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Ag Economists Turn More Positive Longer-Term On the Farm Economy

Thu, 20 Jul 2023 20:01:20 GMT

The July Ag Economists’ Monthly Monitor shows weather extremes and wild swings in the commodity markets are the two biggest factors impacting short-term outlooks, but the economists surveyed expressed a more favorable view longer-term. The latest survey also shows the biggest wildcard for agriculture over the next year could be geopolitical risks tied to China and the war in Ukraine.

This is the second survey of the Ag Economists’ Monthly Monitor , a joint effort between the University of Missouri and Farm Journal. The first-of-its-kind survey collects insights from ag economists across the U.S. Nearly 60 economists are asked each month to provide their forecasts and views. They represent a wide geography with expertise in grains, livestock and policy.

This month’s survey showed several key changes from June. Economists say they believe USDA’s current corn and soybean yield projections are still too high, and they anticipate a drop in forecasted corn and soybean prices. The economists in the July survey also predict cattle and hog prices could continue to climb higher this year.

“To me, the biggest thing that sticks out in the July survey is the more positive view 12 months into the future relative to where we were in June,” says Scott Brown, University of Missouri agricultural economist who helps author the survey each month. “In the very short run, the economists are a little less positive than where they were in June. I think that has a lot to do with the weather and general market moves we’ve seen over the last few weeks.”

(Farm Journal)

The longer-term optimism revealed in the survey is despite economists’ expectations for two consecutive years of declining net farm income, falling short of the record set in 2022. The July Monthly Monitor forecasts net farm income to fall to $132.8 billion in 2023, which is below the $134.7 billion in the June survey and USDA’s current net farm income estimate of $136.9 billion. That’s still a big drop from 2022, when USDA says net farm income reached $162.7 billion.

This month’s survey also tried to peel back the layers of what commodities might be aiding the more positive long-term outlook versus weighing on the overall health of the ag economy in the short-term.

“On the crop side, it’s positive to very positive,” Brown says. “There are a few in the negative category, but a majority of economists responded the crops side of the equation looks positive. Whereas, on the livestock side, we have more negatives than we have positives.”

Economists say there are several positive developments that could shape U.S. agriculture, such as continued productivity and efficiency gains; a healthy farm economy and balance sheets; projected shifts in interest rates; new and expanded opportunities for renewable fuels; and the strength of the U.S. cattle market and meat exports as a whole. Geopolitical issues could also impact global crop production and, in turn, bring some demand back to the U.S.

Cuts to Projected U.S. Crop Yields

The survey was sent to ag economists the day after USDA released its most recent yield forecast in the July WASDE report. In what was called a rare move early in the growing season, USDA cut its corn yield forecast by 2.2% to 177.5 bu. per acre, down from 181.5 bu. per acre in the June report. The July Ag Economists’ Monthly Monitor is nearly 3 bu. per acre lower than USDA, with the group of ag economists projecting a yield of 174.9 bu. per acre.

“For me, the interesting piece of this story is there’s a lot of variability in the responses from those being surveyed, which highlights how varied the weather has been as you move around the country,” Brown says. “We had yield estimates slightly below 170 bu. per acre on the low end and some above 180 bu. per acre on the high end.”

(Farm Journal)

Brown says the soybean estimate also came in lower than both USDA’s July WASDE report and the June Ag Economists’ Monthly Monitor survey. USDA estimates soybean yield at 52 bu. per acre, and the average ag economists’ estimate is 50.6 bu. per acre, a 0.5 bu. cut from the June survey.

“There was a little less variability from top to bottom on those yields, but when you look at prices, even with what was a lower corn yield, their estimate of 2023/2024 corn prices went from $4.99 in June to $4.80 in the July survey,” Brown says.

(Farm Journal)

What Economists are Watching the Next Six Months for Crop Prices

When asked what factors will impact crop prices in the next six months, economists said:

Final yields
Export demand and competition
Weather domestically and abroad
Geopolitical risk in the Black Sea and China, including developments that impact ag exports in Ukraine/Russia

“I think a couple of things stick out beyond the weather discussion, and one is export demand as well as global competition, such as what’s going to happen with South America in terms of competing with U.S. corn and soybean markets.

“The economists certainly continue to talk about the geopolitical risk in the Black Sea and China, in particular, and what that means for our ability to export corn and soybeans as we look ahead,” Brown says. “Those are really the two big ones that came out of this survey.”

What Livestock Economists Are Watching the Next 6 Months for Livestock

Ag economists think the following factors will impact prices the next six months:

Changes in feed costs and impact of corn prices
Rising milk prices
Consumer meat demand and influences from macroeconomic factors, both domestically and abroad
Placements of cattle on feed

Brown says while the majority of economists are concerned about feed costs and the impact on livestock producers, the second-biggest concern revealed in the survey is demand. Economists pointed to both domestic and international demand as possible problem areas.

“2021 and 2022 were extremely positive from a demand standpoint, and we seem to be backing up a little bit in 2023,” Brown says.

Economists More Bullish on Cattle and Hogs

The July Ag Economists’ Monthly Monitor shows economists are more positive when asked about cattle and hog prices, but they have a more negative view on dairy, which they consider the biggest weight in the livestock sector.

“When you look at where pork prices have gone over the last month, it’s gotten more positive. Now, I don’t want to suggest we’re back in black ink, but we have seen recovery in things like the pork cutout value,” Brown says. “The economists continue to worry about how the general economy will affect livestock going forward, but overall, it seems we’re seeing a more positive view from the livestock perspective in this month’s survey.”

(Farm Journal)

Based on the July monitor, economists expect average milk prices to fall back to 2021 levels, but production costs will continue to be higher in 2023 versus 2021.

“No. 1, the economists continue to worry about feed costs,” Brown says. “We continue to see fairly high feed costs affecting profitability. So even in the case of beef cattle, where we’re talking record cattle prices, we’re not talking record profitability because of the feed cost side.”

(Farm Journal)

Longer-Term Look at the Health of Agriculture

Over the next 12 months, there are several things that could shape the health of the ag economy, according to the July survey:

Crop prices and production costs, including inputs, rental rates, land values and supply chain disruptions
Subsequent impact on producer margins and the protein sector from rising interest rates and inflationary pressure
Weather considerations, including drought conditions in the short run and yield impacts in longer run
Geopolitical tensions and competitiveness of U.S. ag exports
Changes in consumer demand domestically and abroad, new markets for agricultural products, including biofuels

“One thing that came pretty strongly out of the survey is the continued increases in productivity in agriculture, which makes us more efficient,” Brown says. “The farm economy is generally healthy, and when you look at balance sheets, they are still really, really strong in many cases. That’s despite a lot of the issues we’ve talked about.”

In the July survey, economists voiced more concerns about interest rates and the impact on operating loans. One economist also mentioned the industry might be underestimating the negative impact Proposition 12 could have on the entire livestock industry.

The Turbulent Relationship Between the U.S. and China

While none of the ag economists surveyed think the U.S. will enter into a trade war with China in 2023, economists continue to remain cautious about China, which could have a direct impact on U.S. agriculture.

When asked to list the top factors shaping trade relations between the U.S. and China, economists said:

POTUS and political polarization in the U.S.
Non‐agricultural geopolitical tensions, including national security concerns, support of Taiwan and limits on technological production
Changes in China’s economic growth, including population and demographics
Russia’s invasion of Ukraine and Russia’s relationship with China
Quality, price and availability of U.S. products compared with global competitors

Potential Events/Factors Not Getting Enough Attention Today

The July survey also asked economists to outline any factors or events that currently aren’t receiving enough attention but could shape agriculture over the next 12 months. One economist brought up impacts of geopolitical risks and fallout from the war in Ukraine, but also a potential war between the U.S. and China.

Other potential events that could cause a major shakeup in agriculture include:

Weather events, domestically and abroad, warranting a broader conversation on climate
Potential for a significant recession in China
Focus on renewable diesel obscuring importance of RFS in overall biofuel use
Workforce concerns for producing, processing and transporting agricultural products domestically and abroad
Declining EU pork production and commerce implications of Proposition 12
Strikes at shipping ports in Vancouver and potential for upward pressure on potash prices with reduced production capacity at Nutrien mines in Saskatchewan

Previous Ag Economists’ Monthly Monitor Coverage

Most Ag Economists Think It’s Unlikely the 2023 Farm Bill Will Be Written in 2023

High Production Costs Could Weigh on the Ag Economy Through 2024, New Survey of Economists Finds

Kansas Winter Wheat Crop Crippled by Drought that Covers 80% of the State

Tue, 18 Apr 2023 17:24:35 GMT

The drought situation across much of the Plains hasn’t improved this year; instead, the latest U.S. Drought Monitor shows it’s growing worse. Now, farmers across a state that typically accounts for 25% of the total winter wheat production in the U.S. are staring at a bleak picture for crop prospects this year.

Doug Keesling farms near Lyons, Kan. He would typically be planting spring crops in April, but because it’s so dry, he’s playing the waiting game and needing a little moisture before he plants.

The latest U.S. Drought Monitor released on Thursday shows 43% of the state is seeing the most severe level of drought. While some parts of the state are seeing the intense drought conditions, the dryness is extremely variable across the state.

(Farm Journal)

“It’s amazing. If you go 30 miles east of me, it’s wetter than it is here. But if you go from here towards southwest Kansas, it’s as dry here as it is there, which is not what we’re used to,” says Keesling. “It’s been dry like this for almost a year.”

He says the variation in winter wheat crop conditions across even his own county is proof about how variable drought conditions are across the state.

“There was a lot of wheat that went in after fall crops, like after corn or soybeans, that did not germinate until later in the winter, because it was so dry,” he says. “Matter of fact, we had some wheat, that in severe cases, did not germinate until January or February when there was a light snow.”

USDA’s Crop Progress released on Monday showed 61% of the Kansas wheat crop is rated as being in poor to very poor condition.

For the week ending April 9, 2023, there were 6.6 days suitable for fieldwork, according to @USDA_NASS. Winter wheat condition rated 33% very poor, 28% poor, 26% fair, 12% good, and 1% excellent. Winter wheat jointed was 17%, near 19% last year and 20% for the five year average. pic.twitter.com/T2ZezFNiIY
— KansasWheat (@KansasWheat) April 10, 2023

Kansas Wheat says farmers across much of the state are worried about their wheat crop.

“Wheat is a pretty resilient crop, so it can hold on in some dry conditions. But especially as you get closer to southwest Kansas, a lot of it just didn’t emerge in the fall,” says Marsha Boswell, vice president of communications for Kansas Wheat. “Coming out of dormancy, it needs some moisture to start growing again, and it’s just not receiving any of the moisture that it needs.”

Back-to-Back Years of Drought

Boswell says while many farmers struggled through dry conditions last year, it’s the back-to-back years of dry weather that have been such a sharp blow to crops.

“Last year we were in a long-term drought, but what the difference is from last year is that subsoil moisture now is completely depleted. So last year in the drought, the wheat could pull from some of that subsoil moisture and go ahead and make a plant. It hasn’t been replenished, and there’s just no subsoil moisture there to pull from now.”

With sporadic chances of rain this weekend, many growers are holding onto hope at least some moisture will bring the crop out of such sluggish conditions. For some, it may already be too late.

“I was out and about and went to some areas in western Kansas, and I was told at that time that if they could get some moisture in the next week or two, this crop could pull out of this a little bit, but we haven’t seen that,” Boswell says.

The Wheat Quality Council will hold its annual wheat tour across Kansas in mid-May, a time when maturing wheat will give farmers and others a better estimate of the quality and quantity of this year’s crop.

“I think as we get farther to the west and up and around Colby that first night, and then that second day where we go from Colby to Wichita and through southwest Kansas, we’re really going to see some tough conditions and some abandoned fields,” Boswell says.

Snapshot of National Winter Wheat Crop Conditions

Nationally, USDA’s Crop Progress report showed only 27% of the country’s winter wheat crop is rated good to excellent.

“This is probably one of our weakest crop progress reports for conditions in 40 years,” says Ben Brown, agricultural economics Extension specialist for the University of Missouri. “I mean, this is tied with 1996 in some states, and 1996 was a pretty poor year for wheat producers.”

(Farm Journal)

University of Missouri Extension economist Ben Brown says the eastern half of the country is seeing strong wheat conditions, with more farmers in states like Illinois, Ohio and Michigan potentially taking that crop to harvest instead of only using the wheat as a cover crop during the winter months.

“On the other side of the scale, I wouldn’t be surprised to see some pretty strong abandonment in places like the panhandle of Texas, Oklahoma, and southwest Kansas,” says Brown. “Just too poor of conditions. Maybe there will be the opportunity to plant another crop in there and hope for some rainfall later in the season.”

Possible High Abandonment of U.S. Winter Wheat

Keesling isn’t sure how much of his crop will need to be abandoned, as he says it’s just too early to know. Across the state, severely drought-stricken fields aren’t showing much promise, and the likelihood is growing that more winter wheat fields won’t be harvested this year.

“I think there’s no question there’s going to be some abandonment, probably higher than in a lot of years, because the wheat just isn’t up and it’s not growing,” says Boswell.

What makes that reality so hard is the current price of wheat, even if some question whether today’s prices truly reflect how bad this winter wheat crop really is.

“I think there’s an understanding that yes, we’re dealing with less room to spare here, if you will, but we’ve still got a pretty healthy global wheat picture, even with some of these challenges here in the United States. And then certainly with the continued challenges in the Black Sea Region,” says Brown. “So, understanding all those conditions, as well as kind of what’s weighing on some of this market a little bit.”

The Black Sea Wild Card

The future of the Black Sea Grain Initiative is currently very murky. The Russian ag minister says Russia won’t renew the grain deal until the West’s sanctions on Russian food and fertilizer are lifted.

According to Farm Journal Washington Correspondent Jim Wiesemeyer, senior Russian diplomat Mikhail Ulyanov commented on the situation on Friday, saying the West still has time to remove “obstacles” hindering the implementation of the Black Sea grain deal before a deadline set for May 18.

“Every time we’ve seen this kind of come around, and these flares that it doesn’t look like the grain deal is getting renewed, we’ve seen a 25- to 50-cent rally in the wheat market. And that’s just kind of the nature of the game right now,” says Brown.

Focus on Producing a Crop Through the Drought

As Kansas farmers work to provide the wheat needed for the rest of the world, Keesling says the reality is tough, but the drought hasn’t completely wiped out hope of producing at least some type of crop this year.

“Farmers, as a whole, have a lot of faith that there will be rain,” he says. “And so, I’m trying to be as optimistic as I can be even though sometimes some of these crop conditions behind us don’t always look it. We have faith that we will get rain and that something will turn around.”

Farmers Are Now Paying Above $5 For Off-Road Diesel, And It's More Than Just Russia to Blame

Tue, 14 Jun 2022 14:04:57 GMT

Gas prices keep crushing records in the U.S., but diesel prices are posting even more sticker shock as fears of a possible diesel shortage this year are also causing concerns. It’s not just retail diesel prices that are rapidly rising. There are now reports of farmers booking off-road diesel for farm use trending above the $5 mark, too.

(Farm Journal)

It’s an issue facing the trucking industry from coast to coast. AAA reports the national average diesel price is now $5.77 a gallon. A year ago, it was $3.21.

“It’s almost like every five minutes, I see the little live indicator tick up on our GasBuddy data,” Patrick De Haan, head of petroleum analysis, GasBuddy , told U.S. Farm Report two weeks ago.

GasBuddy tracks both diesel and gas prices in real time. And while the pain at the pump is something drivers are seeing across the country, it’s also an issue plaguing agricultural producers across the U.S.

“We had some farm diesel delivered yesterday, and it cost us $4.85 or $4.89 a gallon delivered. Two years ago, we bought fuel for just over $1,” Craig Moss, a farmer in Hull, Iowa, told Farm Journal’s Michelle Rook.

The rapid rise in input prices is eating into outlooks this year, even with high livestock and grain prices.

“It’s a challenging market, no doubt, buying $8 corn and $5.50 diesel; it’s a tremendous challenge for producers,” says David Newman, a pork producer in Myrtle, Mo.

While prices at the pump for both gas and diesel climbed this week, it’s a similar story for off-road diesel prices. A survey of farmers on Twitter drew a wide range of responses regarding the prices they are currently seeing. Farmers reported off-road diesel at $4.13 in the northern Corn Belt, while off-road diesel is now above $5 for those further east and in western states like Montana.

Research by Texas A&M Agricultural and Food Policy Center (AFPC) shows farmers are seeing nearly every input cost on their farm rise this year. Nitrogen prices produced the biggest increase, up more than 133% per acre year-over-year. Phosphorus and potassium fertilizer were up nearly 93% during that time. That was followed by fuel and lube, which jumped more than 86% compared to last year.

(Farm Journal)

The latest baseline projections from the University of Missouri Food and Policy Research Institute (FAPRI) also shows the sharp rise in fuels costs today.

“A 57% increase may or may not capture what’s happening right now throughout the whole calendar year of 2022, but it is capturing at least the part that we’re seeing right now,” says Bob Maltsbarger, a senior research economist with FAPRI.

FAPRI’s baseline projection shows even if fuel prices retreat the second half of this year, higher overall production costs will continue to sway balance sheets. Maltsbarger points out diesel prices vary by not only geography, but also by farm, especially considering crops like corn typically require more fuel use.

“It will vary quite a bit on the dollars-per-acre impact, but if you have about an equal increase on a percentage change basis, you will see those dollars per acre be more expensive in this calendar year,” he says.

Why Are Diesel Prices So High?

Why have diesel prices raced higher this year? It’s largely due to a shortage of refining capacity, not a shortage of oil, but the prices started to climb higher long before Russia invaded Ukraine.

“The nation is dealing with about a million barrels a day less of capacity than we had just three years ago. That’s the equivalent of about 5%,” De Haan explains. “So, not only is oil a problem with sanctions on Russia’s oil, but turning that oil into something like gasoline and diesel is also now a choke point.”

“Refineries have less capacity; we have about 1.2 million barrels a day of less capacity because of shutdowns that occurred prior to the pandemic,” says Debnil Chowdhury, vice president, head of Americas Refining, S&P Global Commodity Insights. “Also during the pandemic, we’ve had some convergence to biofuels’ facilities as well as a refinery that was hit by a hurricane and damaged to the point where it can’t really be run anymore.”

S&P Global Commodities is also watching the situation. At a time when the U.S. is typically building inventory, the opposite is occurring, which is also heightening concerns about a possible shortage.

“This is the year we’re running very low on inventory entering the summertime, and any type of impact on refining capacity is really going to increase the chance of the shortage,” says Chowdhury.

One Hurricane Away from a Diesel Shortage?

With supplies already tight, De Haan says the U.S. can’t afford to lose any refining capacity, which is a major risk considering NOAA is projecting an above-normal hurricane season.

“We’re probably one Category 3 storm away [from a shortage], and that Category 3 storm would have to take aim for an area roughly from the Mississippi River to Houston,” says De Haan. “That’s the really sensitive area. Not only could it affect refining, but it could affect offshore oil production.”

One of the reasons inventories are already tight is due to Hurricane Ida making a direct hit along the Gulf Coast. Refineries located near New Orleans went offline last fall, with some still not back online today. That major hurricane, and the devastation it caused, was one of the initial dominoes to fall for diesel prices.

“This all actually started before the war. It began in October of last year, when natural gas prices in Europe started to rise,” Chowdhury says. “The cost of natural gas increased substantially in Europe, and why that’s important to a Midwest farmer is because the cost of producing that diesel increased with it.”

Searching for Solutions

While the financial incentive is there today to pump more oil and increase refining capacity, one worker in the oil industry told U.S. Farm Report that the push to electric has investors concerned about the risk of such an investment. And considering it takes years for refining capacity to come online, that’s also not a solution today.

There’s talk of the Biden administration tapping into diesel reserves to help ease supply concerns, but De Haan says not only will that move have a minimal impact, it’s also a question of timing.

“It’s only a million barrels, so it’s not a infinite amount of supply,” he says. “The worry is that if we release those barrels of diesel now from areas in the Northeast, we’re also in the start of hurricane season. Now we do have some tropical activity. So when do you use the inventories? Do you use them now because of high prices? Or, do you wait for a bigger potential issue later this summer?”

(Farm Journal)

In order to relieve the tight diesel supply situation, Chowdhury points out the other option is for the government to wave the Merchant Marine Act of 1920, otherwise known as the Jones Act.

“The U.S. refiner now has to decide do we send product to Europe? We can send it via pipeline easily, but because of the Jones Act, which is a regulation that mandates U.S. flagged vessels from port to port, it’s not something that we could do now. And that’s something that the government could look at waving if we do face a shortage,” says Chowdhury.

The Jones Act is a federal statute that was established more than 100 years ago. It requires all vessels carrying good between two U.S. points be American-built, owned, crewed and flagged. The policy was created to help sustain American jobs, and in turn, generate economic benefits each year. Proponents claim the Jones Act has secured critical movement of goods over the years.

How Long Could the Diesel Price Pain Last?

While the industry searches for possible solutions, those who follow and track refineries don’t see a dramatic drop in diesel prices anytime soon.

“These prices are not going to go back to the levels we had at the beginning of 2021. It’s more likely that we’ll see maybe, you know, a $5 to $10 decline in crude price, and that would equate to maybe 50¢ to 60¢ on the diesel price itself. We’re not talking about a major relief,” Chowdhury says.

On the heels of diesel prices climbing higher again this week, anyone hoping for relief might have to look out beyond this year.

“It could take a couple of years. Keep in mind the longer we go down this road, and that demand eclipses supply, the more catching up we’re going to have to do,” De Haan says.

Biden: Double Crop Because 'We Can't Take Any Chances'

Thu, 12 May 2022 02:54:31 GMT

Farm policy took center stage on Wednesday in Kankakee, Ill. President Biden visited OC Farms, owned by Jeff and Eugenia O’Connor.

During the visit, Biden—along with USDA Secretary Tom Vilsack—announced the administration’s latest efforts to alleviate rising costs on American’s pocketbooks through additional agricultural funding.

Fertilizer Makes Headlines

Purdue University-CME Group’s April Ag Economy Barometer showed producers experienced a challenge in sourcing fertilizer for 2022. The survey found 34% of producers reported trouble purchasing inputs, which is up 7% from surveys conducted in March.

To help mitigate costs, USDA says it will double-down on investments in domestic fertilizer production by increasing funding to $500 million. A portion of the funds will also be used to help farmers adopt precision agriculture methods that will reduce fertilizer use.

Inaccessible Grain Opens Door fo U.S. Exports

According to Biden, Ukraine has 20 million tons of stored grain awaiting export to various countries such as Africa, their biggest importer. He says Putin’s war, not sanctions, are impacting harvests and disrupting the movement of food by land and sea to nations in need.

“We’re going to see what actions we can take to increase fertilizer supplies globally,” says Biden. “We’re also going to see how we can work together to prevent export restrictions on food and agricultural inputs and bring more global production to market which will stabilize prices and bring more certainty to our farmers and keep people from dying of hunger.”

Double Crop to Drop Inflated Food Costs

In late April, USDA introduced a proposal to Congress , pleading for additional funding to offset costs resulting from the war in Ukraine. Part of the proposed funding included $250 million to aid U.S. producers to increase crop volumes through double cropping.

During the visit on Wednesday, Biden shared USDA will raise from $250 million to $500 million, and open the double cropping insurance floor to a total of 1,935 counties—up 681 counties from the initial announcement.

USDA says double cropping will boost production without substituting crops or cultivating new land. While the department recognizes there are risks associated with the practice, Biden says his team has a plan to overcome those risks.

“The growing season for wheat is short and if the weather conditions aren’t ideal or there are other disruptions, then the timing of everything is thrown off,” says Biden. “But it’s a risk we need to take and that’s why my administration is looking at how to extend crop insurance coverage to give financial security to farmers.”

Following the announcement, Vilsack boarded a plane to Germany for the G7 summit where, he and fellow agriculturalists will devise a plan to overcome food loses due to Russia’s invasion of Ukraine.

“Exploitation” in the Marketplace

50 years ago, ranchers received 60¢ on the dollar for harvested beef, according to Biden. He says today, they get 39¢. Similarly, he says hogs yielded 40¢-to-60¢ on the dollar for farmers 50-years ago but pens out to “about” 19¢ today, which reflects a market “distorted” by lack of competition.

“Capitalism without competition is not capitalism,” says Biden. “It’s exploitation.”

In January, the Biden administration allocated $1 billion in American Rescue Funds to expand independent meat processing capacity as part of a broader initiative to break up what it calls a meat and poultry processor monopoly. Biden says the plan will provide producers a chance “to sue companies they contract with over unfair, discriminatory or deceptive practices,” while reworking “Product of USA” label requirements.

Additionally, various Senators have introduced a bill to amend the Agricultural Marketing Act of 1946 to include a cattle contract library by way of Cattle Price Discovery and Transparency Ac t.

Gas Prices Continue to Soar

Biden recently announced the sale of year-round E15 , which he said on Wednesday has decreased pump costs by 10¢ . However, the AAA reports regular gasoline price averages were at $4.40 on Wednesday, up 29¢ from the average reported a month ago.

Biden maintains the price hike can be attributed to Russia’s invasion of Ukraine but says—along with Vilsack—the expanded E15 supply along with the USDA’s $100 million in ethanol infrastructure will ultimately bring prices down in the long run.

More on ag policy:

> 30% of Farmers Still Having Trouble Finding Essential Crop Inputs for This Year
> White House Asks Congress for Additional $33 Billion in Aid for Ukraine
> Everything You Need to Know About the Proposed $500M to Ag in Biden’s Ukraine Aid Program
> Biden Plan Directs $1 Billion To Impact Meat & Poultry Processing, Strengthen P&SA, Add New Labeling Rules
> E15 Summer Ban Suspended, USDA Commits $700M To Biofuels Producers
> DOE Announces Plan to Replenish Tapped Oil Reserves

Diesel Prices Just Hit a New Record High, Here's Why a Diesel Shortage May Be Next

Tue, 10 May 2022 21:18:45 GMT

Farmers are already faced with a shortage of equipment parts, tires and some crop inputs. Now, due to increased demand and a drop in production, a diesel shortage may be next as the largest diesel distribution hub in the U.S. is sitting on supplies at a 30-year low.

Record gap between gasoline and diesel, but the gap will start to shrink very soon- not by leaps and bounds, but slowly. https://t.co/oFGj8piR3h
— Patrick De Haan ⛽️📊 (@GasBuddyGuy) May 9, 2022

Diesel prices hit a record again this week. The national average price of diesel is now $5.54 per gallon, which is an increase of 22 cents from last week, which was when the most recent record was set. Data shows there’s no state that’s currently seeing diesel prices below $5.12 per gallon.

So, what’s causing the historic run-up in prices?

It’s a combination of things, but Russia, supply chain trying to play catch-up and lower production along the East Coast are all adding to the dire supply situation.

“Diesel supply is short all over the world due to sanctions against Russian oil and much higher post-pandemic demand as supply restocking takes place,” says Peter Meyer with S&P Global Commodity Insights.

Meyer adds the “just in time” supply chain model only exacerbates the problem as the supply chain works through issues that date back to the Covid-19 pandemic.

Some farmers are now even reporting farm diesel prices are higher than on-road diesel, which is typically not the case.

Record prices are one thing, but getting your hands on enough diesel may be the next issue for farmers.

“Certain areas of the country have seen shortages already and we expect that to continue. Supplies at New York Harbor–a hub for diesel distribution–are at a 30-year low,” says Meyer. “As such, the East Coast of the U.S. has been hit especially hard, resulting in diesel prices above $6.00 per gallon in that area, well over the equivalent of $250 per barrel. Exports of U.S. gasoline, diesel, and jet fuel to Latin America is also very high, adding to the tightness.”

(Farm Journal)

The bottlenecks in the diesel supplies are not a shortage of oil that the U.S. is dealing with, even with the sanctions against Russia. Instead, Meyer says it’s a shortage of refining capacity on the East Coast.

The problem on the East Coast is refining capacity, not so much the supply of oil,” he says. “East Coast capacity has been cut in half from 1.6 million barrels per day to 800,000 barrels per day over the past 10 years as half of the refineries in the east have shuttered. Lower production capacities and higher post pandemic demand has caused this squeeze in the eastern U.S.”

Meyer says making price forecasts is proving to be extremely difficult considering, but margins are enticing refiners to produce as much diesel as possible.

“When the profit margin on producing diesel is over $70 per barrel, every refining company in the US will be doing all they can to produce as much as they can,” says Meyer. One bright spot may be that after a cold spring, heating oil demand will obviously diminish quickly in the summer months.”

Meyer also says renewable diesel production may actually benefit from the historic spike in diesel prices, but he points out soy oil, which is still the predominate feedstock, continues to take its lead from the oil product markets and is overpriced for many.

Diesel Export Ban Looming?

There’s a higher demand around the globe for products like diesel, heating oil and jet fuel, which are known as “middle distillates” since they are made from the middle of the boiling range when oil is turned into products. The U.S. currently exports more than 1-million barrels of distillates every day to countries such as Mexico, Brazil and Chile.

So could an export ban be coming for diesel fuel?

AgriTalk host Chip Flory put that question to Farm Journal Washington analyst Jim Wiesemeyer during this week’s “Signal to Noise.” Wiesemeyer says while it’s not known to be on the table at this point, anything his possible. You can listen to that discussion here.

John Phipps: Is the U.S. Already Energy Independent?

Thu, 31 Mar 2022 14:55:25 GMT

With the ongoing war in Ukraine, a recent U.S. Farm Report viewer asked about the U.S. and energy independence.

From Gary Morrison quoting The Watchman:

“The Department of Energy was instituted on 8/04/1977, TO LESSEN OUR DEPENDENCE ON FOREIGN OIL. AND NOW IT’S 2022 -- 45 YEARS LATER -- AND THE BUDGET FOR THIS “NECESSARY” DEPARTMENT IS AT $242 BILLION A YEAR. IT HAS 16,000 FEDERAL EMPLOYEES AND APPROXIMATELY 100,000 CONTRACT EMPLOYEES; AND LOOK AT THE JOB IT HAS DONE!

(34 years ago 30% of our oil consumption was foreign imports. Today 30% of our oil consumption is foreign imports.”

I checked on these assertions. The DOE is responsible for the U.S. nuclear weapons program , nuclear reactor production for the United States Navy , energy-related research, and domestic energy production and energy conservation . It was created during an oil crisis, which helped politically, but was soon dominated by nuclear responsibilities, especially after Three-Mile Island. You can tell by how their budget of $45B is allocated. The blue bars are government employees, the green are contractors, mostly 17 major research labs like Argonne, and Los Alamos. The term “contract employee” is misleading. Contractors are not employees. Ask and Uber driver. Much of the DOE budget is for programs like nuclear weapons research, fusion, and alternative energy.

(Farm Journal)

As for our dependence on foreign oil, I know you’ve seen this before, but I consider net petroleum exports to be the true measure of oil trade, and we’ve hovered about zero recently due largely to fracking and conservation measures. We export a significant amount of finished products like gasoline, while importing geographically advantageous crude from nearby countries.

(Farm Journal)

At any rate, in 1977, 83% of our oil imports were from OPEC countries, in 2021 it was about 8%. Seventy percent of our imports come from Canada and Mexico. The DOE is not about oil nearly so much as other energy sources and cleaning up nuclear reactors. Between research and market forces, the record of DOE, with a budget about .5% of the total federal budget and 1/5 that of the Ag Department, is not that bad. Oil independence is a questionable goal for a global commodity, but it did happen under DOE’s watch.

(Farm Journal)

Grain and Livestock Markets Just Saw Another Crazy and Volatile Week, So What's Driving it All?

Fri, 18 Mar 2022 19:46:28 GMT

Volatility is the only consistent piece of commodity markets lately. Grain markets saw double digit gains and losses, and as analysts try to find a reason for why markets moved so much this week, there is no clear answer that rises to the top.

“I don’t know that there is one single driving factor when it comes to the day-to-day volatility,” says Joe Vaclavik of Standard Grain. “We’re in high priced markets. One thing that’s interesting is that open interest and trading volumes are down. I don’t know if traders are burned out, or if there’s just a lack of interest in general. But that’s a factor that has led to more volatility.”

Vaclavik says when you look at the fundamentals, the situation in Ukraine is still a factor in the markets, especially with the uncertainty surrounding if f armers in Ukraine will be able to plant . He says the questions about South America’s crop are also at play.

“Another thing that a lot of people are not talking about as much this year is acreage prospects here in the United States. There’s a lot of crops that need acres, and there’s a lot of crops that can afford to lose acres, but somebody is going to lose and it makes for a supportive situation, I think, overall until we know a little bit more about it,” Vaclavik adds.

Acreage Questions Still Unanswered

There have been a wide range of acreage estimates leading up to USDA’s March 31 Prospective Plantings report . Vaclavik says that’s a sign of just how much of a wildcard acreage could actually be this year .

“I don’t think anybody has a clue,” he says. “I think the market is trading somewhere in the 90 to 92 million acre range for corn and slightly less than that for soybeans. But I there’s always some sort of surprise in the acreage report. I think this year is going to be no exception.”

The Drought Wildcard

The other factor weighing on acreage decisions is drought. Dry conditions are at a historic level. The U.S. drought monitor painting the picture, showing more than 60% of the contiguous U.S. is in some sort of drought, which is the most since 2012. That could hinder planting decisions, but it’s also impacting feed users in the West.

“I think drought is probably the absolute biggest driver in our market right now,” says Don Close, senior V.P. of Food and Ag Research, Animal Protein at Rabo AgriFinance. “Today, cow slaughter as a percent of federally inspected slaughter is running at 22%. If we go back and look in that 2012 to 2013 period, cow slaughter on an annual basis never exceeded 20% of federally inspected slaughter.”

So, just how tight will cattle numbers be this year? Close thinks it could be similar to what the cattle industry saw nearly eight years ago.

“After the liquidation of cows we’ve had for the past three years, we’re setting up a structure that is incredibly similar to what we saw in 2014. We’re just doing it on steroids this time. And I don’t see any indications that that cow slaughter is going to slow down significantly. It will slow down some seasonally as green grass comes out, but for the year, I still think it’s going to be incredibly large.”

If You Think Fertilizer Prices are Bad Now, Here's Why China Could Make the Situation Even Worse

Fri, 18 Mar 2022 16:06:55 GMT

The fertilizer market has been hit with black swans for nearly a year. And as farmers face anhydrous ammonia prices at $1500 per ton, prices are proof of just how bad the situation has become.

For those wondering if they should lock up their #fertilizer for the '23 corn crop, take a look at these #corn/fertilizer ratio charts.

Anything from July forward (dotted line) is what you would be securing 8 - 12 months out. Not a great relationship this far out. pic.twitter.com/8k7DYyCLmu
— Josh Linville (@JLinvilleFert) March 18, 2022

Russia’s decision to stop exporting fertilizer for the remainder of 2022 is yet another chapter in the fertilizer frenzy ag retailers and farmers face. Josh Linville of StoneX Group says Russia is a major player in global fertilizer production.

“Russia is a major, major exporter across all of the major fertilizers,” says Linville. “Urea, they account for 14% of the global export total. UAN has been anywhere from 25% to 31% the last couple of years. Phosphate 10%. They are almost 20% of the global operating potash capacity of the entire world. They’re a big deal. Losing Russian exports is a very big deal. I don’t care where you are in the earth, it matters to you.”

Markets Make Historic Open Sunday as Wheat Tops $13, Soybeans Soar Past $17, Corn Closes in on $8

Mon, 07 Mar 2022 04:06:12 GMT

Commodity markets made historic moves Sunday night as c rude oil topped $130 a barrel , hitting the highest price in 13 years, and wheat topped a 14-year high trading above $13. March soybeans soared past the $17 mark, with March corn just 20 cents from $8. And as the Ukraine-Russia crisis continues, the bull run may not be over yet, as food and fuel inflation fears are also heating up.

“11 days ago when this conflict and war started in Ukraine, crude oil was in a range of $90 to $95,” says Tommy Grisafi of Advance Trading . “We were trading there for over two weeks. This conflict started, and we’ve done nothing but move up. There’s a lot of chatter out in the markets about inflation, you’d have to wonder do we start to bring up the word hyperinflation.”

The volatility in the commodity markets was on full display last week, with wheat making new highs. And the theme continued Sunday night as Chicago wheat futures rose more than 7% with prices climbing to a 14-year high over concerns about global supplies amid an escalating Russia-Ukraine war.

“Wheat had its largest move in history last week,” says Grisafi. “And as we trade tonight, wheat has new extended limits. May wheat is trading up 85 cents close to $13.”

Kansas City wheat and Minneapolis wheat both traded higher Sunday night, with both corn and soybeans also climbing more than 20 cents.

“May beans almost have a $17 in front of them,” he adds. “November soybeans are trading at a phenomenal price, historically. But we’ll see how that ends up.”

Wheat could have even higher limits this week. While commodity prices continue the bull-run, Grisafi points out other commodities are in uncharted territory with gold hitting $2,000 per ounce overnight. And as crude and gold surged, Dow Jones futures fell.

“What’s this mean to you? Well, if you’re a farmer, you’re probably rooting for high prices unless you sold it a long time ago. If you’re growing crops, you’re probably loving high prices except for one thing. How are you going to get fertilizer moving forward,” asks Grisafi.

Food and Fuel Inflation Fears

On CNN Sunday, Secretary of State Antony Blinken said the U.S. is considering a ban on Russian oil imports in coordination with European and NATO allies. The news comes as bipartisan members of Congress are asking for a full embargo.

“We’re still importing crude oil from Russia, and if we stop importing crude oil from Russia, What’s that mean? It means that gas price that I just filled up my car for today at $4 a gallon, now with today’s $13 rise in crude oil, that would put gasoline at about $4.50. So as crude goes up, of course it’s a tax to the consumer. All these things add up to you: food inflation, fuel inflation, fiber inflation, big dynamic moves, and of course while all this is happening, the Fed is talking about raising rates.”

Wheat Price Whiplash to End Week Leaves Producers with One Burning Question

Fri, 04 Mar 2022 22:04:35 GMT

Just as SRW wheat prices hit a new all-time high , the March contract was spooked, as profit taking caused the front-month contract to drop more than 80 cents in minutes. Despite the volatile end to the week, the fundamental story is still showing a shortage of wheat.

“We had a really bull fundamental before this coming in with just the drought in Canada, the drought here in North Dakota. And demand was good,” Tommy Grisafi of Advance Trading told Chip Flory who hosted U.S. Farm Report marketing roundtables this weekend. " We had so many bullish things happen. You throw a war in there. And you think about what’s happened in the world. On AgriTalk, Chip, I’ve listened to people throw out some high prices and I kind of laughed. I’m not laughing anymore.”

“We were bullish going into this spring thinking there was going to be a bullish acreage battle, right, because we just we have tight, really high demand, we have tight stocks and great set-up. And then now we’ve got this uncertainty in Russian-Ukraine with their old crop, and they’re soon to be planted new crop that we can’t buy those bushels right now. So, those production bushels are just on hold, and we don’t know when they’re going to be freed up again,” added DuWayne Bosse of Bolt Marketing.

How High Can Wheat Prices Go?

Wheat prices blew past the 14 year-high hit mid-week, with consecutive limit up trading moves. The uncertainty fueling the market is leaving many wondering how high will prices go, but AgMarket.net says that may be the wrong approach to take.

“When it comes to the Russia Ukraine story, one of the biggest concerns from producers is one, how high is this thing can go? And what I’m trying to convince them is, we need to be looking at ways to manage it put floors in, at some point, this thing’s gonna break. I don’t know if anyone’s smart enough to know when that is. And I don’t want to throw out any guesses,” explained Tyler Schau of AgMarket.net.

Watch the complete discussion from CHS Ag Industry Day in Grand Forks, North Dakota, which was hosted by AgriTalk’s Chip Flory.

Soaring SRW Wheat Futures Shatter All-Time High as Crisis in Ukraine Continues

Fri, 04 Mar 2022 17:20:35 GMT

Soft Red Winter (SRW) futures hit an all-time high Friday before retreating back, as consecutive limit up trading days meant wheat prices topped a previous high set in 2008. Earlier this week, prices had shot to a 14-year high .

“On the continuous futures, the Chicago March winter wheat futures contract set a then all-time high of $13.34 1/2 cents on Feb 27, 2008. Today, the March 2022 has traded to $13.40. So on some continuous charts, a new record today,” says Bill Nelson of ProFarmer . “The wonky part of this is that today’s record is for wheat futures in delivery. The comparable data from 2008 are for wheat futures ahead of delivery. Some will dispute today being a record because it is for futures in delivery. Others will make no distinction.”

The wheat and corn market continued to find fuel this week from the ongoing crisis in Ukraine. Both countries account for 30% of the global wheat production.

“When you have those two countries in a conflict, you’re talking about a third of the world’s wheat production,” says Chandler Goule, CEO of National Association of Wheat Growers (NAWG). And as the winter wheat–which is what Ukraine predominately produces–is starting to come back to life and start to grow and head into that tillering stage here in the next six weeks, if your roads are bombed out, your bridges are bombed out, you can’t get into your field because maybe your field has had destruction, it means trouble. This is the ample time to be putting on your crop protection tools, your fertilizer, and all those other risk management tools you need to increase your yield production. And if that doesn’t happen, not only with what Russia is doing, but the decreased production in Ukraine, it will be felt globally.”

Goule says the winter wheat crop in the U.S. is also painting a bleak outlook, with drought plaguing the Wheat Belt. The climbing prices could prompt U.S. farmers to plant more spring wheat this year.

“I think our spring wheat producers across the country are definitely going to be looking at this price, and trying to determine how long it’s going to hold,” adds Goule. “But when you really also look at the other factors, the significant increase of input costs, fuel costs, fertilizer costs, wheat is becoming a very attractive commodity if you’re if it’s able to be grown in your area, just due to our lower cost of production compared to some of our other commodities that we compete with for acreage.”

Russian Invasion of Ukraine Overtakes Other Washington Issues as Congress Returns this Week

Mon, 28 Feb 2022 16:41:09 GMT

The House and Senate both return Monday, but to a very different situation due to Russia’s invasion of Ukraine, which is expected to be one of the key issues President Joe Biden talks about during his March 1 State of the Union (SOTU) address. President Vladimir Putin on Sunday ordered Russian nuclear deterrent forces put on high alert Sunday in response to what he called “aggressive statements” by leading NATO powers. Late-breaking news Sunday morning broke that Ukraine President Volodymyr Zelenskyy agreed to negotiate with the Russians, but fighting continues across Ukraine.

Besides Russia and Ukraine, Biden’s SOTU address could take the opportunity to adjust his Covid policy along the lines of the United Kingdom, which last week lifted all remaining COVID-19 restrictions, including a legal requirement that those infected with the virus self-isolate, as Prime Minister Boris Johnson looks to fully reopen the British economy and society two years after the pandemic hit. Johnson said that with the virus on the wane, government-mandated rules are no longer necessary to stop the spread of COVID-19.

Biden will address a nation that largely sees the economy worsening under his watch, disapproves of his leadership on key issues and currently prefers that Republicans control Congress after the November elections, according to a Washington Post-ABC News poll. The poll finds Biden’s presidential approval rating at a new low, with 37% saying they approve of the job he is doing and 55% saying they disapprove. Link for details. Asked whether they would prefer the next Congress to be in the hands of Republicans acting as a check against the president or in Democratic hands to support Biden’s priorities, 50% say they would rather have Republicans in charge on Capitol Hill while 40% prefer the Democrats. On the question of how they would vote in House races if the election were held today, 49% of registered voters say they would support the Republican candidate while 42% say they would vote for the Democratic candidate. The WaPo notes that for comparison, just ahead of the 2018 midterm elections, which saw Democrats score big gains and capture control of the House, it was Democrats who enjoyed a seven-point advantage on this same question.

Biden will also focus on his push for carbon mitigation programs and will likely say agriculture will play a big role in that effort. Congress wants to fund climate change language by around $400 bil. in a revised--and likely newly named--Build Back Better measure. Vilsack has said carbon mitigation could be agriculture’s next revenue stream. But farmers know payouts under any such program must be higher than initial signals.

Biden will attempt to soothe a worried nation faced with geopolitical concerns (Russia, China, Iran, etc.) inflation and rising interest rates once the Fed starts hiking them in March while also beginning to reduce the Fed stimulus, upping fears of a potential downturn in the U.S.... and perhaps world... economy later this year.

Crisis in Ukraine

Key updates on Russia’s invasion of Ukraine since Saturday’s special report ( link ): Street fighting broke out in the center of Kharkiv as Russian troops entered Ukraine’s second-largest city.

Russian President Vladimir Putin said in a televised statement on Sunday that he was ordering Russia’s nuclear deterrent forces on alert, as he continues his unprovoked invasion of Ukraine. Speaking alongside his defense minister and military chief of staff, Putin said recent sanctions and “aggressive statements” from NATO countries had led him to put the nuclear deterrent forces in a “special regime of combat duty.” This is the second time Putin has alluded to Russia’s nuclear arsenal while effectively warning the West to back off. In a statement at the onset of the invasion, Putin said anyone who tried to “hinder us” would face “such consequences that you have never encountered in your history.”
Israel offers to mediate, broker ceasefire between Russia & Ukraine. Israeli Prime Minister NaftalIsraeli Prime Minister Naftali Bennett told Russian President Vladimir Putin in a phone call Sunday he would offer an attempt to mediate and broker a ceasefire between Putin and Ukraine’s President Volodymyr Zelensky, the Kremlin said. Israel has attempted to take a moderate tone on the Russian/Ukrainian crisis. Foreign Minister Yair Lapid has condemned Russia, but Prime Minister Naftali Bennett has been careful to speak only of his support for the Ukrainian people.
Ukraine’s President Volodymyr Zelenskyy agreed to negotiations with Russia “without preconditions” even as Russian troops bore down on Kyiv and continued their thrust around a number of cities across the country. A statement issued to Zelensky’s official channel on the Telegram messaging app said the Ukrainian government would dispatch a delegation to meet with its Russian counterparts on the Ukrainian-Belarusian border, near the Pripyat River. Link to details via the L.A. Times.
If Russia succeeds in taking Kyiv, it will face a protracted, deadly insurgency backed by countries friendly to Ukraine, Douglas London predicts at Foreign Affairs ( link ). “Putin has badly miscalculated by invading Ukraine,” Melinda Haring writes for the same magazine. “He may find it easy to pull off a swift invasion, but then comes the hard part. The Ukrainian people will never allow Moscow to chart their course or pick their president. The desire for freedom is ineffable, and Ukrainians have proved that they are willing to die for it.” As for Russians, the Economist writes ( link ) that Russians do not seem at all enthusiastic: “The somber, shamed mood in Moscow could hardly be more different from the euphoria that gripped it in 2014 when Putin seized and annexed Crimea,” the magazine observes.
EU, U.K., Canada, U.S. plan to cut some Russian banks from Swift. The European Union, U.K., the U.S. and Canada announced powerful new sanctions plans, including taking some Russian banks off the Swift financial network and taking measures to paralyze the activities of Russia’s central bank over the Kremlin’s attack on Ukraine. “Russia’s war represents an assault on fundamental international rules and norms that have prevailed since the Second World War, which we are committed to defending. We will hold Russia to account and collectively ensure that this war is a strategic failure for Putin,” the leaders of the Group of Seven (G7) countries wrote in a joint statement that outlined the new measures. Additionally, the leaders committed “to imposing restrictive measures that will prevent the Russian Central Bank from deploying its international reserves in ways that undermine the impact of our sanctions.”

Background: The Belgium-based system is run by its member banks and handles millions of daily payment instructions across more than 200 countries and territories and 11,000 financial institutions. Iran and North Korea are cut off from it. Link to WSJ backgrounder on SWIFT.
G7 countries, all democracies, also vowed to limit the ability of Russian oligarchs with ties to Putin’s government to buy citizenship in other countries and to access their financial systems. They also announced the creation of a task force to oversee the implementation of the new sanctions.
Germany is going to send thousands of weapons to Ukraine, marking a complete reversal in Berlin’s restrictive arms export policy, with Chancellor Olaf Scholz pledging a jump in military spending and a revamp of the armed forces.

Cargill Confirms Chartered Vessel Hit by Attack in Black Sea as Ukraine-Russia Crisis Continues

Fri, 25 Feb 2022 19:22:37 GMT

Despite signs Russian President Vladimir Putin may be ready to talk with representatives from Ukraine, the escalating crisis in Ukraine had commodity markets on edge Thursday . Cargill also confirmed a ship it chartered was hit in the Black Sea.

According to Bloomberg, the Cargill chartered ship sailing in Ukrainian waters was caught in an attack in the Black Sea. Bloomberg reports the vessel is currently sailing south to Romanian waters to receive assistance, but the vessel was empty.

“The vessel and all crew are safe and accounted for,” Cargill said Thursday in a statement. The vessel was empty when the incident occurred, the company said.

Bloomberg reports the attack is the first confirmed instance of physical damage related to commodity trading in the region. Cargill accounts for 25% of all United States grain exports.

Dan Basse of AgResource Company says the escalating situation Thursday put more prominence on U.S. farmers’ need to supply the world with agricultural goods.

“It’s really a realignment of world trade,” says Basse. “What we don’t know about, of course, is the sanctions. The Russians have also threatened that if another country were to blockade the Bosphorus, which is the feeder of all the grain coming down, that they would take actions against that country. So there’s a lot we don’t know yet. But when you think about 31% of world, we trade being domiciled in Ukraine and Russia, 30% of world barley trade, and then somewhere around 29% of ‘sun oil’ trade, it’s a really big deal.”

The war zone means insurers have raised the cost of providing cover for merchant ships through the Black Sea, which is adding to soaring rates to transport goods through the region for vessels still willing to sail.

Reuters reports despite ship owners already paying war-risk insurance, ship insurers have quoted the additional premium rate for seven days at anywhere between 1% to 2% and up to 5% of insurance costs, from an estimated 0.025% on Monday before Russia’s invasion began, according to indicative rates from marine insurance sources. As a result, this could mean additional costs of hundreds of thousands of dollars for a ship voyage depending on the destination.

According to Reuters, the situation seemed to be taking a positive step toward resolution on Friday. Russian President Vladimir Putin is ready to send a delegation to Minsk for negotiations with representatives of Ukraine, the Kremlin said on Friday after the Russian leader held a phone call with Chinese President Xi Jinping.

Russian Invasion is Bad News for U.S. Meat Consumers, Steiner Says

Fri, 25 Feb 2022 14:53:42 GMT

Will the expected sanctions on Russia impact global meat trade and demand? Steiner Consulting Group posed this question in the Feb. 24 Daily Livestock Report .

“A while back, Russia was a major buyer of proteins in the world market. We still remember when prices for chicken leg quarters in the U.S., or the price of beef in Brazil, would be greatly affected by events in Russia. That is no longer the case,” Steiner Consulting Group wrote.

In the last decade, Russia has become self-sufficient in providing its own meat protein. According to USDA’s Foreign Agricultural Service data, as recently as 2010, Russia relied on pork imports for about a third of its pork consumption. However, in 2021, USDA points out that Russian domestic pork consumption was 26% higher than in 2010 and the country is now a net exporter of pork.

Despite African swine fever (ASF) outbreaks during this time period, Russia increased its domestic pork output by 86% and completely eliminated its dependence on imports, Steiner Consulting Group said.

In the early 2000s, more than half of the chicken that Russian citizens consumed came from imports. By 2010, Russia’s imported share had dropped to 27% and last year imports accounted for just 5% of consumption. Meanwhile, Russia exported almost as much chicken as it imported. Since 2010, Russian domestic chicken consumption has increased 36% while domestic chicken production increased 67%.

Meanwhile, beef has been a more difficult protein to secure within Russia considering land limitations and domestic preferences. Russian beef consumption has declined 32% since 2010 and domestic production is 5% lower than it was 11 years ago.

“Russia still buys beef in the world market, but that volume is down 67% from where it was in 2010 and even smaller than it was in 2006 or 2007 (before the financial crisis). Most of the beef that Russia bought in 2021 came from two sources: Paraguay and Belarus,” Steiner Consulting Group wrote.

Russian imports from Belarus are unlikely to be affected by Russia’s invasion of Ukraine. Steiner Consulting Group believes the impact from a reduction in South American imports is likely to be minimal on global trade.

“Bottom line: Impact from restrictions on Russian protein purchases in the world market are likely to have no impact on global trade,” Steiner Consulting Group said. “However, Russia and Ukraine are major contributors to global grain and oil trade, and they are also major suppliers of fertilizers. High feed and energy costs are negative for U.S. livestock producers, and they will negatively impact their ability to bring more product to market. Ultimately this is bad news for U.S. meat protein consumers.”

Steiner Consulting Group said what’s even more uncertain is how a further spike in inflation could impact domestic and export demand.

“In this context, high-priced proteins, like beef, face more downside risk than pork or chicken,” Steiner Consulting Group wrote.

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Here's Why the Russia-Ukraine Crisis Creates a Realignment of World Trade

Fri, 25 Feb 2022 13:19:03 GMT

The war of words turned into an escalating situation Thursday as Russia invaded Ukraine . The news sent wheat prices skyrocketing 50 cents higher, with corn up 30 cents at one point Thursday. Crude oil also soared above $100 per barrel, hitting the highest level since 2014.

Dan Basse of AgResource Company says the situation fueled commodities, as two major grain producers were thrown into chaos and uncertainty. And as that happened, it elevated the U.S.

“It’s really a realignment of world trade,” says Basse. “What we don’t know about, of course, is the sanctions. The Russians have also threatened that if another country were to blockade the Bosphorus (the Strait of Istanbul), which is the feeder of all the grain coming down, that they would take actions against that country. So there’s a lot we don’t know yet. But when you think about 31% of world wheat trade being domiciled in Ukraine and Russia, 30% of world barley trade, and then somewhere around 29% of ‘sunoil’ trade, it’s a really big deal.”

President Joe Biden addressed the U.S. on Thursday, saying new economic measures would “limit Russia’s ability to do business in dollars, euros, pounds and yen and be part of the global economy.”

Basse says even with the uncertainty, more demand could flow to the U.S.

“The U.S. farmer’s prominence has really stepped forward today regarding his position to feed the world. And a Chicago Board of Trade is reflecting that with new rally highs. But if we looked at China, a new record high last night in corn and soy meal, palm oil has shot up to new record highs. So all of this is occurring at a time when the world is already looking at tight stocks, and this just exacerbates it,” Basse adds.

Basse says a worst-case scenario would be an extended conflict that lasts months. He says if that happens, it could hinder Ukraine’s ability to plant the upcoming crop.

“This would be the worst-case scenario in a world where stock use ratio of the major exporters are sitting at record lows,” says Basse. “The best-case scenario would be, let’s say, that the Russians have gone in, and in a matter of a week, they kind of tidy things up, and the Ukrainians say, ‘Okay, we’ve done this before, you know, it’s only some 20 years ago that you were our leaders, and we’ll kind of accept you for now.’ But I think there will still be these skirmishes, but that would be the best case. And then at that point, you know, the Russians may come back and say, ‘Okay, to get back our customers in the world, we’re really going to drop our corn, wheat and soy prices, such that we buy back demand.’ That would have a very big impact on the market.”

Basse points out the geopolitical back and forth will be at the forefront, which is why the situation fueled commodity prices overnight.

So, what’s Basse’s advice for farmers right now who are experiencing the extreme price volatility?

“I want them to take an exhale for the moment and just kind of breathe normally,” says Basse. “And then I want them to look at their revenue insurance price, which will be calculated as of Monday. And that will be a baseline that will give you comfort to the downside. We’re hoping that revenue insurance for corn and soybeans in particular will be record high. So you know, participate in that probably to the fullest degree. Then, I want to look at maybe marketing strategies like buying puts or something that gives you some opportunity to still command the upside. Because sometimes in the farming business, we need to maximize profits. And this appears, as I said, to be one of those years where the American farmer’s profile has just taken a big leap on the world stage. We need to feed the world.”

Basse says producers can protect the downside through revenue insurance, as well as put options. He says the key is to not limit the upside potential. The veteran market analyst says the markets are navigating uncharted waters with the situation at hand.

“When I go back and think about the collective farming system in Russia back when it collapsed in the ‘70s, and they came forward with their gold bars, that’s the closest I can find to where we are today,” says Basse. “And then American farmers, you know, really leapt into prominence during that time frame. Now remember, back then soybeans rallied almost to the teens, and back in the ‘70s that was like seen as unbelievable. The same in corn, making it to $4 and wheat up close to $9. So, if there was a U.S. weather problem this year, I don’t know how high is high. But at the same point we as farmers have to manage our risk and manage profitability, and so I’m trying to find marketing tools that will allow us to do that without limiting our upside risk. Because if we do have a U.S. weather problem, these markets are gonna stay very heated. This is not a one and done.”

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Putin Just Cost You $35 Per Head

Putin Just Cost You $35 Per Head

Thu, 24 Feb 2022 23:05:33 GMT

Markets don’t like uncertainty and Vladimir Putin just gave to world’s markets a heavy dose of uncertainty.

Russian stocks crashed by as much as 45% and the ruble hit a record low against the dollar on Thursday, all of which was triggered by Russia’s invasion of Ukraine.

In the U.S., the Dow Jones Industrial Average opened down 800 points, but had regained some of that loss by mid-day. Blue-chip stocks are now down 11% from the record of 36,799 set on Jan. 4, 2022.

Cattle? The geo-political events couldn’t have come at a worse time. Cattle prices had finally turned higher in 2022 after three years of struggling against unforeseen events – packing plant fire, pandemic, cyber-attack.

Feeder cattle futures suffered the most from the Ukraine invasion. The nearby contracts were down $4.50 to as much as $5.00 by midday. At the close April feeder cattle fell $4.475 at $163.80, a two-month low. For a 775-pound feeder steer that’s a loss of about $35.

Live cattle futures also pushed lower. April live cattle fell $2.45 to $142.30, the lowest closing price since Jan. 27. That’s also about a $35 per head loss.

Cash cattle traded at $142 - $143 last week, the highest price since August of 2015. This week has already seen prices $1 to $2 higher in trades prior to the Ukraine invasion. Choice boxed beef prices fell just 12 cents on Thursday morning to $260.76 per cwt. Select boxed beef, however, fell $3.48 to $255.48 per cwt.

April live hogs were down $1.50 per cwt. to $106.47 at midday.

Ukraine

Ag Economists Turn More Positive Longer-Term On the Farm Economy

Cuts to Projected U.S. Crop Yields

What Economists are Watching the Next Six Months for Crop Prices

What Livestock Economists Are Watching the Next 6 Months for Livestock

Economists More Bullish on Cattle and Hogs

Longer-Term Look at the Health of Agriculture

The Turbulent Relationship Between the U.S. and China

Potential Events/Factors Not Getting Enough Attention Today

Previous Ag Economists’ Monthly Monitor Coverage

Kansas Winter Wheat Crop Crippled by Drought that Covers 80% of the State

“It’s amazing. If you go 30 miles east of me, it’s wetter than it is here. But if you go from here towards southwest Kansas, it’s as dry here as it is there, which is not what we’re used to,” says Keesling. “It’s been dry like this for almost a year.”

He says the variation in winter wheat crop conditions across even his own county is proof about how variable drought conditions are across the state.

Back-to-Back Years of Drought

Snapshot of National Winter Wheat Crop Conditions

Possible High Abandonment of U.S. Winter Wheat

The Black Sea Wild Card

Read More: Is Russia Taking a Page Out of China’s Playbook By Working to Take Control of Its Grain Industry?

Focus on Producing a Crop Through the Drought

Farmers Are Now Paying Above $5 For Off-Road Diesel, And It's More Than Just Russia to Blame

Why Are Diesel Prices So High?

One Hurricane Away from a Diesel Shortage?

Searching for Solutions

How Long Could the Diesel Price Pain Last?

Biden: Double Crop Because 'We Can't Take Any Chances'

Diesel Prices Just Hit a New Record High, Here's Why a Diesel Shortage May Be Next

So, what’s causing the historic run-up in prices?

Diesel Export Ban Looming?

John Phipps: Is the U.S. Already Energy Independent?

Grain and Livestock Markets Just Saw Another Crazy and Volatile Week, So What's Driving it All?

Acreage Questions Still Unanswered

The Drought Wildcard

If You Think Fertilizer Prices are Bad Now, Here's Why China Could Make the Situation Even Worse

Read More: The 4Rs can Help Reduce the Sting of Fertilizer Supply Logistics

Markets Make Historic Open Sunday as Wheat Tops $13, Soybeans Soar Past $17, Corn Closes in on $8

Food and Fuel Inflation Fears

Wheat Price Whiplash to End Week Leaves Producers with One Burning Question

How High Can Wheat Prices Go?

Soaring SRW Wheat Futures Shatter All-Time High as Crisis in Ukraine Continues

Russian Invasion of Ukraine Overtakes Other Washington Issues as Congress Returns this Week

Crisis in Ukraine

Cargill Confirms Chartered Vessel Hit by Attack in Black Sea as Ukraine-Russia Crisis Continues

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Russian Invasion is Bad News for U.S. Meat Consumers, Steiner Says

Here's Why the Russia-Ukraine Crisis Creates a Realignment of World Trade

Putin Just Cost You $35 Per Head