2015 New Crop Marketing. Ed Kordick Iowa Farm Bureau Federation. February, Pre-harvest marketing with Revenue Protection Crop Insurance

Transcription

1 2015 New Crop Marketing Ed Kordick Iowa Farm Bureau Federation February, 2015 Objectives Get back to the basics: Understand the tools, Have a revenue perspective And realistic goals Pre-harvest marketing with Revenue Protection Crop Insurance Introduction to 2015 New Crop Iowa Commodity Challenge simulation running now until October 1

2 Corn Prices vs. Costs Sources: USDA-NASS for Prices, Dr. Duffy for Costs Soybean Prices vs. Costs Sources: USDA-NASS for Prices, Dr. Duffy for Costs 2

3 2014 Crops 2014 Crops 3

4 Price Risk Management before harvest Revenue, Margin,... not price based Common Hesitation: Bushels are not certain. What if I sell and I don t raise enough bushels? Revenue Protection crop insurance is an answer provides money to fulfill marketing plan. Revenue Protection Crop Insurance Works well with pre-harvest marketing because: Protecting the product of yield and price Revenue guarantee grows if price is higher in fall versus spring Helps with fear of not raising a good crop Money provided to fulfill contract obligations 4

5 2015 Revenue Protection & Forward Contract Example 180 bu. APH, $4.15 base price, 80% coverage Revenue Protection for $18/a. RP insurance gives the confidence to sell up to 80% of crop (APH). 180 bpa X 80% X $4.15 = $598 base guarantee 180 bu. APH X 80% = 144 bpa (bu. per acre) sell 144 $ X $3.80 $547 (assume 35 cent selling basis) Risk management in 2015, Corn Example: 180 YIELD DOWN TO YIELD UP TO APH 100 bpa 220 bpa Guarantee 598 Guarantee Revenue to Count Revenue to Count 715 PRICE = Indemnity 273 = Indemnity 0 DOWN TO - Premium 18 - Premium 18 $ Contract Revenue Contract Revenue Purchase Bushels Purchase Bushels 0 + Excess sold 0 + Excess sold 220 = Gross $/Acre 670 = Gross $/Acre 618 Guarantee 792 Guarantee Revenue to Count Revenue to Count 1210 PRICE = Indemnity 242 = Indemnity 0 UP TO - Premium 18 - Premium 18 $ Contract Revenue Contract Revenue Purchase Bushels Purchase Bushels 0 + Excess sold 0 + Excess sold 391 = Gross $/Acre 540 = Gross $/Acre 921 5

6 Revenue Protection & Forward Contract Example Yield lower: 100 bpa, price higher: $5.50 harvest New harvest guarantee = 180 bpa X 80% X $5.50 = $792 guarantee Higher than spring guarantee of $598 Revenue Protection & Forward Contract Example Yield lower: 100 bpa, price higher: $5.50 harvest New harvest guarantee = 180 bpa X 80% X $5.50 = $792 guarantee Revenue to count = $550, indemnity = $242 Sold 144 $3.80 = $547 Buy 44 $5.25 = $231 Gross revenue = $242 - $18 premium + $547 - $231 = $540 6

7 Revenue Protection Crop Insurance Works well with pre-harvest marketing because: Protecting the product of yield and price Revenue guarantee grows if price is higher in fall versus spring Helps with fear of not raising a good crop Money provided to fulfill contract obligations 2015 Crop Insurance & Pre-Harvest Marketing With Revenue Protection in place, what factors can help with the pricing decision? 7

8 Estimate Your Cost of Production Example Variable Costs $ per acre $2.17 per bushel Estimated Costs of Crop Production in Iowa Ag Decision Maker File A1-20 FM-1712 Estimate Your Cost of Production and Compare to Market Opportunities 180 bpa, 35 cent basis, $ total costs/acre, $391 variable costs/acre 8

9 Estimate Your Cost of Production Estimated Costs of Crop Production in Iowa Ag Decision Maker File A1-20 FM-1712 Example Variable Costs $ per acre $4.03 per bushel Estimate Your Cost of Production and Compare to Market Opportunities 50 bpa, 45 cent basis, $ total costs/acre, $202 variable costs/acre 9

10 2015 vs. past averages 10

11 2015 vs. past averages Risk Management before harvest Revenue, Margin... not price based Another Common Hesitation: Seller s remorse. What if I sell and the price goes higher? Plan can include scale-in sales, minimum price using options or contracts. 11

12 Marketing Alternatives Once you decide to take action, it doesn t mean that you must fix price on a huge percentage of your crop at one time! Scaling in sales or minimum pricing are alternatives. Scaling in sales or minimum pricing are alternatives 12

13 Crop Marketing Matrix 1. Store & wait 2. Delayed price contract 3. Minimum price contract (open basis) Futures Price 1. Basis contract 2. Sell Cash Bushels and Buy Futures or Call Option 3. Minimum price contract (fixed basis) Basis Basis 1. Hedge 2. Non-roll hedge to arrive 3. Buy put option Futures Price 1. Cash sale now 2. Forward Contract 2015 Crop Risk Management Use crop insurance as the building block for your 2015 risk management Pre-harvest sales still allow for market improvement hope it is your lowest price Make sure the price/minimum price works for your operation, no matter what the market does afterward 13

14 2015 Crop Risk Management Production costs remain high; Margins will be squeezed Crops and livestock Reduce revenue risk consider minimum pricing or incremental pricing. Diversify choices (tools, time) Written Plan to manage emotions Date Bushels Futures Price Basis Cash Price Why? Reason for Action 3/15/15 10, Start for risk management 4/15/15 10, Timing goal, add to sales 5/15/15 10, tbd tbd Timing goal, wait on basis Put Strike Estimated. Date Bushels or Call price Premium Basis Cash Floor Why? Reason for Action 6/16/15 10,000 P Cover most of COP 7/15/15 10,000 P Floor & upside, wait on basis 14

15 You are invited to play the 2015 New Crop Iowa Commodity Challenge simulation to experiment with marketing tools and planning. corn and soybean marketing simulation practice with cash, futures, options & forward contracts the simulation will end on October 14, New Crop Iowa Commodity Challenge simulation The plan is to market the insurance guaranteed bushels before harvest: Corn APH of 180 bpa X 600 acres = 108,000 bushels; 75% is 81,000 bu. available to market. Soybean APH of 50 bpa X 600 acres = 30,000 bushels; 75% is 22,500 bu. available to market. 15

16 Go to Click Join 16

17 Fill out the form Including password you create Click Join Click Find a Game, select the 2015 New Crop Iowa Commodity Challenge and click join 17

18 Enter the game password: IA2015NC IA2015NC 18

19 Risk Management Websites Ag Decision Maker ISU Extension Iowa Farm Bureau Federation USDA Risk Management Agency (RMA) Ag Risk Library Ed Kordick Iowa FB 515/ Iowa Commodity Challenge more info., instructions Please give feedback on webinar, short evaluation 19