The planting percentages the USDA put out are good, but I like to think of planting in terms of how many days or in some cases weeks are we already behind. Here are some of the specifics: IN, MN & OH all thought to be about a week and a half behind already; IA, KY & MN about 1-week behind; IL less than a day behind. Traditionally one could argue the corn planting pace could jump by 15-20% next week, but the recent rounds of heavy rainfall and cool temps makes this next to impossible. In fact I am now thinking a 5-10% increase could be overly optimistic. It will certainly be interesting to see how it all plays out and how much re-planting will need to be done. There is also talk circulating that because of the Preventive Plant “1-in-4” rule more acres than we think may have been planted to wheat to satisfy this rule. I have been in the camp, similar to many well respected sources that corn acres are definitely going higher. Rather than the 91.7 million the USDA is currently estimating I have been thinking it would end up closer to 93.0 or perhaps even 93.5 million acres. Now all of a sudden, because of the more extreme weather forecasts I have to stop and pause.
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I wanted to share some analysis about the increasing concerns over delays in corn plantings and what that possibly may indicate for average yields. To be clear, this analysis is from Darrel Good, respected crop analysts from the University of Illinois. The research can be viewed in full detail at the farmdocDAILY website or by clicking the following link “Concerns about Corn Planting Progress“. I encourage you to read in full detail as it contains some good research. From what I have gathered Good is concerned that delays in corn planting could eventually result in some reduction in corn acreage (especially in parts of the northern belt) in favor of soybeans or other oilseeds that don’t have to be planted as early. Good says that we may get some indication of the potential for acreage changes if planting delays continue by looking at previous years of late planting. That, however, isn’t so easy as historical acreage response to late planting may have been influenced by the nature of crop insurance programs and federal farm programs in place at the time. The magnitude of late planting is generally defined as the percent of the crop planted after a certain date as revealed in the USDA’s weekly Crop Progress report for the 18 major crop producing states, generally now believed to be May 20th. I don’t want to get deep into the numbers, but in general, Good points out that acreage changes to soybeans in response to late corn planting since 1996 has been smaller than anticipated, with meaningful differences in only two years. Good and his team also looked at the average US corn yield relative to trend yield in years of late plantings and found that they varied considerably and there is no real direct or meanigful correlation. Overall, their numbers tended to support the notion that summer weather, NOT timeliness of planting is the major determinant of the US average corn yield. I would concur. As for current conditions, Good seemed to be a bit hesitant to make any predictions considering we still have over three weeks until corn planting is considered late by his definition. He did, however, point to a cool, rainy weather pattern for much of the northern Plains and Corn Belt over the next 10-days and expects that will further slow corn plantings. Of course, it’s very early in the season to trust or even hope for accurate pricing predictions. Plus, you have to remember summer weather and a potential El Nino are a couple of the biggest “Wild Card’s” in the deck right now, meaning anything is still possible…Stay belted in!
Comparing The Tours: Last year the day-2 average yield on the Kansas wheat tour was 37.1 bushels per acre. It was 43.7 bushels per acre on day-2 in 2012. It will also be interesting to see what this years Oklahoma crop tour numbers look like. Last year at this juncture Oklahoma was projecting they would harvest just 85.583 million bushels, or 25.45 bushels per acre. Keep in mind they ended up harvesting 105.4 million.
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From the archives…we ran this in November 2013.
For those looking for another “on-farm” revenue stream or a business for the kids this might be your answer. A lot of readers might have already taken part in this growing trend without even knowing it. It might have been out of necessity, or out of a desire to simply be close to home. It might have been in your own back yard, or the pasture of a relative or neighbor. I’m talking about ‘on-farm weddings’, a fad among young couples right now who are wanting a rustic backdrop for their special day, and farmers across the country are embracing the new business model. One dairy farm in Central California was actually featured in Kelly Clarkson’s video for her song ‘Tie It Up’. Tony Azevedo, owner of the Double T where the video was filmed, would argue that the ‘I Moo’ trend is not exactly new. He’s been hosting weddings on his dairy farm for more than 20 years now. “Weddings,” he said, “literally saved the farm.” During the 1980’s, there was a big consolidation in dairy operations with developers buying up farms all through Central and Southern California. Azevedo had to make a decision whether he was going to “milk every cow in the county” or maintain the small family operation that his father started 60 years before. Dairy has not been an easy business in California for many years now. Since 2008, 19% have gone under. Drought and high feed prices have nearly made the business a losing proposition for the small farm. But Azevedo was determined to live up to the promise he’d made to his father – to die on the farm. Him and his wife have a passion for antiques, and at the time already had an antique buggy museum on their 300 acres, along with a vintage train and a full-sized replica of a Western town. Out of that, the idea to host weddings came to them. The income from that bought them the time to go organic and stay small. “I lucked out. I never thought I’d see the day when people would pay more for milk from cows at pasture or that people would want country instead of country club for their wedding.” Other farms around him have picked up on the trend and started hosting events as well. While Azevedo definitely depends on the money from his wedding business, he’s happy for the competition because he already has more weddings than dates available.
*Below are a couple of pics from Erin Stidham’s recent wedding. I am certain many of you have met or talked with Erin in the past, as she is part of our Farm Direction team. Bet you can’t guess who married them? It was Chase Orstad, one of our top farm advisors. Just doing our part to support the “farms”.
There was a great article that was sent to my e-mail the other day written by Haley Peterson, titled “4 Ways American Grocery Shopping Is Changing Forever”. The article explains how the one-stop giant super sized box store shopping that took the nation by storm back in the early 1990’s is on it’s way out. Where in the past few decades a single store was serving all of shoppers’ food and beverage needs, consumers are now buying groceries across more than a dozen retail channels. The research firm Packaged Facts wrote in its most recent annual report on emerging grocery trends that they are seeing substantially more consumer buying spread out among ALL retail channels, including drugstores, dollar stores, limited assortment chains, and — the elephant in the room — e-commerce. The moral of the story is that consumers are shopping for food and beverages across multiple channels. On average, consumers now shop at a multitude of stores to fulfill their grocery needs. The reports also show that consumers are NOT hitting multiple stores because they can’t find everything they need in one place, but because shoppers are looking for a precise mix of value, quality, and private label brands. Another trend being reported is that shoppers want more product curation. Rather than walking into a store of 40,000 items and only wanting to buy 30, creating mass confusion and a terribly time consuming customer experience, consumers are demanding LESS. In return grocery giants are now scaling back stores and getting more focused on specific customer needs. The pendulum is definitely swinging back to smaller store formats. Cost and overall expense will always be a factor, but not the ONLY factor. Consumers are now very interested in fresh produce, and this is becoming a main driver for consumers in deciding where to shop. In fact 75% of consumers now say that the produce department is the most important, followed by fresh meat, poultry, and seafood (60%). I should note that the German grocery chain “Aldi” continues to win the low-cost provider battle as they are cheaper than even Wal-Mart. Cheapism, a product review site, purchased 37 items from each of the three chains’ locations in the Columbus, Ohio area to compare prices. Aldi’s basket total came to $72.30, compared to Wal-Mart’s $85.88 basket and Kroger’s $93.73 basket. With savings available from the Kroger Plus Card, however, Kroger’s basket total dropped to $86.78. Aldi keeps its prices low by offering a lean selection of items that’s heavy on house brands. The chain carries just 5% of the inventory found in traditional grocery stores. Don’t forget the store also requires customers to bring their own shopping bags, bag their own groceries, and pay a 25-cent deposit to use carts. The deposit is refunded when customers return the carts, so Aldi doesn’t have to pay employees to round them up. Bottom-line, consumer shopping is moving away from the big warehouse box stores, so you need to make sure you are adjusting your investment portfolios accordingly. Kroger’s (NYSE:KR) might be one to look at. They are the largest US supermarket chain and continue to post impressive returns. They do a good job staying on top of consumer trends and have been developing smaller store formats as well as continually trying to reduce check-out times. They are also expanding their organic presence, but at a comparatively lower price than Whole Foods. Another intriguing company in this sector is the fresh/organic chain Sprouts Farmers Markets (Nasdaq: SFM), which has seen tremendous growth (EPS of 140% last year) not just sales wise, but in customer traffic too. They have a wide-array of private label items too, which goes a long way to boosting their margins. And no matter your personal feelings about the organic trend, it is a $32 billion industry that is expected to grow 10% or more this year.
Soybean bulls continue to try and fight the good fight but I’m afraid they might be temporarily running low on ammunition as the bearish troops continue to come over the hill. The bulls are trying to revive the trade on rumors of yet another Argentine strike; data showing better than expected US soymeal sales; and extremely tight supplies. On the flip side, the bears realize as each day passes and we take one step closer to more SAM imports and US new-crop supplies, the current balance sheet becomes more solvable; The bears also realize, even though the Chinese situation may temporarily be improving as “cancelations” have somewhat eased a bit of “drowning in beans” headline, there is no contesting that the worlds #1 buyer has in fact become a seller on the heels of faltering demand. There is also some talk the lack of demand in China has pushed more Asian soymeal into the global marketplace and may in fact now be undercutting South American suppliers. Also from my perspective the South American crop looks to be getting bigger and NOT smaller (Brazil’s crop could be 5% or more larger than last year and the Argentine crop 10% or more larger than last year). As a producer I continue to hold out hope for new-crop prices to make a run back above $12.50, but I am thinking we are still several weeks away…in fact it might be the bears turn to come up to bat for a while???
The Australian Bureau of Meteorology is saying six of seven weather models are showing Pacific ocean sea surface temps could exceed El Niño thresholds within the next 90-days. If history is any indication, an El Niño weather phenomena can trigger extreme weather patterns around the world, particularly droughts in South East Asia and Australia along with potential heavy flooding in parts of South America. Interesting to see commodity giant SocGen releasing research that shows nickel has been the best performer in past El Niño conditions, with zinc, coffee, cocoa, cotton and soybeans ALL displaying large price spikes during these periods. Bottom-line, the funds might try to make timing allocation adjustments into commodities that are most sensitive to El Niño weather patterns. Several sources suspect commodities coming out of Australia and Southeast Asia would be their first play, with commodities being affected by flood damage in South America not really becoming a major play until late 2014 or perhaps even early 2015. Keep in mind most El Niño’s don’t reach their full-strength until the Dec-Feb time period. Also keep in mind most El Niño summers here in the Midwest tend to be slightly cooler than normal with above average precipitation. In other words, here in the US it’s the La Niña years that present the most difficult growing conditions, whereas El Niño years have produced some of the best crops. South American production is an entirely different story and can be extremely hampered during El Niño weather patterns as can production in parts of Asia, Australia and India.
Since I am a “visual” type guy, I had the office put together an info graphic of the USDA’s planting pace. This is as of this past Sunday but I will be updating it each of the next several weeks so we can more easily see what is taking place. As you can see there are many states in the “red” or behind the average 5-year planting pace, but if you look at the specifics of each state I am thinking we start to more rapidly close the gap. There is already talk floating around that both Iowa and Illinois have made HUGE strides this week, and I still think we could get close to 45% planted by May 4th.
Producers across the country are well aware of the bottlenecks plaguing railways. They are delaying delivery of everything from grain to fertilizer to ethanol and are causing an uproar all the way to Washington. A majority of blame for this is falling on the lap of BNSF railroad, who itself is somewhat a victim of circumstance that led to some unforeseen consequences in which America’s oil “boom” is at the heart of. First, it’s important to understand exactly what is meant by “boom”. The industry really did explode – production between early 2010 and 2013, in just three years, increased by 40% from 5.47 million barrels per day to 7.44 million. That production increase has all occurred in the country’s midsection, most notably North Dakota’s Bakken Shale play and the Eagle Ford Shale in Texas. Keep in mind, before 2010, less than half of US oil production came from this part of the country. The country’s oil infrastructure, however, is far from these new production plays. Most pipelines and refineries are strategically located near the long-established fields in Oklahoma, Louisiana and Texas as well as population centers on both coasts. As production ramped up in the newer fields, stockpiles at US storage facilities increased by 10%. The majority of this glut ended up in Cushing, OK, the meeting point for central US oil pipelines and where the price for West Texas Intermediate (WTI) crude is set. This led to the first significant spread between WTI and Brent in 2011, and to this day, WTI trades at an average $15 per barrel discount. This has obviously created price arbitrage opportunities, but crude prices can vary greatly between different parts of the country. That is one of the reasons rail has been such a popular mode of transportation. If crude is going for a substantial premium on the East Coast, that’s where shippers are going to send it. That sort of flexibility is not something they would have with a pipeline. Not that there aren’t any pipeline plans in the works, there just isn’t a great sense of urgency to get them built. Several, like the Keystone XL pipeline, face indefinite bureaucratic delays, while others have been abandoned over profitability concerns. Consequently, rail cars continue to stack up in North Dakota and the whole rail system, particularly eastward through Chicago, is continuously logjammed. Over the last year, safety concerns over oil-by-rail transport have come into the spotlight, which could have some major implications. In early 2014, new safety standards were issued for oil cars and even more are expected by the end of 2014. This may result in more of the older cars being taken out of commission altogether, or at least temporarily out of service as they are retrofitted to meet new standards. While that could temporarily ease rail traffic, it would also likely result in a rise in gas prices. Other rule changes the industry is waiting on are those that restrict ocean shipments. US crude exports have been banned since the 1970’s, and details of that restriction prevent US refiners from easily transporting oil via ship. While everyone recognizes this is a real problem, and the added transportation capacity is needed, no one is expecting to see any changes within the next year. (Sources: Kansas City Fed, US Energy Information Administration)
With our domestic crush still running strong and exports higher than most expected the bears keep talking about simply raising “imports”… From my perspective that’s all great in “theory” and works really well on paper but what about in the real world. Keep in mind a lot needs to happen if South American beans are to eventually end up in northern Illinois, Iowa the Dakota’s, Minnesota, etc… Has everyone forgotten that we are in a major transition here in the US and transportation simply doesn’t happen at the snap of your fingers anymore. Have we forgotten that ethanol plants are struggling to find railcars, that producers have been struggling to get anhydrous because of snafu’s in transportation. How about our neighbor to the north, Canada is sitting on a record wheat crop and would love to get it out of the country but because of logistical problems with transportation it’s simply not happening. All I am saying is we are NOT set up in this country for the flow of soybeans to come inland. We are the worlds most reliable “exporter” of soybeans! What will be the cost to move South American beans and meal to their needed locations here in the US? It’s not as if we simply have rail cars and trucks sitting around empty and waiting. Be careful here thinking soybean prices can’t go higher and that all we need to do is simply raise our “imports” on paper and that solves the problem. Remember, we are transitioning here in the US to be net energy exporters, in return this is causing many ripples and problems across the US in regard to the movement and transportation of products in numerous industries.