Archive for May, 2013

Thursday, May 30, 2013 @ 02:05 PM
posted by Administrator

MAY 30, 2013
By: University News Release
By Aimee Nielson, University of Kentucky
Just as the summer grilling season is heating up, beef supplies across the country are down, meaning it might cost a little more to host that backyard party. In fact, the number of beef cattle in the U.S. is reportedly less than 30 million—the lowest number since the early 1960s. And when numbers go down and feed prices go up, consumers end up paying more at the grocery store.
“In the interest of telling the whole story, productivity has also increased since that time,” says Kenny Burdine, an University of Kentucky (UK) College of Agriculture economist. “But, the combination of fewer cattle over the past several years and generally strong export markets has left beef supplies relatively tight.”
UK beef specialist Les Anderson explained that for the past several years, many beef producing areas of the U.S. have experienced drought situations and increased feed costs.
“Drought affected vast segments of many of the beef producing states, and that led farmers to reduce the number of cattle they produce,” he says. “Also, many feed costs have been markedly higher during the drought periods, so ranchers have been reluctant to hold onto their cattle simply because it costs too much to feed them.”
Because of those conditions, Burdine says the industry has seen sizeable decreases in cattle inventory in many areas—most notably the Southern Plains.
“Many areas have been impacted by the weather, including the Southeast,” he says. “Another factor worth noting is that we are seeing a considerable conversion of pasture and hay ground to row crop production.”
Even in Kentucky, beef cow numbers are down, about 15% from January 2007 to January 2013, but beef specialists expect the beef industry in the state to hold steady.
“Kentucky farmers have leased land, previously used for pasture, to crop farmers because of high prices being paid for land leases,” says Roy Burris, UK beef specialist at the UK Research and Education Center in Princeton. “But, a lot of land here is not suitable for cropping, so the best use for that land is to continue grazing. Barring any severe droughts, I really think cattle numbers in Kentucky will hold steady.”
All that says, consumers still have a strong demand for beef products, and that means the U.S. will export about 2% less beef and import about 15% more.
“Even with strong demand, U.S. beef consumption per person dropped to about 55 lb. per year, compared to 63 lb. in 2008,” says Lee Meyer, UK College of Agriculture economist. “It had peaked at 94 lb. in 1976 and was at about 65 lb. just 10 years ago.”
Jim Robb, director of the Livestock Marketing Information Center in Denver says in a recent Wall Street Journal article that in 2012, Americans spent $288.40 per person on beef, a 4.2 percent increase from $276.80 a year earlier as retail prices rose. He says U.S. beef sales reached $90.6 billion last year, up from $86.4 billion in 2011. Yet volume is in decline.
At the grocery store, consumers will be in for some sticker shock as experts expect beef prices to set record highs in coming weeks.
Although it won’t make a significant difference in overall beef supply, Kentucky does have many producers who produce beef for local markets. Meyer says that as feedlot production costs have gone up so much, the relative cost of producing beef on Kentucky pasture-based systems has decreased.
“Kentucky is becoming more competitive in local beef markets, and this will support market growth,” he says.
It’s hard to tell when the situation will stabilize or reverse. In the big picture, this is only part of a cattle cycle that producers know well.
“Supply and demand ebb and flow in what producers recognize as the ‘cattle cycle,’” Burdine says. “Most cycles are approximately 10-year periods where the number of U.S. beef cattle is expanded and reduced in response to how producers perceive changes in profitability. But, with the constraints facing managers, this expansion may see long delays.”
The cattle cycle seems relatively long because it takes time between when cow-calf producers decide to expand their herds to breed more beef cattle and the time when those animals reach harvest weight.
“There are always many fluctuations in prices and profitability for producers and consumers alike,” Burdine says.

Wednesday, May 22, 2013 @ 09:05 AM
posted by Administrator

MAY 22, 2013
By: University News Release
By Darrel Good, University of Illinois
Corn and soybean prices rallied sharply beginning in July 2012 as U.S. drought conditions unfolded. It was generally expected that prices would follow the pattern experienced in other “short crop” years, with prices peaking near harvest and then returning to pre-drought levels later in the marketing year. That pattern has generally unfolded, with some differences between corn and soybeans and between old crop and new crop prices.
For old crop corn prices, July 2013 futures peaked at $8.24 on Aug. 10, 2012, nearly $3 above the June 2012 low. That contract is currently trading near $6.50, well below the peak, but still above the pre-drought level. Due to an inverted price structure, spot cash prices have been above July futures in much of the Corn Belt since January 2013 and that strong basis continues.
Prices remain generally high as it is not yet clear that the small crop of 2012 has been sufficiently rationed. Exports remain weak, but ethanol production is rebounding from the low levels in the first half of the marketing year. Uncertainty still surrounds the magnitude of feed and residual use of corn.
There is some expectation that the slow rate of use for the second quarter of the marketing year implied by the March 1 stocks estimate will be followed by a higher rate of use implied by the June 1 stocks estimate to be released by USDA on June 28. That report will indicate whether sufficient rationing has been accomplished and will set the direction for old crop prices.
For new crop corn, prices have completed the transition back to pre-drought levels. December 2013 futures peaked at $6.64 on Sept. 10, 2012, about $1.50 above the June 2012 low. That contract is currently trading just over $5.15, about $0.05 above the summer 2012 low. This past week of rapid corn planting progress has reduced some of the concern about acreage and yield prospects.
A larger than average percentage of the 2013 crop will be planted later than is optimum for maximum yield potential, but there is growing confidence that the 2013 crop will be large enough to meet market requirements at much lower prices than experienced over the past year. However, the season for determining average yield and production is just beginning.
Soybean prices have behaved similarly to corn prices, but are still well above pre-drought levels. July 2013 futures peaked at $16.05 on Sept. 14, 2012, about $3.85 above the June 2012 low. That contract is currently trading near $14.60, still in the upper half of the trading range of the past year.
Due to the on-going futures price inversion, spot cash prices in the Corn Belt have been above July futures all year, with basis levels strengthening in recent weeks. Old crop prices are being supported by prospects of a minimum level of year ending stocks and the need for consumption to remain under the pace of a year ago.
For example, available supplies are expected to limit the domestic crush to 1.635 billion bushels, 4% less than the crush in the previous year. Based on NOPA crush estimates, crush during the first half of the year was 8% larger than the crush of a year earlier. Crush during the last half of the year, then, needs to be 16% less than that of last year. Crush in March was down only 2.5%, and the just released crush estimate for April was down about 9% from the crush in April 2012. A 22% year-over-year decline is needed during the last four months of the marketing year.
For new crop soybeans, prices are closer to a complete transition back to pre-drought levels. November 2013 futures peaked at $14.10 on Sept. 14, 2012, $2.70 above the June 2012 low. That contract is currently trading near $12.25, $0.85 above the low of a year ago and $1.85 below the peak. New crop price weakness reflects expectations of a large U.S. harvest this fall following the recent harvest of a very large crop in South America.
Old crop corn and soybean prices are expected to be supported until sufficient rationing has been confirmed. If 2013 production levels reach current expectations, further weakness in new crop prices would be expected. Of course, that is the question. What kind of summer weather will unfold? For old crop, current price premiums suggest a strategy of spacing additional sales over
For new crop, production uncertainty along with prices well below the spring crop insurance prices suggests a strategy of modest sales for those with high levels of revenue insurance coverage the next several weeks.

Monday, May 20, 2013 @ 10:05 AM
posted by Administrator

MAY 20, 2013
By: Bloomberg

Corn rose for a second day in Chicago before a government report that will show whether U.S. farmers accelerated planting, while more rain in the forecast this week threatens to disrupt fieldwork.
Wet, cold weather in recent weeks left 28% of the crop sown as of May 12, the lowest for that time of year since at least 1980, USDA data show. USDA is set to update its weekly crop progress report today. Eastern regions of the Midwest saw drier weekend weather, while parts of the northern Great Plains, Iowa and Minnesota had more than 4 inches of rain, QT Weather said.
“All focus today will rest on U.S. planting progress,” Jaime Nolan-Miralles, a commodity risk manager with INTL FCStone Inc. in Dublin, said in an e-mailed report. “With weather relatively supportive last week, many are expecting a jump in corn plantings.”
Corn for delivery in July gained 0.7 percent to $6.57 a bushel at 6:41 a.m. on the Chicago Board of Trade. The grain climbed 2.6 percent last week and is up 1.1 percent this month.
The Midwest and Great Plains may see more rain through May 22, slowing fieldwork, AccuWeather Inc. said in a report today. The Plains may see a second storm system late this week and during the weekend, it said.

Soybeans, Wheat

Soybeans for delivery in July rose 0.1% to $14.5025 per bu. The oilseed touched $14.5475, the highest for a most-active contract since March 28. Six percent of the crop was planted in the main growing states as of May 12, against the previous five-year average of 24 percent, according to the USDA.
Wheat for delivery in July slipped 0.1% to $6.825 per bu. In Paris, milling wheat for delivery in November touched 204.75 euros ($263.39) a metric ton, the lowest for a most-active contract since June 18, on NYSE Liffe and was last down 0.4% at 205.50 euros.
Russia’s wheat harvest may be larger than expected at 53.8 million tons, Dmitry Rylko, director of Moscow-based researcher IKAR, said today. Total grain production may be 92 million tons after conditions “improved significantly in April,” he said.
In the U.S., 43% of spring-wheat crops in main growing regions were sown by May 12, behind the five-year average pace of 63 percent, USDA data show. Areas of North Dakota, the biggest growing state for spring varieties, South Dakota and Minnesota are at risk of flooding near the Red River of the North and its tributaries because of heavy rainfall this week, AccuWeather said today.

Friday, May 17, 2013 @ 11:05 AM
posted by Administrator

May 17 (Bloomberg) — Bill Gates is once again the world’s richest person.
The 57-year-old co-founder of Redmond, Washington-based Microsoft Corp. recaptured the title from Mexican investor Carlos Slim yesterday, according to the Bloomberg Billionaires Index, as the software maker hit a five-year high. It is the first time Gates has held the mantle since 2007. His fortune is valued at $72.7 billion, up 16 percent year-to-date.
Slim’s America Movil SAB, the largest mobile-phone operator in the Americas, has dropped 14 percent this year after Mexico’s Congress passed a bill that could quash the billionaire’s market dominance. That’s helped erase more than $3 billion from the 73- year-old tycoon’s net worth.
“When they’re talking about reform in a country that’s generally poor, and the guy shows up No. 1 on the list — not a good thing,” said Greg Lesko, managing director at New York- based Deltec Asset Management LLC, which oversees $750 million and has an “underweight” position in Slim’s flagship company. “He’s had a pretty good monopoly situation in Mexico, and the Mexican cellphone user has been paying more than he should. We applaud it for the country.”
Earlier this month, a group of kazoo-playing protesters confronted Slim when he appeared at an event at the New York Public Library, denouncing him for overcharging consumers to enrich himself. He denies the accusation.

Microsoft Rally
The bill passed in Mexico last month, which is backed by President Enrique Pena Nieto and is now before state legislatures, would allow regulators to break up phone companies with more than 50 percent of the market or force them to share their networks. America Movil has 70 percent of Mexico’s mobile- phone subscribers and 80 percent of the country’s landlines.
Microsoft shares have surged 28 percent this year, buoyed by cost controls and sales of business and server software amid weak demand for personal computers running the new Windows 8 operating system. Gates’s fortune has also benefited from a rally in stock holdings that include the Canadian National Railway Co. and waste-collection company Republic Services Inc.
Most of Gates’s fortune is held in Cascade Investment LLC, a holding entity through which he owns stakes in more than a dozen publicly traded companies and several closely held operations, including Four Seasons hotels and Corbis Corp. Less than a quarter of Gates’s fortune is held in Microsoft. He’s donated $28 billion to the Bill & Melinda Gates Foundation.
Bridgitt Arnold, a spokeswoman for Gates, declined to comment. Arturo Elias, Slim’s spokesman, didn’t return phone and e-mail messages.
Buffett, Ortega
Berkshire Hathaway Inc. chairman Warren Buffett is the world’s third-richest person with $59.7 billion, according to the Bloomberg ranking. He is $3.7 billion ahead of Spaniard Amancio Ortega, Europe’s wealthiest person.
Ingvar Kamprad, the founder of IKEA, ranks fifth with a $55.6 billion fortune. The world’s largest furniture retailer generated more than $36 billion in revenue and $4 billion in net income in 2012.
Google Inc. co-founders Larry Page and Sergey Brin have seen their fortunes rise more than 22 percent year-to-date as shares of the world’s most popular search provider have surged. They rank No. 18 and No. 19 respectively.

Tesla Accelerates
The fortune of Elon Musk, the founder and largest shareholder of electric-car maker Tesla Motors Inc., has accelerated 128 percent year-to-date. The Palo Alto, California- based company increased the size of its equity and debt offerings by 30 percent to as much as $1.08 billion to build up its cash reserves and repay its loan to the U.S.
Musk has a net worth of $5.4 billion.
The Bloomberg Billionaires Index takes measure of the world’s wealthiest people based on market and economic changes and Bloomberg News reporting. Each net worth figure is updated every business day at 5:30 p.m. in New York and listed in U.S. dollars.

Wednesday, May 8, 2013 @ 02:05 PM
posted by Administrator

May 8, 2013

Source: University Of Illinois news release

Farm Bill markup likely will begin soon in both the Senate and House Agricultural committees. Much of the focus for traditional program crops will be around three programs: a revenue program, a target price program, and a supplemental crop insurance program.

While the exact nature of the programs will depend on negotiations, what is almost certain is that the programs’ rationale will be risk management. Given a risk management focus, Farm Bill negotiations will need to debate and somehow resolve the following seven questions.

Question 1: Will support provided to some crops be greater than the support provided strictly by risk management considerations?

Risk management programs provide a level of payments that more closely follows gross revenue than do the historical Farm Bill Title 1 programs. For example, a continuation of the current direct payment program results in higher payments for rice and peanuts than for corn, soybeans, and wheat. Modifications of the risk management focus may be needed to gain political support for differing regions and crops.

Preferential treatment can be implemented by various measures. For a revenue program, minimum prices could be put in place, as was done for rice and peanuts in the 2012 Senate Farm Bill.

Target prices can be set higher relative to expected market prices for some crops than other crops, as was done for rice and peanuts in last year’s House Agricultural Committee Farm Bill.

In a supplemental crop insurance program, higher subsidy levels and higher loss multiples can be given to some crops over other crops, as was done for cotton in their STAX program compared to the Supplemental Coverage Option (SCO) proposed for other program crops in the 2012 Senate Farm Bill and 2012 House Agricultural Committee Farm Bill.

Question 2: Will the programs focus on across-year or on within-year protection?

A supplemental crop insurance program will enhance crop insurance protection, thereby increasing within-year protection. A revenue and target price program respectively protect against revenue and price declines that occur across years.

Because all three of the programs must fit within budget parameters, the greater the focus on a supplemental insurance program the lower will be across-year protection, and vice versa.

The discussion in the preceding paragraph presumes that the supplemental insurance coverage provided by STAX and SCO programs is the same proposed in last year’s Farm Bill drafts. Both of these programs based their revenue guarantees on crop insurance’s pre-plant projected prices.

These projected prices are based on harvest futures prices for the crop year. This design choice results only in within-year protection. An alternative design option is to base prices on historical prices, which would introduce the potential for across-year protection.

Question 3: Will the across-year programs focus on price or revenue protection?

It is easier to forecast payments with a price program. Prices lower than the support price will results in payments.

In contrast, payments by a revenue program depend on low revenue not low price. Low prices may be offset by high yields resulting in no payments.

Thus, forecasting payments by a revenue program requires consideration of the interactions of yield and price when determining revenue and thus revenue program payments. On the other hand, low revenues, not low prices, are generally a more accurate indicator of poor financial performance.

Thus, revenue programs generally are viewed as targeting payments better to years in which revenues are low.

Question 4: Will the support levels for across-year programs react to changes in market conditions?

The revenue programs in last year’s Farm Bill drafts had support levels that reacted to the market. The revenue support targets were set using the product of a moving average of historical prices and historical yields.

In contrast, the target price proposals in last year’s House Agricultural Committee Farm Bill did not react to the market. The target prices were set at levels fixed for the life of the farm bill.

Most target price programs have not had market moving targets built into the program. However, it is possible to build a target price program that would react to the market.

Rather than having legislated fixed prices, target prices could be set using an average of previous prices that move over time. Lower market prices would lower the target price while higher market prices would increase the target price.

Reacting to the market implies certain characteristics. Of particular importance, a period of low prices that persist for several years will result in lower payments during later years of the low price cycle.

Conversely a program that does not react to the market will have similar payments in the first and later years of the low price cycle. These differences have important international trade implications.

In the first situation, U.S. agriculture adjusts while in the second situation all of the adjustment is borne by foreign countries. The latter situation increases the likelihood of U.S. programs being sued at the World Trade Organization.

To summarize, arguments for adjustments are that farmers need to react to new market conditions and declining payments from a commodity program give farmers’ time to react. Arguments against market oriented targets are that adverse conditions cause pain whether the adjustments occur during the early or later years of changes in market conditions.

Question 5: Will the program use historical or planted acres to indemnify producers?

Last year’s revenue program largely was based on planted acres while last year’s target price program made payments on historical base acres. Generally, risk management is enhanced by basing payments on planted acres.

To some extent, the answer to this question is related to whether the program will react to market conditions. If a program reacts to market conditions, it can more easily be based on planted acres.

Fixed target prices raise concerns when a fixed target price is set high relative to the market price. This will cause producers to plant more of the crops with higher fixed target prices, especially if payments are based on planted acres or if planted acres are significantly smaller than base acres.

Hence, historical bases, especially historical bases that are updated close to the time that fixed target prices are set, have to be used when the program does not react to the market, or else production distortions become potentially more important.

Question 6: How much overlap will be allowed between Farm Bill programs and crop insurance?

Crop insurance has become a large program that many farmers view as their primary risk management program. Given this emphasis, how will the Farm Bill programs complement crop insurance? Most insurance products purchased today are revenue products, making it potentially easier to minimize overlapping payments from crop insurance and multiple year revenue programs.

Low prices can trigger payments by both crop insurance and target price programs, but historically this overlap in payments has not been addressed in designing target price programs. On the other hand, overlapping payments by crop insurance and across-year revenue programs have been an integral part of the design discussion, both in the design of the ACRE program in the 2008 Farm Bill and in the design of the ARC and RLC programs in the 2012 Farm Bill drafts.

Question 7: Does a farm have to have a loss to trigger payments?

Farms will not necessarily have to have a loss to receive program payments. For example, prices may be low enough to trigger target price payments but the farm may not have a revenue loss because yields are high enough to offset low prices.

In a similar manner, if a revenue program is based on county revenue, county revenue may be low while farm revenue may not be low.

Having a farm loss condition in the program causes payments to go to only to farms that have losses. On the other hand, inclusion of a loss condition increases the complexity of the program.

Summary

Designs of the Farm Bill programs will largely answer the above seven questions. In some cases, these are contentious issues across regions and across crops.

For example, some may want a revenue program while others desire a target price program. Hence, resolution of these issues likely will require compromise, perhaps leading to unclear answers to the above questions.

It is highly unlikely that any party to the Farm Bill negotiations will receive all their desired answers to the above questions and will therefore have to choose which of these questions are more important to them.