Crop Risk Management January 28 th, 2010 Steven D. Johnson Farm & Ag Business Management Specialist (515) 957 5790 sdjohns@iastate.edu www.extension.iastate.edu/polk/farmmanagement.htm
Source: Johnson, ISU Extension, December 2009 Five Megatrends 1.Global Recession 2.Federal Government Borrowing 3.Decreased Meat Demand 4.Crop Price and Input Cost Volatility 5.Global Competition
World Corn Production 2009-10 Source: USDA World Agricultural Outlook Board, October 2009
World Soybean Production 2009-10 Source: USDA World Agricultural Outlook Board, October 2009
Five Farm Challenges 1. Large 2009 Crop Production 2. Corn Quality Concerns 3. Farm Financial Uncertainty 4. Increased Counter Party Risk a) Prepaying Expenses b) Contracting Outputs 5. Farm Expansion or Contraction? Source: Johnson, ISU Extension, December 2009
Production Marketing Finance Crop Risk Management Crossroads
U.S. Farm Debt to Equity Source: USDA Economic Research Service, November 2009
U.S. Net Farm Income Trends * - Forecast Source: USDA Economic Research Service, November 2009
14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 U.S. Farm Debt to Income Ratio Debt: Income Ratio 13.1 10.1 7.7 7.3 6.6 4.5 4.0 3.4 2.9 2.1 2.4 2.4 2.4 6.0 5.5 5.4 4.7 4.9 4.9 3.0 3.6 3.6 3.3 3.4 3.5 3.5 3.3 3.2 2.7 2.8 2.8 2.6 2.9 3.1 3.1 2.6 2.5 1.9 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1972 Year (1972-2008) Source: USDA Economic Research Service, January 2009 Ratio
Source: Klinefelter, Texas A & M Economist, October 2009 3 Questions Remain to be Answered 1. How soon will Net Farm Incomes Rebound? 2. What will happen to Land Values? 3. How soon and by how much will Interest Rates Increase?
Corn Yields Projections: U.S. & Iowa U.S. avg. growth, 2010-19: 2.08 bu./yr. 2019: 185.8 2010: 165.0 Source: Westhoff, FAPRI, U of MO, December 2009
Soybean Yield Projections: U.S. & Iowa U.S. avg. growth, 2010-19: 0.37 bu./yr. 2019: 47.4 2010: 43.7 Source: Westhoff, FAPRI, U of MO, December 2009
Corn Estimates through 2010-11 $4.20 $4.06 $3.60 $3.80 Source: Wisner, ISU Biofuels Economist, December 2009
Correlation of Corn to Crude Oil Source:Westhoff, FAPRI, U of MO, August 2009
Crude Oil Price Outlook Source:Westhoff, FAPRI, U of MO, August 2009
Crude Oil Chart Source: www.jimwyckoff.com, December 2009
Ethanol Plant Margins Source: ISU CARD, August 2009
Renewable Fuels Standard (RFS) 16 14 12 Billion gallons 10 8 6 4 2 Crop Year Billion Bushels 2008 3.57 2009 4.11 2010 4.43 2011 4.64 0 2009 2010 2011 Additional Advanced Biofuels Biodiesel Cellulosic Biofuels Conventional Biofuels Source: Hart, ISU Extension Economist, August, 2009
New Crop 10 Corn Chart Source: www.jimwyckoff.com, January 25, 2010
New Crop 10 Soybean Chart Source: www.jimwyckoff.com, January 25, 2010
Soybean Estimates through 2010-11 $10.10 $9.97 $9.00 $8.25 Source: Wisner, ISU Biofuels Economist, December 2009
2010 Crop Insurance Decisions Source: Johnson, ISU Extension, January 2010
2010 Crop Insurance Indemnity Prices Corn APH (Yield) Revenue 2009 $4.00 $4.04 2010 $3.90 Dec. Corn futures in the month of February Soybeans 2009 $9.90 $8.80 2010 $9.15 Nov. Soybean futures in the month of February Source: USDA Risk Management Agency, December 2009
New Crop Corn Seasonal Trend cents per bushel 300 295 290 285 280 275 270 1-Jan 1-Feb 1-Mar Chicago December Corn Futures, 1990-2009 average 1-Apr 1-May 1-Jun 1-Jul 80% Odds that Spring Price is higher than Fall 1-Aug 79% Odds: Spring Price Exceeds Harvest Price 1-Sep 265 260 1-Oct 1-Nov 1-Dec 255 approximate dates Source: www.cmegroup.com U of MN, CFFM, 2009
Source: USDA Risk Management Agency, October 2009 Corn Historical Crop Insurance Prices 75% of the Time the Spring Price is higher than Fall 2006 1993 1995 1997 2002
New Crop Soybean Seasonal Trend Chicago November Soybean Futures, 1990-2009 average cents per bushel 685 675 665 655 645 635 625 1-Jan 1-Feb 1-Mar 1-Apr 1-May 1-Jun 1-Jul 67% Odds that Spring Price is higher than Fall 79% Odds: Spring Price Exceeds Harvest Price 1-Aug 1-Sep 1-Oct 1-Nov 615 605 approximate dates Source: www.cmegroup.com U of MN, CFFM, 2009
Source: USDA Risk Management Agency, October 2009 Soybean Historical Crop Insurance Prices 60% of the Time the Spring Price is higher than Fall 2007 2009 1990 2003 1993 1995 2002 2005
Crop Revenue Insurance Coverage (with SURE) CRC or RA Coverage 170 bu/a APH 75% Level $4.00 bu/a Spring and Fall Price SURE Coverage 115% of Revenue Coverage Source: Johnson, ISU Extension, January 2010
Comparing ACRE to CCP Counter-Cyclical Payment (CCP) Nat l Cash Price below: $2.35 /bu Corn $5.56 /bu Soybeans CCP 2010 ACRE Cash Price Triggers: Corn = $3.35 /bu Soybeans = $8.55 /bu ACRE Source: Johnson, ISU Extension, January 2010
5 Crop Risk Management Strategies Use Profit to Expand Your Operation Increase Your Crop Risk Management Knowledge Focus on Mitigating Crop Risks Implement a Marketing Plan Early Utilize Crop Revenue Insurance Products Source: Johnson, ISUE Farm Mgt., Sept. 2008. Source: Johnson, ISU Extension, January 2010