March 5, 2014
Steven D. Johnson
Farm & Ag Business Management Specialist
(515) 957-5790
sdjohns@iastate.edu
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.
U.S. Net Farm Income Trends
* - Forecast
Source: USDA Economic Research Service, November 2013
U.S. Farm Debt-to-Asset Ratio
* - Forecast
Source: USDA Economic Research Service, November 2013
Fig 10
2014 U.S. Planted Acre Forecast
Crop
2008
2009
2010
2011
2012
2013
2014F
Percent
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%
9.5
9.1
11.0
14.7
12.3
10.4
11.5
10.5%
15.8
13.6
11.4
10.5
12.6
14.6
12.4
-14.8%
3.0
3.1
3.6
2.7
2.7
2.5
2.9
16.5%
253.1
248.9
245.2
249.4
257.7
255.5
253.8
-0.7%
34.6
33.7
31.3
31.1
29.5
26.8
26.0
-3.1%
287.7
282.6
276.5
280.5
287.2
282.3
279.8
-0.9%
All cotton
Minor feed
grains
Rice
Total 8
crops
CRP
8 crops +
CRP
Source: USDA World Outlook Board, February 2014
Crop Prices to Decline from Record Highs
Fig 11
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.
Source: USDA NASS, WASDE and World Outlook Board, February 2014
Crop Risk Management Goals & Strategies
Utilize Revenue
Crop Insurance
Coverage, PreHarvest Marketing
& Enrolling in ARC
Learn to Use a
Variety of Crop
Marketing Tools;
Implement
Written Plans
Reconsider 2015
Know Your
Fixed Farm
Costs; Be
Leases; Consider
Shrewd in
Flexible Cash
Making Input
Leases
Decisions
Invest Wisely in Operational Excellence:
Be a Low-Cost Producer
Source: Johnson, ISU Extension, March 2014
Iowa Land Value & Cash Rental Rate Trends
2013 Averages
Cash Rent: $270/A
3.10%
Land Value: $8716/A
Source: Duffy & Edwards, ISU Extension Economics, May/December 2013
Source: http://droughtmonitor.unl.edu/, March 11, 2014
El Niño (ENSO) Neutral until Spring
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.
Source: www.bom.gov.au/climate/enso/, March 11, 2014
Elwynn Taylor’s 2014 Risk Wheel
La Niña Summer = 70% risk of
below trendline corn yield
Neutral Summer = 53% risk of
above 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)
Iowa
IA
GRIP/GRP 1%
YP
3%
RPHPE
1%
RP
95%
IL
8%
3%
3%
86%
Illinois
Source: USDA Risk Management Agency, October 2013
Soybean Insurance Coverage (2013)
Revenue Protection = 87% of Insured Acres (Illinois)
vs. 95% (Iowa)
Iowa
IA
GRIP/GRP 1%
YP
3%
RPHPE
1%
RP
95%
IL
6%
4%
3%
87%
Illinois
Source: USDA Risk Management Agency, October 2013
Marketing Revenue Protection (RP)
Guaranteed Insurance Bushels
Source: Johnson, ISU Extension, February 2014
2014 Crop Insurance Decisions
Unit
Coverage?
(Basic, Optional
or Enterprise)?
Trend-Adjusted
APH Yield
Endorsement ?
Supplemental:
Hail, Wind & Green
Snap, Total Weather
or Varying
Projected Price?
Deductible?
Revenue Protection – RP
(65%-85% Levels)
2014 Projected Prices: Corn = $4.62/bu, Soybeans= $11.36/bu
Source: Johnson, ISU Extension, March 2014
Delivery of Corn Bushels with Revenue
Protection (RP)
Marketing Strategy
180 Bu/A
Actual
Production
History
(APH)
Deductible
15% = 27 Bu/A
• Pre-Harvest Sell for
Delivery up to 153
Bu/A
RP @ 85% Level
of Coverage
153 Bu/A
Guarantee X
$4.62/bu
Projected Price
• Price Guarantee is
Higher of the
Projected Price vs.
Harvest Price
= $707/A Revenue
Guarantee
• Slight Basis Risk
• Must Plant the Crop
(Prevented Planting = 60%)
Source: Johnson, ISU Extension, March 2014
Corn Insurance Prices vs. Seasonal Highs
Source: USDA Risk Management Agency & CME Group, Nov. 2013
December Corn Futures Seasonals
2003-07
Average High
$2.92
2008-12
Average High
$5.90
2013 High
$5.93
Source: www.cmegroup.com, October 2013
Soybean Insurance Prices vs. Seasonal Highs
Source: USDA Risk Management Agency & CME Group, Nov. 2013
November Soybean Futures Seasonals
2013
Average
High $12.66
2003-07
Average High
$6.10
2008-12
Average High
$11.14
Source: www.cmegroup.com, October 2013
Strategies for Marketing 2014 Crop
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.
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
(5 years: 2014-18)
Marketing Loan National Rates:
$1.95/bu Corn
$5.00/bu Soybeans
Source: The Agricultural Act of 2014, February 2014
New 5-Year Farm Program
Implementation Plan Proposed
Agricultural
Act of 2014
Conservation
Programs
(EQIP & CSP)
Livestock
Commodity
Disaster
Crop Program
Assistance
Education
Program
Commodity
Crop Rules
and
Regulations
Released Commodity
Crop
Program
Sign-up
2014
JAN
2015
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
JAN
FEB
Source: Secretary of Ag Vilsack, February 28, 2014
FSA Commodity Crop Enrollment Decisions
County ARC
85% 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.
PLC
85% of base acres, Price
only Trigger = $3.70/bu
corn, $8.40/bu soybean
reference prices
Base acres can be
reallocated using 2009-12,
but can’t exceed farm’s total
historic base.
Enrollment at FSA:
Summer/Fall - Base and/or
Yield updates; Winter - ARC
or PLC sign-up.
One-time choice
(irrevocable) by FSA farm
number (need both operator
and landlord signatures).
If a farm fails to enroll in
either ARC or PLC in 2014,
then PLC serves at the
default for 2015 through
2018.
Source: www.farmdocdaily.illinois.edu, Feb. 12, 2014
Reallocating Base Acreage
Farm Historic: 100 Total Base Acres
Corn
Soybeans
50 Acres 50 Acres
Source: www.farmdocdaily.illinois.edu, March 6, 2014
Base Acreage Reallocation
Example #1
Corn
Soybeans
Total
Source: www.farmdocdaily.illinois.edu, March 6, 2014
Reallocation Example #1
Can be requested at ARC/PLC Sign-up
Corn
65 Acres
Soybeans
35 Acres
Source: www.farmdocdaily.illinois.edu, March 6, 2014
Base Acreage Reallocation
Example #2
Corn
Soybeans
Total
Source: www.farmdocdaily.illinois.edu, March 6, 2014
Reallocation Example #2
Can be requested at ARC/PLC Sign-up
Corn
75 Acres
Soybeans
25 Acres
Source: www.farmdocdaily.illinois.edu, March 6, 2014
Comparing ARC Average Prices vs.
PLC Reference Prices
Agriculture Risk Coverage
(ARC)
Year
2009
2010
2011
2012
2013
Corn
$3.55
$5.18
$6.22
$6.89
$4.50
Soybeans
$ 9.59
$11.30
$12.50
$14.40
$12.70
ARC 5-yr. OA MYA Prices
Corn = $5.30/bu.
Soybeans = $12.17/bu.
Price Loss Coverage
(PLC)
Corn = $3.70/bu.
Soybeans = $8.40/bu.
Source: www.farmdocdaily.illinois.edu, Feb. 20, 2014
County ARC: Calculating Corn Revenue
Corn
2014 Reference Price
Year
Yield
2009
186.0
2010
169.5
2011
159.6
2012
109.5
2013
188.0
Yield
Benchmarks
MYA Price
$3.55
$5.18
$6.22
$6.89
$4.50
Price
171.7
$5.30
$3.70
ARC Price
$3.70
$5.18
$6.22
$6.89
$4.50
Revenue
$910
Revenue Guarantee
$783
Notes: McLean County, IL actual corn yields. Revenue Guarantee equals 86% of Benchmark.
Source: www.farmdocdaily.illinois.edu, Feb. 20, 2014
County ARC: 2014 Corn Potential Payment
Corn
2014 ARC Payment Trigger
Yield (bu./acre)
ARC Actual
2014 MYA Price
Revenue
$3.00
$540
$3.50
$630
$3.90
$702
$4.25
$765
$4.50
$810
ARC Payment
Rate
$91
$91
$81
$18
$0
$4.35
180
ARC Payment
($/base acre)
$77
$77
$69
$15
$0
Notes: The ARC Payment ($/base acre) is 85% of the ARC Payment Rate.
Source: www.farmdocdaily.illinois.edu, Feb. 20, 2014
County ARC: Calculating Soybean Revenue
Soybeans
2014 Reference Price
Year
Yield
2009
54.0
2010
58.5
2011
56.0
2012
52.3
2013
55.0
Yield
Benchmarks
55.0
MYA Price
$9.59
$11.30
$12.50
$14.40
$12.70
Price
$12.17
$8.40
ARC Price
$9.59
$11.30
$12.50
$14.40
$12.70
Revenue
$669
Revenue Guarantee
$575
Notes: McLean County, IL actual soybean yields. Revenue Guarantee equals 86% of Benchmark.
Source: www.farmdocdaily.illinois.edu, Feb. 20, 2014
County ARC: 2014 Soybean Potential
Payment
Soybeans
2014 ARC Payment Trigger
Yield (bu./acre)
ARC Actual
2014 MYA Price
Revenue
$8.25
$462
$9.00
$504
$9.65
$540
$10.50
$588
$11.25
$630
ARC Payment
Rate
$67
$67
$35
$0
$0
$10.27
56
ARC Payment
($/base acre)
$57
$57
$30
$0
$0
Notes: The ARC Payment ($/base acre) is 85% of the ARC Payment Rate.
Source: www.farmdocdaily.illinois.edu, Feb. 20, 2014
Farm ARC: 2014 Corn & Soybean Combined
Revenue Guarantee
2014 Payment Potential
2014 Payment Potential
Corn
2014 Reference Price
Year
2009
2010
2011
2012
2013
Yield
186.0
169.5
159.6
109.5
188.0
Benchmarks
Revenue Guarantee
ARC Price
$3.70
$5.18
$6.22
$6.89
$4.50
$3.70
ARC
Revenue
$688
$878
$993
$754
$846
$826
Soybeans
2014 Reference Price
Year
2009
2010
2011
2012
2013
Yield
54.0
58.5
56.0
52.3
55.0
ARC Price
$9.59
$11.30
$12.50
$14.40
$12.70
$8.40
ARC
Revenue
$518
$661
$700
$753
$699
$687
Individual
ARC Revenue
$770
$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.
Source: www.farmdocdaily.illinois.edu, Feb. 20, 2014
Farm ARC: 2014 Corn & Soybean Combined
Potential Payment
Corn
2014 Baseline Price
Yield (bu./acre)
2014 Price
$3.00
$3.50
$3.90
$4.25
$4.50
Soybeans
$3.90
180
Revenue
$540
$630
$702
$765
$810
2014 Baseline Price
Yield (bu./acre)
2014 Price
$8.25
$9.00
$9.65
$10.50
$11.25
Individual ARC
$9.65
56
Revenue
$462
$504
$540
$588
$630
Guarantee
$663
Revenue
$509
$580
$637
$694
$738
Payment
Rate
$77
$77
$26
$0
$0
$ / Base
Acre
$50
$50
$17
$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.
Source: www.farmdocdaily.illinois.edu, Feb. 20, 2014
PLC: Corn 2014 Payment Potential
Corn
2014 Reference Price
Yield (bu./acre)
MYA Price
$3.00
$3.50
$3.90
$4.25
$4.50
Payment Rate
$0.70
$0.20
$0.00
$0.00
$0.00
$3.70
146.6
PLC Payment
($/base acre)
$87.23
$24.92
$0.00
$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.
Source: www.farmdocdaily.illinois.edu, Feb. 20, 2014
PLC: Soybean 2014 Payment Potential
Soybeans
2014 Reference Price
Yield (bu./acre)
MYA Price
$8.25
$9.00
$9.65
$10.50
$11.25
Payment Rate
$0.15
$0.00
$0.00
$0.00
$0.00
$8.40
48.9
PLC Payment
($/base acre)
$6.23
$0.00
$0.00
$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.
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