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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
Source: Johnson, ISU Extension, March 2014
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: Johnson, ISU Extension, March 2014
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
2003-07 Average High
$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
2003-07 Average High
$6.10
2013 Average
High $12.66
2008-12 Average High
$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
Source: Johnson, ISU Extension, March 2014
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
Source: www.farmdocdaily.illinois.edu, March 6, 2014
Corn65 Acres
Soybeans35 Acres
Reallocation Example #1Can be requested at ARC/PLC
Sign-up
Source: www.farmdocdaily.illinois.edu, March 6, 2014
Base Acreage ReallocationExample #2
Source: www.farmdocdaily.illinois.edu, March 6, 2014
Corn75 Acres
Soybeans25 Acres
Reallocation Example #2Can be requested at ARC/PLC
Sign-up
Source: www.farmdocdaily.illinois.edu, March 6, 2014
Comparing ARC Average Prices vs. PLC Reference Prices
Price Loss Coverage(PLC)
Corn = $3.70/bu.Soybeans = $8.40/bu.
Price Loss Coverage(PLC)
Corn = $3.70/bu.Soybeans = $8.40/bu.
ARC 5-yr. OA MYA Prices
Corn = $5.30/bu.Soybeans = $12.17/bu.
ARC 5-yr. OA MYA Prices
Corn = $5.30/bu.Soybeans = $12.17/bu.
Source: www.farmdocdaily.illinois.edu, Feb. 20, 2014
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
Source: www.farmdocdaily.illinois.edu, Feb. 20, 2014
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
Source: www.farmdocdaily.illinois.edu, Feb. 20, 2014
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
Revenue Guarantee $575
Notes: McLean County, IL actual soybean yields. Revenue Guarantee equals 86% of Benchmark.
2014 Reference PriceSoybeans
Source: www.farmdocdaily.illinois.edu, Feb. 20, 2014
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
Source: www.farmdocdaily.illinois.edu, Feb. 20, 2014
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
Revenue Guarantee $663
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
Source: www.farmdocdaily.illinois.edu, Feb. 20, 2014
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
Source: www.farmdocdaily.illinois.edu, Feb. 20, 2014
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
Source: www.farmdocdaily.illinois.edu, Feb. 20, 2014
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
Source: www.farmdocdaily.illinois.edu, Feb. 20, 2014
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
Source: Johnson, ISU Extension, March 2014