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2013 Ag Review (Part 2)

Written by: Kent Thiesse

This is the second of a two-part article highlighting what happened agriculturally in 2013. Last week’s  article provided a review of 2013 crop production and weather conditions. This week we will focus on some highlights regarding livestock production, input costs, grain prices, and the overall farm economy for 2013 ……

 

Livestock Production --- The livestock industry made a nice financial rebound in 2013, following very high feed costs that resulted from the 2012 Drought. It was estimated that in the last half of 2012, hog producers lost an average of $24.00 per head produced, primarily due to the high feed costs. Now with much lower corn and soybean meal prices, hog profits in the fourth quarter of 2013 and the first half of 2014 are projected to be near $30.00 per head. Current lean market hog prices are near $80.00 per hundredweight (cwt.), which transfers to about $60.00 per cwt. on a live weight basis. Lean market prices are projected to rise to above $95.00 per cwt.. or above $70.00 per cwt. on a live weight basis, by mid-year of 2014. Breakeven costs for market hogs are expected to be near $56.00 per cwt. on live weight basis in early 2014, as compared to around $73.00 per cwt. at the end of 2012. The current upswing in the cost of feeder pigs could impact returns from hog finishing in 2014. On the farrowing side, the rapid increase in the incidence of the Porcine Epidemic Diarrhea virus (PEDv) disease in the upper Midwest could significantly impact pork profits in some areas late in 2013 and in early 2014.

 

Profitability also returned to the beef industry in the last half of 2013, which is a trend that should continue into 2014. The lower feed costs and reduced cost of production have helped improve the profit levels from beef finishing. Beef supplies are likely to remain tight in the coming year, with beef cow numbers in the United States being at the lowest levels since the early 1960’s. Export demand for both beef and pork remains quite strong. Dairy producers have also realized more profitability by the end of 2013, with average milk prices near $19.00 per cwt. Dairy producers are concerned with the dairy provisions that may end up in the new Farm Bill, which could affect future profit levels.

 

One of the worst natural disasters in recent times to affect livestock producers in the U.S. occurred in early October, when an extreme early season blizzard hit western South Dakota, and the surrounding States. Tens of thousands of beef cattle died from the blizzard, as most ranchers still had their cows and calves on Summer pastures, and had not moved cattle to the more protected areas for the Winter. The ranchers not only lost the beef cows, which are their livelihood, but lost the cash income from the 2013 calf crop, and the potential income of the 2014 calf crop. This disaster is likely to cause severe financial distress throughout 2014 for many ranchers and local communities in western South Dakota. It is hoped that the new Farm Bill will contain provisions for the livestock disaster program, which existed in the last Farm Bill, to assist producers when significant livestock and financial losses occur.  

 

Input Costs --- Crop input costs in 2013 increased moderately, compared to 2012, with modest increases in expenses for seed and fertilizer costs; however, fertilizer costs are expected to be somewhat lower for the 2014 crop year. Corn drying costs in 2013 were higher that the previous two years, due to the lateness of the planting season in many areas. Land rental rates increased significantly in many areas in 2013, which followed rather large increases in the upper Midwest in 2012. Feed costs for livestock producers were quite high early in 2013, but moderated significantly in the last half of the year. Agriculture interest rates, both for operating loans and longer term loans, remained quite low in 2013, with some modest increases in long-term real estate interest rates late in the year.

 

Grain Prices --- Local cash grain prices in Southern Minnesota started 2013 near $7.00 per bushel for corn and $14.00 per bushel for soybeans. By year-end, the local cash grain prices have dropped to near $4.10 per bushel for corn and below $13.00 per bushel for soybeans. New crop prices for the Fall of 2014 at local grain markets are also near $4.10 per bushel for corn and close to $11.50 per bushel for soybeans. Breakeven grain prices in Southern Minnesota for the 2014 crop year, based on average crop yields, input costs, and land expense are expected to be near $4.50 per bushel for corn and over $11.00 per bushel for soybeans.

 

Many farm operators have stored a significant portion of their 2013 corn crop in on-farm storage, with much of that corn not being priced at the end of the year, thus resulting in more market risk into next year, as compared to recent years. A much larger percentage of the 2013 soybean crop was sold at harvest, or in the months since harvest, reflecting a fairly strong soybean market in the last half of the year, as compared to the 2014 soybean market prices. In the latest Supply and Demand Report released on December 10, USDA is projected a national average corn price for the 2013 crop (from 9-01-13 to 8-31-14) of $4.40 per bushel. In that same report, USDA estimated a national average soybean price for 2013-14 at $12.50 per bushel.

 

Farm Economy --- The overall farm economy has remained quite strong in 2013 in the Upper Midwest, with some pockets struggling a bit more due to weather problems early in the growing season, and lower livestock profits in the first half of the year. Farm operators have made considerable capital investment into upgraded farm machinery, new technology, enhanced grain handling systems, and improved tile drainage in recent years. These improvements have been aided by the extra farm profits from grain production and favorable depreciation measures for tax purposes, both of which are likely to change quite significantly for 2014. Land values continued to rise in many areas during the first half of 2013, though not at the rate of increase experienced in 2011 and 2012; however, land values in some regions has seemed to level-off or even drop slightly by year-end. Many analysts expect this trend to continue into 2014, especially if we experience lower grain prices during the coming year.