Post on 18-Jan-2018
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Extension and Outreach/Department of Economics
Managing Margins in 2016 and Beyond
Crop Advantage SeriesOkoboji, IowaJan. 6, 2016
Alejandro PlastinaAssistant Professor
plastina@iastate.edu515-294-6160
Chad HartAssociate Professorchart@iastate.edu
515-294-9911
Extension and Outreach/Department of Economics
U.S. Corn Supply and Use2012 2013 2014 2015 2015 Δ
Area Planted (mil. acres) 97.3 95.4 90.6 88.4 0
Yield (bu./acre) 123.1 158.1 171.0 169.3 0Production (mil. bu.) 10,755 13,829 14,216 13,654 0Beg. Stocks (mil. bu.) 989 821 1,232 1,731 0
Imports (mil. bu.) 160 36 32 30 0Total Supply (mil. bu.) 11,904 14,686 15,479 15,415 0Feed & Residual (mil. bu.) 4,315 5,040 5,315 5,300 0Ethanol (mil. bu.) 4,641 5,124 5,209 5,200 25
Food, Seed, & Other (mil. bu.) 1,397 1,369 1,359 1,380 0Exports (mil. bu.) 730 1,920 1,864 1,750 -50Total Use (mil. bu.) 11,083 13,454 13,748 13,630 -25Ending Stocks (mil. bu.) 821 1,232 1,731 1,785 25
Season-Average Price ($/bu.) 6.89 4.46 3.70 3.65 0
Source: USDA-WAOB
Extension and Outreach/Department of Economics
U.S. Soybean Supply and Use2012 2013 2014 2015 2015 Δ
Area Planted (mil. acres) 77.2 76.8 83.3 83.2 0Yield (bu./acre) 40.0 44.0 47.5 48.3 0Production (mil. bu.) 3,042 3,358 3,927 3,981 0
Beg. Stocks (mil. bu.) 169 141 92 191 0Imports (mil. bu.) 41 72 33 30 0Total Supply (mil. bu.) 3,252 3,570 4,052 4,203 0
Crush (mil. bu.) 1,689 1,734 1,873 1,890 0Seed & Residual (mil. bu.) 105 107 145 133 0Exports (mil. bu.) 1,317 1,638 1,843 1,715 0Total Use (mil. bu.) 3,111 3,478 3,861 3,738 0
Ending Stocks (mil. bu.) 141 92 191 465 0Season-Average Price ($/bu.) 14.40 13.00 10.10 8.90 0
Source: USDA-WAOB
Extension and Outreach/Department of Economics
Corn Yield Estimate
Top: 2015 Estimated YieldsBottom: Change from last monthUnits: Bushels/acre
Source: USDA-NASS
Extension and Outreach/Department of Economics
Soybean Yield Estimate
Source: USDA-NASS
Top: 2015 Estimated YieldsBottom: Change from last monthUnits: Bushels/acre
Extension and Outreach/Department of Economics
World Corn Production
Source: USDA-WAOB
Extension and Outreach/Department of Economics
World Soybean Production
Source: USDA-WAOB
Extension and Outreach/Department of Economics
U.S. Meat Production & Prices
Source: USDA-WAOB
Extension and Outreach/Department of Economics
Corn Export Sales
Source: USDA-FAS
Extension and Outreach/Department of Economics
Soybean Export Sales
Source: USDA-FAS
Extension and Outreach/Department of Economics
Strength of the U.S. Dollar
Source: Federal Reserve
Extension and Outreach/Department of Economics
Crude Oil Prices
Sources: EIA and CME
Extension and Outreach/Department of Economics
Corn Grind for Ethanol
Extension and Outreach/Department of Economics
Current Corn Futures
Source: CME Group, 12/31/2015
3.51
3.63
3.79
Extension and Outreach/Department of Economics
Current Soybean Futures
Source: CME Group, 12/31/2015
8.56 8.40 8.47
Extension and Outreach/Department of Economics
2015/16 Crop Margins
Extension and Outreach/Department of Economics
2016/17 Crop Margins
Extension and Outreach/Department of Economics
Profitability analysis in Iowa: Rented Corn Acres
Units 2012 2013 2014 2015fa. State Yield Bu/Ac 137 164 178 189b. Iowa Farm Price $/Bu 6.92 4.49 3.70 3.65c. Crop Revenue (=axb) $/Ac 948 736 659 690d. Average Crop Insurance Payment $/Ac 123 132 83 n/ae. Income from Crop (=c+d) $/Ac 1071 868 742 690f. Average State Cash Rent $/Ac 252 270 260 246g. Average Non-land Production Cost $/Ac 517 513 495 499h. Total Production Cost (=f+g) $/Ac 769 783 755 745i. Net Farm Income from Corn (=e-h) $/Ac 302 85 -13 -55
Sources: USDA/NASS, RMA, AgDM File A1-20
Corn producers who rent need to finance these gaps with $ from other sources!
j. Net Farm Income w/o Crop Ins. (=i-d) $/Ac 179 -47 -96 -55
Extension and Outreach/Department of Economics
Net Farm Income: Corn$/Acre
Extension and Outreach/Department of Economics
Profitability analysis in Iowa: Rented Soybean Acres
Units 2012 2013 2014 2015fa. State Yield Bu/Ac 45.0 45.5 51.5 56.0b. Iowa Farm Price $/Bu 14.40 13.10 9.96 8.90c. Crop Revenue (=axb) $/Ac 648 596 513 498d. Average Crop Insurance Payment $/Ac 27 25 26 n/ae. Income from Crop (=c+d) $/Ac 675 621 539 498f. Average State Cash Rent $/Ac 252 270 260 246g. Average Non-land Production Cost $/Ac 288 272 270 275h. Total Production Cost (=f+g) $/Ac 540 542 530 521i. Net Farm Income from Soy (=e-h) $/Ac 135 79 9 -23
Sources: USDA/NASS, RMA, AgDM File A1-20
Soybean producers who rent need to finance these gaps with $ from other sources!
j. Net Farm Income w/o Crop Ins. (=i-d) $/Ac 108 54 -17 -23
Extension and Outreach/Department of Economics
Net Farm Income: Soybeans$/Acre
Extension and Outreach/Department of Economics
Profitability in Perspective: Living Expenses
How many acres (50% corn-50% soybeans) are needed to support $40,000 in living expenses?
2012 2013 2014 2015
100% Rented Acres 183 487 Not Possible!
Not Possible!
Fully Owned Acres 85 114 155 193
Half-Owned Acres 125 198 371 700
@ $7,900/acre (2015): 193 acres $1.5 mil. in land value = equity700 acres $5.5 mil. in land value = $2.8 mil. equity
Sources: USDA/NASS, RMA, AgDM File A1-20
Extension and Outreach/Department of Economics
What can happen in 2016?Corn Profits: Dollars per Rented Acre
2016 Revenue compared to 2015-10% -5% 0% +5% +10%
2016Cost of Production compared to 2015
+10% -199 -164 -130 -95 -61+5% -161 -127 -92 -58 -230% -124 -90 -55 -21 14-5% -87 -52 -18 17 51
-10% -50 -15 19 54 88
Extension and Outreach/Department of Economics
What can happen in 2016?Soybean Profits: Dollars per Rented Acre
2016 Revenue compared to 2015-10% -5% 0% +5% +10%
2016Cost of Production compared to 2015
+10% -125 -100 -75 -50 -25+5% -98 -74 -49 -24 10% -72 -48 -23 2 27-5% -46 -21 3 28 53
-10% -20 5 30 54 79
Extension and Outreach/Department of Economics
CORN SOYBEANS
Units 2015f 2016f Change 2015f 2016f Change
a. State Yield Bu/Ac 189 177 -6% 56 50 -11%
b. Iowa Farm Price $/Bu 3.65 3.79 +4% 8.90 8.47 -5%
e. Income from Crop (=axb) $/Ac 690 671 -3% 498 424 -15%
f. Average State Cash Rent $/Ac 246 239 -3% 246 239 -3%
g. Average Non-land Production Cost $/Ac 499 461 -8% 275 267 -3%
h. Total Production Cost (=f+g) $/Ac 745 700 -6% 521 506 -3%
j. Net Farm Income w/o Crop Ins. (=e-h) $/Ac -55 -29 -23 -82
Profitability analysis in Iowa: Rented Acres
Sources: USDA/NASS, RMA, AgDM File A1-20
Extension and Outreach/Department of Economics
9 Strategies to manage margins
• Major concern: cash flow / liquidity• Solvency hit, but still strong:
– Declining land values in Iowa– Declining machinery values
• Long term problem strategy for 2-3 years
Extension and Outreach/Department of Economics
Strategies:1. Protect your working capital
• Revise recent asset purchases • Revise share of rented land • Revise scale of operation and fixed costs
over next 2-3 years• Manage taxes: visit with tax advisor
– Deferred payment contracts– S179– Carry back operating losses to obtain tax refunds
Extension and Outreach/Department of Economics
Strategies:2. Avoid cash shortages
• Plan for operating losses (renters)• Secure operating loan/emergency loan terms• Be very careful with new capital expenditures• Maintain cash reserves and operating credit
lines:Cash Costs / Acre Soy after
cornCorn after
soyCorn after
cornNon-land (excl. labor) $185-$200 $320-$385 $360-$425
Land $225-$300 $225-$300 $225-$300
All Cash Costs $410-$500 $545-$685 $585-$725
Source: File A1-20, Ag Decision Maker
Extension and Outreach/Department of Economics
Strategies:3. Diversify Income
• Add or don’t lose non-farm income• Consider alternative sources of revenue with
your assets: custom work, snow removal, truck driving in fall & winter, ???
Extension and Outreach/Department of Economics
Strategies:4. Revise production costs
• Revise production plans, especially for rented land (renegotiate land rent?)
• Can you make changes that generate savings that offset reductions in revenue?
N 20 lbs per acre? Savings $10. If yield smaller than 2.7 bu/acre @ $3.65/bu, GO AHEAD! Otherwise, NO GO.
• Switch to seeds with fewer traits (+crop management)? Net savings $25/acre. If yield smaller than 6.8 bu/acre @ $3.65/bu, GO AHEAD! Otherwise, NO GO.
• Seek volume discounts in seeds, chemicals, etc.• Visit with agronomist: update your production skills, evaluate
how to control costs
Extension and Outreach/Department of Economics
Strategies:5. Actively Manage Risks
• Know your break-even prices• Design a marketing plan with price and date
targets and stick to it• Lock-in margins whenever possible• Revise crop insurance (Explore ways to
maintain protection while lowering costs)• Revise use of forward contracts & crop
insurance to finance inputs
Extension and Outreach/Department of Economics
Strategies:6. Revise family living expenses
• Revise family living expenditures:– Vacation plans– House remodeling plans– Truck purchase
193 fully owned acres to afford $40,000 in living expenses
340 fully owned acres to afford $70,000 in living expenses
Extension and Outreach/Department of Economics
Strategies:7. Secure repayment capacity
• Short repayment schedules reduce cash flow vs. long repayment schedules
• Try to extend repayment schedules on equipment & real estate loans (low interest rates)
• Work a plan with your lender(s) for 2016-2017
Extension and Outreach/Department of Economics
Strategies:8. Revise Growth Strategy
Depending on your growth stage:•Offload unproductive assets •Downsize •Slow down growth•Beginning farmers: wait to buy land•Align short term needs with long term growth goals
Extension and Outreach/Department of Economics
Strategies:9. Know your ARC/PLC Payments
• Payments vary widely across counties and programs• If any 2014 ARC-CO Payments, use to cash flow• Corn: 2015 corn yields similar to 2014 yields. ARC-CO
payments similar too.• Soy: 2015 corn yields different from 2014 yields. ARC-
CO payments different too: Higher payments for central and southern counties and lower payments for northern counties.
• No PLC payments in 2014. Small payments likely in corn base acres in 2015.
Source: Iowa Farm Bureau Federation
Extension and Outreach/Department of Economics
2015 ARC-CO Payments per Corn Base Acre2015 yields projected with CRD yields
(issued Oct 2016)
State Average:$49 per base
acre$72 $71 $70
$64 $53 $61
$39 $1 $3
Projections based on:1)2015/16 USDA Price Projection:Corn $3.652) Guaranteed Price:Corn $5.293) Projected 2015 County Yields = 2014 County Yields × 2015 CRD Yield / 2014 CRD Yield
Extension and Outreach/Department of Economics
2015 ARC-CO Payments per Soy Base Acre2015 yields projected with CRD yields
(issued Oct 2016)
State Average:$19 per base
acre$8 $2 $7
$39 $25 $29
$36 $18 $11
Projections based on:1)2015/16 USDA Price Projection:Soybeans $8.902) Guaranteed Price:Soybeans $ 12.273) Projected 2015 County Yields = 2014 County Yields × 2015 CRD Yield / 2014 CRD Yield
Extension and Outreach/Department of Economics
2015 ARC-CO Payment Calculatorhttp://www.extension.iastate.edu/agdm/info/farmbill.html
Extension and Outreach/Department of Economics
2015 PLC Payments per Corn Base Acre MYA Price $3.65 per bushel
State Average:$5 per base
acre
Projections based on:1) Payment Yields = CCP Yields
2) 2015/16 MYA Prices:Corn $ 3.65 / bushel
$5Yield 126.8 bu
$6Yield 129.5 bu
$5Yield 125.7 bu
$5Yield 114.7 bu
$5Yield 126.8 bu
$5Yield 126.3 bu
$5Yield 107.2 bu
$4Yield 99.5 bu
$5Yield 117.5 bu
Extension and Outreach/Department of Economics
2015 PLC Payments per Soy Base Acre MYA Price $8.90 per bushel
State Average:$0 per base
acre
Projections based on:1) Payment Yields = CCP Yields
2) 2015/16 USDA MYA Prices:Soybean $ 8.90 / bushel
$0Yield 40.7 bu
$0Yield 38.6 bu
$0Yield 40.6 bu
$0Yield 37.0 bu
$0Yield 39.1 bu
$0Yield 40.7 bu
$0Yield 35.5 bu
$0Yield 33.3 bu
$0Yield 35.4 bu
Extension and Outreach/Department of Economics
PLC Payment Calculatorhttp://www.extension.iastate.edu/agdm/info/farmbill.html
Extension and Outreach/Department of Economics
Summary
• Expect low to negative margins in 2016• Visit with:Agronomist – control costs?Lender – refinance, lower payments?Tax advisor – refunds from previous years?Crop insurance agent – change coverage?• Use resources @ Ag Decision Maker:
http://www.extension.iastate.edu/agdm/
Extension and Outreach/Department of Economics
Thank you for your time!
Any questions?
Ag Decision Maker:http://www.extension.iastate.edu/agdm/