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.

I have read several articles recently regarding the trend in yields for corn and beans over the last 20-30 years.  During the 1980′s and early 1990′s, the average increase in corn yields was about 1.5%.  During the last 15 years or so, the yield increase has been closer to 2%.  How will corn yields look over the next 50 years assuming that they increase by either 1.5% or 2%.  This table recaps those potential yields based upon using the 2009 average yield of 162.9:

                                     1.5%                           2.0%

• Year 10                 189                             199
• Year 20                 219                             242
• Year 30                 255                             295
• Year 40                 296                             360
• Year 50                 343                             438

Just a .5% difference in yield results in overall yield in year 50 being 438 bushels per acre instead of 343 or a difference of about 28%.  These numbers do look very high, but think back 20 or 30 years.  At that time, did you think that corn yields would go from less than 100 bushels per acre on average to an estimated 165 bushels for this year.  I know that several of the seed companies are discussing 300 bushel corn as not being too far off for the average farmer in the corn belt.

For beans, the average increase has been lower on average per year at about 1.3%.  Plugging these numbers into the same table basing it on the 43.3 2009 bean average results as follows:

                                    1.3%                          

• Year 10                 49                   
• Year 20                 56                            
• Year 30                 64                            
• Year 40                 73                            
• Year 50                 83

These increases in yields probably account for some of the increase in land prices over the last 10 or more years.  With yields going up by around 1.3% to 2% per year, the return per acre is going up by this amount (assuming prices stay steady).  This would result in prices going up by at least this same amount to reflect the extra income.

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.

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.

According to the USDA (using 2007 information) farmers who grow and raise more than $1 million in annual farm sales account for 47% of total farm production.  The survey done by the USDA compared 2007 to 1991 and there are several interesting facts in the survey:

• Very small farms have increased by over 315,000 during the  period and large farms over $250,000 increased over 50,000 while the small commercial farms between $10,000 and $250,000 decreased by about 275,000 (all of the revenue numbers have been adjusted to reflect 2007 values).
• In 1991, farms with less than $250,000 in sales represented 42% of the total farm sales.  In 2007, this had dropped to 23%.
• Farms over $1 million in sales increased from 28% of the total to about 47%. 
• Farms between $250,000 and $1 million held steady at about 30% of the total, while farms between $100 thousand and $250 thousand decrease from 23% to only 14%.
• Operating margins were the highest in the over $1 million farmers with at least 60% of the farms showing an operating margin of 20% or more.
• In all categories of farms, the farmer aged 65 or greater grew from 1991 to 2007.  For example, in those farms between $100 thousand to $500 thousand, the percentage of farms over age 65 grew from about 10% to about 20%.  Even the large farms say a small increase in these age groups.
• Farms under $250,000 continue to be a large factor in the growing of hay, tobacco and small grains with their production ranging from 24% to 30% of these commodities

I think the trend of larger farms will continue especially as the older farmers pass on their land to children that are not in farming.

I am flying out of Seattle early Sunday morning and meeting up with my farm partner at the Kansas City airport.  We are then driving up to Sioux Falls, South Dakota to meet up with all of the Crop Tour participants that are doing the western leg of the tour.

The plan is to spend Monday to Thursday traveling through South Dakota, Nebraska, Iowa and Minnesota.  Another set of participants will leave Ohio on Monday and then meet up with us in Austin, Minnesota on Thursday afternoon. 

I plan on writing a updated post each night and let you know what we did that day and what my thoughts about the corn and bean crop are.  This is my first time of participating and I look forward to it.

I was skimming through the Reuters.com website the other day and came across an article on how US Farm Managers are enjoying the benefits of the Baby Boom Generation of farm land transfer and the continued high farm land prices.

Most of these larger national farm managers went through crisis in the early to mid 1980′s as they struggled with many foreclosed farms.  However, since the late 1990′s they are enjoying a fairly successful business climate.  According to the article, about 80% of the farmland in the US is owned by people age 65 and over and this property will be transferred to the Baby Boom Generation, of which almost all of them are not farmers.  This requires the use of a competent farm manager to manage the whole farm process in many cases. 

The largest US farm manager is Farmers National out of Omaha.  It was founded in 1929 right at the time of the stock market crash and like many others struggled with the 1980′s farm crisis and was sold to MetLife.  In 2000, MetLife sold the company back to the employees and it now employs over 200 employee/owners and sell well in excess of 25 million bushels of corn, 5 million bushels of beans and over 1 million bushels of wheat.  They actively manage 1.5 million acres of crop land in 23 states.

I believe that most newer farmers should view this as an opportunity to get to know these farm managers well and show that you can be a profitable farmer for them.  This trend will continue and it provides a great opportunity to acquire more acreage to farm.