Tuesday April 9 Ag News

Hog Profits May Return with Lower Feed Costs

The prospects for a rally in hog production profitability this spring dimmed in February and March with the reality that pork exports were headed down. According to Purdue University Extension economist Chris Hurt, the prospects for a return to profitability have brightened once again, but due to an entirely different reason: much lower feed prices.

"The favorable surprise for the animal industries came in the USDA Grain Stocks report at the end of March," Hurt said. "Inventories of both corn and soybeans were much larger than anticipated, seemingly indicating that greater supplies of both corn and soybean meal would be available for the rest of this marketing year. A dramatic downward movement in feed prices had not been expected until mid to late summer."

According to Hurt, these lower feed prices have sharply reduced anticipated feed costs for this spring and summer. Corn prices have dropped about $1.00 per bushel and soybean meal prices about $30 per ton. Estimated costs for farrow-to-finish production were near $70 per live hundredweight in the first quarter of this year. "Now my cost estimates have fallen to $65.50 for the second quarter and $63 for the third quarter," Hurt said.

The outlook early in 2013 was for a return to break-even prices based on a hog-price rally by May to reach the $70-cost level. Weakened demand related to exports meant that the spring rally would not be strong enough, Hurt said. Now, the outlook has shifted toward costs decreasing from $70 to the mid-$60s as the way break-even prices could be reached later this spring. "A return to break-even prices will be welcomed after drought-driven feed prices have resulted in losses of an estimated $26 per head for the previous three quarters, including the last half of 2012 and the first quarter of this year," he said.

Live hog prices in the first quarter of 2013 averaged near $62 per live hundredweight. Prices are expected to rise to the mid-$60s for the second and third quarters this year. If so, second-quarter prices will cover all costs of production and a modest profit of $8 per head would unfold in the third quarter. Feed costs would continue to drop in the final quarter of 2013 and into 2014, given current futures price direction. Hurt said that beginning early this fall, total costs of production would drop under $60 for the first time since 2011. Prospects for a profitable hog industry remain favorable through the summer of 2014.

Hurt said that the confidence in this more favorable pork outlook is still "skating on thin ice." Concerns over further erosion of pork exports remain.

"Japan, our largest pork buyer, has recently announced a major move by their central bank toward quantitative easing that will depress the buying power of the yen relative to the dollar. This will make it more costly for Japanese consumers to buy U.S. pork.

"The biggest of the worries will remain over feed costs," Hurt said. "While the recent USDA Grain Stocks report seemingly 'discovered' more old-crop corn and soybeans, those reports have swung sharply between bearish and bullish in recent years. There is little assurance that this latest report has the correct magnitude of remaining old-crop supplies," he said.

Weather this summer and the size of 2013 crop production is the other uncertain part of feed costs.

"Current dry soils in the western Corn Belt and Great Plains states are well known," Hurt said. "Ending inventories of corn and soybeans will be limited, and thus another below-normal production year could push up new-crop prices rapidly. On the other hand, a return to more normal production could still depress new-crop prices from current levels, given the prospects for relatively weak demand for corn use for ethanol and increased international completion for export demand from the United States.

"If U.S. yields do return to near normal, it's likely that stocks would build and provide some cushion against the next small crop," Hurt said. "If this were to occur, not only would feed prices move lower, but there is a higher probability of prices staying lower and less volatile for multiple years. This would be a favorable business environment for all animal industries to move toward expansion," he said.

Hurt concluded that feed price uncertainty remains very large. Feed prices by mid-summer could be much higher, much lower, or about the same as they are today.

"One thing is certain. We will know a great deal more about 2013 crops 100 days from now," he said.



Farm Bureau Sends Farm Bill Proposal to Capitol Hill

The American Farm Bureau Federation is sending a farm bill proposal to Capitol Hill today. Approved this weekend by the AFBF Board of Directors, the proposal offers a diverse mix of risk management and safety net tools to benefit a wide range of farms and it saves $23 billion compared to the cost of continuing the current program.

The American Farm Bureau farm bill proposal helps reduce the nation’s budget deficit, provides an adequate economic safety net for the nation’s farmers and is based on several core policy principles, according to AFBF President Bob Stallman.

The Farm Bureau proposal:
-    Offers farmers a choice of program options.
-    Protects and strengthens the federal crop insurance program and does not reduce its funding.
-    Provides a commodity title that works to encourage farmers to follow market signals rather than making planting decisions in anticipation of government payments.
-    Refrains from basing any program on cost of production.
-    And, ensures equity across program commodities.

“There is far less money this year than last with which to secure an adequate safety net for the many family-owned farms that make up the bulk of America’s agricultural system,” Stallman said. “Last year, Congress merely extended the old 2008 farm bill until Sept. 30 of this year. Now, while unfortunately we have less money to work with, it is vital that Congress complete a new five-year farm bill this year. Doing so is in the economic interest of our entire nation.”

Stallman said the goal of the American Farm Bureau proposal is to provide a measure of fairness among regions and crops, while providing each commodity sector a workable safety net provision for farmers who grow that crop.

“Farm policy should provide a strong and effective safety net and viable risk management programs for farmers that do not guarantee a profit but, instead, protect them from catastrophic occurrences,” Stallman said. “We also want to ensure that terms of our farm programs do not affect a farmer’s decision of which crop to plant. The program must comply with our World Trade Organization agreements.”

Farm Bureau supports a program that reduces complexity while allowing producers increased flexibility to plant in response to market demand.

Farm Bureau supports a safety net that allows farmers to purchase insurance products to further protect individual risk. The program should be delivered by private crop insurance companies.

We support producers being allowed a choice of program options.

Specifically, the AFBF proposal calls for a three-legged safety net for program crop farmers that includes: a stacked income protection plan commonly called STAX; an improved crop insurance program; and target prices and marketing loans. Under the proposal, all program crop farmers would have access to the marketing loan and crop insurance provisions and they would then select between a target price program and STAX to round out their safety net option.

The AFBF proposal also supports extending provisions of the STAX program for apples, potatoes, tomatoes, grapes and sweet corn. Covering these five specialty crops will benefit fruit and vegetable producers in 44 states. Eventually, Farm Bureau would like to cover all crops under a STAX program in the future.

“While we would have liked to have provided a STAX program for all commodity programs under the same terms as those provided to cotton last year in the Senate bill, funding is insufficient to do so,” Stallman explained.

Because of funding limits, AFBF is proposing modifications be made to STAX for all eligible commodities. Those modifications would: reduce the crop insurance premium subsidization to 70 percent from 80 percent; not offer the multiplier option; not offer a harvest price option; allow STAX to be based on yield or revenue at the discretion of the producer; and allow purchase only as a buy-up policy with a 10-25 percent deductible rather than also providing for a stand-alone policy. In addition, under the STAX program suggested by Farm Bureau, no payments would be made until the county average revenue or yield fell by 10 percent from the historic amount.

A target price program for all program commodities would be available except for cotton. Due to terms of Brazil’s WTO cotton case against the United States, cotton farmers would likely not be eligible for a marketing loan at the current level or any target price.

For other crops, target price levels would be based on the marketing-year average price from the past five years (2007 through 2011) and those projected by the Congressional Budget Office for the next five years (2012 through 2016). To establish the actual target prices and provide general equity across crop sectors, these 2007-2016 average prices are reduced by 25 percent for corn and soybeans, 15 percent for wheat and 10 percent for rice and peanuts. Wheat has an adjustment of only 15 percent because it is produced mostly in the larger counties, making area yields less representative of individual producer experience and therefore less effective as a risk management tool.

The smaller 10 percent adjustment is applied to peanuts and rice as both crops lack insurance products that function as well as those available to the major grain and oilseed commodities. AFBF suggests the same 10 percent loss threshold be used to determine appropriate target price levels for rice and peanuts. The target price will be based on 85 percent of planted acres, but not to exceed a producer's historical base acreage. This provides a safety net more accurately addressing the risks associated with current production decisions and eliminates the present mismatch between payments and actual production or market conditions. Capping the payment acres at the historical base minimizes any potential distortion of a target price system.

The Senate Agriculture Committee will likely begin markup of a comprehensive, long-term farm bill this month, while the House Ag Committee is considering moving a bill after the Senate Ag Committee completes its mark up.



U.S. crude oil production expected to exceed oil imports later this year

U.S. crude oil production is expected to surpass U.S. crude oil imports by the fourth quarter of this year. That would mark the first time since February 1995 that domestic crude oil output exceeds imports, according to the latest monthly energy outlook from the U.S. Energy Information Administration.

The United States will still need to import crude oil to help meet domestic demand. However, total crude oil imports this year are on track to fall to their lowest level since 1997.

U.S. oil production is expected to continue to rise over the next two years as imports fall. As a result, the share of total U.S. petroleum consumption met by net imports is forecast to fall to 32 percent next year, the lowest level since 1985 and nearly half the peak level of 60 percent seen in 2005.



U.S. diesel fuel price forecast to be 1 penny lower this summer at $3.94 a gallon

The retail price of diesel fuel is expected to average $3.94 a gallon during the summer driving season that which runs from April through September. That’s close to last summer’s pump price of $3.95, according to the latest monthly energy outlook from the U.S. Energy Information Administration.  Demand for distillate fuel, which includes diesel fuel, is expected to be up less than 1 percent from last summer.

Daily production of distillate fuel at U.S. refineries is forecast to be 70,000 barrels higher this summer.  With domestic distillate output exceeding demand, U.S. net exports of distillate fuel are expected to average 830,000 barrels per day this summer. That’s down 12 percent from last summer’s record exports. 

Biodiesel production, which averaged 68,000 barrels a day last summer, is forecast to jump to 82,000 barrels a day this summer.

U.S. summer gasoline price to average 6 cents lower than last year at $3.63 a gallon
U.S. consumers are expected to pay less for gasoline this summer compared to last year. The price for regular gasoline is expected to average $3.63 a gallon during the heavily traveled summer driving season that runs from April through September, according to the latest monthly energy outlook from the U.S. Energy Information Administration.  That’s 6 cents less than last summer’s average pump price. 

Cheaper motor fuel reflects lower crude oil prices, which account for about 65 percent of what drivers pay at the pump.  Gasoline prices will vary by state and region, and average monthly fuel prices in some areas could be significantly higher than the national average pump price. Gasoline demand this summer is expected to be slightly below last year’s level, as more fuel efficient vehicles more than offset the projected increase in highway travel.



Diesel prices continue to decrease

The U.S. average retail price for on-highway diesel fuel fell to $3.98 a gallon on Monday. That’s down 1.6 cents from a week ago, based on the weekly price survey by the U.S. Energy Information Administration.  Diesel prices were highest in the New England region at 4.13 a gallon, down 1.4 cents from a week ago. Prices were lowest in the Gulf Coast region at 3.89 a gallon, down 2.7 cents.  On-highway diesel in the Midwest region came in at $3.956.  That's 1.4 cents less than last week and also down 9.9 cents from a year ago. 

Gasoline prices continue to fall
The U.S. average retail price for regular gasoline fell to $3.61 a gallon on Monday.  That’s down 3.7 cents from a week ago, based on the weekly price survey by the U.S. Energy Information Administration.  Pump prices were highest in the West Coast region at 3.93 a gallon, down 1.7 cents from a week ago.  Prices were lowest in the Gulf Coast States at 3.43 a gallon, down 4.6 cents.  The Midwest average sits at $3.553 for a gallon of gasoline, which is down 4.4 cents from last week and  down 30.7 cents from a year ago. 



DTN Retail Fertilizer Trends

As has been the case for more than five months now, retail fertilizer prices tracked by DTN for the first week of April 2013 continue to be fairly steady.  Half of the eight major fertilizers were higher compared to last month, but these moves to the high side were fairly minuscule. Urea had an average price of $574/ton, 10-34-0 $612/ton, UAN28 $400/ton and UAN32 $447/ton.  The other half of the remaining fertilizers were lower compared to the first week of March but, again, the move lower was extremely small. DAP had an average price of $616/ton, MAP $661/ton, potash $589/ton and anhydrous $856/ton.

On a price per pound of nitrogen basis, the average urea price was at $0.62/lb.N, anhydrous $0.52/lb.N, UAN28 $0.72/lb.N and UAN32 $0.70/lb.N.

Two of the eight major fertilizers are showing a price increase compared to one year earlier. Anhydrous is now 13% higher while UAN28 is 1% higher compared to last year.  Three fertilizers are a single-digit lower in price compared to April 2012. UAN32 is down 2%, DAP is 4% less expensive and MAP is 5% lower compared to last year.  The remaining three fertilizers are now down double digits from a year ago. Potash is now down 11%, urea is 16% less expensive and 10-34-0 is 22% less expensive.



Economic Analysis Says Dairy Security Act Works to Increase Dairy Farm Revenue

The benefits of adopting the Dairy Security Act (DSA) as part of the next farm bill will be obvious to farmers and policy makers as Congress begins assembling new agricultural policy this spring, according to speakers here at the National Dairy Producers Conference.

During a two-hour long session Monday reviewing the prospects of the Farm Bill in general – and the outlook for the Dairy Security Act in particular – panelists agreed that the risk management approach embodied in the Dairy Security Act provides a cost-effective safety net for farmers.

University of Minnesota economist Marin Bozic, who participated in the discussion in Indianapolis, reported that farmers who enroll in the DSA will find that the program “works as catastrophic risk insurance. It reduces extreme margin risk, as it pays you the most when you need it the most.”

He said that farmers will likely view the risk of not enrolling in the program as far greater than being part of it. Regarding concerns that milk production growth could be restricted by the DSA’s market stabilization component, Bozic told the crowd that producers using the three-month rolling base will experience milk production growth over the long term similar to if they were not part of the program.

Bozic is one of a group of Midwestern university professors who have performed a detailed analysis of how the DSA program performs for farms of various sizes, under various economic conditions. The analytical tool he reviewed has been developed to help farmers determine how best to participate in the DSA, once it becomes law.

One of the other academics, John Newton, described how an independent economic model of DSA can serve as a tool for farmers to help them make decisions regarding participation on the proposed DSA. Newton, an Ohio State University doctoral candidate, said that DSA works for farmers, whether small or large, and regardless of whether the model is merely a yearly analysis or a cumulative revenue report over a period of years.

Monday’s findings by the agricultural economists about the effectiveness of the DSA will bolster the case on Capitol Hill that the measure needs to be part of the next farm bill, according to NMPF’s Chief Executive.

“We’ve spent the past three years working within the industry, and with members of Congress, developing a program that meets the needs of America’s dairy farmers in the 21st century,” said Jerry Kozak, President and CEO of NMPF, which organized the National Dairy Producers Conference. “The evidence continues to demonstrate that the DSA is both good policy, and good politics.”

Kozak said that competing approaches to the DSA, either featuring no market stabilization element, or exempting all but the largest farms from market stabilization, are both overly costly, and politically unacceptable.

“Any proposal featuring margin insurance alone, such as the Goodlatte-Scott amendment, which severely limits the amount of milk that farmers can insure, will hamper the growth of their operations. Beyond that, it’s a prescription for lower milk prices and higher government costs, which will scuttle the whole economic basis for margin insurance in the future,” he said.

By the same token, “any approach that attempts to drive a wedge between farmers of differing sizes by exempting large numbers of farmers from the market stabilization program is divisive and wrong. In addition, it would dramatically increase the cost of the overall farm bill. The industry has moved beyond the regional divisiveness of past dairy policies and Congress needs to do so as well,” he said.



China 2012-13 Soybean Imports May Fall First Time in 9 Years

China's 2012-2013 soybean imports may fall for the first time in nine years, as bird flu worries and weak pork prices will likely reduce demand for animal feed, a government think tank said Tuesday.

Soybean imports in the year ending Sept. 30 are expected at 59 million metric tons, compared with actual imports of 59.24 million tons in 2011-12, the state-backed China National Grain & Oils Information Center said in a report.

The think tank earlier estimated China's 2012-13 soybean imports at 60 million tons, while the U.S. Department of Agriculture forecast imports at 63 million tons.

China's poultry production has been hit heavily by a deadly new strain of bird flu in eastern China. Meanwhile, hog producers are reluctant to replenish stocks as they are losing money from weak pork prices, reducing the demand for soymeal significantly, the CNGOIC said in a report.

Port congestion in Brazil delayed some soybean shipments to China, with first-quarter soybean imports are expected to reach 11.48 million tons, down from last year's 13.27 million tons, the CNGOIC said.

As port conditions improve in Brazil, China's soybean imports may rebound to 4.8 million tons in April from an estimated 3.8 million tons in March, while average monthly imports between May and September will hit about 5.7 million tons, it said.

China Buys More Than 700,000 Tons US Wheat for Reserves
China National Grain Reserves Corp. bought more than 700,000 metric tons of soft, red winter wheat from the U.S. in the past weeks taking advantage of recent lower prices, trading executives said.

The company also known as Sinograin bought the wheat for reserves, a trader with a state-owned grain trading house said on Tuesday.

Domestic wheat prices have increased about 15% so far this year. Part of the reason is that government stocking last year tightened supply.

"Sinograin is now more flexible than before; when there is profit they will import," the trader said.



Brazil's Ag Ministry Raises Corn View Further

Brazil's Agriculture Ministry Tuesday morning raised its corn crop view by 1.38 million metric tons to 77.45 mmt due to the excellent condition of the second crop.  That's 5 million metric tons more than the U.S. Department of Agriculture is predicting.  Excessive rain in January and February caused a delay in second-crop planting. 

But 'excellent climate conditions' allied to an increase in planting area will take second-crop production 9.1% beyond the 2011-12 figure, said the ministry's Food Supply Corp (CONAB) in a report.  The second crop, for which harvesting starts in May and finishes in July, will total 42.7 mmt.

Even though there will be more corn in 2013, the ministry expects exports to fall as exploding logistics costs will vastly reduce local competitiveness. Shipments are pegged at 15 mmt, down from 22.3 mmt last year.  That's going to leave Brazil with carryover stocks of 16.6 mmt in 2014, up from 5.9 mmt last year, a fact that will inevitably weigh on domestic corn prices in the second half of 2013.

CONAB also trimmed its soybean number by 123,000 metric tons to 81.94 mmt.  In its report, the government agency cited excessive rain during the harvest in the center-west and drought in the Cerrado regions of the northeast as issues. 

The government expects soybean exports to reach 36.8 mmt in 2013-14, which is lower than the crushing industry's forecast of 38.5 mmt.



Two Decades of Mycotoxin Research: We Can Now Detect More, Assess Risks and Mitigate Solutions

There are approximately 500 known mycotoxins, and interactions between toxins can often make diagnosis difficult. Making matters even more complicated, the presence of masked mycotoxins in animal feed can lead to an underestimation of certain mycotoxins by up to 88 percent, thus explaining why analyzed feeds showing low levels of mycotoxins can still cause problems on-farm.

However, in the field of mycotoxin research, we’ve come a long way. That was the common theme among many of the world-renowned expert presenters at Alltech’s first annual North America Mycotoxin Management Summit in Lexington, Ky. Thursday and Friday. More than 65 industry members attended “Making Sense of the Maze... New Strategies for Old Problems,” where attendees discovered just how far mycotoxin research and analysis has come; and how far Alltech has taken it globally through their Mycotoxin Management Program.

“In the last two decades, advances in technology have altered our view of mycotoxin issues in the food chain. We now know it is a mycotoxin complex, and we have a better understanding of the physiological and pathological effects of mycotoxins” said Dr. Karl Dawson, chief scientific officer at Alltech.

In his presentation, “Mycotoxin Research, 20 Years and What Have We Learned,” Dawson discussed how researchers are now able to detect a greater number of mycotoxins with the use of LC-MS/MS methodology (Alltech’s 37+ Program); can provide a risk assessment based on the mycotoxins that are found as they relate to the particular species being fed; and determine the correct mitigation strategy through balanced nutrition and the development of functional carbohydrates.

In addition to increased detection and assessment in the laboratory, researchers have also identified more risk factors at the farm level. According to Randy Asher, Animal Science Consulting, conditions such as stress (environmental, overcrowding, comfort), disease, diet and stray voltage can magnify a mycotoxin problem.There at least 16 contributing factors for low feed intake and no less than 13 parameters to consider for low milk production. Mycotoxins are only listed once on each of these lists; however, it is important to understand how these toxins might impact other factors in such a way that symptoms can be misleading.

“We are working with a big petri dish for fungal organisms. Know what you are actually dealing with. Troubleshoot. It is easy to blame a lot of things on mycotoxins, but we could have mycotoxins working with a lot of other conditions on the farm,” Asher said.

Johanna Fink-Gremmels, Utrecht University, echoed Asher’s comments as she pointed out that mycotoxins continue to be a concern for both animals and humans.  Aflatoxins, the most prevalent mycotoxins worldwide, can impair the cow’s liver function and  immune system, which can lead to production losses and an increased prevalence of disease. The industry is also seeing increased levels of aflatoxin getting into the milk supply. In February, the European Union closed 3,500 dairy farms for days while awaiting analytical results, after finding a high prevalence of milk exceeding the legal limit for aflatoxins.

“On the global scale we have to learn we need to deal with mycotoxins. We will never get rid of them. We have to be prepared that the sudden incidence of mycotoxins in grains will not be infrequent,” Fink-Gremmels said.

Preparation is key as many of the speakers touched upon the necessity for producers and feed mills to implement a mycotoxin management program utilizing Hazard Analysis Critical Control Points (HAACP)-based principles. The industry needs to understand pre- and post- harvest mycotoxin contamination and identify hazards as well as potential control points for mitigation.

“It’s important to do our best to diagnose the challenge. When we are talking to producers, people want to know what is going on so they can be more confident in making decisions. If they don’t have a mycotoxin management program in place or are not looking at it holistically, they will have an issue,” said Nick Adams, global sales director of Alltech’s Mycotoxin Management Team. “When all is said and done, mycotoxins are going to be with us, and having that final solution in the diet is critical to mitigate the problem to the animal.”