A1258586791ZqXGV

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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 chart_at_iastate.edu 515-294-9911
2
U.S. Corn Supply and Use
574
-638
-686
3.90
Source USDA-WAOB, Feb. 2009
3
U.S. Soybean Supply and Use
-35
50
9.00
9.25
0.25
Source USDA-WAOB, Feb. 2009
4
Drought in South America
Source USDA-WAOB, Feb. 2009
5
Argentine Drought Impacts (Early Reports)
2007 Production Corn 20.9 million
tons Soybeans 46.2 million tons January 2009
USDA Estimates Corn 16.5 million
tons -21 Soybeans 49.5 million
tons 7 Current USDA Estimates Corn 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
Source Dow Jones Newswires
6
Chinese Corn Production
Source USDA-WAOB, Jan. 2009
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Soybeans in China
Source USDA-PSD, Jan. 2009
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Livestock Adjustments
Sows farrowing Sept-Nov 2008 2.99 million,
down 6 from last year Dec-Feb 2009 2.97
million, down 3 from last year Mar-May 2009
3.01 million, down 2 from last
year Broiler-type eggs set 203 million, down
7 from last year Broiler chicks placed 166
million, down 6 from last year Feedlot
placements 2.02 million, down 5 from last year
Sources Various USDA-NASS reports
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Ethanol Margins
Source ISU, CARD
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Biodiesel Margins
Source ISU, CARD
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Renewable Fuels Standard (RFS)
Crop Year Billion Bushels
2008 3.57
2009 4.11
2010 4.43
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U.S. Blended Motor Gasoline Consumption
Source Energy Information Administration
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Outside Influences (Jan. 2007 1)
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Outside Influences (Sept. 2008 1)
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Corn Soybean Area
Growth rate of 1.55 million acres per year
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CRP Expiring Contracts
Source USDA-FSA
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Input Costs
Source USDA, Agricultural Prices, Jan. 2009
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Ammonia Prices
Source http//www.fertilizerworks.com/html/market
/ TheMarket.pdf
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Iowa Corn Prices vs. Costs
Source USDA-NASS and Duffy and Smith,
http//www.extension.iastate.edu/agdm/crops/pdf/a
1-21.pdf
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Iowa Soybean Prices vs. Costs
Source USDA-NASS and Duffy and Smith,
http//www.extension.iastate.edu/agdm/crops/pdf/a
1-21.pdf
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Estimates for 2009 Iowa Costs
Non-land Cost Land Cost Total Cost Expected Yield Cost per Bushel
(/acre) (/acre) (/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.ias
tate.edu/agdm/crops/pdf/a1-20.pdf
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Exchange Rates (Jan. 2003 1)
Source USDA, ERS
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Exchange Rates (Jan. 2003 1)
Source USDA, ERS
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2007 World Corn Exports
Drought issues for 2008 crops
Source USDA, FAS
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2007 World Soybean Exports
Drought issues for 2008 crops
Source USDA, FAS
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Pace of Corn Export Sales
Source USDA, FAS
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2008 U.S. Corn Exports
Source USDA, FAS
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Pace of Soybean Export Sales
Source USDA, FAS
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2008 U.S. Soybean Exports
Source USDA, FAS
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U.S. Stocks-to-Use Ratios
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World Stocks-to-Use Ratios
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Finishing Out the 2008 Crop Year

• General economic conditions
• A lot of recent market trade has been tied to
  reaction to the financial crisis and the worlds
  response
• Economic 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

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Thoughts for 2009 and Beyond

• Many of the storylines from 2008 will continue
• Tight stocks for corn (worldwide) and soybeans
  (U.S.)
• The competition for acreage
• Ethanols buildout livestocks adjustment
• Energy price general economy concerns
• Market volatility will remain high
• Link to the energy markets
• More 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

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Average Crop Revenue Election (ACRE)

• ACRE is a revenue-based counter-cyclical payment
  program
• Based 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)

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Farmer Choice

• Starting in 2009, producers will be given the
  option of choosing ACRE or not
• Can choose to start ACRE in 2009, 2010, or beyond
• Once youre in ACRE, you stay in ACRE until the
  next farm bill
• If you sign up for ACRE, you must do so for all
  eligible crops
• Deadline for sign-up, June 1 of each year
• Producers choosing ACRE agree to 20 decline in
  direct payments and 30 decline in loan rates

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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

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Loan Rates under ACRE
Corn 1.365 Soybeans 3.50
Current Loan Rates
Corn 1.95 Soybeans 5.00
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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.
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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

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ACRE Set-up for Iowa Soybeans
Year 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 USDAs 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.
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ACRE Structure

• ACRE revenue guarantee 90 ACRE price
  guarantee Expected state yield
• For 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

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ACRE Structure

• ACRE Farm revenue trigger Expected farm yield
  ACRE price guarantee Producer-paid crop
  insurance premium
• Lets 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

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ACRE Payment Triggers

• ACRE 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

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ACRE Payments

• Payment 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

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ACRE Payment Timing

• Payments can begin as soon as practicable
  possible after the end of the marketing year
• So 2009 ACRE payments could start to be paid out
  in October 2010
• There are no provisions for advance payments

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ACRE vs. CCP
CCP pays out
No CCP payments
No ACRE payments
ACRE pays out
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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/bu
• Average of 2007 and 2008 season-average prices
• ACRE Revenue Guarantee 438.21
• 90 9.68/bu 50.3 bu/acre
• ACRE Farm Revenue Guarantee 552.40
• 9.68 55 bu/acre 20/acre

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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

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Example (continued)

• State Trigger
• ACRE Revenue Guarantee 438.21
• ACRE Actual Revenue 405.00
• So weve met the state trigger

• Farm Trigger
• ACRE Farm Revenue Guarantee 552.40
• ACRE Farm Actual Revenue 495.00
• So weve met the farm trigger

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Example (continued)

• ACRE Payment 30.25
• Min(25438.21, 438.21 405.00)
• (55 bu/acre / 50.3 bu/acre)
• 83.3

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Looking Beyond 2009

• The ACRE revenue guarantee is updated each year
  using the same rules
• 5 year Olympic average for yields
• 2 year average for prices
• But the ACRE revenue guarantee can not change by
  more than 10 percent (up or down) from year to
  year
• So if the 2009 ACRE revenue guarantee is 438.21,
  then the 2010 ACRE revenue guarantee must be
  between 394.39 and 482.03

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Farmers Choice

• In 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

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Comparing Program Parameters

• For Iowa Soybeans
• Under the current CCP program
• CCP Yield Average 38.5 bushels per acre
• CCP Effective Target Price 5.36/bushel
• In our example, for ACRE
• ACRE Yield Guarantee 50.3 bushels per acre
• ACRE Price Guarantee 9.68/bushel
• 20 of average Iowa soybean direct payment
  3.14 per acre

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You Dont Have to Decide Today

• ACRE signup will not be for a while, probably
  starting in April
• Once 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/

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Thank you for your time!Any questions?My
web sitehttp//www.econ.iastate.edu/faculty/hart
/Iowa Farm Outlookhttp//www.econ.iastate.edu/
outreach/agriculture/periodicals/ifo/Ag
Decision Makerhttp//www.extension.iastate.edu/a
gdm/