Ag Cycles, Current Crop Markets and the Farm Bill

Extension and Outreach/Department of Economics

NACM Heartland MeetingDes Moines, Iowa

Mar. 6, 2014

Chad HartAssociate Professor/Crop Markets Specialist

chart@iastate.edu515-294-9911

Corn Prices vs. Costs

Sources: USDA-NASS for Prices, Duffy for Costs

Per Bushel Cost calculated as Per Acre Cost from ISU Extension divided by Actual Yield per Acre

Soybean Prices vs. Costs

Sources: USDA-NASS for Prices, Duffy for Costs

Per Bushel Cost calculated as Per Acre Cost from ISU Extension divided by Actual Yield per Acre

Corn Prices and Recessions

Crop Prices for the Next Decade

Source: USDA-ERS

LivestockCrops

Net Farm Income

Iowa Land Values

Source: Mike Duffy, ISU

Iowa Land Values – Log Scale

Land Values and Income

U.S. Corn Supply and Use2010 2011 2012 2013 2014

Area Planted (mil. acres) 88.2 91.9 97.2 95.4 92.0

Yield (bu./acre) 152.8 147.2 123.4 158.8 165.3

Production (mil. bu.) 12,447 12,360 10,780 13,925 13,985

Beg. Stocks (mil. bu.) 1,708 1,128 989 821 1,481

Imports (mil. bu.) 28 29 162 35 25

Total Supply (mil. bu.) 14,182 13,517 11,932 14,781 15,491

Feed & Residual (mil. bu.) 4,795 4,557 4,335 5,300 5,400

Ethanol (mil. bu.) 5,019 5,000 4,648 5,000 5,000

Food, Seed, & Other (mil. bu.) 1,407 1,428 1,396 1,400 1,430

Exports (mil. bu.) 1,834 1,543 731 1,600 1,550

Total Use (mil. bu.) 13,055 12,528 11,111 13,300 13,380

Ending Stocks (mil. bu.) 1,128 989 821 1,481 2,111

Season-Average Price ($/bu.) 5.18 6.22 6.89 4.50 3.90

Source: USDA-WAOB for 2010-13

U.S. Soybean Supply and Use2010 2011 2012 2013 2014

Area Planted (mil. acres) 77.4 75.0 77.2 76.5 79.5

Yield (bu./acre) 43.5 41.9 39.8 43.3 45.2

Production (mil. bu.) 3,329 3,094 3,034 3,289 3,550

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

Imports (mil. bu.) 14 16 36 30 15

Total Supply (mil. bu.) 3,495 3,325 3,239 3,459 3,715

Crush (mil. bu.) 1,648 1,703 1,689 1,700 1,725

Seed & Residual (mil. bu.) 130 88 90 99 105

Exports (mil. bu.) 1,501 1,365 1,320 1,510 1,600

Total Use (mil. bu.) 3,280 3,155 3,099 3,309 3,430

Ending Stocks (mil. bu.) 215 169 141 150 285

Season-Average Price ($/bu.) 11.30 12.50 14.40 12.70 9.65

Source: USDA-WAOB for 2010-13

Corn Yields

Source: USDA-NASS

Top: 2013 YieldBottom: Change from 2012Units: Bushels/acre

Soybean Yields

Source: USDA-NASS

Top: 2013 YieldBottom: Change from 2012Units: Bushels/acre

World Corn Production

Source: USDA-WAOB

World Soybean Production

Source: USDA-WAOB

Hog Crush Margin

Source: ISU Extension

The Crush Margin is the return after the pig, corn and soybean meal costs.Carcass weight: 200 pounds Pig price: 50% of 5 mth out lean hog futuresCorn: 10 bushels per pig Soybean meal: 150 pounds per pig

Cattle Crush Margin

Source: ISU Extension

The Crush Margin is the return after the feeder steer and corn costs.Live weight: 1250 pounds Feeder weight: 750 pounds Corn: 50 bushels per head

U.S. Meat Production & Prices

Source: USDA-WAOB

Corn Export Shifts

Source: USDA-FAS

Corn Export Sales

Source: USDA-FAS

Soybean Export Sales

Source: USDA-FAS

Soy Export Shifts

Source: USDA-FAS

Corn Grind for Ethanol

Extension and Outreach/Department of EconomicsSource: DOE-EIA, Annual Energy Outlook

Current Corn Futures

Source: CME Group, 3/5/2014

4.64 4.62 4.57

Current Soybean Futures

Source: CME Group, 3/5/2014

2013/14 Crop Prices

2014/15 Crop Margins

Extension and Outreach/Department of EconomicsSource: droughtmonitor.unl.edu

Extension and Outreach/Department of EconomicsSource: NOAA-CPC

3-Month Temperature Outlook

Extension and Outreach/Department of EconomicsSource: NOAA-CPC

3-Month Precipitation Outlook

Thoughts for 2014 and BeyondSupply/demand concerns

Demand rebounding? Yes, so far, so goodAcreage allocation for 2014: Where do the extra corn acres go?Markets favoring soybeans in the short term and corn longer term

2013/14

2014/15

Unofficial

2013/14

Futures

(3/5/14)

2014/15

Futures

(3/5/14)

Corn $4.50 $3.90 $4.64 $4.62

Soybeans $12.70 $9.65 $13.04 $11.47

World Corn Markets

Source: USDA

Arable Land

Farm Bill: Old vs. New Direct Payments (DP) Countercyclical

Payments (CCP) Marketing Loans (LDP) Revenue

Countercyclical Payments (ACRE)

Countercyclical Payments (PLC)

Marketing Loans (LDP) Revenue

Countercyclical Payments (ARC)

New programs, but they have strong similarities to previous programs

Two WavesFirst wave: Choice on base acreage and

yield updatingProbably occurs June-July timeframe

Second wave: Choice on farm bill programsProbably Sept-OctHarvest the crop and farm bill at the same time

Producer ChoiceHave one-time choice between:

PLC or ARC (can pick by commodity)If ARC is chosen, pick between county and

individual coverageIf individual coverage is chosen, must be taken for

all covered commodities on the farm

2014-2018 crop years

PLC vs. CCP and DP

Revenue ProgramsARC-County ARC-Individual

Benchmark revenue

5-yr OA county yield * 5-yr OA MYA price

Sum across crops of [5-yr OA (farm yield * MYA price) *crop acreage]

Actual crop revenue

County yield * Max(MYA price or loan rate)

Sum across crops of [Farm production * Max(MYA price or loan rate)] / Total planted acres of all covered crops

Revenue guarantee

86% of benchmark 86% of benchmark

Think of ARC-County as crop-by-cropThink of ARC-Individual as whole farm

Supplemental Coverage Option (SCO)An additional policy to cover “shallow losses”

Shallow loss = part of the deductible on the producer’s underlying crop insurance policy

SCO has a county-level payment trigger

Indemnities are paid when the county experiences losses greater than 14%

Premium subsidy: 65%

Starts in 2015

Can’t have ARC and SCO together

Thank you for your time!

Any questions?

My web site:http://www.econ.iastate.edu/~chart/

Iowa Farm Outlook:http://www.econ.iastate.edu/ifo/

Ag Decision Maker:http://www.extension.iastate.edu/agdm/

Ag Cycles, Current Crop Markets and the Farm Bill

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