Category Archives: Iowa

Remarkable Graphs of Corn & Soybean Profitability

CORN

Blue blocks: Profitable time periods. Note that I’ve altered the graph by adding red and blue blocks to show profitable years vs. profit-loss years. Source: Ag Cycles: A Crop Marketing Perspective By Chad Hart/Iowa State.

The remarkable graph above, showing corn profitability since 1972, says it all.

The article in which the graph is embedded, by Iowa Ag economist Chad Hart, begins like this… “Over the past seven years, corn and soybean producers in the United States have enjoyed their best run of returns in history.”

Hmmmm. Let me think. What happened about seven years ago?

After that he explains that profitability is cyclical in a competitive industry such as commodity farming, and that “economic theory indicates the long-run profitability of a competitive industry is zero.”

Hart says, “When we examine the average return to a bushel of Iowa corn over the entire time period from 1972 to 2012, it is a positive 5 cents per bushel. However, if you looked at 1972 to 2011, the average return was negative.” !!!

He then warns of a near-term downward cycle of lower commodity and farmland prices.

It’s already happened. Corn prices have fallen. This year’s producers who are renting land that is priced according to yesterday’s profits, may see a tough bottom line.

Unfortunately, from there on out in this paper, Hart goes off on economist tangents about interest rates and input costs during recessions that aren’t as relevant as what I see as the biggest story when one talks about an over-produced commodity crop, which is policy. Furthermore, policy is what has driven down exports and feed demand for corn in recent years.

If we were dealing with a commodity that feeds the world’s growing populations, like Jim Rogers always tells investors, the price of corn would go up because of natural, growing demand. Instead, we’ve had overproduction of corn for decades on end, and it feeds agribusiness, not the world’s growing populations. The Energy Independence and Security Act of 2007 created a new and rapid demand for this input-heavy crop, rewarding the producer, the machinery maker, the fertilizer, seed, and chemical companies. Policies have supported corn growing both on the demand side, and through direct payment programs and crop insurance.

If we really wanted food and energy security, we’d promote fuel efficient vehicles instead of Chevy Tahoes and F350s that burn E85, and we’d preserve our soil, waterways, biodiversity, and aquifers so that future generations have healthy land on which to grow food.

Corn and soybean production in America today is mostly all about policy.

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SOYBEANS
Also interesting is the same information on soybean profitability as viewed on the following graph:

Source: Ag Cycles: A Crop Marketing Perspective By Chad Hart/Iowa State.

We can generalize that soybeans have, on average, had more profitable years than corn. They have enjoyed a boost in price, too, as a consequence of ethanol’s recent, large demand for corn. Plus, around 15 percent of our nation’s soybean crop is going to produce biodiesel these days.

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SOURCE: Ag Cycles: A Crop Marketing Perspective

3 Picks: Ogallala Aquifer, Biofortified Millet, Agriculture Students

Below, are today’s three chosen agricultural-related news picks.

1) Kansas State Study on Ogallala Aquifer Use: “If current irrigation trends continue, 69 percent of the groundwater stored in the High Plains Aquifer of Kansas will be depleted in 50 years. But immediately reducing water use could extend the aquifer’s lifetime and increase net agricultural production through the year 2110. Those findings are part of a recently published study by David Steward, professor of civil engineering, and colleagues at Kansas State University. The study investigates the future availability of groundwater in the High Plains Aquifer—also called the Ogallala Aquifer—and how reducing use would affect cattle and crops.”

2) Scientists Deploy Iron-Rich Pearl Millet Against Malnutrition: “Iron-rich pearl millet is being conventionally bred by ICRISAT as part of the HarvestPlus program, which seeks to develop and disseminate staple food crops rich in micronutrients to improve nutrition and public health. One recently released variety, ICTP8203Fe, commonly known as Dhanshakti (meaning prosperity and strength), is now being cultivated by more than 30,000 farmers in Maharashtra. It is the first biofortified crop cultivar to be officially released and adopted by farmers in India.”

3) Iowa State sees largest enrollment in the College of Agriculture: “Expectations are high in the College of Agriculture and Life Sciences(CALS) this year, with the college anticipating approximately 4,000 undergraduate students for the fall of 2013. The past two years have trumped the last undergraduate enrollment record set back in the fall of 1977, which had 3,623. … For the past 15 years, the employment rate of agriculture and life sciences graduates has been at or near 98 percent, acting as a driving force behind the record numbers in enrollment.”

This news post was written and compiled by K. McDonald.

3 Picks: DIY Verticle Garden, Microgrids, E85 Nonsense


Photo credit: The Dirt

Below, are today’s three chosen agricultural-related news picks.

1) A DIY Verticle Urban Garden Using 2-liter Pop Bottles: Phil Stamper posted instructions on how to make a hanging bottle garden. This is a verticle urban garden system that anybody can do with some rope and empty pop bottles. It comes from the Brazilian design firm, Rosenbaum, and it was such a hit that they released these instructions so that they are available to everyone. (Please go to the source to view the instructions.)

2) ENERGY: Is the Future Micro-Grids? “One of the most under-reported stories in the U.S. energy industry today is Connecticut’s ambitious electricity pilot project—one that could have a widespread ripple effect across the country. On July 24, state government officials announced plans for nine micro-grid projects as part of a Micro-grid Pilot Program aimed at ensuring electricity grid resilience and reliability during severe weather events. “Micro-grids” are essentially small-scale electricity generation and distribution systems that integrate various distributed energy resources and can be managed locally and, if necessary, independently from the main grid. Diesel-powered micro-grids are common in the rural areas of many developing countries such as Haiti, Indonesia, and the Philippines, and some military bases, telecommunications bases, and Internet server farms have done the same, in order to ensure a steady flow of power even if a natural disaster or terrorist attack should take down the main grid. … “

3) How much E85 would be consumed if we gave it away? That is my question for Bruce Babcock (of Colbert Report fame) at Iowa State, who suggests that we need an economic incentive to get past the ethanol blend wall by having E85 available at more stations and by reducing its price in a piece titled, “Price It and They Will Buy: How E85 Can Break the Blend Wall”. (Pretty sure I was not his intended audience.) He says, “The resulting demand curve for ethanol above the E10 blend wall suggests E85 consumption of about one billion gallons if E85 were priced to generate a six percent reduction in fuel costs. If the price were lowered further to generate a 15 percent reduction then about two billion gallons could be consumed, and a 30 percent reduction would be needed to induce three billion gallons of consumption. … rather than being a physical barrier to increased ethanol consumption, the E10 blend wall is an economic barrier that can be overcome by increasing the incentive for drivers to use E85 to fuel their vehicles.” K.M.: Or, maybe it would help if you labeled it what it really is. Hardly anyone is aware of the fact that the ASTM lowered the minimum requirement of ethanol in E85 to 51 percent “E51″ in early 2012… “to ensure that ethanol fuel blends for flex-fuel vehicles can meet seasonal vapor pressure requirements in all regions of the country.” Next up, I’d like to see reports from Babcock on 1) the non-mandated use amounts of E85 in our top five corn producing states, 2) the average ethanol blend produced under the E85 label today, 3) who will be paying for the 30 percent price discount of E85 in his proposal and what will that cost? 4) how do your cost discount incentives for selling E85 compare to energy content in the product? and, 5) How much would your economic incentives contribute to the problems of water quality, habitat and soil loss in your state of Iowa?

(Note that the EPA has recently indicated that it will reduce targets in 2014 to address “blend wall” concerns, and, the anti-ethanol sentiments and voices are heating up in Washington, on TV ads, and elsewhere.)

This news post was written and compiled by K. McDonald.

Dr. Walter P. Falcon of Stanford Writes About a Very Wet Season on His Iowa Farm

K.M. Note: I’m not sure how many prominent agricultural economists spend their summer on a farm, but Dr. Walter P. Falcon of Stanford does. Last summer I asked him if I could repost his writing with his summer observations here on b.p.a. and he granted me permission to do so. This year he’s done another writing and he was kind enough to notify me (as I requested) and offer it for publication here. Personally, I love his insights because they come from such a unique lifetime perspective.

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“Stuck in the Mud: Stanford’s Scholarly Farmer on the Soggy Fortunes of Midwest Growers” Farmer’s Almanac, Part II by Walter P. Falcon (July 16, 2013)

My wife and I are again spending the summer on our farm in Eastern Iowa. I am fourth-generation from land just a mile away, first settled by the Falcon family in 1858. My wife is also fourth-generation, from the farmstead we now own. Our land is a medium-sized corn, soybean, and cow and calf operation in the heart of a very rural Iowa county—though Starbucks is only seven miles away! Summers here provide a pleasant change from my day job, which is as Farnsworth Professor of International Agricultural Policy at Stanford University. It helps when teaching agriculture to have one’s feet in the soil. In 2013, “in the mud” is a more appropriate phrase.

My farm notes from 2012 chronicled the problems of farming during one of Eastern Iowa’s most severe droughts. Because of high temperatures and low rainfall, it was a truly miserable production year for farmers—made only mediocre financially rather than miserable—by the widespread use of crop insurance. Drought affected many states, and last year the national federal subsidies on crop insurance were nearly $15 billion, more than the total that was spent combined on all of the other farm-related programs in the federal Farm Bill.


credit: Wikimedia.

But what a difference a year makes. We have gone from one of the very hottest and driest years on record to one of very coldest and wettest. For Iowa, it was the wettest spring ever, eclipsing the 1892 record. The riskiness of farming is something to see in real time; it is also very instructive to listen as farmers talk about coping with uncertainty. Listening to them is not very difficult if one is prepared to invest a bit of time. In most rural areas, there is typically a restaurant, diner, or some other slightly disreputable place where farmers gather for early morning coffee. For our group, it is the old limestone store in Waubeek—the limestone having been hauled by horses in 1868 from nearby quarries at Stone City, the historic home of Iowa’s most famous painter, Grant Wood. What have not changed from last year are the watery coffee, the stale cookies, and the energetic exchange of farm tales—mostly true, occasionally coarse, and sometimes more than a little embellished.

As with last year, the talk is about weather—though now the signs have all been reversed. Last spring it was dry; this spring it was wet. It rained and rained and rained. During the critical planting period of April, May and June, it rained in significant amounts in our area for 40 days. We received 21 inches in total, as compared with less than 8 inches last year. Much of it came in torrents, leading to significant erosion, runoff, and flooding. Moreover, the weather was cold. The local weather station reports that average temperatures for May and June were about 6 degrees cooler than in 2012, which is huge as those kinds of comparisons go.

Farmers have had plenty of time for morning conversations, since the fields were so wet there was not much else to do. They commiserated about a lot of things, and here are some of things I heard and learned. Virtually everyone said planting had been delayed at least three weeks beyond the first week in May, the date most think is their optimal planting time. Perhaps a quarter said that the delays were so bad that they were shifting some fields from corn to soybeans, since the latter typically do better than corn if planted in June. Everyone spoke of having fields with low spots that would simply go unplanted, or if planted, were flooded out with zero yields expected. (And everyone was checking the fine print of their crop insurance policies to determine coverage for land that could not be planted due to weather, so-called “prevented” acres.)

The temperatures were so cool that corn seeds often lay in the ground and rotted or only germinated partially. They talked about the merits of re-planting—the costly process of “tearing out” what had already been planted to replace it with new seed. The calculus of that decision is complicated, since it involves further delays in the crop cycle and, at a minimum, the cost of new seed and tractor fuel. New corn hybrids cost up to $100 per acre, depending on the special traits that have been stacked into the seeds, thus putting seed costs on par with those of nitrogen fertilizer. All farmers grow genetically modified corn, and those who initially had paid extra for the more expensive, drought-resistant seed seemed more resigned—“the cost of doing business”—than angry.

There was also great concern about fertilization this year. Agronomists have been urging farmers to put nitrogen into the ground (called side-dressing) when plants needed the nutrient, rather than prior to planting, to help prevent nitrogen losses due to runoff or into the atmosphere and groundwater. My neighbors know that nitrogen runoff is a problem, but as one put it, “this year we are screwed; because of the rain, we can’t get back into the fields with supplemental nitrogen.”

The number of rainy days was totally frustrating for livestock farmers as well, most of whom also grow alfalfa for forage. There was barely a sequence of dry days long enough to make hay. The quality of the alfalfa diminished, as it grew tall and coarse. On our farm, we actually baled hay on the 4th of July. The lateness of this first cutting will mean the loss of at least one, and possibly two, later cuttings. The latter, of course, are the most valuable in terms of quality and price per bale.

The 4th is also the traditional benchmarking date for the corn crop. Historically, corn was supposed to be “knee high by the 4th.” But with new varieties of seed and early planting dates, corn is typically shoulder high. In 2013, however, it really was knee high and looking puny and yellowish. The 4th is traditionally also the start of the season for sweet corn—the best in the world! But it too was delayed by more than two weeks. The bit of good news is that the Japanese beetles, a fierce pest in 2011 and 2012 to both soybeans and home gardens, have yet to appear.

The flooding that accompanied the rain was huge. Iowa expects to lose substantial acres of corn because of flooded fields. Almost every farmer I know was affected in some way or another. The week after we arrived from California, for example, we had two severe storm warnings and one tornado warning in the first four days. The tornado blew around us, but the latter of the storms came in torrents. With the rivers running high, and with the soils saturated, flash floods happen almost instantaneously, as we experienced first-hand. Our large permanent pasture, summer home for the red Angus cow and calf herd, contains a medium sized creek. It quickly overflowed flooding the entire pasture. The cows and calves were understandably unhappy, bawling loudly and persistently, thereby triggering a 5 am rodeo in the rain as they got moved to the barn on higher ground. (Rodeos in the rain are not fun, however glamorous and intriguing the thought may be. There is always one calf….) But it was a good thing the move was made. For later in the morning, we saw that the flood had taken out 50 yards of fence, thus opening the pasture up to the adjacent highway. And for those interested, repairing creek fences is not a whole lot of fun either.

That same storm had countywide effects as well. The Linn County Fair was to open on June 26th, and unfortunately the fair grounds sit alongside the good-sized Wapsipinicon River. The storm had pelted areas upstream and the river was rising rapidly. There was a decision to be made. National and local weather service models projected a crest of 25 feet, which would mean four feet of water in the grandstand, and a small lake where the exhibits were to be. The fair was called off, and that is a BIG decision for a rural area. It affected almost every farm family, especially the farm boys and girls who had spent literally a year preparing their 4-H and F.F.A. (Future Farmers) projects—from livestock to sewing—for the competition. Everyone then waited in gloom for the fairground to flood. But it didn’t! The fair had been canceled for naught.

The forecasters had missed the river crest, and missed badly. What was estimated at 25 feet, turned out in fact to be 14.95 feet. Everyone thought that a miss by one foot was understandable, but that a miss by ten feet was sheer incompetence! They were relieved that the flood had passed, and bore no ill will against the fair committee. But the coffee conversations the next few days were blue about government forecasters. I cringed, given my day job, when one of my neighbors said, “those weather guys are even worse than the damned economists.” And that comment then triggered a lengthy conversation about the Department of Agriculture (USDA) forecasts for the size of the new (2013) corn crop.

Despite the wetness in the Midwest, the USDA at the time was predicting a record corn harvest for 2013. Farmers, who tend to be a bit myopic and to see and think the whole world is like their county, simply didn’t believe the numbers—neither the area nor the yield forecasts. Those estimates of a big crop were helping to drive prices for the 2013 crop down to about $5 per bushel for corn, relative to the $7 per bushel farmers had received during 2012 and the early months of 2013. Several of them argued that it was a deliberate attempt by the government to drive down prices. I suggested that it wasn’t what the government thought, but what markets believed that was important. But they had a point, because the markets couldn’t figure out the estimates either, with a great deal of day-to-day variation in prices based on weather assumptions, both in the U.S. and in China.

At last the rains finally broke and there was a week of dry weather. What happened in the countryside then was nothing short of amazing. Farmers, typically with help from their spouses and extended families, worked 24/7. Tractors, with lights, comfort cabs, and sophisticated GPS systems to do virtually all of the steering, pulled 16- or even 24-row planters; they were everywhere one looked. So much planting took place in those few days that fertilizer dealers were overwhelmed by the logistics of moving sufficient quantities of starter fertilizer into the countryside. During that one week alone, 56 per cent of Iowa’s entire corn crop was planted!

These notes are being written in real time, and what this year’s harvest will bring eventually is now anyone’s guess. At a minimum, the harvest will be late, which means that an early frost could be a very serious problem. Farmers now are beginning also to worry about late-season precipitation. (My wife is convinced that we have had our rain for the season, and that from now on we will see drought.) Farmers are not an optimistic lot when it comes to forecasting weather! But at this point in the season, most of farming is waiting.

My clearest conclusions from the last two years are about risk. Farmers and farming communities face lots of it, and in almost every direction they turn. (I smile inwardly every time I am told by neighbors, “I don’t see how you can live in California with all those earthquakes!”) Modern corn-belt agriculture is complicated, capital-intensive, and uncertain. That is why federal crop insurance is already such a key element in the new Farm Bill, and likely to become even more so in the context of future climate variability and change. Finally, anyone who believes that farming is done by those who can’t do anything else, or that farms are quiet, idyllic places, ought really to spend a summer on an Iowa farm.

Walter P. Falcon is the Deputy Director of Stanford’s Center on Food Security and the Environment (FSE); Stanford’s Freeman Spogli Institute for International Studies (FSI) Senior Fellow; Stanford Woods Institute Senior Fellow; and Helen Farnsworth Professor of International Agricultural Policy, Economics (Emeritus).

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You may read Dr. Falcon’s writing from last summer here: Observations From an Iowa Farm by Walter Falcon

A Plan to Reduce the Size of the Dead Zone

This week I received an email from a representative of Landscape Architecture Magazine to inform me about their November 2012 issue which features a cover story titled, “The Dead Zone Starts (or Stops) Here” by Anne Raver. I read the article from this quality publication and it is superbly written and the study has a lot of merit about a subject which is mostly swept under the rug by our nation’s citizens and its politicians. I strongly endorse the plan that University of Illinois ecologist David Kovacic is proposing in this article. I might argue that there would be other policy measures which would be prudent to also address the problem, but mine would be far less politically palatable than his.

This article deserves a lot of attention and promotion, so I encourage readers to pay the $5.25 to access the entire month’s magazine through zinio or find a hard copy at your Barnes and Noble or local bookstore if you are lucky enough to have one. To follow, I am offering a few highlights from the article and of Kovacic’s plan.

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The cover of the issue pictures David Kovacic next to a tiling machine:

Many parts of Illinois and Iowa were wetlands before this country was settled. Only through the use of tile drainage systems can this land be farmed and now it produces 31 percent of the world’s corn and 35 percent of its soybeans. Due to current agricultural policy promoting corn demand and reimbursement, this land is being intensively farmed up to every possible edge.

Farmers apply nitrogen fertilizer which is highly soluble and leaches into the shallow water tables where it travels through tile systems into nearby waterways, eventually exiting through the Mississippi River and creating a huge hypoxic dead zone in the Gulf of Mexico. Iowa and Illinois contribute 35 percent of these nitrates, but Ohio, Indiana, Minnesota, Michigan, Wisconsin, and Missouri also contribute. Not only does this affect the Gulf, it affects the region’s lakes and rivers.

The article includes a nice background on the rich soils and the original ecosystem of this industrialized agricultural region, but I was disappointed that it didn’t mention soil run off as being a huge related problem, my only quip with the article. Nitrogen and phosphorous enter the river through upstream runoff of fertilizers, soil erosion, animal wastes, and sewage.

Kovacic has worked for 20 years with Illinois farmers testing his idea that the re-creation of area wetlands can be used to mitigate the water pollutants which create the dead zone.

“His research shows that farmers could cut the nitrates flowing from their tiled fields by close to 50 percent if they constructed wetlands on a mere 2.5 percent to 3 percent of that land. Doing so would not only cleanse local watersheds and alleviate dead zones but would also reduce atmospheric nitrous oxide, a by-product of nitrogen fertilizer. “Nitrous oxide is a greenhouse gas with a global warming potential 300 times worse than CO2, and a major depleter of ozone,” says Kovacic.”

Next, is one of the significant points of Kovacic’s findings. He found that if existing buffer strips are in tiled areas, they don’t help much in mitigating agricultural water pollutants. Buffer strips are grass, shrubs or treed areas which serve to absorb water runoff and can provide an oasis of wildlife habitat on the edges of streams, rivers or low lying fields. Although federal and state agencies have encouraged farmers to plant buffer zones of grasses or trees and reduce nutrient applications, in the tile-drained farmland areas, the tiles carry the nitrates directly to the streams, bypassing the buffer strips where plant uptake and microbial transformation would otherwise do much to reduce them.

Part of Kovacic’s plan is to use the invasive reed canarygrass to uptake phosphorus fertilizers which are by nature sedimentary. He believes that it could sequester up to 30 pounds of phosphorus per acre.

If the rate of flooding from more extreme weather events continues to increase, his wetlands proposal might have economic value which would be an adoption incentive to farmers. He believes that wetlands built in these watersheds could reduce the peak impact of a 100-year storm by 25 percent.

Tiling 100 yards once took 10 men a week. Now two can do it in 10 minutes.

According to Kovacic’s research, it took 10 men one week to dig and lay 100 yards of clay tiles end to end — to funnel the water to the nearest stream or river, having to dig four to six feet deep in muck. He marvels at the tenacity it took as they completely tiled the Midwest in 50 years, or to put it another way, “destroyed an ecosystem in 50 years”. Today’s tiling machines are fully computerized with GPS detailing.

In many ways, building wetlands on this destroyed prairie seems like going backward to farmers whose ancestors broke their backs to drain them.

Kovacic sympathizes with the farmer who is blamed for the runoff and recognizes that they are trying to do their best. They don’t want to lose money by taking even a few acres out of production when corn and beans are bringing such a high price. The ethanol craze has increased the cost of the farmland and the profits to be made off today’s productive acre which is privately owned. “The government might be willing to pay for wetlands, but is it willing to pay you $26,000 for two acres?” he asks.

He mentions as background to today’s farming practices, “Extension agents at land-grant universities have long told farmers what to plant, what kinds of fertilizers and pesticides to use, and how much, and they have historically been funded by chemical companies.”

Kovacic figures that the Midwest needs to convert a million acres of tile-drained cropland to wetlands to reduce hypoxia in the Gulf.

The ideal size of a cleansing wetland seems to be about 2.5 percent of drained cropland.

He estimates that $30 billion would cover construction costs and payments for permanent easements which could be amortized over 30 years. This could mitigate the whole Mississippi River basin and reduce loading in the Gulf by 45 percent.