Melvin Brees
Farm Management Specialist
University of Missouri Extension

 

 

 

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Please send your comments and send suggestions to Melvin Brees, Farm Management Specialist, University of Missouri Extension, #1 Courthouse Square,  Fayette, MO 65248, call 660-248-2272, or send messages by e-mail to: breesm@missouri.edu.
May 7, 1999

Weather and Government -- Change Will Happen

Changing conditions, uncertainty and risk have always been a part of agriculture. Weather is one element of change that we have no control over and it seems like the same often applies to government policy. The following demonstrate why flexible production and marketing plans are essential in order to deal with uncertainty.

The weather, will it stay too wet? According to Elwynn Taylor, Iowa State University Extension Climatologist, La Nina strengthened in April. He doesn’t expect that excessively wet conditions will persist. Taylor anticipates that the 1999 growing season will exhibit extremes of heat and cold, wet and dry. The odds still favor having trend line corn yields, but the risk of a summer drought is greater than average under La Nina conditions. According to Taylor, "The historical risk of wet conditions shifting to excessively dry in or by August is about 40% in a La Nina year."

What does this mean for us? Keep in mind that Taylor’s predictions are for Iowa and may not be the same for Missouri. But it does suggest increased chances of heat or dry conditions during corn pollination--especially for late planted corn. This increasing risk, along with unclear market signals (see last week’s Decisive Marketing), may influence the decision of whether to stay with corn or switch to soybeans.

Changes in the LDP? Apparently USDA has been looking at how LDP’s (loan deficiency payments) are calculated. Earlier this week, they were expected to announce using a national LDP, based on a national price, instead of LDP’s using local prices. This would mean one LDP rate for everyone, regardless of location or basis. As it turned out, this didn’t happen or at least it hasn’t happened yet.

The LDP provisions of the marketing loan program have influenced this year’s planting decisions. Since soybean prices have been below loan rate, many production and marketing plans have been built on using the LDP. Nearly everyone has made the assumption that the LDP could be used to establish a floor price equal to the loan rate. Changing the LDP, or how it is calculated, could have a significant impact on these plans.

Both weather and government programs affect changes in planting decisions. Delayed planting increases the risk that hot and/or dry summer weather would reduce corn yields. If USDA does adjust LDP’s, this could impact the decision to switch to soybeans with prices expected to be below loan price. This illustrates how two unrelated factors can give mixed signals affecting a single decision. The decision to change production plans because of weather is always difficult, but this year it seems more complicated than ever. If production plans are changed, marketing and cash flow plans need to be revised too. One thing is certain. Weather and government rules--they will eventually change!  -- Melvin


University of Missouri ExtensionDecisive Marketing - May 7, 1999
http://outreach.missouri.edu/agconnection/DCT/DM990507.html -- Revised: April 20, 2004
breesm@missouri.edu