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Focus on Agriculture by Kent Thiesse, Vice President, MinnStar Bank |
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July 1, 2010JUNE 30 USDA REPORT The June 30th USDA Acreage and Grain Stocks Report is always highly anticipated, because it becomes the first “hard data” after the March USDA Plantings Intentions Report to give an indication of crop production levels in a given growing season, as of June 1st. Many times the June USDA Reports can have a big impact, either upwards or downwards, on grain market trends. There was much anticipation for June 30th USDA Report in 2010, given the uncertainty surrounding crop planting in some areas of the U.S., and the poor quality of some of the 2009 grain, especially corn, that is still in storage. Interestingly, the June 30th USDA Acreage Report showed total 2010 planted corn acres in the U.S. at just below 87.9 million acres, which is almost 1.5 million acres below the average estimates of the grain traders, and nearly 1 million acres below the March 1st planting intentions. The 2009 planted corn acres were listed at 86.5 million acres, so the 2010 corn acreage still represents an increase of about two percent, compared to 2009. The USDA Report listed 2010 planted soybean acres at just below 78.9 million acres, which is slightly higher than the pre-report average estimates of 78.3 million acres by grain traders, and is about 700 thousand acres above the March 1st planting intentions for soybeans. By comparison, 77.5 million acres were planted to soybeans in 2009, which means that the June 1st USDA estimate also represents about a two percent increase in soybean acres in 2010. USDA projects total 2010 wheat acres at 54.3 million acres, which is a decrease of 4.8 million acres from total 2009 wheat acres, and a decrease of about 8 million wheat acres in the U.S., compared to 2008. Sometimes farm operators in the heart of the Midwest wonder where all these extra corn and soybean acres are coming from in the USDA Reports in the past couple of years. Obviously, the reduced wheat acres in the past two years are a big factor in the increased corn and soybean acreage. The June 30th USDA Quarterly Grain Stocks Report listed total corn stocks at 4.3 billion bushels, which was slightly lower than trade expectations, and compared to 4.2 billion bushels in June, 2009. Some analysts feel that the adjustment in the U.S. grain stocks as of June 1 may represent the lower test weight and poor grain quality of some of the 2009 corn that is still in storage. Some livestock producers have reported lower feed efficiencies when using the 2009 corn, which could be accounting for some increased corn usage. The U.S. soybean stocks in the June 30th Report were listed at 571 million bushels, which is slightly lower than trade expectations, and is also lower than the 596 million bushels of soybean stocks in June, 2009. The 2009 wheat stocks in the June 30th Report were listed at 973 million bushels, which represents a 47 percent increase in wheat stocks, compared to the 657 million bushels in June, 2009. Corn prices reacted quickly to the “bullish” trends identified in the June 30th USDA Reports for corn, with Chicago Board of Trade futures prices rising 29 cents per bushel on June 30. CBOT nearby corn futures prices closed at $3.54 per bushel on June 30, which is actually the same closing price as on June 1. Local cash corn prices in Southern Minnesota on June 30th closed near $3.20 per bushel, which was the highest price since early June. Local cash corn prices have generally been below $3.50 per bushel since March 1. It will be interesting if the “bullish” nature of the June 30th USDA Report has any lasting effect on the 2010 corn market. ********************************************************************************** June 28, 2010SEVERE STORMS For the second week in a row severe storms ravaged large portions of Southern and Central Minnesota, with tornadoes, strong winds, lightning, hail, and heavy rains. Damage was severe and wide spread, but fortunately no deaths and only a few injuries. These storms caused considerable property damage to homes in towns, rural communities, and farm sites across the region, as well as damage to livestock facilities, grain bins, machinery storage facilities, and other farm buildings. In addition, many farm operators have incurred significant crop damage from wind, hail, and excessive rainfall. No estimates have been released as far as total acres impacted by the crop damage, but it is likely to amount to tens of thousands of acres. The once optimistic outlook for 2010 crop yields has now diminished somewhat for growers in many locations in Minnesota. KNEE – HIGH BY JULY 4TH For generations, the standard measure for corn growth was “knee-high by July 4th”, which meant that the corn plant should be able to produce a crop for that year. Of course, most farmers a couple of generation ago had much lower yield goals for their corn than the farmers of today. Today, “waist-high” or highercorn by July 4th is a more typical, and has resulted in some very good corn yields in most areas in recent years. It would be difficult to get exceptional corn yields in Southern Minnesota if corn is only “knee-high” or smaller on July 4th. The 2010 crop year in Minnesota and Northern Iowa started out very good, with an early planting season; however, the 2010 corn crop was set back by a Mother’s Day hard frost on May 9. In recent weeks, adequate rainfall in most areas, along with warmer than normal temperatures, have provided for very favorable growing conditions most of June. This has allowed most corn in Southern Minnesota and Northern Iowa to be over “waist-high” by July 4th, with some early planted corn approaching “shoulder-high”. Of course, the exception to this are areas that have been impacted by the numerous severe storms during the last half of June that has caused considerable damage to many corn fields across the region. Corn and soybean development has extended at a rapid pace during the last two weeks in June, as a result of above normal temperatures and accumulation of “growing degree units” (GDU’s) during that period. At the U of M Southern Minnesota Research Center a total of 847 GDU’s had been accumulated from May 1 through June 28, 2010, which is slightly ahead of normal GDU accumulation for late June. However, much of the corn in Southern Minnesota was planted from April 10-25, and thus benefitted from some significant GDU accumulation prior to May 1. The GDU accumulation from May 1 to late-June is running near normal to slightly above normal in most areas, following some significant increases in GDU accumulation in the last half of June. June rainfalls have been quite variable across the region, with most areas of Southern Minnesota and Northern Iowa receiving adequate to excessive amounts of rainfall during June. Total June rainfall at the Waseca Research Center totaled 9.64 inches as of June 28, which compares to a normal June rainfall of 4.22 inches. The total precipitation for 2010 through June at Waseca is now at 17.92 inches, compared to a normal of 16.24 inches. Some portions of the region have receive frequent excessive rainfall amounts during the last three weeks of June, and even more rainfall than was recorded at Waseca during June. This has lead to problems for applications of post-emergence herbicides for weed control, and has caused some leaching of available nitrogen in the soil profile. The very wet conditions have also lead to problems with harvesting quality alfalfa, and for the beginning of the canning pea harvest. There have been widespread reports of excessive rainfall, wind, and hail damage during severe storms in mid-late June, which has caused considerable crop damage in some areas. ********************************************************************************** June 21, 2010TORNADO DAMAGE The widespread tornado damage across Minnesota on June 17 was one of the worst one-day tornado and severe storm events in Minnesota in several years. Severe tornado damage occurred from Wadena, Otter Tail, and Polk Counties in Northwest Minnesota to Freeborn, Faribault, and Steele counties in Southeast Minnesota, with minor damage in some other areas of Minnesota. Three people were killed and several more were injured as a result of the tornadoes. It appears that the most widespread damage occurred in the city of Wadena, and the surrounding area, and in western Freeborn County and eastern Faribault County, where about 60 farm sites received moderate to severe tornado damage. There was considerable damage to rural homes, livestock facilities, machinery and grain storage facilities, and other buildings on the farm sites. Governor Tim Pawlenty has requested a “Presidential Disaster Declaration” for the affected counties, which could lead to some Federal assistance to the families, businesses, and communities that were impacted by the tornadoes. In addition to the property damage from the tornadoes, severe storms in many parts of Minnesota, as well as in Northern Iowa, in the past couple of weeks have resulted in hail damage and excessive rainfall at some locations, which has lead to crop damage in local areas. Much of the hail and heavy rain events have covered smaller areas in most cases, and have not impacted large regions. However, for those farm operators that are impacted, it is very unfortunate to see a good to excellent crop suddenly destroyed, or severely damaged, by the intense storms. Some of the affected growers are still attempting to replant some early soybean varieties, while corn replanting is no longer an option. The farm operators that incurred crop loss should contact their insurance agent to discuss and options for Federal crop insurance and hail insurance overages. CROPS PROGRESS RAPIDLY Overall, the rainfall across most of the Southern two-thirds of Minnesota has been quite welcome, and should greatly aid 2010 crop production. In late May and early June, many areas of Minnesota were starting to get quite dry, with some later planted soybeans having difficulty emerging due to the dry soil conditions. Most of the region has now received two to four inches of rain during the month of June, with some areas receiving much higher amounts during the intense storms of the past couple of weeks. There are a few isolated areas that have received less rainfall, and are still a bit on the dry side. The ample June rainfall has helped re-charge stored soil moisture to near capacity in many areas, which could provide to be very beneficial later in the growing season. The combination of ample soil moisture, along with normal to above normal temperatures is providing almost ideal growing conditions for corn and soybeans in mid-late June. The growth pattern of both corn and soybeans are progressing at a rapid pace, and the crops look good to excellent in most areas, except those localities that were impacted by the severe storms. One problem with the frequent rainfall events in the past few weeks has been timely weed control for corn and soybeans. Most growers rely heavily on post-emergence herbicide applications for primary weed control, which are applied after both the crop and weeds are emerged. The numerous rainfalls, combined with several windy days, have greatly limited the ability of farm operators to make timely herbicide applications. Many livestock producers are hoping to begin the second cutting of alfalfa in the next week, in order to gain the highest feed quality, while other hay producers are still trying to finish up their first cutting. The harvest of canning peas is also getting underway in southern Minnesota. A somewhat dryer weather pattern in the next couple of weeks would be helpful for both the hay and pea harvest. EPA DELAYS E-15 DECISION AGAIN Just last week, the “Focus On Ag” column highlighted the importance of the U.S. Environmental Protection Agency (EPA) decision regarding the increase of the maximum ethanol blend rate in the U.S. above the current 10 percent maximum level. EPA has now announced a delay until the Fall of 2010 for the decision to increase the maximum ethanol blend rate to 15 percent (E-15). This is the third time in the past two years that EPA has delayed the E-15 decision, citing the need for more study of the E-15 blends. There are also indications that the potential expansion to a 15 percent ethanol blend maximum may only be for vehicles that are 2007 or newer, which will make the ethanol usage expansion very limited. This decision is certainly a disappointment to the ethanol industry, corn producers, and to citizens that support the U.S. moving toward more utilization of biofuels. Interestingly, there appears to be no scientific evidence that is preventing EPA from moving forward with the E-15 decision. Farm operators need to pay close attention to the continuing EPA delays in the implementation of E-15 blend maximum, and other possible restrictions in potential E-15 blends. This could affect the profitability of individual ethanol plants, which could force reductions in ethanol production at some locations. Ultimately, that could result in lower corn prices in the months ahead, which could have serious financial impacts for Midwest crop producers. Hopefully, the decision by EPA regarding the use of E-15 ethanol blends in the U.S. will be resolved sooner than later, in order to maintain the economic vitality in rural communities across the Midwest, and to move the U.S. forward with utilization of renewable energy sources. ********************************************************************************** June 14, 2010THE EPA DECISION ON E-15 Future development and expansion of the biofuels industry, particularly the ethanol industry, could be in trouble, if the Congress and the U.S. Environmental Protection Agency (EPA) continue to delay increasing ethanol blends beyond the current maximum of 10 percent ethanol blends in the U.S. At least that is the opinion of Robert Wisner, noted Economist from Iowa State University, and other economists around the Country. The U.S. is quickly approaching the “E-10 Blend Wall”, which is the point at which ethanol production exceeds ethanol demand at the maximum 10 percent ethanol blend rate. Even with the current oil disaster in the Gulf region, the Federal Government has not seemed to alter their position relative to increasing the maximum rate 10 percent for blending ethanol in gasoline. Late in 2009, the EPA announced that it would delay a final decision on raising the legal maximum “ethanol blend wall” above the current 10 percent maximum, until sometime in 2010, possibly as early as this Summer. The hope by many groups that support further growth and expansion of the ethanol industry is that the maximum ethanol blend rate will be increased to a 15 percent maximum; however, EPA may decide to use a “phased-in” approach that initially raises the maximum blend rate to 12 percent, and then gradually increases the blend rate to 15 percent. Minnesota, which has had a 10 percent mandated ethanol blend for several years, increased that percentage to 20 percent a couple of years ago; however, increases in the Minnesota ethanol blend percentage can not be achieved until EPA adjusts the Federal maximum allowable level for ethanol blends. Other States are in a similar position, waiting on the Federal Government, in order to enhance the ethanol blend rate in the gasoline in their State. Many groups and organizations continue to oppose an increase in the maximum ethanol blend rate by EPA, including the auto makers, grocery associations, environmental groups, and some livestock organizations, among others. Concerns have been raised about the impacts of a 15 percent ethanol blend on the performance of some types of gasoline engines, as well as concerns over increased food prices, on higher livestock feed costs, and on the global environmental impact (indirect land-use). As a result of these concerns, it is possible that EPA could place restrictions on the year of vehicles (such as 2001 or newer) and the types of gasoline engines that are impacted by the potential increase in the ethanol blend percentage. Small engines for boats, lawnmowers, etc. may be exempted from the increase. It is also possible that EPA could include other “safety-net” features associated with raising the ethanol blend percentage, possibly linked to thresholds for increases in food costs and feed prices. However, many economists disagree on how much direct impact that U.S. ethanol production is having on U.S. or World food prices. This Summer will be will be very interesting, as we follow the EPA decision in regards to increasing the current 10 percent maximum for ethanol blends in gasoline. A failure to increase this blend percentage to 12 or 15 percent by the end of 2010 will spell trouble for the Midwest ethanol industry, which has about maximized the amount of ethanol production that can be consumed at the E-10 blend levels. It appears that the U.S. is likely to have another large national corn crop in 2010, meaning that the ethanol industry will need to stay strong, in order to prevent the lowest corn prices in several years, which could mean economic hardship for many farm operators in the Midwest. If EPA and the Federal Government do not strengthen their support for ethanol, the entire biofuels industry could be in economic trouble, which could restrict investment and research in cellulosic ethanol, and other forms of new-generation renewable energy. **********************************************************************************
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