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publication archive: October 2012
October 31, 2012
Still More on Position Limits, Excessive Speculation and the Dodd-Frank Act
Two recent farmdoc Daily posts discussed the history of position limits and reviewed the CFTC's recently-overturned position limit rules, respectively. Today's post is the last in this series, and will examine the court ruling and discuss possible next steps by the CFTC.Posted by Paul E. Peterson Permalink Tweet
October 30, 2012
Current Fertilizer Prices, Natural Gas, and Longer-Run Supply
According to the Agricultural Marketing Service (AMS), the average anhydrous ammonia price in Illinois currently is $853 per ton, an increase over the $815 per ton price at the beginning of August. Diamonnium Phosphate (DAP) price is $628 per ton and potash price is $599 per ton. Both DAP and potash prices have been stable since August.Posted by Gary Schnitkey Permalink Tweet
October 29, 2012
Monitoring Corn Consumption
The price of corn, like the price of other commodities, is influenced by a wide array of factors that reflect a combination of current and expected supply and consumption. The market continually judges whether the price of corn is adequate to ration the available supply. While expectations about demand over the course of the marketing year influence that judgment, the on-going pace of consumption reveals the adjustments that are being made to accommodate the available supply. A pace of consumption that cannot be supported implies the need for higher prices, while a slower pace than required implies the need for lower prices.Posted by Darrel Good Permalink Tweet
October 26, 2012
Farms and the New 2013 Medicare Tax Increases
The new health care law passed by Congress in 2010 has been gradually phasing in health care reform measures each year since its enactment. Two Medicare tax increases are part of these health care reform measures that will become effective January 1, 2013.Posted by Marc C. Lovell Permalink Tweet
October 25, 2012
Wheat Feeding
In its October World Agricultural Supply and Demand Estimates (WASDE), the U.S. Department of Agriculture (USDA) increased the estimated feeding of wheat during the current 2012/13 wheat crop year by 95 million bushels to 315 million bushels. This change was prompted by the September 1 stocks report and suggests that increased feeding of wheat will join increased imports and reduced consumption as market responses to the drought-reduced 2012 corn and soybean crops. Therefore, this article examines the historic role of wheat feeding in the U.S. and the factors associated with it.Posted by Carl Zulauf and Nick Rettig Permalink Tweet
October 24, 2012
More on Position Limits, Excessive Speculation and the Dodd-Frank Act
A previous farmdoc Daily post discussed the history and operation of position limits - the maximum number of futures contacts that can be owned or controlled by an individual or entity - as a way to control excess speculation. To help our readers better understand this issue, today we will review the CFTC's position limit rules that were struck down recently by Judge Robert L. Wilkins, with a focus on the agricultural commodities. A future post will explore Judge Wilkins' ruling and discuss possible next steps by the CFTC.Posted by Paul E. Peterson Permalink Tweet
October 23, 2012
Landowner and Farmer Returns under Share Rental Arrangements with Differing Prices
Posted by Gary Schnitkey Permalink Tweet
October 22, 2012
Cattle Prices Will Continue to Rise
The impacts of the 2012 drought continue to play out in a beef industry discouraged by high feed prices and large cattle feeding losses. In the latest Cattle On Feed report, the USDA confirmed that placements into feed lots dropped sharply in September following substantial declines in July and August. As a result, on-feed numbers are now down nearly three percent as the beef industry is doing its part to reduce corn and other feed usage.Posted by Chris Hurt Permalink Tweet
October 19, 2012
The Increasing Waistline of the Deferred Tax Monster
Agricultural producers are allowed to use the cash method of accounting for calculating income for federal and state tax purposes. This causes inevitable and numerous differences between taxable farm income and accrual farm income. For the most part, farm financial statements are not prepared in a way that recognizes the impact these differences have on tax liability, earnings, and net worth. Recognizing the amount of the estimated deferred tax liability and its' possible impact on your operation are part of the analysis of every year's business.Posted by Bradley L. Zwilling and Dwight D. Raab Permalink Tweet
October 18, 2012
farmdoc daily Gets Social (Media)
The goal of the farmdoc Project has not changed since its inception in 1999 to provide crop and livestock producers in the U.S. Corn Belt with round-the-clock access to integrated information and analysis to better manage their farm businesses. While the goal has remained constant, the technology available to meet that goal has undergone enormous changes during the last dozen years. We created the farmdoc daily site with an eye towards not only the technology people are increasingly using to access information but also the desired form of the information.Posted by Scott Irwin Permalink Tweet
Cash Rents and Crop Revenues in Illinois
Tis' the season for negotiating land rental agreements for the 2013 crop year. Recent posts have discussed trends in rental agreements and relative performance of share/flex and fixed cash rent agreements over the past few crop years. Today's post looks at the historical relationship between average cash rent levels in Illinois and average crop revenues. These historical relationships provide some basis for expectations for cash rental rates in the coming crop years.Posted by Nick Paulson Permalink Tweet
October 17, 2012
Position Limits, Excessive Speculation and the Dodd-Frank Act
Commodity position limits - the maximum number of futures contacts that can be owned or controlled by an individual or entity - have been in the news since Judge Robert L. Wilkins of the US District Court for the District of Columbia rejected a new system of position limits developed by the Commodity Futures Trading Commission (CFTC). To help our readers understand the implications of this action, today's farmdoc Daily will lay the groundwork by reviewing the history and operation of position limits. A later post will discuss the rejected CFTC position limits and evaluate the impact of Judge Wilkins' ruling.Posted by Paul E. Peterson Permalink Tweet
October 16, 2012
Cash Rents Given Differing Price Levels
Corn and soybean prices have been high in recent years, leading to high farmland returns and increasing cash rents. In the following article, the ability to pay cash rent is examined under differing corn and soybean price scenarios that are likely to occur over the next several years. These price scenarios include 1) 2013 price estimates, 2) long-run price estimates, and 3) low price estimates. The 2013 price projections yield returns that can sustain high cash rents. Lower prices likely will lead to downward pressure on cash rents.Posted by Gary Schnitkey Permalink Tweet
October 15, 2012
Beyond the October Production Forecasts for Corn and Soybeans
Listen to MP3 podcastAt 10.706 billion bushels, the USDA's October forecast of the U.S. corn crop was about 100 million bushels larger than the average trade guess and about equal to the September forecast. The October soybean forecast, at 2.86 billion bushels was about 90 million bushels larger than the average trade guess and 126 million larger than the September forecast. Prices of both commodities increased immediately after the forecasts were released.
Posted by Darrel Good Permalink Tweet
October 12, 2012
Relative Importance of Price vs. Yield variability in Crop Revenue Risk
Managing crop revenue risk is of critical importance for financial success by agricultural producers and a central theme of many government commodity and insurance programs. Debate surrounding the farm bill for example, includes various programs intended to limit revenue variability that arises from low crop prices, production declines as might happen under a drought, and so forth. Crop insurance is critical for most commercial scale producers to protect against the consequences of poor relative crop performance or price declines, but is remains debated whether price risk or yield risk is more likely to influence insurance payments. In general, farm-level crop revenue risk results from price variability, yield variability, relationships between prices and yields, and relationships among the crops produced. It is important to first understand the underlying causes of crop revenue risk to better assess the effectiveness of various strategies and programs that might be used to mitigate crop revenue risk. Improving the understanding of the relative influences of price and yield risk is the intent of this farmdoc daily post.Posted by Bruce Sherrick Permalink Tweet
October 11, 2012
Kazakhstan, Russia, Ukraine (KRU) and World Grain Markets
A major change in world grain markets over the last quarter century is the increasing role of Kazakhstan, the Russian Federation, and Ukraine (KRU). This change is examined in this article.Posted by Carl Zulauf Permalink Tweet
October 9, 2012
Harvest Prices and Insurance Payments
Crop insurance harvest prices for corn and soybean in the Midwest are determined during October. Most farmers insured using either Revenue Protection (RP) or Group Risk Income Plan with the harvest revenue option (GRIP-HR), both of which have the guarantees based on the higher of the harvest or projected price. Harvest prices will be above the projected prices this year. Because of large yield losses this year, RP and GRIP-HR will make larger payments with higher harvest prices.Posted by Gary Schnitkey Permalink Tweet
October 8, 2012
Corn and Soybean Prices Searching for Support
Listen to MP3 podcastDecember 2012 corn futures declined by $1.44 (17 percent) from the high on August 10 to the recent low on September 28. That contract has managed a recovery of about $0.40 so far this month. November 2012 soybean futures declined by $2.85 (16 percent) from the high on September 4 to the low on October 3 and have rebounded about $0.45 since then.
Posted by Darrel Good Permalink Tweet
October 5, 2012
How Green Economy Metrics Have Failed the Renewable Fuel Standard
Emerging renewable energy policies such as the U.S. Renewable Fuel Standard (RFS), the E.U. Renewable Energy Directive (RED), and the California Low Carbon Fuel Standard (LCFS) require increasing amounts of biofuels in energy portfolios. USDA estimates that at least 527 biorefineries must be built in the U.S. to reach these goals, at a cost of $168 billion. In promoting its renewable energy agenda, the White House has touted not only the environmental benefits of biofuels, but also the energy security and rural development potential of a "green economy". Such an economy "generates economic activity that preserves and enhances environmental quality while using natural resources more efficiently". A backlash against the biofuels industry is mounting from myriad directions, however, including the "food versus fuel" debate and carbon accounting. Biofuels advocates fear the loss of public and Congressional support for the fledgling sector in the wake of conflicting messages. The threat of rising food and feed prices from this season's drought only will exacerbate biofuels advocates' uphill battle in the U.S. policy arena against grocers and cattlemen lobbies who object to rising costs of feedstocks, and NGOs concerned about food insecure countries that depend on imports.Posted by Jody M. Endres and Daniel Szewczyk Permalink Tweet
October 4, 2012
Rental Rates for Share, Flex, and Cash Rent Agreements in Illinois
The rapid rise in commodity prices and farm income levels over the past few years has resulted in significant increases in cash rent levels for farm land. Last fall, I wrote a post which showed the trend away from share leases to fixed cash rental agreements in Illinois over the past 15 years. In one of this week's posts, Gary Schnitkey discussed some other trends in cash rental agreements, including the continued increase in cash rental rates and the shift towards shorter-term or one-year leases. There are a number of reasons why fixed cash rent agreements might be preferred by both tenants and landlords. For example, they are relatively simple, provide the landlord with a fixed return, and provide more autonomy to the tenant in making management decisions. However, fixed cash rents at high levels imply more risk exposure for the tenant if crop returns fall below expectations due to price declines or yield shortfalls, or production costs are above expected levels. This is especially true for farm operators who are highly leveraged and/or rent a considerable portion of their total acres. Tenants in these situations may find it desirable to use a share or flex arrangement, but have difficulty in convincing landlords to consider an agreement which provides variable payments.Posted by Nick Paulson Permalink Tweet
October 3, 2012
How Bad Was the 2012 Corn and Soybean Growing Season?
Prior to 2012, the most adverse growing season weather conditions for U.S. corn and soybeans in recent history occurred in 1988. Now that the 2012 season is over, it is instructive to compare the two growing seasons and the impact on the U.S. average yields of the two crops.Posted by Scott Irwin and Darrel Good Permalink Tweet
October 2, 2012
Trends in Cash Rent Leasing Terms
As noted in a previous farmdoc Daily article, cash rent levels have been rising in recent years, with large increases occurring between 2011 and 2012, and more modest increases projected between 2012 and 2013. Besides rent levels, there have been trends in other cash leasing terms. These include 1) a movement toward yearly leases, 2) attempts to verify fertilizer applications, and 3) requirements for yield documentation. Each of these lease terms is discussed below.Posted by Gary Schnitkey Permalink Tweet
October 1, 2012
Large Losses Still Loom for Pork Industry
Pork producers are expected to continue to suffer very large losses in the next six months after already operating in the red for the last six months. These large losses have been brought on by the extreme feed prices due to the drought. There is little producers can do to change the overall situation for the industry since the pigs that will represent these large losses are already on-feed. The pigs that are here today represent producers' plans earlier this year when they were hopeful for $5 corn prices.Posted by Chris Hurt Permalink Tweet
