AFBF: Grain farmers should brace for drop in net incomes

Grain farmers should brace for a drop in net incomes this year as the prices for corn, soybeans and wheat have fallen significantly from recent years, according to the American Farm Bureau Federation.
The latest Agricultural Prices report, released by the National Agricultural Statistics Service, indicated the index of prices received for crop production was down 11 percentage points from the same time last year, while the prices-paid index was unchanged. The situation for corn and soybeans is even more telling, with corn prices down by more than 20 percent from last year and soybeans off nearly one-third.
“Farmers will be tightening up and planning carefully to help control their costs,” said Bob Young, chief economist for AFBF. “There’s a lot less room for error at these prices.”
A report last week by the University of Illinois’ Dr. Gary Schnitkey suggested farmers will need to look at four areas in the months and possibly years ahead. These include reducing machinery purchases, closely managing seed, fertilizer and chemical costs, trying to negotiate lower cash rents and reducing family living withdrawals from the farm.
“With domestic demand growth relatively flat and a strong dollar giving us a challenge in export markets, we can expect prices to have a hard time moving above this level for the next couple years at least,” Young said. “Farmers have made equipment purchases and many are well positioned to face the challenges that changing weather and fluctuating prices may bring their way, but they will need sharp pencils.”

Study: Falling Brazilian real will make up grain price drop

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  A study by the University of Sao Paulo says the depreciation of Brazilian currency will make up for the drop in grain prices.

  From WATTAgNet:
  A study by the University of Sao Paulo says the depreciation of Brazilian currency will make up for the drop in grain prices, which will benefit Brazil.
  The study says export prices on soybeans should remain among the lowest since 2010, between $23.60 and $24.80. Soy oil prices are expected to fall from $794 per ton in January to $747 per ton by April, but the fall of the real against the U.S. dollar will compensate for the drop.
  The study also predicted that the U.S., Argentina and Brazil will have record grain harvests in 2014-15. Another report by the National Agriculture Federation predicts a 2.7 percent increase in the gross value of Brazil’s farm production in 2015. Brazil’s harvest for 2015 is expected to be a record 200 million tons.

Grain prices to remain high, animal feed prices still volatile

The new normal for animal feed costs will be at least $5 corn and $300 soybean meal, according to Thomas Elam of FarmEcon during his presentation on the Economic State of the Industry. He was speaking at the Meat and Poultry Research Conference held at the 2013 International Production and Processing Expo. The conference was co-sponsored by the American Meat Institute, U.S. Poultry & Egg Association, the American Meat Science Association, and the Poultry Science Association.

Grain prices
“Will we see $10 corn and $650 soybean meal?” Elam questioned. “It’s very possible. Also, $5 corn and $300 soybean meal is equally probable.” But, he believes those are minimums in the future. “We will continue to see volatile feed costs for the next 18-20 months,” Elam continued. “There will be no significant change through March and April. Then, it will depend on the weather this summer. If there is no rain again this year, we’re in serious trouble. And, there has not been enough snow this winter so far. Then, there is the ethanol squeeze.”
From 1950-2005, for meat and poultry producers, consumer demand was the major driver, Elam explained. Now, feed cost is the driver, and consumer demand has slowed. And, it is slowing the recovery from the recession, because more personal income is required for food.
On the positive side, “exports have held up incredibly well. However, there are always opportunities,” Elam remarked. “They include product innovation, distressed asset sales, more flexible price contracts, up-selling export markets, and continued cost cutting for increased efficiency.”

Antibiotic-free broiler production
Also on the program, Dr. David Wicker, Fieldale Farms, discussed antibiotic-free broiler production. “Why do we do it? Because that’s what the customer wants,” he said. “Antibiotics are not used in the feed or water and are not injected into the egg. We use an all-vegetarian diet, with no meat meals and no animal fats.”
Wicker listed several factors that impact antibiotic-free broiler production. The immunity level of the parents is important, particularly the parent hen immunity. The breed strain plays a role, and less density can be another requirement.

Organic food production
Miles McEvoy, with the USDA Natural Organic Program, examined regulatory standards and requirements for natural and organic food production. He said that organic agriculture has grown substantially in the last twenty years, from negligible to $31 billion in 2011. “The reasons vary,” he remarked. “Why organic? Things like environmentally sound, biodiversity, less toxic, animal welfare, rural development, and economic opportunity.”
The 1990 Farm Bill established national organic standards through the Organic Foods Production Act. McEvoy said certification is very important in organic agriculture. Consumers can choose production methods, and it protects consumers, establishes a level playing field, and ensures that products are produced without prohibited methods. It is also scale-neutral, in that all operations must meet the same requirements.
The food production categories that can be certified include crops, wild crops, livestock, and processed products. There is a fee for certification. and the cost depends on the size and scope of the farm. The average is $1,000, and annual recertification is required.

Processing challenges
Processing challenges were addressed by Kevin Myers, Hormel Foods. He focused on natural high pressure processing of ready-to-eat meats to reduce pathogens. He said that high pressure processing has been around 100 years, but has seen rapid growth in the last ten years. He listed the technical differences from other processing techniques. Myers said it also may impact things like shelf life and sometimes flavor but is a viable and growing option.

ADM revises proposal to acquire GrainCorp for A$12.20 per share

Archer Daniels Midland Company has delivered to GrainCorp Limited a revised non-binding proposal, with the aim of arriving at an agreement with GrainCorp’s board of directors under which they would recommend to GrainCorp shareholders an acquisition by ADM of all of GrainCorp for A$12.20 a share in cash, according to reports.
ADM’s proposed price represents a material increase of A$0.80 from the initial proposal of A$11.75 made on October 19, after allowing for recent dividends totaling A$0.35. “We consider that our revised non-binding proposal reflects the value of GrainCorp’s business, taking into account GrainCorp’s 2012 results, its new initiatives announced on November 15 and its recently announced ordinary and special dividends totaling A$0.35," said ADM Chairman and CEO Patricia Woertz. "Our proposal also offers more certainty, greater value and immediate realization of potential future value for GrainCorp shareholders than GrainCorp’s stand-alone plan. ADM is a disciplined buyer, and any combination with GrainCorp must meet our key financial hurdles, taking into consideration the impact of the Australian agricultural cycle on GrainCorp’s earnings power.”
The revised non-binding proposal represents:

• a 39.6 percent premium to the last closing price of GrainCorp shares of A$8.74 on October 18
• a 38.8 percent premium to the one-month, volume-weighted average GrainCorp share price of A$8.79 up to October 18
• a 35.7 percent premium to the six-month, volume-weighted average GrainCorp share price of A$8.99 up to October 18
• a 45.9 percent premium to the twelve-month, volume-weighted average GrainCorp share price of A$8.36 up to October 18

Astral Foods cuts jobs on reduced production, high grain prices

South African chicken producer Astral Foods has cut 150 jobs due to reduced production caused by high grain prices, according to the company. Further cutbacks and retrenchments are likely, said Astral Foods chief executive Chris Schutte.
Local grain prices reached a record in July due to the drought in the U.S. Midwest, and imports are at an all-time high, according to reports. Other poultry producers might have to cut jobs as companies struggled to pass expenses onto consumers, said the SA Poultry Association. “Some of them have already retrenched, but they are planning to retrench in the order of 3,000 people over the next month or so,” said association chief executive Kevin Lovell. “Disposable incomes are stretched...as much as we know we need to raise prices, we also know that the chances of being able to do that are rather limited.”

Tight corn supplies will force cuts, losses

The bulk of the bad news regarding the 2012 crops should be in by now, according to Tim Brusnahan with Brock & Associates Inc. Brusnahan, together with Dr. Chris Hurt of Purdue University, was a speaker at WATT’s August 13 webinar, “August Crop Report: Analysis and Implications.”
Brusnahan noted that with corn at $8.00 per bushel, there has been a shifting to alternatives such as feed wheat. Unfortunately, there is not enough feed wheat available to significantly impact corn demand. “So overall, we still have a fairly tight supply around the world,” he said.
Brusnahan also observed that erratic rainfall throughout the Midwest still leaves some volatility in the soybean sector, as final yields may come in lower than U.S. Department of Agriculture estimates. This will also provide opportunities for South America to plant large crops and take advantage of high prices.
He summarized that in regard to money flow, the large speculator remains long corn, soybeans, soybean meal, wheat, cattle, hogs and Class III milk. As to U.S. corn and soybeans, corn prices indicate zero carry and soybeans have a large inverse that should cause producers to move their crop to market at harvest. For ethanol, margins have improved and remain in a state of rebalancing. For DDGS, supplies and use are a little uncertain until more is known of Midwest corn quality.
Hurt, a professor of agricultural economics at Purdue, noted that the current drought will most likely end up being the second or perhaps third largest natural disaster in the U.S. in the last 30 years, after Hurricane Katrina and the 1988 Midwestern drought. “Bottom line, there’s not going to be enough corn to go around,” Hurt said.
For the animal industry, Hurt described conditions in the short run as being “very bleak.” He indicated that there will be losses for all species across the board for the next 12 to 14 months. “This will result in some liquidation of herds, it’s going to reduce supplies, and over time it’s going to bring up retail prices of those animal products and, therefore, the wholesale prices and the farm-level prices.”
However, Hurt said this will ultimately give cause for some long-term profits in late 2013 and into 2014 and 2015. The challenge, he noted, will be getting through the next 12 to 14 months.
Both Brusnahan and Hurt addressed a number of questions at the end of the webinar relating to various aspects of the crop report.
To view an archived version of this webinar, go to: www.wattagnet.com/ondemandwebinars.aspx

US broiler production to drop on grain prices, slow economy

U.S. broiler meat production for the first five months of 2012 was 15.4 billion pounds, down 1 percent from the same period in 2011, as a result of a smaller number of birds being slaughtered, according to the latest U.S. Department of Agriculture report.
This drop was offset partially by higher average weights at slaughter. Over the January–May period, average broiler weights at slaughter were 5.83 pounds, 0.7 percent higher than in the same period in 2011.
With adverse weather conditions in many areas of the country impacting corn production, rising grain prices and the sluggish economy are expected to result in a less rapid recovery in broiler production in the second half of 2012 and only slight growth in 2013, according ot the USDA. The production estimate for fourth-quarter 2012 has been reduced by 50 million pounds. The estimate for 2013 broiler meat production has been reduced by 400 million pounds to 37.1 billion pounds, up only 0.6 percent from 2012. Most of the reduction is expected to come from reduced numbers of broilers being raised, as average weights are expected to be close to those in 2012.
During May, the number of birds in the broiler breeder flock was estimated at 52.9 million, down 5.3 percent from 2011 numbers. On a year-over-year basis, the size of the broiler breeder flock has been lower than the previous year since February 2011. With this reduction in the number of broiler breeder hens, the number of eggs placed in incubators and chicks hatched are expected to continue to be lower than in 2011, potentially reducing the amount of birds available for slaughter.
Broiler meat production is expected to be down 1.7 percent in the second quarter of 2012 compared with 2011 numbers, with almost all of the reduction coming from lower bird slaughter, according to the USDA. These production decreases are generally expected to have a positive impact on wholesale broiler parts prices. For the remainder of 2012, cold storage holdings of broiler products are expected to gradually increase. While broiler meat production on a year-over-year basis is expected to be slightly lower in the second half of 2012, the decline is expected to be partially offset by lower exports and a sluggish domestic economy. Broiler stocks are expected to slowly rise, ending the year at 650 million pounds.
For more poultry information and statistics, see www.wattagnet.com/marketdata.html. 

JBS expects Pilgrim's to report profit for 2012

Brazil meatpacker JBS SA said that it expects its U.S. poultry unit Pilgrim's Corp. to report a profit for 2012, after the company reported an $85.4 million loss for the fourth quarter of 2011, according to reports. Pilgrim's has struggled with high feed costs and excess supply in North America, but rising demand and a decline in costs are likely to help improve margins, said Jeremiah O'Callaghan, head of investor relations for JBS.
The meatpacker raised its stake in Pilgrim's to 75 percent in March. "We are witnessing an improvement in the United States," said O'Callaghan. "There was a widespread cut in poultry production in that market but demand has remained resilient." A weak U.S. dollar and solid demand in countries like Mexico and Venezuela, which have increased their purchases of JBS products so far in 2012, will also help profitability, he said.

Butterball to close Colorado facility

Butterball LLC will close its Longmont, Colo., facility on Dec. 31 due to increased grain and other input costs, and to streamline operations, according to the company.
Over the past five years, Butterball’s increase in costs related to higher feed ingredient commodity markets (corn, soybean meal, fat, etc.) has averaged nearly $65 million per year, or $325 million total. “After long and careful consideration, amid record-high ingredient costs, our company has come to the conclusion that we must take these steps in order to improve our overall effectiveness,” said Rod Brenneman, president and CEO. “Government ethanol subsidies and record-high fuel prices for much of 2010 and 2011 contributed to a major increase in our operating costs and the closure of this facility is necessary to streamline our operations and accommodate current and projected demands.”
Butterball is working with associates at the Longmont facility to provide career counseling and discuss job opportunities at different locations throughout company operations as well as offer additional support through employee assistance programs.

Grain associations respond to Syngenta GMO corn lawsuit

The National Grain and Feed Association and North American Export Grain Association have issued a statement in response to the lawsuit against Bunge involving Syngenta’s biotechnology-enhanced corn, which has received regulatory approval or authorization in the U.S. and several foreign markets, but not in China.  
“The NGFA and NAEGA both strongly support agricultural biotechnology and other scientific and technological innovations that contribute to the production efficiency and availability of a safe, abundant and high-quality food and feed supply for U.S. and world consumers," said the statement. "Technology providers must provide for two critical elements: First maintaining access to key export markets like China, or for that matter any market like China that has a functional, predictable biotech-approval process in place; and second, proactive transparency to all stakeholders when there is a potential for restricted marketability of their products based upon approval status in major markets." 
According to the associations, the negative consequences of overly aggressive commercialization of biotech-enhanced events by technology providers are numerous, and include exposing exporting companies to financial losses because of cargo rejection, reducing access to some export markets and diminishing the reputation of the U.S. as a reliable, often-preferred supplier of grains, oilseeds and grain products. “Putting the Chinese and other markets at risk with such aggressive commercialization of biotech-enhanced events is not in the best interest of U.S. agriculture or the U.S. economy.”

VIV Asia meeting highlights alternative feed ingredients

With grain prices soaring, the potential for using alternative ingredients to manage feed costs was discussed at an important meeting during the VIV Asia show in Bangkok, Thailand.
A theme of future trends in animal feeds had been chosen for the Feedtech-Croptech Asia 2011 Conference held 9 March, by VNU in association with WATT.
Within that theme, the presentations by guest speakers Dr. Budi Tangendjaja (U.S. Grains Council) and Dr. Chinnadurai Sugumar (Kemin Industries) focused firmly on whether agricultural co-products or other crop products might be used instead of conventional energy and protein sources in Asian feeds for poultry and pig.
Download Dr. Budi Tangendjaja's presentation
Download Dr. Chinnadurai Sugumar's presentation
Alternative ingredients offer more options and therefore more control over the future when supplies of the main grains or proteins may be limited, these presenters pointed out.
Co- not waste-products
Often the candidates for consideration are available locally at relatively low prices, although they tend to be rather bulky and therefore transportation costs might be higher. Moreover, their quality is inconsistent at times and certain anti-nutritional factors may be present. Palatability and digestibility must be taken into account, as well as the potential risk of contamination.
However, positive aspects include not only a lower cost, but also the fact that these co-products do not generally find a use in human food.
To assist poultry and pig feed formulation there is a growing amount of knowledge on where and how such alternative feed ingredients can be employed without depressing the performance of the animals or birds, together with the arrival of technology to overcome their disadvantages and so allow higher inclusion rates.

Bumper crops…baking…milk

These seemingly unrelated subjects in the title are just that, completely unrelated. However, all three of these items caught my attention yesterday, and while all are worthy of a separate blog, there’s just no time. So, I’ll just cover each topic quite briefly.
Bumper crops. The Wall Street Journal on May 3 reported that Brazil’s bumper crops of corn and soy have strained the nation’s grain storage capacity. The record crops have depressed grain prices, which the WSJ interprets as a bad thing. But for Brazil’s poultry and pig producers, this is a very good thing, which will reduce production prices, as I see it. Brazil will also have more grain to export, which is good for the poultry industries of other nations. The grain storage issue still needs to resolved, however.
Baking. There was another story in the May 3 Wall Street Journal, about the popularity of sourdough bread in the U.S. It was noted that: “The recession and high unemployment have left people with less money for restaurant food, but more time for ambitious baking recipes.” The article noted that one particular baking supply company had an 11% increase in flour sales last fiscal year. It also mentioned a particular baking website that currently attracts 1.25 million page views a month, more than double from two years ago. It seems to me that there’s a lesson there for the food production industry. Food for thought – pun intended. ...Read the full blog on www.animalagnet.com.

Russia to increase grain production

Elena Skrynnik, the Minister of Agriculture of Russia, announced the country would grow up to 120-125 million tons per year of grain in 10-15 years, say reports. This gain will come from the use of additional lands and increased yields.
These volumes will allow Russia to double current exports to 40-50 million tons to Central and Southeast Asia, the Middle East, Southern Europe and Africa. It may also spur the modernization of grain storage and transportation in Russia.

NCC opposes 15% ethanol blends

The Environmental Protection Agency should resist the ethanol industry's demand that it legalize blending of ethanol into motor gasoline up to 15%, according to the National Chicken Council. NCC warned that the higher blend could cause damage to cars and trucks built to run on a maximum of 10% ethanol and would create additional volatility in the grain market.
Growth Energy, a group led by Poet Energy, the nation's largest ethanol distiller, petitioned EPA to raise the legal limit from 10% to as much as 15%, asserting that the higher blend would make no difference to operation of the millions of cars and trucks in the U.S. that run on conventional fuel.
EPA said its consideration of the Growth Energy petition would be based on whether there is adequate reason to believe that more ethanol in fuel would not cause harm to engine components, particularly pollution control equipment. NCC argued that pending studies must be completed before a final decision can be made.
Growth Energy and other ethanol backers claim that the 10% limit effectively caps the amount of ethanol they can sell, calling it the "blend wall."
Comments to EPA on the Growth Energy petition are due no later than July 20 and can be made through the government's official portal at www.regulations.gov.