FarmWeek November 15 2010 by Illinois Farm Bureau

HARVEST AND WINTER wheat planting have come to an end in most areas, and now a battle for crop acreage in 2011 will begin. .............................................4

FARMERS SHOULD use consumers’ interest in food to help them understand farming because some “illinformed” state initiatives threaten ag, according to a USDA official. .............5

PASSAGE OF FREE TRADE agreements with Korea, Colombia, and Panama should be Congress’ “first, second, and third priorities,” says a former U.S. ag negotiator. ...7

Monday, November 15, 2010

Two sections Volume 38, No. 46

E15 lawsuit aimed at reining in corn prices? BY MARTIN ROSS FarmWeek

Periodicals: Time Valued

A number of national livestock groups have joined in a “farm and food” lawsuit to block E15’s entry into the domestic fuel market. In a suit filed with the U.S. Court of Appeals for the District of Columbia Circuit, groups including the Grocery Manufacturers Association, the American Meat Institute, and the National Pork Producers Council argue the U.S. Environmental Protection Agency (EPA) exceeded its legal authority in approving a Clean Air Act waiver allowing use of 15 percent ethanol fuel in cars built after model year 2006. The coalition asserts EPA may grant a “fuel additive” waiver only if it “will not cause or contribute to a failure of any emission control device or system.” Based on EPA’s limited waiver, groups argue E15 is “compatible only with certain, later-model automobile and other types of engines.” Tom Buis, CEO of the biofuels group Growth Energy, stated ethanol critics “are now turning to the legal process to slow progress on renewable fuels.” “Big food companies

gouged consumers while trying to shift the blame to America’s ethanol producers and farmers, so we’re not surprised by their actions,” Buis stated. Ethanol’s alleged impact in boosting corn prices has spurred resistance among some livestock groups. Frazer Frost, an ag business consulting firm, accompanied pork producers from across the U.S. in seeking Senate Ag Committee Chairman Blanche Lincoln’s (D-Ark.) support to “step away from E15, so there would be no additional pressure on corn usage,” Daniel Peregrin, Frazer Frost co-managing partner told FarmWeek. “It went on regardless ... It’s going to push prices,” Peregrin said. Mark Gold, managing partner with Chicago’s Top Third Ag Marketing, acknowledged “playing with the numbers in the blending” could have some impact on corn prices. However, as “a very strong proponent of ethanol,” he views biofuels as a net plus for producers and

the economy overall. Virginia Tech University economist David Kohl sympathizes with livestock operators, noting the current economic “imbalance” between grain and livestock sectors. At the same time, he questions the notion that slowing

ethanol progress alone would significantly rein in domestic feed prices, given the current market environment. Kohl noted “insatious” grain demand from Brazil, Russia, India, and China as well as the impact of a weak U.S. dollar on exports (see page 7).

“Granted, the ethanol industry’s eating up a lot of our corn supply,” he said. “But you do have the Asian demand. You also have the devaluation of the dollar. On its own, (curbing ethanol development) is not the total answer.”

BALING STALKS

Travis Winter of Glassford in Peoria County, who works for Ryan Smith, last week was baling cornstalks on an 18-acre field near Glassford. The stalk bales will be used to feed Smith’s 80 cows and 200 feeder cattle. (Photo by Ken Kashian)

Bankers: Estate tax saps growth capital “Community” bankers agree small business offers key opportunities to jumpstart the nation’s economic engine. Estate tax reform thus was a crucial bottom line issue for farm and rural lenders and financial advisers last week at the American Bankers Association’s (ABA) annual North American Agricultural Lenders Conference in Omaha, Neb. As Congress geared up for a post-election “lame duck” session, producers amplified concerns about the potential Jan. 1 return to a pre-2002 $1 million estate tax exemption. “Neither party wants that outcome,” ABA Executive Vice President Floyd Stoner told the U.S. and Canadian bankers. The estate tax was repealed temporarily last Dec. 31 at a $3.5 million exemption level,

under soon-to-expire 2001 Bush tax cuts. Expiration of tax measures also means an increase in Americans’ income tax withholding as of Jan. 12. Amid that added pressure, Stoner suggested the lame duck Congress may restore the estate tax at the 2009 exemption level while extending existing tax cuts for one or two years. ABA Chairman Stephen Wilson, an Ohio banker, views “the ability to pass from generation to generation the work you’ve done” as the driving force in the small business/small farm sector. Congress must set a high enough exemption “to allow capital to remain in the business,” Wilson told FarmWeek. “If you close down small businesses or farms because they can’t pass to the next gen-

FarmWeek on the web: FarmWeekNow.com

eration, you’ve done a great disservice to our economy,” he argued. “You need capital to create jobs and run a business. If you walk in at the change of every generation and remove that capital, you’re killing the ability for that business to grow and thrive.” From the small-town banker’s perspective, estate tax relief is crucial in helping “keep these balance sheets and these farmers in these communities,” said Kim Greenland, market president with Iowa’s Great Western Bank and vice chairman of ABA’s Agricultural and Rural Bankers Committee. Bob Childress, tax specialist with an ag accounting firm, has seen the undeniable impact of estate tax uncertainty on his largely livestock industry

clients, noting “there’s such a range in where we are today, where we were in 2009, and where we could be in 2011.” Moving from 2009’s $3.5 million exemption to $1 million would be particularly traumatic, Childress warned. “Somebody who owns land or heavy equipment is very likely going to hit See Estate Tax, page 3

Illinois Farm Bureau®on the web: www.ilfb.org

FarmWeek Page 2 Monday, November 15, 2010

LIVESTOCK

Quick Takes THANKSGIVING MEAL ONLY PENNIES MORE — Americans will pay an average of 56 cents more for a classic Thanksgiving meal for 10 compared to last year, according to the American Farm Bureau Federation’s 25th annual survey. This year’s average meal will cost $43.47 with increases in the average price for milk, miscellaneous ingredients, and pumpkin pie mix and pie shells causing most of the increase. Meanwhile, the big ticket item — a 16-pound turkey — actually is less expensive. The survey assesses prices for traditional Thanksgiving foods, including turkey, bread stuffing, cranberries, pumpkin pie, and all the trimmings. This year’s meal will be $1.14 cheaper compared to the $44.61 shoppers paid two years ago. Volunteer shoppers in 34 states representing all regions gathered information for the survey. TREES FOR TROOPS — Daniken Tree Farm in Pocahontas again this year is participating in the Trees for Troops charity founded by the National Christmas Tree Association. The farm this year is planning to donate 50 trees to military families and is working with the Lincoln Land Leathernecks detachment to raise funds to purchase more trees for the program. The goal is to raise $3,000, enough to purchase 150 trees. FedEx is planning to drop two empty trailers off at the farm on Friday, Dec. 3, and will pick up the loaded trailers on Dec. 6. Donations can be made to Lincoln Land Leathernecks, 406 Stephen Ave., Greenville, IL 62246. Further information is available by calling the tree farm at 618-410-9701. CHESAPEAKE DISMAY — The American Farm Bureau Federation (AFBF) has joined 29 ag and forestry organizations in submitting comments to the U.S. Environmental Protection Agency (EPA) on proposed water quality regulations for the Chesapeake Bay. Chesapeake regulations are seen by many as a template for future federal watershed controls. Group comments outlined concer ns with the agency’s draft nutrient total maximum daily load (TMDL) requirements for the bay, while calling attention to the contributions agriculture has made to water quality improvements in the Chesapeake Bay shed. EPA’s models do not account for many of the voluntary ag practices currently being employed in the watershed, the groups stated. “EPA is pushing to issue a top-down TMDL (regulation) that limits states’ opportunities to address water issues,” AFBF President Bob Stallman said. “EPA is seeking greater control over land-use decisions that should be made at the local level.”

(ISSN0197-6680) Vol. 38 No. 46 November 15, 2010 Dedicated to improving the profitability of farming, and a higher quality of life for Illinois farmers. FarmWeek is produced by the Illinois Farm Bureau. FarmWeek is published each week, except the Mondays following Thanksgiving and Christmas, by the Illinois Agricultural Association, 1701 Towanda Avenue, P.O. Box 2901, Bloomington, IL 61701. Illinois Agricultural Association assumes no responsibility for statements by advertisers or for products or services advertised in FarmWeek. FarmWeek is published by the Illinois Agricultural Association for farm operator members. $3 from the individual membership fee of each of those members go toward the production of FarmWeek.

Address subscription and advertising questions to FarmWeek, P.O. Box 2901, Bloomington, IL 61702-2901. Periodicals postage paid at Bloomington, Illinois, and at an additional mailing office. POSTMASTER: Send change of address notices on Form 3579 to FarmWeek, P.O. Box 2901, Bloomington, IL 61702-2901. Farm Bureau members should send change of addresses to their local county Farm Bureau. © 2010 Illinois Agricultural Association

Livestock groups ask USDA to reconsider GIPSA rule BY DANIEL GRANT FarmWeek

Leaders of the major livestock groups last week asked USDA to scrap its proposed industry regulations because of fears that increased litigation and economic losses may occur. USDA, in an effort to address concerns about a lack of competition among packers, in June proposed new regulations be added to the Packers and Stockyards Act of 1921. The new regulations — which would restrict packer-to-packer sales of livestock, make marketing contracts public, and lessen the burden of proof required to prevail in a Packers and Stockyards case — would be enforced by the Grain Inspection, Packers, and Stockyards Administration (GIPSA). Last week, members of the National Cattlemen’s Beef Association (NCBA), National Pork Producers Council (NPPC), National Turkey Federation, and the National Meat Association stated their opposition to the proposed regulations during a news event in Kansas City. The livestock groups last week released results of a study that predicted dire consequences for the livestock industry if the new GIPSA

rules go into effect. The latest study, conducted by Informa Economics, predicted the GIPSA rules could reduce the gross domestic product by $1.56 billion annually and eliminate nearly 23,000 jobs in the U.S. A previous study, released by the American Meat Institute and conducted by John Dunham and Associates, predicted the GIPSA rule could raise meat prices by 3.33 percent worldwide and subsequently lead to about a 2 percent reduction in meat consumption. “All signs point to detri-

Indiana cattle firm under investigation Eastern Livestock Co. of New Albany, Ind., is under investigation by the Grain Inspection, Packers, and Stockyards Administration. The company reportedly has unpaid bills that could reach $94 million. Producers in Indiana and surrounding states have reported getting checks from Eastern Livestock returned and marked “insufficient funds.”

mental outcomes for small producers, the very ones the rule is designed to help,” said Rob Murphy, senior vice president of Informa Economics. “We can expect the industry to shrink when you inject cost into the system.” The Informa study projected new direct and indirect costs could total nearly $1 billion for the cattle industry and more than $400 million annually for the pork industry. “The (GIPSA) rule will add costs and increase the threat of litigation,” said Doug Wolf, president-elect of NPPC. “And, with less competition in the market place, it will lead to more vertical integration.” Therefore, he said, “We’re calling on GIPSA to pull the rule and go back to the drawing board.” Specifics of the proposed GIPSA rule can be viewed online at {www.gipsa.usda.gov}. USDA extended the comment period to Nov. 22 and Ag Secretary Tom Vilsack recently indicated the agency will stick to the timeline. USDA previously turned down congressional and industry requests to conduct additional economic analysis of the proposed rules.

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GOVERNMENT

Direct payment assault ‘stepping backwards’? BY MARTIN ROSS FarmWeek

Barry Flinchbaugh has advised — and occasionally admonished — every U.S. president since Harry Truman. He has been involved in farm bill development and debate since 1968. Even so, the veteran economist is girding up for what he sees as “the toughest farm bill in 42 years.” Accordingly, Flinchbaugh is rolling out tough talk for the next Congress and tough realities for the ag sector. Last week, as Illinois Farm Bureau’s Resolutions Committee fine-tuned 2011 policy goals for December review by IFB farmer-delegates (see accompanying details), Flinchbaugh noted the ag policy debate begins amid a “weak, slowly recovering economy” and intense political gridlock. “The national’s capital is dysfunctional, and both parties are at fault,” he declared. Further, lawmakers are witnessing simultaneously huge deficits and a “thriving agricultural sector.” At the American Bankers Association North American Agricultural Lenders Conference, Flinchbaugh admitted, “I’d much rather debate a farm bill when agricultural is in the tank.” He predicted Congress will be inclined to “cut, cut, cut.”

Flinchbaugh stressed that “in agriculture, we know how to cut,” noting a $22 billion reduction in program spending since Barry 2000, but he Flinchbaugh acknowledged farmers face tough new choices. At the least, he said, “the safety net will have a hole in it,” and lawmakers must decide whether to target future protections at price, farm revenue, or producer cost margins. Flinchbaugh defends continued “fixed” direct payments as the best approach to bolstering income stability while moving away from purportedly more “trade-distorting” price supports. “The direct payment is really the only one that’s going to cut the mustard at the (World Trade Organization),” he told FarmWeek. “It’s really ironic: We invented it (direct payments), the Europeans have now adopted it after ridiculing us when we invented it, and now we’re stepping backwards.” The RC’s policy draft proposes to maintain direct payments at 2008 farm bill-established levels for existing program commodities. Flinchbaugh was critical of

HONORING VETERANS

FarmWeekNow.com You can listen to an interview with Barr y Flinchbaugh at FarmWeekNow.com.

the Iowa Farm Bureau Federation’s September proposal to eliminate direct payments, argued it “plays right into the hands of people who want to gut farm programs” and urged state groups to address program issues at the national level rather than unilaterally. He believes farm interests can wield power in the ag budget debate despite an influx of fiscally conservative freshman House lawmakers. Flinchbaugh reminded incoming House Speaker John Boehner (R-Ohio) that “a lot of these ‘Tea Party’ congressmen come out of the rural areas.” Flinchbaugh isn’t surprised by weak participation in the average crop revenue (ACRE) program, especially outside the Corn Belt. “It was designed to fail,” he charged, indicting lawmakers for requiring ACRE participants to sacrifice “a bird in the hand” — 20 percent of their direct payments. Flinchbaugh believes ACRE can be fixed by dropping the direct payment reduction and eliminating state-bystate revenue triggers in favor of “simplified” national cropby-crop target revenues. He is unsure about sustaining SURE — the 2008 farm bill’s supplemental revenue disaster assistance program designed to replace annual “ad hoc” aid. He maintains “you’re never

going to kill ad hoc, if the disaster is politically correct,” and sees little need for potentially overlapping SURE, ACRE, and ad hoc relief in a tight

budget environment. “Let’s come up with a revenue ‘insurance’ program that works nationwide and be done with it,” Flinchbaugh said.

The 2012 farm bill: RC recommendations Based on Illinois Farm Bureau Farm Policy Task Force recommendations, IFB’s Resolutions Committee (RC) proposes member support for “a WTO (World Trade Organization)-compliant farm bill that provides revenue protection for farmers.” Given current federal budget constraints and global trade policy pressures, the RC has asked IFB producer-delegates to consider, in “priority order,” support for: • Direct payments for current program commodities at the levels established in the 2008 farm bill. • Increased coverage levels for the average crop revenue election (ACRE) program. • An increase in crop insurance subsidy levels at existing coverage levels. The RC also supported extension of the supplemental revenue (SURE) standing disaster program, with permanent funding to replace legislative ad hoc disaster aid and “a more timely and responsive payment schedule.” Proposed policy favors extending the commodity loan program while raising loan rates above levels established in the 2008 farm bill for current program commodities. Loan repayments would be credited back to the Commodity Credit Corp. to maintain “budget neutrality,” the proposal states. In an additional effort to enhance ACRE’s potential benefits, the RC proposed offering individual farmers the opportunity to “buy up” additional revenue protection at their discretion. Further, the policy draft recommends payments or programs that compensate farmers for “activities deemed socially or environmentally beneficial.” In the wake of the National Milk Producers Federation’s promotion of a new Foundation for the Future cost margin protection/supply management plan, the RC supported delegate consideration of risk management tools that will protect dairy farmers from “catastrophic swings in feed and milk prices.” But dairy policy must not include dairy “quota-type” marketing concepts or state or regional dairy compacts, proposed policy states. And the RC favored allowing farms that have not been participating in farm programs and are not now eligible to receive program benefits to establish a base and enroll in future programs.

Veto session this week: ‘Everything’s alive again’ BY KAY SHIPMAN FarmWeek

To honor veterans on Veterans Day last week, the Illinois Soybean Association (ISA) raised the U.S., State of Illinois, and Prisoner of War/Missing in Action (POW/MIA) flags on newly installed flagpoles at its Bloomington headquarters. Republican Rep. Dan Brady of Bloomington, center, raises the Illinois flag with assistance from Matt Hughes, vice chairman of the ISA, left, and Doug Winter, ISA treasurer, holding the POW/MIA flag at right. (Photo by Cyndi Cook)

State legislators — and all the issues unresolved from the spring session — are returning to the state Capitol this week. The fall veto session is scheduled for Tuesday through Thursday and Nov. 30 through Dec. 2. “When the General Assembly comes back into town, all the issues left on the table during the spring legislative session resurface,” said Kevin Semlow, Illinois Farm Bureau director of state legislation. “Everything’s alive again.” Semlow noted state lawmakers will have 22 veto messages to address. Ironically, vetoes aren’t the focus of the veto session anymore, he added. “The General Assembly actually spends less time dealing with the veto messages than it does dealing with new issues” during a veto session, Semlow said. The new issues could range

from expansion of gaming to Gov. Pat Quinn’s call to increase the income tax to address some state budget needs. Lawmakers not only face myriad issues and veto mes-

sages, but they also face a limited number of days in which to complete their work. “The veto session will either go out like a lamb or a lion,” Semlow concluded.

Estate tax Continued from page 1 that threshold,” he said. Farm Bureau supports U.S. House-Senate proposals to boost the exemption to $5 million per person or $10 million per couple. Sen. Dianne Feinstein (D-Calif.) has proposed deferring family farm estate taxes, but only under strict eligibility requirements and the condition that the land stay in production and the decedent’s family. With “so much baggage tied to it,” Feinstein’s plan offers only “very narrow, specific applications” for farm families, Childress argued. “I think Congress will make some adjustment,” ABA ag and rural banking Senior Vice President John Blanchfield told FarmWeek. “However, the tax cuts may expire and then be revisited later in the (2011) session. It’s going to be a confusing period for the next three to six months, as we close out this Congress and a new Congress comes to town.” — Martin Ross

FarmWeek Page 4 Monday, November 15, 2010

PRODUCTION

Crop production cuts could support crop prices placed U.S. crop production at 12.54 billion bushels for corn, with an average yield of 154.3 bushels per acre, and 3.375 billion bushels for beans, with an average yield of 43.9 bushels per acre. All of the projections were down from last month. In Illinois, USDA lowered its yield estimate from 160 to 159 bushels per acre for corn and left the soy yield estimate unchanged at 52 bushels per acre. The bean yield, if realized, would be a new state record. “You have to look at the soy market to continue to push higher as we go into the end of the year,” Hoops said. “I look for $1 to $2 price appreciation.” The soybean market has gained support from exports, which last week were projected to reach a record-high 1.57 billion bushels. Meanwhile, USDA lowered its ending stocks estimates by 80 million bushels for soybeans and 75 million bushels for corn to current estimates of 185 million bushels and 827 million bushels, respectively. That level of ending corn stocks would be the

BY DANIEL GRANT FarmWeek

The USDA crop report released last week could light another fire in the crop markets. This time much of the action probably will occur in the soybean market as USDA cut bean production by 1 percent, lowered ending stocks by 80 million bushels, and raised export demand 50 million bushels. Last month the corn market raced to new highs for the year after USDA cut its U.S. production estimate by about half a billion bushels. “The report is very friendly,” said Brian Hoops of Midwest Market Solutions during a teleconference hosted by the Minneapolis Grain Exchange. “Soybeans should be the upside leader.” Hoops predicted soybean futures prices could test the $14-mark while the corn prices could surpass $6 per bushel. USDA last week also trimmed its estimate for corn production nationwide by 1 percent. That adjustment was expected by traders, according to Hoops. The current projections

lowest since 1995/96. “Any time (corn ending stocks) are under 900 million bushels, the trade recognizes there are tight pipeline supplies,” Hoops said. The corn market may not have as much upside potential as beans, though, as USDA trimmed its corn export projections by 50 million bushels and its feed and residual use estimate by 100 million bushels. “Corn supplies are far tighter than originally thought. The domestic corn ending stocks-to-use ratio decreased to the second-smallest on record at 6.2” percent of projected usage, said Darin Newsom, Telvent DTN senior analyst. “However, overall demand is starting to slow due to the price rally.” Higher corn prices last week were not expected to dampen demand for ethanol production, according to Hoops. “As long as crude oil prices move higher, the margins will still be there (for ethanol production),” Hoops said. “If corn moves above $6, then oil will have to go to $90 to $92

(per barrel) to keep ethanol demand strong.” USDA last week increased

its estimate of corn used for ethanol production by 100 million bushels.

Analysts expect battle for acres Fundamentals and speculative funds have been key drivers in the recent bull-run in crop prices. But now that harvest and winter wheat planting have come to an end in most areas, another force could keep pressure on crop prices in coming months — a battle for 2011 acreage. Supply and demand estimates suggest U.S. farmers in 2011 should increase plantings of corn and soybeans, according to Brian Hoops, market analyst with Midwest Market Solutions. USDA last week cut its ending stocks estimates by 75 million bushels for corn, 80 million bushels for soybeans, and 5 million bushels for wheat. But after many farmers this fall increased wheat seedings or at least planted their normal acres, a looming question remains: Where will farmers get the additional corn and soybean acres? Darrel Good, University of Illinois Extension ag economist, recently suggested U.S. farmers next year may need to increase corn and soybean plantings by 4 million to 5 million acres. “High crop prices suggest there will be competition for acres in 2011,” Good said. Weather the next few months could play a role in any acreage shift. “If it remains dry, we’ll be looking at a deteriorating (wheat) crop,” Hoops said. “By the time it gets out of dormancy, farmers most likely will tear it (a bad wheat stand) up and plant corn and soybeans. “That means wheat prices have to rally ... to give farmers incentive not to tear up the wheat crop.” The condition of the U.S. winter wheat crop as of last week was rated 45 percent good to excellent, 38 percent fair, and 17 percent poor or very poor. Meanwhile, if weather conditions in South America are conducive to a large soybean crop in coming months, it could reduce the need for bean acres in the U.S. In Illinois, economics prior to last week’s USDA crop report favored corn over beans in 2011, according to an online report at {www.farmdoc.illinois.edu}. The corn-minus-soybean-return projection for next year was $157 per acre in Northern Illinois, $132 per acre on high productive farmland in Central Illinois, and $97 per acre in Southern Illinois. — Daniel Grant

Ryan Smith of rural Glasford in Peoria County last week looked over the winter wheat crop in this 70-acre field near his home. He described the condition of his wheat crop as good. Statewide, the condition of the winter wheat crop as of last week was rated 38 percent good to excellent, 53 percent fair, and 9 percent poor or very poor. Ninety-nine percent of the wheat crop was planted as of Nov. 7 and 93 percent had emerged statewide compared to just 59 percent planted and 35 percent emerged at the same time last year. (Photo by Ken Kashian)

FarmWeek Page 5 Monday, November 15, 2010

RURAL DEVELOPMENT

Merrigan: Use consumer interest to help them understand ag BY KAY SHIPMAN FarmWeek

Farmers should use consumers’ interest in their food to help them understand crop and livestock production because some “ill-informed” state initiatives are threatening agriculture, cautioned U.S. Deputy Agriculture Secretary Kathleen Merrigan. “There are so many misconceptions about American agriculture that we really need

to take this moment in time when people are interested in, excited, and want to know where their food comes from ... and turn it into an opportunity to have a robust discussion that leads to a bettereducated consumer,” Merrigan told FarmWeek following her keynote address last week at a Chicago Federal Reserve Bank conference. That lack of understanding has serious consequences,

Rural development helps communities and farmers Agriculture supports the Midwest’s rural economy, but it can do more to strengthen rural communities and help farmers, too. Last week, several government officials, economists, and others discussed rural development issues at a Federal Reserve Bank of Chicago conference. Below are some conference highlights: “We need to think of new ways for agriculture and rural economic development to work together to reverse (economic) changes,” said David Oppendahl, a business economist in the Federal Reserve Bank of Chicago’s economic research department. Oppendahl noted direct sales of fruits and vegetables constitute a fast-growing economic sector on the East and West coasts and could be a stronger market sector in the Midwest. Farmers also need strong rural communities to provide them with off-farm job opportunities, said Kathleen Merrigan, USDA deputy agriculture secretary. On average, farmers earn only 11 percent of their income from farming, Merrigan said. Farmers need a strong rural economy because rural towns that lack health care, good schools, and other services aren’t places in which farmers can earn offfarm income, she added. *** When it comes to rural economic development, forget business fads and quick-fix ideas, according to Mark Partridge, a rural-urban policy professor at Ohio State University. Partridge’s ingredients for bad economic policy include: • Relying on gut hunches rather than thinking through what economic strategies really work; • Focusing on the quick fix instead of realizing a minimum of five years is more realistic for economic improvement; and • Developing policy based on the latest business fad or the next hot industry. “Try to create a foundation so the next hot industry will come to you (and your town),” Partridge advised. He speculated rural communities are under-utilizing the entrepreneurial talents of local farmers. “Inside your community is the talent that needs to be encouraged,” the economist said. — Kay Shipman

‘Somewhere, we need to bring people together and have a rational discussion about what the future needs to look like.’ — Kathleen Merrigan U.S. deputy agriculture secretary

especially for livestock farmers. “I have been very concerned about some of the referendum initiatives across the country on humane care,” Merrigan said. “I have, over the course of my career, been an advocate on moving forward on some humane care issues,” she continued. “And yet I’m one of the strongest spokespersons right now to say, ‘Some of this that’s going on is ill-informed and is going to wipe out livestock agriculture as we know it.’ “Somewhere, we need to bring people together and have a rational discussion

about what the future needs to look like,” she said. In her address, Merrigan highlighted USDA’s efforts with the “Know Your Farmer, Know Your Food” initiative, a program that the former food policy professor has championed. Agricultural production for local markets is one of the fastest growing agricultural sectors, she noted. But farmers shouldn’t squander this teachable moment debating organic vs. conventional practices, Merrigan cautioned. “I need people (consumers) to understand how much fertilizer costs these days.”

A basic understanding of farming is something Merrigan said she promotes to college students. Merrigan, who had directed Tufts University’s school of nutrition and policy, said she asks students if they know what a combine costs or what a farm’s assets are. USDA officials believe “Know Your Farmer, Know Your Food” can be part of the consumer-farmer conservations, but farm leaders must help lead the discussion, Merrigan explained. Farmers “need to reach out to consumers, and to the extent (that) USDA can help them, we will do so,” she concluded.

Pointing the Way to Soybean Premium Programs Like a map leading to buried treasure, SoybeanPremiums.org leads farmers to potentially more revenue! Developed by the Illinois Soybean Association, the regularly updated site lists first purchasers, locations and details for soybean premium programs such as non-GMO contracts and food grade soybeans. Just click on “Find a Premium Program” to see what opportunities are available in your area.

Visit SoybeanPremiums.org.

Ag focus of GROWMARK essay contest The theme for the 2011 GROWMARK Essay Contest is: “The Importance of Agriculture in Everyday Life.” The contest is open to all high school FFA members in Illinois, Iowa, and Wisconsin. All essays must by postmarked by March 12, 2011. This marks the 18th year for the program, sponsored by the GROWMARK System and FS member cooperatives, in conjunction with state FFA leaders. FFA members are to focus on four questions: What basic needs does modern agriculture provide for us every day? How do scientific farming methods and machinery provide agricul-

tural products for everyone? How do agriculture cooperatives support their local communities? Why is agriculture the world’s largest and most important industry? Essays should be about 500 words in length, typed, and double-spaced. Information is posted online at {www.growmark.com}. Click on the “Our Commitments/Youth & Young Farmers/Essay Contest.” Each state winner will receive a $500 scholarship, and the winner’s FFA chapter will receive a $300 award. Four state runners-up each will receive a $125 scholarship.

Funded by the soybean checkoff.

FarmWeek Page 6 Monday, November 15, 2010

RURAL DEVELOPMENT

Locally grown offers Midwest opportunities, tradeoffs Few acres needed to meet market demand â&#x20AC;&#x201D; study BY KAY SHIPMAN FarmWeek

If Midwestern residents ate only Midwest-grown fruits and vegetables, produce production would require only a couple hundred thousand acres but would involve more farmers and related workers, according to an Iowa State University economist. â&#x20AC;&#x153;We (Midwestern consumers) donâ&#x20AC;&#x2122;t need a lot of land to produce what we eat,â&#x20AC;? said Dave Swenson. Swenson spoke at the Intersection of Midwest Agriculture and Rural Development Conference, sponsored last week by the Federal Reserve Bank of Chicago. Swenson studied the potential impact of local fruit and vegetable production for Iowa, Illinois, Indiana, Min-

nesota, Michigan, and Wisconsin. His study examined two scenarios and involved only 28 fresh fruits and vegetables that could be grown in the Midwest. Under one scenario, Dave Swenson farmers would grow enough to feed their own state. In the other, they would meet the fruit and vegetable demand for major metropolitan markets within 150 miles. Under the state-only-preference scenario, only 270,000 acres in the six states would be needed for total production. He estimated Illinois would need only 69,387 acres to produce enough fruits and vegetables for its residentsâ&#x20AC;&#x2122;

needs. As a means of comparison, Putnam County, Illinoisâ&#x20AC;&#x2122; smallest county geographically, has 62,705 acres of farmland. The land equivalent of â&#x20AC;&#x153;one county in Iowa would produce all the (28) fruits and vegetables for all six states,â&#x20AC;? Swenson said. For the six states, that fruit and vegetable production would require 9,300 farmers and related workers. Those jobs would offset 2,578 farmers and related workers currently involved in corn and soybean production. If half of the Midwest-produced fruits and vegetables were sold directly at the retail market, the six states would need 1,400 markets and 9,652 workers, according to Swensonâ&#x20AC;&#x2122;s study. Under Swensonâ&#x20AC;&#x2122;s second scenario of market density, fewer acres,

195,669, would be needed in the sixstate area for fruit and vegetable production. That would result in 6,694 farmers and related jobs and would offset 1,900 farmers and related workers in corn and soybean production. Swensonâ&#x20AC;&#x2122;s market-demand scenario considers metropolitan areas with 250,000 or more people as the demand centers. Although interest in local food production is high, several factors have influenced the Midwestâ&#x20AC;&#x2122;s current primarily corn-soybean farming culture, the economist cautioned. Government farm policy and grain and export markets have shaped corn and soybean production into the preferred production system, he said. â&#x20AC;&#x153;Itâ&#x20AC;&#x2122;s the market telling us something,â&#x20AC;? Swenson said. â&#x20AC;&#x153;These (factors) canâ&#x20AC;&#x2122;t be assumed away.â&#x20AC;?

Rural Development to award $6.7 million in energy grants, loans in 56 counties Illinois recipients in 56 counties will receive $6.7 million in renewable energy and energy efficiency funding from USDA, Illinois Rural Development State Director Colleen Callahan announced last week. A total of 141 farmers and small businesses across the

state were selected for grants and loans through USDAâ&#x20AC;&#x2122;s Rural Energy for America Program (REAP) authorized by the 2008 farm bill. A detailed county-by-county list of the recipients and their award amounts is available on {FarmWeekNow.com}.

â&#x20AC;&#x153;These guaranteed loans and grants will help farmers and rural small businesses use energy more efficiently, resulting in less energy consumption,â&#x20AC;? Callahan said. Nearly a third of the successful applicants are using guaranteed loan funds in con-

junction with grants to finance their energy efficiency improvement projects. The majority of the recipients will use the funding to upgrade their grain drier systems. On average, these recipients will realize a 35 to 40 percent reduction in energy usage. â&#x20AC;&#x153;Recipients will use the funding to replace outdated and inefficient equipment with renewable energy technologies,â&#x20AC;? Callahan said. â&#x20AC;&#x153;This program is rein-

FarmWeekNow.com To view the complete list of Illinois recipients, visit FarmWeek Now.com.

forcing a new renewable energy paradigm that focuses on a more efficient way to use our natural resources.â&#x20AC;? One of the small business recipients, Big M Manufacturing in Taylorville, received a renewable energy grant to buy a 20kilowatt wind turbine. Big M is a family-owned business that has been manufacturing and marketing biomassfueled heating systems to more than 80 distributors in the U.S. The electricity produced by the wind turbine is expected to completely offset Big Mâ&#x20AC;&#x2122;s electric bill.

REAP funding may be used for renewable energy systems, energy efficiency improvements, feasibility studies, energy audits, and renewable energy development assistance. Funds also may be used for eligible renewable energy projects that produce energy from wind, solar, geothermal, hydro power, hydrogen-based sources, and biomass, including anaerobic digesters. Funding also can be used to replace motors, refrigeration, and for more efficient grain-drying systems. Prairie Power Inc., based in Jacksonville, will receive a $98,000 grant to provide renewable energy development assistance for rural small businesses and agriculture producers. Southern Illinois Power CoOp, based in Marion, will receive a $100,000 grant to perform energy audits. Callahan noted the grants to those cooperatives will help farmers and rural small businesses evaluate their energy efficiency potential and assess renewable energy technologies and resources that can be incorporated into their operations. More information about the REAP program is online at {www.rurdev.usda.gov/BCP_R eapResEei.html.}

State tillage seminars planned

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Five statewide conservation agencies and other local agencies again will offer a series of regional tillage seminars. The focus is on the critical role that various tillage practices play in determining soil conditions and making corn and soybean enterprises profitable. The seminars will be Jan. 25 in Champaign, Jan. 27 in Milan, and Jan. 28 in Joliet. Each seminar will run from 8:30 a.m. to 3:15 p.m. The registration deadline is

Jan. 18, and the $25 fee is due by that date. Seating is limited, so registration will be taken on a first-come, first-served basis. On-line registration will be available soon at {http://web. extension.uiuc.edu/boone} for the Milan and Joliet seminars and at {http://web. extension.illinois.edu/ champaigncenter} for the Champaign seminar. Registration also may be done by mail. Contact the local U of I Extension office for mail registration details.

FarmWeek Page 7 Monday, November 15, 2010

AGONOMICS 101

‘Policy mistakes’ threaten economy, agriculture BY MARTIN ROSS FarmWeek

Sometimes, the “cure” for an ailing economy can prove as harmful as the disease — or can, at least, spur a relapse. So warned policy and market analysts at last week’s American Bankers Association annual North American Agricultural

Lenders Conference in Omaha. With continued flux and conflict in the global economy, Wells Fargo senior economist Scott Anderson warned against the U.S. making “policy mistakes” that could spur a currency or trade “war” or halt domestic stimulus “before the patient’s fully recovered.” Virginia Tech

FTAs’ passage seen as ‘huge, no-cost stimulus’ for U.S. Passage of free trade agreements (FTAs) with Korea, Colombia, and Panama should be Congress’ “first, second, and third priorities,” a former U.S. ag negotiator told FarmWeek. Richard Crowder, a Virginia Tech University trade specialist who left the U.S. Trade Representative’s office in 2007, offers a positive long-term ag trade outlook, with “a lot of income growth for U.S. farmers in this world market.” But he sees U.S. trade impacts depending on three key factors: demand, competitive strength, and “politics and policies.” President Obama and Korean President Lee Myung-bak last week were unable to resolve remaining FTA issues involving cars and beef. U.S. Trade Representative Ron Kirk said their failure to seal a deal was “absolutely not” a setback. Crowder nonetheless noted the urgency of FTA approval is particularly acute in the case of Korea, which has signed bilateral agreements with the European Union and Australia — “one of our biggest wheat competitors in Korea.” The U.S. agreement was signed in 2007, and he estimated subsequent delays in final approval have cost the U.S. some $500 million a year in Korean import tariff savings. “This would be a huge, no-cost stimulus to U.S. agriculture, and would help the (overall) economy, also,” Crowder maintained. “These are savings waiting to be had. We can pass the (Korea) free trade agreement, and hopefully, Korea will do the same thing. Then we can get it implemented and be ahead of the European Union and Australia.” National Pork Producers Council President Sam Carney called the U.S.-Korea pact “the biggest trade agreement ever for the U.S. pork industry,” fueling a potential 600,000 tons of exports by the end of the FTA’s 10-year phase-in period. Obama addressed the Korean FTA during last week’s meeting of the G20, a coalition of key economic powers including Argentina, Australia, Brazil, Canada, China, India, Japan, Korea, Mexico, Russia, and the U.S. Aron Gampel, deputy chief economist with Canada’s Scotia Economics, noted Canada’s whirlwind of bilateral trade talks aimed at creating new ties across Latin America, Asia, and the Pacific. The time is ripe for global relationship-building with “emerging markets developing at a much faster rate,” Gampel told FarmWeek. Crowder cited World Bank projections that the number of “middle-class” consumers in developing countries will triple over the next 15 years. “With the U.S. likely stuck in the slow lane of growth for the foreseeable future, that really puts a lot more pressure on Canada, which has a strong currency, to develop increasing trade ties,” Gampel added. — Martin Ross

University analyst David Kohl sees “politics trumping sound economics right now.” Mark Gold, managing partner with Chicago’s Top Third Ag Marketing, warned, “Whatever’s going to move this market up or down six months from now is not something we know about today.” That could be a shift in ethanol policy, the sale of gold from U.S. reserves to address debt, questionable monetary policies that benefit exports while hampering domestic productivity, or trade sanctions, he said. Gold argued, “We have some new, desperate people in Washington” — an influx of fiscally conservative new lawmakers who may be inclined toward more hard-line economic or trade measures. Concerns about Chinese trade practices and Chinese currency devaluation — a major issue at last week’s meeting of the major “G20” countries — raise the specter of congressional intervention similar to President Carter’s 1980 embargo against grain sales to Russia. “One of the things that always concerns me is using

Bank use of “quantitative easing”: buying government bonds or other assets to stabilize or raise their prices, lower longterm interest rates, and spur market liquidity. Kohl sees the Fed’s latest $600 billion purchase of Treasury securities as part of a strategy to “draw the cash that’s on the sidelines into the investing market, into the stock markets.” But cash also is flowing into land markets, in some cases creating price “bubbles” that could leave producers holding the bag in the event of investor flight, and Kohl is concerned the central bank could easily “overshoot” in its stimulus efforts. “It’s hard to fine-tune inflationary expectations,” noted Kansas City Fed President Thomas Hoenig, who has voted against continued easing. “Once they get their own momentum, they take off. “These are risks that could throw you into another set of asset bubbles — ag land prices, for example. We’ve seen it in other commodities and in other types of assets such as gold. Monetary policy is such a blunt instrument.”

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Commodity Conference Nov. 23 The state’s top crop and livestock organizations will host the 2010 Illinois Commodity Conference Tuesday, Nov. 23, in Bloomington. The theme of this year’s event is “Telling Your Story.” Michele Payn Knoper of Cause Matter Corp. will help teach farmers at the event how to enter into conversations with non-farm audiences to discuss food and fuel production. David Martosko of the Center for Consumer Freedom will help motivate farmers to take a stand against activist groups that attack agriculture. The event also will feature a presentation on farmer-image data designed to increase consumer confidence in farmers as well as a policy overview from political analyst Jim Wiesemeyer. For registration information, call 309-557-3703 or visit the website {www.ilsoy.org}. The Commodity Conference will be held at the Doubletree Hotel in Bloomington. Attendees can call the Doubletree at 309-664-6446 for hotel reservations. The annual event is hosted by the Illinois Beef, Corn Growers, Milk Producers, Pork Producers, Soybean, and Wheat associations.

grain as a weapon,” Gold told FarmWeek. “In my opinion, it’s never been done successfully, and all it does is hurt the American farmer. Could it happen again? I certainly hope not. “But in desperate times, desperate things can happen. We’ve had some trade issues with the Chinese. Certainly, the biggest input in this market has been the Chinese demand for our grains. “Can that change, vis-à-vis some of these smaller trade wars that are happening between the U.S., China, and other countries? Who knows? But that’s one of the risk factors out there I think people have to be aware of.” Gold, meanwhile, questions the benefits of maintaining a weak U.S. dollar as an export incentive, arguing the “cheap dollar” impacts a mere 12 percent of U.S. export trade “while it devastates 70 percent of the domestic business.” He sees continued dollar devaluation “destroying our own demand base” in U.S. poultry, cattle, and swine sectors. Also at issue are monetary policies such as Federal Reserve

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FarmWeek Page 8 Monday, November 15, 2010

FROM THE COUNTIES

LAY — The Women’s Committee will sponsor a holiday shopping open house from 4:30 to 8 p.m. Friday at the Farm Bureau office. There will be different vendors with products to buy or order from. The event is open to the public, but Farm Bureau members will have their names entered into a drawing for a $40 gift card. ANCOCK — The annual meeting will be at 7 p.m. Thursday at the Farm Bureau office. Call the Farm Bureau office for more information.

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ENRY — Darin Newsom, DTN senior analyst, will be the speaker at a meeting at 6:15 p.m. Thursday at the Moline Viking Club. Following dinner, updates from Mike Schaver, Gold Star FS grain merchandiser, and a WQAD meteorologist will be given. Cost is $18. Call the Henry County Farm Bureau office at 309-937-2411 or the Rock Island County Farm Bureau office at 309-736-7432 for reservations or more information. ASALLE — The annual meeting will be at 6:30 p.m. Wednesday, Dec. 1, at Pitstick Pavilion, Ottawa. Kacy Perry, past national FFA officer, will be the speaker. Cost is $7.50. A silent auction will be held to benefit the LaSalle County Ag in the

Classroom program. Call the Farm Bureau office at 815433-0371 by Monday, Nov. 29, for reservations or more information. CLEAN — The McLean County Farm Bureau IMPACT Committee and Illinois State University chapter of the National Agricultural Marketing Association will sponsor an agricultural economics seminar at 7 p.m. Monday, Nov. 29, in the Old Main Room of ISU’s Bone Student Center. Michael Boehlje, professor in the department of agricultural economics and the Center for Food and Agricultural Business at Purdue University, will be the speaker. Call the Farm Bureau office at 6636497 or e-mail anna@mcfb.org for more

information. EORIA — The deadline to order Florida citrus and Terri Lynn nuts is Monday, Nov. 22. Orders may be picked up Wednesday, Dec. 15, at the Farm Bureau auditorium. TARK — Bureau, Marshall-Putnam, and Stark County Farm Bureaus will sponsor a college open house Day for Agriculture from 10 a.m. to 3 p.m. Wednesday at the Marshall-Putnam County Farm Bureau, Henry. High school junior and seniors may attend. Call the Farm Bureau office at 309-286-7481 or email starkcfb@agviewfs.com for more information. ERMILION — The annual meeting will be at 5 p.m. (Illinois time) Monday, Nov. 22, at the Beef

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House Banquet Center, Covington, Ind. Tickets may be purchased at the Farm Bureau office or from a Farm Bureau director. State Rep. Bill Black (R-Danville) will be the speaker. Deadline for purchasing tickets is Thursday. The Vermilion County Farm Bureau Foundation will hold its silent auction during the registration. OODFORD — Deadline to order Florida citrus, nuts, and cheese is Wednesday, Nov. 24. Call the Farm Bureau office at 309467-2347 for an order form or more information.

“From the counties” items are submitted by county Farm Bureau managers. If you have an event or activity open to all members, contact your county Farm Bureau office.

FSA committee voting ends Dec. 6

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USDA Farm Service Agency (FSA) State Executive Director Scherrie Giamanco announced ballots for the 2010 FSA county committee elections were to be mailed to eligible voters on Nov. 5. Dec. 6 is the deadline for eligible voters to return ballots to their local FSA offices in person, and mailed ballots must be postmarked no later than that date. “The FSA county committee allows producers to make important decisions concerning the local administration of federal programs,” Giamanco said. She urged all eligible farmers to get involved in their communities by voting. To be an eligible voter, a farmer must participate in FSA programs. An individual who is not of legal voting age but supervises and conducts the operation of an entire farm also may vote. Agricultural producers in each county submitted candidate names during the nominations period last summer. Eligible voters who do not receive a ballot may obtain one at their local USDA Service Center. Committee members make decisions on disaster and conservation payments, establishment of allotments and yields, producer appeals, employing FSA county executive directors, and other local issues. Newly elected committee members and alternates take office Jan. 1. For more information about FSA county committee and FSA programs, go online to {www.usda.gov}.

FarmWeek Page 9 Monday, November 15, 2010

COMMODITIES

Would more players improve efficiency of contract delivery system? BY DANIEL GRANT FarmWeek

The effectiveness of the grain contract delivery system at the CME Group has been questioned in recent years as farmers and grain elevator managers dealt with a lack of convergence between cash and futures crop prices. Cash wheat prices in 2008 slipped to as much as $2 below the futures price. Similar issues, although not as severe, also played out in the corn and soybean markets. Ag groups, including Illinois Farm Bureau, and economists responded by studying the situation and developing suggestions to help ensure there is price convergence. One suggestion that could be considered by the CME Group, which houses the Chicago Board of Trade (CBOT), is to open the grain contract delivery system to more players. The delivery mechanism

was switched by the CBOT more than 10 years ago from warehouse terminals based in Chicago, Toledo, and St. Louis to a river delivery sys-

cates) was the flow of grain was changing from being shipped to one terminal location (Chicago)” to a broader, more easily accessible market

One suggestion that could be considered by the CME Group, which houses the Chicago Board of Trade, is to open the grain contract delivery system to more players. tem. The move, ordered by the Commodity Futures Trading Commission, changed the term for a claim on a commodity from a warehouse receipt to a shipping certificate. Shipping certificates are required at Illinois River delivery points due to a lack of storage space at some locations. “The justification (for switching from warehouse receipts to shipping certifi-

Wheat contract performs well since storage rate change David Lehman, managing director of commodity research and product development at the Chicago-based CME Group, is cautiously optimistic farmers no longer will see drastic differences between cash and futures prices for wheat. The CME Group implemented variable storage rates with the July 2010 wheat contract and added delivery locations for wheat. “Our expiring contracts this year — March, May, and July — had very good convergence,” Lehman told FarmWeek. The variable storage rate mechanism allows futures carrying charges to better reflect the cash market’s cost of carry. Otherwise, with a fixed storage rate, there were times when the cost to store grain was higher than the cash value, which led to a weak basis and inconsistent convergence, according to Lehman. The Kansas City Board of Trade reportedly is considering a similar change in storage rates. Basis levels out west during wheat harvest were as much as 80 cents below traditional levels. “We’re pretty optimistic this mechanism (variable storage rates) will achieve its intended objective (improve convergence in the wheat market)” Lehman said. “At the same time, we’ve seen good growth in the volume of open interest.” Open interest in wheat contracts since the CME Group implemented variable storage rates is up 55 percent. The Illinois Farm Bureau supported the CME Group’s implementation of the variable storage rate mechanism. However, it’s too early to declare the problem solved when it comes to issues with basis levels, according to Doug Yoder, IFB senior director of marketing and risk management. Yoder serves on the Commodity Futures Trading Commission subcommittee on convergence. “Convergence performance (since the implementation of variable storage rates) is much improved,” Yoder said. But “additional analysis needs to be done,” he continued. “It could take months.” As of last week, the CME Group had no plans to implement variable storage rates in other contracts. “Right now, we’re not looking at variable storage rates for corn or beans,” Lehman said. “We’re seeing good convergence in those contracts.” But even good performance of contracts doesn’t guarantee convergence of cash and futures prices. The size of each crop, the strength of grain demand, the pace of farmer selling, and transportation logistics all influence basis behavior, according to Darrel Good, University of Illinois Extension ag economist. — Daniel Grant

channel along the Illinois River, said an industry source. A shipping certificate is unique in that it does not require the delivery facility to actually store a commodity. The current system and shipping certificate market are geared more toward commercial firms than individual farmers. Grain merchandisers who want a delivery point in the system must meet a minimum net worth requirement of $2 million and be able to load at least one barge (55,000 bushels) per day in

the delivery territory. The requirements were set up to ensure performance of the delivery mechanism, according to David Lehman, managing director of commodity research and product development at the CME Group. But that didn’t necessarily leave farmers out of the picture. “We worked with a group of farmers to discuss how they could get involved in deliveries on the Illinois River,” Lehman said. “It’s possible to lease through-put capacity at some facilities. We have some of those arrangements in place today.” Easier access to the grain contract delivery system could provide some benefits to farmers, but it wouldn’t necessarily guarantee convergence of prices, according to Scott Irwin, University of Illinois ag economist. “In my view that could be helpful, but it’s not the central issue,” he said. A key to achieving convergence is making sure storage

rate specifications keep shipping certificates tied to current market conditions, according to Irwin. Otherwise, holders of shipping certificates could manipulate the market. “There may be environments in which holding certificates is profitable, such as in periods when cash prices are highly volatile, commodity demand is increasing and quantities held in storage are decreasing, or when borrowing costs differ between regular firms and other market participants,” according to the June 2010 issue of The Journal of Futures Markets. “When these conditions arise, the incentive to conduct effective cash-futures arbitrage at (contract) expiration is reduced.” Overall, Irwin believes “the system is still working reasonably well” for corn and soybean contracts. But there is a “deeper, structural problem” with the wheat contract that should be addressed, he added.

May the blessings of the season fill your hearts and home! Happy Thanksgiving from your friends at FS.

FarmWeek Page 10 Monday, November 15, 2010

PROFITABILITY

Regulatory and health care reforms could impact farmers BY PETE TROTTER

regulatory requirements. Such reforms might be helpful — for example, agribusiness investors may have more say in corporate governance matters, and agricultural consumers may have increased protection from financial abuse. On the other hand, the actions taken by regulators operating under broad and vague authority could be extensive. The scope of permitted activity in pursuit of financial stability, consumer protection, and insurance modernization is not defined and might result in constraints on previously acceptable activities. Agricultural businesses and producers could encounter new restrictions on financial dealings, hedging, or insurance coverage, creating new costs and complications. Health care reform has provided similarly sweeping changes and also could have a significant impact on agribusinesses. The mandatory availability of benefits for certain employers can require producers and other agribusinesses to provide unprecedented medical benefits to those involved in seasonal farming activities or other seemingly routine tasks. The extension of coverage to certain dependents, certain limits on pre-existing condi-

Major legislative reforms have been initiated in 2010 — particularly with regard to the financial and health care industries. While farmers and other agribusinesses were not the focus of these reforms, the legislation granted broad and sometimes vague Pete Trotter authority and created uncertainty regarding the potential long-term impact. Financial reforms included the formation of a framework for financial stability and the creation of a new Financial Stability Oversight Board which was granted broad powers to respond to threats to economic stability. In addition, the DoddFrank Act created a Bureau of Consumer Financial Protection to enforce consumer financial laws and a Federal Insurance Office to review the insurance industry and provide recommendations on modernization. Investor involvement in corporate governance was enhanced, and agricultural swaps and other derivatives are subject to clearing, reporting, and other new

tion provisions, and removal of lifetime coverage caps might prove helpful to some individuals. However, increases in coverage costs will result, which may curtail employer offerings, lead to consolidation in the health care industry, and reduce options, negotiating leverage, and flexibility for consumers, small businesses,

and those living in rural areas. Putting 2010 reforms in place will require years of progressive implementation and hundreds of regulatory rulings, so the true impact of these reforms is unknown. The broad scope of powers granted and the regulatory sea change which has been initiated cause great uncertainty.

Political changes will further exacerbate this uncertainty. Farmers and other agribusinesses should monitor reform implementation and stay alert for new obligations which might develop in the future. Pete Trotter is GROWMARK’s assistant general counsel. His e-mail address is ptrotter @growmark.com.

Crop estimates negative for livestock producers Daily Livestock Report said last week. The projected production costs for Iowa farU.S. livestock producers may return to surrow-to-finish operations, prior to the USDA vival mode in light of USDA’s November crop crop production report, already were up to $78 production report released last week. per hundredweight compared to the mid-$60s USDA cut its corn and soybean production in late August. estimates by Higher feed 1 percent; costs and the reduced end- ‘The run-up of corn and soybean meal decline of lean ing stocks of prices has severely dampened hopes of hog futures took corn, beans, an economic recovery for pork producers.’ estimated average and wheat profits for 2011 by a total of from $8.33 per 160 million head on Aug. 31 — Authors of the Daily Livestock Report to minus-49 cents bushels; and CME Group increased per head as of season-averNov. 5, according age farm price estimates for corn and beans. to the Daily Livestock Report. A market analyst last week suggested futures “Futures markets back in August offered an prices in coming weeks could surpass $6 for opportunity to regain roughly 60 percent of the corn and $14 for beans. Meanwhile, USDA last losses (from 2008/09),” authors of the report said. week increased its season-average price esti“As of (Nov. 5), those same markets were offering mate for soybean meal by $20 per ton to a cur- a ‘hold-your-own’ year for hog producers in 2011.” rent range of $310 to $350 per ton. The situation is expected to put a lid on any “The run-up of corn and soybean meal plans for expansion in the hog industry. This prices that began back in July has severely was reflected in the November crop report as dampened hopes of an economic recovery for USDA cut its estimate of feed and residual use pork producers,” authors of the CME Group’s of corn by 100 million bushels.

BY DANIEL GRANT FarmWeek

M A R K E T FA C T S

Feeder pig prices reported to USDA*

Weight 10 lbs. 40 lbs. 50 lbs. Receipts

Range Per Head Weighted Ave. Price $34.50-$45.21 $40.44 $47.00-$59.01 $55.24 n/a n/a This Week Last Week 17,073 25,300 *Eastern Corn Belt prices picked up at seller’s farm

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Eastern Corn Belt direct hogs (plant delivered) Carcass Live

(Prices $ per hundredweight) This week Prev. week $61.56 $59.02 $45.55 $43.67

Change 2.54 1.88

USDA five-state area slaughter cattle price (Thursday’s price) Steers Heifers

This week $97.92 $98.00

Prv. week $96.37 $97.28

Change 1.55 0.72

CME feeder cattle index — 600-800 Lbs. This is a composite price of feeder cattle transactions in 27 states. (Prices $ per hundredweight) Prev. week Change 111.32 0.14

This week 111.46

Lamb prices Slaughter Prices - Negotiated, Live, wooled and shorn 110-175 lbs. for 120153 $/cwt., dressed, no sales reported.

Export inspections (Million bushels)

Week ending Soybeans Wheat Corn 11-04-10 56.9 15.5 24.9 10-28-10 73.2 17.7 30.0 Last year 64.7 18.2 28.0 Season total 384.4 487.7 313.5 Previous season total 290.4 380.6 329.8 USDA projected total 1520 1250 2100 Crop marketing year began June 1 for wheat and Sept. 1 for corn and soybeans.

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FarmWeek Page 11 Monday, November 15, 2010

PROFITABILITY Corn Strategy

C A S H S T R AT E G I S T

Discipline, discipline, discipline Realtors use the classic line in helping determine the marketability of a property: location, location, location. In commodity and equity trading, there should be a similar version: discipline, discipline, discipline. Another important trading axiom was brought to mind early this fall when the movie “Wall Street: Money Never Sleeps” was released. In one scene with the main character, Gordon Gecko, the classic trading line, “Bulls make money. Bears make money. Pigs? They get slaughtered.” was used. The warning embodied in that line is, don’t get greedy. In markets such as the ones we have enjoyed this fall, it’s all too easy to get wrapped up in the day-to-day and week-to-week movement and lose sight of the important task you have as a marketer, to manage your risk. In recent weeks and months, the commodity world has become largely focused on potential demand from China. In recent weeks as prices raced upward, traders mostly ignored the possibility of any policy shift. Even a month ago, when China’s Central Bank raised interest rates by a quarter of a point, most shook it off. Last week, the Central Bank raised bank reserve requirements a half percent. That move precipitated a limit break in Chinese cotton futures, a decline that dragged corn,

Basis charts

wheat, soybean, and soybean product prices down with them. A day after that, Chinese officials reported October’s inflation rate was 4.4 percent, the highest level in 25 months. The unexpected surge was mostly due to a 10.1 percent increase in the cost of food. The combination of the increase in bank reserve requirements and the larger-thanexpected inflation rate sparked talk of further tightening of China’s monetary policy may be on the horizon. That drove commodity prices lower, and they may be headed lower yet. Maybe the key uncertainty is how much speculative “fluff ” had accumulated in Chinese commodity markets, and how much will be forced out with the change in attitude. That could be an important factor. Most analysts had assumed the steady move higher in Chinese commodity markets was due to supply/demand forces. But the immediacy and speed of commodity price changes begs the question of whether speculation may have been partly responsible for the rise. Unfortunately, there’s no way to find out as China doesn’t have a regulator such as the Commodity Futures Trading Commission that regularly reports who owns what. Given the size of the long position of the big hedge funds in our corn and soybean markets, the Nov. 12 break is likely to trigger more liquidation. Their selling will be tempered by end users pushing coverage forward. At some point, the decline will have gone far enough that hedge funds quit liquidating long positions. Amid the break, discipline is still important. The market will recover once it comes to an end. So don’t panic and make sales if corn futures fall to $5 and soybeans to $11.50. However, given the potential for a changed perception of value, it will be important to make sales on the first good rebound. Typically, it takes more time than you might think to rebuild a bull market once it has been broken, and this one is giving off many signs that it may be over for now. AgriVisor endorses crop insurance by

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2010 crop: The market action on December futures indicates the move up has ended for now. New highs may still come, but you may have to wait into the spring to get them. Use current levels to price remaining bushels you have to sell. Hedge-to-arrive (HTA) contracts for winter/spring delivery may be the best marketing tool, but because carry has diminished, check prices against the cost of carrying them. 2011 crop: From a riskmanagement perspective, the gross income offered by newcrop prices is too large to not start pricing next year’s output. And even though prices are off their highs, the potential gross incomes still are extremely good. Fundamentals: The latest USDA numbers didn’t include any substantive surprises as far as corn was concerned. The corn yield (154.3 bushels), production (12.556 billion bushels), and ending stocks (827 million) were all close to expectations. Meanwhile, demand from the livestock and export sectors has become less certain.

Soybean Strategy 2010 crop: The new USDA crop and supply /demand forecasts were positive, lifting prices to new seasonal highs. But just as quickly, fears of economic changes in China turned prices lower. Although not confirmed, market action has all the signs of a top. Higher levels may come, but perhaps not until later in the winter, if then. Wrap up sales now. 2011 crop: Gross income per acre is too large not to make an initial sale. Having 20 percent priced is a good risk-management strategy. Fundamentals: Soybean export sales were at their slowest weekly pace in two months. Soybean oil sales, the most bullish product in recent weeks, were all but non-existent. Unless soybean sales outpace recent forecasts or Brazil and Argentina have a weather problem this year, we may be seeing the early signs of commodity rationing. China is still the key ingredient,

but the attitude there was turning more pessimistic as the week came to a close.

Wheat Strategy 2010 crop: Action in the wheat market hints it may have seen a near-term peak. Chicago December futures slipped below both the 10and 50-day moving averages. The next support comes at the $6.75 level, but this slide could drop to $6.50 before it temporarily stops. Given the extent of this break, we’d wait for December to rebound to $7 to wrap up sales if you still have inventories. HTA con-

tracts for winter delivery still appear the best marketing tool. 2011 crop: Use rallies to $7.70 on Chicago July 2011 futures for catch-up sales. If basis is wide compared to this past summer, consider a HTA contract. Fundamentals: The USDA November report lowered both U.S. and world ending stocks to 848 million bushels and 172.5 million metric tons, respectively. The main focus is on weather in the southwest Great Plains and the southern Corn Belt. The latest forecast calls for moisture to finally reach portions of those areas, but it still may be scattered.

FarmWeek Page 12 Monday, November 15, 2010

PERSPECTIVES

Chinese inflation may foretell change for U.S. economy Economics is called the “dismal science.” I’m not sure it’s really a science, but lately it sure has been dismal. Most of the economic news over the past three years has been bad. Even a dismal economist gets worn out, so sometimes I go looking for good news. Recently I found some in a headline that said “In China, Inflation Raises Concern.” LARRY Here’s why that’s DEBOER good news for us. Our main complaint about China’s economic policy has to do with the exchange rate between the dollar and China’s currency, the yuan. We think China holds the exchange value of the yuan too low so that the value of the dollar is too high. We buy lots of manufactured goods from China. Chinese exporters want to be paid in their own currency, so U.S. importers have to buy yuan with dollars. China, though, doesn’t buy that much from us. It’s not offering many yuan in exchange for dollars. So lots of dollars chase just a few yuan. That should make the value of the yuan rise and the value of the dollar fall. If that happened, China’s exports to the U.S. would become more expensive, and U.S. exports to China would become

cheaper. China would buy more from us; we’d buy less from them. That would help bring trade into balance, and it would increase employment in the U.S. It’s one of those self-correcting processes that economists just love. But China hasn’t let the value of the yuan increase by much. The low value of the yuan gives Chinese goods an extra price advantage over products produced in the U.S. U.S. importers buy yuan, and then use the yuan to buy Chinese goods. If the yuan is cheap, then Chinese goods are cheap in terms of dollars. American consumers buy more from China and less from factories at home. Likewise, a low value of the yuan makes dollars expensive in China, which makes U.S. products expensive, too. So, the Chinese buy even less from us. China stopped the yuan from rising starting in July 2008. It held its value at just over 6.8 yuan per dollar. The Chinese worried that a more expensive yuan would cause China’s exports to grow more slowly. Jobs in their export industry would grow slowly, too. Millions of people migrate to China’s coastal cities each year looking to work in

factories. China’s leaders fear the unrest that might result if those factories can’t employ those migrants. We know why China has kept the value of the yuan from rising. But how does it do it? The answer is it creates new yuan to buy up all those extra dollars. With more yuan for dollars to chase, the value of the yuan doesn’t rise. The Chinese lend those dollars back to us.

concerned. Maybe unrest will arise because of higher prices instead of unemployment. The inflation threat may encourage China to stop creating all those extra yuan. Fewer yuan chasing China’s products would restrain inflation. The yuan’s exchange value would rise, which would make U.S. goods cheaper for China’s consumers. That’s another check on inflation. And if U.S. exports to China increase, U.S. employment will, too. China has begun to allow the value of the dollar to fall. It’s been falling in fits and starts since September. The exchange rate is under 6.7 yuan per dollar — not a big change, yet, but in the right direction. U.S. officials are pressing for more. Graphic by Sharon Newton So, inflation could encourage China to adopt a currency policy That helps keep our interest rates low, that will help U.S. employment. That which is fine, except that those dollars would be good news. But then what helped inflate the housing bubble that led would make economics dismal? How to the Great Recession. about the rising prices of goods Who’s getting those newly printed imported from China? Exchange rate yuan? It’s the people who are offering changes always have two sides. dollars for yuan to buy Chinese products. More and more yuan are chasing Larry DeBoer is a professor of agricultural Chinese goods, and that’s a recipe for economics at Purdue University, West inflation. Lafayette, Ind. His e-mail address is ldeNow inflation has China’s leaders boer@purdue.edu.

Great American pumpkin brings old, new fall traditions Have you ever wanted to know how to grow one of those giant pumpkins? Well, the No. 1 thing to do is to use the right genetics. That’s because the really gigantic pumpkins are memMARI bers of the LOEHRLEIN species Cucurbita maxima. Kevin Marsh of Parker, S.D., grew one this year that weighs 1,674 pounds. This makes Cinderella’s pumpkin-turned-coach somewhat less of a fairy tale than we would have thought. Pumpkins and squashes are true Native Americans — six species of them were important

food plants prior to 1492. Corn, beans, and squash are the triumvirate of foods famously known as the “Three Sisters.” While horticulturists don’t recommend planting them together due to competition for sun and nutrients, they are an example of companion planting that was used by Native Americans. The explanation given is that the beans provide much-needed nitrogen for the corn, while the corn provides support for the climbing bean plants. The squash covers the ground with prickly stems and leaves, lending credence to the contention that they inhibit raccoons from getting to the corn. Pumpkins are thought to have been domesticated about 9,000 years ago in northeastern

Thanks Cropwatchers for their many reports

observations of local crop and weather conditions, field activities, and events. I turn immediately to their pages when FarmWeek arrives. They soon begin to feel like old friends. I miss them when they are unable to report in and when they do not re-up for another season. Thank you, Cropwatchers, and see you next year! JOHN K. RUTLEDGE, Wheaton

Mexico. They are widely cultivated and are grown on every continent except Antarctica. Illinois is the No. 1 producer of pie pumpkins in the United States. Illinois has about 25,000 acres of pumpkins, producing a gross value of more than $160 million per year, making pumpkin production the largest vegetable industry in the state, according to an article in FarmWeek. Whereas last year was a terrible year for pumpkin harvest due to wet fields and rains late in the season, this year proved to be much better. I like to toast pumpkin seeds after tossing them in olive oil and a blend of herbs and salt. In addition to being a tasty snack, they are fairly nutritious, similar to peanuts in protein

content, and significantly higher in vitamins A and C. Perhaps there is no greater example of playing with one’s food than the modern diversion known as punkin’ chunkin’. In this activity, pumpkins are launched by trebuchet and catapult, or shot out of air or water cannons. Believe it or not, Rhett Allain, an associate professor of physics at Southeastern Louisiana University, actually has developed a scientific explanation of why these launched pumpkins will never reach the one-mile mark. He said they need to achieve speeds of 1,000 mph. So far, they are shooting in the 600mph range. The record distance is more than 4,200 feet. I haven’t found

much history on this activity, but something tells me it also is native to this country. Carving pumpkins also is an American tradition, although it is modified from a tradition in Ireland, and later England, in which scary faces known as Jack O’Lanterns were carved into turnips, potatoes, or large beets. Whether you chunk your punkins, make pie with them, carve them, grow them as large as a car, or decorate your home with them, you can be sure that your activities are as American as, well, pumpkins. Mari Loehrlein is a horticulture professor with Western Illinois University’s School of Agriculture, Macomb. Her e-mail address is Loehrlein@wiu.edu.

LETTER TO THE EDITOR Editor: As we wrap up another crop year, we need to express our appreciation to the outstanding crew of Cropwatchers who fill us in on news from around the state. Anecdotal evidence is useless unless you have enough to discern a pattern, and we get the pattern from these dedicated producers who devote the time each week to share their

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