The Wall Street Journal had a fairly extensive article in today’s paper on the extension of the ban of wheat exports by Russia from December of this year until after next year’s crop.  However, as most traders and farmers know, you will believe what Russia says at your own risk.  What we do know from the article is as follows:

• Wheat stockpiles are still much higher than in 2008, however, the original news of the Russia ban led to a 5% rally in food prices last month.  Wheat rallied substantially, along with corn and sugar.
• Russia last year accounted for 14% of all wheat exports and if the ban continues to next year’s crop, then this will drop to zero.  The Ukraine and Kazakhstan will also have sharply reduced exports this year.  During the the current 2009-2010 crop year, Russia exported about 650 million bushels up from 40 million bushels in 2000-01.
• A possibly bigger concern is that the winter wheat crop will not get planted if the drought continues.  Normally, 44 million acres get planted to winter wheat and Russia right now assumes the worst case scenario for this year is closer to 2/3 of that number and that may be too high.  If that is the case, even if the drought is lifted for next spring’s crop, spring wheat normally produces less than winter wheat.
• Also, drought is hitting Argentina and Australia, and Germany had a wet season and the quality of their crop is way down.  They have had to import wheat from the US which rarely happens.
• Egypt, which historically has not bought much wheat from the US, just struck deals to import about 8 million bushels at prices 5% higher than last month.

This is the second day in a row that the Wall Street Journal had an article on wheat exports  and I think we will see several more over the next few months.

Kansas State University provides a very good map of basis for most of the major crops over most of a five state region comprising all of Kansas, Nebraska, Oklahoma and parts of Texas and Colorado.  These maps on a weekly basis show what the current basis is and how it compares to the three year average.

During 2010, the basis maps for Soybeans show that the average basis has both increased in some areas and decreased in others, but overall  has not moved to much.

The basis maps for corn show that the basis is narrowing in some areas.  At the first part of the year, in some areas the local cash price was 40 cents higher than futures.  That has decreased to about 27 cents while the lowest basis areas remains steady at 84 cents cash price under futures.

Now, wheat basis has shown a dramatic change since the first of the year.  On January 6, cash prices ranged from 29 cents under futures all the way up to $1.14 under futures.  As of August 25, this spread has widened to 35 cents under futures to almost $1.65 under futures.  This represents a 44% increase in basis for the worst areas of these states.

So even though futures may be rallying, this does not always mean the local farmer is getting the benefit of these prices.

After at least two years of massive losses, hog farmers are now starting to enjoy much higher prices for their products.  Most of the studies I have reviewed indicated that most farmers that raised hogs probably lost anywhere from $20 to $60 per hog produced in 2008 and 2009.  Based on the higher current prices, I would estimate that they are making at least this much per hog raised right now.

During 2008, the hog farmer had a double whammy of low price for their product and much higher feed costs.  Right now, they have a high price for selling the hogs and feed prices have not rallied too much (as compared to 2008).

Prices for pork bellies which makes up our bacon have risen about 72% in the past year to around $1.43 per poundaccording to an article I read in this Kokomo, Indiana newspaper.  Bacon prices have averaged more than $4 per pound which is the highest price since at least 1980 (although on an inflation adjusted basis, it is still much lower than 1980).

This is a good article to give you perspective on where the pork industry is at right now.

It appears as usual that there is a buying frenzy in the wheat futures market that has not totally transferred over to the cash market.  Since early June, the Wheat Futures market has gone up by about 80% whereas the cash market has gone up by much less leading to a large widening in the basis.

For example, the wheat futures on Thursday locked limit up at a 60 cents gain while the CIF bids for August fell 10 cents per bushel and September bids fell 30 cents per bushel.

Unlike 2008, there is ample wheat stocks in the US (at a 23 year peak) and there are supply disruptions from the Russia and Ukraine regions, however, we will see a drop in wheat futures prices if cash prices do not rise.

Most of this rise is wheat futures is attributed to the massive fund buying.  Just on Thursday alone, the funds purchased a net 20,000 contracts which is equal to 100 million bushels.  This led to the increase in wheat prices on Thursday, but this price will drop once the funds sell these contracts.

US Wheat stocks are at about 30 million tons which is more than twice the amount of production loss from Russia.

The bottom line is that wheat prices are up, but I would not expect a repeat of 2008.

For more information, please see this article posted at Reuters.com.

Please note I originally wrote this on August 6, 2010, but it did not get posted until now by mistake.

Here are my comments regarding the crop tour:

• The corn crop looked good, however, most of Iowa had issues with tip-back where the water on the ground deprived the ear of the nutrients to get the last full inch of the ear filled.  This is the main reason why the Iowa crop looks like it will be lower than last year.  We also saw a lot of nitrogen loss again due to the standing water, etc.
• The soybean crop looked excellent.  On our tests, we actually had two plants with over 200 pods with the highest at about 240.
• South Dakota corn and bean crop looked good, however, there are a lot of fields with 10% or more of the field under water so the actual yield with be difficult to calculate.
• Northern Nebraska is going to help keep the Nebraska yield overall even with last year since the southeastern part of the state does not look as good as last year.  Our night in Grand Island was nice, however, the next morning we woke up to rain all day, so that part was not great for counting crops.
• Iowa is down due to the reasons above, however, for us, southwestern and northwestern Iowa looked pretty good.
• Minnesota was not quite as good as we thought it would be for corn, but still pretty good overall.

From Sunday afternoon after landing in Kansas City to Friday afternoon getting on the plane in Kansas City to fly home, I put on over 2,000 miles on the auto driving the tour.  On the western leg, there were about 40 participants with about the same on the eastern leg.  Participants included farmers, the Pro-Farmer staff, media, agronomists, crop insurance agents, seed consultants, etc.

The meetings each night had at least 150 participants with the local farmers turning out to see how the corp looked, etc.  I enjoyed these meetings immensely since it allowed me to see how the local farmer thought there crops were doing and it allowed me to ask questions regarding their farming practices, etc.

Again, I had a great time and highly suggest you consider attending the tour at some time.

Today, we have a very long drive ahead of us as we traveled from Spenser, Iowa, headed north into Minnesota.  We then headed west almost to the South Dakota border.  We then turned north and started to do our counts in those four counties along the border.  At Canby, we then turned south and east and worked our way back to Interstate 90.  All in all, we put on about 350 miles today.

Corn yields were all over the map and we saw a lot of lodging that will show up at harvest.  That will not be fun to combine this year.

We got into Austin, Minnesota tonight and had our final meeting with the local farmers and met up with the eastern crop tour participants.  The estimated yields were given at the meeting and the early call on Minnesota was a .08% increase in yield.  The big surprise was an estimated 6% plus drop in Iowa corn yields.  There are a lot of soybeans out there, however, the crop is much further along this year than last and so many of the pods last year were still blooming and not counted.

This was my first crop tour and I really enjoyed it.  It is hard work driving that much and making that many stops, but very rewarding.  I would higher encourage any of my readers to do it at least once.  You meet a lot of interesting people, not just farmers, but traders, USDA personnel and many others involved in ag.

I look forward to doing it again and we will see what the final numbers look like tomorrow.

Remember to check out the progress at www.agweb.com.

Today was a free form day for us.  We had Brian from Pro Farmer with us and he was doing multiple radio interviews through out the day so we had to stop at various times and let him make his calls in the best cell phone area that we could find.  I have A T & T and I can tell you that there is almost no coverage unless you are near a city with at least 5,000 in population or more.

The corn and beans looked very good down in Southwest Iowa.  Our counts were about 200 bushels or a little better for corn.  As we moved north and a little east, the corn count dropped off dramatically into the low 100′s.  Then, as we moved into District 1 in Northwestern Iowa, the corn counts started going over 200 bushels topping out at about 230 bushels per acre.

We saw some really good soybeans today.  We had two separate plants with more than 200 pods on each plant topping out at almost 240.  We also started noting some sudden death syndrome in the soybeans as we got farther north.   A couple of fields had several spots, but overall, I do not believe we saw more than a couple of acres of total loss during the whole day.

We are spending tonight in Spencer, Iowa and we will have a meeting to discuss how all of the other routes went.  If there is any important news from that, I will let you know tonight.

As always, please go to www.agweb.com to get any updates on the crop tour.

We spent the night in Grand Island, Nebraska last night.  It had rained a little bit last night during the update, but I did not expect to wake up to constant rain and to find out that we had gotten 2.44 inches of rain overnight.

We left the hotel at about 6:45 and headed due south.  Our first stop was just about five miles from the hotel and we ended up scouting the best beans that we saw all day and pretty good corn at around an estimated 200 bushels per acre.  After the next stop, the rain gradually tapered off to a mist or no rain at all.  We headed south almost to the Kansas border and then turned due east and went almost to the end of Nebraska and then turned north to spend the night at Nebraska City.

Our biggest estimated corn yield was about 240 bushels and we had at least 8 samples greater than 190.  Soybeans looked good and consistent.

At the meeting that night there were about 200 people in attendance and it appears the Indiana crop will be about 6% higher than what USDA projected.  The Crop Tour is pegging the Nebraska crop at almost exactly the same yield as last year.  What the Southeast part of the state lost, the Northeast part gained.

Tomorrow, we head east and due north to Spencer, Iowa.  It looks like there will be sunshine and I hope my first step tomorrow does not involve the sucking sound of wet mud like today’s first step was.

Just got back from the meeting with the other participants and local growers.  Looks like there were about 200 people or more in attendance.  Our counts versus the other routes for the day seemed very similar.  The one thing that stood out to me was the drilled soybeans in South Dakota had some wildly high pod counts.  If they get enough rain, the yield up there may be another record.  But that is a big if.

We will be headed out at 6:30 in the morning, but our route appears to be much shorter than today.  We probably put on over 350 miles today and tomorrow is closer to 150 miles.

I will report tomorrow evening and let you know how Nebraska turns out.

As I write this post September 2011 wheat futures are trading at slightly more than $7 per bushel.  If I had asked any wheat farmer three months ago would they like to lock in $7 wheat for next year’s crop, I am fairly certain that 100% of them would have said yes.

These farmers now have that choice, subject to the basis issues as discussed in a previous post.  I would strongly suggest that all wheat farmers review their budget for next year and see if it makes sense to try to lock in prices near the current level.  Any time that a farmer can at least lock in good prices to cover all of their estimated production costs allows the farmer greater flexibility in marketing their crop and it also pleases the banker.

In a side note, I spent Friday and Saturday driving combines for my cousins down in Walla Walla.  I drove a Case IH 2388 and 1470 for about 18 hours and that was my idea of a vacation.  Yields ranged near 125 bushels for dry land wheat and with the current good prices, I think my cousins might have a good year in farming.  They have some steep hills down in this area and kicking in the 4 wheel drive is always fun for a combine driver.  Using three machines, you can cover a lot of acres in a day, however, this year the fields had a lot more down wheat and the speeds are much lower than normal.  it is fun to see 3 combines, 2 bunk-out wagons and 2 semis all going strong.