News | Field 2 Field

December 4, 2023December 4, 2023

2023, the Ag Economy, and a New Year Ahead

What’s the first thing that comes to mind when I say, “Describe the year 2023 farm economy in one word?” Actually, I’m not sure one word would be adequate, especially if you live and work in rural America. The best way to describe 2023 in the agricultural community for many may be “Is it 2024 yet?”

Ag Economy, 2023 — In today’s ag economy, 2023 saw many of us pinching pennies to grow crops.

Dave Widmar is an agricultural economist with Agricultural Economic Insights in West Lafayette, Indiana, and keeps a close eye on the ag economy. We had a conversation during the last National Association of Farm Broadcasting Annual Convention in Kansas City in November, a week before Thanksgiving.

“One of the biggest stories of 2023 is declining net farm income,” Widmar says as the crowd in the Trade Talk event walked by in the background. “That’s not a big shocker to most people in rural America, but we have to put it in perspective. It’s still historically high, so we need to bring it into balance.”

Unfortunately, that income balance doesn’t apply equally to all parts of farm country. He said the Midwest and the Corn Belt did especially well during the last three years combined. In fact, he called the last three years (2021-2023) the “best three-year run” since the 1940s.

“On the other side of the narrative, commodity prices have trended lower,” he said, “especially on corn. We also had another year of below trendline yields combined with higher interest rates.”

AEI isn’t necessarily watching the interest rates the general public hears about during the evening news. Those are the short-term rates the Fed adjusts at their meetings, and, since June, the Fed has raised short-term rates 25 basis points. “On the other hand, long-term rates have increased 150 basis points,” he said.

“That may continue into 2024 as that yield curve un-inverts as we move into a different economy next year,” Widmar said. “As the Fed spent time raising rates, the curve got inverted, meaning short-term interest rates got more expensive than long-term rates. This is often thought of as an indicator that recession may be coming.”

2023 ag economy — The 2023 farm economy showed producers it’s time to keep a tight reign on how they use debt.

Now the Fed has paused interest rate hikes, the long-term interest rates have continued higher. That means the yield curve is starting to un-invert, something he’ll continue watching.

There is some good news for the economy. The unemployment rate remains low, which is a positive trend, and inflation has come down “significantly.” In his words, “the genie isn’t back in the bottle yet.” The country isn’t back to two percent inflation, and the last 150 basis points on inflation are going to be the hardest to reduce. “A lot of moving pieces in 2023,” he added.

So, what do those moving pieces possibly mean for 2024? For those looking for the economy to settle down, they may be disappointed. Widmar said “hold on.”

“The volatility is probably going to continue,” he said ruefully. “That isn’t all bad. Despite record fertilizer prices, the uncertainty around usage, demand, and inflation, the farm economy had a good run between 2011 and 2023.

“We could see some reversion to the mean,” Widmar added. “Farm incomes might be lower next year but not necessarily historically bad. What we need to realize is the last three years are not normal.”

The last three years weren’t typical in terms of government payments, commodity prices, or profitability. Widmar says it’s time to start recalibrating our expectations as to what’s normal and what we should plan on being normal in the future. Speaking of the future, what should producers be thinking about heading into next year?

“One of the big things we’re keeping an eye on is acreage distribution,” Widmar said. “There’s always at least some reallocation. One of the things that we observed in 2023 was that we had a lot of corn acres and not as many soybean acres. That’s resulted in an imbalance in ending stocks.”

That’s put corn ending stocks are above the long-run average, closer to 15 percent than the average of 13 percent. Soybeans are closer to five or six percent instead of the long-run average of eight.

“That means we may see some acreage reallocation,” Widmar said. “Producers should keep an eye on the relative price ratio and how that’s going to impact their budgets.

“They also need to keep an eye on fertilizer expenses,” he added. “Fertilizer has come down a lot recently, and that’s going to benefit corn budgets quite a bit.”

Another thing to watch for is farm debt. One of the things the economists at AEI have observed is new farm loans with different terms than in the past. Take a machinery loan, for example. The payment terms have been stretched out. How does that affect the bottom line?

“For every $1,000 of farm debt one takes on, the payments are going to be about the same as they were the last few years,” he said. “The payment hasn’t changed. What’s changed is the ‘stretching out,’ which means more payments get added to the backside. The extra interest expense is backloaded into the form of additional payments.”

Interest expenses are increasing as we go forward, and it will take more payments to maintain the same level of debt that farmers have had in the past. He said a lot of the economic challenges we face today may be getting “kicked down the road.” But there is one good sign amid some uncertainty looking to the new year and 2024 spring planting.

“Lenders are still confident and comfortable making long-term loans on things like machinery,” he said. “One of the big differences between the 1980s and today is back then, we had very high interest rates and short repayment periods. Some repayment periods lasted less than a single year.”

That created a large problem of no access to capital in the ‘80s. Today, Widmar said there’s a lot of available access to debt markets, which are very accommodating right now. But, he says, just because someone will lend to you at those terms doesn’t mean you as a farmer need to accept them. “Always be thinking about the implications of any loan terms you accept,” he added.

“Stretching the terms out has kept the payments low, but now that we’re in a high-interest environment, how are producers going to adjust,” he asked. If costs like fertilizer, electricity, or gasoline go up, Economics 101 teaches that we should be using less of each input.

“What do we do then with the higher cost of money,” he said. “Using less of an input is one particular approach. We can also shift the way we’re using money, including using more long-term debt last year and then shift it to short-term debt going forward. We always have to be evaluating how we’re using debt.”

In closing, he pointed out that agriculture hasn’t been in many rising interest rate environments in the past. The 1980s was one, and farmers and now in another. Producers need to revisit the strategies they’ve been deploying around farm finances, the use of farm debt, and their cash flow.

July 15, 2023

Exploring Tangletown and the Washburn Water Tower

Exploring never gets old for me. It was Saturday afternoon and time to get out of the house. Making my way through the smoke from Canada’s wildfires and the really strange streets of the Tangletown neighborhood in Minneapolis, it was time to find the Washburn Water Tower.

The first observation was Tangletown is the right name for that neighborhood. Whoever put those streets together maybe had one too many drinks with dinner. Nonetheless, it was time to find the tower, and for a good reason.

It looked like a structure you’d see somewhere near a castle in any one of the Lord of the Rings movies. But let’s delve into a bit of history first.

The 110-foot concrete cylinder was constructed in 1932 and sits at the top of a hill in Tangletown. A book titled “Secret Twin Cities, a Guide to the Weird, Wonderful, and Obscure” was the perfect exploring manual. It points out that if you aren’t within a block of the structure, you’ll never see the tower because it’s hidden by a combo of dense residential areas and tall trees.

Look at how intricate that carving is! (Photo by Chad Smith)

The reason for preserving the old structure was the intricate details builders put into constructing the tower, which is no longer used to supply water. Encircling the top of the tower are eight-foot tall, five-ton eagles with spread wings that look ready for takeoff.

A bit further down the cylinder, it looks like knights are standing guard outside the walls of a castle. Closer to the base are 18-foot tall, eight-ton “guardians of health” holding a perpetual vigil with swords. At a time when Minnesota was in the middle of a deadly typhoid outbreak, the guardians were symbolic protectors of a clean water supply.

The tower had a capacity of 1.35 million gallons of water, which it faithfully supplied to the neighborhood until the 1990s. Three men from the neighborhood designed and engineered the structure John Daniels was the sculptor, William Hewitt was the project engineer, and Harry Wild Jones was the lead architect.

Get out and get to exploring. The massive medieval tower is located at 401 Prospect Avenue in Minneapolis, and there’s no charge to get up close and personal with the “tower guards.”

“The Eagles have landed!” (In my best Merry and Pippin voice from LOTR!

February 20, 2023February 20, 2023

Shipping Commodities is Near-Normal, For Now

Shipping commodities up and down America’s inland waterway system got pretty hard to do in 2022, especially along the Mississippi River. Extended drought cut water levels to almost impassable levels and resulted in shipping grinding to a halt in the river. The good news is those levels are finally beginning to rebound.

Mike Steenhoek is the executive director of the Soy Transportation Coalition, a group that keeps a sharp eye on shipping and the waterways year-round. They’re happy to see those river levels starting to rise because ships are once again carrying commodities to southern ports in the U.S.

“Meaningful precipitation has occurred over the past several months,” he said from Ankeny, Iowa. “It’s made a significant impact throughout the entire inland waterway system.”

Steenhoek offered up Memphis, Tennessee, as an example, calling it one of the “ground-zero” locations for the low-water conditions last fall. That location is currently 10-10.5 feet of water depth in relation to the gauge.

“Last year at this time, we were at 19 feet,” he recalled. “So, we’re below last year. To give that some perspective, we were just about at a negative 11 feet in late October. We’re easily more than 20 feet better than we were in October, which is a significant increase making shipping easier.”

St. Louis, Missouri, was another example of “ground zero” in the low water level picture. That location is just a bit higher than at the same time in 2022, so the area has seen a nice rebound from the low levels. He says the moral of the story is the waterways have returned to a degree of “normalcy.” But there is a catch.

“It won’t take a lot of sustained dry conditions to tip us right back into lower conditions,” Steenhoek said. “It could critically impact some of those areas like St. Louis to Cairo, Illinois.”

Shipping commodities is getting back to near-normal levels, for now. The waterways need continued rainfall in case dry weather returns. (Photo by AgFax)

Cairo (pronounced KAY-row) is a significant point in the waterway system. That’s where the Ohio River meets the Mississippi and provides a big influx of water into the system so that St. Louis to Cairo area can be very susceptible to low water conditions.

How dry did some of those areas get? The levels sank so low that ships were actually running aground and getting stuck in the Mississippi River. When that happens, one of two things usually occurs.

“Those ships sometimes had to get dug out,” he recalled. “Sometimes, they had to sit there until water levels rose to the point they could move again.

We also had sediment buildup, or ‘shoaling,’ in multiple locations,” Steenhoek said. “That resulted in shipping having to stop or significantly slow down. That meant there was a lot of dredging activity occurring last year and continuing into 2023.”

The timing for ships getting stuck last fall was awful, as that’s a time when a high percentage of U.S. exports occurs between September and February. “That’s when the U.S. soybean spigot is turned on and we supply a lot of soybeans to the world market,” he said. “Bad time for one of the main ways we move product to our ports to go down.”

Steenhoek monitors shipping in the waterways closely and says there is good movement up and down the waterways right now. U.S. export volumes are comparable to even a little higher than where they were last year.

“That’s really good news,” he said. “The reports I’m getting, particularly from the export facilities down in the New Orleans area, say they are back to a healthy degree of normalcy.

“As I mentioned, we’d love to see steady precipitation continue,” Steenhoek added. “We don’t have a lot of excess water in the tank to rely on if things go that dry again.”

November 30, 2022November 30, 2022

2023 and the year ahead for the ag economy

2023 and the ag economy combine to produce some trepidation as we look to next year. While the ag economy is doing okay despite several challenges like supply chain delays and high input costs, the question is how long this will last into next year. I talked with David Widmar, an agricultural economist with Agricultural Economic Insights in West Lafayette, Indiana.

There are no doubts that commodity prices are showing a lot of volatility at the end of this year, and Widmar says that’s causing a lot of angst. However, it’s generally still a positive story in the farm economy. But what’s ahead next year?

“We do expect that positive story to continue into 2023,” he said during the 2022 National Association of Farm Broadcasting’ annual convention in Kansas City. “One of the biggest reasons why is tight commodity inventories across all commodities in the U.S. and globally.”

The problem is when things get tight for corn, soybeans, and wheat, we really can’t substitute one crop for another. All of those crops will want to maintain their acreage shares. The idea of “robbing Peter to pay Paul” won’t work.

“We can’t plant fewer corn acres to make up for soybeans or vice versa,” he said. “So, everything is tight, and that will continue to be part of the narrative going into 2023.

“We know one thing about2023,” Widmar added. “There will come a point when we oversupply. We’ll bring in new production acres around the world, including South America, Southeast Asia, India, and hopefully Russia and Ukraine in the long term.”

The other thing that will eventually affect the markets is the possibility of big yields. There’s been a recent run of average to slightly below-average U.S. corn yields. “Eventually, more acres and yields will push us over again.”

Here’s the entire conversation during the NAFB’s Trade Talk event in Kansas City.

May 4, 2022May 4, 2022

Market Prices are Still Higher, But How long?

Market Prices are still higher, but for how long? Commodity markets are rarely dull and sometimes are outright wild. One-quarter of the way into 2022, and we’ve seen a lot of upward pressure in several commodities. The curious question is how long is this going to last given multiple outside factors that could bring the higher push to a halt.

Mike Zuzolo is the founder and president of Global Commodity Analytics in Atchison, Kansas. He’s been working in the markets in various positions since November 1995. Zuzolo has seen a lot of ups and downs over the years, and the corn market has been near all-time highs for quite a while.

“We’ve been within reach of the all-time high for corn set in August 2012, at $8.43 3/4,” he said on the phone from Kansas. “You have the Hard Red Wheat drought, you have the E15 blend increase this summer, planting delays that are pressuring a marketplace that’s expecting more acres than what the USDA predicted earlier this year.

“And then you have the soybeans getting support from the vegetable oil market, which is supported by the crude oil market, and that is supported by the biggest feature of all, the war in Ukraine,” Zuzolo added.

Over the past four months, Zuzolo said there are two overarching factors that had the most influence on the corn market prices. One is the idea from the Federal Reserve that the U.S. had transitory inflation. At roughly the same time the Fed began to publicly acknowledge that wasn’t the case, Russia began its attack on Ukraine. He said most people didn’t seem to truly expect that would happen.

He calls these two events “black rhinos.” Those are events the public knew were possible but kind of turned away from, not thinking they would actually happen. “They aren’t like black swans that we didn’t know where out there,” he said. “You didn’t think they would have the impact on the markets that’s happened so far.”

The market prices could potentially feel the impacts of the war in Ukraine for years. Zuzolo, a long-time market observer, says the length of the impact may depend on who “wins” the war and how big it may get before it’s done.

The commodity markets may feel the impact of the war in Ukraine for years to come. (Photo from Hindustantimes.com)

“Does NATO get involved?” he wondered, “It would then go from two countries directly involved with a lot of support from multiple other countries, or does it expand into a NATO and China and Syria and Iran conflict. The regional conflict would have a great chance of blossoming into more of a full-on world war.”

He thinks the trade is beginning to take the potential conflict escalation into account, “and they should.” A recent weekly stocks report of distillate fuels in the U.S., which is mainly heating oil and diesel fuel, showed America’s distillate fuels at their lowest point since 2008.

“All of the sudden, we have a situation where the wheat market is contending with a situation similar to 2008 in terms of drought potential, knocking down yields,” he said. “Now, we have the energy sector also looking like 2008. If you throw the Russia/Ukraine issue on top of that, then yes, you could have something that lasts for quite some time.”

There are a lot of negative features out there that can affect market prices. He said the trade can’t get a handle on what the supply is right now. Folks in the markets don’t know if the demand is being rationed aggressively enough at this point, because they don’t know if the supply has stopped going down yet.

“The Highly Pathogenic Avian Influenza is in 20-something states right now,” Zuzolo said, “we have a hog herd that is shrinking as of the March Hogs and Pigs Report, and we have a cattle herd that is seeing an almost-weekly drop of one-to-three pounds on a dressed basis. I think we’re only four or five pounds above where we were a year ago, and this is in the beginning of what could be one of the worst droughts in cattle country.”

The International Monetary Fund (IMF) recently cut world GDP by almost a full percentage point just since January. While the IMF puts a lot of it at the foot of the war in Ukraine, Zuzolo says it goes back to the supply chain issues. The U.S. couldn’t afford any more problems on the supply side with energy and crude oil than what the country already faced because of COVID-19.

Thinking long term, Zuzolo spoke to the possibility of the U.S. having to ration exports in order to make sure the U.S. had enough food to feed the country. He doesn’t think it will happen in terms of food exports, but it could happen in other sectors.

“In terms of crude oil, we recently lost a lot more barrels of oil than the trade expected,” Zuzolo said. “It wasn’t because of extra strong demand, it was three times more than the trade expected because we were exporting it out the door. If we can’t bring up the rig count here in the United States and start producing more to meet international and domestic demand, it will then be time to start thinking about rationing.”

Zuzolo said this will have to be a topic of conversation three-to-six months down the line if the war expands and the conflict gets any bigger than it already is. In the meantime, it’s harder than ever to guess what’s ahead in 2022 for the markets.

“I’m gonna stick with what I’ve said recently,” he said. “Because this is a supply cost-push, weather-induced, inflationary move, I still feel the first half of calendar year 2022 is the best time for grain hedgers to get their hedges in place, and yes, I do think they’ll need them. It’s because of the fact that it’s not demand led, and that we are on track for a recession, a greater than 50 percent chance, by the fourth quarter of this year.”

Commodity markets are never dull, are they? (Photo from wikipedia.com)

He says it’s important to get grain hedges in place by the end of June. For the livestock and poultry producer, the second half of 2022 is going to give them a better opportunity to hedge better profit.

“At that point, not only will high market price prices for grains pull down the weights, the HPAI will pull down supply, as will some natural herd reductions. That will all begin to be felt in the market price and the available supplies of market-ready cattle and hogs by the time we get to August and September.

“I still want to hedge the livestock markets, but I don’t think we’re on as big of a timeline as I am on the grains during the first half of the year,” he added.

April 27, 2022April 27, 2022

Port Slowdowns Continue – What’s Behind the Congestion

Port slowdowns are still clogging up the nation’s supply chains, and it’s a big problem to solve. Ray Bowman is Director of the Small Business Development Center of Santa Barbara and Ventura counties in Southern California. He’s also the program chair for the District Export Council of Southern California. The business veteran and trade consultant said things have improved a bit but only on one side of the import-export equation.

“Many things are going on to help with the port slowdowns,” he said on the phone from his office in Camarillo, California. “Most of us have seen the news footage of ships backed up and waiting to unload their cargo. A big part of the backup is the unprecedented buying demand we saw during COVID-19.”

He says the Biden administration moved to get the nation’s ports operating on a 24-hour basis or, at least, get that framework in place to help relieve congestion. Bowman says it’s helped somewhat on the import side of the business, where he says things are about 30 percent better than before.

“Unfortunately, I don’t see that it’s improved on the export side,” Bowman says. “So that’s been tough on American shippers who need to move their goods overseas.

“We knew there would be a significant increase in buying during COVID-19,” he said. “Up until recently, we haven’t seen much of a slowdown in purchasing. Companies are likely still trying to fill orders backlogged for months.”

Ray Bowman is an international trade consultant from southern California with over 30 years of experience. (Photo from edcollaborative.com)

With so much demand for containers on the import side, it’s very difficult for shippers to simply find export containers to load their goods in. Companies started focusing more and more on the import side because they were making so much more money.

When it comes to export containers, fewer goods are leaving the country, so it tends to be cheaper to purchase export containers. They aren’t worth as much to the steamship lines as the larger volume of goods coming into the country. “Because of the demand for imports, steamship companies put all their space availability on the import side,” he said. “They didn’t pay as much attention to the export side, making containers much harder to find.

“The price of those containers is another limiting factor,” Bowman said. “As demand increased, the price shot higher at an unprecedented rate. We knew the price would increase because those costs have gotten suppressed in recent years, but we didn’t expect it to climb by ridiculously huge amounts.”

Limited amounts of containers and exorbitantly high prices hit the small and medium-sized companies harder than the larger businesses. He said the larger companies have economies of scale built into their business structures. Many typically have contracts for consistent shipping availability and trucking services regularly available.

“Small and medium companies buy their services primarily off the spot market,” Bowman said. “So, those higher prices hit those companies even harder than their larger competitors. These things like container shortages haven’t come out of the blue. This has been going on for some time, but when buying spikes as we’ve seen recently, there’s a point at which a system can’t efficiently handle the excess demand. That’s when we get significant port slowdowns.”

In addition to the small pool of available containers, Bowman said warehousing space for unloaded goods is almost maxed out. American warehousing only has roughly three percent of its total space available, which is not a good thing. He says the West Coast ports have less than two percent of space available.

“That only makes the container shortage worse because you have to be able to empty containers to make them available,” he said.

Many truckers who deliver to ports run into something called a “dual transaction” requirement. Bowman said that means if a trucker has a container to drop off, they’d better have another one to pick up. If a driver has a container to pick up, they’d better have another one to drop off. It’s efficient on paper, but if a driver doesn’t have that second part of the dual transaction, they’ll have to go find one.

“Another big challenge at the ports is something called the ‘Box Rule,’” he said. “When a trucker drops off a container to a particular shipping company, you have to have a chassis. Those are the wheels on the bottom that you load the container on.

“These steamship companies have contracts with different chassis makers,” Bowman said. “A steamship line will say, ‘if you’re going to tender one of our containers, you also have the chassis of the company we’ve contracted with.’ If you don’t have the right chassis to go with the right container, you’ll find yourself with cargo, the booking, and nowhere to unload it.”

Bowman, a business veteran with over 30 years of experience, says there is a lot of conversation about not having a Box Rule at the country’s ports. Shippers don’t want to worry about where the chassis comes from. Instead, they want the companies to bill whoever needs to get billed to use a chassis.

“Because of rules like this, roughly 30 percent of truck drivers miss their appointments,” Bowman said. “if you aren’t there on time for whatever reason, such as looking for a chassis, there’s no recourse. You’ve missed your appointment. It’s not unusual, at all, for a trucker to get there hours early and miss their appointment because they’re stuck in a queue.”

Another big reason that things get bogged down is a backlog. A lot of the shipments coming in right now got booked 90 days ago, if not longer.

While shippers, port officials, and government officials are looking at how to rectify these different challenges, Bowman says one of the biggest challenges is a lack of adequate infrastructure at the ports. Most of America’s ports were built when ships were typically much smaller than they are today.

“When I started in the shipping industry, a large ship was around a 4,000-container capacity,” he recalled. “In the 1980s, that was a big ship. Now, we have ships that can hold between 10,000 and 20,000 containers.

“Not only are they bigger, but these ships also just aren’t one carrier like they used to be,” Bowman added. “It used to be one carrier, one ship. You now have what are called ‘Shipping Alliances.’ In fact, there are three big ones in the U.S. As many as four or more steamship lines can be sharing space on one ship.”

Bowman said one of his biggest personal concerns is agricultural goods. If a shipment of consumer electronics takes a long time to get where it needs to go, the products aren’t in any danger of spoiling. Agricultural shipments contain perishable products that won’t wait long for a container and ship.

“A lot of attention needs to get paid to that,” he said. “Those are some of our best exports, and we need to protect that part of the supply chain.”

Bowman is an internationally-respected business consultant who says he’s never seen anything like this before. “There have been port slowdowns in the past, but this is truly unprecedented,” he said.

February 23, 2022February 23, 2022

Spring: when does it get here?

Spring weather is always a fun conversation across farm country, whether in the local coffee shop, after church, or during a sidewalk stroll down any small-town street in America. I came across a recent article from the National Weather Service saying that March might have above-normal temperatures and was intrigued. So, I got on the phone for an assignment from the National Association of Farm Broadcasting and began digging.

My first phone call was to Dennis Todey, the director of the Midwest Climate Hub in Ames, Iowa. As far as the March forecast goes, the veteran meteorologist says it depends on one thing: location, location, and location.

“The farther north you go, the less chance you have of being above normal during March,” Todey said. “But we should begin to rebound fairly quickly after the recent cold stretch that brought snow into parts of the Upper Midwest.”

Spring weather — Dennis Todey is the director of the Midwest Climate Hub in Ames, Iowa. (photo from climatehubs.usda.gov)

What you may not know is most of the cold that covered parts of the Upper Midwest was originally supposed to stay well to the north, especially up in Canada. Some of that cold worked its way into the North Central U.S., but it’s been limited mainly to the areas with snow cover.

As you go further west in the Northern Plains, there is less snow cover, so the temps haven’t been quite as cold. “The probabilities are not big, but the possibility of some warmer temperatures is there,” Todey said.

Looking out beyond March to the spring weather forecast, again, it all depends on which location you’re referring to. Out in the Eastern Corn Belt from Central Illinois and further east, they’ve had several storm events move through the area. The outlook in that location continues to look wet there.

“Planting delays are definitely on the radar in that location,” Todey said.

It’s the opposite in the Central and Southern Plains, where drought conditions have steadily grown worse in recent months as it’s been a dry and warm winter. The big question is whether the area is going to get any moisture anytime soon.

“It’s going to be interesting in the eastern Dakotas and parts of Minnesota,” he said. “They got some moisture late last year and recently picked up some recent snow as well.

“Places like Missouri and Iowa are more of a mixed bag right now,” he said. “Iowa still has some carryover dry soils, and then we have some dry soils in parts of Wisconsin in areas that keep missing out on moisture events.”

Speaking of dry weather, a good-sized part of rural America is short of moisture. The shortage in the plains begins in Nebraska and stretches to the south. It’s dry to very dry, but the lack of moisture doesn’t stop there.

“Parts of Iowa and Wisconsin are quite dry,” Todey said. “It’s quite dry in northern Illinois, which is a carryover from last year. Depending on which part you’re talking about, parts of the Dakotas had moisture while others didn’t get enough moisture for runoff for ponds and dugouts from a livestock standpoint.”

The winter wheat crop is really struggling because of the dry weather. The spring weather forecast hopefully has some moisture in it to help the wheat crop to at least somewhat rebound from the poor conditions.

As winter begins to wind down and spring gets closer, Todey has noticed an interesting trend in recent years when it comes to winter weather. Up here in Minnesota, we were able to take the dog for a walk in short sleeves or light jackets into November of 2021, which is almost becoming more of the norm rather than the exception.

“Winter has been showing up later than normal in recent years,” he said after some thought on the matter. “Let me frame this climatologically for you.

“The 90 coldest days on average for most of the Upper Midwest are typically December, January, and February,” Todey said. “That’s based on looking at data over the last 30 years. We’ve seen some of the coldest events of the winter occurring in late February.”

While late-winter snow isn’t uncommon, the larger events have been coming later and later, so “something is going on that’s a little different.”

February 8, 2022February 8, 2022

Planting questions in 2022

Planting questions abound here in the late stages of winter. How many acres of corn, soybeans, wheat, and other crops will get planted in 2022? The acreage battle is a hot topic of conversation in the markets and in coffee shops across rural America. This year’s acreage battle is far from over and actually began last year.

That’s the opinion of Joe Vaclavik of Standard Grain in Nashville, Tennessee. The long-time market expert says this has gone on for months for a variety of reasons, led by fertilizer issues.

“Even going back to last fall, the market was very aware of upcoming fertilizer challenges,” he said on the phone from his Nashville office. “It was widely known that fertilizer prices were rising rapidly and would have an impact on this year’s acreage mix.”

He said for a moment in time, they saw the ratios and new-crop prices seem to favor corn. It appeared the market was trying to buy corn acreage back because of the potential of losing acres due to fertilizer prices. The fact of the matter is no one has a clue what the crop rotations are going to look like.

“There are several well-respected analysts like the University of Illinois that had an estimate of 96 million corn acres,” he said. “That would be an increase near 2.5 million over last year.

“And then, Farm Futures did a customer survey and came away with an estimate of 90 million acres,” he added. “The difference between 96 million and 90 million acres in terms of pricing implications, balance sheets, and fundamentals is phenomenal. Those are two totally-different markets and totally-different worlds.”

In any given year, Vaclavik says trying to predict or estimate what the acreage will be is a near-impossible task. Occasionally, someone will predict accurate numbers, but no one is consistently accurate. There are always “curveballs,” and this year will feature more curveballs than ever.

“This uncertainty doesn’t just apply to corn and soybean acres,” he said. “You have another bunch of crops that also make money for farmers. Spring wheat makes money; oats make money; small grains make money.”

The “other piece of the pie” among the planting questions is that principle crop acreage has trended lower for the last 7-8 years. Things are in a state of flux, and he feels the unknown might actually be more supportive than not for the markets. The fertilizer question and its impact depends on where you’re located.

“I’ve talked to people who have their fertilizer needs covered, and they feel good about the situation,” Vaclavik says. “The thing is that most farmers really don’t want to change their rotations. I did a survey of my customers a while back and most said they’re rarely in favor of switching rotations, if ever.

“If they can stick to their rotations, that’s what they’ll do,” he added. “But it still could be tricky.”

Even a farmer who’s already locked in their fertilizer for the 2022 season can still run into fertilizer problems. Actually, getting the physical delivery of that product could be a different story because of serious supply chain issues.

Corn is also a more input-intensive crop, so farmers can’t have their fertilizer not show up when it’s time get moving on spring planting. While not everyone is going to struggle to get fertilizer, there is still a risk going into springtime. Consequently, fertilizer will be a major deciding factor in answering those planting questions.

Small grains could be an interesting topic in the spring. Vaclavik says he would not be surprised to see more spring grains in the acreage mix. One thing that people might not be talking about a lot is some of the northern United States and even into Canada are still experiencing drought.

“Things are still dry in the Dakotas and over the border in Canada,” Vaclavik said. “They are still in a drought, and that will be an additional factor when it comes to acreage. It all depends on what farmers are comfortable planting into the dry conditions. I know it’s not as bad as last summer, but there is still a drought in that region.

“I haven’t seen a year like this in recent memory where it’s so hard to predict the answers to the planting questions that we’re asking,” he added.

October 11, 2021October 11, 2021

Harvest 2021 deep dive shows variability

Harvest 2021 is proceeding along at a good pace. Mike Zuzolo is the Founder and President of Global Commodity Analytics in Atchison, Kansas. He took a deep dive last week into the crop progress numbers and found a lot of variability in the results.

“Comparing the pace of the corn harvest 2021 versus the pace of the soybean harvest suggests that the corn yields are indeed a little more variable than beans,” Zuzolo said. “I hate to say lowered because of the issues that we’re seeing with the yields coming in. We’re seeing very good, very top-end yields coming in down in Kansas and Nebraska.

“My business clients and subscribers say strong yields are coming in through certain parts of Illinois,” he added. “However, my question is whether they’re top-end yields. Probably 90 percent of the producers I work with throughout Nebraska and Kansas would say ‘yes,’ we have top-end corn yields, and we’re close to wrapping up. However, central Illinois and central Indiana are probably around 50 percent complete, by comparison.”

Illinois and Indiana farmers are probably close to 75 percent done with soybean harvest 2021, but recent rainfall has slowed them down a bit. His clients in both states are saying they have top0-end yields in just 25 percent of their corn, but everything else is above average.

He thinks the numbers are showing the corn yields are more variable, especially because our corn and soybeans both have low moisture content. Six of the top 18 corn-producing states are at 50 percent or greater on corn harvest. About 29 percent of the national harvest 2021 is done compared to 24 percent at the same time last year.

“Those kinds of numbers are completely upside down when it comes to the soybean harvest,” Zuzolo said. “Just two of the 18 major soybean-producing states are at 50 percent or greater on harvest pace. The national soybean harvest is at 35 percent compared to 34 percent at the same time in 2020.”

Here’s the rest of the conversation.

September 24, 2021September 24, 2021

Banks worry about funding mechanism in Infrastructure Package

Banks across America would like to let you know about a small provision in the massive 3.5 trillion-dollar infrastructure package trying to make its way through Congress and get to the president’s desk. That’s a big piece of legislation to pay for, and one way that Democrats behind the bill want to fund it involves the IRS and your bank accounts. All of the bank accounts.

Paul Merski is the Executive Vice President of Congressional Relations and Strategy for the Independent Community Bankers of America. He said one way the administration wants to foot the bill for the infrastructure legislation is “horrible.”

“They would have the IRS look into everyone’s bank account transactions,” Merski said. “The legislation will force all banks to report on any transaction going into or out of an account worth 600 dollars or more. What it means is every account in America will then get monitored by the IRS as banks are forced to send in your information.”

To generate revenue like legislators envision to help pay the cost, Merski said the IRS will basically be assuming that most everyone in America is a “tax cheat.” It’s going to involve banks across the country sending in large amounts of information to the IRS, who will then have to sort through all of it to figure out what’s happening in each account.

The accounts in question include savings accounts, checking accounts, business accounts, personal and business loans, cash transactions, and even international transactions. To find any potential infractions, the IRS would be looking for a needle in a haystack.

“What we’re fearful of is this idea is going to cause a lot of false audits, a lot of false positives, and a lot of white noise,” he said. “The IRS will then be able to subpoena additional information on people’s accounts, to freeze people’s accounts, to garnish people’s accounts if there’s a dispute with the IRS.

“It’s crazy,” Merski added. “They pretend that they are going after millionaires and billionaires, and our question is, why then, do they need everyone’s account transactions sent to the IRS? The last thing we need is to be sending more information and more data to the IRS.”

This is especially concerning for rural bankers. He points out that community banks do 80 percent of all the agricultural lending in the nation, as well as over 50 percent of all the small business lending. They want customers to know that if this goes through, those banks are going to have to report all of your financial transactions, even loan information, to the IRS.

The Independent Community Banks of America are concerned about the privacy of bank accounts across the country.

“We’re worried that our customers don’t know what’s happening with this proposal,” Merski said. “We want you to know it’s not the bank’s idea to be sending all this information to the IRS. It’s the IRS, the Treasury Department, and the administration demanding that the banks report all these transactions.”

He says the typical small business owner, farmer, or rancher has to know about this idea and understand what’s happening in Washington, D.C. They also want farmers, ranchers, and small business owners to weigh in on the topic.

“If this is something that concerns you like it concerns our community bankers, you need to contact your congressmen and senators,” Merski said. “This is overkill: This is a dragnet, and this is the IRS looking to profile people based on their transactions.

“This is a stop-and-frisk against average Americans,” he added. “It’s going to add a lot of cost and compliance burdens against both bankers and the general public.”