Managing Crop Margins
Craig A. Chase
Farm Management Field Specialist
Presentation Objectives
• Review of 2009 – Costs and Marketing
• Preview of 2010 – Costs and Marketing
• Review of various decision tools
U.S. Corn Supply & Demand
2007
2008
2009
Area Planted
(mil. acres)
93.5
86.0
86.4
Yield
(bu./acre)
150.7
153.9
164.2
Production
(mil. bu.)
13,038
12,101
13,018
Beg. Stocks
(mil. bu.)
1,304
1,624
1,674
Imports
(mil. bu.)
20
15
10
Total Supply
(mil. bu.)
14,362
13,740
14,702
Feed & Residual
(mil. bu.)
5,913
5,250
5,400
Ethanol
(mil. bu.)
3,049
3,650
4,200
Food, Seed, & Other
(mil. bu.)
1,338
1,276
1,280
Exports
(mil. bu.)
2,437
1,858
2,150
Total Use
(mil. bu.)
12,737
12,065
13,030
Ending Stocks
(mil. bu.)
1,624
1,674
1,672
Season-Average Price
($/bu.)
$4.20
$4.06
$3.35
Source: WASDE, Updated Oct. 9th, 2009
Corn Cash Price & Probability Forecast
’09-’10 Marketing Year
Based on 86.4 M
planted acres
and 166 bu/A
avg. yield
$3.25/bu
60%
$3.75/bu
15%
$3.10/bu
25%
Source: Wisner, ISU Biofuels Economist, Oct. 9th, 2009
Corn Basis
U.S. Soybean Supply & Demand
2007
2008
2009
Area Planted
(mil. acres)
64.7
75.7
77.5
Yield
(bu./acre)
41.7
39.6
42.4
Production
(mil. bu.)
2,677
2,959
3250
Beg. Stocks
(mil. bu.)
574
205
138
Imports
(mil. bu.)
10
15
10
Total Supply
(mil. bu.)
3,261
3,187
3,398
Crush
(mil. bu.)
1,803
1,662
1,690
Seed & Residual
(mil. bu.)
93
106
173
Exports
(mil. bu.)
1,159
1,280
1,305
Total Use
(mil. bu.)
3,056
3,049
3,169
Ending Stocks
(mil. bu.)
205
138
230
Season-Average Price
($/bu.)
$10.10
$9.97
$9.00
Source: WASDE, Updated Oct. 9th, 2009
Soybean Cash Price & Probability Forecast
’09-’10 Marketing Year
Based on 77.5 M
planted acres
and 43.3 bu/A
avg. yield
$8.95/bu
50%
$10.50/bu
30%
$8.50/bu
20%
Source: Wisner, ISU Biofuels Economist, Oct.9th, 2009
Soybean Basis
Storage Opportunities
Corn Storage Costs
.89
.69
.49
.30
.56
.44
.32
.20
Assumption: Corn is Valued
at $3.50/bu - Financed @ 7% APR
Corn Futures Carry
Oct. 30th, 2009
Dec. 2009
$3.66
Sep $4.04
July $3.96
May $3.88
Mar $3.79
Carry through
July: is it large
enough?
Source: www.cbot.com November 2009.
Soybean Storage Costs
1.00
.70
.40
.69
.49
.29
.10
Assumption: Soybeans are Valued
at $9.50/bu - Financed @ 7% APR
Soybean Futures Carry
Nov. 2009
$9.78
Oct 30, 2009
Sep $9.63
Jul $9.73
May $9.70
Mar. $9.75
No carry, difficult
to justify storage
Source: www.cbot.com November 2009.
2010 Opportunities
Corn Cash Price & Probability Forecast
’10-’11 Marketing Year
Based on 88 M
planted acres
and 159 bu/A
avg. yield
$3.75/bu
65%
$4.40/bu
18%
$3.55/bu
17%
Source: Wisner, ISU Biofuels Economist, Oct. 9th, 2009
December 2010 Corn Futures
Soybean Cash Price & Probability Forecast
’010-’11 Marketing Year
Based on 76.2 M
planted acres
and 43.1 bu/A
avg. yield
$8.25/bu
65%
$10.30/bu
18%
$7.50/bu
17%
Source: Wisner, ISU Biofuels Economist, Oct. 9th, 2009
November 2010 Soybean Futures
Tools for Evaluation
Crop Rotation Calculator
http://www.extension.iastate.edu/agdm/crops/xls/a1-80rotationprofitabilitycalculator.xls
Corn Nitrogen Rate Calculator
http://extension.agron.iastate.edu/soilfertility/nrate.aspx
Machinery Economics
http://www.farmdoc.uiuc.edu/pubs/FASTtool.asp?section=FAST
Flexible Rent Calculator
http://www.extension.iastate.edu/agdm/wholefarm/xls/c2-21flexiblerentanalysis.xls
Crop
Rotation
Calculator
With and
without
Nitrogen
Optimizer
http://www.extension.iastate.edu/agdm/crops/xls/a1-80rotationprofitabilitycalculator.xls
Decision #1
• What should the crop rotation be?
• What are the choices?
• Are there alternative or specialty crops
that are more profitable and that would
fit into a rotation?
http://extension.agron.iastate.edu/soilfertility/nrate.aspx
Corn after SB
$3.75 price
$.40 N
123 pounds
Corn on Corn
$3.75 price
$.40 N
175 pounds
Decision #2
• What should the fertility program look
like?
• Can fertility costs be lowered without
affecting yields? (over 1/3 of non-land
production cost is from fertility).
Machinery costs
Fixed costs
Variable costs
Depreciation
Repairs
Interest
Labor
Storage
Fuel
Insurance
http://www.farmdoc.uiuc.edu/pubs/FASTtool.asp?section=FAST
Decision #3
• Does the machinery “fit” the operation ?
(not too big or too little)
• Do the custom rate charges reflect the
costs of the machinery?
• Are there some machinery costs that
can be re-evaluated (field operations)?
Tenants’ Residual
Computing
a Cropland
Cash Rental
Rate
http://www.extension.iastate.edu/agdm/wholefarm/xls/c2-20croplandcashrent.xls
Flexible
Cash Lease
Decision #4
• Does the lease terms provide for some
profitability?
• Can I re-negotiate the lease or move it
toward a flexible terms lease?
Crop Insurance
http://www.farmdoc.uiuc.e
du/cropins/index.asp
Decision #5
• Determine the right insurance product
to meet your risk management needs.
• Make sure you have enough insurance,
but are not “over-insured”.
– Look at what the insurance product does
compared to the farm marketing plan.
Risk Management Web Sites
• Ag Decision Maker – ISU Extension Economics
www.extension.iastate.edu/agdm
• Farm Doc – U of IL Extension Economics
www.farmdoc.uiuc.edu
• Center for Farm Financial Management – U of MN
www.cffm.umn.edu
ISU Crop Marketing Web Sites
• Corn and Soybean Basis (State and County)
www.card.iastate.edu/ag_risk_tools
• Ag Econ Periodicals, Publications and Programs
www.econ.iastate.edu/outreach/agriculture/
• Ag Decision Maker (Crop Updates/ Publications
Decision Tools)
http://www.extension.iastate.edu/agdm
Questions…..
Any questions or comments?
Thank You for This Opportunity!
Craig A. Chase
Farm Management Field Specialist
115 9th Street NE
Oelwein, IA 50662
(319) 238-2997
cchase@iastate.edu