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FOCUS ON AG

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    The “FOCUS ON AG” column is sent out weekly via e-mail to all interested parties. The column features timely information on farm management, marketing, farm programs, crop insurance, crop and livestock production, and other timely topics. Previous “FOCUS ON AG columns are available on the MinnStar Bank website at: https://www.minnstarbank.com/category/focus-on-ag/ or the MinnStar Bank Facebook page at: https://www.facebook.com/MinnStarBankNA/ Selected copies of the “FOCUS ON AG” column are also available on “The FARMER” magazine web site at: https://www.farmprogress.com/focus-ag
    For more information on items in the “FOCUS ON AG” column, feel free to contact me. Thanks and have a great day ! Kent Thiesse

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MINOR  CHANGES  IN  NOVEMBER  USDA  REPORTS

11/16/2022

 
​The monthly USDA World Supply and Demand Estimates (WASDE) Report was released on November 9, which may have some impact corn and soybean markets in the coming months. The WASDE Report made minor adjustments to projected 2022-23 U.S. corn and soybean carryover estimates at the end of the current marketing year on August 31, 2023, as compared to estimates last month. The biggest surprise to the grain markets was a slight increase in the estimated corn and soybean production levels for 2022 compared to a month earlier, which resulted in slightly higher carryout levels for both corn and soybeans in the November WASDE Report.
 
Most grain marketing analysts viewed the latest USDA reports as somewhat “bullish” for future corn prices and “neutral” for soybean prices. December corn futures closed at $6.64 per bushel on the Chicago Board of Trade (CBOT) following the November 9 report, which compares to a price of $6.96 per bushel following the WASDE report on September 12 and to $5.55 per bushel following the November WASDE report in 2021. CBOT November soybean futures closed at $14.52 per bushel following the latest WASDE report, which was below the $14.88 per bushel price following the September report and compares to $11.38 per bushel following the WASDE report in November of 2021.
 
The 2022 national average corn yield is now estimated at the record level of 172.3 bushels per acre, which was increased from 171.9 in October. The 2022 harvested corn acreage in the U.S. was maintained 80.8 million acres, resulting in a total estimated 2022 corn production of 13.93 billion bushels. This compares to total U.S. corn production levels of near 15.1 billion bushels in 2021, 14.1 billion bushels in 2020 and to 13.6 billion bushels in 2019. Total corn usage for the 2022-23 year is now estimated at just over 14.175 billion bushels, which would be down from 14.956 billion bushels in the 2021-22 marketing year. Corn export levels and the amount of corn used for both feed and ethanol production during the current marketing year, which ends on August 31, 2023, were all reduced from corn usage levels during the 2021-22 marketing year.
 
USDA is now estimating 2022-2022 U.S. corn ending stocks at 1.182 billion bushels, which was 10 million bushels above the October estimate. This compares to carryout levels of 1.338 billion bushels in 2021-22, 1.24 billion bushels in 2020-21, and 1.99 billion bushels for 2019-20. Based on current estimates, the U.S. corn carryout to use ratio would be at 8.3 percent for 2022-23, which compares to 9.2 percent for 2021-22, 8.3 percent in 2020-21, and 14.4 percent in 2019-20. The continued tighter corn stocks could result in the potential for some short-term rallies in the cash corn market and continued tight basis levels at many locations in the coming months.
 
The 2022-23 U.S. soybean ending stocks in the recent WASDE Report were estimated at 220 million bushels, which was an increase of 20 million bushels compared to the October USDA report. The projected soybean ending stocks compare to 274 million bushels in 2021-22 and 256 million bushels in 2020-21; however, the projected 2022-23 carryout level is well below the ending stocks of 523 million bushels in 2019-20 and 913 million bushels in 2018-19. The soybean stocks-to-use ratio for 2022-23 is estimated at 5 percent, which is down from down from 6.1 percent on 2021-22 and well below levels of 11.5 percent in 2019-20 and 23 percent for 2018-19.
 
Total U.S. soybean production for 2022 was estimated at just under 4.346 billion bushels in the November report, which was increased by 33 million bushels from the October estimate and was slightly higher than the average grain trade projection. Total soybean demand for 2022-23 is projected at 4.414 billion bushels, which is down slightly from 4.465 billion bushels in 2021-22. The anticipated reduction in U.S. soybean demand in the coming year is primarily due to a decrease in the expected soybean export levels in 2022-23. The fact that soybean ending stocks remain fairly tight may offer some opportunities for short-term rallies for farm-level soybean prices in the coming months, especially if there are any weather-related production issues in South America.
 
Based on the November WASDE report, USDA is currently estimating the U.S average on-farm cash corn price for the 2022-2023 marketing year at $6.80 per bushel, which was unchanged from the October report. The USDA price estimates are the expected average farm-level prices for the 2022 crop year from September 1, 2022, to August 31, 2023; however, they do not represent estimated prices for either the 2022 or 2023 calendar year. The projected USDA average corn price of $6.80 per bushel would be the highest since 2012-13 following the 2012 drought. The 2022-23 estimated corn price compares to recent national average corn prices of $6.00 per bushel for 2021-22, $4.53 per bushel for 2020-21, $3.56 per bushel for 2019-20, and $3.61 per bushel for 2018-19. 
 
USDA maintained the projected U.S. average farm-level soybean price for the 2022-2023 marketing year at $14.00 per bushel, which was also the same as the October estimate. The projected national average soybean price would be the highest in the past decade. The 2022-23 projected national average soybean price compares to prices $13.30 per bushel in 2021-22, $10.80 per bushel for 2020-21, $8.57 per bushel for 2019-20, $8.48 per bushel for 2018-19, and $9.35 per bushel for 2017-18. 
 
USDA 2022 Corn and Soybean Yield Projections Below 2021 Yields
Based on the USDA Crop Production Report released on November 9, the projected U.S. average corn yield for 2022 will be 172.3 bushels per acre which was a decrease from the record U.S. corn yield of 177 bushels per acre in 2021. This compares to other recent U.S. corn yields of 171.4 bushels per acre in 2020, 167.5 bushels per acre in 2019, and 176.4 bushels per acre in 2018. The projected 2022 U.S. harvested corn acreage is 80.8 million acres is a decrease of 5.3 percent from 85.3 million acres that were harvested last year.
 
The November USDA Report increased the projected 2022 corn yields from the October report in Illinois by 5 bushels per acre, Indiana by 4 bushels, Iowa and North Dakota by 2 bushels per acre, and Minnesota by 1 bushel per acre. The latest USDA report left the projected corn yield unchanged from a month earlier in Wisconsin, while reducing estimated yield levels in Nebraska and South Dakota by 4 and 5 bushel per acre respectively. Minnesota is now projected to have a statewide average corn yield of 191 bushels per acre in 2022 compared to 177 bushels per acre in 2021, with Iowa are at 202 bushels per acre in 2022 compared to 204 bushels per acre in 2021. Other projected 2022 State average corn yields are Illinois at 215 bushels per acre, Indiana at 191 bushels per acre, Ohio at 186 bushels per acre, North Dakota at 143 bushels per acre, and Wisconsin at 182 bushels per acre. The drought-stricken States of Nebraska and South Dakota are projected at 168 and 125 bushels per acre respectively.
 
USDA is estimating the 2022 U.S. soybean yield at 50.2 bushels per acre, which is an increase of 0.4 bushels from the October estimate. The projected 2022 national average soybean yield compares to 51.7 bushels per acre in 2021, 51 bushels per acre in 2020, 47.4 bushels per acre in 2019, 50.6 bushels per acre in 2018, the record U.S. soybean yield of 52.0 bushels per acre in 2016. The 2022 harvested soybean acreage is projected at 86.6 million acres, which up slightly from the 2021 U.S. soybean acreage of 86.3 million acres; however, the 2022 acreage is well above the U.S. soybean harvested acreage of 82.6 million acres in 2020 and 74.9 million acres in 2019. 
 
USDA is estimating the 2022 Minnesota soybean yield at 50 bushels per acre, which is up from 47 bushels per acre in 2021, while Iowa is projected at 59 bushels per acre in 2022, compared to a record 63 bushels per acre in 2021. Other States with strong soybean yields for 2022 include Illinois at 64 bushels per acre, Indiana at 59 bushels per acre, Ohio at 55 bushels per acre, Wisconsin at 54 bushels per acre, and North Dakota at 36 bushels per acre. The 2022 statewide yield estimate in drought-stricken Nebraska is projected at 50 bushels per acre, which compares to 63 bushels per acre in 2021, while the South Dakota yield is estimated at 39 bushels per acre in 2022, compared to 40 bushels per acre in 2021.
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BASIS  LEVEL  IMPORTANT  FOR  GRAIN  MARKETING  DECISIONS

11/9/2022

 
On any given day, farm operators and others can get grain price quotes from the CME Group, also known as the Chicago Board of Trade (CBOT), in “real-time” on their computer or I-phone. Almost as quickly, they can get current and future corn and soybean market price quotes from local grain elevators, ethanol plants, and processing plants. The difference between the local grain price and the CBOT price is known as “basis”. Understanding how basis works and the seasonal trends associated with basis can be an important factor in making corn and soybean marketing decisions.  
 
More specifically, “basis” is the difference between the local grain price quote on a specific date and the CBOT price for the corresponding futures contract month. Local harvest price quotes for corn and soybeans would typically correspond to the December CBOT corn futures price and the November CBOT soybean futures price. By comparison, storing the corn or soybeans after harvest and selling the grain via a forward contract in June or early July the following Summer would have the basis level correspond to the July CBOT corn or soybean futures.
 
A “narrow” or “tighter” basis means that the local corn or soybean price is getting closer or above the corresponding CBOT price, while a “wide” or “widening” basis reflects local grain prices that have a greater margin below the CBOT prices. In many years up until recently, farmers in the Upper Midwest dealt with “negative” basis levels, which means than local corn and soybean prices are lower than the corresponding CBOT prices. Areas near the Mississippi River ports or in the Southern U.S more typically have “positive” basis levels, where local grain prices are higher than CBOT prices. However, there have been several areas of the Upper Midwest that have had “positive” basis levels for corn and soybeans at certain times during 2021 and 2022.
 
While the definition of “basis” may seem quite simple, the dynamics of understanding basis can be quite complex. Basis is variable at different locations and can vary throughout the year, or suddenly be adjusted due to changing dynamics in grain market fundamentals. Following are the main factors that affect basis and can lead to changes in basis levels:
  • Geographic Variations--- Corn and soybean basis can vary greatly from location-to-location, largely dependent on the amount of the local grain production to be used as livestock feed or for use in processing and ethanol production. Therefore, basis levels tend to be wider in Western Minnesota and the Dakota’s than in Southern Minnesota, which has a high amount of livestock production, as well as several ethanol plants and soybean processing plants.
  • Transportation Costs --- This is the cost of shipping grain from the point of local sale to the final destination point, whether it be for use within the U.S. or transported to the ports to be shipped for exports to other countries. For example, areas that utilize a large percentage of the corn and soybean production in the local area have less grain to be transported to the ports or to other portions of the U.S. will typically have a tighter basis level. In addition, being closer to the Mississippi River, an important port, or a major rail line tends to reduce transportation costs and result in tighter basis levels, bot not in all instances.
  • Supply and Demand --- The overall U.S. grain supply, based on crop production for a given year and grain carryover levels from the previous year, along with the grain usage for livestock feed, processing, ethanol production, and exports, can result in year-to-year variations in basis levels. For example, the 2021 and 2022 corn and soybean basis levels in many areas have been tighter than normal due to the strong demand for exports to China and increased domestic demand for livestock feed and processing. Poor crop yields in a local area can also affect basis in a given year. Local areas that had below average corn yields in either 2021 or 2022 have had a “positive basis” at certain times for corn and soybeans, due to strong local corn demand for feed usage and ethanol production, as well as demand at soybean processing plants.
  • Storage and Interest Costs --- In a normal year, both CBOT corn and soybean futures prices and cash prices tend to be the lowest at harvest time and then increase by the following Summer. As the time gets closer to the actual date of delivery for the grain, depending on demand, the local grain prices may be stronger than the CBOT prices, resulting in tighter basis levels. The basis situation in the Upper Midwest in 2021 and 2022 has been different than normal due to a combination of lower-than-expected crop yields, together with strong demand for corn and soybeans. The rapidly increasing interest rates in recent months has resulted in a much higher cost of storing grain until next Summer, which encourages farmers to sell the grain in the next few months in order to take advantage of the current tighter basis levels. 
 
There is currently a wide range in harvest-time corn basis levels the Midwest, depending on 2022 corn yields and demand for corn usage. For example, in portions on Nebraska and Kansas that were impacted by the drought in 2022, the early November corn basis level is +$.50 to +$1.50 above the nearby CBOT December corn futures price, which is a much different pattern than normal. By comparison, corn basis levels in areas of Southern Illinois are ($.50) to ($1.00) per bushel below December CBOT price, which is a much wider basis level than normal, resulting from reduced barge traffic on the lower Mississippi River due to low water levels. The national average corn basis level on November 3 was +$.05 per bushel above the CBOT December futures price.
 
The corn basis level on November 3 in Southern Minnesota ranged from about ($.25) per bushel under the CBOT December futures price to +$.15 above the CBOT price. Soybean basis levels in Southern Minnesota on November 3 generally ranged from ($.15) under to +$.05 over the CBOT January futures price, with some soybean processing plants as high as +$.40 above the futures price.  In the six years (2015-2020) prior to 2021, early November corn basis levels in Southern Minnesota had typically averaged ($.35) to ($.45) per bushel below the nearby CBOT futures price and soybean basis levels were ($.40) to ($.90) per bushel under futures prices.
 
Currently, many farmers are quite “bullish” about grain market prices in 2023, meaning that they feel there is a good chance of corn and soybean prices rising in the coming months. The current basis levels for both crops in many areas are encouraging producers to sell their grain in the next few months, rather than waiting until next Summer to market the grain. Corn futures and cash prices are currently projected to stay fairly steady from now until July of 2023, meaning there is very little difference in the expected basis levels by next Summer. At soybean processing plants in Southern Minnesota, the soybean basis was +$.40 per bushel on November 3, compared to minus ($.15) per bushel in July of 2023, so even though the CBOT futures price for July is $.16 per bushel higher than the January price, the cash soybean bid for July is ($.39) per bushel lower than the current cash bid.
 
There are several grain marketing tools available for farmers to utilize besides cash sales, including a variety of hedging, options and basis contracts, Typical hedging or options contracts lock in the CBOT futures price but not the cash price, meaning that there is still basis risk. For example, a “hedge-to-arrive” contract locks in a CBOT futures price but the basis is not finalized until the futures contract is cleared and the grain is sold. By comparison, a basis contract locks in the basis but keeps the final price open depending on changes in the corresponding CBOT futures price and actual cash price at the time of delivery. Depending on an individual’s willingness to assume some market risk, they could also sell the grain for cash to realize the advantage of the current basis levels and take a CBOT options or futures price position to keep some upside potential in the corn and soybean markets.
 
Most grain marketing strategies, including storing unpriced grain in a bin on the farm, involve some level of price and/or basis risk. Understanding the dynamics of basis in corn and soybean market prices is a key element in analyzing the various types of grain marketing contracts that are available to farm operators. Iowa State University has some good information available on understanding basis and various grain marketing strategies. This information is available on the “Ag Decision Maker” website at: https://www.extension.iastate.edu/agdm
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DROUGHT  CONDITIONS  INTENSIFY  IN  THE  MIDWEST

11/3/2022

 
​As the 2022 harvest season is rapidly drawing to a close, many areas of the Corn Belt are now in a moderate to severe drought, with conditions worsening in the past couple of months. The latest “U.S. Drought Monitor” released on October 27 places all of Iowa, Nebraska, South Dakota, Indiana, Kansas, and Missouri at some level of drought, as well as much of the major crop producing areas of Minnesota, Illinois and North Dakota. Currently, approximately 60 percent of the tillable crop acres in the U.S. are being impacted by some level of drought. The National Drought Mitigation Center, which produces the updated U.S. Drought Monitor on a weekly basis, indicated that current conditions are comparable to the Fall of 2012, when over 61 percent of the U.S. crop acres were impacted by some level of drought.
 
According to the latest U.S. Drought Monitor, nearly all of Nebraska, Kansas, Oklahoma, and North Texas is now categorized to be in either the extreme drought (D3) or severe drought (D2) category, with a growing portion of that region in an exceptional drought (D4) category. There is a growing area of worsening drought in the Ohio River Valley and Southern Mississippi River basin area. Nearly the entire western two-thirds of the United States is listed in some level of drought at the end of October. Some Western States and Great Plains States have been dealing with drought conditions for two to three years. Areas that are in the extreme (D3) or exceptional (D4) drought areas are more likely to incur significant crop loss and have extremely limited forage production.
 
Based on the U.S. Drought Monitor for Minnesota on October 27, all areas of the State except the Arrowhead region and a small portion of North Central and Northwest Minnesota were categorized in some level of drought. Nearly the entire Southern half of the State was in the “moderate” to “severe” drought category, with a small portion of Southwest Minnesota and a larger area just west and south of the Twin Cities metro area in an “extreme” drought category. Back in mid-Summer of 2022, very few areas were listed in any type of drought category.
 
Sometimes the “Drought Monitor” is somewhat misunderstood. It is meant to measure the overall long-term impacts of extended drought conditions, as compared to representing current crop conditions. This is why some areas that are listed in “moderate” or “severe” drought may still have had fairly good crop yields in 2022, even with below average rainfall, depending on the timeliness of the rainfall events during the growing season. Some portions of the Upper Midwest also benefitted from starting the 2022 growing season with average to above average levels of stored soil moisture, which has also helped maintain crop development through some very dry periods during the Summer months.
 
The continued drought across the region is certainly a concern as we look forward to the 2023 growing season, with stored soil moisture levels across the Midwest at historically low levels in many locations. The post-harvest stored moisture levels at many reporting stations ranges from near zero to only a few inches in the top five feet of soil, compared to normal levels of six to seven inches of stored soil moisture in late October. Nearly 75 percent of the primary growing areas in the U.S. for winter wheat are in moderate, severe or extreme drought conditions, which is at the highest level in over twenty years. Winter wheat is seeded in the Fall and harvested the following Summer. Dry soil conditions in the Fall can result in poor germination and stunt the early growth of the winter wheat, which can result in yield reductions the following year.
 
The intense drought conditions in some corn and soybean production areas can also lead to challenges with Fall fertilizer and manure applications, as well as making Fall tillage more difficult. Nitrogen fertilizer costs nearly three times as much as it did two years ago, so farmers need to carefully consider Fall soil conditions if they plan to apply anhydrous ammonia this Fall. Producers may also want to limit their Fall tillage or consider the use of cover crops to reduce the potential for wind erosion during the Winter months.
 
According to precipitation data at the University of Minnesota Southwest Research Center at Lamberton, drought-like conditions have existed for the past 2-3 months. From June 1 to October 28, 2022, the Lamberton location had received only 6.57 inches of precipitation, which is 9.73 inches less than average, and represents only 40 percent of the normal rainfall amount during the Summer and Fall months in 2022. By comparison, the U of M Research Center at Waseca in South Central Minnesota received close to normal precipitation in June, July and August but has become quite dry in September and October. Waseca has received only 1.08 inches of precipitation in September and October, while Lamberton has received only .93 inches. Other two-month precipitation totals for September and October from the National Weather Service, included Wheaton at .47 inches and Windom at .62 inches, which were both the driest ever recorded, and New Ulm at .60 inches, the third driest in history.
 
The warm, dry weather during late September and October has allowed the Fall harvest season to progress quite rapidly in most areas of the Upper Midwest. By the end of October, soybean harvest had been completed and corn harvest was about 80-90 percent completed across southern Minnesota. Overall, the “whole-field” corn and soybean yields across the Midwest were highly variable, even in the same county or township, depending on the amount and timeliness of rainfall events during the growing season. Some areas of Southern Minnesota and North Central Iowa had some of their best corn and soybean yields ever, while farmers in Nebraska, Western Iowa and portions of Southern south Dakota had greatly reduced crop yields due to the drought impacts in 2022.
 
The good news for all producers regarding the 2022 corn harvest has been the low harvest moisture of the corn coming out of the field, and the high quality of the corn. Most of the corn being harvested in Southern Minnesota in the past few weeks has been at 15-18 percent moisture, meaning it can go directly to farm grain bins with very little or no additional drying, or can be hauled to grain purchasers with very little price dockage for excess kernel moisture. The rapid field dry down of the corn is saving most producers $30.00-$35.00 per acre in anticipated corn drying costs. Most of the corn being harvested in Southern Minnesota has had a test weight that is at or above the standard test weight for corn of 56 pounds per bushel, which also adds value to the corn.
 
The fire danger throughout in many areas remains extremely high due to the very dry conditions and frequent windy days. These conditions can quickly ignite field and grass fires that can cause significant damage. Farm operators need to use extra caution with farm machinery, grain trucks and other vehicles in the very dry fields. They also need to make sure that fire extinguishers are working properly and take other necessary fire safety precautions. The general public must also take care not to accidentally ignite a fire near farm fields, or in other rural areas. The ongoing drought conditions in many regions are also highly visible with the extremely low levels of lakes, rivers, and streams. In some instances, areas that have suffered intense drought levels for two or three years could also be impacted by reduced ground water levels.
 
Based on the weather data in Southern Minnesota, the Fall precipitation pattern in 2022 is very similar to the pattern in the fall of 2011. Of course, the Fall of 2011 was followed by the major drought in the Summer of 2012, which was quite intense in many areas of the Midwest and across the U.S. The Summer of 2012 was driest since 1988, another major drought year, and was the second hottest Summer on record, trailing only 1936. The 2012 drought caused nearly $30 billion in agricultural losses, resulting in a loss of approximately 25 percent of the U.S. corn and sorghum crops, as well as major impacts on hay and pasture production and large financial losses to U.S. beef producers. On the other hand, both 1976 and 1952 also had very dry conditions in the Fall in the Midwest; however, both years were followed by above normal precipitation and fairly good crop production in the following year. So, there is no certainty when it comes to predicting long-term weather patterns based on current conditions but there is certainly cause for some concern as we look ahead to the 2023 growing season.
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2022  CROP  INSURANCE  PAYMENT  POTENTIAL

10/26/2022

 
Crop producers in Nebraska, South Dakota, Western Iowa, portions of Minnesota, and other States that were impacted by lack of rainfall and varying degrees of drought conditions during the 2022 growing season may have final corn and soybean yields that are well below their APH crop yields. Other areas of the Upper Midwest may have also been impacted by severe storms that caused some yield reductions. Farmers in any of these areas could potentially realize some 2022 crop insurance indemnity payments, due to the reduced yields this year. A yield reduction well below APH yields will be necessary in order to receive any 2022 crop insurance payment for corn, due to the final corn harvest price likely to be higher than the Spring base price. This situation for soybeans will be somewhat different the harvest price will be below the Spring base price.
 
The Federal crop insurance harvest prices for corn and soybeans are based on the average Chicago Board of Trade (CBOT) price for December corn futures and November soybean futures, during the month of October, with the harvest prices being finalized by the USDA Risk Management Agency (RMA) on November 1. The Spring base prices for corn and soybeans are based on the average CBOT prices for December corn futures and November soybean futures during the month of February. The final harvest prices will be used to calculate the value of the 2022 harvested crops for all revenue protection (RP) crop insurance policies, as well as to potentially determine the revenue guarantee for the RP policies that include harvest price protection if the harvest price is higher than the base price; otherwise, the base price will be used to determine revenue guarantees for RP policies.
 
The harvest price for corn will be higher than the base price for corn RP policies in 2022, so the harvest price will be used for crop insurance guarantee calculations on RP policies this year. The Spring base price for corn will use for 2022 guarantee calculations for all yield protection policies (YP) and revenue protection with harvest price protection (RPE). The situation will be different for soybeans, with the harvest price being lower than the base price and the base price being used for all RP calculations in 2022. Farm operators with final corn yields that are within 15 percent of their 2022 crop insurance actual production history (APH) crop yields will likely not receive any crop insurance indemnity payments; however, that situation will be different for soybeans.  
 
The estimated 2022 harvest prices as of 10-24-22 were $6.79 per bushel for corn, compared to a base (Spring) price of $5.90 per bushel, and $13.79 per bushel for soybeans, compared to a base price of $14.33 per bushel. The base price will be used to calculate and crop insurance indemnity payments on farms insured by yield only YP policies and on RPE policies for both corn and soybeans, as well as on RP policies for soybeans in 2022. The harvest price will be used to determine the revenue guarantee for all corn RP policies, but not on RPE policies that include the harvest price exclusion. The harvest price will also be used to calculate the final revenue amount for all RP and RPE policies for both corn and soybeans.
 
Optional Units versus Enterprise Units
Farm operators in areas with variable yield losses on different farm units that chose “optional units” for their 2022 crop insurance coverage rather than “enterprise units” may be in a more favorable position to collect potential indemnity payments on this year’s crop losses. “Enterprise units” combine all acres of a crop in a given county into one crop insurance unit, as compared to “optional units”, which allow producers to insure crops separately in each township section. In recent years, a high percentage of crop producers have opted for “enterprise units”, due to substantially lower crop insurance premium levels. Crop losses in many areas in 2022 were highly variable from farm-to-farm within the same county and township, which would favor the “optional units” for collecting crop insurance indemnity payments this year.
 
RP Crop Insurance Calculations for Corn and Soybeans in 2022
The 2022 crop insurance calculations for RP insurance policies with harvest price protection will likely function differently for corn and soybeans. Here are the details for 2022 RP calculations:
  • Corn
Since the harvest price for corn will be above the Spring base price, the harvest price will be used for both the final revenue guarantee and the final crop value calculations. As a result, any potential crop insurance indemnity payments will require a yield loss comparable to the policy coverage level. For example, an 85% RP policy will require a harvest yield that is greater than 15% below the APH yield, an 80% RP policy will require a 20% or greater yield loss, etc. For RP policies, any corn indemnity payments will be based on the higher corn harvest price, as compared to the base price for YP or RPE polices. At current corn harvest price projections, there could be a significant difference in potential indemnity payments with RP insurance policies in 2022, as compared to YP or RPE policies.
 
  • Soybeans
Since the 2022 harvest price soybeans will be lower than the base price, the revenue guarantee for RP and RPE policies will be determined by the base price and the harvest value of the crop will be determined by the harvest price. Due to the lower harvest price, the “threshold yield” to initiate crop insurance payments will be at a higher percentage than the RP insurance coverage level and higher than standard YP insurance policies. Using a final harvest price of $13.80 per bushel and the 2022 soybean base price of $14.33 per bushel, the “threshold yield” to receive a soybean insurance payment is about at 88 percent of APH yield with an 85% RP policy, 83 percent with an 80% RP policy, and 78 percent with a 75% RP policy. For example, with a 60 bushel per acre APH yield and a $13.80 per bushel harvest price, soybean insurance payments would begin if the final soybean yield fell below 53 bushels per acre with an 85% RP policy, below 50 bushels per acre with an 80% RP policy, and below 47 bushels per acre with a 75% RP policy.
 
The Type of Insurance Coverage will affect Potential Corn Indemnity Payments
The level of crop insurance coverage and having RP insurance policies, with harvest price protection, can be a big factor in determining the amount of insurance indemnity payment that is received for crop yield reductions. Most corn and soybean producers in the Upper Midwest are carrying 75%, 80%, or 85% RP insurance coverage in 2022; however, there are some producers that utilized YP (yield only) or RPE (harvest price exclusion) policies in order to reduce crop insurance premiums. There could be a big difference in the potential final results of the various insurance policies for corn in 2022, due to the type of insurance policy, the level of insurance coverage, and the impact of the harvest price. To receive a copy of an information sheet and calculation worksheet titled: “2022 Crop Insurance Payment Potential”, send an e-mail to: kent.thiesse@minnstarbank.com
 
2022 Corn and Soybean Crop Insurance Summary
There will be considerable variation in potential crop insurance indemnity payments across the Midwest in 2022, even within the same county or township. Some producers also carried enhanced private insurance coverage levels (90% or 95%), had separate wind or hail insurance endorsements, or carried additional area insurance coverage (SCO or ECO), any of which could affect final potential insurance indemnity payments on the 2022 corn and soybean crop. Producers that had crop yield losses in 2022, with the potential for crop insurance indemnity payments, should contact their insurance agent and properly document yield losses.
 
A reputable crop insurance agent is the best source of information to make estimates for potential 2022 crop insurance indemnity payments or to find out about documentation requirements for crop insurance losses, as well as to evaluate future crop insurance options. Details on various crop insurance policies can be found on the USDA Risk Management Agency (RMA) website at: https://www.rma.usda.gov/.
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USDA  DECREASES  CORN  ENDING  STOCKS

10/19/2022

 

​The monthly USDA World Supply and Demand Estimates (WASDE) Report that was released on October 12 will likely impact corn and soybean markets in the coming months. The WASDE Report decreased the expected U.S. corn ending stocks by the end of the 2022-23 marketing year, as compared to the September estimate. The projected soybean ending stocks for 2022-23 in the latest WASDE report remained the same as a month earlier.
 
The latest WASDE report showed a decrease in total demand levels for corn in the coming year, as compared to 2021-22 levels. Total demand for corn usage in 2022-23 was estimated at 14.15 billion bushels, which down by 125 million bushels from the September estimate and compares to total corn usage of nearly 15 billion bushels in 2021-22. The reduced corn usage estimates are mainly due to a projected decrease in corn export levels and corn used for livestock feed in the coming year. The total 2022-23 soybean usage is estimated at 4.4 billion bushels, which is down slightly as compared to a year earlier, mainly due to a slight decrease in expected export levels.
 
The October WASDE Report decreased the estimated U.S. corn ending stocks for the 2022-23 marketing year, as compared to the September report. The 2022-23 corn ending stocks are now estimated at 1.17 billion bushels which compares to previous year-end corn carryout levels of 1.38 billion bushels in 2021-22, 1.23 billion bushels in 2020-21, 1.99 billion bushels in 2019-20, and 2.22 billion bushels in 2018-19. The 2022-23 U.S. corn ending stocks-to-use ratio is now estimated at only 8.1 percent, which is very tight and compares to ratios of 9.2 percent in 2021-22, 8.3 percent for 2020-21, 14.4 percent in 2019-20, and 15.5 percent for 2018-19. The continued tight stocks-to-use ratio should help support the narrow basis levels at many locations in the Midwest and keep the potential for short-term rallies in the cash corn market in the coming months.
 
The 2022-23 U.S. soybean ending stocks in the WASDE Report were estimated at 200 million bushels, which is the same as the September USDA report. The projected 2022-23 carryover level is lower than the estimated final ending stocks of 274 million bushels in 2021-22 and 257 million bushels in 2020-21. The 2022-23 soybean ending stocks would still be considerably below some other recent carryover levels of 523 million bushels in 2019-20, 909 million bushels in 2018-19, and 438 million bushels for 2017-18. The U.S. soybean ending stocks-to-use ratio for 2022-23 is estimated at only 4.4 percent which is a very tight level. This compares to 6.1 percent for 2021-22 and 5.7 percent for 2020-21; however, the 2022-23 ratio would be well below the ratios 13.2 percent ratio for 2019-20 and nearly 23 percent for 2018-19. The expected tight degree of projected soybean ending stocks for 2022-23 will likely help support short-term soybean prices in the coming months; however, continued market strength may depend on 2023 South American soybean production and continued solid export markets.
 
USDA is estimating the U.S farm-level cash corn price for 2022-2023 at an average of $6.80 per bushel, which was up $.05 per bushel from the September estimate. The 2022-23 USDA price estimate is the expected average farm-level price for the 2022 crop from September 1, 2022 through August 31, 2023; however, this does not represent estimated prices for either the 2022 or 2023 calendar year. The projected 2022-23 average corn price compares to final market-year average corn prices of $6.00 for 2021-22, $4.53 per bushel for 2020-21, $3.56 per bushel for 2019-20, $3.61 per bushel for 2018-19, and $3.36 per bushel for both 2017-18 and 2016-17.
 
USDA is projecting the U.S. average farm-level soybean price for the 2022-2023 marketing year at $14.00 per bushel, which was a decrease of $.35 per bushel from the September estimate.  The 2022-23 soybean price estimate would still be the highest in several years and compares to final market-year average prices of $13.30 per bushel for 2021-22, $10.80 per bushel for 2020-21, $8.57 per bushel for 2019-20, $8.48 per bushel in 2018-19, and $9.35 per bushel in 2017-18.  
 
USDA Lowers 2022 Corn and Soybean Yield Estimates
The monthly USDA Crop Production Report was also released on October 12. USDA reduced the expected 2022 national average corn yield by six-tenths of a bushel and decreased the projected 2022 U.S. average soybean yield by seven-tenths of a bushel per acre as compared to the September report. The latest estimated 2022 national corn yield is 5.1 bushels per acre lower than the final 2021 average yield, while the projected U.S. average soybean yield for 2022 is 1.6 bushels per acre below the final 2021 national soybean yield.
 
USDA is estimating the 2022 national average corn yield at 171.9 bushels per acre, which is well below the record U.S. average corn yield of 176.7 bushels per acre that was set in 2021. The projected 2022 U.S. corn yield also compares to 171.4 bushels per acre in 2020, 168 bushels per acre in 2019, and 176.4 bushels per acre in 2018. The estimated 2021 U.S. harvested corn acreage is 80.8 million acres, which is well below the 85.3 million acres that were harvested last year. The latest USDA Report estimated the total U.S. corn production for 2022 at just under 13.9 billion bushels, which is about 7 percent below the production level of 15.1 billion bushels in 2021. The anticipated 2022 corn production compares to levels of 14.1 billion bushels in 2020, 13.6 billion bushels in 2019, 14.4 billion bushels in 2018, and the record U.S. production of 15.15 billion bushels in 2016.
 
USDA is estimating 2022 U.S. soybean yield at 49.8 bushels per acre, which compares to 51.7 bushels per acre in 2021, 51 bushels per acre in 2020, 47.4 bushels per acre in 2019, 50.6 bushels per acre in 2018, and the record U.S. soybean yield of 52.0 bushels per acre in 2016. The harvested soybean acreage for 2022 is estimated at 86.6 million acres, which is up from 86.3 million acres in 2021 is well above 82.6 million acres in 2020; however, it is still below the 87.6 million harvested acres in 2018. The USDA Report estimated 2022 U.S. soybean production at 4.31 billion bushels, which trails the production level of 4.46 billion bushels in 2021 but is above the production levels of 4.22 billion bushels in 2020 and 3.55 billion bushels in 2019.   
 
The October USDA Report increased the expected 2022 corn yield in some States and lowered yield expectations in other States, compared to the September Report. Minnesota is projected to have a 2022 corn yield of 190 bushels, which compares to 177 bushels per acre in 2021, 191 bushels per acre in 2020, 173 bushels per acre in 2019 and the current State record yield of 194 bushels per acre in 2017. USDA is estimating the 2022 Iowa corn yield at 200 bushels per acre, which compares to the state record yield of 204 bushels per acre in 2021, 177 bushels per acre in 2020, and 198 bushels per acre in 2019. Illinois is expected to have record average corn yield at 210 bushels per acre in 2022, which compares to 2021 average corn yields of 202 bushels per acre. Other projected 2022 average corn yields are Indiana at 187 bushels per acre, compared to 195 bushels per acre in 2021, North Dakota at 141 bushels per acre, compared to 105 bushels per acre in 2021, and Wisconsin at 182 bushels per acre, compared to 180 bushels per acre in 2021. The drought-stricken States of Nebraska and South Dakota are projected to have average 2022 yields of 172 and 130 bushels per acre respectively, which compare to 2021 corn yields of 194 bushels per acre in Nebraska and 134 bushels pe acre in South Dakota.
 
USDA is estimating the 2022 Minnesota soybean yield at 50 bushels per acre, which compares to 47 bushels per acre in 2021, 50 bushels per acre in 2020, 44 bushels per acre in 2019 and the record yield of 52.5 bushels per acre in 2016. Iowa is projected to have a 2022 soybean yield of 58 bushels per acre, compared to the record yield of 63 bushels per acre in 2021, 56 bushels per acre in 2020, and 55 bushels per acre in 2019. Other projected 2022 State soybean yields are Illinois at 64 bushels per acre, compared to a record yield of 65 bushels per acre in 2021, Indiana at 59 bushels per acre, compared to 60 bushels per acre in 2021, North Dakota at 35 bushels per acre, compared to 25.5 bushels per acre in 2021, Wisconsin at 54 bushels per acre, compared to 55 bushels per acre in 2021, and South Dakota at 40 bushels per acre, which is the same as the 2021 average yield. Nebraska, which has been hard-hit by drought, is projected at 49 bushels per acre, compared to 63 bushels per acre in 2021.

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THE  DECISION  TO  SELL  OR  STORE  GRAIN ?

10/12/2022

 

Many farm operators will tell you that grain marketing decisions are one the hardest part of farming. This is especially true during times of highly volatile markets such as have been occurring in the past couple of years. Farm operators are concerned with inflation and the rapidly rising input costs, wanting to make sure that they keep their working capital strong for the 2023 crop year. In addition, the current tight local “basis” level for grain comes into play when making a sales decision for the 2022 corn and soybean crop.
 
Both corn and soybean prices rose significantly throughout the current growing season and have remained quite strong into harvest. This has improved the overall profitability projections for most Upper Midwest grain producers for 2022. The continued strength in corn and soybean prices has been driven by a combination of grain stocks adjustments by USDA, lower than anticipated U.S. corn and soybean production in 2022, and reduced South American crop production, as well as very strong domestic and export demand for both commodities. Some analysts feel that USDA may make further downward adjustments in 2022 estimated corn and soybean production, based on the limited rainfall and drought conditions in portions of the Western Corn Belt.
 
Nearby December corn futures on the Chicago Board of Trade (CBOT), which affect local cash corn prices, closed at $6.83 per bushel on October 7, which is nearly a $1.00 per bushel higher than in mid-July. It is quite unusual for corn futures to rise significantly after July and stay strong into harvest season, unless there is anticipated reduced crop production due to a drought or some other cause. The “new crop” CBOT corn futures in 2022 started the year near $5.60 per bushel in mid-January, then rose to $7.00-$7.50 per bushel from April until mid-June, before dropping below $6.00 per bushel in July and then rebounding to current levels. CBOT December corn futures have traded above $6.50 per bushel for a majority of the time since late August.
 
CBOT “new crop” soybean prices have also remained quite strong in recent months, though not at the same level as corn prices. USDA has been a bit more optimistic about 2022 U.S. soybean yields and production than with corn, and USDA recently increased the level of 2021 carryover soybean stocks. Nearby CBOT November soybean futures closed at $13.67 per bushel on October 7, which has declined by over $1.00 per bushel since mid-September. November 2022 CBOT soybean futures started the year at just over $13.00 per bushel, before rising to over $15.00 per bushel most of the time from mid-April until mid-June. Soybean futures traded from $13.50 to $14.25 per bushel during most of July and August, before declining to current levels.
 
Local grain elevators, ethanol plants and processing plants generally set their bid prices based off the CBOT futures price for a corresponding month. The difference between the local cash price being offered in a given month and the closest CBOT futures price is known as “basis”. The basis levels for both cash corn and soybeans have remained at very strong levels throughout most of 2022. In fact, there has been a significant “positive basis” for corn in the past few months at many processing plants and local elevators in the Upper Midwest, meaning that the local cash price is higher than the CBOT price. This situation does not occur very frequently in the Western Corn Belt, especially heading into harvest season.
 
For example, basis levels for the 2021 corn that was still in storage and 2022 corn that was harvested early was at a positive level of $.20 to over $.50 per bushel above the CBOT futures price in late September at many locations in the Upper Midwest. Soybean basis levels at regional processing plants also remained very tight into late September, with some plants briefly offering positive basis levels. The current basis level in Southern Minnesota for the 2022 corn and soybean crop being harvested is about $.20-$.50 per bushel lower than CBOT prices at most local grain elevators and processing plants. However, the basis levels improve significantly for grain that is stored and sold after harvest in December or January.  
Generally speaking, when there is a positive or extremely tight basis level for cash corn and soybean, such as currently exists, farmers should look to take advantage of those opportunities to market some of the unpriced corn or soybeans that are being harvested. The nearby CBOT corn or soybean futures price could increase in the coming months but if the basis at the local grain elevator or processing plant widens at the same time, the cash price to the farmer may not change. While a $.50 per bushel widening of the basis may not sound that significant, that amount represents $50,000 on a grain bin with 100,000 bushels of unpriced corn. This could make up a considerable portion of the profit margin for the 2022 corn crop.
 
Many producers have utilized “hedge-to-arrive” grain marketing contracts in the past to lock-in a price on corn or soybeans prior to harvest, and then store the grain until the following Spring or Summer for improved local cash prices. A typical “hedge to arrive” contract locks in the futures price and allows the local price to be determined at a later date. The concept is that the basis level usually narrows during the first half of the year following harvest, as the grain supplies grow tighter. In most years, the basis level for local cash grain prices is usually quite wide at harvest time and then narrows in future months. This scenario did not occur with the 2021 corn and soybean crop and will likely not occur with the current 2022 crop. The current tighter basis levels at harvest mean that positive results from typical “hedge-to-arrive” grain marketing contracts might be very limited.
 
It is important for producers to remember that tight basis levels at local grain elevators and processing plants are mostly driven by local demand for corn and soybeans. Once that demand is met, basis levels tend to widen back to more typical levels. As we have seen in recent months, basis levels can vary considerably from day-to-day at local grain elevators, feed mills, and processing plants, depending on the immediate need for corn and soybeans. Paying attention to basis levels and understanding the factors that affect basis can play a big part in the success of a farm grain marketing plan.
 
Farm operators also need to factor in the cost of storing the grain when considering grain marketing decisions. The rapid rise in the short-term interest rates to 6-7 percent or more has become a factor in grain storage decisions, especially if farmers have an operating line of credit that they are currently paying accrued interest on. When all factors are considered, the cost of storing corn or soybeans for six months can range from $.25 to $.50 per bushel. The main reasons to capture reasons to store grain are usually to capture improved commodity prices or stronger basis levels in the Spring and Summer months, which will enhance local cash bids in the later months.
 
Currently, cash corn bids at grain elevators and ethanol plants in Southern Minnesota are near $6.50 to near $7.00 per bushel, which is nearly the same as the bids being offered in the Spring and Summer of 2023. Similarly, cash soybean bids at local elevators are currently near $13.00 to $13.50 per bushel, with higher prices at soybean processing plants, which again is similar to prices being offered in the first half of 2023. The current grain market scenario is currently not offering much incentive to store corn and soybeans into the Spring and Summer of 2023. Some farmers may choose to store and price grain for December or January delivery for tax management purposes and to capture a few extra cents per bushel.
 
Many farmers have had some difficulty making grain marketing decisions for the 2022 corn and soybean crops. Being able to “lock-in” local cash prices over $6.00 per bushel for corn and over $13.00 per bushel for soybeans is the best opportunity that has existed during harvest season in many years. On the other hand, farmers do not want to miss another grain price “run-up”, given the current tight U.S. grain supplies. It is important to remember that the catalyst for another commodity price increase next year might be continued or worsening U.S. drought conditions as we head into the 2023 growing season. If a major drought does not develop in 2023, corn and soybean prices are likely to follow a more typical seasonal price pattern next year. No two years are the same, but historical price trends are something to keep in mind in analyzing grain marketing strategies for the 2022 crop.

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MINNESOTA  BEEF  EXPO  SCHEDULED  FOR  OCTOBER  20-23

10/5/2022

 
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HARVEST  SEASON  UNDERWAY  IN  MANY  AREAS

10/5/2022

 
​The warm late growing season during September this year has pushed the 2022 corn and soybean crop very rapidly toward maturity. By the end of September, soybean harvest was 50 percent or more completed in many portions of Upper Midwest, while some areas still needed a bit more time for soybeans to fully mature. Many corn hybrids had also reached physiological maturity by late September and were also ready to be harvested; however, some producers are hoping for some significant field dry-down of the corn prior to harvest.
 
As of September 28, a total of 2,629 growing degree units (GDU’s) had been accumulated since May 1 at the University of Minnesota Southern Research and Outreach Center at Waseca, which is comparable to many areas of Southern Minnesota and Northern Iowa. This will be the final 2022 GDU count at Waseca, as that location received the first freezing temperatures of the year on September 28. The 2022 GDU accumulation at Waseca exceeded the normal GDU accumulation by 5 percent; however, the 2022 total trailed the 2021 GDU accumulation in late September by 121 GDU’s. The extra growing degree units, combined with dry weather in September, helped this year’s corn and soybean crop reach maturity, as well as to dry down rapidly in the field.
 
Most soybeans have now reached maturity and soybean harvest has been underway for the past couple of weeks in many locations across Southern Minnesota and Northern Iowa. As expected, soybean yields have been highly variable across the Upper Midwest due to differing impacts from rainfall amounts and timeliness of rainfall in many locations, as well as moderate to severe drought conditions in Nebraska, Kansas, and portions of Southern South Dakota and Western Iowa. Generally, the soybean yields have been average or above and much more consistent in South Central and Southeast Minnesota, Wisconsin, and the eastern half of Iowa, as well as in Illinois and Indiana. Soybean yields in other areas have been highly variable depending on the growing season rainfall. Soybean yields in areas impacted by drought have been well below the crop insurance APH (average) yields.
 
Most of the corn in the Upper Midwest has reached physiological maturity, which is the “black layer” stage, or is very close to reaching maturity. Corn is usually at 30-32 percent moisture when it reaches the “back layer” stage, and then begins to dry down naturally in the field. Ideally, growers like to see corn dried down in the field to at least 20-22 percent moisture, or lower, before they harvest the corn. This greatly saves on corn drying costs and improves the quality of the corn being harvested and going into storage. Corn is usually dried down to a final moisture content of 15-16 percent moisture for safe storage on the farm until the following Summer.
 
Corn will dry down about 0.50 % per day naturally at an average daily temperature of 60 degrees F, which increases considerably at higher temperature levels, such as have existed in recent weeks. At Waseca, the normal daily average air temperature in September is above 60 degrees, but that drops to only about 48 degrees during October. If favorable drying weather continues in the coming weeks, it is likely that corn drying costs in many areas will be greatly reduced in 2022. The moisture content on much of the corn being harvested in many areas has dropped considerably during the last half of September and is now 25 percent or lower.
 
It is a bit early to project 2022 corn yields across the Midwest; however, early indications are that corn yields in many areas will just as variable as the soybean yields. In portions of the upper Midwest that had timely and adequate rainfall during the growing season, 2022 corn yields may end up average or above average. However, in those areas that missed the timely rainfalls, corn yields will likely be reduced, with yields well below APH levels in the areas that were impacted by drought conditions in 2022. Based on the September 12 USDA Crop Report, favorable 2022 average corn yields (Bu/A.) were projected in Illinois (204), Iowa (200), Minnesota (190), Indiana (186), Wisconsin (183) and North Dakota (141). Less favorable corn yields were projected for Nebraska (176) and South Dakota (138), which are both well below recent state average yields.
 
USDA  GRAIN  STOCKS  REPORT  DECREASES  CORN  SUPPLY
The September 30 USDA Grain Stocks Report surprised most grain marketing analysts, being especially “bullish” for future corn markets and basically “bearish” for soybean markets. Grain stock estimates for corn were 8 percent lower than pre-report estimates by grain traders, while soybean stocks were somewhat higher than early estimates and wheat stocks came in close to the anticipated projections. Following the USDA report, December corn futures on the Chicago Board of Trade (CBOT) increased by 8 cents per bushel, while November soybean futures declined by 46 cents per bushel. Wheat futures were also stronger following the report, due to USDA adjusting the estimated 2022 U.S. wheat production downward by 133 million bushels from the August estimate.
 
The biggest surprise in the Grain Stocks Report on September 30 was the estimated total U.S. corn stocks at 1.377 billion bushels, which was 120 million bushels lower that the pre-report estimates; however, the 2022 corn stocks on September 1 are still 11 percent higher than the 1.235 billion bushels on 9-01-21. USDA estimated that 509 million bushels of corn was stored on farms as of 9-01-22, which is up 115 million bushels from a year ago; however, it represents only 36 percent of the total corn stocks. This probably helps to explain the very tight corn basis levels that has existed in recent weeks at local grain elevators and processing plants in many locations.
 
The latest report implies total corn usage for feed, ethanol, exports, etc., from July 1 to September 30 this year at 2.97 billion bushels, which is up slightly from a year ago. In addition, USDA adjusted the final 2021 U.S. corn production totals downward by 41.4 million bushels from previous estimates, based on reductions in the 2021 harvested acres and the final 2021 U.S. average corn yield. The CBOT December corn futures closing price on 9-30-22 was $6.77 per bushel, compared to September 30 CBOT corn prices of $5.37 in 2021, $3.79 in 2020, $3.88 in 2019, $3.56 in 2018, and $3.55 in 2017.
 
The USDA soybean stocks estimate of 274 million bushels as of September 1 was just over 10 percent above the average grain trade estimate of 247 million bushels and equaled the highest estimates of marketing analysts. The soybean stocks estimate on 9-01-22 is only 17 million bushels above the U.S. soybean inventory of 257 million bushels a year ago on September 1. Soybean stocks remain at very tight levels compared to recent years prior to 2021. It was estimated that only 63 million bushels of soybeans were stored on farms as of 9-01-22, which represented approximately 22 percent of the total stocks. This again, helps explain the continued strong basis level for cash soybean prices at many grain elevators and processing plants.
 
The biggest reason for the higher soybean stocks in the latest USDA report was an increase in the final 2021 U.S. soybean production of 30 million bushels, based on additional harvested acres in 2021 and a slightly higher final U.S. average soybean yield last year. Soybean usage for processing, exports, etc., from June 1 to August 31 in 2022 was estimated at 698 million bushels, which is up 36 percent from a year earlier but still trails the soybean usage level of 858 million bushels in 2020. The CBOT November soybean futures price closed at $13.65 per bushel on 9-30-22, compared to $12.56 in 2021, $10.23 in 2020, $9.06 in 2019, $8.45 in 2018, and $9.68 in 2017.  
 
The USDA Grain Stocks Report listed total U.S. wheat stocks at 1.776 billion bushels on 9-01-22, which is nearly the same as a year ago on September 1. The implied usage of U.S. wheat from June 1 to August 31 this year was 543 million bushels, which was down 24 percent from a year ago It was estimated that 591 million bushels of wheat were in on-farm storage on 9-01-22, which is 41 percent higher than a year ago. Both CBOT wheat futures prices and local wheat prices have remained at quite high levels in recent weeks compared to recent years prior to 2021, due to continued tight supply levels and solid wheat demand. The strong wheat prices are likely to continue into 2023, given the reductions in the projected 2022 U.S. wheat production and the prolonged drought conditions in many primary production areas for winter wheat.
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HIGHLIGHTS  OF  THE  AG  PROVISIONS  IN  THE  INFLATION  REDUCTION  ACT

9/28/2022

 

In late August, President Biden signed the “Inflation Reduction Act of 2022” (IRA) into law. The IRA was previously passed by the U.S. Senate by a slim margin and later approved by the U.S. House of Representatives. In both Houses of Congress, the IRA Bill passed along party lines with support from Democratic members of Congress and opposition from Republican members of Congress. The opposition was largely due to the rather large cost of the legislation and questions as to whether the legislation could accomplish all the goals and objectives that were set forth in promoting the Bill.
The IRA legislation is a $740 billion tax, climate and health care reconciliation package, including over $370 billion targeted toward climate-smart projects and renewable energy spending over the next ten years (2022-2031). Based on early analysis, there would be nearly $44 billion in the IRA legislation to fund agricultural conservation, rural development and forestry programs. The IRA legislation calls for “greenhouse-gas” emissions to be reduced to 44 percent below 2005 levels by 2030, which was enhanced from a 35 percent reduction under previous federal policy.
The IRA legislation includes several provisions to enhance the production and promote the use of electric vehicles (EV’s), including the use EV tax credits. There were also several agriculture-related rural energy and biofuel provisions in the IRA legislation, including the following:
Allocates approximately $3 billion for USDA’s “Rural Energy for America Program” (REAP) to fund programs that improve the technology and efficiency of producing, storing and delivering electrical energy resources in rural areas. Provides $9.7 billion specifically targeted toward rural cooperatives for assistance with rural electric systems to purchase renewable energy, to upgrade renewable energy and zero emissions systems, to improve storage systems, and to enhance carbon capture, as well as other initiatives. $500 million in new funding to add blender pumps and other biofuels infrastructure. Extends the $1.00 per gallon blenders tax credit for biomass-based diesel fuel through 2024 and would then replace that tax credit with a new tax credit that is based on the biofuel’s carbon rating. Creates a temporary $1.25 per gallon tax credit for the production of sustainable aviation fuel (SAF) to serve as a bridge until the new clean fuels tax credit is in place in 2025, which will be an incentive for SAF production through 2027. The IRA legislation also included $10 million for new grants to support advanced biofuels and $5 million for the Environmental Protection Agency (EPA) to complete data collection on greenhouse gas emissions through the Renewable Fuels Standards program. Approximately $19.7 billion, or about 45 percent of the total IRA funding that is allocated toward agriculture and rural development programs, is targeted toward existing conservation programs on working farmland. All of these conservation programs are currently included under the Conservation Title (Title II) of the Farm Bill. The current Farm Bill is set to expire in 2023, so it is not known how this new conservation funding will dovetail into the existing conservation funding when the next Farm Bill is written. It should be noted that the IRA legislation did not provide any additional funding related to the popular Conservation Reserve Program.
 
Conservation funding and provisions in the IRA legislation:
$8.45 billion over ten years for the Environmental Quality Incentives Program (EQIP). EQIP provides farm operators and ranchers incentive payments to enhance conservation efforts.
$3.25 billion for the Conservation Stewardship Program (CSP). CSP provides farm operators 5-year incentive payments to implement new conservation practices.
$4.95 billion for the Regional Conservation Partnership Program (RCCP). RCCP involves NRCS partnering with landowners and private entities on larger conservation projects.
$1.4 billion for the Agricultural Conservation Easement Program (ACEP). ACEP involves working with NRCS on specific long-term conservation efforts on working farmland.
 
The IRA legislation extends through the 2031 federal fiscal year; however, most of the expenditures for the conservation-related initiatives are scheduled to occur from 2023 to 2026. So, any additional funding for these conservation programs beyond 2026 may need to come through the Farm Bill or other legislation.
 
Other Provisions in the IRA Bill that could impact residents in Rural America:
$5 billion for wildfire prevention and climate resiliency projects on public and private lands. $5.3 billion in farm debt relief to “distressed” borrowers that hold direct or guaranteed Farm Service Agency (FSA) loans, including $2.2 billion targeted toward farmers that had experienced discrimination when applying for or during the administration of USDA farm loan programs. These payments would be capped at $500,000 per producer. Some of these program provisions were previously passed under the American Rescue Plan in 2021, which has been held up in court proceedings. IRA allows Medicare to negotiate the costs for some prescription drugs with the manufacturers and would cap the out-of-pocket drug costs for some seniors enrolled in Medicare.  
There is considerable disagreement on whether the IRA legislation will actually meet the goal of reducing the Federal deficit and controlling inflation; however, analysts do project that the IRA will generate approximately $700 billion in new revenue over the next ten years (2022-2031). The revenue enhancement will come via a 15 percent minimum corporate tax for large corporations, a 1 percent excise tax on the value of stock buy backs and increased Internal Revenue Service (IRS) enforcement efforts. The 15 percent minimum tax would be on the income that large corporations (over $1 billion in profits) report to their shareholders. It is estimated that this change will only affect about 150 corporations in the U.S. The IRS will receive $80 million through the IRA legislation to boost tax audit capacity by adding up to 87,000 IRS employees, which is projected to generate over $200 billion in added income taxes that are legally owed.
 
The Inflation Reduction Act (IRA) has been quite controversial and politically divisive, due to some of the provisions contained in the legislation and the rather large price tag of the legislation. We are in the very early stages of the implementation process for the IRA legislation; however, it does appear that there will be funding for climate related energy and conservation projects and programs, as well as health care initiatives, that could impact farm operators and rural residents. It may take some time for USDA and the other Federal agencies to roll out the full implementation of these programs, some of which will be an expansion to existing programs and others may be new programs. On the surface, it does not appear that there will be a large tax impact on most rural residents; however, it is not known what effect that the increased IRS audits and potential future taxes may have on farmers and other small businesses in rural areas
 
**********************************************************************
Note --- For additional information contact Kent Thiesse, Farm Management Analyst and Sr. Vice President,
MinnStar Bank, Lake Crystal, MN.  (Phone - (507) 381-7960) 
E-mail - kent.thiesse@minnstarbank.com)
Web Site -  http://www.minnstarbank.com/

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CONSIDERATIONS  FOR  MARGIN  PROTECTION  (MP)  INSURANCE  POLICIES

9/21/2022

 
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