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Friday, February 27,2009

Ethanol industry called sound

by DTN
The state of the ethanol industry is decidedly different than it was just months ago, but Renewable Fuels Association President Bob Dinneen told industry representatives last Tuesday at the National Ethanol Convention that despite the tough economic times, he believes the ethanol industry will emerge better for it.

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Friday, February 27,2009

Land values softened in 2008; no price collapse seen in 2009

by DTN
Land values fell in the fourth quarter of 2008, but so far in 2009, land is holding its own, slightly off last years highs. Land prices in the fourth quarter were down 6 percent in Iowa and 3 percent in Illinois, according to the Federal Reserve Bank of Chicago.

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Friday, February 20,2009

Bill would add regulatory oversight to credit-default swaps

by DTN
Commodity Futures Trading Commission (CFTC) Commissioner Bart Chilton is endorsing a bill that would strengthen CFTC?s regulatory powers, but Chilton says he believes CFTC should have authority to launch criminal investigations. CFTC regulates the grain, meat and financial futures exchanges in Chicago, New York, Kansas City and Minneapolis.

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Friday, February 20,2009

Despite proposed congressional help, wind industry faces challenges

by DTN
Advocates of wind energy touted the industry?s potential, while highlighting the potential struggles last week, even as the U.S. Senate passed its version of the stimulus bill that would pump billions into wind energy and investments in upgrading the nation?s transmission grid.

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Friday, January 30,2009

Who is going to get the bulk of your estate?

by DTN
Is the estate you spent a lifetime accumulating and/ or conserving going to be reduced significantly by the time your heirs receive it? Only action now on your part will help to ensure your heirs receive the estate you intend.

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Friday, September 12,2008

Production costs seen rising 30 percent by 2009

by DTN
U.S. farmers will have to spend roughly 30 percent more next spring to plant corn and soybeans due to soaring energy prices driving up the cost of fertilizer, according to a University of Illinois study. As a result, consumers will likely pay higher prices for everything from bread to milk to meat. The cost to plant corn next spring will be $529 per acre, up 36 percent from 2008 and up 85 percent from the five-year average $286 per acre, said Gary Schnitkey, an agricultural economist who conducts the annual survey of expenses excluding land costs. At $321 an acre, soybean input costs are projected to rise by 34 percent from 2008 and more than 78 percent from the 2003-2007 average of $180 an acre. Assuming cash-rent fees of $200 an acre, the study projects a break-even price of $3.82 a bushel for corn in central Illinois based on an average yield of 191 bushels an acre. Soybeans would break even at $9.65 a bushel based on yields of 54 bushels per acre. Schnitkey predicts 2009 prices significantly above break-even prices. Based on futures markets, corn should sell for about $6 a bushel next year, with soybeans in the $13 to $14 range, he said. Corn, soybean and wheat prices at the Chicago Board of Trade hit record highs this year amid increased global demand for food, rising oil prices and government mandates for biofuels. Fertilizer drives up cost Farmers are seeing the cost to grow corn and soybeans soar due to higher fertilizer prices. Fertilizer prices have risen by 82 percent for corn and 117 percent for soybeans, Schnitkey said. About 80 percent of the cost to produce nitrogen fertilizer comes from natural gas. In addition, higher energy prices have driven up the cost to mine phosphorus and potassium. The price of crude oil soared 70 percent in the past 12 months and 105 percent in the last 18 months. U.S. crude oil futures hit a record high above $147 a barrel on July 11. However, a World Bank study released last week said that only 25 to 30 percent of higher food prices was due to the rise in energy costs and fertilizer. The study said that large increases in biofuel production in the U.S. and Europe contributed 70 to 75 percent of the increase in food prices. The food-versus-fuel debate heated up as U.S. food prices last year saw their biggest increase in 15 years and are forecast to rise by 5 percent this year. World food prices rose by 40 percent last year, causing food riots, hoarding and bread lines in some countries. — DTN

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Friday, August 29,2008

Russia may pull out of trade deals

by DTN
Russia may pull out of trade deals Amid fraying trade relations between Moscow and Washington, Russia said it would slash U.S. import quotas for chicken and pork, both big export products to the region from the U.S, reported the Wall Street Journal. After U.S. officials said Russia’s war with Georgia had cast doubt on Russia’s bid to enter the World Trade Organization (WTO), Prime Minister Vladimir Putin last Monday called for pulling out of trade deals that Russia had signed when it was expecting quick admission into the trade body. Then Russian Agriculture Minister Alexei Gordeyev said last Wednesday that Moscow plans to reduce quotas for imports of chicken and pork by "not tens but hundreds of thousands of tons." Russia has helped the American meat industry grow for the past decade. Russia was the biggest importer of U.S. chicken meat in 2007, spending $741.5 million on U.S. imports, according to the USA Poultry and Egg Export Council. In 2005, the U.S. and Russia entered into an agreement that allowed U.S. producers of poultry, pork and beef to export a specified quantity of product to Russia at a lower-than-usual tariff. That agreement, which was extended through 2009, was a way for Russia to bolster its free-trade credentials ahead of WTO accession talks. Russian officials now say WTO membership is a long way off—Western officials have called for blocking the talks to punish Russia for its war with Georgia—and so observing the deals is no longer in Russia’s immediate interest. Officials at the Office of the U.S. Trade Representative (USTR) say they haven’t been officially notified of Russia’s decision to cut some meat import quotas. "If Russia decides to step back from those ... commitments, that will obviously further delay its aspirations to join the WTO," said USTR spokesman Sean Spicer. — DTN

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Friday, August 29,2008

Food-vs.-fuel debate changing

by DTN
Food —Argument shifting from bushels to acres Heavy rains flooded Midwestern cornfields in June, raising questions about what a severely crippled corn crop would mean to the ethanol industry. But improved seed hybrids and ideal weather may be turning the food-versus-fuel debate on its head. An August USDA production forecast of a 12.3-billion-bushel corn crop in the face of seemingly catastrophic corn losses in some parts of the Corn Belt has left ethanol supporters scratching their heads. "It was surprisingly high," said Rick Tolman, president of the National Corn Growers Association (NCGA). "Every year we have better germplasm traits that make that plant less susceptible to the environment. The flooding was bad, but when it dried, we had good moisture. We’ve had a pretty cool summer, and the heat stress is not there." The flooding raised doubts about the future of the ethanol industry and the ability of farmers to overcome crop disasters to continue meeting demands for food, feed and fuel. If the USDA forecast holds up, however, the debate could be shifting. Bradley D. Lubben, an assistant professor and extension public policy specialist at the University of Nebraska-Lincoln, said perhaps the focus should be on future land use. "The current food-versus-fuel debate is a great illustration of the role of politics over economics," he said. "As the adage goes, politics always trumps economics. In the short run, we are calling it a food-versus-fuel debate because the public perceives that the cause of food price rises can all be blamed on fuel prices and policies. That significantly shortchanges the analysis." One way to characterize the issue, Lubben said, is that "we are not competing for bushels; rather, we are competing for acres. The true test of supply response will be how we allocate acres among multiple uses, including crops, forages, grazing land and habitat, among other uses." Talk about how a transition away from corn ethanol to cellulosic ethanol will solve the food-versus-fuel problem is "an argument over bushels," he said. "The real argument will be over acres, and at present technologies, gallons of ethanol from cellulose could require as many acres of grasses and biomass as gallons of ethanol from starch from corn," Lubben said. For instance, in 2007, higher market prices encouraged more corn production, and producers planted 15 million more corn acres. In 2007, those extra corn acres largely came from other crops, Lubben said, mostly from soybeans and some cotton. In 2007 and 2008, he said, the prices for other commodities "joined the rally" and enticed acres back into other crops. Hosein Shapouri, an ethanol economist with USDA, said there are about 36 million acres of land in the Conservation Reserve Program (CRP). About 8 million acres of the CRP land are suitable for production of corn and soybeans, he said. In addition, there are 60 million acres of cropland in pasture, Shapouri said, and some of that acreage could be used for production of corn, soybeans and other commodities. Corn hybrid technology has made drastic improvements in the past 60-plus years. According to USDA, 85 million corn acres were harvested in 1944—the same as 2007. Yet the total corn production increased from about 2.8 billion bushels in 1944 to around 13.1 billion bushels in 2007, along with a dramatic increase in bushels per acre from 33 to 151, according to USDA numbers. By 2030, NCGA’s Tolman said, many of the major seed companies have told corn growers to expect 300-bushel corn to be possible. "Agronomists shake their heads at that number," he said, "but seed companies say it’s doable." Tolman said the corn industry has changed profoundly from the development of a biofuels industry. Farmers, however, believe they should have been getting $5 corn all along, and hope to see those prices even after cellulosic ethanol begins commercial production within the next five to 10 years. "It takes stronger prices to produce," he said. "There was no future in $2 corn. We see the cellulosic piece as evolutionary and not revolutionary. Frankly, corn is the first source of cellulose. We want corn to move into a higher value." That future could include using corn to produce more industrial chemicals and biodegradable plastics, for example. Most cellulosic-ethanol technologies in development right now will rely heavily on the ability of the U.S. farmer to produce so-called ‘energy crops’ such as switchgrass, miscanthus, prairie grass, wheat straw, corn cobs and, someday, corn stover, or the leafy part of the corn plant. Chris Hurt, an agriculture economist at Purdue University in Lafayette, IN, said emergence of biofuels has changed the agricultural landscape. "Fuel and food markets are now fairly closely linked by biofuels," he said. "But this is not to say that each will have all the grains and soy products they would like to have, or that usage in each category will be at the same levels as pre-2006." The ethanol-investment surge was a phenomenon moving from a planned capacity of about 6.1 billion gallons at the start of 2006 to a planned capacity of about 13.6 billion in August, according to the Renewable Fuels Association. So the surge in corn demand is coming in the 2007 to 2009 crops and totals about 3 billion added bushels of potential usage over those three crops, he said. Hurt said it’s rare to experience a demand surge "as large and well defined as the ethanol surge we are going through right now." As a result, he said that a "less dynamic period" for corn will unfold in 2010 and beyond. "I think it is also clear that food will compete effectively with fuel for corn supplies," Hurt said. "In fact, in the long-run, food will probably be able to outbid fuel because of the greater overall value of food compared to fuel uses for corn." — DTN -vs.-fuel debate changing.

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Friday, August 1,2008

No penalty-free early-out for CRP acres

by DTN
USDA will not allow landowners to take acres out of the Conservation Reserve Program (CRP) early unless the landowner agrees to pay the normal early-out penalties for breaking a contract, Agriculture Secretary Ed Schafer said last Tuesday. Schafer said the decision not to allow early out "strikes the best possible balance between supporting programs that protect our natural resources and meeting the nation’s need for grain production." The decision effectively means farmers wanting to void a CRP contract for 2009 crops would have to pay the USDA penalties to do so. In choosing to stand pat on CRP, Schafer said USDA completed "a very thorough review" of recent crop reports, weather conditions, commodity prices, and the likelihood of more land going into production. All of those factors allowed USDA to stand pat when it came to the penalties. "We realize we are in a situation that can change rapidly and quickly, but at this point in time, we are comfortable with the numbers we are seeing coming out," Schafer said. The impact of Midwest floods earlier this summer does not appear as severe as earlier thought. USDA reports show the country should potentially produce the second-largest corn crop on record, with an anticipated harvest of almost 79 million acres, he said. "We don’t feel the corn and soybean crops are going to be as bad as we originally feared," Schafer said. The decision not to allow early out of CRP comes less than a week after a federal judge limited a special USDA program allowing summer and fall haying and grazing on CRP acres. The federal judge determined USDA could not make such significant changes to the CRP program without first doing an environmental impact statement as required by federal law. Still, some agricultural groups and commodity end-users have been clamoring for USDA to tap the CRP program for more production acres. Conservation groups, wildlife groups and some farm organizations have argued the other way, maintaining the CRP is a conservation program and using that land for production could impact the environment and may not provide enough quality acres to alter commodity production. "There are a lot of groups that feel strongly about this issue either way," Schafer said. "So if you want to count that as pressure, certainly we have heard the message on both sides of the equation here. But, you know, the reality is we have acres that are coming out of the program because of expiring contracts." USDA reports there are now 34.7 million acres in the CRP, down from about 36.7 million acres last year. Schafer said another consideration was that the new farm bill maxes out the program authorization in future years at 32 million acres. Schafer pointed out that as many as 9.3 million acres could potentially come out of the program between now and fall 2010. In late September, contracts for 1.1 million acres are expected to expire. The potential expired acres jump to 3.8 million in fall 2009, and 4.4 million acres in 2010. "So, large blocks of land will be available for other purposes if landowners choose to pursue them," Schafer said. The penalty for canceling a contract before it expires requires a landowner to pay back every single dollar received under that contract, including cost-share money and rental payments, plus interest. There’s also an additional penalty of 25 percent of one year’s rental payment. High commodity prices and land values have prompted more landowners to take acres out of CRP early and put the land into production, despite the penalties. Over the past 19 months, landowners have paid penalties to pull out 288,726 acres from CRP, which included a high mark of 36,890 acres last May. Senate Agriculture Committee Chairman Tom Harkin, D-IA, one of the architects of the CRP program in the mid-‘80s, stated last week he thought Schafer made a sound decision not to approve early outs. Harkin had complained that allowing early outs now would be unfair to producers who chose earlier to pay the penalties necessary to get out of the program. He said a more gradual transition would be a more sound decision "for conservation and everyone with an interest in CRP." "Today’s decision also protects the public’s investment in conservation paid for through years’ worth of CRP payments," Harkin stated. "We already expect that millions of acres will exit CRP over the next few years as contracts expire and landowners choose to return the land to cropping." — Chris Clayton, DTN

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Friday, June 27,2008

Farmers prepare for higher fuel costs

by DTN
Farmers prepare for higher fuel costs Central Iowa corn and soybean farmer Charles Helland usually waits until closer to fall before securing his fuel needs for the season, but this year he’s planning to firm up fuel needs in the next week or so. "In the past, fuel costs haven’t varied that much from the beginning of summer to the end, so it wasn’t much of an issue,"" said Helland, who farms with his brother Mike near Huxley, IA. "But in these markets, who knows how high the price of diesel will be come fall?" Early-bird buying isn’t the only new habit for farmers. Helland also has been adding fuel storage so that he can time his fuel purchases and store all his needs. "We had two 1,000-gallon tanks and we added another 1,000-gallon tank a couple years ago. We also have a 500-gallon portable tank and two other 500-gallon tanks at other locations," Helland said. However, adding storage isn’t the answer for all growers. "We’ve seen producers increase from 500- to 1,000-gallon tanks and also replace old tanks for environmental reasons or to protect their investment," said Kevin Lange with Heartland Co-op Energy in West Des Moines, IA. "But for the average farmer, with all the containment and fire marshal regulations, to increase to over 1,000 gallons of storage is usually not cost effective." That can be true even for large producers. "Our goal was to have enough fuel storage to be able to buy a semi load of fuel at a time. But that didn’t work in some locations," said Gregg Halverson, CEO of Black Gold, a chip potato producer based in Grand Forks, ND. "We farm in 10 states, and each one has different environmental rules and regulations. You might end up spending a dollar to save a penny," he said. "We looked into installing bigger fuel tanks at one farm in Indiana, but once you get above a certain size, containment and set-back regulations can be cost-prohibitive. It would have cost us $150,000 in containments and set-backs to add more fuel storage at that farm. We said, ‘Forget it.’" The price of fuel has caused us to rethink our business model, Halverson said. "Now, we’re evaluating production sites as to how close they are to terminal use as opposed to looking at the most perfect production site with the best soils, and rainfall or irrigation." Brett Crosby, a cow/calf and irrigated sugar beet, malt barley producer in Cowley, WY, is looking at a more creative risk-management solution for his fuel costs. He has invested in the Deutsche Bank Oil (DBO) index fund and is working with Kansas State ag economics professor Kevin Dhuyvetter to see how closely that fund tracks diesel fuel. "For most farm operations, selling a regular heating oil futures contract is not an option because one contract is equivalent to 42,000 gallons of diesel fuel. Most farmers have about 1,000 to 2,000 gallons of fuel storage," Crosby said. "Right now, DBO tracks very well with the price of oil. For every dollar that oil has gone up, DBO shares have increased 37 cents. One share of DBO is equivalent to 11 gallons of diesel fuel," Crosby said. "If farm operations are worried about how to protect against rising fuel costs and need 1,000 to 2,000 gallons, they could buy 100 to 200 shares of DBO. The advantage is producers can buy in small increments and they don’t buy on margin." DBO shares currently are trading around $50 per share. On caveat is that "the fund is not accurate enough as a hedge for a move of 10 to 30 cents per gallon for diesel, but it can hedge a producer against a move of $1 or $2 per gallon," Crosby said. "I’ve hedged my fuel needs with DBO shares only to a small extent," he said. "And I haven’t advised anyone else to invest because I want to make sure there are not pitfalls out there in which the fund wouldn’t track well with oil prices. Right now it looks like a solid hedging tool. You can buy the shares with any brokerage. I have an Ameritrade account and it took 30 seconds to fill my order. I bought DBO shares a couple of months ago. Obviously, I’m looking brilliant now. But we’ll see what happens when the market gets more volatile." Cash buyers face the risk that energy prices could go substantially higher, but the possibility that crude oil could plunge below $120 or even $100 a barrel over the next few months is slim, pointed out Phyllis Nystrom, energy department manager of Country Hedging, a subsidiary of co-op giant CHS. She recommends that farmers and dealers manage some of their fuel risk by exploring the use of over-the-counter options or something like Country Hedging’s CHI Compass capped-average contract, which establishes a maximum price. High premiums for those products have discouraged farm operators from taking advantage of those offerings in the past, she said during a June 17 DTN webinar on the topic. But considering the extreme volatility in the market today, some operators may want to rethink that objection. The Energy Information Agency forecasts that cash diesel prices alone could run $4.72 per gallon, up almost $2 per gallon from their 2007 average this summer. If such wide price fluctuations continue, the premiums for put options could be inexpensive insurance. Many farmers uncomfortable with over-the-counter options still use forward pricing as their main risk management tool for fuel. "We’re seeing a normal amount of forward contracting," said Mike Derickson with CHS. "Some producers are unsettled by the high price levels, so they’re buying as needed. For the most part, we’ve seen stable forward contracting in the past two years. Fuel prices are usually highest in the spring when refineries are taken down for maintenance, but there tends to be a dip in prices in the early summer," Derickson said. Unfortunately, that Memorial Day-early June dip of 18 percent to 20 percent has yet to materialize this year. "I tell my producers, since it’s hard to predict what will happen, the best thing to do in today’s economic environment is to keep your barrels full, forward contract some of your fuel needs and stay open on some of your needs," advised Heartland’s Lange. Randy Hertz of Hertz Farm Management in Nevada, IA, added that it is good risk management to have some fuel in inventory, but you also need to protect yourself against theft. "You have to put a lock on your fuel tank or have a switch inside the shop that turns on the pump. You also have to guard against inventory slippage from unauthorized use, such as by teenagers, neighbors or anyone else. The main thing is to make it inconvenient for people to steal your fuel," Hertz said. "Fuel still ranks under fertilizer, seed and rent costs, but when you go through a more than 4,000 gallons and diesel is over $4 per gallon, we try to not pay any more than we have to," said Iowa farmer Helland. — DTN

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