Census of Agriculture Yields 20th Century Answers
Speaking at the Caterpillar plant in East Peoria, Illinois, the president said the revised $790 billion stimulus package would "save or create more than 3.5 million jobs over the next two years and get the economy back on track."
Obama said Caterpillar would rehire some of the workers when the economic bill becomes law and predicted similar scenarios at other companies.
But Caterpillar officials say the company probably will have to lay off more employees before it starts thinking about rehiring.
Meanwhile, the Commerce Department announced this week that retail sales rose 1 percent in January, reversing a six-month trend and defying economists' expectations by posting the largest increase in 14 months.
But the silver lining was not without a cloud. Much of the increase was attributed to higher gasoline prices.
And the Commerce Department announced the U.S. trade deficit fell to its lowest level in nearly six years as the recession depressed demand for imports.
Government bean counters were busy with other matters of importance to rural America this month, including a tally of social and economic trends in agriculture.
The number of farms nationwide has been declining since World War II but the latest figures show an uptick. More than 2.2 million farms now populate the U.S. – a 4 percent increase from five years earlier. But the Census confirmed the long-term trend of growing consolidation in agricultural operations.
Sec. Tom Vilsack, USDA: "About 5 percent of farmers in this country produce about 75 percent of the crops and commodities we grow. Far too few Americans understand the challenges, the hard work, and the financial risk involved in production agriculture."
According to USDA, the average farm is 418 acres and is run by an operator averaging 57 years of age. But the largest increase in new farms comes from smaller operations run by, either new farmers who have another primary occupation, or so-called retirement farms. Only 45 percent of all farms are the primary occupation of their owner-operators.
Farm demographics saw modest changes from the last Census. According to USDA, 1.8 million of the total 2.2 million farms are operated by white males. The number of Hispanic farmers grew by 10 percent from over the past five years, but the largest demographic increase is in female farm operators – that figure has jumped by 30 percent. USDA Secretary Tom Vilsack says diversity in agriculture is part of his vision at the Agriculture Department.
Sec. Tom Vilsack, USDA: "People of all colors, of all cultures, of all persuasions, from all geographic regions of this country ought to be participating and ought to be able to join this rural opportunity."
USDA also examined rural internet access and discovered that 57 percent of all farmers have an internet connection. Of that number, more than half report using a high-speed broadband provider. Those figures could jump in the coming years since President Obama’s massive stimulus bill includes billions for rural broadband initiatives.
Study Says U.S. Cellulosic Ethanol Industry Could Make 75 Billion Gallons
USDA predicts net farm income will fall to $71.2 billion in 2009. That’s down 20 percent from its preliminary estimate for 2008, but is 9 percent higher than the average of the previous 10 years.
2009 corn production is pegged at 12.7 billion bushels, which would be the second highest in history. And a record 4.2 billion bushels of the crop would be used for ethanol production.
Despite the bullish outlook, declining crude oil prices continue to paint an uncertain short-term future for ethanol. Currently, the home-grown, renewable fuel is trading around $1.50 per gallon. That’s down about $1.00 from last summer’s high.
But new research points to a bright future for the next generation of ethanol.
The report concluded that continued support of research and development was critical to the commercialization of cellulosic ethanol. The paper enumerated benefits and identified a break-even point where biofuels could be produced without subsidies. But, that assumption was predicated on crude oil prices of at least $90 per barrel, more than twice the current figure.
The most recent analysis comes on the heels of University of Minnesota study which concluded that switchgrass and other biomass are better feedstocks for ethanol production than corn. Researchers also criticized corn-based ethanol saying increased planting to supply the biofuels mandate would put more dust in the air threatening human health.
Critics of the paper quickly responded. The former head of the National Corn to Ethanol Research center questioned the study saying conclusions of the Minnesota paper failed to acknowledge increases in corn yields and advancements in production methods.
The biofuels mandate requires the production of 36 billion gallons of renewable fuels by 2022 with a maximum of 15 billion gallons coming from ethanol. Last year, the industry produced an estimated 9.1 billion gallons of ethanol. According to the U.S. Department of Energy, annual gasoline consumption in 2033 is expected to top 180 billion gallons instead of the 140 billion gallons currently used annually.
New Farmers Chart Their Own Course
But in 2008, the farm sector was hammered by highly volatile economic forces. Commodity prices soared to record levels last summer only to fall off a cliff in the fall.
Though forecasters are cautiously optimistic about 2009, shifting government policy, declining profit margins, and increased development all threaten the next generation’s ability to begin farming.
This week’s Census of Agriculture confirmed that U.S farms include a disproportionate share of older operators. And nowhere is the trend more obvious than in California where farmers age 65 and over outnumber those under the age of 25 by more than 50 to one.
But several programs are helping to facilitate intergenerational farm transitions. David Miller reports on efforts to link “those who aspire” with “those about to retire.”
A life in agriculture is often a thankless job filled with hard work and long hours but many young people are drawn to the idea of charting their own course. It's the same for new farmers in the Midwest as it is for farmers on the coast. Despite the limited number of opportunities, the goal of making their own business decisions is the same.Rebecca King is planning to market the meat and cheese from her flock of sheep directly to northern California chefs.
Rebecca King, Monkey Flower Ranch: "I knew for the past ten or fifteen years that I wanted to farm and it's just been kind of a gradual narrowing of focus and feeding different experiences into this."
Daniel Zamora will sell strawberries directly to commercial wholesalers in the Salinas Valley.
Daniel Zamora, Heritage Farms: "So I've been with this idea since I was in high school. so that's been about maybe 10 years but mostly since my parents been working in, in the fields I mean this just kind of a goal, a dream goal."
And George Macros found a way to mix teaching school and growing fruits and vegetables for local sale an hour north of San Francisco.
George Macros, Earthworker Farm: "I started teaching and I was lowest in seniority so I got the classroom that nobody else wanted which had a huge greenhouse in it and basically started trying to green it up".
In California, where land prices are high and available acres few and far between, one agency is helping new farmers like these achieve their dreams. It began nine years ago, when California FarmLink was opened and the staff began working on the dual goals of reducing urban sprawl and keeping agriculture alive in California.
Steve Schwartz, California FarmLink: "...in general we meet a lot of land owners that their dream you know their goal is to keep the land in production. They might be a third generation farmer they feel like they'd be rolling over in their grave if they were the one to see it paved over."
Schwartz says the agricultural real estate market is so tight they get seven applications for every parcel of land listed with FarmLink.
The organization offers one-on-one consulting as well as workshops on subjects like business planning and estate succession. New farmers also can apply for low interest loans as large as $50,000 through the California Coastal Rural Development Coalition. And FarmLink has a matching savings plan through its Individual Development Account program. If a farmer deposits $100 each month in a special account, Farmlink will match the funds 3-to-1. After two years of saving, $9600 is made available for infrastructure improvements.
When Rebecca King was growing up in the suburbs of San Jose, California, the idea of marketing sheep meat and sheep milk cheeses was the farthest thing from her mind. Now in her second year, she is planning to sell the finished products from her flock of 140 animals directly to area gourmet chefs.
Rebecca King, Monkey Flower Ranch: "... it's kind of a growing market as far as having a niche' that I can make a living at. Doing, you now, organic produce in this area isn't a niche' anymore. It's a very competitive business so, um, sheep cheese is something that's really common in Europe. There's a lot of potential for it."
After a year of renting land, King's parents acquired this property in July of 2008 through an estate sale listed with California FarmLink. The family that originally owned the land was no longer interested in working the 40 acres of ground near Watsonville, California but they wanted the farmstead to remain in agriculture. For now, King will rent the land from her parents.
Rebecca King, Monkey Flower Ranch: "I know it will be in our family and you know one day I can buy it from them and it's not going to be something that I have to walk away from. So that's, that's huge."
Since high school, Daniel Zamora wanted to have his own farm. He always hoped to employ his parents and take advantage of their experience working in California strawberry fields.
Daniel Zamora, Heritage Farms: "So I always told myself that I will put myself through, through school and eventually, when I was ready, I will start a business where I could include them as part of the business."
Zamora, an engineer by education, started attending classes and leasing a half acre at the Agriculture and Land-Based Training Association in Salinas, California. After hearing about California FarmLink, he knew he had found the path to increased production. Though he was rejected for a loan through California Coastal, he was able to secure a loan through USDA to pay rent on 26 acres. Because agricultural property in the area can cost up to $50,000 per acre Zamora will likely continue pay rent at $2,000 per acre for the near future.
Daniel Zamora, Heritage Farms: "It's exciting because we have, I have, been waiting a long time for this moment... I know we can do this successfully because I have total support from my family and they have the experience"
The passion George Macros has for agriculture was ignited while teaching in Brooklyn, New York. Seeking a more laid back lifestyle he took a teaching job in California and began looking for places to grow vegetables.
George Macros, Earthworker Farm: "Well, I guess that it kind of goes with my love of nature and also being, being outside and just I guess I've always loved plants and being outside."
California FarmLink partnered him with the Chambers family. A little more than a year ago, Macros planted his first crop on one-and-a half acres of the Chambers' five acre Sebastapple Farm.
Ann Chambers, Sebastapple Farm: "It feels heavenly actually. ...our object is, is to look for people so that we didn't work ourselves into the ground. We were both way overworked as we started slowing down. So, we had to do something smaller and we loved this place but realized it was too big for us."
Chambers, a Master Gardener and former truck farm owner, offers suggestions to her tenant but lets Macros make his own decisions.
Macros began selling his produce through a Community Supported Agriculture business or CSA. Eventually, it became difficult to serve his customers and he put the CSA on hold. Today Macros emails his clients and they purchase the harvest in nearby Sebastapol, California. With no plans to quit his day job, he will continue teaching and farming.
George Macros, Earthworker Farm: "I fantasize about having many acres and lots of workers ... and you know riding in the tractor and making phone calls all day but right now you know I'm enjoying the smaller scale growing operation."
For Market to Market, I'm David Miller.
Market Analysis: Alan Brugler
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For the week, March wheat lost more than 20 cents, while the nearby corn contract fell nearly 15 cents.
Despite reduced production estimates in South America, soybean prices followed the grains lower. For the week, March soybeans fell nearly 50 cents, while the nearby meal contract was down $19.60 per ton.
In the softs, cotton prices retreated this week, with the March contract posting a loss of $5.83.
In livestock, February cattle gained 40 cents. Nearby feeders were up 12 cents. And the February lean hog contract gained $2.47.
In other markets of interest, the Euro lost 61 basis points against the dollar. Crude oil was down more than $2.50 per barrel. Comex Gold gained nearly $28 per ounce. And the Goldman Sachs Commodity Index lost more than 20 points to close at 334.20.
Brugler: Good to be here, Mark.
Pearson: Let's talk about Tuesday's USDA numbers. They were relatively friendly and they did dial down a little bit on what we have for corn carryout and there were some other positives in there but as we look at this broad commodity world out there we're still facing some challenges.
Brugler: Yes, we've definitely got to deal with demand destruction. That is typically the pattern when you have high prices anyway and we're throwing it on top of occurring in a global recession. So, the question is how fast are your consumers of your commodities downsizing their requirements relative to how fast you can adjust the production.
Pearson: As we adjust that machinery what do you see ahead? Let's talk first about wheat. There's been some challenges to the U.S. wheat crop, certainly particularly down in Texas and a region you're going to be heading down to.
Brugler: Yes, we're going to be down there next week. The wheat down there we know has been very drought affected, there's a lot of yellow wheat and you hear the stories. Some of it will probably be ripped up. Texas traditionally does rip up some of the wheat in the spring anyway. It's a high stakes game down there. But wheat is a good example of that downsizing though because winter wheat plantings were down about 4 million acres this year versus a year ago. Some of the preliminary world production estimates are as low as 650 million tons which would be down 37 million or so from last year. So, the wheat market is responding to the fact that we produced a little too much wheat last year for the global demand.
Pearson: And so as we adjust that downward if we lose 4 million wheat acres they're going to go somewhere.
Brugler: That's the negative part of it if you're a corn or soybean or cotton farmer, probably corn and soybeans get the bulk of that, probably lose about one million acres of double crop beans that would have been on that wheat last year so there's a little adjustment there. But clearly the acreage war that we had the last two years is running at a much tamer level this year.
Pearson: No question about it. Let's get back to wheat. With the problems we've had down in wheat production areas here in the country so far and like you say it is by no means a guaranteed deal in many parts of the plains but as we look at that and we look at some of the challenges worldwide and reduced acres worldwide what is your outlook for wheat prices at this point?
Brugler: In the short run we've got some problems because primarily we've built up a stockpile of old crop wheat here in the United States. The USDA did not change that number on Tuesday. It's still 655 million bushels. That is going to tend to pull down the May and the March contracts, maybe even the July contract. I think later on down the road the tighter world production and perhaps some losses here in the United States will give us another shot at higher prices. But the gravity is definitely pulling on us right now.
Pearson: So, your price outlook you're not in a position right now to sell wheat?
Brugler: We're not in a position to sell any additional cash wheat. We do have a few puts in place trying to give us a floor while we figure out where this real bottom is and it may be above the December low, we just don't know yet.
Pearson: Worldwide we've heard about production issues in China and certainly the situation in South America as it affects corn and soybeans but the China situation is a wheat situation so could we see more of a draw down? Could there be some more excitement in this wheat business?
Brugler: I think the wheat in China could be reduced up to 5% of their production. The complicating factor there is they do irrigate a large percentage of their wheat and they are organizing manual irrigation parties right now to get water out there.
Pearson: And they have the people to do it.
Brugler: And they do, particularly with all of the farmers that are unemployed from the city and are back home right now. So, a certain percentage of that wheat is going to be irrigated and, of course, it's still in many cases dormant for the winter, it just needs enough water to survive. So, you're going to see some draw down there. The big question mark is whether they'll import anything to replace any shortfall or if they'll just try and pull off of government stocks.
Pearson: So, you're using some options right now just to get a floor in this wheat market and that's about it. The corn market, we talked about those four million acres and, of course, there is some concern whether they're going to go to corn, beans, cotton, wherever they're going to head that didn't go into wheat this year and, of course, the acres that will get plowed up so there's some opportunities there too. Give us your corn scenario. What do you tell people right now about this corn market?
Brugler: The corn scenario is we're losing some acres to soybeans, at least we assume we are just because of the cross production differentials. The fertilizer costs are much higher and much more fertilizer intensive crop so you end up using more fertilizer for corn. But having said that you've got this unwinding of demand, the cattle industry, poultry, hogs, the numbers are down in all three of them. You've got a dramatic slow down in exports right now. And then you've got the questions with the ethanol industry financially. So, with the demand slowing down you don't need as much replacement corn next year as what we might have thought six months ago.
Pearson: Are you using an acreage number for corn at this point, Alan? Have you dialed on in?
Brugler: For next year I'm using 87 million right now which is one million more than last year and obviously leaving a few more million to go somewhere else.
Pearson: There's those other million acres floating around out there that came out of the conservation reserve program last year. Where do you see that headed?
Brugler: That's correct. Right now that could be spring wheat or it could be soybeans, those would be my two leading candidates.
Pearson: What kind of price targets, what are you kind of bracketing in for corn sales for 2009 at this point?
Brugler: Well, for '09 we think that certainly if you get something back in the $4.70 range, $4.80 range you've got to make some sales. We've got some probability models based on USDA cash price forecasts and that is about the top end of those. Obviously $5.00 would be great but we'll have to have some kind of spring crop problems I think to get there. The down side risk is $3.00 or less so you definitely don't want to just go unpriced on the whole thing.
Pearson: Were you nervous about this carryout number on corn, 1.7 billion? Does that scare you a little bit?
Brugler: 1.7 billion, 1.8 billion is not a huge number. It's 15% stocks to usage ratio. That is right in the middle of the curve historically. But the problem is it is a price dampening effect of having that much corn. You've essentially got a fifth or more of next year's crop already sitting there in the bin so the market has to see a real weather problem or a real acreage shortfall to get too excited.
Pearson: You mentioned more acres for soybeans. What is your outlook there?
Brugler: Well, right now I've only put 2.5 to 3 million onto my total so I've still got a little sloshing around there and I'm not sure where it's going. But the problem that I see there is that even with 78 million or 79 million acres you have a build up in ending stocks potentially to 500 million in soybeans and that is, again, a very price dampening effect. So, we don't want to see too many producers go to the soybeans.
Pearson: Of course, input costs are going to drive some of that and weather is going to drive some of it too.
Brugler: Yes, if we have a wet spring, a late spring that tends to lean towards more soybeans. If we get good planting weather early I think maybe you'll get a little more corn.
Pearson: The price action in cotton this week doesn't lend itself to buying a lot more acres in cotton.
Brugler: No, the cotton market is having trouble with both the demand side, the global slowdown, people shopping in their closets, if you will, rather than at the store and also just we're not competitive compared to some of the third world producers on price. So, cotton has had some rallies, has pulled some cotton out of loan but now that we've got that crop moving we're kind of backing off again.
Pearson: And your soybean targets? What kind of targets do you have for soybeans?
Brugler: Again, I think $10 on the board is a good selling price, not $10 cash, $10 on the board for new crop. We had a couple of shots at it already. I'm holding my breath that we'll get another shot as we get into spring.
Pearson: Let's switch over and talk about livestock for a minute. We've got some real challenges in the beef and pork sectors in particular, we don't follow poultry very close in this show but the same issues have been the higher input costs. We now are seeing lower input costs on feed costs for cattle and hogs but we're also looking at certainly a pull back in numbers, at least according to the last cattle on feed report and yet we're still seeing these cattle prices struggle.
Brugler: The biggest problem with the cattle right now is the distribution where the meat is going. We've lost a lot of our restaurant traffic on the high end, the fine dining segment and that's where a lot of your prime beef and your upper choice goes. So, what that means is you're having to discount those prices, that part of the steer or that group of steer out of the pen is pulling down the average price for everybody. Hamburger demand is great, particularly since we've had fairly limited imports this year. But, again, your average value of the steer is pulled down by the problems of marketing the choice. The numbers are actually going to fall of a little bit here in February and March so that will help to support things and we saw a little of that last week and this week on the cash side.
Pearson: Yes, we did. Mid to higher 80s are okay. Do you think we're going to finish the year higher than that? Are we going to be stronger do you think going forward?
Brugler: I think it goes down to what you think the domestic economy is going to do. If we start to get the recession kind of managed a little bit, which of course is one of the goals of the stimulus package, we get people spending some money then I think that second half price could pull back up.
Pearson: The calf market for these cow calf people out there, those are the numbers that have shrunk the most really is the cow herd, and the calf market has had a pretty good run so far this year.
Brugler: We took them down into the mid 80s on the board and now we're back in the mid 90s partly because the cattle inventory report showed we have fewer calves there. But, again, if you're expecting the feeders to go higher you've got to assume either the live cattle prices are going higher, which we just discussed, or you assume that corn is going lower. Those are the two drivers that can make those feeders go up.
Pearson: Let's talk about the hog market and what you see happening there. It's been really fairly encouraging for hogs, hasn't it?
Brugler: Just recently, yes, within the last week or ten days we've had a nice little rally in the hog futures. Basically the futures went down below the cash market ahead of expiration on the February contract and then that index that is used to sell the futures didn't go down. We got pork product prices started to pick up, the cash hogs started to go up and it looks like we've got some declining numbers of marketings for hogs here in February and March. We're tracking the December hogs and pigs report very well and that is supportive. Now, the rally may have gotten a little ahead of itself here this week but I think it's going in the right direction.
Pearson: We talked about lower input costs, it's a great time to take advantage of these lower corn and bean meal prices, big pull back in bean meal this week.
Brugler: Yes, a big retreat there. We picked up a little bit of cash meal. We've got, again, some call options to help protect our up side costs for anything that we don't want to buy physically yet.
Pearson: All right, some good ideas and some great insights as usual, Alan Brugler. We certainly appreciate it. That's going to wrap up this edition of Market to Market. If you'd like more information from Alan on where these markets just may be headed visit the Market Plus page, it's at our Web site. You'll find streaming video of our program and you can download audio podcasts of our Market Analysis and Market Plus segments absolutely free right there at our Market to Market Web site. Of course, be sure to join us again next week when we'll examine the comeback of the American bison. Until then, thanks for watching. I'm Mark Pearson. Have a great week.
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