Prospective Plantings and Grain Stocks Report Summary

Monday’s numbers from USDA National Agricultural Statistics Service’s Prospective Plantings report and Grain Stocks report came in near expectations. The Prospective Plantings report uses surveys of producers from February 27 through March 18 to estimate the upcoming acreage allocation.

For 2014, U.S. corn acres are estimated to be 91.691 million acres, 1.057 to 1.323 million acres less than the average of pre-report guesses — depending on which news report you read — but within the range of estimates. This number is about 4% lower than last year’s 95.365 million acres and the lowest corn acreage since 2010. Mississippi producers are expected to plant 580,000 acres to corn this year, 33% less than last year’s 860,000 acres. From the quarterly stocks report, U.S. corn stocks were estimated at 7.006 billion bushels, which is 30% higher than a year ago but very close to pre-report expectations. Corn futures were up sharply on the day with prices rising ten cents and closing above $5.00 for the first time since late August (the December 2014 contract finished just under $5 at $4.98 1/4). Even though the acreage projection was within range, consider that the difference from the reported value and expectation (conservatively say 1 million), when using a slightly lower than trend yield (155 bushels per acre), implies a 155 million bushel smaller 2014 crop than had been expected. That is 11% of the current ending stock number, so no small miss. Also consider that for the past seven years, USDA has typically underestimated corn acres, with three of the seven years missing the mark by one million or more acres (-3.073 in 2007, -1.396 in 2009, and -1.291 in 2012).

U.S. soybean acres are estimated to be 81.493 million acres, 331,000 to 436,000 more than the average pre-report expectations. This figure is 6% higher than last year’s acreage of 76.533 million acres and if realized, will be the highest acreage on record. Mississippi soybean acres are expected to be 7% higher this year at 2.150 million acres. U.S. soybean stocks came in slightly higher than expected at 992 million acres and are 1% lower than a year ago. Old crop soybean futures were up sharply on the day reflecting the still tight stocks number (also factoring in robust exports thus far in the marketing year), closing at their highest point since July, while new crop contracts were lower on the day given that acres came in just above expectations.

Wheat acres are projected down both in the U.S. and in Mississippi. Winter and spring U.S. wheat acres are estimated to be 55.815 million acres in 2014, less than the expected 56.277 million acres from pre-report estimates and also 1% lower than last year. Spring planted wheat is projected at 13.808 million compared to an expected 14.064. Mississippi wheat acres for 2014 are estimated at 230,000, 43% lower than the 400,000 acres planted in 2013. Wheat stocks were 15% lower than a year ago at 1.06 billion bushels, but came in near trade expectations. Wheat was largely unaffected by the two reports, closing up a penny on the day.

U.S. cotton acres are expected to be nearly 700,000 acres higher than a year ago at 11.101 million acres. The most recent acreage forecast for cotton called for 11.5 million acres, so the USDA projection was 399,000 under that. Mississippi is projected to see a 31% increase in cotton acres for 2014, with an estimated 380,000 acres planned to be planted this year versus 290,000 planted last year. Most states, outside of the Southeast (Alabama, Georgia, Florida, and South Carolina) and West (Arizona, California, and New Mexico) showed year-over-year increases, with Texas’ projection up 600,000 to 6.4 million, or 58% of U.S. acres.

Mississippi will also see a 36% increase in rice acreage projected at 170,000; a 32% increase in peanut acreage at 45,000; an 8% increase in sorghum acres at 70,000; and 15% increase in sweet potato acres at 23,000. Excluding hay but factoring in winter wheat, Mississippi will have 159,000 fewer planted acres in 2014 than in 2013. When considering only summer crops, including hay, Mississippi’s total acreage is expected to tally 3.418 million, 14,000 more than 2013. So, it appears that many of the 170,000 fewer wheat acres were idled this year and will likely result in fewer double-cropped acres between wheat and, typically, soybeans.

U.S. Prospective Plantings (1,000 acres)
2012 2013 2014 Pre-Report Expectations
Corn          97,155          95,365          91,691               92,748
Soybeans          77,198          76,533          81,493               81,075
Wheat          55,666          56,156          55,815               56,277
Cotton          12,314          10,407          11,101               11,500

 

Mississippi Prospective Plantings (1,000 acres)
2012 2013 2014 % Change vs. Last year
Corn             820             860             580 -33%
Soybeans          1,970          2,010          2,150 7%
Wheat             370             400             230 -43%
Cotton             475             290             380 31%
Sorghum                48                65                70 8%
Rice             130             125             170 36%
Peanut                52                34                45 32%
Total          3,865          3,784          3,625 -4%

 

U.S. Grain Stocks, March 2014
March Pre-Report Expectations
Corn            7,005                  7,099
Soybeans                992                     989
Wheat            1,055                  1,042

 

Cattle Market Notes: Week Ending Mar 28, 2014

Cash Cattle:

Fed cattle cash prices ended the week higher, continuing their weekly record setting pace of late. The five-area fed steer price ended the week at $152.26 for live sales, up $2.16, and $243.48 for dressed, up $3.37 to a new record. Live cattle in the Southern Plains traded at $150 to $152. On Tuesday in Nebraska, live sales were from $152-$154 and dressed were at $244-$245. Trade in the Western Cornbelt on Wednesday registered $152 and $244 respectively for live and dressed cattle.

Feeder steers and heifers in Oklahoma City were $1-$3 higher, heavy feeders were $1 lower. Stockers and calves were $3-$6 higher. In Mississippi auction markets, steers and heifers were called $1-$5 higher, while cull cows and bulls were steady.

[ … For Livestock Prices and Production data and trends CLICK HERE … ]

Futures:

Cattle futures ended the week on a higher note. Last Friday’s Cattle on Feed report dampened the market’s spirit for all of a few minutes in the opening on Monday. On Tuesday the Conference Board released their index of the state of the consumer, which was at it’s highest level since January 2008 at 82.3%, up 4 points from last month. This was offset when Reuters/University of Michigan released their version showing a drop of 1.6 points from last month at 80.0% and the consumer expectations index slipped to 70.0% versus 72.7% in February. In other economic data released this week, personal income, disposable income, and spending all increased in February. All together, this news should keep the market happy or at the least in a steady state. We know supplies have dwindled and will further tighten, and for the most part this news is supportive of demand.

Corn futures were up 1.5%, for more distant months, to almost 3%, for old crop contracts. Monday’s prospective plantings report will set the stage for the (most likely delayed) growing season and there was definitely positioning ahead of that report this week.The average guess for planted acres is 93.014 million. However, Thursday’s export report provided quite a boost with USDA showing new sales at.1.408 million metric tons for the current marketing year putting total (current and pending) exports at 98% of the USDA forecast compared to a typical level of 77%.

[… Come back Monday for our breakdown of the acreage and inventory reports and listen to weekly podcast which will highlight the markets with emphasis on Monday’s reports this Monday afternoon (CLICK HERE or for iTunes CLICK HERE) … ]

Beef:

Wholesale beef was lower this week. Choice boxed beef averaged $239.57 for the week, down $2.84. Select averaged $232.45, down $3.15.

Note: all cattle and beef prices are quoted in dollars per hundredweight and corn prices are quoted in dollars per bushel, unless stated otherwise.

Externality watch: Air pollution leads to 7 million deaths

From BBC news, air pollution caused 7 million deaths in 2012:

Seven million people died as a result of air pollution in 2012, the World Health Organization estimates.

Its findings suggest a link between air pollution and heart disease, respiratory problems and cancer.

One in eight global deaths were linked with air pollution, making it “the world’s largest single environmental health risk”, the WHO said.

Nearly six million of the deaths had been in South East Asia and the WHO’s Western Pacific region, it found.

Largest single environmental health risk? I hadn’t hear that before but it makes sense because air pollution is a pretty much global phenomenon.

In general, environmental economists tend to think that pollution is not “internalized” meaning that the level of pollution is above the level which is economically efficient. Under economic efficiency there would definitely still be some air pollution because, although the pollution is costly, it would be even more costly to eliminate the pollution entirely.

Here’s how air pollution affects health:

Reducing air pollution could save millions of lives, said the WHO.

WHO family, woman and children’s health assistant director-general Dr Flavia Bustreo said: “Cleaning up the air we breathe prevents non-communicable diseases as well as reduces disease risks among women and vulnerable groups, including children and the elderly.

The WHO assessment found the majority of air pollution deaths were linked with cardiovascular diseases.

For deaths related to outdoor pollution, it found:

  • 40% – heart disease
  • 40% – stroke
  • 11% – chronic obstructive pulmonary disease (COPD)
  • 6% – lung cancer
  • 3% – acute lower respiratory infections in children

For deaths related to indoor pollution, it found:

  • 34% – stroke
  • 26% – heart disease
  • 22% – COPD
  • 12% – acute lower respiratory infections in children
  • 6% – lung cancer

IPCC: Crop yields to decline by 2% per decade

From BBC News, the Intergovernmental Panel on Climate Change (IPCC) will soon publish a new report on the anticipated effects of climate change over the next century. In an initial draft of the report, the IPCC states that we can expect world crop yields to decline by up to 2% per decade for the rest of the century.

A leaked draft of the summary, seen by the BBC, points to a range of negative effects that will, in some instances, be “irreversible”.

Millions of people living in coastal areas in Asia will be affected by flooding, and displaced due to land loss.

The draft says that crop yields around the world will decline by up to 2% per decade for the rest of the century.

If the world warms by 4C towards the end of this century, this will pose a “significant risk to food security even with adaptation”.

The summary says that in the near term, at levels of warming that scientists say we are already committed to, there is a very high risk to Arctic sea ice and coral reefs.

They warn that the oceans will become more acidic as they warm, and species will move towards the poles to escape the heat.

Last Thursday, super-famous (hey, at least in our world) environmental economist Richard Carson came and gave a lecture on the evolution of economic thought on climate change. One thing he pointed out was that most current climate change prediction models look at effects on agriculture in a still relatively broad manner and that there is a great need for analyses that are more crop-specific and region-specific.

Cattle Market Notes: Week Ending Mar 21, 2014

Cash Cattle:

Fed cattle cash prices ended the week higher. The five-area fed steer price ended the week at $150.10 for live sales, up $2.18, — very near the recent record level — and $240.11 for dressed, up $0.31 to a new record. Cattle in the Southern Plains traded at $150 late in the week. In Nebraska, live sales were at $152 and dressed were at $240-$242. Too few cash market trades were made in the Western Corn Belt to establish a price.

Feeder steers and heifers in Oklahoma City were $1-$3 higher, heavy feeders were steady to $1 higher, and calves were steady. In Mississippi auction markets, steers  and heifers were called steady, while cull cows and bulls were $1-$2 higher.

[ … For Livestock Prices and Production Information CLICK HERE … ]

Futures:

Cattle futures ended the week lower. Limited cash trade early in the week kept the market in a steady state. Then, on Thursday, strength in the U.S. dollar pressured a number of commodity markets. That news coupled with positioning ahead of Friday’s Cattle on Feed report, led to triple digit losses on the day. Prices recovered a bit on Friday. However, the on feed report will most likely be viewed by traders as bearish given that placements and total inventories were above the average analyst expectation (for more detail on the report, CLICK HERE).

Corn futures were down 5 to 10 cents per bushel on Friday when compared to last Friday’s close. The stronger U.S. dollar also hurt the corn export outlook. In addition, while on the topic of global corn trade, fears that China will start to cancel orders crept into the market Thursday as well.

Beef:

Wholesale beef was mixed this week with Choice boxes moving higher while Select slipped. Choice boxed beef averaged $242.41 for the week, up $1.69. Select average $235.60, down $1.17. As a result the spread moved higher to $6.80, which is slightly ahead of it’s typical seasonal pattern right now but only by a few weeks.

Note: all cattle and beef prices are quoted in dollars per hundredweight and corn prices are quoted in dollars per bushel, unless stated otherwise.

March Cattle on Feed Recap

The United States Department of Agriculture’s National Agricultural Statistics Service (USDA, NASS) released their monthly Cattle on Feed report Friday afternoon (Mar 21). The report revealed that 10.790 million head of cattle were in U.S. feedlots with a capacity of 1,000 head or larger on March 1, 2014. Placements into feedlots during the month of February totaled 1.650 million head while marketings totaled 1.549 million head.

[ … For detailed numbers and charts CLICK HERE … ]

Placements were expected to be larger once again in February. The average of analysts’ expectations called for an increase of 9.1% from last year’s number and the range of expectations ran from an increase of 2.2% to 18.2%. So, while the range was wide, everyone who was polled looked for a year-over-year increase. The reported placement number, 1.650 million head, was an increase of 14.7% from February 2013 and a 1.0% increase from the five-year average from 2009 to 2013. Based on this, you should be able to see that last year’s number was a bit out of line. Last February’s placement number was the lowest since the current on feed data started in 1996.

Placements by weight revealed a tendency toward heavier cattle being put on feed, but overall placements were up across all weight classes. Despite lower feed prices in recent months, keeping cattle on grass remains an advantage. Placements in 600 to 699 pound weight group showed the largest year-over-year percentage increase, but was the smallest in terms of head placed (330 million total versus 515 head for the 800 and up group which was the largest).

Nebraska once again led the nation in total placements with 430 million head. Texas accounted for 410 million head and Kanas placed 330 million head. California’s drought appears to have taken it’s toll on the cattle feeding industry with placements dropping 24% from last year and falling 46% compared to last month. It is likely that the drought continues to force cattle off of farms, but now feedlots in the state are in a bind and having to liquidate.

Cattle marketed in February totaled 1.549 million head, down 3.4% versus last year and down 9.4% compared to the average from 2009 to 2013. Pre-report expectations called for marketings to come in at a 2.9% drop, so the reported value was a tad worse than that. This marks the lowest level of cattle marketed since the data began in 1996. Before being too alarmed, keep in mind that supplies are extremely tight and will limit marketings. Also, February is typically one of the two lowest months for marketings during the year due to the timing of placements five to six months earlier (August and September 2013 placements were, respectively, the lowest and second lowest on record) and the lack of prominent demand, for example, given the start of the Lent season.

As a result of the higher placements than were expected and the lower marketings, total cattle on feed inventories were higher than anticipated. The 10.790 million head were 0.5% lower than March 1, 2013 and 3.6% lower than the average from 2009 to 2013. Inventories have risen, month-over-month, the past two months which is typically not the case. So, we are noticing a build-up of inventories at a time when they typically shrink. This is, and should be, concerning. However, the general tightening of supplies has not suddenly evaporated and continues to provide underlying price support.

USDA Encourages Early Registration for FSA Programs

The U.S. Department of Agriculture’s (USDA) Farm Service Agency (FSA) Administrator Juan M. Garcia today recommended that farmers and ranchers who plan to participate in FSA programs register in advance. Producers are encouraged to report farm records and business structure changes to a local FSA Service Center before April 15, 2014.

Enrollment for the disaster programs authorized by the 2014 Farm Bill, including the Livestock Indemnity Program (LIP) and the Livestock Forage Disaster Program (LFP) will begin by April 15, 2014.

Crop Market Update: March 17, 2014

Many of the crop markets have been relatively quiet following last week’s WASDE report as traders are eagerly anticipating the March 31 prospective plantings and grain stocks reports. Nearby corn futures closed a penny higher today than they did a week ago, although they are down on the day. U.S. corn exports are still going strong with weekly export inspections of just under 977,000 metric tons, more than double that of a year ago. Traders are also closely watching the ongoing situation in Ukraine, which accounts for about 16% of global corn exports.

Soybean futures have leveled out after taking a hit in response to last Monday’s WASDE report. Nearby soybean futures were trading at $14.57 the Friday before the report’s release, but tumbled to $13.87 by last Wednesday as news of higher than expected ending stocks was reported. Harvest progress in Brazil is ahead of last year’s pace, but U.S. exports are also significantly higher than they were a year ago. Along with corn, soybean traders are anticipating the March 31 prospective plantings report as early estimates of planted acres are beginning to flow in. The most recent estimate comes from Allendale, with an estimated 83.2 million acres planted to soybeans. This would be more than 6 million acres higher than last year and significantly higher than USDA’s early estimate of 79.5 million acres. Allendale estimates corn acres at 92.3 million acres, slightly higher than the USDA’s estimate of 92 million acres, but well below last year’s 95.36 million acres.

The month and a half long rally in wheat prices has stalled out over the last few days with the nearby futures contract closing down 12 cents on the day. The conflict between Russia and Ukraine has caused Russia’s currency to weaken, therefore making their wheat cheaper on the global market. Russia, Ukraine, and Australia have also seen some precipitation that has aided their wheat crops. Traders will also be watching the U.S. wheat crop as it comes out of dormancy to see how much of the crop has been effected by winterkill.

Cattle Market Notes: Week Ending Mar 14, 2014

Cash Cattle:

Fed cattle cash prices ended the week mixed. The five-area fed steer price ended the week at $147.13 and $239.80, respectively for live and dressed, which was down $1.21 and up $1.51. Cattle in the Southern Plains traded at $148 on Thursday. In Nebraska, live sales were at $152 and dressed were at $240 on Friday. In the Western Corn Belt, Friday’s live and dressed cattle sold at $150 and $240, rspectvley.

Feeder steers in Oklahoma City were steady to $2 higher, while feeder heifers were called steady to $3 higher. Calves were $5-$10 higher. In Mississippi auction markets steers were mixed, with most weights about $2 higher, and heifers were mostly $5 higher. Cull cows and bulls were steady to $3 higher.

[ … For Livestock Prices and Production Information CLICK HERE … ]

Futures:

Cattle futures ended the week higher this week. Contracts were mostly $2 higher for the nearest April and June contract months, while more deferred 2014 contracts were about $1.50 higher. Feeder futures were also higher. Mixed economic news closed the week out. Retail sales increased 0.3%, which was higher than expected, but the producer price index declined 0.1% versus an expect increase of 0.2%.

Corn futures were mixed this week. The nearby May and July contracts were down about one nickel while more deferred contracts gained on the week. The uncertainty between Russia and Ukraine continued this week and will most likely continue to create headaches in the grain markets.

Beef:

Boxed beef rallied again this week Choice boxed beef finished with a weekly average of $240.72, up $7.32. Select averaged $236.77, up $5.70.

Note: all cattle and beef prices are quoted in dollars per hundredweight and corn prices are quoted in dollars per bushel, unless stated otherwise.

Farm Bill 2014: The Dairy Title

The 2014 Farm Bill is officially in the books. While there are a few rules and regulations that have yet to be written, we now know the bulk of what the farm bill has to offer. In terms of dairy policy, there is a new program about to be rolled out called the Margin Protection Program. But before going into detail about that program, I want to mention what will be phased out over the course of the next several months. The Dairy Product Price Support Program, the Dairy Export Incentive Program, the Federal Milk Marketing Order Review Commission, and the Milk Income Loss Coverage (MILC) are all eliminated in the 2014 Farm Bill. The MILC program will be phased out by September 1, 2014 or when the Margin Protection Program is up and running, whichever comes first. The programs that are either new or are renewed from the previous Farm Bill include the new Margin Protection Program, the new Dairy Product Donation Program, the renewal of the Dairy Promotion and Research Program, the renewal of the Dairy Indemnity Program, and the renewal of the Dairy Forward Pricing Program.

The Margin Protection Program is the biggest dairy program in the 2014 Farm Bill. It is a safety net program that pays out when the actual dairy margins fall below a producer selected coverage level. The program will be established no later than September 1, 2014 and is open to all dairy operations, regardless of size. There is a $100 administration fee due upon sign-up, and producers can choose a coverage level that guarantees a margin of between $4.00/cwt and $8.00/cwt. Producers can also choose to cover between 25% and 90% of their production history. A producer’s production history is defined as the highest production level from 2011, 2012, and 2013. If a producer is trying to grow his/her operation, he/she can increase their production history annually by an amount no greater than the national annual average growth in production.

The margin is defined as the difference between the “all milk price” and the “average feed cost.” The all milk price is the average price received for a cwt of milk by all dairy operations for all milk sold to dealers in the U.S. The price is reported monthly by the USDA in the Agricultural Prices Report released toward the end of each month by the National Agricultural Statistics Service (NASS). The average feed cost is the average cost of feed used by a dairy operation to produce a hundredweight of milk and is intended to include the feed cost of both lactating cows as well as dry animals in the herd. The average feed cost is defined as 1.0728 times the price for a bushel of corn plus 0.00735 times the price for a ton of soybean meal plus 0.0137 times the price of a ton of alfalfa hay. Each of these prices are monthly average national prices. The corn price and the alfalfa price are reported in the monthly Agricultural Prices Report released by NASS, while the monthly Soybean Meal price can be found at the bottom of the daily Central Illinois Soybean Processor Report released each day by the Agricultural Marketing Service (AMS). Any payments under the Margin Protection Program are triggered by this calculation and are independent of an individual producer’s margins.

Producers will need to sign-up annually for the program and will have the flexibility to choose a different coverage level each year. As mentioned above, there is a $100 administration fee to sign up for the program in addition to the premium for the coverage. The premiums are shown in the table below and will not change over the course of the current farm bill. There are two sets of premiums, those for producers with more than four million pounds of annual milk production and those for producers with less than four million pounds of production. In addition, there will be a 25% reduction in the premium rate for producers with less than four million pounds of production for 2014 and 2015. The rate reduction is intended to encourage smaller producers to sign up. Producers with more than four million pounds of production will have their rates pro-rated based on their production level. In other words, the proportion of their production that is insured under each rate will be equal to their proportion of production that is over/under four million pounds. For example, a producer with six million pounds of production will have two thirds of their covered production charged at the lower rate and one third of their covered production charged at the higher rate. The total premium for the Margin Protection Program is calculated as the coverage percent multiplied by the production history times the premium per hundredweight as show below.

Premium Paid = Coverage % * Production History * Premium/cwt.

Coverage Level Premium (Under 4 Million Pounds) Premium (Over 4 Million Pounds)
$4.00 None None
$4.50 $0.01 $0.02
$5.00 $0.025 $0.04
$5.50 $0.04 $0.10
$6.00 $0.055 $0.155
$6.50 $0.09 $0.29
$7.00 $0.217 $0.83
$7.50 $0.30 $1.06
$8.00 $0.475 $1.36

Under the Margin Protection Program, payments will be made on protected production any time margins averaged over two consecutive months falls below the selected coverage level. As shown below, the payments will be equal to the difference between the coverage threshold (the coverage level for which a producer is paying) and the actual margin multiplied by the coverage percentage (25% to 90%) multiplied by the production history (in cwt) divided by six. The production history is divided by six under the assumption that a two-month period is equal to 1/6 of a producer’s annual production.

Payment = (Coverage Threshold – Actual Margin) * (Coverage %) * (Production History/6)

While many of the details surrounding the Margin Protection Program are known, there are still several rules that have yet to be written. All rules for this program must be written by September 1, 2014. Among those rules include details on sign-up periods and payment timelines. There are also several things to think about before signing up. First of all, it is important to remember that the margins covered do not include fixed costs as well as costs such as labor, veterinary expenses, or utilities. It is also important to remember that payments are triggered on a national margin, not an individual producer’s margins. These things should be included when deciding optimal coverage levels. It should also be noted that a producer cannot participate in both the Livestock Gross Margin Program and the Dairy Margin Protection Program. For more information on the Dairy Title in the Farm Bill, click this link: Dairy Farm Bill.