March 5, 2014 Steven D. Johnson Farm & Ag Business Management Specialist (515) 957-5790 [email protected]

March 5, 2014

Steven D. JohnsonFarm & Ag Business Management Specialist

(515) [email protected]

www.extension.iastate.edu/polk/farm-management

Presentation Objectives• Understand the Current Financial Strength of

U.S. Agriculture• Provide Risk Management Goals & Strategies• Highlight U.S. Weather Outlook/Crop Insurance• Review the Role of Revenue Protection to protect

Crop Yields and Prices • Utilize Seasonal Price Trends and tie Pre-Harvest

Marketing to Insurance Bushels• Conceptualize the New Farm Program and

Commodity Crop Enrollment Choices• Compare Potential 2014 Payments for County

ARC, Farm ARC and PLC Programs• Highlight Crop Risk Management Web Sites.

Source: USDA Economic Research Service, November 2013

U.S. Net Farm Income Trends

* - Forecast

U.S. Farm Debt-to-Asset Ratio

* - Forecast

Source: USDA Economic Research Service, November 2013

2014 U.S. Planted Acre Forecast

Crop 2008 2009 2010 2011 2012 2013 2014FPercent change

Corn 86.0 86.4 88.2 91.9 97.2 95.4 92.0 -3.5%

Soybeans 75.7 77.5 77.4 75.0 77.2 76.5 79.5 3.9%

Wheat 63.2 59.2 53.6 54.4 55.7 56.2 55.5 -1.2%

All cotton 9.5 9.1 11.0 14.7 12.3 10.4 11.5 10.5%Minor feed grains 15.8 13.6 11.4 10.5 12.6 14.6 12.4 -14.8%

Rice 3.0 3.1 3.6 2.7 2.7 2.5 2.9 16.5%Total 8 crops 253.1 248.9 245.2 249.4 257.7 255.5 253.8 -0.7%

CRP 34.6 33.7 31.3 31.1 29.5 26.8 26.0 -3.1%8 crops + CRP 287.7 282.6 276.5 280.5 287.2 282.3 279.8 -0.9%

Fig 10

Source: USDA World Outlook Board, February 2014

2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15F

Wheat 6.78 4.87 5.70 7.24 7.77 6.80 5.30

Corn 4.06 3.55 5.18 6.22 6.89 4.50 3.90

Soybeans 9.97 9.59 11.30 12.50 14.40 12.70 9.65

Cotton 47.80 62.90 81.50 88.30 72.50 76.00 68.00

Rice 16.80 14.40 12.70 14.50 14.90 16.00 15.90

Wheat, corn and soybeans in dollars per bushel; rice in dollars per hundredweight;cotton in cents per pound. Numbers in red denote record levels.

Fig 11Crop Prices to Decline from Record Highs

Source: USDA NASS, WASDE and World Outlook Board, February 2014

Utilize Revenue Crop Insurance Coverage, Pre-Harvest Marketing & Enrolling in ARC

Learn to Use a Variety of Crop

Marketing Tools;

Implement Written Plans

Know Your Costs; Be Shrewd in

Making Input Decisions

Invest Wisely in Operational Excellence: Be a Low-Cost Producer

Crop Risk Management Goals & Strategies

Reconsider 2015 Fixed Farm Leases; Consider Flexible Cash Leases

Source: Johnson, ISU Extension, March 2014

Iowa Land Value & Cash Rental Rate Trends

2013 Averages

Cash Rent: $270/A

Land Value: $8716/A3.10%

Source: Duffy & Edwards, ISU Extension Economics, May/December 2013

Source: http://droughtmonitor.unl.edu/, March 11, 2014

El Niño (ENSO) Neutral until Spring

Source: www.bom.gov.au/climate/enso/, March 11, 2014

Spring/Summer Forecast:The tropical Pacific Ocean subsurface has warmed substantially in recent weeks, which is likely to result in a warming of the ocean surface in the coming months. The tropical Pacific Ocean with temperatures approaching or exceeding El Niño thresholds by the summer months.

Elwynn Taylor’s 2014 Risk Wheel

Neutral Summer = 53% risk of above trendline corn yield

La Niña Summer = 70% risk of below trendline corn yield

El Niño Summer = 70% risk of above trendline corn yield

Source: Taylor, ISU Extension Climatologist, February 2014

Corn Insurance Coverage (2013) Revenue Protection = 86% of Insured Acres (Illinois)

vs. 95% (Iowa)

IA ILGRIP/GRP 1% 8%

YP 3% 3%RPHPE 1% 3%

RP 95% 86%

Iowa Illinois

Source: USDA Risk Management Agency, October 2013

Soybean Insurance Coverage (2013) Revenue Protection = 87% of Insured Acres (Illinois)

vs. 95% (Iowa)

IA ILGRIP/GRP 1% 6%

YP 3% 4%RPHPE 1% 3%

RP 95% 87%

Iowa Illinois

Source: USDA Risk Management Agency, October 2013

Marketing Revenue Protection (RP) Guaranteed Insurance Bushels

Source: Johnson, ISU Extension, February 2014

Deductible?

Revenue Protection – RP(65%-85% Levels)

UnitCoverage?

(Basic, Optional or Enterprise)?

Supplemental: Hail, Wind & Green Snap,

Total Weather or Varying

Projected Price?

Trend-Adjusted APH Yield

Endorsement ?

2014 Crop Insurance Decisions


2014 Projected Prices: Corn = $4.62/bu, Soybeans= $11.36/bu

Delivery of Corn Bushels with Revenue Protection (RP)

Marketing Strategy

• Pre-Harvest Sell for Delivery up to 153 Bu/A

• Price Guarantee is Higher of the Projected Price vs. Harvest Price

• Slight Basis Risk

• Must Plant the Crop

(Prevented Planting = 60%)

180 Bu/AActual

Production History(APH)

RP @ 85% Level of Coverage

153 Bu/AGuarantee X

$4.62/bu Projected Price

Deductible15% = 27 Bu/A

= $707/A Revenue Guarantee


Source: USDA Risk Management Agency & CME Group, Nov. 2013

Corn Insurance Prices vs. Seasonal Highs

December Corn Futures Seasonals

Source: www.cmegroup.com, October 2013

2008-12 Average High

$5.90


$2.92

2013 High $5.93

Soybean Insurance Prices vs. Seasonal Highs

Source: USDA Risk Management Agency & CME Group, Nov. 2013

November Soybean Futures Seasonals

Source: www.cmegroup.com, October 2013


$6.10

2013 Average

High $12.66


$11.14

Expect New Crop futures prices to rally with spring planting

uncertainty (Seasonals):• Consider forward contracts/HTAs (Delivery) for Guaranteed

Insurance Bushels• Futures Hedges (Non-Delivery) Bushels • Buy Put Options (Non-Delivery) Bushels

Sell Bushels to meet Fall/Winter Cash Flow:• Consider new-crop sales for both corn and soybeans (use spring/summer

month rallies)• Avoid long-term commercial storage.

Strategies for Marketing 2014 Crop


Farm Bill 10-year Baseline (FY 2014 to FY 2023)

Source: The Agricultural Act of 2014, February 2014

New Farm Program Commodity Crop Choices

Marketing Loan National Rates:

$1.95/bu Corn$5.00/bu Soybeans

(5 years: 2014-18)

Source: The Agricultural Act of 2014, February 2014

New 5-Year Farm Program Implementation Plan Proposed

JAN FEB APRMAR MAY JUN JUL AUG SEP OCT NOV DEC JAN

2014 2015

Agricultural Act of 2014

Commodity Crop Program

Education

Commodity Crop Rules

and Regulations

Released

FEB

Commodity Crop

Program Sign-up

Livestock Disaster

Assistance Program

Conservation Programs

(EQIP & CSP)

Source: Secretary of Ag Vilsack, February 28, 2014

FSA Commodity Crop Enrollment Decisions

County ARC85% of base acres,

Revenue Trigger = 5-yr. OA county yields X 5-yr.

OA MYA price (Estimated Price: $5.30/bu corn &

$12.17/bu soybeans)

County ARC85% of base acres,

Revenue Trigger = 5-yr. OA county yields X 5-yr.

OA MYA price (Estimated Price: $5.30/bu corn &

$12.17/bu soybeans)Farm ARC

65% of base acres, Revenue Trigger = 5-yr. OA farm yields X 5-yr.

OA MYA price (If elected, revenue summed across all commodity crops on

farm.

Farm ARC65% of base acres,

Revenue Trigger = 5-yr. OA farm yields X 5-yr.

OA MYA price (If elected, revenue summed across all commodity crops on

farm.

PLC85% of base acres, Price only Trigger = $3.70/bu corn, $8.40/bu soybean

reference prices

PLC85% of base acres, Price only Trigger = $3.70/bu corn, $8.40/bu soybean

reference prices

Enrollment at FSA: Summer/Fall - Base and/or

Yield updates; Winter - ARC or PLC sign-up.

Enrollment at FSA: Summer/Fall - Base and/or

Yield updates; Winter - ARC or PLC sign-up.

If a farm fails to enroll in either ARC or PLC in 2014,

then PLC serves at the default for 2015 through

2018.

If a farm fails to enroll in either ARC or PLC in 2014,

then PLC serves at the default for 2015 through

2018.

One-time choice (irrevocable) by FSA farm

number (need both operator and landlord signatures).

One-time choice (irrevocable) by FSA farm

number (need both operator and landlord signatures).

Base acres can be reallocated using 2009-12,

but can’t exceed farm’s total historic base.

Base acres can be reallocated using 2009-12,

but can’t exceed farm’s total historic base.

Source: www.farmdocdaily.illinois.edu, Feb. 12, 2014

Reallocating Base AcreageFarm Historic: 100 Total Base Acres

Corn50 Acres

Soybeans50 Acres

Source: www.farmdocdaily.illinois.edu, March 6, 2014

Base Acreage ReallocationExample #1


Corn65 Acres

Soybeans35 Acres

Reallocation Example #1Can be requested at ARC/PLC

Sign-up


Base Acreage ReallocationExample #2


Corn75 Acres

Soybeans25 Acres

Reallocation Example #2Can be requested at ARC/PLC

Sign-up


Comparing ARC Average Prices vs. PLC Reference Prices

Price Loss Coverage(PLC)

Corn = $3.70/bu.Soybeans = $8.40/bu.

Price Loss Coverage(PLC)


ARC 5-yr. OA MYA Prices


ARC 5-yr. OA MYA Prices



County ARC: Calculating Corn Revenue

$3.70Year Yield MYA Price ARC Price

2009 186.0 $3.55 $3.702010 169.5 $5.18 $5.182011 159.6 $6.22 $6.222012 109.5 $6.89 $6.892013 188.0 $4.50 $4.50

Yield Price RevenueBenchmarks 171.7 $5.30 $910

Revenue Guarantee $783

Notes: McLean County, IL actual corn yields. Revenue Guarantee equals 86% of Benchmark.

Corn2014 Reference Price


County ARC: 2014 Corn Potential Payment

$4.35180

2014 MYA PriceARC Actual

RevenueARC Payment

RateARC Payment ($/base acre)

$3.00 $540 $91 $77$3.50 $630 $91 $77$3.90 $702 $81 $69$4.25 $765 $18 $15$4.50 $810 $0 $0

Notes: The ARC Payment ($/base acre) is 85% of the ARC Payment Rate.

Yield (bu./acre)

Corn2014 ARC Payment Trigger


County ARC: Calculating Soybean Revenue

$8.40Year Yield MYA Price ARC Price

2009 54.0 $9.59 $9.592010 58.5 $11.30 $11.302011 56.0 $12.50 $12.502012 52.3 $14.40 $14.402013 55.0 $12.70 $12.70

Yield Price RevenueBenchmarks 55.0 $12.17 $669


Notes: McLean County, IL actual soybean yields. Revenue Guarantee equals 86% of Benchmark.

2014 Reference PriceSoybeans


County ARC: 2014 Soybean Potential Payment

$10.2756

2014 MYA PriceARC Actual

RevenueARC Payment

RateARC Payment ($/base acre)

$8.25 $462 $67 $57$9.00 $504 $67 $57$9.65 $540 $35 $30

$10.50 $588 $0 $0$11.25 $630 $0 $0

Notes: The ARC Payment ($/base acre) is 85% of the ARC Payment Rate.

Yield (bu./acre)

Soybeans2014 ARC Payment Trigger


Farm ARC: 2014 Corn & Soybean Combined Revenue Guarantee

$3.70 $8.40 Individual

Year Yield ARC PriceARC

Revenue Year Yield ARC PriceARC

Revenue ARC Revenue2009 186.0 $3.70 $688 2009 54.0 $9.59 $5182010 169.5 $5.18 $878 2010 58.5 $11.30 $6612011 159.6 $6.22 $993 2011 56.0 $12.50 $7002012 109.5 $6.89 $754 2012 52.3 $14.40 $7532013 188.0 $4.50 $846 2013 55.0 $12.70 $699

Benchmarks $826 $687 $770


Notes: Corn and soybean revenues reflect combined MYA prices and McLean county yields for 2009-13. Acres are based on weighted average planted acres. Revenue Guarantee equals 86% of Benchmark.

2014 Payment Potential 2014 Payment Potential Corn Soybeans

2014 Reference Price 2014 Reference Price


Farm ARC: 2014 Corn & Soybean Combined Potential Payment

2014 Baseline Price $3.90 2014 Baseline Price $9.65 GuaranteeYield (bu./acre) 180 Yield (bu./acre) 56 $663

2014 Price Revenue 2014 Price Revenue RevenuePayment

Rate$ / Base

Acre$3.00 $540 $8.25 $462 $509 $77 $50$3.50 $630 $9.00 $504 $580 $77 $50$3.90 $702 $9.65 $540 $637 $26 $17$4.25 $765 $10.50 $588 $694 $0 $0$4.50 $810 $11.25 $630 $738 $0 $0

Notes: Crop specific revenue is the product of actual MYA price and the farm-level yields. The 2014 yield estimates are McLean county trend yields of 180 bu/A corn and 56 bu/A soybeans. The $/Base Acre payment equals 65% of the Payment Rate.

Individual ARCCorn Soybeans


PLC: Corn 2014 Payment Potential

$3.70146.6

MYA Price Payment RatePLC Payment ($/base acre)

$3.00 $0.70 $87.23$3.50 $0.20 $24.92$3.90 $0.00 $0.00$4.25 $0.00 $0.00$4.50 $0.00 $0.00

Notes: PLC payments are made on 85% of base acres and based on a payment yield of 146.6 bu/A corn.

Yield (bu./acre)

Corn2014 Reference Price


PLC: Soybean 2014 Payment Potential

$8.4048.9

MYA Price Payment RatePLC Payment ($/base acre)

$8.25 $0.15 $6.23$9.00 $0.00 $0.00$9.65 $0.00 $0.00

$10.50 $0.00 $0.00$11.25 $0.00 $0.00

Notes: PLC payments are made on 85% of base acres and based on a payment yield of 48.8 bu/A soybeans.

Yield (bu./acre)

Soybeans2014 Reference Price


Crop Risk Management Web Sites• Crop Risk Management - ISU Polk County

(Farmland Owners Newsletter, Webcasts and Videos, Updates on Crop Marketing Strategies, Government Farm Programs & Farmland Leasing)

www.extension.iastate.edu/polk/farm-management • Farm Doc – U of IL Extension Economics

(Daily e-Newsletter, FAST Tools, Newsletters, Publications)

www.farmdoc.illinois.edu• Ag Manager – Kansas State Extension Economics

www.agmanager.info• Purdue Extension Economics

www.agecon.purdue.edu/extension• Ag Decision Maker – ISU Extension

(Iowa Commodity Challenge Curriculum, Monthly e-Newsletter, Decision Tools, Newsletters, Publications, Voiced Media)

www.extension.iastate.edu/agdm


Documents

March 5, 2014 Steven D. Johnson Farm & Ag Business Management Specialist (515) 957-5790 [email protected]