5-Year Price Projection Analysis Released

Corn and Soybean prices have been low during the last 3 marketing years compared to 2011-2013. The past 3 marketing years have had corn average $3.70, $3.61, $3.36 respectively. Gary Schnitkey and Todd Hubbs, U of Illinois Ag Economists reviewed the 5-year price projections for corn and soybeans as well as the past 5 years corn and soybeans price history in an article recently, link below. The corn price projections range from a low of $3.20 to a high of $3.96 over the next 5 years. Soybean prices are projected to range from a low of $9.07 to a high of $9.87. If these price ranges are accurate, cash rental rates are likely to decline somewhat. Budgeting, crop marketing plans and good tenant-land owner communications are imperative for the next few years.

http://www.prairiefarmer.com/marketing/5-year-outlook-think-350-corn-950-beans?NL=FP-004&Issue=FP-004_20171025_FP-004_721&sfvc4enews=42&cl=article_2_b&utm_rid=CPG02000002272178&utm_campaign=21836&utm_medium=email&elq2=35cfc47a74324f0997f79ed6ecc9efa8

 

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Crop Marketing Workshops Offered

Two grain marketing workshops will be offered at several sites across Southwest Nebraska starting in November to help grain producers minimize losses during this time of low prices.

A complimentary lunch is provided at each location. Workshops are funded by the Nebraska Corn Board and limited to 40 participants.

In the workshop Introduction to Futures and Options, Nebraska Extension educators will present strategies for using futures and options to protect farmers from adverse market movements.

In the workshop Developing Grain Marketing Plans, Nebraska Extension educators will discuss how to develop a written marketing plan and understanding basis and carrying charges, using location-and commodity-specific information.

Both workshops feature the Marketing in a New Era simulator and the Grain Marketing Plan smartphone application.

Register by visiting http://go.unl.edu/marketingworkshops or calling the contact for site.

Grain Marketing: Introduction to Futures and Options
 
Site Date Time Location Contact, Phone
McCook Nov. 6 10 a.m. – 3 p.m. Red Willow Cnty Fairgrounds
1400 West 5th St.
Robert Tigner, (308) 345-3390
Holdrege Nov. 21 10 a.m. – 3 p.m. Phelps Cnty Ext Office
1308 Second St.
Robert Tigner, (308) 345-3390

 

 

Grain Marketing: Developing Grain Marketing Plans

Site Date Time Location Contact, Phone
Imperial Nov. 9 10 a.m. – 3 p.m. Lied Library, 703 Broadway Robert Tigner (308) 345-3390
North Platte Nov. 20 10 a.m. – 3 p.m. West Central REC Robert Tigner (308) 345-3390
Hays Center Nov. 29 10 a.m. – 3 p.m. Hayes Cnty Fairgrounds Robert Tigner (308) 345-3390

 

USDA Farm Income Forecast

USDA’s Net Farm Income (NFI) forecast is an oft-cited number that many in the policy arena will use. It can be found in the media as well. The statistic is first reported in February with two more updates during the year. A final number is released in February the following year. USDA just released a NFI update. Let’s look at how good the estimates really are.

Three Illinois Ag Economists published an analysis of the accuracy of the USDA NFI estimate. The initial February estimate, 1975-2015, tends to under-estimate realized NFI by 8.7%. Just looking at the economist’s chart does not appear to give any indication why or under what conditions might cause USDA to under estimate NFI. The August revision is better at estimating net farm income, only 3.7% under-estimation. Simply counting the occurrence of under-estimation shows that 80% of the time USDA’s August estimate is below the final. USDA revises its NFI estimate in November but is off by 4.4%.

So what is the take away with this simple analysis? The February NFI estimate can off by a significant amount to the downside and has over-estimated NFI 9 of the last 40 years. The August estimate isn’t too far off since most of the growing season is past, planted acres are known and price information is better understood. There is still some production risk, but not much. So even though USDA is currently forecasting a rise in NFI, $11.2 billion or 12.6% year over year (YOY), there is a good probability it will go higher. On the negative side, USDA is projecting median and average farm income to be negative. If we go a little deeper into the USDA data, the negative income is most likely a result of residential farmers rather than farms as a principal occupation. Residential farms are projected to average -$634, Intermediate farms $6218 and Commercial farms $254,220. Definitions of the farm types are below. In 2017 it will take about 500 acres of irrigated corn, or 730 acres of soybeans, or about 1625 fat hogs or about 235 fed cattle to meet the $350,000 gross sales.

NFI

Source: Kuethe, Hubbs, Sanders, Farmdoc Daily, (7):156.

The definitions of the farm types are:

  • Residence farms: Farms with less than $350,000 in gross cash farm income and where the principal operator is either retired or has a primary occupation other than farming.
  • Intermediate farms: Farms with less than $350,000 in gross cash farm income and a principal operator whose primary occupation is farming.
  • Commercial farms: Farms with $350,000 or more gross cash farm income and nonfamily farms.

Sources:

Kuethe, T., T. Hubbs, and D. Sanders. “Interpreting USDA’s Net Farm Income Forecast.” farmdoc daily (7):156, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, August 25, 2017.

USDA. “Farm Household Income and Characteristics”, https://www.ers.usda.gov/data-products/farm-household-income-and-characteristics/farm-household-income-and-characteristics/#Farm%20Household%20Income%20Forecast, accessed 31 August, 2017.

 

What is Better Financially for College Grads, Rural or Urban Living

Two articles came across my desk last week that made me think about where college grads might choose to live and work. There are several factors that make up that decision and we will look at the financial one.The first article was from USDA discussing which location, rural or urban, workers are paid higher wages and the other from Cornell discusses farm worker living costs and wages. So where is it better financially for young people to work?

I bring up finances because some times people forget that aspect of the decision to take a job. One person I worked with learned that lesson the hard way. He had a job and owned a house in LaCrosse WI which is on the Mississippi River. He was offered and accepted a job in his same field in Chicago with a good pay raise. But he forgot to check into living costs in Chicago first. He quickly found out that housing costs quickly ate up all and more of his housing cost living in Chicago and that he could not afford the same size and kind of house in Chicago as LaCrosse. He wound up worse off moving to the big city. Grout and Ifft found something similar. Grout and Ifft looked at several of the 48 states comparing average farm worker wage to cost of living. Crop worker wages rose in nearly all of the states studied from $1-2 per hour from 2012 to 2016. In California, wages rose by about $2 per hour but was below the rural cost of living all of 2012-2016. Washington state had the opposite situation in place where average wage was as much as about $4 per hour above the rural living cost in 2012. In Florida and Texas living costs and wages for farm workers were nearly equal for the same time period. For these states, crop workers would be better off financially moving to Washington state. In the analysis, other states that paid more than cost of living included Idaho, Utah, Wisconsin and Michigan. But the Grout and Ifft analysis only looked at farm workers and not ag professionals.

The USDA analysis showed 2015 median earnings for those without a high school diploma rural or urban employees earn nearly the same amount. Urban high school diploma holders earned $2088 more than rural workers and urban bachelor’s degree holders earned $10,534 more than rural workers. Urban graduate degree holders earned $18,150 more than rural counterparts.

Depending on where one lives in an urban area they might be better or worse off financially than rural people. One web site, Sperlings Best Places (http://www.bestplaces.net/) allows one to compare cost of living and salaries from one city to another. Using median bachelor’s degree salaries from the USDA study, $41030, comparing McCook to Lincoln, NE a person would need to earn $2955 more in Lincoln for the same living costs. Doing the same for Denver is much worse. A salary would have to be $19,729 more to have the same living standards in Denver. The biggest difference in both cases is the cost of housing. Transportation, food and health care costs are a little higher in McCook than Denver but housing is almost 3X higher in Denver.

Of course there are certain advantages to living in more urban areas, restaurants, museums, concerts skiing, mountains, but McCook is only 5 hours away from all of that.And there are advantages to living in McCook, a lot less traffic, family, free concerts, easy access to hunting areas, better schools often as wells as less crime. Those offered a job in an urban area should fully consider the costs and benefits of that job. If the urban job is chosen, negotiate for a salary high enough that it pays for the higher costs of living in urban locations.

Sources:

Mare, Alexander, Urban Areas Offer higher Earnings for Workers With More Education, https://www.ers.usda.gov/amber-waves/2017/july/urban-areas-offer-higher-earnings-for-workers-with-more-education/ July 2017, accessed 7 August 2017.

Grout, T. and J. Ifft. “Higher Wages Don’t Always Mean a Higher Standard of Living: Rural Cost-of-Living and Farmworker Wages.” farmdoc daily (7):136, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, July 27, 2017.

Sperlings Best Places, Cost of Living, http://www.bestplaces.net/cost-of-living/, Accessed 7 Aug, 2017.

Seed Corn Costs for 2018

Oh boy, here we are finishing the 2017 corn pollination period and this blog post is going to discuss seed corn costs for 2018. What brings up this topic is that very soon, 3-4 months, corn producers will be making seed purchases and orders. Seed corn company field days will start next month. Will seed corn prices drop for 2018 seed corn? Probably not. Recent articles, and charts, from Gary Schnitkey, U of Illinois ag economist, sheds some light on what might happen.

Schnitkey charts seed corn costs calculated by both USDA and central Illinois farmers enrolled in the Farm Business Farm Management program. The USDA numbers are averages for a high productivity farm. While USDA numbers are for all farm productivity types. The two time-series data sets are 0.99 correlated meaning the two data sets closely follow one another.

As we know, seed corn prices have risen since 2006 at a steep rate, from 2006 to 2014 the increase has been 11.3% annually. Schnitkey (2017) An earlier article from Schnitkey (2015) shows annual cost increases for pesticides, 5.7% and fertilizer, 8.1%, for 2006-2014. Fertilizer costs can partially be explained by increased yields and the need for nitrogen to support those higher yields. Even though corn revenue has dropped, recent seed corn costs have been modest. From 2014 to 2016, USDA shows $3/acre seed corn cost decline while the U of Illinois data showed $2/acre drop. The 2015 Schnitkey article also charted per acre and percentage of revenue seed costs using USDA data. Seed corn costs/bushel for 2013 and 2014 were $0.58 and $0.52 respectively. Seed costs per bushel rose at a faster rate, percentage change, than did yields from 1995 to 2015. The trend for seed costs is upward as a percentage of revenue as well. In 1995 seed costs were about 10% of corn revenue and about 13.5% in 2014. The percentage revenue calculation is a little choppy due yearly variation of corn yields but the trend line is clear.

fdd180717_fig1

fdd180717_fig2

11172015_fig3

11172015_fig3

There are ways to reduce seed corn costs, but significant reductions aren’t likely without price reductions by seed corn companies. How likely is that? A couple of data points give some indication. First, world-wide harvested corn plantings increased about 90 million acres from 2006 to 2016. Schnitkeys’s analysis indicated that 95% of the seed corn price increase can be explained by that rise in corn planting. During that same period, seed corn has added many traits that have value to corn producers such as herbicide resistance, rootworm resistance and some drought tolerance. These two facts and the expected mergers of agricultural technologies companies from 6 to 4 won’t add downward pressure to seed corn prices If the new technologies come from the mergers, prices are more likely to increase since those new technologies have value to farmers. At this point it is probably reasonable to plan for flat seed corn costs in 2018.

Sources:

Schnitkey, G. “Seed Costs for Corn in 2017 and 2018.” farmdoc daily (7):129, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, July 18, 2017.

Schnitkey, G. “Corn Seed Costs from 1995 to 2014.” farmdoc daily (5):214, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, November 17, 2015.

Farm Lending Conditions Update

Last week two Kansas City Federal Reserve economists published an update to current, Q2 2017, agricultural lending conditions for commercial banks. Although they discuss current conditions many of the charts included in their article have year over year comparisons for several factors in agricultural lending. This blog post will review some of those factors.

First half 2017 All Non-Real Estate farm loans were 7% lower than same time 2016. But that same category began to decline in 2014. All farm debt made year over year loan increases have been dropping for about 2 years. This pattern has been true for both real estate and non-real estate loans but the non-real estate loans dropped at a steeper rate. Non-real estate loans have a negative year over year change the last few quarters meaning borrowers are likely working to reduce their debt load. (Chart 7)

 

slide7

However delinquency rates started to rise in 2015 back to over 2%. The last time delinquency rates were above 2% was 2013. Still delinquency rates are not at the 11-year high of 4%. The rise in delinquency rates also fits with the lower repayment rate across six Federal Reserve districts. So although farmers have reduced debt yer over year they are still struggling to stay current. (Chart 10) Chart 10 also shows higher demand for loans giving additional evidence that farm financial conditions are tight.

slide10

Source: Kauffman and Clark, Farm Lending Steady, Risks Remain, 14 July 2017, https://www.kansascityfed.org/research/indicatorsdata/agfinancedatabook/articles/2017/07-14-2017/ag-finance-dbk-07-14-2017

Federal Reserve Beige Book Comments

Periodically the Federal Reserve releases the Beige Book or more formally ‘Commentary on Current Economic Conditions by Federal Reserve District. This book summarizes the comments by Federal Reserve member banks relating to various economic sectors including Agriculture. These comments don’t provide any data but do help to understand trends or new conditions to follow.  You can read the book here: https://www.federalreserve.gov/monetarypolicy/beige-book-default.htm.

Let’s look at some of the comments about agriculture.

Chicago: “The outlook for crop income was unchanged through April and early May despite wet weather slowing planting in much of the District.” Chicago also reported some cold weather damage to some fields. Some dairy operations in Wisconsin had to find new milk buyers when Canada restricted ultra-filtered milk importations. Incomes for hog and cattle improved as prices rose.

 

St Louis: “Agriculture conditions deteriorated significantly due to flooding across the District”. Flooding across the region had hampered planting with cotton being farthest behind in planting progress.

 

Minneapolis: “District agricultural conditions remained weak since the previous report because of continued low commodity prices.” The district noted that planting was slowed by mid-May rains but that planting progress was on a par with the 5-year average.

 

Kansas City: “Persistently weak farm income continued to weigh on the District’s farm economy and agricultural credit conditions. Soybeans prices were lower than one year ago but soybeans remained profitable at current prices. Bankers in the western region of the district were expecting much lower farm income than those in the eastern part of the district. Wild fires devastated parts of the district and reduced cattle and wheat incomes.

 

Source: 31 May 2017 Beige Book, Federal Reserve System