RESOURCES

Illinois Drought - Financial

 

 

 

August 30, 2012

USDA Extends Emergency Grazing on CRP Acres

US Secretary of Agriculture Tom Vilsack has announced a two-month extension for emergency grazing on Conservation Reserve Program (CRP) acres. In his statement, Secretary Vilsack said, "The Obama Administration is committed to helping the thousands of farm families and businesses who continue to struggle with this historic drought," said Vilsack. "It is also important that our farmers, ranchers and agribusinesses have the tools they need to be successful in the long term. That's why President Obama and I continue calling on Congress to pass a comprehensive, multi-year Food, Farm and Jobs Bill that will continue to strengthen American agriculture in the years to come, ensure comprehensive disaster assistance for livestock, dairy and specialty crop producers, and provide certainty for farmers and ranchers."

In addition Secretary Vilsack declared 147 additional counties in 14 states as natural disaster areas-128 counties in 10 states due to drought. In the past two months USDA has designated 1,892 unduplicated counties in 38 states as disaster areas, with 1820 drought declarations. The county disaster declaration map maybe found on the EDEN Drought Page under USDA resources.

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August 20, 2012

Rationing the 2012 U.S. Soybean Crop

URBANA - The small South American soybean crop of 2012 will result in much smaller inventories of that crop by the end of the year. However, that drawdown in stocks in combination with the much larger harvest expected in 2013 suggests that the pace of consumption of South American soybeans will not have to slow. In contrast, the small U.S. harvest this year will require a substantial reduction in consumption over the next year, according to University of Illinois agricultural economist Darrel Good

"The magnitude of the year-over-year reduction in consumption of U.S. soybeans that will be required is not yet known," Good said. "The new production forecast to be released on Sept. 12 and the estimate of Sept. 1 stocks of old-crop soybeans to be released on Sept. 28 will provide for a better estimate of the needed decline. Based on the USDA's August forecasts, a reduction of 400 million bushels (12.7 percent) will be required. The pace of consumption, as revealed in weekly export reports and monthly reports of domestic crush, will be monitored to verify that the pace of consumption is slowing."

Good reported that for the current marketing year, the USDA projects the domestic crush at 1.69 billion bushels, 2.55 percent more than crushed last year. Through the first 11 months of the marketing year, estimates by the National Oilseed Processors Association of the size of the crush by its members exceeded the crush of a year ago by 2.88 percent. The crush was nearly 8 percent smaller in the first quarter of the year, but nearly 13 percent larger in June and July. The year-over-year increase in the crush has been driven by soybean meal consumption. In February, the USDA projected a year-over-year decline in soybean meal consumption of 0.6 percent in the domestic market and 3.3 percent in the export market. Earlier this month, the projections were for year-over-year increases of 4.5 and 4.6 percent, respectively.

"With only one month remaining in the marketing year, it appears that the domestic crush will exceed the USDA projection by 10 to 15 million bushels," Good said.

Exports of U.S. soybeans during the current year are projected at 1.35 billion bushels. With only about three weeks left in the marketing year, cumulative export inspections (adjusted by Census Bureau estimates through June) totaled 1.3 billion bushels. Shipments will need to average about 16 million bushels per week for the next three weeks to reach the USDA projection.

Shipments for the 7 weeks ended August 9 averaged 15.5 million bushels per week. "It appears that exports for the year will be very close to the USDA projection," Good said. "If so, stocks of old-crop soybeans on Sept.1 could be 10 to 15 million bushels less than the current forecast of 145 million."

For the 2012-13 marketing year, Good said the USDA projects a 175-million-bushel reduction in the domestic crush, to a 16-year low of 1.515 billion bushels. The magnitude of the decline would be larger if this year's crush exceeds the current projection. Exports of U.S. soybeans are expected to decline by 240 million bushels, to a 7-year low of 1.11 billion bushels. As of August 9, the USDA reported cumulative sales of 597 million bushels for export during the 2012-13 marketing year. Of that total, 392 million were sold to China and 154 million to unknown destinations. Including likely carryover sales from the current year, export commitments are likely near 675 million bushels, or 61 percent of the USDA projection for the year.

"Shipments of U.S. soybeans are expected to be large in the first half of the marketing year, but demand during the last half of the year will be influenced by the size of the South American crop," Good said.

The USDA currently projects that South American soybean acreage will increase by 2.7 million acres in 2013 (mostly in Brazil) to a total of 128.9 million. With a return to normal yields, that crop is projected at 5.45 billion bushels, 30 percent larger than the drought-reduced crop of this year. Good said that a crop of that size would likely result in a larger-than-normal seasonal decline in U.S. soybean and soybean meal export shipments in the last half of the marketing year. Some additional imports of soybean meal would also be expected.

November 2012 soybean futures are currently more than one-third higher than the low established in early June, about $1.35 higher than the low of July 25, and only about 20 cents below the contract high of July 23.

"Most of the price increase since early June has been led by soybean meal prices. U.S. soybean oil stocks will be used to support oil consumption during the year ahead," Good said. "But soybean meal consumption will have to be reduced substantially.

"There is some expectation that more favorable weather in August in some areas will increase the yield potential of late maturity soybeans," he concluded. "Unless the crop is substantially larger than the August forecast, soybean meal and soybean prices will likely remain high for an extended period in order to ensure the necessary rationing. If the production forecast does not increase next month, new highs in both markets would be expected," Good said.

CONTACT : Paige Buck, Public Affairs (217) 353.6606

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August 8, 2012

Agriculture Secretary Vilsack Delivers Targeted Financial and Technical Assistance to Drought-Stricken Producers and Landowners in 19 States

WASHINGTON - Agriculture Secretary Tom Vilsack today announced that USDA will target nearly $16 million in financial and technical assistance to help eligible crop and livestock producers in 19 states cope with adverse impacts of the historic drought gripping the nation. States will have the option to hold special signups for producers interested in applying conservation practices that will alleviate the drought's impacts, and improve soil health and productivity.

"President Obama and I continue to work across the federal government to provide relief for those farmers and ranchers who are affected by the severe drought conditions impacting many states across our nation," Vilsack said. "This additional assistance builds on a number of steps USDA has taken over the past few weeks to provide resources and flexibility in our existing programs to help producers endure these serious hardships."

USDA's Natural Resources Conservation Service (NRCS) will use $16 million in existing funds from its Wildlife Habitat Incentive Program (WHIP) and Environmental Quality Incentives Program (EQIP) to target states experiencing exceptional and extreme drought. The states with exceptional, or the most severe, drought are Arkansas, Colorado, Georgia, Kansas, Kentucky and Nebraska. States experiencing extreme drought are Alabama, Illinois, Indiana, Mississippi, Missouri, New Mexico, Nevada, South Carolina, South Dakota, Tennessee, Texas, Utah and Wisconsin. Click on this link for information on the assistance each state has received.

NRCS state conservationists will announce special signups for WHIP and EQIP funds which will allow eligible producers to apply for selected conservation practices. These practices include prescribed grazing, livestock watering facilities and water conservation practices. Eligible producers also can re-apply for financial assistance to re-apply failed conservation practices due to drought and modify existing contracts to re-schedule planned conservation practices.

USDA has also announced the following:

For more information, producers and landowners can visit the NRCS website at www.nrcs.usda.gov or their local NRCS office.

CONTACT : Paige Buck, Public Affairs (217) 353.6606

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July 16, 2012

Expected Price Pattern for Corn and Soybeans

URBANA - Widespread drought conditions continue to reduce the 2012 U.S. corn and soybean yield potential. Yields are now expected to be well below trend value, so that this year’s production will qualify as “short crops,” according to University of Illinois agricultural economist Darrel Good.

“It is widely anticipated that corn and soybean prices will reach a peak early, sometime in a relatively wide window around harvest time, and then decline as the marketing year progresses,” Good said. “The anticipated pattern is generally described by the adage that ‘short crops have long tails.’ At this juncture of the 2012 season, it appears likely that the corn and soybean price pattern will follow a more or less typical short crop price pattern, at least in terms of the timing of the price peak.

“Based on historical patterns, however, the timing of the price peak could range from the current month until after harvest. With an early harvest, a price peak by September seems most likely, assuming that prices go high enough to slow the pace of consumption sufficiently. Prices are probably not yet high enough for either crop to accomplish that objective,” Good said.

According to Good, for both corn and soybeans there is considerable risk that the U.S. average yield will be lower than now anticipated. For soybeans, demand is also very strong due to the shortfall in the 2012 South American crop and ongoing large purchases of U.S. soybeans by China.

Good explained that for producers with substantial quantities of 2012 crop corn and soybeans to sell, the window for the best price opportunities may be open for a while, but it is not possible to predict the timing and magnitude of the price peak. A strategy of spreading sales over the next several weeks may be prudent. For producers with little or no crop to sell, the major focus may be on maximizing crop insurance payments.

For those with insurance products that include a harvest (October) price guarantee, Good said there may be concern that the price peak will come and go before October. “In that case, some are considering hedging the insurance payment on their production shortfall by selling futures contracts at prices higher than expected to exist in October,” he said. “There are obvious risks with that strategy because prices above the selling price would result in margin payments and foregone income. Those who are considering hedging insurance payments may also want to consider an averaging strategy and/or the use of options to manage the risk.”

Good explained more about the logic of this expected price pattern. He said it is based on three tenets. First, prices need to move sharply higher in a relatively short time frame so that consumption becomes unprofitable to some end users and the overall pace of consumption is reduced to be in line with expected supplies. Second, a short crop is expected to be followed by much larger production in the following year as weather conditions return to normal and producers respond to the incentives of high prices. Third, once prices peak and start to move lower, an extended period of declining prices is required to re-build the pace of consumption to the level of subsequent production. The timing and magnitude of the price peak and the speed and magnitude of the subsequent price decline are determined by the magnitude of the production shortfall, the timing of the recognition of the shortfall, the strength of demand for the crops, and the production response (domestic and foreign) in the following year.

“There isn’t a universally accepted definition of a short crop, but it is generally defined in terms of a U.S. average yield that falls below trend value by some threshold double-digit percentage,” Good said.

For corn, there have been 10 other years since 1970 in which the crop could be classified as short. These include 1970, 1974, 1980, 1983, 1988, 1991, 1993, 1995, 2002, and 2011. The price pattern in those years generally followed the expected pattern described earlier but with some exceptions, Good said. In particular, the timing of the price peak varied considerably in those years.

The price peak occurred early in 6 of those years (1970, 1974, 1980, 1983, 1988, and 2002) but ranged in timing from June to November. Prices did not peak in the same month in any 2 of those 6 years. In addition, the price peak occurred in January following the 1993 harvest and in July following the 1995 harvest. For the 1991 and 2011 crops, the price peaked in August before harvest and again later in the marketing year.

For soybeans, 8 previous years might be described as short crop years. These include 1974, 1976, 1980, 1983, 1984, 1988, 1993, and 2003. Like corn, the timing of the price peak varied in those years. Prices peaked early, ranging from June to November, in 5 years; had a double peak in 1993-94 (July before harvest and June after harvest); peaked in April following the 1976 harvest; and peaked in March following the 2003 harvest.

Source: Darrel Good, 217-333-4716; d-good@illinois.edu
News writer: Debra Levey Larson, 217-244-2880; dlarson@illinois.edu

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