The sight and sound of water is most often associated with feelings of tranquility and peacefulness.  Most of us love to sit and watch the gentle ripple of waves on the ocean or the shimmering of light upon water.  Similarly the sound of water in a stream tends to have a soothing effect.

Even the sight of towering waves in a storm are generally found to be exciting, providing of course they are viewed from a safe distance.  We can spend endless hours in fascinated contemplation of water, enjoying its movement and fluidity.  We love to see the range of colors and patterns which water has the ability to reflect in different lights and perspectives.

And when presented with a scorching hot day the thought of taking a cool dip in water is something that is indescribably delicious.  Even a person who is afraid of swimming can find the idea of a cool dip extremely appealing.  It's just the reality which somehow makes that person’s skin prickle, their stomach churn and keeps them rooted to their spot at the waters edge, or beating a swift retreat in the opposite direction.

Where does that kind of fear come from?  For a person who has never been afraid of swimming it's hard to comprehend such fear.  But for one who is afraid of getting in the water that fear is both debilitating and annoying.  It is totally frustrating.

You know that the human body naturally floats.  You know logically that it's pretty difficult to sink.  You know you should be able to let go of the edge and that it’s ok to put your face in the water.  Yet despite this knowledge, fear has a vice like grip upon your emotions that just won't let you take that risk. 

Fear of swimming for many people is something that they choose to live with instead of to confront.  But there comes a time in your life when you make up your mind to face your fears and conquer them.  It's only once you make that decision that you really begin to look around to see what help might be available.

Then you start to ask yourself where your fear came from.  Some people can remember a bad experience with water and can identify that root cause of their fear.  Others cannot recall any such event.  But even if you can recall a frightening experience, you do still know that there is no reason to be afraid now.  So you know that your instinctive emotional reaction is somehow propelled by something other than pure logic.

When you suffer from a fear that is not quite logical, and it just appears instinctively, you know that your subconscious mind is driving your reaction.  Thus if you wish to overcome this type of fear you must find a way to break into this subconscious cycle of reaction.  Hypnosis allows you to do just this.

With hypnosis you can access your subconscious thoughts and emotions.  You can also re-pattern those thoughts and change your instinctive response and expectations.  Hypnosis can be effectively used to overcome fear of swimming.

Roseanna Leaton, specialist in hypnosis downloads to overcome fears and phobias.

P.S.  Discover how you can focus your mind with hypnosis.  Grab a free hypnosis mp3 from my website now.

About the Author

Grab a free hypnosis mp3 from http://www.RoseannaLeaton.com and check out her library of hypnosis mp3 downloads to help overcome fear of swimming.

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A lot of emphasis is put on the trend line, and it is only an average of yields over time.  High yields get higher and low yields get higher also, consequently the trend line slopes upward and has risen from about 60 bushels per acre in 1960 to 160 bushels per acre in 2012.  There is a fancy formula for the trend line, but don’t lose any sleep over understanding what it means.  But the interesting issue is whether the 2012 corn yield will recover from two years of substandard performance and bend the average back up.  If not, the trend will not climb quite as fast, if that is important to you.

University of Illinois ag economists Darrel Good and Scott Irwin analyzed the ups and downs of corn yields and contend that the rate of climb in the trend line has not really increased in recent years, although the period of 2003 to 2009 recorded yields above the trend line.  But they say several of those in the middle of that period may be below the trend, if the trend line had bent upward at a greater increase.

Interestingly, the last 50 years has seen 60% of the yields above the trend line and 40% of them below the line.  However, the above average yields were not as high above the trend line compared to how low the below average yields fell below the line.  Consequently, fewer yields, such as 1983, 1988, and 1993 weighed down the average to a substantial degree.  When yields are above the trend line the average is 5.6 bushel above, but when they are under the trend line the average is 8.6 bushels below.  And the reason for that is weather, say Good and Irwin.  When the weather is bad, it is really bad, but when it is good, it is good, but not that good.

The question on your mind and the minds of traders, merchandisers, cowboys, ethanol refiners and billions of other end users around the world is whether the 2012 crop will bounce back after two years of sub-par performance.  The economists looked at the number of times above trend line yields followed each other, the number of times below trend line yields followed each other, and how often they reversed themselves from year to year.  On the below trend line yields, there was one period of four years, but on the above trend line runs, there were periods of four, five, and seven years.

Looking at the chance for a three-peat for a below trend line yield this year, Good and Irwin say there are three other periods of two year runs below the average.  Two of those were followed by a third year below the trend line before a fourth year spiked above it.  But the third case began a four year run of below average corn yields.

Summary:
The national average corn yield this year is anyone’s guess, along with whether the yield will be above or below the trend line.  Good yields are more frequent than poor yields, but when yields are poor they are more significant than the good yields.  Frequently, yields in successive years will stay either above or below the trend line, with a slight tendency toward annual reversals.

The question about multiple year crop rotations arises with the recent results of corn yields from continuous corn and corn after corn.  You probably have not been bragging about those to your friends lately, and declining yields for multiple year corn can be blamed on a variety of reasons.  But University of Illinois Farm Management Specialist Gary Schnitkey has penciled out multiple year crop budgets which indicate decisions one year may be hurting your revenue in future years.  He suggests looking at longer run impacts from yearly cropping decisions.

Schnitkey evaluated a trio of crop rotations:
1) Corn after soybeans, which resulted in a 198 bu. corn yield, on $505 non-land costs.
2) Corn after corn, which resulted in a 188 bu. yield, on $520 non-land costs.
3) Continuous corn, which resulted in a 180 bu. yield, on $520 non-land costs. 
When planted within the rotation with corn, soybeans yielded 56 bu. for a corn after soybean rotation, but the beans yielded 59 bu. after two years of corn. 

Based on a $5.35 corn price and a $11.85 soybean price, Schnitkey calculated crop returns to labor, management, and land at:
$578 for corn-after-soybeans,
$510 for corn-after-corn,
$467 for continuous corn,
$390 for soybeans-after-corn, and
$425 for soybeans-after-two-years-corn.

Schnitkey’s yields and revenue are likely different than yours, so plug in your yields and prices, and then use those in developing a three year revenue projection for your crop.  As revenue changes from year to year, based on a different crop mix, Schnitkey’s three rotations created average annual revenue of:
$484 for corn-soybeans
$504 for corn-corn-soybeans,
$467 for continuous corn.

He says switching from a corn-corn-soybean rotation to continuous corn will produce a $16 per acre higher return in the first year, but $23 lower return in the second year and $37 lower returns in the third year.  Consequently a switch from continuous corn to a corn-corn-soybean rotation would produce a $14 lower return in the first year, a $23 higher return in the second year and a $37 higher return in the third year.  And Schnitkey says, “Key to the above calculations are the assumptions concerning yield drags for corn-after-corn and continuous corn. Lower yield drags will cause the profitability of more intense rotations to increase.”

Consider also the prospect of different commodity prices in future years.  His calculations were based on forecast averages for 2012, but Schnitkey says in coming years prices will likely be lower, and he calculated the rotations based on $4.50 corn and $10.50 soybeans.  Those generated a $362 return for a corn-soybean rotation, a $364 return for a corn-corn-soybean rotation and a $299 return for continuous corn.

Summary:
Crop rotations generate a specific return to management and land, but they could be quite different if extended over a multiple year period.  When yield drag is considered for multiple year corn, and lower revenue is considered for soybeans, some wide variations can be generated for revenue.  Producers may want to consider multiple year revenue projections as they consider crop rotations.

Keeping your stored grain safe is the same challenge a small town banker may have.  The vault may only hold several hundred thousand dollars, but to a farm family that may be the entire years’ income and the last thing you want to happen is being forced to sell it at salvage value.  Your crop insurance policy does not cover grain that might spoil in the bin.  And the odd winter weather we have had puts in jeopardy some of the stored grain and creates challenges for farmers who need to keep the air flowing.

In the next several days your state climatologist will be issuing his or her report on January weather and how much warmer it may have been compared to other years back to 1895.  That should be a reminder your grain bins may need more attention than usual.  University of Nebraska ag engineer Tom Dorn points out a number of issues that you want to put on your checklist, if your stored grain is still a work in progress. 

Dorn says a lot of grain went into the bin in good condition, because early maturity and harvest conditions produced dry grain.  But the warm fall temperatures meant grain went into the bin too warm to maintain the quality of the grain; and it should have been cooled to about 40º F as outside temperatures fell.  But the grain should not be cooled to the point of freezing.

If your grain is cool, but still higher moisture than you would like going into the spring, Dorn says wait for a warmer day with low humidity to turn on the fan for more aeration.  But he says there may be some times when putting air into the grain will also put more moisture into it. Whether that happens depends on the temperature of the grain.  He says, “When the air temperature is 50ºF and the relative humidity is 50%, the dew point temperature is 32º, and when the grain temperature is lower than the dew point temperature, air will condense moisture onto the grain until the air stream warms the grain mass above the dew point temperature.”  He is concerned about the development of frost in the grain, which not only adds moisture but retards air movement through the grain.

If you have had blowing snow drop into the top of your bin, warmer temperatures will convert that to moisture in the grain and home to insects and mold, so beware of any snow that has made its way into the bin.  When you check the bin, open the roof hatch, then turn on the fan and climb back up.  Dorn says let the air hit you in the face.  If the air is warmer than expected, more moist than expected, or condensation underneath the bin roof you have a problem.

Dorn says run the fans long enough to uniformly cool the grain and to do that use a probe with a grain thermometer.  Probe down 3-4 feet, probe several feet in from the bin wall, and probe several spots in the center of the bin.  If the temperature readings are more than 8º apart, run the fan until the temperatures are more uniform.

As the weather warms the temperature of the grain must be helped to warm up as well.  Warm it in stages up to 40º, and if the moisture is too high for spring and summer storage, then do some additional drying on days of low humidity.  Keep the corn within the typical range of day and nighttime temperatures.

Summary:
Unseasonable temperatures during the winter may have created problems within grain bins, in case the stored grain was above the typical 15% moisture for corn and 13% for soybeans.  Because of the value of the grain, farmers should keep close watch on the quality and be prepared to aerate it if spoilage is a potential.  Check the quality frequently, probe the grain to determine uniformity of temperature, and aerate the grain if there is a more than 8º variation.  Beware that introducing warmer air into cooler grain can cause condensation or even frost, both of which will create further problems.

Global ethanol production has increased substantially in the past decade to provide an alternative to fossil fuels, and many governmental policies around the world indicate that trend may continue, says a recent article in Amber Waves, an electronic magazine from USDA’s Economics Research Service.  Their focus was on Brazil, which is the world’s second largest ethanol producer, behind the US.  But Brazilian ethanol is produced from sugarcane, instead of corn or biomass.  The reason is an increased capacity to produce cane and supportive government policies for the conversion to ethanol. “But Brazil will need to sustain production growth in the ethanol sector in order to meet increasing domestic demand and maintain its export share,” say the USDA economists.

But before ethanol, which was a large market for sugarcane in the 1970’s, was the global sugar market, and Brazil is the world’s largest sugarcane producer.  With the introduction of ethanol, the conversion was easy with a good climate, abundant land and labor, public demand and public policies that were supportive.  Continual production improvements have made sugarcane a large and profitable crop.  In 2010 ethanol was consuming 55% of the sugarcane being produced in Brazil.  The allocation of how much sugarcane goes to ethanol and how much to sugar production is determined by cane millers based on expected sugar and ethanol prices and the market demand.  There are 430 plants that convert sugarcane into ethanol in Brazil, a doubling of production in the past decade.  27 billion liters—7 billion gallons—of ethanol was produced in Brazil in 2010.

By 2008 Brazil was exporting 19% of its production, but that was a peak, and numbers have declined to 7% in 2010.  But once a supplier of 62% of global exports, that volume has declined substantially due to strong domestic demand for ethanol and increased global sugar prices which pulled more of the sugarcane away from the ethanol refineries into the sugar refineries.

(Jib, one of the frequent commenters here suggested that a Brazilian policy toward increased sugar production would have a positive impact for the US ethanol industry.  He said, “World production of sugar, on average, may have a hard time meeting consumption. Brazil is projected to have to move from producing 1 in 5 pounds of the world’s sugar in 2006 to 1 in 4 by 2015. The increased sugar demand for non-fuel consumption may keep it out of fuel production. This may help keep US corn moving into US ethanol production. Brazil’s great plan of supplying the world ethanol could find a delay with the increasing food demand.”

In response, University of Illinois marketing specialist Darrel Good said, “World sugar production problems and high sugar prices have cut into Brazilian ethanol production for more than a year now and is on-going. U.S has picked up that ethanol export demand.  Eventually, high sugar prices will result in surplus production and a return to Brazilian ethanol exports—just don’t know when.”

Brazil has government policies promoting ethanol, including flex fuel cars, mandatory blending targets, tax exemptions, and other incentives, along with incentives to sugarcane producers to ensure ethanol is produced.  However, Brazil also has some long term plans for ethanol exports, helped by a target of increasing ethanol production by 45% over the coming decade.  But the ERS economists say, “However, Brazil’s ability to provide the bulk of the world’s import needs will depend on its domestic ethanol demand, world sugar and oil prices, Brazil’s currency exchange rate, and the capacity of its infrastructure to move ethanol to ports.” 

World sugar prices are a key to whether Brazil becomes an ethanol competitor to the US.  USDA says, “When the sugar price is high, more sugarcane is used for sugar; lower sugar prices favor conversion of sugarcane to ethanol. In late 2010, when the world sugar price fell to under 14 cents per pound from a 29-year high of 30 cents per pound earlier that year, the share of sugarcane used for ethanol rebounded.”

The economists say in the future, sugar and crude oil prices will need to remain at levels that encourage ethanol production, if Brazil is to be an ethanol exporter.  But as Darrel Good notes, high sugar prices will encourage higher production and Brazil may be producing both sugar and ethanol for export.

Summary:
Brazil has an abundant supply of sugar cane and has been a global supplier of sugar, as well as a recent supplier of ethanol made from sugar cane.  Brazil had been seen as a significant competitor to corn-based ethanol in the US, but more US is being shipped to Brazil than is Brazilian ethanol coming to the US.  Future pricing of sugar and oil will influence whether Brazil becomes a sugar exporter or an ethanol exporter.

Although the energy goals mentioned during his recent State of the Union address were laudable, President Obama must now turn attention to the improvement of our nation’s electric transmission system. Upgrading and expanding clean energy transmission will create jobs, spur new industries, and lead to a more-sustainable future for rural America.

Before putting numbers on paper, let’s see what is driving corn prices.  University of Illinois marketing specialist Darrel Good suggests there are many drivers for corn prices.  While some are in a forward gear, others are in reverse, they are all going at different speeds, and some of them could turn on a dime.  It takes a firm hand on the steering wheel and some strong vision to get to the destination.  But you have to beware of the hills, curves, and chuckholes.

What are those factors driving old crop prices:
1) Old crop prices are being supported by a good rate of consumption, and some uncertainty about how much corn South American will contribute to the world demand.
2) Basis levels have been strong, and unusually strong in some areas where local consumption is at a high level.
3) Corn stocks are at a five year low, and when the marketing year is finished next August, the carryover is expected to be at 6.7% of the use.
4) Ethanol has lost its tax credit, but not its octane, and the blending economics indicate there is still strong demand.
5) Corn export projections were recently raised by USDA, because of lower potential exports from Argentina.  And if weather continues to deteriorate, the crop could decline further and exports projections will have to be further adjusted.
6) Demand from China has been steady, with weekly purchases.
7) Domestic feed use has been at a low level because of reduced livestock production.

What are factors driving new crop prices:
1) Since March 2013 futures are lower than March 2012 futures, the market is anticipating a large new crop, resulting from better weather and increased acreage.
2) Inventory is expected to build with a return to trend line yields.
3) Planted acreage may increase 2 million over 2011 to 94 million, with the help of expiring CRP contracts.
4) Harvested acreage could jump 3 million to 87 million.
5) A trend line yield of 160 bushels would produce a crop just under 14 billion bushels, and

Good says demand would have to increase by 10% to avoid any further build up of stocks.
That is your road map, but as you travel that road, there will be some detours along the way, and there will be some areas of open road and better speed.  So what is your strategy to get to the destination?  Michigan State University marketing specialist Jim Hilker first suggests a look at your balance sheet and cash flow projections to find out how much risk you can bear.  Every farmer will be different, so look at your own situation to determine how much downside risk is reasonable, and not reasonable.  Hilker offers his forecasts of probability of corn prices.  For December 2012 corn, there is a 30% chance they will be less than $4.70, there is a 50% chance corn prices will be less than $5.38, and a 70% chance they will be less than $6.18.  Another view is that there is an 80% chance is that December futures will fall between $3.85 and $7.54.  Watch where the current price is in that range to determine the chance for higher or lower prices.

Hilker says there may be both upside and downside potential of risk, but you have pricing targets that you can set, knowing the chances of prices reaching certain levels.  With the $5.38 midpoint of the probability range, set your price targets high enough to reach profitable pricing levels, but also set your sell stops above levels where downside risk is too great.  Hilker says there is a good deal of market support below the $5.80 level, and strong resistance in the $6.60 range.

Summary:
Old crop corn prices have fluctuated within a $1 range and new crop prices have floated in an 85¢ range, all driving by a variety of factors including South American weather, livestock feeding, ethanol production and other factors.  Marketing will depend on the amount of risk that can be taken by the producer.  Determine your risk that can be assumed, and set price targets within the probability range of corn prices.

The January 20 Cattle on Feed Report indicated 11.9 million in feedlots, 3% above year earlier levels, with December placements 6% below prior numbers and December marketings 2% below prior levels.  Other disappearance was 40% above December of 2010, which includes death loss, movement back to pasture, and shipments to other feedlots.

With hefty numbers in feedlots, will there being enough feed?  USDA’s latest Feed Outlook says even though more cattle were in feedlots, there is more corn in the bin, and enough to offset lower sorghum production.  The feed grain supply for the current marketing year is forecast at 358 MMT, with total feed use for the current marketing year at 334 MMT, reflecting higher corn exports.  Domestic use is expected to be 290.5 MMT, down slightly reflecting lower projected feed use and lower sorghum supplies.  Barley and oat production was unchanged.  Wheat feeding is only addressed in passing “because of decreasing in projected feeding.”

Animal numbers are slightly higher, with grain consuming animal units forecast at 93.7, up from 93.3 million projected in December.  Higher beef and pork production than was expected, but less poultry production is anticipated.

1) Corn projections have been raised slightly to 12.358 bil. bu., which is down by 89 mil. bu. from last year, but reflects increased acreage and lower yields.  Feed use of corn is project at 4.6 bil. bu.  September to December stocks disappearance was estimated at 1.838 bil., bu. down 233 mil. bu. from year ago.

2) Corn used for ethanol production was estimated at 5.0 bil. bu. up slightly from the same period a year ago, but increased production was attributed to blenders trying to get as much out of the VEETC tax as possible, which expired at the end of the year.  And ethanol production is expected to slow early in 2012.  Corn use will be about 5 bil. bu. and ethanol exports will grow slightly.  Exports will be slightly larger to 1.650 bil. bu. and ending stocks should be 1.127 bil., resulting in an increase in feed stocks to 4.792 bil. bu.

3) Sorghum production is estimated at 214 mil. bu., down 132 mil. from year ago levels.  Production is down as a result of less acreage and less yield per acre.  Consequently lower sorghum for feed use is 20 mil. bu. less.

4) USDA lowered the price range for corn by a dime, and it now stands at $5.60 to $6.60 for the current year.  USDA says strong demand from ethanol producers and tight supplies still exist.

Hay stocks on farms at the first of December totaled 91 mil. tons, down 11% from year ago levels.  Disappearance for the May to December period totaled 62 mil. tons, and hay stocks declined everywhere except for the upper plains states.  The declining supply was attributed to many livestock producers feeding it earlier than planned.  All hay production totaled 131 mil. tons, down 10% from last year.  Dry weather in the southwest reduced the production area to the smallest since 1930 and production to the least since 1925.

Following unusually dry conditions across the central and southern Plains states, which kept hay production down, abundant late August and early September rain promoted increased growth in many pastures and hayfields, increasing production from year earlier levels.

USDA says the termination of the ethanol blenders’ credit is not expected to affect demand and price considerably, however discretionary blending above the mandate could be negatively affected.  While the renewable fuels mandate will keep ethanol production at a strong level, the production above the mandate, which is now being exported, may see lower levels of profitability and may be subject to reduction.  Subsequently, USDA says that may be reflected in a lower demand for corn, but to a small degree.

Summary:
The shortage of pasture and rangeland in the southern plains that sent a larger than usual number of cattle early to feedlots, has moderated with the help of some rains.  Nevertheless, there is still some tightness in both supplies of feed grains and hay.  Feed grain production is lower due to less corn and sorghum yields, and hay production is down because of the weather.  Ethanol production will consume larger than normal supplies of corn, and in fact, some reduction could be observed.

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USDA’s Risk Management Agency has made many changes over the past few years, and one of the most popular, as far as Cornbelt farmers go, may be the re-rating of counties. That means rates were recalculated based on premiums paid in and indemnities paid out.  The Cornbelt had been getting the short end of the stick, but has now been brought in line with other counties around the country.  They may be paying more, in some cases, but most Cornbelt counties will be paying lower premiums.

It is impossible to cover every Cornbelt state here, but Illinois farm advantages have been well identified by University of Illinois Farm Management Specialists Gary Schnitkey and Bruce Sherrick.  Comparing 2011 premiums with the same premiums being set for 2012, substantial savings are being demonstrated.  These savings can either be used to save money on crop production costs, or to shift to a higher rate of coverage without the added expense.

The economists said average revenue protection corn policy premiums on optional units are reduced 7% for 65% coverage levels and there is a 5% reduction for 85% coverage levels.  For basic units premium reductions range from a 24% cut for the 65% coverage level to a 10% reduction for the 85% level.  Enterprise units of 300 acres have a savings of 21% for the 65% coverage levels to 8% for the 85% level.  If the Enterprise unit is up to 450 acres, the reduction in premium ranges from 29% on a 65% coverage to a 13% reduction on 85% coverage.

Similar reductions also occur for soybeans. For optional units, average reductions for soybeans range from 13% for the 65% coverage level to 12% for the 85% coverage level.  premium reductions for soybeans are larger for basic and enterprise units. At an 80% coverage level, the reduction is 12% for an optional unit compared to 22% reduction for the basic unit, 18% reduction for the enterprise unit with 300 acres, and a 26% reduction for an enterprise unit with 450 acres.

Schnitkey and Sherrick say, “These re-ratings efforts seem justified given the relatively low payments on corn and soybean policies compared to insurance premiums. This re-rating likely will bring loss performance closer in line with legislative target, although resulting loss experience likely will require further premium reductions to totally bring premiums in line with legislative targets.”

Summary:
While the jury is still out on how farmers will react to the lower premiums, of more coverage versus lower production costs, crop insurance will cost less in 2012.  The reason is the re-ratings for Cornbelt crop insurance policies by the USDA. 

After closing limit down on Thursday and dropping another 12-cents on Friday, many farmers were less than pleased with the USDA’s numbers, wondering how they could be so much higher than what the grain traders were expecting.  But someone watching numbers for many years contends that USDA numbers were probably close to reality, and the traders who estimated what the USDA would say were more optimistic than they should have been.  University of Illinois grain marketing specialist Darrel Good says the surprises in the report would not have been such a shock, had the traders been looking for numbers that were closer to reality.  Consequently, he suggests that the traders were more to blame for the market declining than anything else.

In his weekly newsletter, Good says the December 1 corn stocks of 9.642 billion bushels were 425 million less than 2011, the least in five years, and only 240 million bushels larger than the average of the guess of the market.  He said even three of the 15 companies offering an estimate were in the neighborhood of what the USDA reported.

Good said part of the reason corn traders were surprised was that the stocks numbers were above their expectations, along with their expectations for the size of the 2011 corn crop.  He says the market does not have to offer any justification of why it thought there would be a 30 million bushel reduction in crop size, compared to the last estimate.  Instead, the USDA raised its November estimate by 48 million, which as only 0.4% larger than the November forecast.  He calculated the spread of the change as one-third of the surprise in the stocks estimate.

Good said the market was apparently looking for a high level of use that would correct the estimated use of the prior quarter, which the market thought underestimated feed and residual use.  He said when you consider the total use of corn during the September to December quarter, the percentage of total use was an unusually large 43.2%, which compares to a range of 38.2% to 40.7% over the prior 4 years.

Darrel Good says there are still problems with estimating feed use during a quarter along with the production of ethanol and the production of distillers’ dried grains that are also fed.  He says there is still no explanation for USDA’s sharp decline in feed use of corn, use of all grains, and all feeds per animal unit in the last half of the marketing year for the 2010 crop.

Summary:
Grain prices, and particularly corn prices, collapsed after the USDA reported its final production estimates and stocks on July 12.  But, curiously, the market was expecting numbers that were not all that different from what was reported by USDA.  Nevertheless, the small increases were seen as negative by the market since it was expecting small decreases.  Since the USDA numbers were in line with its prior reports, the collapse of the market was more of a function of traders not guessing properly, instead of the USDA being incorrect in its estimates.

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USDA’s Final Crop Report for 2011 estimated corn production at 12.358 bil. bu., compared to 12.446 bil. in 2011 and the trade estimate of 12.265 bil.  The increased estimate resulted from a 147.2 bu. national average yield, which was a half bushel above the December yield estimate. 

The estimated soybean production was 3.056 bil. bu. compared to 3.329 bil. last year and the market expectation of 3.048 bil. bu.  The final yield estimate was 41.5 bu. compared to 41.3 bu. estimated in the December report.

In the USDA January Supply and Demand Report, corn ending stocks were estimated at 846 million, down just 2 mil. bu. from December.  USDA did increase its export estimate by 50 million bushel to 1.650 bil. taking it out of the increased production to keep ending stocks constant.  Ethanol will consume 5 bil. bu. compared to 4.6 bil. for livestock. The average farm price for corn was tightened by 20 cents to a range of $5.70 to $6.70. 

For soybeans the Supply and Demand Report raised ending stocks to 275 mil. bu. from the 230 mil. projected in December.  Use was expected to decline by 10 mil. bu. in the domestic crush to 1.615 bil., and by 25 mil. bu. in exports to 1.275 bil.  The export projection was down 226 mil. bu. from last year.  The average farm price was adjusted to a range of $10.95 to $12.45.

In the Quarterly Grain Stocks Report, USDA estimated corn stocks at 9.641 bil. bu. on Dec. 1, which is a 4% drop from Dec 1 of 2010.  The first quarter disappearance was estimated at 3.84 bil. compared to 4.10 bil. a year earlier.  The market had expected stocks at 9.391 bil.  Global corn stocks were projected at 128.47 mmt, which is a 53.9 day supply, down slightly from 55.4 days in the past year.  The trend continues to drop, and stocks are the least in the past 38 years.  Argentine production was estimated at 26 mmt, compared to 23.3 mmt a year ago, but that was down from 29 mmt estimated in December.

Soybean stocks were estimated at 2.365 bil. bu. which was a 4% increase from Dec. 1 of 2010.  Quarterly disappearance was estimated at 905 mil. bu. which was a 25% reduction in disappearance compared to year earlier numbers.  Stocks were estimated at 2.324 bil. bu.  Argentine soybean production was estimated at 50.5 mmt, compared to 49 mmt a year ago.  Brazilian soybean production was estimated at 74 mmt, compared to 75.5 mmt in the prior season.

Wheat stocks were estimated at 1.656 bil. bu.  on Dec. 1, compared to 1.933 bil. a year ago and the market expectation of 1.679 bil.

Wheat seedings were estimated at 30.1 mil. acres for hard red winter wheat, compared to 28.5 mil. a year ago.  The market was expecting 29.6 mil. acres.  Regarding wheat, estimates of wheat feeding were dropped in the USDA numbers to 145 mil. bu.  Global wheat production was estimated at 691.5 mmt, with ending stocks at 210 mmt.

Summary:
The US produced less grain in 2011, but even though there is strong demand, market prices sharply declined because the numbers were more than what the market expected.  Corn and soybean yield estimates were raised slightly, adding to increased production estimates.  Stocks are just above pipeline levels in the US, for corn and soybeans, but are in plentiful supply for wheat, both domestically and globally.

The Beige Book, named because of the color of its card stock cover, is a summary of the economic activity in each of the Federal Reserve Districts.  Housing, manufacturing, consumer spending, and banking are just a few of the areas that District banks report on between the meetings of the Federal Reserve’s Open Market Committee which establishes monetary policy.  The latest Beige Book indicates the farm economy remains strong, but with a few warts and moles.  However, agriculture is seen as a plus for the overall U.S. economy.  We’ll visit the districts that report on agriculture, starting in the southeast.

Atlanta—6th Fed District:  While much of the District witnessed various degrees of drought ranging from “abnormally dry” to “exceptional” in late November and December, both Georgia and Louisiana experienced the most severe conditions. Demand for cotton was flat as a result of global economic concerns and competition from synthetic fibers. Prices for cattle and hogs continued to increase because of strong foreign demand. Several regional agritourism contacts noted plans to expand next year.

Chicago—7th Fed District: Farm income for 2011 was higher than in 2010; and farmland values and cash rental rates were reported to be higher once again. After falling initially during the reporting period, corn and soybean prices rose in the last half of December. More generally, crop prices fell during the harvest period. However, most crop deliveries involved sales at pre-harvest prices, as many end users found it necessary to ensure sufficient supplies prior to the harvest. In contrast, for those who didn’t pre-sell, more of their crop ended up being put into storage. Milk and hog prices fell during the reporting period, while cattle prices increased. Still, export demand helped keep prices for both dairy and meat products higher than they were at the end of 2010. Input costs have risen for the coming planting season.

St Louis—8th Fed District:  Monthly output of commercial red meat for October 2011 increased compared with September 2011 and October 2010. However, the District’s total live weight and number of young chickens slaughtered decreased between September and October 2011.

Minneapolis—9th Fed District:  Growth in the agricultural sector moderated, as some commodity prices declined. Prices received by farmers for wheat, corn, hogs, and dairy products decreased in December from the previous month. Cattle, poultry, egg, dry bean, and hay prices increased in December from the previous month. Meanwhile, a partnership announced the development of a large grain-loading facility in Minnesota.

Kansas City—10th Fed District: Agricultural growing conditions improved in late November and December but farm income prospects dimmed with high input costs. Timely rains eased drought conditions in the Southern Plains. Most of the winter wheat crop emerged in good condition, though more protective snow cover was needed for the winter dormancy period. Volatile crop prices and high input costs tempered crop profit expectations for the coming year. High production costs trimmed margins for livestock operators even though strong export demand underpinned prices. Still, with historically high profits, many farmers were repaying operating loans, buying farmland and purchasing additional machinery and equipment. District contacts reported an increase in the number of farmland auctions as record high land prices enticed more landowners to sell.

Dallas—11th Fed District:  The District remained largely in drought, although recent rainfalls have lessened the drought’s severity in most parts and benefitted the winter wheat crop. There is still very little grazing available, resulting in costly supplemental feeding of livestock. Demand for agricultural products receded slightly over the reporting period, although beef exports remained strong.

Summary:
The Fed’s decision makers on interest rates and other monetary policy have been watching the strength of the farm economy.  While it shows strength, it also shows weather-related threats to production.  And while it indicates a strong export demand for livestock and meat, it also reports on high feed prices for livestock producers and the particular lack of grazing land for producers in the southern plains.

Quite a few organizations have been picking agriculture’s collective brain to determine what will be planted this year, and indications point to more corn and bean acres.  USDA’s forecast will be March 30 with the Planting Intentions report, so the most comprehensive data is a long way off.  Iowa State University economist Steven Johnson, in his monthly newsletter says he knows of 6.5 million acres that will be added to the mix, and those were the flooded acres of 2011 which did not get harvested.  If 94 million acres of corn and 77 million acres of beans are planted, with the typical double-cropping, the additional acreage could keep prices soft.

Johnson says global ending stocks will be a key to price trends for the year, and those will include the La Nina-challenged corn and beans in South America, but with normal US weather Johnson says stocks could rebuild and with the weaker Euro exports will not be as hefty.  Compared to the current marketing year price estimates of $6.40 corn and $11.60 beans, any type of normal weather in the Northern or Southern Hemisphere, could push those prices closer to $5.25 and $11 in the 2012 marketing year.  Flag those prices.

On the topic of crop production costs, Johnson’s colleague Mike Duffy at Iowa State provides estimates non-land costs to rise about 5% for 2012 compared to 2011.  Fertilizer and machinery costs will lead the way, pushing corn production costs to $504 per acre for a corn and soybean rotation.  For soybeans, non-land costs are expected to rise 15% over last year because of fertilizer, seed, and machinery costs, with a $290 per acre investment expected.  Flag those costs.

With an optimistic yield of 180 bushels, the 2012 price average will provide $968 in revenue with direct payments, and with an optimistic 50 bushel soybean yield and direct payments, the revenue projection is $573.  When deducting costs from revenue, basic margin is $464 per acre on corn and $283 on soybeans, with land costs yet to be covered. Johnson says the medium yield estimates should be based on an average cash rent of $258 per acre.

The result is a compressed profit margin says Johnson, some $150 per acre less for corn than 2011 and $50 per acre less for soybeans.  And he says such reduced revenue will be a challenge for many producers in the coming crop year.  He says know your costs and estimate your own margins, which will be different for owned and rented land.

How can you manage the margins?  Johnson says there are several: 
1) Watch for marketing opportunities in the spring when rallies can frequently produce the highs for the marketing year. 
2) Use revenue protection crop insurance to protect your revenue and pay for inputs. 
3) Insurance options for the year include the opportunity to adjust your APH upward with the trend yield adjustment option. 
4) By March 1, the spring guarantees for revenue insurance will be known and additional costs of production can be managed.
5) Pre-harvest marketing strategies include delivery of a large portion of the covered bushels.
6) Consider selling with Dec corn or Nov beans are at or above the projected price levels for the insurance guarantees.

Summary:
For the 2012 crop, market prices will be lower and production costs higher, compared to the 2011 crop.  That means margins will be thinner and will have to be managed to maintain profitability.  Tools that can be used include more strategic marketing, use of crop insurance to guarantee revenue, and sale of grain at levels that will guarantee a profit, although it may not be at highs for the marketing year.