Archive for the ‘News and Events’ Category

This week in DairyProfit Weekly

This week in Dairy Profit Weekly:

1) WASDE milk: USDA’s World Ag Supply & Demand Estimates report, issued April 8, slightly lowered 2011 projected milk marketings. Forecasts on the price side was mixed, with expected butter and cheese prices lowered, but NDM and whey price forecasts raised. As a result, the Class III price forecast was lowered; the Class IV and all milk price forecasts were raised.

2) WASDE feed: On the feed side of the ledger, the WASDE report left projected U.S. corn ending stocks, and there were no changes in the U.S. soybean meal supply and demand projections.

3) LGM-Dairy out of money: Funding provided for the fiscal year 2011 Livestock Gross Margin-Dairy (LGM-Dairy) program is used up. The March 25-26 sales period closed within hours after total underwriting capacity was reached. Supplemental funding will require congressional authority, and producer and processor groups have urged action.

4) DPW Trends: With escalating futures prices for feedstuffs and declining futures prices for milk, some forecasters are beginning to project Milk Income Loss Contract (MILC) payments beginning in July 2011. Regional reporters noted corn prices in the parts of the Southeast (FOB) and West (delivered) surpassed $8.50/bushel as of April 6-7, with Pacific Northwest (delivered) prices above $9.00/bushel.

5) DPW Washington: The Senate joined the House in calling for repeal of a tax reporting provision contained in last fall’s health care reform law. That provision required businesses, including dairy farms, to file an IRS 1099 form on any company they did more than $600 worth of business in a year.

Dave Natzke, Editor

For a sample copy of Dairy Profit Weekly, or subscription information, visit www.dairyprofit.com or phone: 800-334-1904, ext. 244.



Keep dairy cows on full rations despite high corn prices

URBANA – Increasing corn prices and lowering milk prices are causing dairy producers to think twice about what they feed their cows this spring.

“Dairy farmers can’t afford to take cows off feed now because it takes too long to bring them back into full production,” said Mike Hutjens, University of Illinois professor of animal sciences emeritus. “The good news is that dairy cattle have an advantage because they can utilize forages and byproduct feeds. The bad news is that the price of corn increases the price of alternatives as well.”

Alternative feedstuffs such as distillers grains, corn gluten, fuzzy cottonseed, alfalfa and hay may not be corn, but they are all in the same market, Hutjens added. As nutrient prices go up in starch and energy, it drives the other prices up as well.

“Producers need to look at how much corn they should be feeding,” Hutjens said. “For a dairy cow, 24 to 26 percent starch is the typical level. Producers can get that from hominy, corn silage or shelled corn. So the question becomes what are the more economical sources available at the farm?”

As prices go up, sugar becomes an alternative that can feed rumen bacteria (target 4 to 6 percent in the total ration dry matter). Another source is soluble fiber, or fiber that the rumen microbes can break down in the rumen (target 10 to 12 percent in the total ration dry matter).

“The bottom line that our producers need to realize is that you can’t cheat the bacteria – they don’t read the farm magazines and know the price of corn went up to $7.60,” Hutjens said. “They just know they need certain carbon structures in the rumen to produce. We never want to slow them down. As a result, they produce 80 percent of the cow’s energy and 60 percent of her amino acids. Make sure rumen microbes are maxed out even if the price of corn appears to be high.”

Corn is still a good buy for producers today, Hutjens said. Sesame, a software program developed by The Ohio State University, evaluates 30 different feedstuffs in the Midwest. It compares energy, protein forms and fiber sources to come up with a commonality that says what the feedstuff is worth.

“Believe it or not, corn is underpriced,” he said. “We can afford to pay more than we are now when you look at all the other energy sources available. We can pay over $8 a bushel, and it’s still a better buy than looking at most alternative feedstuffs, with the exception of corn silage and distillers grains.”

Corn distillers grains need to be on the radar screen for dairy producers along with corn gluten feed, Hutjens said. Both of these feedstuffs are underpriced at this point. In fact, distillers grain is underpriced by nearly $100/ton.

“The big question producers want answered is how much distillers grain can they feed,” he said. “I typically advise five pounds of distillers grains dry matter per cow per day. It ends up being about 10 percent of the ration, and that prices out very economically.”

While the price of corn is projected to remain very high through the summer months, the price of milk is projected to fall through the end of the calendar year. Hutjens suggests using Sesame to find the breakeven price at full feed.

“High producing cows fed correctly will make money in 2011 with $7+ bushel corn,” he said.

 

DairyProfit Wednesday, April 6, 2011

An (almost) daily recap of dairy information: April 6, 2011

Putting agricultural spending into perspective

Policy debates are currently dominated by the budget, and the heat has been put on ag spending – specifically farm programs – in many recent popular press articles. Nick Paulson and Gary Schnitkey, with the Department of Agricultural and Consumer Economics at the University of Illinois, provide perspectives on where ag spending fits in the overall budget discussion. Hint: The U.S. spends more in interest payments than it does for commodity and crop insurance programs.

Petition seeks CAFO ammonia regulation by EPA

Targeting livestock operations, more than 20 organizations filed a petition, April 6, with the U.S. Environmental Protection Agency (EPA), calling for an “endangerment finding” for ammonia gas and requesting EPA list ammonia as a Clean Air Act criteria pollutant. The criteria pollutant program requires EPA to establish air quality standards to protect public health and the environment.

The effort is led by the Environmental Integrity Project (EIP), and includes organizations that advocate for environmental protection, public health, animal welfare and rural economies and communities.  For the full text of the petition, go to http://environmentalintegrity.org/04_06_2011.php.

DAIRYLINE RADIO

Thursday: NMPF on New Jersey raw milk legislation

In Thursday’s DairyLine broadcast, National Milk Producers Federation’s Chris Galen reports on NMPF’s efforts, in conjunction with the International Dairy Foods Association, in opposition to legislation legalizing raw milk sales in New Jersey. To read the DairyLine broadcast comments, visit www.dairyline.com under “Today’s Dairy News.” Or, listen to the conversation with DairyLine’s Lee Mielke by clicking on “DairyLine Daily Broadcast.”

EASTERN DAIRYBUSINESS

CSI-Dairy: A cow-side investigation into two mysteries of butterfat depression

Numerous ‘culprits’ exist on dairy farms, robbing herd performance and injuring the dairy’s bottom line. Identifying and arresting the  offender isn’t always easy, and  often requires a full investigation, gathering and analyzing evidence on the farm and in the lab. In this mystery, two investigations into unexplained butterfat depression reveal a common offender.

WESTERN DAIRYBUSINESS

Recalculating: A new look at ‘THI’ and cost effective ways to manage heat stress in dairy herds

Cows and conditions have changed since the Temperature Humidity Index (THI) was created. Researchers are looking at earlier starting points for management intervention, and new cost-effective cow-cooling methods.

 

MARKETS: A ‘steady’ day

Closing on Wednesday, April 6:

Cheddar barrels: unchanged, at $1.5225/lb.

Cheddar blocks: unchanged, at $1.5775/lb.

Butter: up 0.25¢, to $1.9725/lb.

Extra Grade nonfat dry milk: unchanged, at $1.80/lb.

Grade A nonfat dry milk: unchanged, at $1.67/lb.

Class III milk futures: +4¢ to +20¢/cwt. through December 2011.

Corn futures: -3.6¢ to +1.6¢/bushel through September 2012.

Soybean futures: -3.4¢ to +2.4¢/bushel through September 2012.

Soybean meal futures: -$1.50 to+$2.00/ton through September 2012.

 

INDUSTRY NEWS:

Genex releases genomic MAP program

A new Genex Cooperative, Inc. program can determine the best mating option for a cow or heifer based on the animal’s genomic PTAs (GPTAs) rather than phenotypic scores, performance, parent averages or pedigree indexes. This genomic mating program, G-MAP, is the newest technology available in the genomic revolution.

Check for daily DPW news updates at www.dairybusiness.com.

For a sample copy of Dairy Profit Weekly, or subscription information, visit www.dairyprofit.com or phone: 800-334-1904, ext. 244.

Dave Natzke, Editor

 

Congress repeals ‘1099’ provisions of 2010 Health Care Reform Bill

By Gary Hoff
Department of Agricultural and Consumer Economics
University of Illinois

 

On April 5, Congress repealed two recent laws. One of the laws, enacted with the 2010 Health Care Bill, increased 1099 reporting to include property purchases as well as service purchases. It also required reporting payments to corporations as well as individuals. The new bill is a complete repeal of the provision in the Health Care bill. Although the additional 1099 reporting was not to begin until 2013, for payments made after Dec. 31, 2011, farmers and businesses were very concerned about the time and cost of complying with the law.

Assume you are a livestock producer and purchase feed each week at the local elevator. If the total purchases exceed $600 for the year, you would have been required to record the total purchases for the year, obtain the elevator’s federal identification number, and issue a Form 1099 at the end of the year. If you multiply this by the number of vendors that you pay over $600 each year, this would have been a tremendous burden.

Congress also repealed a second 1099 reporting requirement. The repealed 1099 filing would have required landlords that paid $600 or more to any service provider to file a 1099-MISC. For example, Sally owns farmland which she placed in the CRP program. She is now age 96, living in a nursing home, and suffering from Alzheimer’s. She must pay someone to keep the weeds under control in order to qualify for the CRP payment. If that person is paid over $600, she would have been required to file a Form 1099–MISC with the government. Landlords are now exempt from the 1099 reporting requirement unless they are in a trade or business. For example, a motel operator receives income from renting rooms on a daily basis. Because they furnish cleaning services for the guests, they are considered to be in a trade or business and must still file the 1099 forms.

With the changes, a review of the 1099 reporting requirements for the typical farmer is in order. A Form 1099–MISC must be given to any individual providing services aggregating $600 or more during the year. For example, Sam, the next door neighbor uses his spreader to apply lime to your fields. You pay him $400 plus the cost of the lime. Two months later, you hire Sam to use his backhoe to remove a large rock from your field. You pay him $250 for his work. The total you paid Sam for services in 2011 is $650. Consequently, you must give him a Form 1099-MISC as well as submit a copy to the IRS.

If you pay a landlord $600 or more for land rent, you must give them a Form 1099-MISC unless the landlord is a corporation.

If you have a 1099 filing requirement, be sure you comply with the law. Failure to do so will result in substantial penalties. In 2010, the IRS doubled the amount of these penalties. If you are audited by the IRS, the Revenue Agent will look at your records and then ask to see copies of the 1099s you filed.

Congress originally enacted the provisions that are now repealed to generate revenue to help pay the cost of the Health Care Bill. It was anticipated the provisions would produce $25 billion of revenue for the government over 10 years. We will have to wait and see how they will replace this revenue.

 

 

Petition seeks CAFO ammonia regulation by EPA

Targeting livestock operations, more than 20 organizations filed a petition, April 6, with the U.S. Environmental Protection Agency (EPA), calling for an “endangerment finding” for ammonia gas and requesting EPA list ammonia as a Clean Air Act criteria pollutant. The criteria pollutant program requires EPA to establish air quality standards to protect public health and the environment.

The petitioners contend concentrated animal feeding operations (CAFOs) are the nation’s leading source of ammonia pollution, which causes respiratory health problems even at very low levels.

The effort is led by the Environmental Integrity Project (EIP), and includes a diverse group of organizations that advocate for environmental protection, public health, animal welfare, and rural economies and communities.  They include the Bloomberg School of Public Health’s Johns Hopkins Center for a Livable Future, the Sierra Club, the Humane Society of the United States, the Waterkeeper Alliance, and rural community organizations in California, Illinois, Iowa, Michigan, New Mexico and Wisconsin.

The petition states: “Congress enacted the Clean Air Act (CAA) to protect public health from diverse sources of air pollution, and empowered the Environmental Protection Agency (EPA) to establish regulations for different pollutants as scientific knowledge evolves, and the dangers they pose to human health and welfare become apparent … [A]mbient ammonia pollution currently endangers human health and welfare, and EPA has an affirmative obligation to exercise its authority to regulate sources of ammonia emissions … Ammonia gas, an air pollutant emitted in vast quantities by Concentrated Animal Feeding Operations (CAFOs), meets the criteria for listing as a CAA criteria pollutant, because ammonia emissions from numerous CAFOs and other sources ‘cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare.’”

For the full text of the petition, go to http://environmentalintegrity.org/04_06_2011.php.

Putting agricultural spending into perspective

By Nick Paulson and Gary Schnitkey
Department of Agricultural and Consumer Economics
University of Illinois

Policy debates are currently dominated by the budget. While this is true regardless of whether or not the topic is agriculture related spending, the heat has been put on ag spending – specifically farm programs – in many recent popular press articles. It is not difficult to find criticisms of farm programs and claims of their partisan motivations, and attacks against proposals which seem light on farm program spending cuts. The relatively healthy ag economy and significant increase in farm income levels over the past few years are the most often argued points against the current design of farm programs, and have made it increasingly difficult to continue to justify the need to support and smooth farm incomes.

Over the next few weeks we will provide a series of posts which analyze some of the farm policy issues currently being debated and proposed changes to the design of the farm safety net (i.e. commodity programs, crop insurance, and disaster assistance). Today, we provide some context for these issues by taking a look at federal spending on farm commodity programs and crop insurance, and comparing those expenditures to spending on other USDA programs as well as budget items outside of the USDA and the farm bill.

060411_fig1.jpg

Table 1 reports actual spending as a percentage of total federal outlays across a number of programs for 2009. USDA spending on commodity and crop insurance programs represented less than 1% of total spending. Program spending on social security and defense is roughly 40 times that of these farm programs.

While total spending on USDA programs represents a larger percentage of total federal outlays, it has declined from approximately 6 percent of total federal spending from the late 70s through the mid 80s to between 3 and 4 percent of total spending over the past 15 years. Commodity programs and crop insurance represent a relatively small portion of this total USDA spending. A much greater portion of the USDA’s budget is devoted to food, nutrition, and consumer services, as illustrated in Table 2.

060411_fig2.jpg

Table 2 reports fiscal year (FY) spending on selected USDA programs. Since 2008, total commodity program spending has ranged from $6.7 billion to approximately $9 billion. Roughly $5 billion of this is for direct program payments. Crop insurance spending has increased over time and is now approaching the same level as that of commodity programs with spending ranging from about $4.5 billion to more than $7 billion per year since 2008. Standing disaster assistance (SURE), introduced in the 2008 farm bill, is estimated to generate about $1.7 billion in spending in FY 2010 and projected to have about $1.4 billion in spending for FY 2011. In contrast, USDA spending on food, nutrition, and consumer service programs (e.g. the Supplemental Nutrition Assistance program, more commonly known as food stamps) has increased from $60 billion in FY 2008 to more than $100 billion projected for FY 2011.

So what do these percentages and dollar amounts mean in terms of future cuts to farm program spending or modifications to existing programs? One could argue that these numbers show that 1) in relative terms, spending on USDA programs has already been declining over time, and 2) spending on actual farm programs, such as commodity programs and crop insurance, represent a small portion of USDA spending and a very small portion of total Federal spending. Therefore, the contribution that cuts to agricultural programs can make to meeting overall budget reduction goals is also relatively small. For example, completely eliminating the direct payment program – and its $4.9 to $5 billion per year price tag – would provide just a small portion of the total budget cuts being called for in FY 2011 and beyond.

However, the fact that farm incomes are at all time highs is an impossible fact to ignore. Furthermore, many of the programs which comprise the farm safety net provide overlapping coverage to producers suggesting that modifications could be made which would increase spending efficiency as measured by benefits to producers generated per dollar of taxpayer spending. Identifying these inefficiencies and making program modifications to eliminate or reduce them, rather than simply eliminating or making large cuts to existing programs, could potentially result in a collection of farm programs which provides an effective safety net at a reduced cost to taxpayers.

 

 

DairyProfit Tuesday, April 5, 2011

An (almost) daily recap of dairy information: April 5, 2011

Dr. Roy Ax dies suddenly

Dr. Roy Ax, Professor of Animal Sciences and Adjunct Professor of Obstetrics and Gynecology at the University of Arizona, died suddenly the evening of March 29, 2011.
Dr. Ax was an internationally recognized expert in domestic animal reproduction.  At the University of Arizona, he served as Chairman for the Department of Animal Sciences from 1990-2001 and was recognized for his teaching with the Bart Cardon Sustained Excellence in Teaching Award in 2010.

Retail milk prices

According to the American Farm Bureau Federation’s quarterly Marketbasket Survey, shoppers in 29 states reported paying the following average prices for milk in half-gallon containers in the first quarter of 2011:
• regular milk: $2.25, up 1¢ from the prior quarter, but unchanged from the same quarter a year earlier. (The average price for one gallon of regular whole milk in the first quarter of 2011 was $3.46, up 11¢ from the previous quarter and up 3% compared to a year earlier.)
“rbST-free” milk: $3.23 (about 40% higher than a half-gallon of regular milk), up 13¢ from the previous quarter, but about 10% less than the first quarter of 2010.
• organic milk: $3.70 (about 60% higher than regular milk), up 10¢ compared to the prior quarter and about 1% more than the first quarter of 2010.

MARKETSBarrels slip some more

Closing on Tuesday, April 5:
Cheddar barrels: down 3.0¢, to $1.5225/lb.
Cheddar blocks: unchanged, at $1.5775/lb.
Butter: unchanged, at $1.97/lb.
Extra Grade nonfat dry milk: unchanged, at $1.80/lb.
Grade A nonfat dry milk: down 1.0¢, to $1.67/lb.
Class III milk futures: mixed in a narrow range, -6¢ to +9¢/cwt. through September 2012.
Corn futures: -0.4¢ to +6.4¢/bushel through September 2012.
Soybean futures: -10.6¢ to -5.2¢/bushel through September 2012.
Soybean meal futures: -$3.80 to -2.10/ton through September 2012.

DAIRYLINE RADIO

Wednesday: IDFA

In Wednesday’s DairyLine “Processor’s Perspective” broadcast, International Dairy Foods Association’s Peggy Armstrong discusses the U.S. Environmental Protection Agency’s testing for radiation in milk, fallout from the nuclear reactor problems in Japan. Tests have indicated “miniscule levels” of radiation in fluid milk, which FDA and EPA say do not pose a health concern. To read the DairyLine broadcast comments, visit www.dairyline.com under “Today’s Dairy News.” Or, listen to the conversation with DairyLine’s Lee Mielke by clicking on “DairyLine Daily Broadcast.”

EASTERN DAIRYBUSINESS

Conversations: Ask your nutritionist about silage quality & hygiene

Having to throw away spoiled silage can be tough: The losses involved are right there to be seen, almost like dollar bills being pitched. Feeding spoiled silage can have more serious consequences, including decreased intakes, reproduction problems and reduced production, leading to bigger losses. As producers and their advisors meet in the conference room (or across the kitchen table), silage quality and hygiene should be subjects of conversation, advises Lallemand Animal Nutrition’s Renato Schmidt, Ph.D. and Bob Charley, Ph.D.

INDUSTRY NEWS:

Merial adds training module to ‘Best in Class Dairy’ website

Merial’s Best in Class Dairy website, www.BestInClassDairies.com, features a milker training module as part of a new comprehensive educational initiative. The Web-based audiovisual training module, which addresses pre- and post-milking procedures, is the first in a series offered to dairy operation workers. All materials will be available in both English and Spanish.
Check for daily DPW news updates at www.dairybusiness.com.
For a sample copy of Dairy Profit Weekly, or subscription information, visit www.dairyprofit.com or phone: 800-334-1904, ext. 244.
Dave Natzke, Editor

Dr. Roy Ax dies suddenly

Dr. Roy Ax, Professor of Animal Sciences and Adjunct Professor of Obstetrics and Gynecology at the University of Arizona, died suddenly the evening of March 29, 2011.

Dr. Ax was an internationally recognized expert in domestic animal reproduction.  At the University of Arizona, Dr. Ax served as Chairman for the Department of Animal Sciences from 1990-2001 and was recognized for his teaching with the Bart Cardon Sustained Excellence in Teaching Award in 2010.

Prior to his position at the University of Arizona, he rose through the ranks, at the University of Wisconsin-Madison, in the Department of Dairy Science, from Assistant (1979-1983) to Associate (1983-1987) to Professor (1987-1990).  There he served as Director of the renowned Endocrinology-Reproductive Physiology Graduate Training Program, and was also acknowledged for his teaching with the John S. Donald Excellence in Teaching Award in 1983.

Dr. Ax received his B.S., M.S. and Ph.D. degrees from the University of Illinois and was a postdoctoral fellow with The Mayo Clinic.  In his career, he trained 24 M.S., 8 PhD and 7 Postdoctoral students. He held 11 patents related to fertility of mammals and genetic merit of cattle.

Dr. Ax authored or coauthored more than 100 refereed papers, wrote more than 150 invited papers and symposia proceedings, published 18 book chapters and presented over 100 abstracts at scientific meetings. In his career, Dr. Ax generated almost $7 million to support his research program. He had received numerous research awards including the Young Scientist Award, American Dairy Science Association, 1985, National Association of Animal Breeders Research Award, 1989, Upjohn Physiology Award, 1990, Alumni Award of Merit, University of Illinois, 1991, and the University of Arizona College of Agriculture and Life Sciences Award for Excellence, 2001.

Dr. Ax also served on the editorial board for dozens of scientific journals and chaired national grant review panel committees and also served as Scientific Director at TMI Laboratories International, a Tucson research company specializing in reproductive technologies.  A memorial service is planned for Saturday, April 30, 1-3 p.m. in the Social Sciences Building, Room 100.

 

DairyProfit Monday, April 4, 2011

An (almost) daily recap of dairy information: April 4, 2011

 

February dairy products

USDA’s Dairy Products report estimated February 2011 butter production at 150.1 million lbs., down 9.8% from January 2011, but 6.4% more than February 2010.

Total cheese output was estimated at 807.1 million lbs., down 9% from January, but 4.1% more than a year ago.

Total Italian type cheese, at 352.2 million lbs., was down 9.3% from February, but up 6.6% from a year ago. Mozzarella cheese output totaled 274.2 million lbs., down 11% from January, but  5.8% more than a year earlier.

American type cheese production was estimated at 328.8 million lbs., down 8.5% from January, but 2.6% more than a year ago. Cheddar production totaled 242.9 million lbs., down 11.6% from January and 0.6% less than February 2010.

Nonfat dry milk output, at 109.6 million lbs., was down 6.4% from January 2011 and 6.9% less than a year ago.

 

Focus will remain on corn demand

USDA’s March 1 Grain Stocks report revealed a surprisingly small inventory of corn.  The smaller-than-expected inventory implies consumption during the second quarter of the 2010-11 marketing year progressed at a rate that cannot be sustained by available supplies, according to University of Illinois ag economist Darrel Good.

 

MARKETS: Cheese continues spring slide

Closing on Monday, April 4:

Cheddar barrels: down 2.0¢, to $1.5525/lb.

Cheddar blocks: down 1.75¢, to $1.5775/lb.

Butter: down 2.0¢, to $1.97/lb.

Extra Grade nonfat dry milk: unchanged, at $1.80/lb.

Grade A nonfat dry milk: down 2.0¢, to $1.68/lb.

Class III milk futures: -38¢ to -3¢/cwt. through January 2012.

Corn futures: +8.0¢ to +24.4¢/bushel through September 2012.

Soybean futures: -9.6¢ to +1.0¢/bushel through September 2012.

Soybean meal futures: -$4.00 to +1.70/ton through September 2012.

 

DAIRYLINE RADIO

Tuesday: Gould market review

In Tuesday’s DairyLine broadcast, University of Wisconsin-Madison dairy economist Dr. Brian Gould said the current slide in cheese prices was anticipated, but he was hesitant to predict how low it will go. Looking at the futures prices on Class III milk, butter and dry whey, Gould said “either the cheese value has to come up or those futures have to come down, because there seems to be a disconnect of about 10¢ or 15¢ over the near term over what the current cash market is.” Gould also said he was surprised butter prices were dropping, given that stocks are fairly low. To read the DairyLine broadcast comments, visit www.dairyline.com under “Today’s Dairy News.” Or, listen to the conversation with DairyLine’s Lee Mielke by clicking on “DairyLine Daily Broadcast.”


EASTERN DAIRYBUSINESS

Roundup Ready alfalfa: Where does it fit in eastern management?

It’s common to use cool-season grasses to establish a new alfalfa stand in the East. According to Ev Thomas, that requires different management strategies when incorporating Roundup Ready alfalfa in your forage rotation.

 

INDUSTRY NEWS: Business News: People

Staff changes, award winners and other newsmakers

Check for daily DPW news updates at www.dairybusiness.com.

For a sample copy of Dairy Profit Weekly, or subscription information, visit www.dairyprofit.com or phone: 800-334-1904, ext. 244.

Dave Natzke, Editor

 

 

 

Focus will remain on corn demand

By Darrel Good
Agricultural Economist
University of Illinois

USDA’s March 1 Grain Stocks report revealed a surprisingly small inventory of corn.  The smaller than expected inventory implies consumption during the second quarter of the 2010-11 marketing year was larger than expected.  It appears that consumption is progressing at a rate that cannot be sustained by available supplies.

At 6.523 billion bushels, the estimate of March 1 inventories was 1.171 billion bushels smaller than stocks of a year earlier and 165 to 170 million bushels smaller than the average trade guess.  The ease of originating grain from producers at generally normal basis levels had led some to believe that March 1 stocks would be much larger.  The report revealed that on-farm stocks were 1.164 billion bushels smaller than those of a year earlier.  Off-farm stocks were only 7 million bushels smaller.  Producers have moved larger quantities of corn to market than was the case last year in response to higher prices, not a stronger basis.  It should be pointed out that the estimate of off-farm stocks is based on a near census of commercial facilities while the on-farm stocks estimate reflects a sample of producers and is therefore subject to sampling error.

Where did the corn go?  Total consumption of corn during the second quarter of the year totaled 3.538 billion bushels, 328 million more than consumed a year ago.   USDA has not yet released estimates of use by category during the second quarter of the year.  Based on our preliminary calculations, exports during the quarter were 18 million bushels less than during the second quarter last year.  Processing uses were up 167 million bushels, and by calculation, feed and residual use was up 179 million bushels.  It appears that feed and residual use of corn during the first half of the marketing year totaled 3.606 billion bushels, nearly 7% more than during the first half of the previous year.  For the year, USDA has projected a year-over-year increase of only 1.2%.

The amount of corn available for consumption during the last half of the year depends on the magnitude of the minimum level of year ending stocks.  USDA currently forecasts those stocks at 675 million bushels, or 5 percent of expected consumption.  Historically, stocks have not been lower than 5 percent of use.  If stocks can be reduced to 4.5 percent of use, then the minimum carryover level is 610 million.  A 4 percent stocks-to-use ratio would allow year ending stocks to be reduced to 550 million bushels.  It appears that use during the last half of the year will be limited to about 5.95 billion bushels.  That is, following an 8% year-over-year increase in the first half of the year, use during the last half of the year needs to be about 1% less than use of a year earlier.

During March, the first month of the last half of the marketing year, ethanol production was 6 percent larger than in March of 2010.  Current ethanol blending margins and ethanol production margins point to a continued high rate of ethanol production.  Corn exports during March were about 10 million bushels less than exports a year earlier, but new export sales during March were 70 million larger than in March 2010.  The number of cattle in feed lots on March 1 was 5% larger than inventories of a year ago.  The number of milk cows on farms in February was 1% larger than a year earlier and the March 1 inventory of market hogs was 1% larger than the inventory of a year earlier.  A slowdown in feed use does not appear imminent.

While the rate of corn use does not appear to be slowing, a slowdown is required.  The upcoming wheat harvest may provide an opportunity for livestock producers to substitute more wheat for corn in the livestock ration.  The degree of substitution will depend on the size and quality of the 2011 wheat harvest and the resulting relative prices of corn and wheat.  Currently, corn and wheat prices in southern Illinois are about equal, but new crop wheat prices are about $.15 higher.  Importers may also look to the newly harvested South American corn crop for a larger share of imports over the next 5 months.

Corn prices have increased about 90¢/bushel since the release of the March 1 corn stocks estimate.  Prices are at the highest level of the year and spot cash prices have exceeded the previous high reached in June 2008.  Further price increases may be forthcoming unless there is some evidence that the rate of consumption has slowed.

 

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