1. Farm Income & Management Strategies November 13 th, 2009 Steven D. Johnson Farm & Ag Business Management Specialist (515) 957-5790 sdjohns@iastate.edu www.extension.iastate.edu/polk/farmmanagement.htm 2010 Cost of Production Estimates Year-end Income & Expense Decisions Cash Flow Marketing Strategies Managing 2010 Risks & Revenue On-Farm vs. Commercial Storage Issues

2. Presentation Objectives Review Net Farm Income Projections & Farm Financial Trends Highlight Year-end Cash Flow and Income Tax Strategies Provide 2009 Crop Price Estimates Review Grain Storage, Marketing & Cash Flow Decisions Provide 5 Strategies for Reducing Input Costs Highlight 2010 Cost of Production, Price Forecasts & Risk Management Tools Summarize 5 Strategies & 5 Websites for Managing Crop Risks & Revenue

3. U.S. Net Farm Income * - Forecast Source: USDA Economic Research Service, August 2009

4. Source: Jolly, ISU Extension Economics, September 2009

5. Source: Jolly, ISU Extension Economics, January 2009

7. 2009 Income Tax Strategies Section 179 Expense Method Depreciation – Expense up to $250,000 in 2009 – To be reduced to $134,000 (indexed) in 2010 Additional First-Year Depreciation – 50% of the basis for qualifying property Utilizing Available Deductions & Exemptions Income Tax Averaging – Elected Farm Income (EFI) averaged over prior 3 years Source: www.calt.iastate.edu

8. Percent of Cash Crops Sold by Month Source: USDA NASS, 1990-09, October 2009 Corn Sales: Fall Sales, Peak in January, level rest of year Soybeans Sales Peak in October, High in January, decreases monthly

9. $3.75/bu 18% $3.45/bu 65% $3.35/bu 17% Corn Cash Price & Probability Forecast 2009-10 Marketing Year Source: Wisner, ISU Biofuels Economist, November 2009 79.3 M Acres Harvested 162.9 Bu/A Avg. Yield

10. July$ 4.24 May $ 4.16 Mar.$ 4.06 Dec.$3.91 Corn Futures Carry Dec. 2010 $4.39 Source: www.cmegroup.com November 12 th, 2009 Good Carry into spring/summer months – utilize on- farm storage and monitor grain quality

11. Corn Basis Trends Source: www.farmprogress.com November 2009

12. Corn Storage Costs Assumption: Corn is Valued at $3.50/bu - Financed @ 7% APR.20.30.32.49.44.69.56.89 Source: Johnson, ISU Extension, November 2009

13. Corn Shrink & Drying Costs Grain Moisture Level Wet Bushels Sold BushelsShrink Loss Drying Cost Shrink & Drying 30%231 bu/A183 bu/A$25 /A$121 /A$146 /A 25%216 bu/A186 bu/A$15 /A$76 /A$91 /A 20%202 bu/A188 bu/A$6 /A$35 /A$41 /A 15%190 bu/A $0 /A Source: www.farmdoc.illinois.edu, Oct. 21 st, 2009 Assumptions: Dry bushels are valued is $3.50/bu, 190 bu/A @ 15% moisture. Handling losses equal.25% of total wet bushels, 1.4 shrink factor,, $.035 per point drying charge.

14. $10.50/bu 18% $ 8.95/bu 65% $ 8.55/bu 17% Soybean Cash Price & Probability Forecast 2009-10 Marketing Year Source: Wisner, ISU Biofuels Economist, November 2009 76.6 M Acres Harvested 43.3 Bu/A Avg. Yield

15. Soybean Futures Chart Source: www.jimwyckoff.com, Oct. 30 th, 2009

16. Jul $10.04 May $9.99 March$9.96 Jan.$9.90 November 12 th, 2009 Soybean Futures Carry Nov. 2010 $ 9.99 Source: www.cmegroup.com Lack of Carry, little incentive to hold soybeans beyond winter months

17. Soybean Basis Trends Source: www.farmprogress.com November 2009

18. Soybean Storage Costs Assumption: Soybeans are Valued at $9.50/bu - Financed @ 7% APR.10.29.40.49.70.69 1.00 Source: Johnson, ISU Extension, November 2009

19. 5 Strategies for Reducing Input Costs Plan Ahead: Cash Flow & Income Tax Decisions Sell Commercially Stored Bushels, Monitor On- Farm Quality Book 2010 Fertilizer and Fuel Early Negotiate Inputs Based on Volume Purchases Focus on “Revenue per Acre” Source: Johnson, ISU Extension, November 2009

20. 2010 Crop Cost Estimates $667 $629 $437 $4.04/bu $3.49/bu $8.74/bu Cost per bushel Average Yield 165 bu/a 180 bu/a 50 bu/a Source: Duffy, ISU Extension Economist, November 2009

21. Corn Estimates through 2010-11 $4.20 $4.06 $3.45 $3.75 Source: Wisner, ISU Biofuels Economist, November 2009

22. New Crop Corn Seasonal Trend 79% Odds: Spring Price Exceeds Harvest Price Source: www.cmegroup.com U of MN, CFFM, 2009 80% Odds that Spring Price is higher than Fall

23. Soybean Estimates through 2010-11 $10.10 $10.00 $8.95 $8.25 Source: Wisner, ISU Biofuels Economist, November 2009

24. New Crop Soybean Seasonal Trend 79% Odds: Spring Price Exceeds Harvest Price Source: www.cmegroup.com U of MN, CFFM, 2009 67% Odds that Spring Price is higher than Fall

25. 2009 Crop Insurance for Iowa Corn Acres Source: USDA Risk Management Agency, October 2009

26. Corn Historical Crop Insurance Prices 1995 1993 2002 2006 1997 Source: USDA Risk Management Agency, October 2009

27. CRC or RA Coverage 170 bu/A APH 75% Level $4.04 bu/A Spring and Fall Price Crop Revenue Insurance Coverage (with SURE) SURE Coverage 115% of Revenue Coverage Source: Johnson, ISU Extension, November 2009

28. ACRE vs. CCP Payments for Corn ACRE pays out No ACRE payments CCP pays out No CCP $2.35 Source: ISU Extension Economics, November 2009

29. Iowa 2009 Corn Yield & National Cash Price to Trigger ACRE 2009-10 Nat’l Avg Cash Price 180 bu/A183 bu/A186 bu/A $3.55$0 $3.45$15/A$5/A$0 $3.35$33/A$23/A$13/A $3.25$51/A$41/A$31/A Source: Johnson, ISU Extension, November 2009

30. 2009 Crop Insurance for Iowa Soybean Acres Source: USDA Risk Management Agency, October 2009

31. Soybean Historical Crop Insurance Prices 1995 1993 2002 2005 2003 1990 2007 2009 Source: USDA Risk Management Agency, October 2009

32. Iowa 2009 Soybean Yield & National Cash Price to Trigger ACRE 2009-10 Nat’l Avg Cash Price 50 bu/A51 bu/A52 bu/A $9.40$0 $9.20$0 $9.00$7/A$0 $8.80$17/A$8/A$0 Source: Johnson, ISU Extension, November 2009

33. ACRE vs. CCP Payments for Soybeans ACRE pays out No ACRE payments CCP pays out No CCP CCP Trigger - $5.56 in 2010-12 $5.56 Source: ISU Extension Economics, November 2009

34. Comparing ACRE Payments to CCP Source: ISU Extension Economics, November 2009 2010 ACRE Cash Price Triggers: Corn = $3.35 /bu Soybeans = $8.55 /bu

35. Source: Johnson, ISUE Farm Mgt., Sept. 2008. Consider 2010 ACRE Enrollment by June 1st Prove Your 2009 Yields, Update APH Sell 2009 Crops to Match Cash Flow & Storage Use Crop Insurance Revenue Products 5 Strategies for Managing Revenue Risk Pre-Harvest Sell Bushels, Utilize Seasonal Trends Source: Johnson, ISU Extension, November 2009

36. Risk Management Web Sites Crop Risk Management - ISU Polk County (Newsletters, Updates and Webcasts) www.extension.iastate.edu/polk/farmmanagement CALT – ISU Center for Agricultural Law and Taxation www.calt.iastate.edu Farm Doc – U. of Illinois Extension www.farmdoc.illinois.edu Ag Manager – Kansas State University Extension www.agmanager.info Ag Decision Maker – ISU Extension (Decision Tools, Newsletters, Publications and Voiced Media) www.extension.iastate.edu/agdm Source: Johnson, ISU Extension, November 2009