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Acreage Anticipation

Dow Jones News writer Doug Cameron reported yesterday that, “U.S. farmers are expected to continue boosting investment this year, but a closely-watched government report next week and rising input costs are likely to impact spending patterns.

“The global agricultural boom has intensified the focus on the U.S. Department of Agriculture’s annual prospective plantings report, due out on Monday. U.S. farmers are expected to switch more acres back from corn to soybeans to cut down on costs, a move that will impact demand this year for seeds and fertilizer, as well as longer-term needs for equipment such as tractors and combines The effect of record crop prices and low inventories has boosted farm incomes across the U.S., with a similar global pattern pushing the stocks and order books of farm equipment makers and seed and fertilizer producers to record levels.”

Mr. Cameron stated that, “U.S. farmers last year devoted more acres to corn as prices were spurred by rising demand for foodstuffs and grain-derived ethanol. Ethanol prices have since eased, while higher input prices are pushing farmers to switch from corn to soybeans.

“‘Corn is a much more costly crop to produce and often takes more wear and tear on machinery,’ according to a note to clients from Ag Resource, a Chicago-based trading company.”

With respect to corn and soybean acres for the 2008 growing season, a recent analysis by University of Illinois Agricultural Economists Gary Schnitkey and Darrel Good (“Corn Versus Soybean Returns in 2008”), stated that, “How many acres of corn and soybeans will be planted this year is of great interest and could impact relative corn and soybean prices. Most projections indicate fewer corn acres and more soybean acres will be planted in 2008 as compared to 2007.

“Relative profitability of corn and soybeans may impact acreage decisions. Given current cash bids for fall delivery, our analysis suggests that corn will be more profitable than soybeans in 2008 on many farms in Illinois. This analysis is conducted by calculating expected corn and soybean revenues for each Crop Reporting District in Illinois. Differences in corn and soybean revenue then are compared to differences in non-land production costs. Across all Districts, corn is projected to be more profitable than soybeans based on harvest bids as of March 20th.”

In a summary of the article, the authors indicated that, “Magnitude of differences in projected revenue of corn and soybeans across Crop Reporting Districts are large, suggesting that many farms will find corn production more profitable than soybean production. While Illinois farmers may shift acres from corn to soybeans in 2008, the relative profitability of the crops do not appear to be a reason for this acreage shift.”

In addition, a crop budget update posted last week at the Food and Agricultural Policy Research Institute (FAPRI) Online, depicted cost and return parameters for Missouri farms and included data for corn, soybeans and wheat.

The line item, “Income over total costs per acre” for each commodity, warrants specific focus.

And on Monday, a University of Illinois Extension article (“USDA Reports Could be Important for Crop Prices” –by Darrel Good), stated in part that, “The most important report may be the Prospective Plantings report. Expectations for planting intentions seem to be centering around 87 million acres for corn and 71 to 72 million acres for soybeans. That estimate compares to 2007 acreage of 93.6 million and 63.63 million, respectively. Intentions for spring wheat are expected to exceed last year’s seedings. The planting intentions estimate will provide a benchmark for anticipating actual plantings. Recent price changes that include much lower soybean futures and an extremely weak new crop soybean basis have shifted potential profitability significantly in favor of corn over soybeans in much of the midwest. At the same time, generally cool and very wet conditions in some areas may lead to anticipation of corn planting delays and a swing to more soybean acres. While many producers have locked in the planting decisions for most of their acreage, history reveals some significant differences between intentions and actual planted area. Factor in the uncertainty about growing season weather in the northern hemisphere and the ingredients for large price swings are in place.”

In additional news regarding corn prices, Dan Piller reported in today’s Des Moines Register that, “The prices of crude oil and corn have reached new highs this month, and an international economist suggested Tuesday that the trading prices of the two commodities are moving more in tandem.

“‘Corn prices have moved in correlation with crude oil 57 percent of the time since 2004, while from 1980 to 2004, corn prices and crude oil prices moved the same way only about 20 percent of the time,’ Kevin Cheng, an economist with the International Monetary Fund, said at a renewable-fuels conference in Ames.

“Soybeans moved similarly, matching the up or down movement of oil 16 percent of the time from 1980 to 2004 but moving parallel with crude oil 85 percent of the time since 1984.”

The Register article explained that, “The data are further evidence that the agriculture and energy industries have become closely linked with the demand for ethanol. The biofuels industry’s profitability depends on high prices for crude oil.”

For more on agricultural production costs, Associated Press writer Betsy Blaney reported today that, “Last year, a farmer could buy a ton of fertilizer for about $450; the price tag is now closer to $1,000, American Farm Bureau Federation chief economist Bob Young said.

“And when farmers and ranchers start up their machinery, their wallets will feel lighter.

“Last year, 500 gallons of diesel cost between $500 and $800. This year it will cost about $1,500 to fill that same tank.

“Most of the hikes in agriculture — as in other sectors — involve higher energy costs. Nitrogen fertilizer is made from natural gas, for which prices have increased sharply.

“‘It’s pretty difficult to figure out when it’s going to stop,’ said cotton producer Woody Anderson, a former chairman of the National Cotton Council. ‘Who knows when things are going to level off?’”

Farm Bill- Allocations for Environmental Programs

Chris Clayton noted yesterday at the DTN Ag Policy Blog that, “Conservation or environmental or ‘conservamental’ groups, however, are letting it be known they like what they saw in that framework released last week by the agriculture committees. They sent a letter Friday to the agriculture committees as well as congressional leadership advocating that Congress keep the $4.951 billion increase in funds for conservation programs.”

Mr. Clayton indicated that, “As the letter goes, ‘While substantially more is truly needed to address the country’s conservation needs, this level of investment is essential. Any less risks irreparable damage to our agricultural lands and other natural resources.’

“The groups cite the ‘ethanol boom, propelled in large measure by energy bill mandates Congress enacted in 2005 and dramatically expanded last year, is one of many factors putting enormous pressure on America’s land, water and wildlife resources.’”

The DTN item also stated that, “The groups, many of which have lobbied heavily against production subsidies, also added that the ‘farm economy’s unprecedented prosperity makes this an ideal time for tens of thousands of farmers to invest in overdue conservation measures through federal programs that share the costs.’”

And Philip Brasher, writing yesterday at the Des Moines Register’s Cash Crops Blog, stated that, “Environmental groups like the amount of funding for conservation that’s in the tentative agreement between the House and Senate agriculture committees. The agreement would increase spending on conservation programs by nearly $5 billion over 10 years.

“‘Any less risks irreparable damage to our agricultural lands and other natural resources,’ the groups say in a letter to Congress.”

Mr. Brasher indicated that, “That spending agreement, of course, has been in doubt because of the ongoing dispute among lawmakers about a permanent disaster program and other provisions that would be controlled by the congressional tax committees.”

Meanwhile, an item posted on Monday at KTIV News Channel 4 Online (Sioux City, Iowa) stated that, “Monday, Iowa Congressman, Steve King, was in Sioux City and spoke about the future of the [Farm] bill.

“Rep. Steve King,(R) Iowa says, ‘I want to say to the producers that title one of the farm bill, the commodities title is unlikely to change in a real substantial way. So I would ask them, first please have patience, I wish we’d done better for you, we owed you better than we produced. But the second thing is that your operations as they’ve gone over the last five years of the existing farm bill probably don’t need to be changed to accommodate what might happen in the new one.’”

EU

DTN writer Todd Neeley reported yesterday in an article datelined from Luplow, Germany that, “Inside a gray Communist-era building near Luplow, Germany, an engine powered by rapeseed oil runs at full speed, churning out sauna-like heat.

“Local farmer Andreas Tornow, his voice growing louder as he moves to shut down the motor, explains that it is a symbol of his farm’s self sufficiency: He grows, harvests, crushes and uses his own rapeseed oil to fuel — and heat — his operation.

“He also grows hemp, which contains almost as much oil as rapeseed. But the real treasure is the grassy top of the plant that’s already being used as a biogas feedstock in many parts of rural Germany.

“Biogas, a combustible gas created from decomposing biological waste, typically contains 50 to 60 percent methane, which can be used to run power and heat generators in rural areas. And while biodiesel gets a lot of headlines, the Union for the Promotion of Oil and Protein Plants, or UFOP, reports that biogas production is experiencing the biggest boom in EU agriculture these days.”

After detailing some recent developments regarding biodiesel, Mr. Neeley explained that, “But biogas is another story. In Germany alone the number of biogas plants increased from 1,900 in 2005, according to Anaerobic Digestion Network, to about 3,500 in 2007, according to the German Energy Agency.”

The DTN article indicated that, “Energy farming is a new concept to German farmers, but it is catching on fast as farmers look to diversify their operations beyond traditional crops, Voss said [Bernd Voss, farmer and vice chairman of the Federal Bureau of the Association of Peasant Agriculture in Wilster, Germany].

“For his part, he’d like to see farmers invest in technologies that use biomass to make fuels or to generate electricity and heat, and with his help many Germans rural communities are developing biogas plants custom-designed to fit specific needs and biomass limitations. For example, a plant within 10 miles of Voss’ farm in northern Germany uses enzymes to convert prairie grass and manure to biogas.

“The biogas produced at the plant, which is also equipped with solar panels, may soon provide heating and electricity to area residents; it also fuels cars designed to run on biogas.”

And Mr. Neeley also noted that, “The good news is that in the past 10 to 15 years there have been changes in EU agriculture policy, which previously limited how land could be used. Now farmers have more leeway to decide what crops to produce and how to market them — essentially freeing up farmers to grow more crops for biomass and other ventures.”

(Note: For more details and context regarding changes in the EU Common Agricultural Policy (CAP), see “‘Analysis From Brussels’ –By Roger Waite – CAP Backgrounder,” which was posted on Friday at FarmPolicy.com.)

In other EU agricultural developments, Guy Chazan reported in today’s Wall Street Journal that, “Britain’s pig farmers want you to Stand by Your Ham.

“The Tammy Wynette classic, altered in praise of bacon and sung by a crew of pig raisers, is part of an effort to pressure the United Kingdom’s dominant supermarket chains into paying struggling farmers more for their meat.

“Also part of the campaign: a 500-pound mascot sow called Winnie and a big pink plywood cut-out pig that counts how much money U.K.’s pork farmers are losing.”

Mr. Chazan stated that, “British pig husbandry is in crisis. Exploding global grain prices have driven up the cost of animal feed and farmers say they’re now selling every pig they raise at a $50 loss. Many farms could go belly up, they warn.

“Global wheat prices have more than doubled since November 2006, as harvests fail in places such as Australia, more agricultural land is diverted to biofuel production, and growing affluence in China and India boosts demand for grains. A British government scientist said earlier this month that global grain stores are currently at their lowest levels ever, just 40 days from running out.”

The Journal stated that, “Last month, about 30 farmers, some tonally challenged, piled into a stuffy studio in north London to record their campaign anthem. They crowded around the microphone and sang: ‘Stand by your ham/Sau-sa-ges, pork and bacon/Help us to stay in business/Because our pigs are worth it/…Keep givin’ all the help you can/Stand by your ham.’

“‘That rocked!’ shouted one singer, after the 11th take. ‘Maybe we should start touring,’ said another. They posted the song and video online.

“The National Pig Association, a farmers’ group, went on a national tour with a wooden ‘pig-o-meter’ that features an electronic display showing farmers’ losses ticking upwards at about $12 a second. The association also ran ads in local newspapers showing struggling farmers with their animals and the slogan, ‘Save a great British breed from extinction. No, we don’t mean the pig.’”

Nonetheless, the Journal article noted that, “But while the campaign is getting attention, it isn’t clear that it will cure the farmers’ financial troubles.”

Doha

Reuters writer Raymond Colitt reported yesterday that, “Brazilian industry leaders on Tuesday welcomed signs of progress in the Doha round of world trade talks but were skeptical that a deal could be reached this year.

“‘There’s been progress but with a global financial crisis and U.S. elections, it will be very difficult to agree on the final numbers,’ Soraya Rosar, director of international negotiations with the National Industry Confederation, said in an interview.”

The Reuters article explained that, “The presidents of Brazil and the European Commission said last week they were optimistic a deal could be reached shortly.

“Increased European and U.S. willingness in general and more flexibility on industry tariffs in particular brought negotiators closer to a deal in recent weeks, Brazil’s chief negotiator Roberto Azevedo told Reuters on Monday.

“Under the more flexible proposal currently discussed, leading developing countries like Brazil and India could choose either a lower overall tariff cut on manufactured products with few exemptions or a higher overall cut with more exemptions.

“But agreeing on the actual numbers will remain a daunting challenge, said Fernando Pimentel, director of the Brazilian Textile Association.”

Keith Good