Thursday, April 22, 2010

Grain Market Update

Over the past few weeks, new crop corn and soybean prices have shown some gains. December 2010 corn is trading in the $3.75 to $3.95 per bushel range and November 2010 soybeans are trading in the $9.20 to $9.60 per bushel range. Price movements have been a function of outside price pressure stemming from both the financial industry and energy market. Now that we are entering the growing season, market prices will begin to be a function of crop size.
Producers throughout the corn belt are making significant strides in planting this year’s corn crop. From the United States Department of Agriculture (USDA) Prospective Plantings report, corn producer’s plan on an additional 3% more acreage over last year. The National Agricultural Statistics Service (NASS) reports through the week of April 18th that 19 % of the corn crop has been planted. This is significantly higher than the previous week where only 3% of the corn crop had been planted. When compared to a year ago, only 5% had been planted. Producers are well ahead on corn planting and look to continue to make significant strides over the next few weeks.
The USDA will release their supply and use estimates for 2009/2010 on May 11th. This report will include the first projections of supply and use for the 2010/2011. For the current crop year, 2009/2010 corn ending stocks were increased 100 million bushels from March to April. This increase was driven by a 100 million bushel decrease in feed and residual. Corn ending stocks continue to slowly increase and are projected at 226 million bushels over 2008/2009 crop year.
On the soybean side, plantings have not yet started. The USDA planting intentions report indicates less than 1% more acreage than last year. Soybean supply and use estimates for 2009/2010 were not changed between the March and April report. Ending stocks are about 75% of their ten year average and have been increasing since 2008. However, foreign ending stocks were increased by a little over 4% from the March report.
For wheat, crop condition is rated at 69% good to excellent. This is well above last year at this time where 43% was rated at good to excellent. Fundamentally, wheat is very bearish due to the very large carry over ( around 950 million bushels, up 46% from last year) . This can be seen in the level of the carry offered in the CMEGroup wheat contract. A storage hedge from the July contract to the December would return $0.44 per bushel. Going from July to March of 2011 would return $0.71 per bushel. To determine net cost, one would take the benefit less interest on money, shrinkage, in-out costs, and any other costs associated with storage.
As we move through the planting season and into the growing season, expect prices to continue to be influenced by growing conditions and economic events. Price volatility makes it difficult to determine when one should be making sales. I recommend a pricing plan that includes, but is not limited to, knowing what your break-even price is, making harvest sales in small percentages when prices rise above the break-even, monitoring basis to take advantage of favorable moves, and leaving around 30% of expected production to be priced during the primary growing season, around July. (Cory Walters, email:

Wednesday, April 7, 2010

ACRE Program Could Pay Big for Kentucky Wheat Farmers in 2009

Contact: Cory Walters, 859-257-2996
Greg Halich, 859-257-8841

LEXINGTON , Ky., (April 7, 2010) – Kentucky wheat growers who signed up for the U. S. Department of Agriculture’s optional Average Crop Revenue Election Program , or ACRE, will likely see big payments this year, said Cory Walters and Greg Halich, agricultural economists in the University of Kentucky College of Agriculture.
“In Kentucky, a perfect storm hit the 2009 wheat crop,” Walters said. “State yields were below average, and the national average marketing price is significantly below the commodity guarantee. For both corn and soybeans, Kentucky yields were well above average and marketing year prices were not far from their respective program guarantees. Therefore, right now it looks like no payments for corn or soybeans will be made.”
The economists were able to estimate ACRE payments for this year by using USDA estimates of the state yield and marketing year average prices. Projected Kentucky ACRE payments are $95 per acre for wheat. These projected payments are estimates, and final payments will likely change based on final marketing year prices once the marketing year ends on Aug. 31.
ACRE is a risk protection program added under the 2008 Farm Bill. Unlike the traditional farm support programs that offer direct payments, counter-cyclical payments and marketing assistance loans if a price of a particular crop falls below a certain level, ACRE pays if crop revenue falls below a revenue guarantee. Revenue includes price and yields.
ACRE payments are determined by taking the state revenue guarantee and subtracting the product of state average yield and the national average marketing price. When this value is positive, a potential payment is available, but that doesn’t necessarily guarantee payment for every producer in the state. Individual growers must show that their 2009 farm revenue, which is their actual yield multiplied by the national average price, was less than their farm revenue benchmark, which is calculated by their yields from the past five years, minus highest and lowest yielding years, multiplied by the previous two years’ national average marketing prices plus crop insurance premium. Crop insurance payments do not count against ACRE.
Producers eligible for ACRE include those who grow corn, soybeans, wheat, sorghum, barley, rice, upland cotton, oats, peanuts, pulse crops and other oilseeds. Those who enroll in ACRE forgo any counter-cyclical program payments, forfeit 20 percent of direct payments and have loan rates reduced by 30 percent.
“On average, the 20 percent reduction in direct payments costs Kentucky producers $5 per base acre for corn, $2 per base acre for soybeans and $4 per base acre for wheat,” Halich said. “Also, producers using Commodity Credit Corporation loans will have to put up more bushels to get the same amount of money under ACRE, since loan rates are reduced by 30 percent.”
Since it is based on revenue, price protection with ACRE currently is significantly higher than that found in the counter-cyclical program. ACRE payments for 2009 would be triggered if corn falls below $3.72 a bushel, soybeans drop below $9.04 a bushel, and wheat falls below $5.97 a bushel by the end of the marketing year. In the counter-cyclical program, payments would occur if prices fall below $2.35 a bushel for corn, $5.36 for soybeans and $3.40 for wheat.
The implied ACRE floor price can only go up or down by 10 percent each year. So it would take five consecutive years of significantly reduced revenue, with each year worse than the previous year, for the ACRE price floor to reach the counter-cyclical level for corn, soybeans and wheat.
“Thus, the price protections for ACRE are clearly better then the counter-cyclical program, even in the worst-case scenario, for the next five years,” Halich said.
The deadline to enroll into the ACRE program for the 2010-2011 crop year is June 1. To help producers understand and decide if they should sign up for the ACRE program, Halich and Walters will conduct workshops in late April and May at various locations across the state. In addition to describing ACRE, they will also show how the program works in conjunction with crop insurance. For more information on ACRE or the upcoming workshops, contact the local office of the UK Cooperative Extension Service.

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Editor: Katie Pratt, 859-257-8774
UK College of Agriculture, through its land-grant mission, reaches across the commonwealth with teaching, research and extension to enhance the lives of Kentuckians.