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Market Plus: Mar 05, 2010: Alan Brugler, Market Analyst

posted on March 5, 2010

Market Plus: Mar 05, 2010: Alan Brugler, Market Analyst Pearson: This is the Friday, March 5, 2010 version of Market Plus. Thanks for joining us here at our Market to Market Web site. Of course, tell your friends and neighbors. With us this week Alan Brugler, one of our regular market analysts. A lot of things that we talked about, Alan, and maybe we're just sensitive to this because we had Secretary Vilsack featured on the show talking about re-opening the Conservation Reserve Program which it was just a couple of years ago, maybe five years ago, when former secretary, now U.S senator from Nebraska, Mr. Johanns was saying that we need to get ground out of that, we need to get productive farmland in production. You're hearing these policy initiatives -- what is this going to mean for us this year with additional CRP signups, the sure program and other things that are taking productive farmland, maybe out of the erodible zone spots, out of production?

Brugler: If you look at USDA's ten year forecast for the eight major crops, eight principal crops you see a fairly sharp drop-off in the acreage that is being farmed and that is true even if you look two lines lower on the table and it is including CRP acreage. So, USDA has identified a trend where there is ground leaving the eight major crops and going elsewhere. It could be going to hay, it could be going to pasture, it could be going to concrete, going out of farming. But it's dropping off fairly quickly. I think at some point they want to stabilize it. The reason I think they're opening up the CRP again is that they are concerned that maybe some of the more erodible ground is coming out. They have to let it drop to the cap levels, 31 million acres, but if it's going to drop to 29 million they could take ground back in and they want to get the -- maybe let some of the more just dry land wheat ground go back to being wheat ground but pull more of the erodible areas back in. To me it says that we don't have as big of a surplus of acreage this spring is what the market thought we had in January -- when we heard all the winter wheat ground hadn't been planted it was like, wait a minute, we could have five million more corn acres, a million more beans, a million more cotton and we don't want all this. If you take USDA's mathematics it doesn't look like they're all there. Of course, last year we had a question in the intentions report where there were eight million acres missing from the previous year. We only bought four million back in ultimately in June so there's definitely something to this loss of acreage out of the principal crop areas. We've done some studies that are available through our subscription services on this land allocation. The CRP, again, I think puts a floor under the market a little bit. I think they're betting to a degree that the yield gains that we saw this past year are permanent if certainly not record yield necessarily -- those are very rare to do back to back. But I think they're comfortable with the fact that we could be 178 bushels per acre national average yield in ten years and 48 bushels on beans and willing to put a little bit more into the CRP in order to work with the wildlife people and the other constituencies.

Pearson: I think it was pointed out on the feature on the show those -- our rural numbers are shrinking and that is continuing basically unabated and we need to have these wildlife programs, we need to be able to get people out on the land, that just seems to be a policy that's been going on for some time. But in terms of real numbers kind of boil it down for me. Going forward with maintaining the 31 million acres, again, risen above trend line yields which is what we've been seeing, are we going to be able to make all this work or is this going to give us a good price and volatility opportunities down the road?

Brugler: Obviously if you take some ground out that was otherwise going to be farmed again you're putting a greater emphasis or a greater leverage on the existing ground that is being planned to deliver. So, if you were to have a real sharp drop off in yields, yes, that would greatly magnify the price volatility versus having a few more acres. The flip side of that is if we're in fact on a higher plain and, in fact, our work shows it's an accelerating curve for corn yields, if we're at a generally higher plain on production and you don't take the CRP ground out eventually you have an over supply, USDA is on the hook for LDP payments and CCP payments and things that are right now off the budget. I don't think they want to go back there.

Pearson: I think you're right. Alan, as usual, appreciate your insights. Alan Brugler, with us this week on Market to Market and of course here on Market Plus. I want to thank him for joining us, thank you for joining us as well. Don't forget it's always a great time to contact your local public television station and say carry Market to Market on our PBS station so we can see the live version of the show and call your local public television programmer and ask them if they're not carrying Market to Market. Again, for all of us here on Market to Market, I'm Mark Pearson. Thanks for joining us. Have a great week.

Tags: agriculture commodity prices markets news