Today was our lightest day of traveling.  We left Grand Island, Nebraska this morning at 7 am and spent most of the day headed a little south, then east, then north, then east, then south and east to finish at Nebraska City, Nebraska at the Lied Lodge at the Arbor Day Farm.  If you have never been to this lodge, I would highly suggest visiting it.

On the route, I would call the counts we had nothing special either way.  We had a couple around 200, a couple around 110, and the rest in the 120 to 175 range.  We visited 10 counties and made a total of 10 counts.  Our average bushel per acre for corn ended up at exactly 150.

In comparing our counts to the county averages for last year, 2 were higher, 1 was even and the other 7 were lower, but you can not tell anything from one route on the tour.  Pro Farmer will issuing their calls for Nebraska and Indiana tonight and I have no way of knowing which way it will go.

Tomorrow, we leave and tour Western Iowa and end up at Spencer, Iowa in the Northwest corner of the state.

I will probably make a post after tonight with my thoughts on the numbers.

We arrived late Sunday night in Sioux Falls, South Dakota just in time for the meeting with all of the other tour participants.  With the flooding of the Missouri River near Omaha, we had to make several detours which probably added an hour to our drive.  The river looks like it has come down maybe a foot, but it is still very high.

We left Sioux Falls around 6:30 Monday morning and made a direct bee line to Sioux City, Iowa and crossed over the Missouri River there.  We took a sample in Dakota County which was in the 135 range and then moved into Dixon where we saw extensive hail damage from the storm of last Thursday.  Talking to some folks at the local convenience store, we noted that the storm took out a swath of about 5 miles by 100 miles and I know we saw about 25 square miles of this.  You would look at a bean field and all you saw was some light green stalks with no leaves or pods on them as far as you could see in the field.

We then motored another 30 miles or so west and then turned south for about 15 miles and then came back due east for about 40 miles.  In each County, we took a least one sample.  In about the fourth County, we got our first irrigated field sample and that ended up the best of the day at 230 bushels.

Bean samples were generally in the good range, however, there were several areas that we noted were extremely dry and if they do not get rain, the beans are in trouble.

We noted many areas where the stalks had been knocked over due to either wind or hail or both and all scouts noted hail damage in many of the fields.

Throwing out the high irrigated sample, our yield estimates ranged from a low of 102 to about 175 and compared to last year, our yields were down.  However, it appears that the call for South Dakota and Ohio is very much in line with the USDA estimates and tomorrow we will be finished with Nebraska and will have a better idea where we are at.

I tried to post during the drive, however, the cell service in Nebraska on our route was spotty at best and I could not get enough service to get my IPad to post to the site, so I will have to write a nightly recap of the trip.

However, I am tweating to Twitter (say that fast five times in a row) throughout the day at @farmcpa, so please follow me there.

I am spending the night in Spokane since my plane leaves at 6:30 tomorrow morning. I did not feel like getting up at 2 am to drive three hours to catch my flight. That is one of the joys to living in Yakima, Washington.

I will arrive in Kansas City tomorrow at about 1 and meet up with my farm partner and then make the five hour drive to Sioux Falls, SD to meet up with the Western leg of the crop tour group. Looks like there will be about 40 of us in the West and about 60 on the East leg.

I think with the very wet spring in the East nobody really knows how well that crop is doing. By the end of the week we should have a better idea.

I plan on writing two or three posts each day and I am writing this on Blogsy on my IPad and so far it seems to be going good.

I will keep you posted.

There was an interesting article in the Wall Street Journal this morning about how the USDA issued information regarding the current wheat harvest that normally would required a Freedom of Information Act request to get.

Previous reports from the USDA had pegged the spring wheat crop at about 12.7 million acres.  The report just released reduced this acreage report down to 11.7 million acres.  As a direct result, the price of spring wheat has gone from a low of about $8 this month to slightly more than $9.

The 12.7 million number was reported as part of the National Agricultural Statistics Services (NASS) and the 11.7  million number came from the Farm Service Agency (FSA) which is constantly getting updates from farmers that are not always incorporated into the NASS system.

The primary cause for the decrease in acres relates to the more than 2.6 million acres that did not get planted in the northern U.S. Plains.  The excess rain and flooding in these areas prevented many farmers from planting any crops.

Hopefully, this release of data without a formal Freedom of Information Act request will lead to this data being reported more timely in the future.

Historically, wheat prices have generally been higher than corn prices and sometimes the difference can be major.  In many years, wheat could be $1 or $2 higher than corn.  This is due to two main reasons:

• Corn was primarily used for feed
• Wheat was more heavily used for bread and other products directly consumed as food
• A bushel of wheat also provides slightly greater feed value than a bushel of corn

However, during many days in 2011, corn has now overtaken wheat in price.  This has been caused by these major factors:

• The Ethanol mandate requires almost 5 billion bushels of corn to be used
• China has rapidly increased their imports of corn
• Wheat is in plentiful supply and corn may have its lowest carryover in many years

In a recent Wall Street Journal article, it mentioned that due to this flip-flop in prices, many consumers of corn for feed such as poultry and hog producers are now blending in more wheat into their feed rations.  Also, wheat can be used to make Ethanol and some Ethanol producers are now blending about 5% wheat into their mix. 

As long as wheat remains cheaper than corn, this trend may continue.

On purpose, I skipped talking about session four since it was my discussion on income taxes which we have posted on many times already.

Session Five was presented by Tim Ohlde, President of Elk State Bank in Clyde, KS on the applications of the FFSC guidelines to Today’s Ag Lending World.

He stated that what bankers are good at:

• Desire to see customers/community succeed
• Lenders who are bright/capable talent of all ages and stages
• Role of collateral
• Importance of a “Good” loan
• Cash flow pays loans
• Select Sweet 16 ratios (current ratio, solvency, ROA, ROE)
• Understand debt
• Using a tax return for profitability analysis and cash flow analysis
• Bankers want to do a better job with financial analysis

Room for improvement is as follows:

• Understanding double-columned balance statements
• Classifying assets and liabilities correctly
• Role of working capital in the lending process AND in the farm operation
• Basis – Does anyone really know their true basis
• Implications of Deferred Tax on (1) liquidation, (2) business transition, and (3) estate planning

It appears that less than 10% of Ag bankers understand the conversion of cash to farm accural accounting (not true accrual accounting).  Also, bankers sometimes do not understand that a schedule F is not a profit and loss statement.  The joke is that a schedule F is a “highly manipulated profit and loss statement”.

Regulators are highly suggesting that bankers need improved, better financial loan analysis on an individual, global and portfolio basis which the Farm Financial Standards meet.

Danny Klinefelter from Texas A & M was the second speaker of the day and his discussion on Peer Advisory Groups and Continuous Management Improvements.  The studies from about 1,100 top producers around the US over the last several years attending the TEPAP conference show that only about 50% were using cash flow budgets and tracking profit and cost center.  Only about 25% were tracking key ratios and using a policy for dividing earnings and withdrawing capital.  After getting exposure to the use of these tools, after five years the percentage using these tools had increased substantially.

Douglas Adams, the author of The Breakthrough Company stated “Human beings, who are almost unique in the ability to learn from the experiences of other, but are also unique in their disinclination to do so”.  The use of a Peer Group is designed to spark this ability to learn from others in your industry.

The Rule of 72 no longer just applies to compounding of interest, but the compounding of knowledge.  Therefore, if you increase your knowledge at 6% per year, your total knowledge will double in 12 years.  If you can increase it at 24%, you can double in 3 years.  The use of a Peer Group can increase this compounding dramatically.

Peer Groups are in the range of 5-12 producers, but the optimum range is probably 8-10.  Make sure the group is full of “Eagles”, not “Turkeys”.  Try to not to have groupthink.  You want many differences of opinion in the Peer Group.  Many have monthly, quarterly or annual meetings.   You may want to be a member of two Peer Groups.  One based on operations and may involve competitors in your area and the other would be on the more sensitive areas of finance and succession planning, etc. that would be comprised of producers outside of your immediate area.

Danny’s goal is for 500 or more Farm Peer Groups to be in existance within the next five years.  Remember, nobody is smarter than everybody.

Some of the advantages of a Peer Group are:

• Multiple vantage points and different perspectives
• Sounding board for plans and ideas
• Identifying alternatives and exploring what if scenarios
• Increased insight and objectivity
• Benchmarking (production, financial, compensation, etc.)
• Identifying opportunities to capture economies of scale, reduce costs, improve asset utilization, gaining market access through collaborative efforts.
• Overcoming isolation

Even if you are top producer, you will find areas that others are Top Top producers and you can learn how to improve your operation to become the Top Top producer.

The annual conference of the Farm Financial Standards Council just got started this morning.  The first speaker of the day was Dan Looker, business editor of Successful Farming and his discussion was on Ag Megatrends.

The first Ag Megatrend dealt with Ethanol.  Even though the blender credit is most likely being phased out or allowed to expire at the end of the year, the biggest reason for the continued demand of corn for Ethanol is the mandate for 15 billion gallons of Ethanol.  Ethanol is now the biggest market for corn, just passing up feed usage.  We are now at the blend wall, i.e. the industry is producing about 13 billion gallons of Ethanol and the total gas gallons were only 137 billion gallons.  With a 10% blend, only about 13.7 billion gallons could be used.  The E15 blend could soak up more Ethanol.  An escape valve is exporting our Ethanol to Brazil and other nations.  Brazil’s economy is growing and more people are able to afford cars that use Ethanol and Brazil is exporting sugar based Ethanol to the US since it meets the criteria for advanced biofuel that corn Ethanol does not currently meet.  By 2015, the mandate is for 15 gallons of Ethanol.

The Ag Committee in Congress has had a rapid changeover.  There are 7 new Democratic and 16 new Republican members and many of these members are no longer from “true” farm districts.  Many of these members need to be educated about agriculture.  The ag committee faces being billion dollars short plus the uncertainty of the Debt Ceiling super committee to cut spending which will affect Ag, but nobody knows by how much and where.  The government current subsidizes about 80% of enterprise crop insurance and this may be an area that gets cut in the next farm bill.  Of the current annual $80 billion farm program payments, only about $6 billion is for commodity programs and about $5 billion for conservation programs.

Another mega trends is current record corn prices.  USDA is showing a range of $5.50 to $6.50 for this year’s crop.  Ending stocks are still projected under the bare minimum cushion of 1 billion bushels.  This year’s exports are at a 9 year low, but still almost 2 billion bushels and no excess supply to ship anyway.

The Chinese imports are still small, however, it is still many multiples of last year.  If the supply is there, China may import up to 400 million bushels of corn this year.

China will import about 58 million metric tons of soybeans this year and about 1/2 will come from the US.

We are facing growing global competitors.  The former Soviet Union is now starting to produce more corn.  They now produce more than Argentina and other noted corn exporters.  Romania has excellent farm land that can produce corn at the same rate of our corn belt and just needs to get their infrastructure in place.

The farming outlook is still optimistic according to Dan.

I grew up in the Walla Walla area and several farmers are now producing Garbanzo Beans on about a 1,000 acres for the fresh frozen market.  Normally, garbanzo beans are held to maturity and harvested dry and then shipped around the world.  The Middle East is a large consumer of these beans and in the US they are primarily used in soups and salads.

Work started in 2000 to come up with the method to freeze the beans for the fresh market.  They have just now perfected the process and you will be able to buy fresh garbanzo beans in a market near you.

The beans are harvested using the normal green pea combine (which cost over $500,000 new) and then chilled to about 36% near the Walla Walla airport.  After chilling, the beans are then transported to Ellensburg, Washington about 150 miles away to be frozen and then shipped to customers.  I am impressed that they can get these things harvested with a green pea combine since the plants are only about a foot tall, but the picture in the article indicates they can get most of the plant into the combine.

On a personal note, the farmer Ron Filan quoted in the story is my cousin.  Here is the article.

The Northwest Farm Credit Services has just posted a nice four page summary of winter and spring wheat conditions in the Pacific Northwest.  This growing region includes Washington, Oregon, Idaho and Montana.

The region has been especially cool and wet this spring with most typical harvest delays of at least two weeks.  Stripe rust appears to be a large problem this year due to the weather and many growers have had to apply fungicide at least three or more times to combat it.

However, even with the weather  issues, most every grower in the region will have an above average crop.  For example, growers in Montana that might enjoy 50 to 80 bushel yields are expecting 80 to 100 bushels this year.

I am personally going to help my cousins in the Walla Walla area harvest for a few days next month and I would expect to be harvesting wheat that may approach 140 bushels or more (remember driving a combine is my idea of a vacation).