Progressive Ag Marketing Report with Lilja
The markets were acting like they wanted to go down with the favorable rains in Argentina, Brazil and the US southern plains, but then our government made the announcement that they were sending 31 Abrams tanks to the Ukraine and the trade got a little nervous. It got me thinking about the “guns and butter” lecture every student received in the intro course to Agricultural Economics. Professor Hertsgaard was a legend, and his “guns and butter” lecture was very animated. In the lecture the nation must choose between two options when spending its finite resources. It may either buy guns (invest in defense/military) or butter (invest in production of goods), or a combination of both. Butter represents roads, hospitals, schools and things that increase social welfare. Guns represent security goods such as troops, weapons, ships or tanks. The economic theory of “guns and butter” represents a tradeoff where you can’t increase one without negatively impacting the other.
It must have been a good lecture for me to recall it all these years later. In doing a little research the phrase came from the decision to expand munitions before the US entered World War I. In 1914, Chili was the leading exporter of nitrates for gunpowder and it was the principle ingredient for farm fertilizer. The US realized that it needed to secure its own supply and the problem became politicians fighting over whose state would get the site to produce artificial nitrates. The deadlock was broken with language in the National Defense Act of 1916 that directed “the Secretary of Agriculture to manufacture nitrates for fertilizers in peace and munitions in war at waterpower sites designated by the President.” In the end a major manufacturing site was chosen along the Tennessee River. There are plenty of references to this economic theory including comments from the Nazi’s in WW2 that guns will make us powerful; butter will only make us fat. Professor Hertgaard’s conclusion was that the true opportunity cost between the two stark choices changes in times of war and peace. The US foresight of securing nitrate production for both guns and butter in 1916 made Hermann Goering’s wartime propaganda some 25 years later just that.
Oil World is forecasting Argentina’s soybean crop at 34 MMT, well below the USDA estimate of 45.5 MMT. 34 MMT would be Argentina’s smallest crop since 2008-09. Oil World’s production forecast for Brazil is 152 MMT, 1 MMT below the most recent USDA forecast. Recent rains helped get some late soybeans planted in Argentina as they are now 98.8% planted. Ideal soil moisture up 7%, dry area down from 70 to 63%. Argentina ratings for fair and good to excellent conditions improved 6% in the last week. Good/excellent ratings rose to 7% vs 3% last week and 36% last year. 54% of Argentina’s soybeans are still in poor condition versus 60% last week and 22% last year. There are more rains forecasted for Argentina to end the week, so the amounts will be watched closely. Ag Rural downgraded Brazil’s crop 700,000 MT to 152.9 MMT due to decreases in some Southern Brazil states. DERAL state agency in Paraná, Brazil says conditions have improved this week and soybean good/excellent conditions were up 1% to 81% with areas rated bad falling 1% to 4%. Panara is projected to increase yield +74% vs last year to 21.4 MMT. Remember Paraná has a widespread drought last year.
AgRural lowered Brazil corn production estimates slightly to 123.9 MMT vs. USDA’s current estimate of 125 MMT. Brazil corn exports are off to a brisk start with data showing a record amount of corn exported in the first two weeks of January. Argentina corn good/excellent ratings rose to 12% vs 5% last week and 31% last year. 39% of Argentina’s corn is still in poor condition versus 47% last week and 29% last year. BAGE cut production estimates sharply to 44.5 MMT, well below USDA’s January estimate of 52.0 MMT.
Reuters reported that a USDA official stated Russia’s wheat crop estimates are “not feasible”. The official stated at a Paris grain conference that weather analysis and historical crop data does not support such a high crop production estimate. Russia’s Rosstat, the states statistics agency reported 104.43 MMT crop this month which compares to USDA’s estimate of 91.0 MMT. So the question is, is Russia using the Ukraine’s conquered Donbass Region in the numbers? IKAR thinks Russian wheat exports will be 45.5 MMT well up from last year’s 33.0 MMT. USDA does have the Russian export forecast at 45.0 MMT.
Texas winter wheat ratings as of January 22nd show 11% of the crop good to excellent, 46% fair and 43% poor to very poor. This was a 10% decline from end of November ratings. 95% of winter wheat is emerged vs. 91% average. Oats are rated at 27% g/e, 43% fair and 30% p/vp. The report stated that visible freeze damage from the December cold snap was observed across several regions of the state. Texas soil moisture profiles show 75% of topsoil and subsoil short to very short vs. 25% adequate to surplus. A private firm thinks spring wheat area will increase 3.4% this year. They also think winter wheat acres will be at 37.0 million. Last week another firm thought it could be as high as 12.0% at 13.9 million acres.
Progressive Ag Marketing, Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Progressive Ag Marketing’s Research Department.
Tom Lilja is an employee of Progressive who writes this column for the Times-Record.