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Crop Outlook and ACRE. CFNB Annual Crop Insurance Update Meeting Storm Lake, Iowa February 19, 2009 Chad Hart Assistant Professor/Grain Markets Specialist [email protected] 515-294-9911. U.S. Corn Supply and Use. +574. -638. -686. $3.90. Source: USDA-WAOB, Feb. 2009. - PowerPoint PPT Presentation
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Department of Economics
Crop Outlook and ACRE
CFNB Annual Crop Insurance Update MeetingStorm Lake, IowaFebruary 19, 2009
Chad HartAssistant Professor/Grain Markets Specialist
Department of Economics
U.S. Corn Supply and Use
Source: USDA-WAOB, Feb. 2009
$3.90
-638
-686
+574
Department of Economics
U.S. Soybean Supply and Use
Source: USDA-WAOB, Feb. 2009
-35
$9.00 $9.25
+50
+0.25
Department of EconomicsSource: USDA-WAOB, Feb. 2009
Drought in South America
Department of EconomicsSource: Dow Jones Newswires
Argentine Drought Impacts (Early Reports)2007 Production
Corn 20.9 million tonsSoybeans 46.2 million tons
January 2009 USDA EstimatesCorn 16.5 million tons -21%Soybeans 49.5 million tons +7%
Current USDA EstimatesCorn 13.5 million tons -35%Soybeans 43.8 million tons -5%
January Estimates from Buenos Aires Cereal Exchange (BACE)Corn 12.3 to 13.7 million tons -35 to -41%Soybeans 34.5 to 38.2 million tons -17 to -25%
Feb. Estimate from BACE Soy 40 million tons -13%
Department of Economics
Chinese Corn Production
Source: USDA-WAOB, Jan. 2009
Department of Economics
Soybeans in China
Source: USDA-PSD, Jan. 2009
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2000 2001 2002 2003 2004 2005 2006 2007 2008
Mill
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Production Imports
Department of EconomicsSources: Various USDA-NASS reports
Livestock Adjustments
Sows farrowing: Sept-Nov 2008 2.99 million, down 6% from last yearDec-Feb 2009 2.97 million, down 3% from last yearMar-May 2009 3.01 million, down 2% from last year
Broiler-type eggs set: 203 million, down 7% from last yearBroiler chicks placed: 166 million, down 6% from last year
Feedlot placements: 2.02 million, down 5% from last year
Department of Economics
Ethanol Margins
Source: ISU, CARD
Department of Economics
Biodiesel Margins
Source: ISU, CARD
Department of Economics
Renewable Fuels Standard (RFS)
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2009 2010 2011
Bill
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allo
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Additional Advanced Biofuels Biodiesel
Cellulosic Biofuels Conventional Biofuels
CropYear
Billion Bushels
2008 3.57
2009 4.11
2010 4.43
Department of Economics
U.S. Blended Motor Gasoline Consumption
Source: Energy Information Administration
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120
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145
Bill
ion
Ga
llons
Actual Feb. Proj. July Proj. Dec. Proj.
Department of Economics
Outside Influences (Jan. 2007 = 1)
0.5
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/3/2
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Dow Oil Corn Soybeans
Department of Economics
Outside Influences (Sept. 2008 = 1)
0.30
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0.90
1.009
/2/2
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Dow Oil Corn Soybeans
Department of Economics
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1990
1992
1994
1996
1998
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2002
2004
2006
2008
Mill
ion
acr
es
Corn & Soybean AreaGrowth rate of 1.55 million acres per year
Department of Economics
CRP Expiring Contracts
Source: USDA-FSA
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1
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2007 2008 2009 2010 2011 2012 2013
Mill
ion
acr
es
Department of Economics
Input Costs
Source: USDA, Agricultural Prices, Jan. 2009
Department of Economics
Ammonia Prices
Source: http://www.fertilizerworks.com/html/market/TheMarket.pdf
Department of Economics
Iowa Corn Prices vs. Costs
Source: USDA-NASS and Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf
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1.00
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$ pe
r B
ushe
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Season-average Price Cost
Department of Economics
Iowa Soybean Prices vs. Costs
Source: USDA-NASS and Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf
0.00
2.00
4.00
6.00
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$ pe
r B
ushe
l
Season-average Price Cost
Department of Economics
Estimates for 2009 Iowa Costs
Non-land
Cost
Land Cost
Total Cost
Expected Yield
Cost per Bushel
($/acre) (bu/acre) ($/bu)
Corn
486.61 205.00 691.61 160 4.32
Soybean
285.60 205.00 490.60 50 9.81
December 2009 Corn Futures = $3.875 (2/18/09)November 2009 Soy Futures = $8.3575 (2/18/09)
Source: Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-20.pdf
Department of Economics
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
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Jan-
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Apr
-03
Jul-0
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-03
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Canada Mexico Brazil EU
China South Korea Japan Australia
Exchange Rates (Jan. 2003 = 1)
Source: USDA, ERS
Department of Economics
0.6
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Canada Mexico Brazil EU
China South Korea Japan Australia
Exchange Rates (Jan. 2003 = 1)
Source: USDA, ERS
Department of Economics
2007 World Corn Exports
Source: USDA, FAS
U.S.65%
Other12%
Argentina16%
Brazil7%
Drought issuesfor 2008 crops
Department of Economics
2007 World Soybean Exports
Source: USDA, FAS
Other5%
U.S.40%
Paraguay6%
Brazil32%
Argentina17%
Drought issuesfor 2008 crops
Department of Economics
Pace of Corn Export Sales
Source: USDA, FAS
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Week
2006 2007 2008
Department of Economics
2008 U.S. Corn Exports
Source: USDA, FAS
Taiwan7%
South Korea9%
Other27%
Mexico19%
Japan38%
Department of Economics
Pace of Soybean Export Sales
Source: USDA, FAS
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Week
2006 2007 2008
Department of Economics
2008 U.S. Soybean Exports
Source: USDA, FAS
Japan6%
Mexico7%
Other17%
EU9%
China61%
Department of Economics
U.S. Stocks-to-Use Ratios
0%
5%
10%
15%
20%
25%
30%
Corn Soybeans Corn - Avg. 1990-2006 Soy - Avg. 1990-2006
Department of Economics
World Stocks-to-Use Ratios
0%
5%
10%
15%
20%
25%
Corn Soybeans Corn - Avg. 1990-2006 Soy - Avg. 1990-2006
Department of Economics
Finishing Out the 2008 Crop YearGeneral economic conditions
A lot of recent market trade has been tied to reaction to the financial crisis and the world’s responseEconomic slowdown raises concern about export and energy demand
Most important ag. statistic: Exchange rates or South American production
Current futures are indicating 2008 season-average prices of $3.75-4.25 for corn and $8.75-9.25 for soybeans
Stress on South American crops has provided some support for prices
Department of Economics
Thoughts for 2009 and BeyondMany of the storylines from 2008 will continue
Tight stocks for corn (worldwide) and soybeans (U.S.)The competition for acreageEthanol’s buildout & livestock’s adjustmentEnergy price & general economy concerns
Market volatility will remain highLink to the energy marketsMore market players with different trading objectives
Given current factors, the 2009 outlook is for crop prices around $3.75 for corn and $8.00-8.25 for soybeans
Key factor: Economic growth returns by mid 2010
Department of Economics
Average Crop Revenue Election (ACRE)
ACRE is a revenue-based counter-cyclical payment programBased on state and farm-level yields per planted acre
and national prices
Producers choose between the current price-based counter-cyclical payment (CCP) program and ACRE
There are still some details to be worked out about ACRE (stay tuned)
Department of Economics
Farmer Choice Starting in 2009, producers will be given the
option of choosing ACRE or notCan choose to start ACRE in 2009, 2010, or beyondOnce you’re in ACRE, you stay in ACRE until the next
farm bill If you sign up for ACRE, you must do so for all eligible
cropsDeadline for sign-up, June 1 of each year
Producers choosing ACRE agree to 20% decline in direct payments and 30% decline in loan rates
Department of Economics
ACRE Settings
ACRE is based on planted acres
Total acres eligible for ACRE payments limited to total number of base acres on the farm
Farmers may choose which planted acres are enrolled in ACRE when total base area is exceeded
Department of Economics
Loan Rates under ACRE
Corn $1.365 Soybeans $3.50
Current Loan Rates
Corn $1.95 Soybeans $5.00
Department of Economics
Average Direct Payments Per Payment Acre for Iowa
Crop Current Program
ACRE Difference
Corn 32.51 26.01 6.50
Soybeans 15.71 12.57 3.14
Please note the 83.3 or 85% rule has not been yet to these payments.
Department of Economics
ACRE Program has state and farm trigger levels, both
must be met before payments are made
Expected state and farm yield based on 5 year Olympic average yields per planted acre
ACRE price guarantee is the 2 year average of the national season-average price
Department of Economics
ACRE Set-up for Iowa SoybeansYear Yield per Planted Acre
(bu./acre)
2004 48.8
2005 52.2
2006 50.3
2007 51.9
2008 45.6
Olympic Average 50.3
Year Season-average Price ($/bu.)
2007 10.10
2008 9.25
Average 9.68
The 2008 yield and price are USDA’s February 2009 estimates.
So the expected state yield would be 50.3 bushels per acre and the ACRE price guarantee would be $9.68 per bushel.
Department of Economics
ACRE StructureACRE revenue guarantee = 90% * ACRE
price guarantee * Expected state yieldFor our example, the ACRE revenue guarantee is
90% * $9.68/bu. * 50.3 bu./acre
$438.21/acre
ACRE actual revenue = Max(Season-average price, Loan rate) * Actual state yield per planted acre
Department of Economics
ACRE StructureACRE Farm revenue trigger = Expected
farm yield * ACRE price guarantee + Producer-paid crop insurance premiumLet’s assume farm yields equal to state yields
and use the average producer-paid crop insurance premium for 2008
50.3 bu./acre * $9.68/bu. + $17.58/acre
$504.48/acre
Department of Economics
ACRE Payment TriggersACRE actual farm revenue = Max(Season-
average price, Loan rate) * Actual farm yield per planted acre
Given our example, ACRE payments are triggered when ACRE actual revenue is below $438.21/acre and ACRE actual farm revenue is below $504.48/acre
Department of Economics
ACRE PaymentsPayment rate = Min(ACRE revenue
guarantee – ACRE actual revenue, 25% * ACRE revenue guarantee)
Payments made on 83.3% of planted/base acres in 2009-11, 85% in 2012
ACRE payment adjustment: Payment multiplied by ratio of Expected farm yield to Expected state yield
Department of Economics
ACRE Payment TimingPayments can begin as soon as practicable
possible after the end of the marketing yearSo 2009 ACRE payments could start to be paid
out in October 2010There are no provisions for advance payments
Department of Economics
0
20
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5 6 7 8 9 10 11 12 13 14 15 16 17 18
$ per bushel
Bu
sh
els
pe
r p
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ac
re
ACRE vs. CCP
ACRE pays out
No ACRE payments
CCP pays out
No CCP payments
Department of Economics
An Example for 2009 To start, we need the expected state and farm
yields and the ACRE price guarantee
Expected state yield 50.3 bu/acre Expected farm yield 55.0 bu/acre
2004-08 Olympic average of yields per planted acre
ACRE price guarantee $9.68/buAverage of 2007 and 2008 season-average prices
ACRE Revenue Guarantee $438.2190% * $9.68/bu * 50.3 bu/acre
ACRE Farm Revenue Guarantee $552.40$9.68 * 55 bu/acre + $20/acre
Department of Economics
Example (continued) For 2009, we need the actual state yield, the
actual farm yield , and the season-average price
Actual state yield 45 bu/acre Actual farm yield 55 bu/acre Season-Average Price $9.00/bu
ACRE Actual Revenue $405.00$9.00/bu * 45 bu/acre
ACRE Farm Actual Revenue $495.00$9.00/bu * 55 bu/acre
Department of Economics
Example (continued)State Trigger
ACRE Revenue Guarantee $438.21ACRE Actual Revenue $405.00
So we’ve met the state trigger
Farm TriggerACRE Farm Revenue Guarantee $552.40ACRE Farm Actual Revenue $495.00
So we’ve met the farm trigger
Department of Economics
Example (continued)
ACRE Payment $30.25Min(25%*$438.21, $438.21 – $405.00)
* (55 bu/acre / 50.3 bu/acre)
* 83.3%
Department of Economics
Looking Beyond 2009The ACRE revenue guarantee is updated each
year using the same rules5 year Olympic average for yields2 year average for prices
But the ACRE revenue guarantee can not change by more than 10 percent (up or down) from year to yearSo if the 2009 ACRE revenue guarantee is $438.21, then
the 2010 ACRE revenue guarantee must be between $394.39 and $482.03
Department of Economics
Farmer’s ChoiceIn deciding about ACRE, farmers must
weigh:
The loss of 20% of their direct payments, a 30% drop in the marketing loan rate, and no access to CCP payments versus
The potential for payments under ACRE
Department of Economics
Comparing Program ParametersFor Iowa Soybeans
Under the current CCP programCCP Yield Average = 38.5 bushels per acreCCP Effective Target Price = $5.36/bushel
In our example, for ACREACRE Yield Guarantee = 50.3 bushels per acreACRE Price Guarantee = $9.68/bushel
20% of average Iowa soybean direct payment = $3.14 per acre
Department of Economics
You Don’t Have to Decide TodayACRE signup will not be for a while,
probably starting in AprilOnce the ACRE rules are finalized, there
will be a number of decision tools available to help producers
Preliminary ACRE information and tools are available at:
http://www.extension.iastate.edu/agdm/crops/html/a1-45.html
http://www.card.iastate.edu/ag_risk_tools/acre/
Department of Economics
Thank you for your time!
Any questions?
My web site:http://www.econ.iastate.edu/faculty/hart/
Iowa Farm Outlook:http://www.econ.iastate.edu/outreach/agriculture/periodicals/ifo/
Ag Decision Maker:http://www.extension.iastate.edu/agdm/