publication archive: October 2012
October 31, 2012
Still More on Position Limits, Excessive Speculation and the Dodd-Frank ActTwo 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.
October 30, 2012
Current Fertilizer Prices, Natural Gas, and Longer-Run SupplyAccording 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.
October 29, 2012
Monitoring Corn ConsumptionThe 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.
October 26, 2012
Farms and the New 2013 Medicare Tax IncreasesThe 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.
October 25, 2012
Wheat FeedingIn 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.
October 24, 2012
More on Position Limits, Excessive Speculation and the Dodd-Frank ActA 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.
October 23, 2012
Landowner and Farmer Returns under Share Rental Arrangements with Differing Prices
Operator and farmland returns, which represent the amount that can be split between the landowner and farmer, vary considerably with corn and soybean prices that are likely to occur over the next several years. Herein, landowner and farmer share of returns are shown under share rent and a 40% of crop revenue leases, two arrangements that exists in practice. Resulting returns will show the variability in returns likely to be experienced, and also illustrate the downward pressure cash rents may face when prices decline to likely long-run levels.
October 22, 2012
Cattle Prices Will Continue to RiseThe 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.
October 19, 2012
The Increasing Waistline of the Deferred Tax MonsterAgricultural 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.
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.
Cash Rents and Crop Revenues in IllinoisTis' 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.
October 17, 2012
Position Limits, Excessive Speculation and the Dodd-Frank ActCommodity 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.
October 16, 2012
Cash Rents Given Differing Price LevelsCorn 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.
October 15, 2012
Beyond the October Production Forecasts for Corn and SoybeansListen to MP3 podcast
At 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.
October 12, 2012
Relative Importance of Price vs. Yield variability in Crop Revenue RiskManaging 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.
October 11, 2012
Kazakhstan, Russia, Ukraine (KRU) and World Grain MarketsA 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.
October 9, 2012
Harvest Prices and Insurance PaymentsCrop 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.
October 8, 2012
Corn and Soybean Prices Searching for SupportListen to MP3 podcast
December 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.