 million tons, or 25% of the 1.2 billion ton reduction in cropland soil erosion that occurred between 1982 and 1997.” 

Summary:
As Congress prepares to remove farm program benefits, it loses any potential penalty for not complying with conservation program requirements.  The focus turns to crop insurance, which most farmers may utilize, but not necessarily all who have highly erodible soils.  While threats of withholding crop insurance indemnities, in return for conservation compliance may not be a perfect penalty, it may be all that Congress may have.

There is no indication that beef lovers are turning vegetarian, even though nervous traders of cattle futures may think so.  Purdue livestock economist Chris Hurt says, “For now, market participants are taking a cautious approach until consumers more clearly define if they will reduce beef consumption.  Hurt believes that the larger drop in futures, compared to the cash market, indicates futures traders have over-responded to the potential negative fears of consumers.  On the other hand, he says, “There of course can be other possible explanations such as the possibility that futures markets were just too bullish on cattle prices in early March.  This argument would suggest that the excess optimism had to be taken out of the futures with prices forced to drop more than cash.”

The beef industry is a unique commodity, says Iowa State University livestock economist Shane Ellis because beef stays at home and becomes a home-grown fundamental of supply and demand, “because most of our nations beef supply is produced and consumed domestically there tends to be less uncertainty in the supply of beef or where the beef will be utilized. Cattle prices were getting stronger in the first two months of this year on the prospects of tighter cattle and beef supplies during 2012, but when consumer demand started to sway under weaker consumer confidence and record high beef prices at the meat counter, cattle prices declined and then steadied.”

Because of the cowboy’s reliance on the US consumer for his market, Ellis says he may be suffering from a lack of needed diversity, “Whether they are looking at the price of gas at the pump, domestic employment rates or the global macroeconomic outlook, there is not enough good news to build consumers’ confidence. Until there are better signs of the economy improving we will not see cattle prices making any improvements.”

Could the beef market continue to weaken?  Ellis thinks so, “The troubling part is that there is still room for the price to decline further. The 5-area weighted average cattle price is still at a record high for the last of week of April, and was not quite enough to keep cattle finishing easily profitable.”  But Hurt is concerned about the potential for a third lightning strike.  He says each of the two hits so far have done damage, and the damage may have been multiplied because there were two negative events so close together, “Probably a final reason to be cautions is the worry that, ‘the other shoe is going to fall.’  This simply means that a third negative event could have even larger impacts.  That might include something like finding another BSE cow in the U.S. herd that increased concerns of a larger problem.”

Hurt points to a positive fundamental as being the diminished supply of beef, as a support for prices.  But Ellis is more reserved, and says while the overall cost of food has been going up, the increase in the cost of beef has been more pronounced, “Ultimately we are reminded of just how sensitive the beef and cattle market can be to the economy. The unexpected bumps in the road can and will have a negative impact on the cattle market in the short run, but long term strength depends on the growth of economy and consumers having enough disposable income to spend comfortably.” 

For the livestock producer, Hurt says the soft prices may have discouraged some producers from expanding, particularly with the high rates of cow and heifer slaughter.  He says futures prices are excessively low and without any further negative events “forward prices are too depressed right now.”  Hurt says only time will tell whether the market will recover.

The new development expands the trading day to 22 hours.  It begins at 6 p.m. and ends at 4 p.m. the next afternoon.  That begins May 20—and is in response to a major challenge by the new InterContinental Exchange at Atlanta to take over the traditional grain and agricultural commodities traded in Chicago.

The open outcry trading in the iconic pits will remain 9:30 a.m. to 1:15 p.m.  However, the 22 hour per day trading will be on the electronic version of the Chicago Board of Trade—known as the CME Globex trading platform.  There is a lot of impact to this. 

First of all—farmers who call elevators to forward contract grain, place hedges, or buy options, will likely wait until the market closes at 4.  That means elevator merchandisers and managers will be working late every day.  Currently, it is easy to take care of that business between the 1:15 market close and when the elevator office closes at 5.  But not any more.

Secondly—the trading day will be underway when the USDA releases price-sensitive reports, typically at 7:30 a.m. and 3:00 p.m. when the market is not in operation.  Unless the USDA changes its schedule to release its commodity estimates between 4 p.m. and 6 p.m.—there will be some haves and have nots when a report is released during the trading.  Large trading groups will have the resources to get instant access, but a typical farmer will have to wait 15 or 20 minutes until his dial-up Internet modem taps into the information flow of the report.

Thirdly—Farmers who manage their price risk at the CME will have to be much more aware of the daily trading activity.  China may announce a major grain purchase during their business day, but that may be 1 a.m. here, and the markets could make major moves that the large brokerages follow, but can’t be followed easily by the typical producer.

It will take some time to get used to waiting until 4 p.m. to see how the market closed, or did it just temporarily stop so records could be updated, and margin calls made. Probably, more of the latter than the former.

Summary:
Beginning with the trading on Sunday evening May 20, the CME Globex trading floor will be in operation 22 hours per day, with the official start at 6 p.m. and the market close at 4p.m. the following day.  The open outcry will remain its regular morning and early afternoon hours.  The change will have impact on farmers who closely follow the price action, and elevators who provide hedging services. 

UPDATE—May 3, 2012

There have been many new developments in this story since May 1.
1)  The CME had planned to begin the new schedule with the Sunday evening trading session on May 13.  Because of the necessity of a 10 day waiting period required by the Commodity Futures Trading Commission, the start has been postponed until May 20.

2)  The Minneapolis Grain Exchange has also announced a 22 hour trading period for its hard red spring wheat contract, beginning on May 20, also with the 6 p.m. to 4 p.m. trading period.

3)  The Kansas City Board of Trade has also announced plans for a 22 hour trading period for its hard red winter wheat futures contract and options, beginning the same day, and for the 6 p.m. to 4 p.m. trading period.

The process was set in motion by the InterContinental Exchange (ICE) which had previously numerous commodities on 24 hour or nearly 24 hour clocks, due to its relationships with the exchanges in London, New York, and Singapore.  However, when ICE moved to add corn, wheat, and soybean futures, along with soybean meal and oil, the US-based exchanges felt pressured to respond to the competition.

The National Grain and Feed Association—composed of grain elevators, grain handlers, and processors—has protested the action by the exchanges, contending it will create personnel problems for many elevators in having to serve clientele for much longer hours.

Additionally, the USDA is concerned about some of its data users being at a disadvantage when price-sensitve information is released during trading sessions.  The USDA says it will study the implications, but no decision has been announced.
~Editor

The new development expands the trading day to 22 hours.  It begins at 6 p.m. and ends at 4 p.m. the next afternoon.  That begins May 20—and is in response to a major challenge by the new InterContinental Exchange at Atlanta to take over the traditional grain and agricultural commodities traded in Chicago.

The open outcry trading in the iconic pits will remain 9:30 a.m. to 1:15 p.m.  However, the 22 hour per day trading will be on the electronic version of the Chicago Board of Trade—known as the CME Globex trading platform.  There is a lot of impact to this. 

First of all—farmers who call elevators to forward contract grain, place hedges, or buy options, will likely wait until the market closes at 4.  That means elevator merchandisers and managers will be working late every day.  Currently, it is easy to take care of that business between the 1:15 market close and when the elevator office closes at 5.  But not any more.

Secondly—the trading day will be underway when the USDA releases price-sensitive reports, typically at 7:30 a.m. and 3:00 p.m. when the market is not in operation.  Unless the USDA changes its schedule to release its commodity estimates between 4 p.m. and 6 p.m.—there will be some haves and have nots when a report is released during the trading.  Large trading groups will have the resources to get instant access, but a typical farmer will have to wait 15 or 20 minutes until his dial-up Internet modem taps into the information flow of the report.

Thirdly—Farmers who manage their price risk at the CME will have to be much more aware of the daily trading activity.  China may announce a major grain purchase during their business day, but that may be 1 a.m. here, and the markets could make major moves that the large brokerages follow, but can’t be followed easily by the typical producer.

It will take some time to get used to waiting until 4 p.m. to see how the market closed, or did it just temporarily stop so records could be updated, and margin calls made. Probably, more of the latter than the former.

Summary:
Beginning with the trading on Sunday evening May 20, the CME Globex trading floor will be in operation 22 hours per day, with the official start at 6 p.m. and the market close at 4p.m. the following day.  The open outcry will remain its regular morning and early afternoon hours.  The change will have impact on farmers who closely follow the price action, and elevators who provide hedging services. 

UPDATE—May 3, 2012

There have been many new developments in this story since May 1.
1)  The CME had planned to begin the new schedule with the Sunday evening trading session on May 13.  Because of the necessity of a 10 day waiting period required by the Commodity Futures Trading Commission, the start has been postponed until May 20.

2)  The Minneapolis Grain Exchange has also announced a 22 hour trading period for its hard red spring wheat contract, beginning on May 20, also with the 6 p.m. to 4 p.m. trading period.

3)  The Kansas City Board of Trade has also announced plans for a 22 hour trading period for its hard red winter wheat futures contract and options, beginning the same day, and for the 6 p.m. to 4 p.m. trading period.

The process was set in motion by the InterContinental Exchange (ICE) which had previously numerous commodities on 24 hour or nearly 24 hour clocks, due to its relationships with the exchanges in London, New York, and Singapore.  However, when ICE moved to add corn, wheat, and soybean futures, along with soybean meal and oil, the US-based exchanges felt pressured to respond to the competition.

The National Grain and Feed Association—composed of grain elevators, grain handlers, and processors—has protested the action by the exchanges, contending it will create personnel problems for many elevators in having to serve clientele for much longer hours.

Additionally, the USDA is concerned about some of its data users being at a disadvantage when price-sensitve information is released during trading sessions.  The USDA says it will study the implications, but no decision has been announced.
~Editor

Most rational people would hesitate to trust me with their money, at least without evidence. Skeptics would challenge: “Why should we trust you?”

Randomly put 100 climate scientists in a room, and 97 would say that humans affect Earth’s temperature. Out of that hundred only three disagree.

Now, honest people are free to disagree. And we know that the scientists’ conclusions are only opinions. Their opinions are informed by the evidence, however. And after looking at the available evidence, 97% agree that climate change is “very likely” caused mainly by human activity.

Farmers will be hit hard by a changing climate. Pests and crop-yields will fluctuate wildly. And climate-change will create uncertainty in global markets, which affects local producers. Even Monsanto is concerned.

Additionally, we know that a renewable wind industry can bring billions of dollars and thousands of jobs to Nebraska and the midwest. Ignoring the facts on climate change stifles these opportunities, sending the jobs elsewhere.

Experts and scientists can be wrong. Science is “the belief in the ignorance of experts,” after all. We shouldn’t trust someone because they’re an “expert.” We should trust them because they share their evidence and reasoning. They have to earn our trust, just like financial traders have to earn our investment.

You wouldn’t hand over your money without proof. Nobody wants to end up like Jack in the story, selling the cow for a handful of promises. Despite the enchanting fairytale, we know there are no magic beans. We live in a world of cause and effect.

So while we may (partially) be causing climate-change...we can also affect it.

The beanstalk of green energy is a step towards our bright future.

---

You can reach Paul Mansoor via telephone (402-687-2103 x 1028), or email (paulm@cfra.org), and you can follow him on Twitter @paul_at_cfra

Most rational people would hesitate to trust me with their money, at least without evidence. Skeptics would challenge: “Why should we trust you?”

Randomly put 100 climate scientists in a room, and 97 would say that humans affect Earth’s temperature. Out of that hundred only three disagree.

Now, honest people are free to disagree. And we know that the scientists’ conclusions are only opinions. Their opinions are informed by the evidence, however. And after looking at the available evidence, 97% agree that climate change is “very likely” caused mainly by human activity.

Farmers will be hit hard by a changing climate. Pests and crop-yields will fluctuate wildly. And climate-change will create uncertainty in global markets, which affects local producers. Even Monsanto is concerned.

Additionally, we know that a renewable wind industry can bring billions of dollars and thousands of jobs to Nebraska and the midwest. Ignoring the facts on climate change stifles these opportunities, sending the jobs elsewhere.

Experts and scientists can be wrong. Science is “the belief in the ignorance of experts,” after all. We shouldn’t trust someone because they’re an “expert.” We should trust them because they share their evidence and reasoning. They have to earn our trust, just like financial traders have to earn our investment.

You wouldn’t hand over your money without proof. Nobody wants to end up like Jack in the story, selling the cow for a handful of promises. Despite the enchanting fairytale, we know there are no magic beans. We live in a world of cause and effect.

So while we may (partially) be causing climate-change...we can also affect it.

The beanstalk of green energy is a step towards our bright future.

---

You can reach Paul Mansoor via telephone (402-687-2103 x 1028), or email (paulm@cfra.org), and you can follow him on Twitter @paul_at_cfra

The USDA’s weekly crop progress report provides some amazing data on the progress of the 2012 planting season.  For example, OH farmers had planted only 1% of their corn crop by April 29 of 2011, but by that date this year, 57% of the corn had been planted.  While only 6% of it had emerged, it represents a significant change of crop potential and reduced psychological stress for farmers in OH.

IL farmers remain the Cornbelt leader with 79% of the corn planted, followed closely by 75% in MO.  IL is ahead of TX where 70% of the crop is planted.  However, weather has likely paused planting progress in TX, which only moved from 65% planted last week to 70% this week.  In IL the 79% planted compared to 59% last week.  And while only 34% of the IL corn has emerged, the TX crop will be typically earlier, since it is already at 53% emerged.  However that is behind the 62% emerged for TX at this time averaged over the past 5 years.

When planting progress is examined the nod goes to IA farmers who shifted into high gear in the past week and moved from 9% planted to 50% planted.  When considered with the amount of intended corn acres in IA this year that means IA farmers planted 5.986 million acres of corn in the past week.  Compared to neighboring IA, IL planted 20% of its intended corn acres, 37% for MN, 30% for NE, and 25% for MO and KS. 

Soybean planting, of course is well behind, but compared to the 5 year average is slightly ahead for the 18 states that produced 95% of the US soybean crop in 2011.  For the Cornbelt, only 8% of the soybean crop is planted, compared to 12% nationally.  Southern states have set the curve with 40-60% planted. 

Leading the Cornbelt is IN at 28%, followed by OH at 16% planted and IL at 13% planted.  During the past week, IN farmers planted 867,000 acres of beans.  While IN is more than one-quarter planted, that compares to no soybeans planted at this time last year, and only 4% for the five year average.

Looking at the wheat crop, 54% is headed on a national basis, which compares to 24% at this time over the past 5 years.  Some Cornbelt farmers may be cutting wheat before they finish planting row crops, when the maturity of the wheat is compared to planting progress.  For example 84% of the MO wheat crop is headed, yet only 8% of MO beans and 75% of MO corn had been planted.

The wheat crop is in better shape than it was a year ago.  This year 64% is good to excellent, with 26% of the crop in the fair category.  Last year at this time, 25% of the crop was also fair, but 21% was poor, and only 34% was in the good to excellent category.  Within the Cornbelt, IL reports 80% of its wheat is good to excellent.  That is closely trailed by IN at 75% good to excellent, and 68% for MO.

Summary:
Continuation of good weather nationally and across the Cornbelt have fostered good planting conditions, but varying weather has either accelerated or retarded planting progress in the past week.  Soybean planting is underway in the Cornbelt, but is much more varied than corn, indicating some regions of sufficient moisture, and others with very dry soils that have caused planters to park.  Wheat conditions are much better this year than last, and headed wheat has move the calendar much closer to harvest than would normally be the case.

For all of the opposition to agricultural spending, it would seem like someone would hold up the Farm Bill and announce the cost of the bill.  But that is not in the mindset of Congress at the moment.  Instead, the proposal is being built on how much is not being spent.  With everything in Washington keyed on budget reduction, the Farm Bill is not going to cost $500 billion over five years, or whatever the total might be.  Instead, lawmakers are falling over themselves trying to effect savings, and the legislation that passed the Senate Ag Committee was designed to save $26.4 bil. 

In fact the proposal had been modeled after a fall 2011 plan by the leadership of the House and Senate Ag Committees which was designed to save $23 billion over the 10 year federal budget baseline.  But the Committee came up with additional savings, and just did not happen to announce the total cost.  That is where the Congressional Research Service (CRS)  comes into play, providing background to lawmakers and others about the cost of the legislation, what all is involved, and reasons for the policy. 

CRS agriculture specialist Jim Monke says “Budget issues are one of the primary factors affecting the development of a new farm bill, particularly in a Congress that is focused on deficit reduction.”  And adds, “Funding for the Farm Bill will be based on the Congressional Budget Office (CBO) baseline projection of the cost of the these farm bill programs.”  And with the supervision of the House and Senate Budget Committees, “the process sets the mandatory budget for the farm bill.”  Monke says the CBO makes periodic adjustments to the baseline to reflect changing economic conditions and the mandatory elements include provisions for commodity payments and crop insurance, “This allows major farm bill provisions such as the farm commodity programs or nutrition assistance to be reauthorized periodically without assuming that funding will cease or following zero-based budgeting.”

The number that you have not heard is the cost of the legislation, which is $995 billion over the course of the next 10 years, for the mandatory elements of the Farm Bill. 
1. $772 billion or 78% is for domestic nutrition assistance programs, primarily the Supplemental Nutrition Assistance Program (SNAP).
2. $223 billion, is divided among various agriculture-related programs,
    a. Crop insurance ($90 billion, or 9%),
    b. Farm commodity price and income supports ($63 billion or 6%),
    c. Conservation ($65 billion, or 7%).
    d. 1% of the baseline is for international trade ($3 billion)
    e. Horticulture programs ($1 billion).

Monke says the budget situation is more difficult and uncertain this year than prior Farm Bill debates because of the federal budget, and he says, “Several high-profile congressional and Administration proposals for deficit reduction are specifically targeting agricultural programs with mandatory funding. Across-the-board reductions to most farm bill programs also could occur in 2013 unless Congress avoids an automatic budget sequestration process.”

The largest part of the Farm Bill has been growing rapidly.  The SNAP or nutrition program was only 67% of the 10 year total in 2008, but it is 78% of the 10 year total in the current year’s appropriation.  That is the result of the increased needs for food assistance.  At the same time crop insurance outlays have also risen because of the higher values of commodities.  And also at the same time the commodity program outlay has fallen because higher market prices have eliminated the need for counter-cyclical funding.

The House Agriculture Committee was supposed to report by April 27 what programs in the Agriculture budget it was going to cut to meet the mandated $33.2 billion in budget reductions. That mandate had come from the House Budget Committee.  There has been no word on that occurring; however subcommittees are in the middle of their final hearings before assembling their Farm Bill proposal. 

Independent of those requested cuts, the House Budget Committee has asked for $179 billion in cuts over 10 years in the funding jurisdiction of the House Agriculture committee.

Summary:
Agriculture Committee members on Capitol Hill are working on the 2012 Farm Bill, but their focus is on cutting programs, and not on expanding programs.  In fact, the proposals all vie for the most that is being cut from the Farm Bill.  There will be a combination of cuts of mandatory programs, such as nutrition, crop insurance and commodity programs, along with cuts being made in annually-funded discretionary programs.

For all of the opposition to agricultural spending, it would seem like someone would hold up the Farm Bill and announce the cost of the bill.  But that is not in the mindset of Congress at the moment.  Instead, the proposal is being built on how much is not being spent.  With everything in Washington keyed on budget reduction, the Farm Bill is not going to cost $500 billion over five years, or whatever the total might be.  Instead, lawmakers are falling over themselves trying to effect savings, and the legislation that passed the Senate Ag Committee was designed to save $26.4 bil. 

In fact the proposal had been modeled after a fall 2011 plan by the leadership of the House and Senate Ag Committees which was designed to save $23 billion over the 10 year federal budget baseline.  But the Committee came up with additional savings, and just did not happen to announce the total cost.  That is where the Congressional Research Service (CRS)  comes into play, providing background to lawmakers and others about the cost of the legislation, what all is involved, and reasons for the policy. 

CRS agriculture specialist Jim Monke says “Budget issues are one of the primary factors affecting the development of a new farm bill, particularly in a Congress that is focused on deficit reduction.”  And adds, “Funding for the Farm Bill will be based on the Congressional Budget Office (CBO) baseline projection of the cost of the these farm bill programs.”  And with the supervision of the House and Senate Budget Committees, “the process sets the mandatory budget for the farm bill.”  Monke says the CBO makes periodic adjustments to the baseline to reflect changing economic conditions and the mandatory elements include provisions for commodity payments and crop insurance, “This allows major farm bill provisions such as the farm commodity programs or nutrition assistance to be reauthorized periodically without assuming that funding will cease or following zero-based budgeting.”

The number that you have not heard is the cost of the legislation, which is $995 billion over the course of the next 10 years, for the mandatory elements of the Farm Bill. 
1. $772 billion or 78% is for domestic nutrition assistance programs, primarily the Supplemental Nutrition Assistance Program (SNAP).
2. $223 billion, is divided among various agriculture-related programs,
    a. Crop insurance ($90 billion, or 9%),
    b. Farm commodity price and income supports ($63 billion or 6%),
    c. Conservation ($65 billion, or 7%).
    d. 1% of the baseline is for international trade ($3 billion)
    e. Horticulture programs ($1 billion).

Monke says the budget situation is more difficult and uncertain this year than prior Farm Bill debates because of the federal budget, and he says, “Several high-profile congressional and Administration proposals for deficit reduction are specifically targeting agricultural programs with mandatory funding. Across-the-board reductions to most farm bill programs also could occur in 2013 unless Congress avoids an automatic budget sequestration process.”

The largest part of the Farm Bill has been growing rapidly.  The SNAP or nutrition program was only 67% of the 10 year total in 2008, but it is 78% of the 10 year total in the current year’s appropriation.  That is the result of the increased needs for food assistance.  At the same time crop insurance outlays have also risen because of the higher values of commodities.  And also at the same time the commodity program outlay has fallen because higher market prices have eliminated the need for counter-cyclical funding.

The House Agriculture Committee was supposed to report by April 27 what programs in the Agriculture budget it was going to cut to meet the mandated $33.2 billion in budget reductions. That mandate had come from the House Budget Committee.  There has been no word on that occurring; however subcommittees are in the middle of their final hearings before assembling their Farm Bill proposal. 

Independent of those requested cuts, the House Budget Committee has asked for $179 billion in cuts over 10 years in the funding jurisdiction of the House Agriculture committee.

Summary:
Agriculture Committee members on Capitol Hill are working on the 2012 Farm Bill, but their focus is on cutting programs, and not on expanding programs.  In fact, the proposals all vie for the most that is being cut from the Farm Bill.  There will be a combination of cuts of mandatory programs, such as nutrition, crop insurance and commodity programs, along with cuts being made in annually-funded discretionary programs.