Keith Good: Bountiful Harvest Comes with a Downside for Grain Farmers

    Crop Watch

    AP writer David Pitt reported on Friday that, “A mild summer across much of the nation’s heartland has provided optimum growing conditions for the nation’s corn and soybean crops. Pair that with high-yield seeds and other new farming technologies, and the U.S. is looking at busting records come harvest time.

    “The U.S. Department of Agriculture already has predicted a record soybean crop of 3.8 billion bushels. And the corn crop, it said in July, would be large but not bigger than last year’s record of 13.9 billion bushels. However, many market analysts and some farmers expect the USDA to revise expectations upward in a report based on field surveys that’s due out Tuesday.”

    The article noted that, “‘Illinois has largely been dealt to date pretty close to a royal flush on weather and I’m sure that the yields are going to be very high here,’ said Scott Irwin, a University of Illinois professor of agricultural and consumer economics.

    “The expected large harvest has driven corn and soybean prices significantly lower, but it isn’t expected to make much of a short-time difference in consumer food prices. However, since the grains are staples in livestock feed, lower prices could eventually lead to a decline in the cost of beef, pork, chicken and milk.”

    Mr. Pitt noted that, “During the lifetime of the average U.S. farmer, who’s 58, corn yields have more than tripled from a national average of 44 bushels per acre in the 1950s to nearly 150 bushels per acre in recent years.

    “Average corn yields set a record in 2009 with 164.7 bushels per acre [related tablerelated graph]. The USDA previously estimated 165.3 bushels per acre this year, and some analysts are speculating about exceeding 170 bushels per acre.”

    Tony C. Dreibus reported on Friday at The Wall Street Journal Online that, “The U.S. Department of Agriculture is expected to increase its forecasts for domestic corn and soybean production as favorable weather continues to improve crop conditions in the Midwest and Plains, according to analysts surveyed by The Wall Street Journal.

    “The USDA in a Tuesday report probably will peg corn production at a record 14.239 billion bushels, up from a July outlook for 13.86 billion, according to analysts. Yields likely will be forecast by the government at 170 bushels an acre, up from 165.3 bushels last month.

    “Soybean output will likely be projected at 3.823 billion bushels, also the highest ever, on yields of 45.5 bushels an acre, up from July forecasts for 3.8 billion-bushel production and yields of 45.2 bushels an acre, the analysts said.”

    Also on Friday, Bloomberg writer Lydia Mulvany reported that, “In 2014, the grain [corn] has declined 14 percent on the outlook for a bumper crop in the U.S., the biggest producer.”

    Tim Barker reported yesterday at the St. Louis Post-Dispatch Online that, “With what appears to be another exceptional corn harvest headed our way, you might think farmers would be shopping for new trucks and planning pricey vacations.

    “But for many of them — particularly those who rent their farmland — 2014 looks like it’s bringing too much of a good thing.

    “It’s a simple case of supply far exceeding demand, with corn prices rapidly falling to the point where growers may actually lose money, despite having fields bursting with corn.”

    The Post-Dispatch article noted that, “‘A lot of crop producers are nervous,’ said Pat Westhoff, director of the University of Missouri Food and Agricultural Policy Research Institute. ‘They didn’t expect prices to fall as much as they have.'”

    Mr. Barker added that, “Some farmers have insulated themselves, somewhat, from this year’s price plunge by using advance contracts — agreements to sell corn at a set price. It’s a gamble than can pay off in this situation for farmers who agreed to such deals when prices were still above $5 a bushel.

    “‘If they haven’t already sold it, there’s not much they can do,’ said Darrel Good, an agriculture economist at the University of Illinois at Urbana Champaign.”

    Yesterday’s article also pointed out that, “Crop insurance kicks in when yields or revenues drop 25 percent below a farm’s average. The farm bill subsidies are triggered by corn prices falling below $3.70 a bushel over an extended period — though it’s unclear whether those prices will fall low enough to trigger that.

    “Regardless, farmers are left worrying over how they will cope with the coming years, if things don’t change.

    “‘If we have prices below $4 for several years running, we’d have a very different world than they thought they were in,’ Westhoff said.”

    And Christopher Doering reported in yesterday’s Des Moines Register that, “An abundant corn harvest is expected to flood the market with billions of bushels this fall — a grain rush that has driven down prices and squeezed the bottom lines of many Corn Belt farmers while supplying ethanol and livestock producers with cheap product. Eventually, consumers are expected to see relief at the grocery store through lower meat prices.

    “For Steve Anderson, an Iowa corn and soybean farmer northeast of Des Moines, a plan to buy a shiny new $200,000 planter has been shelved and he’s pulled ‘the reins back on any other additional purchases.'”

    Mr. Doering added that, “The plentiful corn crop, a result of timely rains and mild temperatures in most areas this season, has pushed prices to $3.60 a bushel, their lowest level in nearly four years, and down sharply from more than $8 a bushel in 2012. Similar multi-year lows also have been notched in soybeans.”

    More specifically with respect to livestock issues, Bloomberg writer Lydia Mulvany reported on Friday that, “Hog futures fell, capping the longest run of weekly declines in 17 months, on speculation that a deadly virus that boosted U.S. pork costs killed fewer pigs than estimated.

    “The price decline to a five-month low indicates lower costs for bacon and pork chops, which climbed to records this year. Hog futures in 2014 soared as much as 56 percent to an all-time high in March.”

    The Bloomberg article noted that, “In July, 332 cases of PED were reported, the fewest since October and down from the peak of 1,228 in February, data published by the U.S. Department of Agriculture on July 31 show. More than 7,800 cases were reported since the outbreak began in 2013 and spread to 30 states.”

    And Kelsey Gee reported yesterday at The Wall Street Journal Online that, “U.S. cattle prices are sliding from the record highs reached last month as investors bet beef consumption could cool in the short term.

    “Live cattle for August delivery fell 3% last week to $1.5255 a pound on the Chicago Mercantile Exchange, the lowest closing price for a front-month contract since July 18. Futures for feeder cattle, animals that are being fattened for slaughter, lost 2.2% last week to $2.15325 a pound.

    “Persistent drought in the central U.S. has curbed cattle supplies, causing prices to surge to the highest level in history. Now, during the hottest time of the year, when red-meat consumption typically slips, market watchers are looking for signs of lower demand for burgers and steaks.”

    The Journal article added that, “Fundamentally, the market is facing its smallest herd since 1951. While extremely dry conditions in major cattle-raising states like Texas have moderated this year, some ranchers are retaining breeding animals to expand their herds, instead of selling them for slaughter.

    “In addition, beef is facing competition from pork and poultry, as the cheapest feed-grain costs in years are likely to result in more and heavier animals. If pork and poultry supplies grow, prices for those proteins in stores could further undercut beef.”

    In transportation developments, Reuters writer Christine Stebbins reported on Friday that, “U.S. grain shipments out of the largest terminal in the Pacific Northwest are facing major delays as grain inspectors remain off-site because of a labor dispute, and concerns are growing that the backlogs will get much worse when bumper harvests roll in.”

    USDA’s Grain Transportation Report from Thursday stated in part that, “BNSF has made steady improvements in service and is expected to work through its grain car backlog by October. CP, however, continues to experience problems and may not be ready for the upcoming harvest [see related figure].

    In addition, AP writer David Mercer reported on Saturday that, “A no-frills concrete bridge on the edge of Stockland, Illinois, represents just the kind of headache the nation’s soybean farmers hope a multimillion-dollar campaign and a little creative thinking will cure.

    “The 50-feet concrete span and hundreds like it in soybean-growing states can’t handle the weight of fully loaded grain trucks that’ll be bringing an expected record harvest to grain elevators this fall. That means those who use the often small, obscure bridges will have to make more trips and spend more money.”

    The AP article indicated that, “Since farmers’ profits are dropping this year alongside crop prices, bridge-infrastructure needs have come into sharper focus. Most soybeans wind up on a rail car or barge to reach their ultimate destination, but just about all of them leave the farm in trucks that roll over small bridges.

    “‘This matters a lot all of the sudden,’ said Scott Irwin, a professor of agricultural marketing at the University of Illinois.”

    And with respect to recent restrictions on agricultural imports by RussiaNeil MacFarquhar reported in Saturday’s New York Times that, “Muscovites met the news with a certain equanimity. There was no sign of panicked buying of the battery of goods the government has blocked for one year from the European Union, Norway, the United States, Canada and Australia. Soon gone will be their beef, pork and poultry from those places, as well as seafood, dairy products, vegetables, fruits and nuts.

    “Supporters of the government’s instant ‘Buy Russian!’ campaign expressed pride in helping the motherland. Government opponents, on the other hand, took the sanctions as confirmation that the country was run by dolts who thought they were punishing the West by depriving Russians of good steaks and probably raising prices.”

    In addition, Reuters writer Tom Polansek reported on Friday that, “With Russia pitting itself against the United States, the European Union and other major trading partners with bans on agricultural imports, an outsized share of the trade dispute is falling where Vladimir Putinmay never have expected: On the almond growers of central California.

    “Almonds are the top agricultural export to Russia from the Golden State, followed by pistachios, rice, prunes and wine. Last year, California exported $102.4 million worth of the nuts to Russia, making it the eighth largest foreign market. Nationwide, almonds rank third among farm products exported to Russia, behind chicken and cattle.”

    Policy Issues

    The “Washington Insider” section of DTN indicated in part on Friday (link requires subscription) that, “The Department of Commerce (DOC) is continuing its investigation of dumping and countervailing duty petitions regarding sugar imports from Mexico filed by the American Sugar Coalition and its individual members. The phased-in free trade in sweeteners between the United States and Mexico became effective in 2008 under provisions of the North American Free Trade Agreement. That, in theory, should allow the unrestricted, unlimited movement of sweeteners across the border.

    “Hoping to influence the process, a bipartisan group of more than 60 House members wrote to Commerce Secretary Penny Pritzker and Agriculture Secretary Tom Vilsack claiming that any agreement to settle the antidumping and subsidy cases could jeopardize U.S. manufacturing jobs and hurt consumers. In their letter, the lawmakers point out the fact that the United States does not produce enough sugar to meet domestic demand and therefore must import sugar to meet that demand.

    “The preliminary countervailing duty ruling is scheduled to be announced Aug. 26, while the preliminary antidumping determination is expected Sept. 5.”

    Meanwhile, Soumya Karlamangla reported on the front page of Friday’s Los Angeles Times that, “A short walk from the fast-food drive-throughs, taco joints and doughnut shops lining Hawaiian Gardens’ palm-tree-dotted main drag, a classroom of energetic kindergartners begins a well-rehearsed routine.

    “Jutting their thumbs down and contorting their faces in theatrical frowns, the kids chant, ‘Soda is bad!’

    “‘Doritos?’ teacher Adriana Rosas calls out.

    ‘No!’ the kids yell, each making an ‘X’ with their small arms.”

    Friday’s article stated that, “Alexander Khananashvili wrote these sing-alongs, which are heard in four elementary schools serving this blue-collar, predominantly Latino suburb east of Long Beach.

    “The tiniest city in Los Angeles County, Hawaiian Gardens would be easy to miss, but for the large electronic billboard on the 605 Freeway luring passersby to its casino. The town takes up less than a square mile. Nearly a quarter of its population lives below the poverty level.

    “But to Khananashvili, the city’s size offers an unusual opportunity. He sees a condensed and manageable space to test emerging theories that suggest keeping off extra pounds requires upending everyday food culture — at schools, in grocery stores and homes, at restaurants.”

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