For all of those farmers out there that are harvesting their crops, have a good Labor Day Weekend and as a farm kid, I thank you for all of your effort to feed this country and the world.  Some of my favorite memories is working with my father on the farm (even as young as 3 I can remember sleeping on the floor of the combine while my dad operated it).

All of your efforts are appreciated and even with the drought, you will keep the good work going.

Again, thank you.

I am headed over to Roche Harbor for my oldest son’s best friend from college wedding and expect to be stuck in line waiting for a ferry for three hours this afternoon.

I will have a new post on Tuesday and have a good Labor Day Weekend.

Paul Neiffer, CPA

As we discussed the estimated 2012 net farm income from the USDA report yesterday, the grain farmers are looking at a very good year at the expense of the livestock operators.

USDA is predicting that dairy revenues will fall from about $40 billion to $33 billion and in connection with much higher feed prices, this will lead to much larger dairy losses.

Total cattle sales are expected to be higher, however, is primarily due to extra liquidation of the herd rather than higher prices.  Total hog and broiler revenue is expected to remain about the same, however, high feed prices again will lead to large losses.

Total revenues from livestock for 2012 are as follows:

• Cattle and calves – $65 billion
• Dairy – $35 billion
• Poultry – $23 billion
• Hogs – $21 billion
• Total livestock sales of about $144 billion

One last observation is that total farm expenses have now surpassed the 1979 inflation adjusted peak (using 2005 dollars) at about $325 billion of total expenses.  1979 peaked out at about $280 billion.

Paul G. Neiffer

In a report from the USDA issued today, they project that net cash income from farming will increase by 3.4 percent from 2011 to a new record of $122.2 billion.  Net value added is expected to increase by $5.9 billion to $172.6 billion.

Due to the market effects of the drought and the expected large crop insurance payments, these increases are expected to be much greater than any resulting increases in input costs or livestock losses.

Gross farm income is expected to hit a new record of about $450 billion.  This number was as low as $300 billion just five years ago.

Total production expenses are expected to increase by $18.6 billion or about 6 percent over 2011.  It is interesting how fertilizer prices always seems to increase with grain prices.

Unlike 1988 when little revenue protection crop insurance was available, this year more farmers will benefit for these and other crop insurance policies which will keep net farm income high.

My part of the Midwest Crop Tour started in Columbus, Ohio early Monday morning and finished up at the Iowa/Minnesota far eastern border around noon on Thursday.  We traveled through Ohio, Indiana, Illinois, Iowa and into Minnesota.

The samples that our team took each day on route seemed to be a little bit better than samples taken by other scout teams.  We never took a sample that had a zero, but almost every other team did.  Our lowest sample was on the last day with 11 bushels per acre and our highest sample was about 220.

Soybean pod counts were down about 20% or more compared to last year in every state.  Also, it appears that most of the beans are much further ahead of other years and even in rains show up, I am not sure how much extra yield the rains will produce in the beans.

Pro Farmer ended up with an estimated corn yield of about 120 bushels per acre (I told numerous people Thursday night I was predicting 119.77, so I was not too far off) and a bean yield of about 35 bushels per acre.  Both of these numbers are below the USDA but our tour is about two-three weeks after their samples and they will be updating theirs soon.

All-in-all, I saw about what I expected.  There will be no surprise on the upside for either corn or beans and I think the downside is about where it is now.  I know we are looking at a tropical storm that will hit parts of the country and am not sure how this will affect the market, but I would expect volatility will be in place for several months to come.

Paul Neiffer, CPA

Today we left Bloomington, headed north 50 miles and then went due west to Iowa City, Iowa.  Joining us was a group of 8 that included one from England, one from Germany two for from Brazil. This group followed us for the whole day and was here on the tour to determine how this crop will affect their marketing and planting plans.

The original tour was comprised primarily of farmers, but now they are probably less than 50% of the tour. Many people come from Asia, Europe and South America and they are always very interested in learning more about American agriculture.

The yields that we say in Illinois was better than I expected at about 150 bushels per acre on our route. As we passed into Iowa, we found a stretch of about 10 miles of completely dead corn. Of course our best yield of the day was the next one after this stretch.

The farmers that got good rain have good corn, there just is not enough of it this year.

Tomorrow is the last data and I look forward to seeing the final numbers.

We left Fishers, Indiana early this morning and headed northwest to the Illinois border and then turned due south to Paris (I told my wife that I always wanted to go to Paris, but did not realize it would be Paris, Illinois). We had lunch in Paris and then turned west for about 50 miles and then turned north to finish up at Bloomington.

Indiana corn averaged about 130 and Illinois was closer to 120 on our route. We stopped and visited with two farmers west of Paris. They had been harvesting for about a week and running the combine was going very fast.

Other scouts today found much worse fields than what we found on our route.  The final numbers for Indiana showed estimated yield of 113. USDA was right at 100 so our samples were higher but still very close. The number for Nebraska was overall estimate of about 132 versus a three year average of about 157. This appears to track very closely with USDA numbers.

I think there may have been a two day Midwest Crop Tour price rally. Unless Iowa and Illinois is really bad, the rally may have run it’s course but Mr

We had our orientation meeting Sunday night in Columbus and got started on the crop tour first thing Monday morning.  Our route took us on a northwesterly route through Ohio and then on a south westerly route down to Fishers, Indiana.

Our first corn sample was a whopping 44 bushels, which ended up being a low for the day.  Three stops later, we hit our high sample of about 175 bushels per acre.  Most of the other scouts found the best corn in Ohio and progressively worse corn in Indiana.  We had the opposite occur.  Our best overall corn yield was Indiana at about 125 bushels per acre while Ohio ended up at about 110.

Soybeans counts are down from last year and the development is further ahead suggesting it will be difficult to get a lot more fill in the beans beyond what is here now, however, beans are very adaptive and can always surprise to the upside.

We ended up with 16 counts, 9 in Ohio and 7 in Indiana.  Ended up at the hotel at about 4:30 and then had dinner with about 150-200 farmers.  The Mid West Crop tour call for Ohio was for overall yield of about 110 bushels down from the three year average of about 160.

South Dakota is called at a 74 bushel average down from the three year average of 144.  These states are important, however, the three I states plus Minnesota and Nebraska will be much more important.  We will have the call for Indiana and Nebraska tomorrow.  We shall see what the trend tells us.

Paul Neiffer, CPA

I will off to the Midwest Crop Tour beginning tomorrow morning very early (even for me, out of bed at 3:15 to get to my flight in time).  I am meeting up with Chris Barron (who write’s the Ask the Margin Expert column for Agweb) at the Cedar Rapids airport.  We drive to Champaign, IL, spend the night and then arrive in Columbus, OH Sunday afternoon for the orientation meeting that night.

I will be doing multiple posts and many tweets throughout the trip and I look forward to seeing how the crop looks this year.  I will keep you posted.

For those states comprising the Kansas City Fed District (Nebraska, Mountain States, Kansas, Missouri and Oklahoma), the expectations for farm income have dropped dramatically due to the drought.  In a just released report on the second quarter agricultural credit conditions, several financial nuggets can be found.

Due to timely rains, the wheat crop in Oklahoma and Kansas was much better than expected.  With increased prices, wheat farm income is substantially higher than last year.  However, the drought has dropped the expected index of farm income from levels around 120-130 to a current reading of about 90.

The report presented a chart of actual income versus expected income by quarter from 2004 to now.  It is interesting how the expectations on the high side are never as good as actual farm income and the spike downwards in expectations is more than the actual decline in farm income, at least from a chart standpoint.  This just shows that bankers are human too (we knew that) and like farmers expect the bad times to be worse than they usually are and are surprised when the good times are better than expected.

This district has substantial livestock operations so the high cost of feed is more negatively impacting farm income than perhaps other reporting districts.

Farmland prices have increased dramatically from a year ago.  Nebraska leads the pack with a 36.5% increase in non-irrigated land, with some of the other states are not too far behind.  However, expectations going forward is for flat farmland values for the next year or so due to the drought.  Also, there is probably some “fatigue” setting in from the rapid appreciation in values.

Paul Neiffer, CPA

The Kansas City Federal Reserve issues a monthly report on their index of the US Financial Stress.  The most recent one issued on August 8, 2012 had an index level of -.13 essentially unchanged from the June level of -.11.  Negative levels indicate that there is less stress than a normal level of 0 and a positive number would indicate more stress.

For example, during the “Great Recession” of 2008-09, the level peaked out at about 6 (which is 6 Standard Deviations, not six times)  Other than this time period, the index toggled between +1 and -1 from 1990-2007 and from 2010 to now.  The least amount of stress occurred during 1991 to 1998 and from 2004-2006.

11 components make up the index.  8 of them are based upon yield spreads and 3 are based upon behavior of asset prices.  The changes of each component for the month of July ranged from -.06 to .07.

Although not directly to farming, these indexes provide guidance on where the financial markets are headed which will affect lending and interest rates.

Paul Neiffer