Dairy producers may want to identify the areas of the farm in which the greatest expenses are incurred and act accordingly to minimize them.

They may take this approach to help cope with the current economic crunch, said South Dakota Cooperative Extension Dairy Specialist Alvaro Garcia.

“The current economic situation of the dairy sector has producers looking at ways to improve returns, and milk prices are currently near $10 per 100 pounds,” Garcia said. “Operating costs to produce that milk are at best at $14. In simple terms, by the time premiums are added to the base price, producers still lose almost $3 every time they sell 100 pounds of milk.”

Garcia said that looking forward, there is no indication of a significant rise in milk prices in the near future.

“Milk prices for the next six months will be mostly below the operating costs of production,” said Garcia. “The best-case scenario seems to be break even by December 2009 when base milk prices will be at $14.”

Garcia said it is important for producers to act in areas that will not directly affect herds in the near-term.

“Feed continues to be the greatest fraction of cost for producers, since nearly 70 percent or more of operating costs, or 44 to 50 percent of total costs of production, go to feed,” he said. “In South Dakota, nearly half of feed costs correspond to homegrown feeds whereas the rest is purchased feed.”

Producers who increase the quality of feed produced on the farm can decrease the expense of purchased feed. Producers need to make sure forages are harvested at the right maturity to maximize quality and stored for properly for optimum preservation.

“This is a key component, because if not executed properly, the purchased feed cost will outweigh homegrown feed investment,” Garcia said.

Veterinary and medicine expenses constitute about 8 percent of operating costs, and Garcia said this is an area where producer actions can reduce costs.

“It is very important, considering that 8 percent, to put special emphasis in detecting problems early to increase treatment effectiveness,” said Garcia. “Cow comfort is a critical component of the savings in this area. Bedding constitutes only 2 percent of operating costs, so it makes very little sense to try to save money there because in doing so, we are going to compromise cow well-being and increase veterinary expenses.”

Garcia said both lameness and mastitis - ailments highly correlated to bedding - continue to be the main health issues in dairies across the U.S.

Since roughly 8 percent of operating costs are repairs and energy use, Garcia said it is important to identify areas that need maintenance.

“To minimize the need of ulterior, costly repairs, identify maintenance issues quickly, repair them, and in doing so, also consider those areas that use the most electricity in the dairy,” Garcia said. “Milk cooling, lighting, and air movement fans use the most electricity, and there are alternative methods a producer can use to save money.”

Source: South Dakota State University

The Massachusetts cranberry harvest will likely be 20 percent less than 2008’s record haul, the Patriot Ledger reports, citing figures from the U.S. Department of Agriculture. The state’s cranberry crop is expected to produce about 1.9 million barrels, compared with 2.4 million barrels last year.

• Berries

Cattle prices are likely to improve in the long term, according to Purdue University Extension marketing specialist Chris Hurt.

“The magnitude of price improvement may be robust at some point in 2010 as beef cow numbers continue to drop, beef exports continue to improve, and the world economy begins to heal. A return to finished cattle prices of $1 per pound or higher seems probable as per capita beef supplies will be low and competitive meat supplies will drop as well.”

For the present, much of the agricultural sector is taking a big hit from the recessionary economy, and the beef sector is no exception.

“Weak retail demand has lowered finished cattle prices. The magnitude of the hit is hard to measure precisely, but consider that late last summer the price outlook for the first quarter of 2009 was for finished steers to average about $94 per hundredweight.

“As the economy weakened, cattle prices fell and only averaged $81.50 in the January to March quarter. A reduced price of $12.50 per hundredweight represents a revenue reduction of $750 million in the first quarter alone.”

Cattle prices have paralleled the decline, and more recent recovery, in the U.S. stock market.  Since September, the Dow Jones Industrial Average index and finished cattle prices have been nearly 90 percent correlated using weekly data.

Supply is not the reason for low cattle prices. In the first quarter of the year, per capita beef supplies were down about 3 percent, and gave rise last summer to the anticipation of mid-$90s finished cattle prices in the first quarter.

“Beef supplies will remain about 3 percent below previous year levels into the second quarter of 2009, but will be up about 2 percent in the third quarter and unchanged in the final quarter of the year. A smaller beef cow herd and fewer cattle in feedlots have provided generally smaller beef supplies.”

Another concern for the cattle industry is that retail beef prices have been slower to drop than have producer prices. In the first quarter of 2009, retail beef prices averaged $4.33 per pound compared to $4.16 a year earlier.

While live cattle prices were down $8.10 per hundredweight, consumers had to pay 17 cents per pound more for beef. This means beef processing margins increased, with the largest portion coming in retailer margins which were 13 percent higher than in early 2008.

The pattern of farm-level prices changing more rapidly than retail prices is normal, and there are signs that retail prices and margins are on the decline. Retail beef prices peaked at $4.53 per pound last August and fell to $4.30 in March.

“Retail margins have also been narrowing in recent months. These are both indicators that retail beef prices can moderate further and enable producers to receive a larger portion of the consumer beef expenditures in coming months.

“The direction of the general economy, however, remains the key variable for the direction of finished cattle prices for the rest of this year and next. Feeder cattle and calf prices will also be influenced by the direction of feed prices and by pasture availability.”

While the beef production sector has suffered one of the most dramatic negative impacts from the general economy, it also has the potential to have one of the most dramatic positive responses when the world returns to economic normality.

Corn acreage in the United States is down and soybean acreage is up for 2009, according to the U.S. Department of Agriculture Prospective Plantings Report. But the shift is not as great as the markets expected.

According to Matt Roberts, an Ohio State University Extension economist, high fertilizer prices, high input costs for corn, and poor fall weather for Western Corn Belt states didn’t have much impact on farmers’ decisions to take large acres of corn out of production.

“The thing that is most striking is that all of the reasons that a lot of people were thinking that would drive a large reduction in corn acres really haven’t had a lot of impact. There are many areas of the U.S. that are still favoring corn profitability.”

According to the report, corn growers intend to plant 85 million acres of corn, down 1 percent from last year. If realized, this would be the second consecutive year-over-year decrease since 2007 but will still be the third largest acreage since 1949, behind 2007 and 2008.

Soybean producers intend to plant 76 million acres. If realized the acreage would be the largest on record. Ohio is one state where acreage is expected to increase by 100,000 acres or more.

All wheat planted is estimated at 58.6 million acres, down 7 percent from last year. The 2009 winter wheat planted area, at 42.9 million acres, is 7 percent below last year but up 2 percent from the previous estimate.

Based on current estimates, the U.S. will see a reduction of 7 million acres for the principal crops.

“The big question is, where is all of that acreage going? Cotton production is reported to be down. Maybe those high input costs are driving some acres back to pasture, which is not a bad thing. This report doesn’t give us the details we need to be able to figure that out at this time.”

The USDA acreage report will be released June 30. At that time, analysts should have a better handle on the outlook of acreage planted.

Source:
Matt Roberts, Ohio State University Extension, AEDE
roberts.628@osu.edu

Corn consumption during the 2009-10 marketing year could reach 12.5 billion bushels, according to University of Illinois Extension marketing specialist Darrel Good.

“The 2009 crop would need to be near 12.2 billion bushels to support consumption at that level. Assuming a trend yield of 152.8 bushels, 79.8 million acres of corn would need to be harvested to produce 12.2 billion bushels. About 87 million acres of corn would need to be planted in 2009, then, to meet expected consumption.

“The market likely believes that less than 87 million acres of corn will be needed in 2009 since a trend yield above 152.8 bushels is generally assumed. Each bushel above 152.8 reduces the needed acreage by about 500,000.”

In its preliminary analysis, the USDA expects 2009 corn acreage to be near the 2008 level of 86 million. Private estimates for the March 31 Prospective Plantings report are as low as 81 million acres.

The level of corn consumption this year will determine the magnitude of year-ending stocks, influence expectations for use next year, and influence the amount of corn acreage needed in 2009.

In its March 11 update, the USDA lowered the projection of U.S. corn exports for the current marketing year by 50 million bushels, to 1.7 billion bushels. That projection is 300 million bushels less than the projection of last fall, 736 million less than the record exports of 2007-08, and represents the smallest exports in six years.

USDA weekly reports show cumulative export shipments through the first 27.6 weeks of the marketing year at 851 million bushels. Assuming that Census Bureau estimates exceed USDA estimates by 50 million bushels (as they did in the first five months of the marketing year), cumulative exports are at 901 million bushels.

As of March 5, the USDA reported that 373 million bushels of U.S. corn had been sold for export but not yet shipped.

“New sales need to average only 16.7 million bushels per week in order for sales to reach 1.7 billion bushels. Weekly sales since mid-January averaged 42.2 million bushels per week.

“It now appears that exports could exceed the latest USDA forecast, particularly since Census Bureau estimates through January remain well above cumulative USDA estimates.”

The USDA increased the forecast of the amount of corn to be used for ethanol production during the current marketing year by 100 million bushels, to a total of 3.7 billion. The forecast is 674 million bushels more than used in that category last year.

The USDA cited record ethanol use in December, continuing recovery in the production of gasoline blends with ethanol, and more favorable blender margins as reasons for the increase. Spot market margins for ethanol producers have dropped to the lowest level since USDA began reporting plant level prices in January 2007.

“Ethanol prices may have to continue to exceed energy value plus the 45 cents per gallon blender tax credit in order to ensure sufficient ethanol production to meet the mandated level of consumption. The necessity for ethanol prices to exceed value suggests that blenders will blend only the minimum amount of ethanol required. An increase in the maximum blend level would not overcome the lack of economic incentives to blend more ethanol.

“The outlook for ethanol production to be driven by the RFS appears to be supported by the positive values being paid for previous excess production to meet the current year’s mandate.”

For the 2009-10 marketing year, the RFS implies that even more corn will be used for ethanol production. The minimum level of use of renewable biofuels is 10.5 billion gallons in 2009 and 12 billion gallons in 2010. The 1.5 billion gallon increase represents about 500 million bushels of corn.

Source: University of Illinois College of Agricultural, Consumer and Environmental Sciences

Pork producers should be “conservative and defensive” this year even though profitability may be on the horizon, according to Purdue University Extension marketing specialist Chris Hurt.

“The extreme uncertainty of the moment implies that pork producers, like all of agriculture, should be conservative and defensive. Perhaps management decisions in 2009 should be focused on increasing odds of survival, rather than looking for big opportunities.

“Hog prices are expected to rise seasonally in coming months and costs for feed continue to drop under the concerns of slowing world economic activity. For the year, hog producers are expected to see an average live price of about $47.50 per hundredweight, but costs of production are expected to drop to near $45.50, providing a modest profit.”

While the crisis in the world economy is having negative impacts on pork demand, it is also helping to lower feed costs as corn and soybean meal prices decline. In fact, yearly average hog prices had very little variation in 2006, 2007, 2008, and now in 2009 when average prices were between $47 and $48.

“Wild fluctuations in costs of production are the primary reason for an estimated profit of $27 per head in 2006 and an estimated loss of $17 per head in 2008. Changing prices of corn and soybean meal have been the drivers of returns.

“Even though domestic pork production will drop 1 to 2 percent in 2009, fewer exports mean that pork supplies available to U.S. consumers will rise modestly for the year, but with some differences by quarter.”

Hurt predicted that hog prices will not see much enhancement this year due to reductions in demand, particularly export demand. The robust pace of export demand in 2008 is not going to be maintained as the USDA anticipates a 14 percent drop.

Hog prices on a live weight basis are expected to average $2.50 for 51 to 52 percent lean carcasses in the first quarter of 2009. Prices are expected to begin to rise immediately from the low $40s currently, to near $50 by May. Late spring and summer prices are expected to be in the lower $50s. Seasonal declines are anticipated after August with prices dropping to the mid-$40s by year end. By quarter, 2009 prices are expected to average about $42.50, $50, $51, and $46, respectively.

How much will declining corn and soybean meal prices lower costs of production in 2009?

“Estimated costs for farrow-to-finish operations increased from about $37 per live hundredweight in 2006 to a record high of $54 in 2008. The previous record high estimated annual cost was $48 in 1996.

“The current estimated 2009 corn price of $3.36 is down from $4.78 last year. High protein meal price this year of $261 per ton would be down $70 per town from 2008. Estimated 2009 prices for corn and soybean meal are based on the actual prices for the first two months and adjusted futures prices as of March 2, 2009.”

Given these hog price and cost estimates, pork producers are expected to return to profitability in April. Estimated losses of $11 per head in the first quarter would give way to profits in the second through fourth quarters of $12, $15, and $6, respectively.  For the entire year, profits would be about $5 to $6 per head.

• Pork

Lower fertilizer prices in 2009 may lead to an increase in corn profitability relative to soybean profitability, according to University of Illinois Extension farm financial management specialist Gary Schnitkey.

“Difficulties within the financial sector became apparent last fall. The financial meltdown, along with public perceptions of economic problems, has led to concerns that a deep, world-wide recession is occurring. As a result, prices of many commodities have declined dramatically in the belief that demands for those commodities are being reduced. Among those commodities seeing declines are wholesale fertilizer prices.”

See Schnitkey’s report, “Fertilizer Prices Likely to Decline in 2009,” on the U of I Extension’s farmdoc website.

As of yet, prices farmers pay for fertilizers have not decreased as much as declines in wholesale prices. Non-declining prices are attributed to large unsold fertilizer inventories held by many retailers. Retailers will lose money on those inventories if they follow wholesale prices down.

“While retailers will suffer financial losses, there are incentives for farmers to delay purchasing fertilizers, waiting for fertilizer prices to decline. Waiting to purchase fertilizer poses some risks to farmers.”

Among these, is the possibility supplies become limited if suppliers curtail production. Geopolitical events may also impact prices.

Source: University of Illinois College  of Agricultural, Consumer and Environmental Sciences.

The size of the biofuels market will be an important factor in determining how many acres of corn and soybeans are needed this year, according to University of Illinois Extension marketing specialist Darrel Good.

“This is particularly true for corn. The majority of biofuels production continues to be corn-based ethanol production. That will continue to be the case for the next few years.

“However, the USDA acknowledged in the Feb. 10 report of domestic supply and consumption prospects that sorghum is increasing in use as a feedstock in some ethanol plants in the southern and central Plains.”

Expectations about planted acreage of corn and soybeans in the United States are in a wide range and actual planting decisions may remain uncertain for some time.

Uncertainty centers on at least three factors. First, the prices of 2009 crop corn and soybeans continue to fluctuate, giving mixed signals to producers about the likely relative profitability of corn and soybeans in the 2009-10 marketing year.

Second, there is considerable uncertainty about the relative cost of producing corn and soybeans in 2009. Fertilizer prices were very high in the fall of the year, but have recently declined, at least for some ingredients in some markets. The cost of producing corn in 2009 could vary substantially among producers.

Third, the sharp decline in winter wheat seedings and expected decline in cotton acreage in 2009 will result in additional acreage for other spring-planted crops. The magnitude of that acreage is not known with certainty because some acreage could return to non-row crop production or be idled due to expectations of tighter margins for row crop production.

In addition, the large decline in seedings of soft red winter wheat may result in fewer acres doubled-cropped to soybeans.

Under current conditions of relatively low energy prices and tight margins for ethanol producers, it is believed that the Renewable Fuels Standards (RFS) will determine the level of biofuels production and, therefore, the demand for corn for ethanol.

Those standards call for 10.5 billion gallons of renewable biofuels use in 2009 and 12 billion gallons in 2010. The standards increase to 15 billion gallons by 2015.

“Assuming those standards remain in place, how much corn will be used for ethanol production in the 2008-09 and 2009-10 marketing years? The answer is not straightforward.”

Mandated use is for calendar years, which do not match corn marketing years. There is also some uncertainty about the mix of feed stocks that will be used to meet the mandated level of use. Within certain rules, blenders can use surplus biofuels–in excess of the RFS–in 2008 to meet the 2009 requirements and can borrow some of next year’s requirements to meet this year’s standards.

Despite the uncertainty surrounding biofuels production, it is clear that if the RFS are maintained, there will be large increases in the use of corn for ethanol production over the next two years and beyond.  The USDA projects use during the current marketing year at 3.6 billion bushels.

“We would expect use to exceed four billion bushels in 2009-10 and to exceed five billion bushels by 2015-16.”

The likely increase in corn use for ethanol, along with a rebound in U.S. corn exports during the 2009-10 marketing year, suggests that planted acreage of corn in the United States in 2009 needs to be maintained at least at the level of 2008.

For soybeans, an increase in planted acreage is not needed in 2009 if the U.S. average yield is near trend value of 42.5 bushels and use during the 2009-10 marketing year increases by less than 250 million bushels (8.4 percent).

“The USDA will release the results of the Prospective Plantings survey on March 31. “With the large decline in winter wheat seedings, it is possible that this report will reveal intentions to plant too much of one or more crops in 2009.

“Based on anecdotal evidence, intentions for a surplus of soybean acreage may be revealed in that report.”

Source: University of Illinois College of Agricultural, Consumer and Environmental Sciences.

One of the most important factors influencing corn and soybean prices in the U.S. is weather and crop conditions in South America, particularly Argentina, according to University of Illinois Extension marketing specialist Darrel Good.

Argentina and Brazil are large exporters of soybeans and soybean products. Argentina is a large exporter of corn. Recently, Brazil has also exported large quantities of corn as production has exceeded domestic requirements. The size of those crops has the potential to influence the export demand for U.S. corn and soybeans.

Last month, the USDA estimated the potential size of the 2009 Argentine soybean crop at 1.82 billion bushels. That estimate is about 120 million bushels larger than the 2008 crop, reflecting an 8 percent increase in acreage.

“The estimate is about 37 million bushels smaller than the December estimate. It is generally expected that the actual size of the crop will be well below the January estimate, even with late-season rain in some areas.

“Private estimates of the crop vary widely, but are generally in a range of 150 t0 200 million bushels smaller than the January estimate. While Argentina could reduce year-ending stocks of soybeans due to a small crop, exports of soybeans and soybean meal might also have to be reduced below current forecasts.”

The USDA has estimated the 2009 Brazilian soybean crop at 2.17 billion bushels, about 75 million bushels smaller than the 2008 harvest due to slightly lower average yields and unchanged acreage.

In its January report, the USDA estimated corn production potential in Argentina at 650 million bushels, 60 million smaller than the December estimate and 170 million smaller than the 2008 harvest.

“Weather has been a bit more favorable in Brazil, although late-season dryness did occur in some areas. Production may fall a bit short of the current projection, but quantities available for export are not likely to be significantly reduced.

“While Argentina is not a large corn producer, much of that production is exported in most years. Last year, Argentina exported 590 million bushels of corn. The USDA’s current projection for this marketing year is 355 million bushels.

“Both the production and export projections are expected to be lowered in the February reports.”

Last month, the USDA estimated 2009 Brazilian corn production potential at 2.03 billion bushels, 80 million bushels smaller than the December estimate and 280 million smaller than the 2008 harvest. Brazilian corn exports for the current year were projected at 375 million bushels, 100 million more than exported last year.

Some improvement in the dismal pace of U.S. corn export sales occurred in late January. Export sales exceeded 42 million bushels per week in the final three weeks of January. Weekly sales had not previously exceeded 38 million bushels and had averaged only 17.3 million bushels per week from Oct. 23, 2008, through Jan. 8, 2009.

“New sales need to average about 25 million bushels per week to reach the USDA projection of 1.75 billion bushels for the year. The pace of shipments still lags, however.  Shipments need to average about 36 million bushels per week to reach the USDA projection.

“Weekly shipments have been above that level only three times this year, the last being in early October 2008. Shipments since December 2008 have been in the range of 22 to 33 million bushels per week. The recent increase in sales suggests that the pace of shipments will accelerate, but that has not yet occurred.

“Production issues will become increasingly important over the next three months.”

Source:
Darrel Good, University of Illinois College of Agricultural, Consumer and Environmental Sciences