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.

Reuters is reporting that Potash Corp. has formally put pressure on BHP to raise the price for its takeover of Potash Corp. or have the company get sold to some other company.  BHP originally bid $130 per share for the company or $39 billion in total.  The price has already jumped to over $150 per share and there are rumors that if BHP raises their bid to $162, the company would be theirs.  However, BHP may not want to go that high.

It is interesting that the CEO of the company, Bill Doyle will earn over $500 million if the deal goes through.  One party that may come to the rescue of Potash is the Chinese company Sinochem, China’s top fertilizer firm and No. 4 oil company.  Sinochem’s Chinese connection is significant due to an expected surge in fertilizer usage by China, India and other emerging economies.  China has bought resource companies located in Canada before (Potash headquarters is in Saskatoon).

Another bidder may be the Brazil mining company Vale, however, it appears they have backed out of the process.

Another option is to break up the company or sell out to a consortium of companies that would jointly bid for the company and then divide it.

Based on where the market price is and the ability of BHP to make the deal, I have a feeling that this will happen and soon.

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.

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.

I got into the Kansas City airport yesterday about an hour late due to mechanical issues.  My partner in the farm picked me up and we then traveled about 350 miles to Sioux Falls and met up with the Pro Farmer Crop Tour participants.  There were about 30 people at the meeting and we had about an hour and half meeting to discuss how to do the counts, who were were traveling with, etc.

We left Sioux Falls this morning with about 8 different groups traveling southeastern South Dakota and Center Nebraska.  We headed west on I-90 to about 10 miles west of Mitchell and then turned south toward Nebraska.  Our first two corn fields that we checked turned out to be the worst ones we say all day with yields much less than 100 bushels per acre.  We sampled about 7 or 8 fields in South Dakota and crossed the Missouri River into Nebraska at Fort Randall Dam. 

We made a couple of quick stops right after crossing the river and we did not see another corn or bean field for at least 35 or 40 miles traveling through most of Holt County.  Almost all of the fields in South Dakota were dry-land, whereas, almost all of the fields in Nebraska were irrigated ground.  We saw a couple of fields that should yield more than 200 bushels but all in all, I would say most were in the 120 to 175 range.  We made a total of about 18 corn stops and 17 bean stops.

Talking with a farmer from Illinois that was in the car with us, he thought the yields we saw today were slightly lower than last year.

I am on the way to meet up with all of the groups to see how they saw things and will write another post tonight after that meeting.

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.

1. Kansas State University has a site called ag manager info and there is always some interesting tidbits that they have on the site.  They recently posted an article on the world wheat market supply and demand trends.  I thought I would recap the article with what I found interesting.

For the current year, total acres planted to wheat is estimated at about 557 million acres or over 870 thousand square miles.  This acreage is about the size of Greenland. Since the study started in 1987-88, the average acres in production has decreased by about 1 million acres annually.

The 10  largest wheat production areas produced on average about 80% of the world’s total wheat production.  The top 5 areas (in acreage terms) were:

1. Russia – 71 million acres (slightly smaller than Arizona)
2. India – 69 million acres (about the size of Colorado)
3. European Union – 63 million acres (about the size of Oregon)
4. China – 59 million acres (slightly larger than Idaho)
5. United States – 49 million acres (about the size of Minnesota)

I always thought that Canada was a large producer, however, the country of Kazakhstan has almost twice the acreage in wheat production as does Canada.

The highest average yields per acre are:

1. European Union (76.9 bu/acre), increasing about 1 bu per year,
2. China (65.0 bu/acre), increasing by 2.2 bu per year.

United States yield is about 41.6 bu/ac with it increasing by about 1 bu per year.

Total wheat production by the top 5 countries are as follows:

1. European Union – 5.1 billion bushels
2. China – 4.2 billion bushels
3. India – 3.0 billion bushels
4. Russia – 2.3 billion bushels
5. United States – 2.2 billion bushels

Even though the United States is the 5 largest producer of wheat, it is the largest exporter of wheat and the top 5 exporters are as follows:

1. United States – 1.1 billion bushels (50% of production)
2. European Union – 705 million bushels (14% of production)
3. Russia – 600 million bushels (26% of production)
4. Australia – 450 million bushels (55% of production)

Canada exports about 67% of its production.

The top importer of Wheat is North Africa at about 610 million bushels, with the Middle East, South America, Sub-Saharan Africa, Southeast Asia and East Asia next.

Another interesting fact is that China has by far the largest ending wheat stocks at about 1.8 billion bushels.  The United States is the next largest at about 635 million bushels.  China is at about 47% of total ending stocks, while their historical trend is about 30%.

I always find this information interesting and I hope you find something of interest in the data.

As the old saying goes “Go west, young man, go west”, the corn belt will probably be expanding at least 300 miles to the west over the next few years.  As part of the two-day agricultural symposium held in Omaha last week, this was one of the central themes of the meeting.

Drought resistant corn seed could expand the corn belt at much as 300 miles to the west.  Assuming that the depth of this expansion would be 500 miles north and south would put up to 150,000 square miles of additional area that could grow corn.  This is a gross area of about 96 million acres.

In addition, new non-thirsty corn varieties could let corn belt growers raise just as much corn with far less water for irrigation, while protecting non-irrigated fields from drought damage.

Echoing comments by several panelists at the conference, C.G. “Kelly” Holthus, chairman and CEO of Cornerstone Bank of York, Neb. said the future of agriculture looks bright.  He called today’s farm economy “the golden age of agriculture”.

William Wilson, a distinguished professor of agriculture from North Dakota State University, said Monsanto and other biotech companies are in the final stages of developing corn varieties to thrive in low-moisture conditions.  The seeds are due to come onto the market in about three years, he said, joining herbicide-resistant seed and other genetically modified crops that have improved farm yields and profits in recent years.

However, this does not mean that corn will stretch all 300 miles wide.  Farmers will decide what to plant based upon the financial yield that the various crops offer and other factors.

Scott Heintzelman of The Exuberant Accountant has a very good post on the new rules coming for 1099 reporting for all businesses starting in 2012.  In one of my previous posts, I had indicated that these rules were coming, but Scott does a very good job of highlighting the changes.

One thing that needs to be stressed on these rules that most of us probably have ignored is that if we do not comply properly with the rules, two bad things can happen.

First, if you do not report the transaction to the IRS, they can assess a penalty of $50 per form 1099 not reported up to a current maximum of $100,000.  Under the current rules, if you missed one or two 1099s that should have been reported, the total penalty might be less than $500.  Under the new rules, if you are required to issue form 1099 to all businesses that you purchase goods and services from, the penalty could add up very fast.  For example, if you deal with 100 vendors that you paid more than $600 to during 2012 and do not report any of these transactions on form 1099, then your potential penalty is at least $10,000.

Second and perhaps more important is that if you do not provide your federal identification number to your customers, they may be required to perform backup withholding on payments to be transmitted to you.  This backup withholding is usually 20% of the total sale.  Therefore, if you sold grain for $250,000 to your local elevator and backup withholding applies, the elevator would only give you a check for $200,000 and send $50,000 to the IRS.  You would be able to get this $50,000 back when you file your return, but that means you have to wait until the following year to get your money.

Under current rules, backup withholding does not apply to  the sale of farm products, but it is my opinion that with the new rules, backup withholding will probably apply on the sale of any product including farm products.  Therefore, it will be very important to provide your EIN to any customer you sell products to.

I would strongly suggest that you review your current accounting system and Trprocedures to make sure that you are ready for 2012.  As the scientist Carl Sagen would say, the IRS is about to get Billions and Billions of form 1099 starting in 2012.

It is projected by 2019 that Russia may become the world’s largest wheat exporter and Russian, Ukranian and Kazakhstan (RUK) wheat exports collectively may double the United States wheat exports according to the June 2010 issue of Amber Waves.  This growth in wheat exports may help mitigate global food security concerns and help offset the the shift in US acreage to corn, soybeans and other more profitable crops.

USDA is projecting that wheat exports by there three counties could increase by about 50 percent to over 50 million metric tons by 2019 or about 1.9 billion bushels.  The region may account for over half of the increase in wheat exports and could supplant the US as the “wheat breadbasket of the world”.

The US has been in second place since World War II but could easily slip to second place especially if the trend to more corn and bean acres at the expense of wheat production continues.

The US share of wheat exports may drop from the current 24 percent range for 2001-09 to an estimated 16 percent by 2019.  The European Union, Canada and Argentina will also lose market share while Australia is expected to remain flat.  The three former Soviet Union counties should see their market share go less than 20 percent to over 33 percent by 2019.

There are two main reasons why RUK have become larger wheat exporters.

1. The region’s transition from planned to market-orientated economies that began with collapse of the former USSR in the early 1990s.  During the late Soviet period of 1987-91, the USSR imported 35 mmt of grain, while in 2009, the former USSR nations exported nearly 55 mmt.  This is a turnaround of over 90 mmt or about 3 billion bushels of grain.  Also, the large contraction in the livestock sectors led to market driven importation of meat and exports of grain.
2. The region’s yield has risen steadily during the 2000s.  During the 1990s, wheat yields actually decreased primarily due to bad weather and a lack of inputs, especially fertilizer.  However, during the 2000s, wheat yields have risen about 32 percent in Russia and about 25 percent in Kazakhstan.  A lot of this increase is due to the large vertically integrated enterprises that are in charge of the crop from the very beginning to the final wheat sale.

If the world market for grain was expected to remain steady, this increase in Soviet production could lead to much lower prices, however, the world will add another 750,000 or so people over the next 10 years and they will eat a lot of wheat so wheat prices may actually rise over this period.