I will be traveling on the business the next two days, so I wanted to make sure to wish Happy Thanksgiving to all of our readers.

This holiday was my favorite as a child growing up since we went to my grandparents for Thanksgiving and some years we would have over 45 relatives there. 

Again, Happy Thanksgiving!

I flew to Kansas City on Thursday of last week.  On Friday, I spent about five hours in the John Deere 9660 combining soybeans.  The field had several terraces and many ditches, so the combining was not simply going back and forth across the field.  I filled up two semi loads with beans and had a great time.  This is my idea of a great vacation.

On Saturday (since the other beans were not ripe yet), I spent the whole day traveling.  I went to Wichita Falls, then up to Salina and on the way back to Kansas City, I spent a couple of hours touring the Flint Hills in the Manhattan south region.  If you have never toured this area of the Country, I highly recommend it.  This is some of the most interesting hill region in the US.

I also saw a lot of milo being harvested and the weather was outstanding (70 degrees and sunny).  The only negative for the region is that Kansas, Kansas State and Missouri all lost their football games on that day.

In August of this year, The Minneapolis Federal Reserve reported that the agricultural credit conditions in the second quarter were somewhat pessimistic compared to the previous quarters.  The Ninth district comprises the states of Montana, North and South Dakota, Minnesota and parts of Wisconsin and Michigan.

Although the credit conditions for this district were slightly negative, the positive trends for farmers is that they are reducing their capital investment and household spending.  During the period, only 11 percent reported higher household spending and 14 percent reported spending more on capital goods.

Demand for loans and repayment levels were fairly constant.

Cash rents continue to be strong.  Average cash rents for irrigated and non-irrigated farmland were up from a year ago by about 6 and 10 percent, respectively.  However, cash rents for range land was down about 3%.  Values for farmland were up by about 6-8% for the year earlier periods.  “Bankers are starting to get concerned over how much longer these rents and prices can stay this high”, a Minnesota lender reported.

According to the report, the survey does not paint a rosy picture for the third quarter.  However, with the dramatic increases in prices during that quarter, I am betting that the actual third quarter report will be much rosier than the expectations.

I know some farmers probably feel that CPA do not have any humor, but I think we enjoy jokes about our profession a lot.   So, in that spirit, I am listing some humor below.

Trick or Treat

The doorbell rings, and a farmer answers it.  Here stands this plain, but well dressed kid, saying “Trick or treat?”.

The mans asks what the kid is dressed up as for Halloween.

The kid replies, “I’m an IRS agent.”

Then the kid takes 35% of the farmer’s candy, leaves and doesn’t say thank you.

Ashes to Taxes

A farmer on his deathbed called his frient and said “I want you to promise me that when I die you will have my remains cremated.”

His friend asked, “And what do you want me to do with your ashes?”

The man said “Just put them in an envelope and mail them to the IRS.  Write on the envelope ‘Now you have everything.’”

Income Tax Law

All the Congress, all the CPAs, all the tax lawyers, and a convention of wizards can not tell for sure what the income tax law says.

The Oldest Profession

A surgeon, CPA and a lawyer were arguing about which of them was practicing the oldest profession.

The surgeon said “God created Eve from a rib from Adam.  Obvisiouly, God is a surgeon, so medicine is the oldest profession.”

The CPA protested, “Before God created Eve from Adam’s rib, he created an orderly universe from chaos.  That clearly shows that God was an accountant before he was a surgeon.  Accounting then has to be the oldest profession.

The lawyer sat for a moment smiling, looking at the surgeon and the CPA.  “That may be true,” the lawyer said shrugging his shoulders, “but who created the chaos?”

The recent deadly floods in Pakistanhave destroy $3.27 billion of rice, cotton and sugar production according to is Farm Minster Naza Muhammad Gondal.  The country lost about 2.4 million metric tons of rice (about 80 million bushels) and 10.4 million metric tons of sugar can.   The country may also need to import almost 3 million bales of cotton which would be a 1 million bale increase from last year. 

The cotton loss is one of the primary reasons why cotton prices have gone of $1 per pound and have reached a 15 year high.

Over 2,400 miles of roads have been destroyed and food inflation for the current year may exceed 20%.

Rice exports may plunge up to 35 percent for the year reaching no more than 3 million tons from last year 4.6 million tons.

About 15 percent of the sugar crop was destroyed and the county may need to import a million tons of raw or refined sugar to meet demand.

It seems almost anywhere we look in the world weather problems are raising the price of food.  It will be interesting to see if the trend continues or if things get more back to “normal”.

I spent this weekend and Monday traveling to Boise from Yakima and back again.  On the trip down to Boise, I drove through the irrigation section of the Columbia Basin.  This area grows a wide variety of crops such as onions, potatoes, wheat, corn, peas, beans, hay and lots of vegetable seed crops.  After that, I drove through Southeastern Oregon with its range land for cattle.

As I was driving into Idado, I noticed sugar beets, a lot of dairy, corn, wheat, and other related corps.  I spent some of my time on Monday driving around the Treasure Valley of western Idaho.  There is quite a bit of fruit trees and vineyards in this area along with the row crops.

On Monday, I drove north through the Payette River and Salmon River valley.  If you have never made this trip, you must go on it.  This is some of the best scenery in the US.  I met with  a farmer near Lewiston that grows twelve different crops.  From Lewiston, I drove home through the Palouse Country and again back through the Columbia Basin.

After putting on 1,100 miles, I can tell you that just the Northwest part of the country grows a bountiful range of crops and I am proud to be part of American Agriculture.

Potash Corp. of Saskatchewan is one of three Canadian potash producers who Canpotex.  Canpotex handles all of their sales outside North America.  Two other similar organizations are Belarusian Potash and International Potash.  These three entities control nearly 70% of the world’s potash production.

By cooperating with each other, they are able to mitigate any decreases in prices and as we saw in 2008, increase pricing far above what most farmers felt it should have been (anybody remember $1,000 ton potash prices).

Even if the bid by BHP fails, Canpotex faces long-term pressure.  Such organizations work best with the following situations:

• There are limited number of producers,
• There are barriers to entries by other competitors, and
• There is homogeneity in the product.

While the barriers to entry in potash are high, they may not be high enough.  BHP is already developing the Canada’s huge Jansen field and big miners live BHP and Vale like to keep production running full steam.  If they can bring on the 13.5 million metric tons of supply that they target over the next few years, then the big three’s combined share of capacity will drop to 55% from 70%.

If BHP is successful in obtaining Potash, then the market would be changed dramatically.  Assuming all proposed new projects materialize, BHP would control 24% of global capacity by the end of this decade versus about 38% for Canpotex and its two sisters.

By running flat out, BHP would cause prices to drop, however, as high cost producers drop out of production, prices may start to increase.

For more information, please see this article by the Wall Street Journal (you may need to be a subscriber to read all of the article).

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.