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U.S. Sows More Soy as Corn Ends Run as Profit King: Commodities

Fri, 23 Sep 2022 20:25:45 GMT

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(Bloomberg) -- U.S. farmers from Louisiana to North Dakota are preparing to switch more land to soybeans as they seek to limit losses from a slumping corn market.

While corn remains the biggest domestic crop, prices have tumbled so much after two years of record harvests that the grain fetches less than it costs some farmers to produce. For the first time since the 1970s, corn planting will decline for a third straight season, while soybean acreage expands to the most ever, a Bloomberg survey of analysts showed.

Look no further than the 3,100 acres Dan Anderson farms in Illinois. From 2007 to 2013, corn generated $150 more cash per acre, Anderson said. Now, there’s no revenue difference. Even though soybean prices also have dropped, they cost about half as much to grow and are better for the soil. The 62-year-old plans to sow more of the oilseed than corn for the first time ever.

“If prices don’t improve,” planting more soybeans means “I will lose less,” Anderson said by telephone from his farm near Milford, Illinois, about 100 miles (160 kilometers) south of Chicago.

When planting season starts in April and May, Anderson says he will increase the area for soybeans by 13 percent to 1,700 acres and cut corn by 18 percent to 1,400 acres. The cost of fertilizer for soybeans is more than two-thirds less, while seed and labor will be about half, he said.

Grain Surplus

For much of the previous decade, growing more corn had been an obvious choice for most farmers. Government mandates for ethanol, a grain-based fuel, helped spur domestic demand while global economic growth increased the need for the grain to feed cattle, chickens and hogs as the world consumed more meat. Prices surged to records in 2008 and 2012.

Those rallies encouraged more output, which created a global surplus and sent prices plunging even as costs for seeds, fuel and fertilizer rose. Corn futures on the Chicago Board of Trade closed Tuesday at $3.9775 a bushel, down 53 percent from a record $8.49 in 2012, while soybeans settled at $10.1175 a bushel, a slide of 43 percent from a peak of $17.89. Corn fell 0.4 percent on Wednesday while soybeans were little changed. Net-cash income will plunge 22 percent this year, the biggest drop since 1932, the U.S. Department of Agriculture said Feb. 10.

About half of U.S. corn and soybean farmers are in the red and the rest will barely break even, said Chris Barron, who farms 7,000 acres near Rowley, Iowa, and owns the management advisory Ag View Solutions. His Midwest clients spend on average $4.62 a bushel to grow corn, including land and management returns, and $10.10 on soybeans.

More Soybeans

To limit losses, farmers probably will expand soybean planting by 2.8 percent this year to 86.028 million acres, the most ever, according to a Bloomberg survey of 23 trading firms and analysts. Corn sowing will drop 1.7 percent to 89.091 million, the lowest since 2010, the survey showed.

The USDA will make its first forecasts of 2015 planting and production at its the annual outlook forum this week, followed by a national survey of more than 80,000 growers beginning next week that will be released March 31.

The prospect of increased soybean planting in the U.S., the world’s biggest producer and exporter, comes as farmers in South America begin harvesting their biggest crops ever, which will send futures in Chicago to $9 this year, Rabobank Food & Agribusiness Advisory predicted last week.

Output Drop

Even with more acres planted, the return of more normal yields after last year’s record haul probably will mean a drop in U.S. soybean output of 2.8 percent to 3.856 billion bushels (97.95 million tons), analysts said in the Bloomberg survey.

Weather also may play a role. The arrival of warm, dry conditions by early April in the southern Midwest may encourage some growers to ditch their plans for more soybeans and instead sow more corn. Good growing weather can provide more of a yield boost to corn than for soybeans, which can mean a bigger revenue increase.

Even if U.S. soybean output declines, it may not matter. Producers outside the U.S. have expanded harvested acres by 33 percent since 2004 as a rising dollar increased profit potential for farmers in Brazil, Argentina, Russia and Ukraine, according to Dan Basse, the president of AgResource Co. in Chicago.

Perry Vieth, the founder of Ceres Partners LLC, which manages more than 59,000 acres in five Midwest states for investors, says farmers will plant less corn because there is less capital at risk growing soybeans. Tenant farmers are planning to sow 45 percent of their land to soybeans, up from 35 percent, while corn planting drops to 55 percent from 65 percent, he said.

“Corn and soybeans margins are thin,” Vieth said from Granger, Indiana. “Farmers will continue to plant corn on the best acres, but will shift to soybeans on more marginal land.”

To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net To contact the editors responsible for this story: Millie Munshi at mmunshi@bloomberg.net Steve Stroth

Moneywise

Fri, 23 Sep 2022 21:32:15 GMT

Budget Cuts Strike Agriculture

The President’s first budget proposed large cuts in crop subsidies to “wealthy farmers” in 2009, but that didn’t happen. This year, President Barack Obama has again proposed slashing the adjusted gross income (AGI) ceiling for government payments.

“If the proposed AGI limits are applied, then over time, government payments will become a small part of farm revenue,” says Art Barnaby, Kansas State University economist. “They surely will not reflect the ever-rising costs to farmers; payments already are small compared with today’s farming costs. This is my scenario of how USDA will exit commercial agricultural production, but I fully expect the agency to continue its regulatory roles.”

In addition, the proposed budget cuts in crop insurance tally $1 billion a year for 10 years. USDA’s Risk Management Agency has earmarked $800 million a year to be cut via its multiyear reinsurance agreement, currently being negotiated with the insurance industry. Primarily affected would be payments to the companies that deliver crop insurance products to farmers, justified on the basis of the past few years, when high commodity prices pushed payments to companies higher. That created “huge windfall profits,” according to the administration.

Companies argue that the growing list of pilot products, combined with the higher cost of doing business, means it will be difficult to properly serve farm customers.

New in 2010. Coverage for specialty soybeans is new this year.

It is a yield product, not revenue, and you use past yield records for the average production history (APH) for each type you grow. “Buying separate coverage means that lower yields will not drag down the APH for conventional beans,” points out Steve Johnson, Iowa State University economist. “The indemnity is based on the higher of the contract price or conventional APH insurance price.”

There’s new urgency in making sure the names on your crop insurance policy, various entities and tax ID numbers all match those on your forms at the Farm Service Agency, he adds. “If you switch partners, for example, be sure to tell your crop insurance agent.” USDA has a major initiative to standardize all records, and discrepancies can cause challenges to claims.

Twenty-six senators have objected to the scope of the proposed reductions. For more viewpoints on the cuts, see Top Talk. —Linda H. Smith

Nine Billion and Counting

Is agriculture ready to feed the world? By 2030, farmers will have 9 billion mouths to feed, compared with about 6 billion now.

“At current yield levels, we would need 250 million acres more—equal to all of American farmland—to meet the demand,” says Aaron Robinson of Asgrow.

He gives the following necessary production increases:
• Soybeans: 125%
• Cotton: 102%
• Corn: 76%
• Wheat: 42%
• Rice: 28%

The U.N. Food and Agriculture Organization (FAO) reports that any added farmland would help produce only 20% of the additional food that the world will need in 2050, and 10% would come from increased cropping intensity.

That means 70% of the world’s additional food needs can be produced only with new and existing agricultural technologies, according to the FAO.

“It will take advances in breeding and agronomic practices to meet this challenge,” Robinson says.

Expect soybean yields to begin a sharp upward climb in the next two years. “Soybeans are where corn was a few years ago,” Robinson says. “The pipeline is full and we will be introducing innovations that rapidly drive yields and value higher on a regular basis.” —Linda H. Smith

New H-2A Rules Announced

The Labor Department has released new rules for the H-2A Temporary Agricultural Worker Program. Under the changes, companies that seek H-2A visas for ag workers will have to provide documented evidence that they have looked for qualified U.S. citizens to fill the jobs. Previously, they only had to indicate they had looked for qualified workers. The rule will be effective March 15, 2010.

The Labor Department will also soon issue information on wages for workers under the program. The agency said in announcing the changes that the Department of Homeland Security (DHS) may not approve an H-2A visa petition unless the Department of Labor “certifies that there are not sufficient U.S. workers qualified and available to perform the labor involved in the petition and that the employment of the foreign worker will not have an adverse effect on the wages and working conditions of similarly employed U.S. workers.”

During fiscal year 2009, employers filed 8,150 labor certification applications requesting 103,955 H-2A workers. The Department of Labor certified 94% of the applications, for a total of 86,014 workers. —Roger Bernard

Dollar Days

The U.S. is in an era where we don’t know what kind of markets we’ll wake up to each morning, said Dan Zwicker of ADM Grain Group to a crowd of farmers during a Top Producer panel discussion at the National Farm Machinery Show this past month. That’s why each morning when Zwicker goes to work on the ADM trading floor, he looks at the value of the dollar.

“If you look at the direction of the dollar, you have a good sense of what is happening to corn and soybean prices,” Zwicker said.

“It is very easy in today’s marketplace, with skinny margins, to let the market get away from you.”

Zwicker is also a fan of farmers using options for risk management. “With options, for a fee, it gives you the second chance to sell at a higher price,” he told farmers. “For the most part, my observation is that farmers who have used options in their cash contract with their local elevator during the past couple of years have been happy. It’s given them a sense of downside price protection during bearish markets, but it also gives them the opportunity if things turn around to sell at a higher level.” —Jeanne Bernick

Banking Advice: Be a Good Customer

During his 37 years at Farm Credit Services, Roger Schlitter learned a lot from his customers. “I didn’t try to measure someone’s worth by how much they farmed,” says Schlitter, who now operates Roger’s Farm Financial, a consulting firm based in Mason City, Iowa. Schlitter provided the following advice during the 2010 Top Producer Seminar on how farmers could be better customers to financial institutions:
• Lenders and customers should have good attitudes.
• Recognize the real reasons for your successes and failures. Be brutally honest.
• Pick your information sources with care. Don’t just listen to those who say what you want to hear.
• Stay in a position to call your own shots.

—Sara Schafer

Top Liners

“If someone is working just for a paycheck, they won’t be with you very long.” Pat Duncanson, Top Producer of the Year finalist

“I’ve never seen a tighter credit situation than I’m seeing right now.” Jacob Chapman, 1st Farm Credit Services, Ottawa, Ill.

Top Producer, March 2010