November 2010 Steven D. Johnson Farm & Ag Business Management Specialist (515) 957-5790 [email protected] .

November 2010

Steven D. JohnsonFarm & Ag Business Management Specialist

(515) [email protected]

www.extension.iastate.edu/polk/farmmanagement.htm

Presentation Objectives• Summarize Iowa’s 2010 Corn & Soybean Yield

Estimates• Highlight 2010 Crop Insurance Coverage and

new Common Policy for 2011• Update Futures Market Carry, Basis & Cost of

Storage• Highlight Crop Margin Trends & Forecast 2011 Crop

Margins• Discuss 5 Strategies for Managing 2010 & 2011

Crop Margins• Provide 5 Crop Risk Management Strategies

& 5 Websites

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Iowa 2010 Crop Yield Estimates

Source: USDA NASS, Iowa Field Office, Nov. 9th, 2010

Acres Insured in 2010 Corn and Soybeans--Iowa

APH8%

RA10%

GRIP2%

GRP1%

CRC79%

Source: USDA Risk Management Agency, Oct. 2010

Corn Indemnity Prices(Revenue Coverage)

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00Feb. price

RA Nov. price

CRC Oct. price

Source: USDA Risk Management Agency, Oct. 2010

Feb. Avg. $3.99/bu

Oct. Avg. $5.46/bu

Soybean Indemnity Prices: (Revenue Coverage)

$0.00$1.00$2.00$3.00$4.00$5.00$6.00$7.00$8.00$9.00

$10.00$11.00$12.00$13.00$14.00

Feb. price

RA Nov. price

CRC Oct. price

Source: USDA Risk Management Agency, Oct. 2010

Feb. Avg. $9.23/bu

Oct. Avg. $11.63/bu

2011 Policies Convert Automatically

Crop Revenue Coverage (CRC)Revenue Assurance with

Harvest Price Option (RA-HPO) Revenue Protection (RP)

Revenue Assurance (RA) withBase Price only (RA-BP)

Revenue Protection with harvest price exclusion

(RPE)

Source: USDA Risk Management Agency, Oct. 2010

2009/10 Estimated 2010/2011 Projected

Area Planted

Area Harvested

Yield

Beginning Stocks

Production

Imports

Supply, Total

Feed & Residual

Food, Seed & Industrial

Domestic Use, Total

Exports

Use, Total

Ending Stocks

Average Farm Price

U.S. Corn Supply/Demand & Price

86.5

$3.55

79.6164.71,67313,110

814,7925,1595,93811,0981,98713,0841,708

88.2

$4.80-$5.60

81.3154.31,70812,540

1014,2575,3006,18011,4801,95013,430

827

Midpoint $5.20/bu

Source: USDA WASDE Report, Nov. 9th, 2010

$5.80/bu 18%

$5.10/bu 65%

$5.00/bu 17%

Corn Cash Price & Probability Forecast

’10-’11 Marketing Year

Source: Wisner, ISU Biofuels Economist, Nov. 11th, 2010

Nearby Corn Chart

Source: www.jimwyckoff.com, Nov.12th, 2010

Nov. 9th: Key ReversalHigher High, Lower Low & Markete Closes Lower

Other support levels: $5.00 & $4.60

July$5.50

May$5.46

Mar$5.39

Dec.$5.26

Corn Futures Carry Dec. 2011

$4.99

Source: www.cmegroup.com

Nov. 17th , 2010

Decline in Carry since summer, but still rewards On-farm Storage if little to no interest accruing. Capture the carry with sales for the deferred contract months.

Corn Basis Trends

Source: www.farmfutures.com November 2010

Local Corn Basis History - Conrad

Source: www.cashgrainbids.com November 2010

Source: Johnson, ISU Extension, November 2010

Corn Storage Costs

Assumption: Corn is Valued at $5/bu. - Financed @ 5% APR

.20

.30

.32

.50

.44

.69

.56

.89Storing monthly beyond harvest costs 4¢ to 7¢ per bushel

2009/10 Estimated 2010/2011 Projected

Area Planted

Area Harvested

Yield

Beginning Stocks

Production

Imports

Supply, Total

Crush

Exports

Seed

Residual

Use, Total

Ending Stocks

Average Farm Price

U.S. Soybean Supply/Demand & Price

77.5

$9.59

76.444.0138

3,35915

3,5121,7521,501

9018

3,361151

77.7

$10.70 - $12.20

76.843.9151

3,37510

3,5361,6651,570

8829

3,351185

Source: USDA WASDE Report, Nov. 9th, 2010

Midpoint $11.45/bu

$12.30/bu 18%

$11.50/bu 65%

$11.25/bu 17%

Soybean Cash Price & Probability Forecast

’10-’11 Marketing Year

Source: Wisner, ISU Biofuels Economist, Nov. 11th, 2010

Nearby Soybean Chart

Source: www.jimwyckoff.com, Nov.12th, 2010

Nov. 9th & 12th: Key Reversal Up & Down in the same week

July$12.12

May $12.11

Mar $12.12

Jan.$12.05

Nov. 17th , 2010

Soybean Futures Carry

Lack of Carry, little incentive to hold soybeans beyond winter months without on-farm storage and little debt

Source: www.cmegroup.com

Nov. 2011

$11.27

Soybean Basis Trends

Source: www.farmfutures.com November 2010

Source: Johnson, ISU Extension, November 2010

Soybean Storage Costs

Assumption: Soybeans are Valued

at $11/bu. - Financed @ 5% APR

.10

.28

.38.46

.66

.64

.94Storing monthly beyond harvest costs 6¢ to 9¢ per bushel

5. Global Production Prospects

6. U.S. & Global Economic Recovery

7. Biofuel Tax Credits8. Random Shocks

1. Global Demand2. Hedge & Index Fund Positions

3. Technical Signals4. Outside Markets:

Dollar, Crude Oil

Factors that Impact Futures Price

Source: Wisner & Hart, ISU Economists, Nov. 2010

2011 U.S. Planted Acreage Forecast

* Forecast

Source: Wisner, ISU Biofuels Economist, Nov. 11th, 2010

Corn Margin Trends

Estimate Forecast

Source: U of IL Ext. Farm Econ., FEFO 10-18, Nov. 2010

2011 Margin Estimates: Corn following Soybeans

Overhead $59

Power Costs $102

Direct Costs $327

Crop Value $900 = 180 bu/A X $5/bu

Direct Pmt. $23

Cash Rent $250

Cash Rent $200

$488

$923

$435

Source: U of IL Ext. Farm Econ., FEFO 10-14, Updated Nov. 2010

Soybean Margin Trends

Estimate Forecast

Source: U of IL Ext. Farm Econ., FEFO 10-18, Nov. 2010

2011 Margin Estimates: Soybeans following Corn

Overhead $50

Power Costs $90

Direct Costs $173

Crop Value $550 = 50 bu/A X $11/bu

Direct Pmt. $23

$313

$573

Cash Rent $250

Cash Rent $200

$260

Source: U of IL Ext. Farm Econ., FEFO 10-14, Updated Nov. 2010

5 Crop Risk Management Strategies

Source: Johnson, ISU Extension, Dec. 2010

Use Cash Flow Needs,

Basis & Storage Costs to Drive 2010

Sales Know Your

Cost of Production & Manage

Profit Margins

Lock-in 2011 Crop Costs, Make Pre-Harvest Sales

Use Revenue Protection (RP) and Consider

Additional Hail Coverage

Use a Variety of Marketing Tools: Cash, Forward Contracts, HTA, Futures & Options

Crop Risk Management Web Sites

• Crop Risk Management - ISU Polk CountyMonthly Crop Marketing Newsletter & Webcast, Updates on Crop Insurance,

Government Farm Program, Grain Contracts and Farmland Leasingwww.extension.iastate.edu/polk/farmmanagement

• Ag-Decision Maker – ISU Extension (Decision Tools, Newsletters, Publications and Voiced Media) www.extension.iastate.edu/agdm

• Farm Doc - U of Illinois Extension Economics www.farmdoc.illinois.edu

• Ag Manager – K-State Extension Economicswww.agmanager.info

• @g Online – Successful Farming Magazinewww.agriculture.com /farm-management

Source: Johnson, ISU Extension, Dec. 2010