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Articles from 2008 In March


Why farmers outsource

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Most farmers I know don't want people to know when they outsource their marketing or taxes to the experts. First they don't want you to think they're lazy for not doing it themselves. Second, they might not want you to know they'd rather give the job to someone else.

But the fact is, on large-scale farms today, those who spend money on outside expertise usually find it's money well spent

Perry Hansen (below) is a good example. Every spring he puts together a file on his Garden City, KS grain and livestock farm and ships the papers off to an outside accountant, who prepares the farm's tax returns. What may seem strange is, Hansen himself is a CPA with a B.S in Accounting. He's worked in a regional accounting firm and serves as controller for a western Kansas equipment dealership.

So why not handle the farm's taxes himself?  "It's good to have someone from the outside looking at our work to see if there's something we missed or if we could handle something differently,•bCrLf says Hansen. "It's good to have a security blanket to fall back on in case we have an audit.•bCrLf

As farms grow, more operators see themselves as CEOs of a business and choose to relegate certain tasks to outside experts.

According to a recent Farm Futures survey, bookkeeping and marketing are the most common management tasks outsourced by farmers.

According to our survey production practices like herbicide and spraying applications, along with trucking, tend to get outsourced, probably in response to a lack of manpower or time during planting and harvesting. Those who outsource production tend to be smaller, especially those outsourcing planting and pesticide application. According to our survey, manure handling and application is another popular outsourcing task.

Better decision-making "When you outsource tax or other accounting needs, you end up getting higher quality reports because of the expertise offered in those areas,•bCrLf says Paul Ellinger, University of Illinois Ag Economist. "Outsourcing will leave you with a better product and a better decision-making framework because you have an expert giving you that feedback.•bCrLf

The people who are happy to spend money for outside expertise realize that information is valuable, says Ellinger.

"Not only is it more efficient, in terms of hours in a day, but individual functions are being done at a higher level so better information ultimately comes back to the producer to make decisions. When they see themselves as businessmen, they realize, some of these functions are better suited to someone else.•bCrLf

Good managers may outsource a task that only needs to be done occasionally. The logic: It's better to bring in a specialist that deals with the topic on a regular basis.  

"Farmers do not feel it is worth their time to become an expert in something that doesn't have to be done everyday,•bCrLf says Kevin Dhuyvetter, Professor of Farm Management at KansasStateUniversity

The Farm Futures survey shows that farmers who outsource bookkeeping and marketing tend to be much larger than average — 40% or more larger. Managers of larger farms often have many things to do and literally don't have the time to do everything, says Dhuyvetter.  

Ken McCauley (left) lets someone else handle bookkeeping at his 4,000-acre White Cloud, KS farm because "we don't like it as much as we like other things on the farm,•bCrLf he says. "We haven't bought any ag software and it seemed like it was always changing, so we leave it to someone else.•bCrLf

Garry Niemeyer, Auburn, Ill., leases two semi-trucks and outsources grain hauling to go with his two combines and two auger carts during harvest, primarily because of manpower issues.

On the other hand, he outsources his marketing program "because I don't have a clue,•bCrLf he says with a laugh.

"Fundamentals used to play a bigger role in marketing,•bCrLf he says. "Now it's all about global factors, like China. How do I know if a potash mine shut down in Trinidad? It's all about information, so I let others handle it.

"I have seven marketing services I call on,•bCrLf he explains. "When four or five of them get on the same page and say nearly the same thing, I get busy doing something with my marketing.•bCrLf

Click on the comment link to share your ideas on this topic. When the comment screen comes up select "other" or "anonymous" to post a comment. The "other" choice will ask for a name and Web site, but that is optional. We look forward to hearing from you.

 

Direct payments on the chopping block

For the full article, click on the headline above.

Despite the ongoing Easter Recess, Washington was hopping with farm bill action last week, with a new funding framework emerging that could further cut funds from the commodity title. The framework would spend about $10 billion over the farm bill baseline, a number widely agreed to but not yet paid for with offsets, which are required under budget pay-as-you-go or "pay-go" rules.

One proposal that is gaining support among negotiators is spending $10.855 billion and cutting direct payment by 2 to 3% to pay for the $855 million increase. Commodity groups met with Senate staff March 26 and at that time, were informed that proponents of commodity programs hoped to determine where the cuts would occur. "Some fear that once a decision is made to cut direct payments, it will be difficult to resist the temptation to make further cuts to restore other programs," according to a statement from the National Sorghum Producers.

Though farm bill language could change hundreds of times before a final bill takes form, the most recent language proposes cuts to commodity program direct payments. Additionally, the latest proposal suggests $5.9 billion in crop insurance cuts.

In contrast, nutrition spending under the framework would go up about $9.5 billion and conservation would go up about $4 billion. Specialty crops would gain about $1.3 billion in the commodity title. 

Any direct payment cuts in a final bill are likely to face stiff opposition from Senate Republicans while House passage would likely depend upon whether or not House Ag Committee Ranking Member Bob Goodlatte chooses to go along with particular cuts. Still, an agreement has not been reached on how to offset the proposed $10.855 billion over farm bill baseline spending.

The National Corn Growers Association has voiced support for cutting direct payments if a revenue-based assurance plan is put in place. However, wheat growers are opposed to the idea and asked its members to write legislators about the importance of the commodity title, particularly the direct payment and crop insurance programs. 

The framework out last week is the latest in a series of attempts to reach compromise on farm bill funding issues. Congress is scheduled to be back in session this week; parts of the 2002 Farm Bill have been extended a number of times to allow negotiations to continue, but the latest extension ends April 18.

One person who has seen several farm bills from the perspective of the Congress and the White House commented, "Well, it sounds like the frustration level is about high enough that we might get a bill."

 

Paying a price for prosperity

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Grain farmers stand to post windfall profits this year if everything goes their way. But there's a lot of "ifs•bCrLf in this scenario, and some of them would make your grandfather's head spin.

Even if this growing season goes well, we could pay a long-term price for prosperity. In the end, expensive corn could lead to food price hikes, disgruntled consumers, a voter backlash, and political moves to shut off grain exports or dismantle biofuel mandates.

I'm not trying to be a pessimist. Just hear me out. 

By now you've seen Monday's report from USDA, which predicts U.S. farmers will plant significantly less corn this year compared to last year.  While the prediction of 86 million acres is second highest in history, it's still well below pre-report estimates, including our own estimate two weeks ago of 87.7 million acres.

In any case, that's at least 7 million acres less than last year's 93 million acres.

And it could be LOT less if we have a weather problem. Most of the Corn Belt right now is soaked through. There's no doubt corn planting will be delayed.

Part of the wet spring can be blamed on La Nina, which, if it continues, could lead to a hot, dry summer. Noted Climatologist Elwynn Taylor says the chance of below-trend yields this year is upwards of 75%.

Let's throw in some demand factors. Those of you who watched the webinar we held Monday night (you can watch it again by clicking here) heard marketing experts Bryce Knorr and Arlan Suderman talk about exports, prices and biofuel demand. Just look at what's pushing corn prices:

Biofuel: Up to 32% of the 2008 corn crop will go toward ethanol. The Energy Bill passed last December will kick renewable fuel up to 15 billion gallons a year by 2015. Practically all of that right now comes from food crops.

Global supplies: Global wheat stocks in July 2008 are expected to drop to a 30-year low as world consumption has exceeded production for seven of the past eight years. Australia suffered a nasty drought last year. Northern China's crops have been hit hard by the drought this year. Up to 11% of the region's 5.3 million acres of crops will suffer heavy losses.

Asia's new affluence: China and India are adding millions of middle class consumers each day. They can afford to buy value-added items like pork, which needs corn to grow. If just 15% of Asia attains our middle class income level, that's 300 million more middle class consumers who can and will pay for corn-based food products like pork.

Weak dollar/exports:  The dollar is at all-time lows. That makes it easier for foreign buyers to buy practically anything that is priced in dollars. That's why USDA predicted earlier this year that U.S. farm exports would hit a record $100 billion this year.

So what happens if China buys more of our corn, and drought hits the U.S. this year? What happens if corn hits $10 per bushel — or more? Will housewives revolt? Will biofuel mandates vanish? Will exports get a knockout punch?

Other grain-exporting countries have already put the clamps down on overseas sales.

Argentina is one of the world's top suppliers of soy, wheat, corn and beef. But instead of cashing in now on record high global commodity prices, the country's government is more worried about higher prices for every day staples and has instituted a new round of export bans, price controls and export tax increases.

As a result, angry farmers have staged protests and are expected to plant thousands fewer acres to wheat when planting begins in May.

You think it can't happen here? The American Baker's Association recently asked USDA to review its export guidelines. It wants Congress to review biofuel mandates. It wants the White House to review policies on international food donations and export incentives. The bakers want to build up domestic wheat supplies and encourage USDA to open up million conservation acres for added wheat plantings.

In other words, the grumbling has started, even here, where the very idea of capping exports might seem, well, Anti-American.

A history lesson The U.S. did impose export controls on soybean shipments to Japan in 1973 during a similar time of strong international demand and rising consumer food prices caused by an inflationary monetary policy, says Ross Korves, an economic analyst with Truth about Trade and Technology.

As a result, Japanese companies invested in soybean production in Brazil to insure alternative supplies. Voila! A few years ago South America became the world's leading soybean producer.

The U.S. also embargoed grain to the Soviet Union in 1980 as a political response to the Soviet's invasion of Afghanistan. It solved nothing and only reinforced the notion that the U.S. was an inconsistent international supplier of commodities.

Restricting shipments of grain would send the wrong signal to both producers and consumers — here and around the world. But it wouldn't be the first time Congress has made a foolish decision on behalf of an ill-informed, frustrated electorate.

Our best hope is for perfect growing conditions. Is Mother Nature on our side in 2008?

Click on the comment link to share your ideas on this topic. When the comment screen comes up select "other" or "anonymous" to post a comment. The "other" choice will ask for a name and Web site, but that is optional. We look forward to hearing from you.

 

Seminar on Swine Disease Draws Crowd in China

Last week in Wuhan, China U.S. Grains Council consultants Robert Morrison and Gordon Spronk reviewed up-to-date techniques of swine disease management for participants from 12 provinces.

"The newly established National Swine Industry Technology Support Project invited its about 20 experiment stations, all being large swine operations," says Jason Yan, USGC technical program director. "Many longtime USGC partner farms also participated in the seminar."

About 50 swine operations were invited to participate in conference and according to Yan representatives from more than 100 attended.

"We expect the practical techniques reviewed in the seminar will help to improve the production and herd health of the producers' farms, which will ultimately create additional demand for feed grains," Yan says.

 

EU Complaint on Beef Hormones Shot Down by WTO

On Monday a World Trade Organization panel ruled that the European Union's ban on beef treated with growth hormones from the U.S. and Canada was illegal under WTO rules.

"The findings confirm the principle that measures imposed for health reasons must be based on science," said U.S. Trade Representative Susan C. "It is high time for the EU to come into compliance with its obligations on this matter."

This is the latest chapter in one of the longest trade disputes ever. The U.S., Canada and the EU have been arguing about hormone treated beef since 1996.

The European Union argued that they had updated their law concerning the ban on hormone beef in 2003, and retaliatory tariffs being imposed by Canada and the U.S. should end. The panel said justification for the EU ban was not supported by science.

While the panel did rule against the European Union, they also found fault with the U.S. and Canada for failing to resubmit their complaints after the 2003 update.  However; since the EU was still not in compliance, Canada and the U.S. had not violated their own WTO agreements.

Merger of CFTC and SEC Proposed

Treasury Secretary Henry Paulson proposed Monday a far-ranging restructuring of the U.S. financial regulatory system that would change how the government regulates thousands of the country's financial businesses and watchdogs, including a proposal that would merge the Commodity Futures Trading Commission and the Security & Exchange Commission into one super agency in charge of business conduct and consumer protection. The CFTC-SEC merger is not an immediate objective but an intermediate-term one that would require extensive study that would address harmonization of the separate and very distinct regulatory frameworks of the two agencies.

CME Group Inc., which operates the Chicago Board of Trade and Chicago Mercantile Exchange, commended the treasury department's efforts "to examine how our nation's financial regulatory system can be improved" and said it was especially gratified that Paulson said a CFTC-SEC merger should be further studied and is not a short-term goal.

However, Senate Agriculture Committee Chairman Tom Harkin, D-Iowa, says merely restructuring the bureaucracy will not solve the problems in the U.S. financial markets and calls the idea misguided.

Rising Pork Output Pressures Prices

The end of March brought more bad news for U.S. hog producers. 

RonPlain, University of Missouri economist, forecasts 2008 live hog prices will average near $42 per cwt.-- the lowest since 2003. Unfortunately, costs of production will average record-high near $54 per cwt.

"The result will be a loss of $12 per cwt. or roughly $32 per head, also a record," he cautions.

Monday's USDA March Prospective Plantings report predicted 2008 corn acreage would total 86.0 million, down 8.1% from last year. "Fewer corn acres make record high feed costs likely this year," says Plain.

Hog inventories up. Last Friday's quarterly survey of the U.S. swine inventory came in above the high end of trade expectations.  At 107.2% of March 2007's level, the market herd on March 1 was 2.6 percentage points above the average of pre-release trade estimates.

"As expected, USDA revised upward some past inventory estimates," says Plain. "Based on the December report, hog slaughter during December-February was expected to be up a bit less than 5%.  It actually came in 11.1% above the same months last winter (or up 10.5% after adjusting for the increase in imports of Canadian slaughter hogs). USDA revised up their December market hog inventory by 3.1%. 

USDA also hiked the size of the June-August pig crop by 1,229,000 head.

Improving performance is positive. Better breeding herd performance helps explain the larger inventory.  Pigs per litter in the December-February quarter averaged 9.21, up 1.3% compared to a year earlier and the 18th consecutive quarter above year-ago levels.

"Farrowings per animal in the breeding herd were up an amazing 5.4% in June-August and up 4.1% in September-November," says Plain. "Both quarters averaged more than 500 litters farrowed per 1,000 animals in the breeding herd, a first."

More pigs per litter and higher farrowings per animal in the breeding herd spread fixed costs for the breeding herd over more units of output. That's boosts overall efficiency.

Market hog inventories by weights surge. Producer responses to USDA surveys suggest the inventory of market hogs weighing 120-179 pounds was up 6.5% on March 1 and the inventory of market hogs weighing 60-119 pounds was up 7.0%. 

"If these numbers are right, second quarter hog slaughter should be up roughly 7%," says Plain. "If so, expect April-June live hog prices to average in the upper $40s per cwt.

USDA pegged the inventory of market hogs weighing less than 60 pounds up 7.4% on March 1, implying third quarter hog slaughter will be up roughly 8%.  Plain expects third quarter live hog prices to average in the mid $40s.

Swine Disease Seminar Draws Crowd in China

Last week in Wuhan, China U.S. Grains Council consultants Robert Morrison and Gordon Spronk reviewed up-to-date techniques of swine disease management for participants from 12 provinces.

"The newly established National Swine Industry Technology Support Project invited its about 20 experiment stations, all being large swine operations," says Jason Yan, USGC technical program director. "Many longtime USGC partner farms also participated in the seminar."

About 50 swine operations were invited to participate in conference and according to Yan representatives from more than 100 attended.

"We expect the practical techniques reviewed in the seminar will help to improve the production and herd health of the producers’ farms, which will ultimately create additional demand for feed grains," Yan says.

WTO Rules Against EU on Beef Hormones

On Monday a World Trade Organization panel ruled that the European Union's ban on beef treated with growth hormones from the U.S. and Canada was illegal under WTO rules.

"The findings confirm the principle that measures imposed for health reasons must be based on science," said U.S. Trade Representative Susan C. "It is high time for the EU to come into compliance with its obligations on this matter."

This is the latest chapter in one of the longest trade disputes ever. The U.S., Canada and the EU have been arguing about hormone treated beef since 1996.

The European Union argued that they had updated their law concerning the ban on hormone beef in 2003, and retaliatory tariffs being imposed by Canada and the U.S. should end. The panel said justification for the EU ban was not supported by science.

While the panel did rule against the European Union, they also found fault with the U.S. and Canada for failing to resubmit their complaints after the 2003 update. However; since the EU was still not in compliance, Canada and the U.S. had not violated their own WTO agreements.

U.S. Proposes to Merge CFTC and SEC

Treasury Secretary Henry Paulson proposed Monday a far-ranging restructuring of the U.S. financial regulatory system that would change how the government regulates thousands of the country's financial businesses and watchdogs, including a proposal that would merge the Commodity Futures Trading Commission and the Security & Exchange Commission into one super agency in charge of business conduct and consumer protection. The CFTC-SEC merger is not an immediate objective but an intermediate-term one that would require extensive study that would address harmonization of the separate and very distinct regulatory frameworks of the two agencies.

CME Group Inc., which operates the Chicago Board of Trade and Chicago Mercantile Exchange, commended the treasury department's efforts "to examine how our nation's financial regulatory system can be improved" and said it was especially gratified that Paulson said a CFTC-SEC merger should be further studied and is not a short-term goal.

However, Senate Agriculture Committee Chairman Tom Harkin, D-Iowa, says merely restructuring the bureaucracy will not solve the problems in the U.S. financial markets and calls the idea misguided.