Steven D. Johnson - Iowa State University · •Implement old crop marketing strategies •Learn to use a variety of marketing tools •Estimate your own 2014 crop costs •Set goals

1

January 2014

Steven D. JohnsonFarm & Ag Business Management Specialist

(515) [email protected]

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

Learning Objectives

• Review lessons learned in 2013

• Understand the latest USDA Reports and

weekly futures charts to determine cash

price outlook

• Implement old crop marketing strategies

• Learn to use a variety of marketing tools

• Estimate your own 2014 crop costs

• Set goals and develop strategies to

manage crop costs and revenue risks.

2

What Was Different In 2013?Macro Economic Uncertainties

Improved Crop Weather

Source: Johnson, ISU Extension, December 2012

“Risk On” – Higher Futures

1. Weather Concerns Globally

2. European Debt Resolutions

3. Strong Asian Economies

4. Non-Commercial Investors

(Funds) continue to invest in

Commodities

5. Avoidance of U.S. Debt

Crisis and Fiscal Cliff

“Risk Off” – Lower Futures

1. Larger Planted Acreage,

Higher Yields

2. European Union debt

contagion, recession grows

3. Global Economy slows

4. Funds reluctant investors

5. Random Shocks (Egypt, Syria,

Iran, North Korea, etc.)

Expect New Crop Futures Prices to Remain

High through Spring, Especially Corn:

• Sell using forward contracts/HTAs (delivery)

for insurance bushels

• Buy put options (non-delivery) bushels

Sell Bushels to Meet Fall/Winter Cash Flow:

• Target soybean sales early, corn mostly

spring and summer months

• Avoid long-term commercial storage

• Early delivered bushels will bring a premium.

Strategies for Marketing 2013 Crop


3

Corn Ending Stocks & Average Cash Price

Source: USDA WASDE, Jan. 2010 – Dec. 10, 2013

U.S. Corn Supply & Demand2009 2010 2011 2012 2013

Area Planted (mil. acres) 86.4 88.2 91.9 97.2 95.3

Yield (bu./acre) 164.7 152.8 147.2 123.4 160.4

Production (mil. bu.) 13,092 12,447 12,360 10,780 13,989

Beg. Stocks (mil. bu.) 1,673 1,708 1,128 989 824

Imports (mil. bu.) 8 28 29 162 30

Total Supply (mil. bu.) 14,774 14,182 13,517 11,932 14,842

Feed & Residual (mil. bu.) 5,125 4,795 4,546 4,333 5,200

Ethanol (mil. bu.) 4,591 5,019 5,011 4,648 4,950

Food, Seed, & Other (mil. bu.) 1,370 1,407 1,428 1,396 1,450

Exports (mil. bu.) 1,980 1,834 1,543 731 1,450

Total Use (mil. bu.) 13,066 13,055 12,528 11,108 13,050

Ending Stocks (mil. bu.) 1,708 1,128 989 824 1,792

Season-Average

Price ($/bu.) $3.55 $5.18 $6.22 $6.89 $4.40


4

178

47

168

42.5 176

48

166

47

164

42.5174

49

165

45 144

39

168

42.5

Iowa 2013 Crop Yield Estimates

Source: USDA NASS, Iowa Field Office, Nov. 12, 2013

State Average: Corn 169 bu/a & Soybeans 45 bu/a

Resistance at $4.50

Support at $4.00

Weekly Corn Futures Chart

Source: www.FuturesSource.com, December 12, 2013

Trading Range

5

World Corn Production 2013-14

Source: USDA WASDE, December 12, 2013

Corn Futures Carry & Soybean Inverse

July $_______

May $_______

Mar. $_______

Mar. $_______

May $_______

July $_______

Source: Iowa Commodity Challenge, November 2013

Carry rewards only On-Farm

Storage, Not Commercial

Storage

Futures Inverse: Little

Incentive for On-Farm

or Commercial Storage

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Corn Storage Costs

Source: Johnson, ISU Extension, November 2013

Assumption: Corn is Valuedat $4.20/bu - Financed @ 4.5% APR

.20

.20

.32

.38

.44

.56

.56

.74

Soybean Storage Costs

Source: Johnson, ISU Extension, November 2013

.20

.35

.50

.50

.80

.65

1.10

Assumption: Soybeans are Valuedat $13/bu - Financed @ 4.5% APR

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Crop Marketing Tools

Spot Cash Sales, Forward Cash or HTA

Contracts

• Generate Cash Flow, Capture Carry & Basis, Avoid

Long-Term Storage Costs

Futures Hedges

• No delivery of bushels, manage futures prices

Options

• Use both Puts and Calls

• Create Minimum Price Contracts

• Buy Puts for unsold bushels

• Buy Calls to replace sold bushels.


Futu

res

Pri

ceFu

ture

s P

rice

Basis Basis

1. Store & wait2. Delayed price contract3. Minimum price contract

1. Basis contract2. Sell Cash Bushels and

Buy Futures or Call Option

3. Minimum price contract

1. Hedge2. Non-roll hedge to arrive3. Buy put option

1. Cash sale now2. Forward Contract

Crop Marketing Matrix


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World Soybean Production 2013-14

Source: USDA WASDE, December 12, 2013

2009 2010 2011 2012 2013

Area Planted (mil. acres) 77.5 77.4 75.0 77.2 76.5

Yield (bu./acre) 44.0 43.5 41.9 39.8 43.0

Production (mil. bu.) 3,359 3,329 3,094 3,034 3,258

Beg. Stocks (mil. bu.) 138 151 215 169 141

Imports (mil. bu.) 15 14 16 36 25

Total Supply (mil. bu.) 3,512 3,495 3,325 3,239 3,423

Crush (mil. bu.) 1,752 1,648 1,703 1,689 1,690

Seed & Residual (mil. bu.) 110 130 88 90 109

Exports (mil. bu.) 1,499 1,501 1,365 1,320 1,475

Total Use (mil. bu.) 3,361 3,280 3,155 3,098 3,274

Ending Stocks (mil. bu.) 151 215 169 141 150

Season-Average

Price ($/bu.) $9.59 $11.30 $12.50 $14.40 $12.50

U.S. Soybean Supply & Demand


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Soybean Ending Stocks & Average Cash Price


Weekly Soybean Futures Chart

Source: www.FuturesSource.com, December 12, 2013

Resistance at $13.50

Support at $12.50

Trading Range

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Soybean to Corn Price Ratio vs. U.S. Planted Acres

Source: USDA NASS, CME Group, March 2004 to Nov. 12, 2013

2014 U.S. Planted Acreage Forecast

* Forecast

Source: USDA NASS & Johnson, ISU Extension, December 2013

94M

80M

58M

27M

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Utilize Revenue Crop Insurance Coverage & Pre-Harvest Marketing

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

Renegotiate Farm Leases; Consider Flexible Cash Leases


Total Cost Expected Yield bu/A Cost Per Bushel

Soybeans after Corn

Corn after Soybeans

Corn after Corn

2014 Iowa Crop Cost Estimates

$557

$772

$819

50

180

165

$11.13

$4.29

$4.97

Source: Duffy, ISU Extension Economics, December 2013

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Labor $29

Inputs $156

Machinery $85

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

$550

$280$270

2014 Soybeans after Corn Margins

Source: Duffy & Johnson, ISU Extension, December 2013

Machinery $152

Inputs $299

180 bu/A X $4.50/bu = 810/A

$485

$810

$325

Labor $34

2014 Corn after Soybeans Margins


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Machinery $155

Inputs $340

165 bu/A X $4.50/bu = $742/A

$532

$742

$ 210

Labor $37

2014 Corn after Corn Margins


Iowa Flexible Cash Lease Case Study

• Farm Overview of Central Iowa farm:– 200 Tillable Acres – productive, well drained soils

– APH Yields: 166 bu/A Corn and 47 bu/A Sb

– 2013 Yields: 170 bu/A Corn and 45 bu/A Sb

– $250/A Base Rent w/Flexible Cash Rent Agreement

• Average cash rent in the area increased another $10-$20 per acre in 2013

• Tenant is concerned about escalating cash rents, high input costs and a decline in crop prices

• Landlord would like $300/A; if operator has good yields and high prices are available.


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Base Rent + Flexible Payment (33% of Net)

*Estimate*Estimate

$286

Average

$310

Average$295

Average

$250 $250 $250 $250 $250 $250

$263

Average


Determining the Flexible Payment

• Actual Farm Yields (dry weight) as required for APH crop insurance

• New Crop Cash Bids: local elevator harvest delivery bids averaged; use a minimum of 4 time periods (January 15, April 15, July 15, Oct. 15)

• Subtract Actual Costs or ISU Crop Estimates

• Each year by December 1 determine the flexible payment: (Actual Farm Yields timesNew Crop Cash Bids) minus Actual orEstimated Costs times 33% of Net

• A Flexible Cash Lease can adjust annually to Farm’s actual yields, harvest bids and costs.


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Commodity Program Proposed

Marketing Loan Rates:$1.95/bu Corn

$5.00/bu Soybeans

(5 years: 2014-18)

Source: U.S. Congress & Johnson, ISU Extension, November 2013

Comparing ARC or RLC Programs

ARC (Senate) RLC (House)

Coverage Revenue Revenue

% Losses

Covered

11% of Farm or 21% of

County Guarantee

15% to 25% of County

Guarantee Only

Prices 5-Year Olympic Nat’l

Average Cash Price2014 Estimate: $5.27/bu Corn,

$12.10/bu Soybeans

5-Year Olympic Nat’l

Average Cash Price2014 Estimate: $5.27/bu Corn,

$12.10/bu Soybeans

Yields 5-Year Olympic Average

(Farm or County Yield)

5-Year Olympic Average

(County Yield Only)

Payment Rate 65% Farm or 80% County of

Eligible Planted Acres (or

base acres last 5 years)

100% of Eligible Planted

Acres (or base acres last 5

years)

Payment

Limitations

$750,000 AGI per Entity $950,000 AGI per Entity

Source: 2013 Farm Bill Conference Committee, November 2013

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Iowa Corn & Soybean Insurance Coverage (2013)

Revenue Protection = 95% of State’s Insured Acres

Source: USDA Risk Management Agency, October 2013

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

Corn Insurance Prices vs. Seasonal Highs

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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

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November Soybean Futures Seasonals

Source: www.cmegroup.com, October 2013


$6.10

2013 Average

High $12.66


$11.14

Crop Risk Management Web Sites

• Crop Risk Management - ISU Polk County(Monthly 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 Economicswww.agmanager.info

• Commodity Challenge (online market simulation game)

www.commoditychallenge.com

• Ag Decision Maker – ISU Extension(Iowa Commodity Challenge Curriculum, Monthly e-Newsletter, Decision Tools, Newsletters, Publications, Voiced Media)

www.extension.iastate.edu/agdm


Documents

Steven D. Johnson - Iowa State University · •Implement old crop marketing strategies •Learn to use a variety of marketing tools •Estimate your own 2014 crop costs •Set goals