1. Crop Outlook and ACRE CFNB Annual Crop Insurance Update Meeting
Storm Lake, Iowa
February 19, 2009
Chad Hart
Assistant Professor/Grain Markets Specialist 1

2. U.S. Corn Supply and Use $3.90 +574 -638 -686
Source: USDA-WAOB, Feb. 2009 2 2

3. U.S. Soybean Supply and Use
-35
+50
$9.00
+0.25
$9.25
Source: USDA-WAOB, Feb. 2009

4. Drought in South America
Source: USDA-WAOB, Feb. 2009

5. Argentine Drought Impacts (Early Reports)
2007 Production
Corn million tons
Soybeans 46.2 million tons
January 2009 USDA Estimates
Corn million tons -21%
Soybeans 49.5 million tons +7%
Current USDA Estimates
Corn million tons -35%
Soybeans 43.8 million tons -5%
January Estimates from Buenos Aires Cereal Exchange (BACE)
Corn 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%
Livestock consolidation is underway and with it comes lower feed demand. The recent reduction in crop prices can help ease consolidation pressure, but the economic weakness is also taking its toll on meat demand.
Source: Dow Jones Newswires

6. Chinese Corn Production
Source: USDA-WAOB, Jan. 2009

7. Soybeans in China
Source: USDA-PSD, Jan. 2009

8. Livestock Adjustments
Sows farrowing:
Sept-Nov million, down 6% from last year
Dec-Feb million, down 3% from last year
Mar-May 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
Livestock consolidation is underway and with it comes lower feed demand. The recent reduction in crop prices can help ease consolidation pressure, but the economic weakness is also taking its toll on meat demand.
Sources: Various USDA-NASS reports

9. Ethanol Margins
Source: ISU, CARD

10. Biodiesel Margins
Source: ISU, CARD

11. Renewable Fuels Standard (RFS)
Crop
Year
Billion Bushels
2008
3.57
2009
4.11
2010
4.43
Corn-based ethanol goes in as conventional biofuel. The tables show the amounts of corn needed to meet the conventional biofuel portion of the RFS with corn-grain ethanol. The Renewable Fuels Association lists current ethanol production capacity at billion gallons, with another 2.8 billion gallons under construction. So ethanol capacity is large enough to meet the RFS for the next few years is the 1st year for the biodiesel portion of the RFS, with 500 million gallons of biodiesel needed to meet the mandate. In 2007, we produced roughly 450 million gallons. And the U.S. has enough biodiesel capacity on the ground today to produce over 2 billion gallons of biodiesel from a variety of sources. 11 11

12. U.S. Blended Motor Gasoline Consumption
One of the biggest factors influencing the biofuel industry is the overall usage of fuel. This graph shows the dramatic decline in projected gasoline consumption for this year and next. The higher energy prices earlier this year had a definite impact.
Source: Energy Information Administration

13. Outside Influences (Jan. 2007 = 1)
Agriculture’s link to the energy markets has been a strong one. Corn and soybean prices have tracked with oil prices since late in 2006.

14. Outside Influences (Sept. 2008 = 1)

15. Corn & Soybean Area Growth rate of 1.55 million acres per year
While total land devoted to crop production has been fairly steady over the past few years, the amount of land planted to corn and soybeans has been on the rise. Minor feed grains and cotton have been giving up ground.

16. CRP Expiring Contracts
Some CRP land has also come back into production. This graph shows the acreage with expiring CRP contracts. The contracts expire at the end of September in each year. So the land that can come out of CRP in 2008 can not enter production until 2009 at the earliest. Currently CRP has 34.7 million acres. But the 2008 farm bill has set 32 million acres as the top for CRP, starting in So an additional 2.7 million must come out over the next two years.
Source: USDA-FSA

17. Input Costs Source: USDA, Agricultural Prices, Jan. 2009
Input costs have risen dramatically, especially over the past year.
Source: USDA, Agricultural Prices, Jan. 2009

18. Ammonia Prices Source: http://www.fertilizerworks.com/html/market/
TheMarket.pdf

19. Iowa Corn Prices vs. Costs
Average return over the time period, -7 cents per bushel. Current corn prices for Iowa are around estimated costs.
Source: USDA-NASS and Duffy and Smith,

20. Iowa Soybean Prices vs. Costs
Average return over the period, 31 cents per bushel. Current Iowa prices still slightly above estimated costs.
Source: USDA-NASS and Duffy and Smith,

21. Estimates for 2009 Iowa Costs
Non-land
Cost
Land Cost
Total Cost
Expected Yield
Cost per Bushel
($/acre)
(bu/acre)
($/bu)
Corn
486.61
205.00
691.61
160
4.32
Soybean
285.60
490.60 50
9.81
December 2009 Corn Futures = $3.875 (2/18/09)
November 2009 Soy Futures = $ (2/18/09)
Source: Duffy and Smith,

22. Exchange Rates (Jan = 1)
Source: USDA, ERS

23. Exchange Rates (Jan = 1)
Source: USDA, ERS

24. 2007 World Corn Exports Drought issues for 2008 crops
Source: USDA, FAS

25. 2007 World Soybean Exports Drought issues for 2008 crops
Source: USDA, FAS

26. Pace of Corn Export Sales
Source: USDA, FAS

27. 2008 U.S. Corn Exports
Source: USDA, FAS

28. Pace of Soybean Export Sales
Source: USDA, FAS

29. 2008 U.S. Soybean Exports
Source: USDA, FAS

30. U.S. Stocks-to-Use Ratios

31. World Stocks-to-Use Ratios
But the world has higher than usual soybean stocks. Corn stocks have been tight worldwide for several years.

32. 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 world’s 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 $ for corn and $ for soybeans
Stress on South American crops has provided some support for prices

33. 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
Ethanol’s buildout & livestock’s 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 $ for soybeans
Key factor: Economic growth returns by mid 2010

34. 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)

35. 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 you’re 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

36. 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

37. Loan Rates under ACRE Current Loan Rates Corn $1.365 Soybeans $3.50

38. 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.

39. 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

40. 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
Year
Season-average Price ($/bu.)
2007
10.10
2008
9.25
Average
9.68
The 2008 yield and price are USDA’s 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.

41. 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

42. ACRE Structure
ACRE Farm revenue trigger = Expected farm yield * ACRE price guarantee + Producer-paid crop insurance premium
Let’s 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

43. 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

44. 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 , 85% in 2012
ACRE payment adjustment: Payment multiplied by ratio of Expected farm yield to Expected state yield

45. 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

46. ACRE vs. CCP CCP pays out No CCP payments No ACRE payments
ACRE pays out

47. An Example for 2009
To start, we need the expected state and farm yields and the ACRE price guarantee
Expected state yield bu/acre
Expected farm yield bu/acre
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

48. Example (continued)
For 2009, we need the actual state yield, the actual farm yield , and the season-average price
Actual state yield bu/acre
Actual farm yield 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

49. Example (continued) State Trigger So we’ve met the state trigger
ACRE Revenue Guarantee $438.21
ACRE Actual Revenue $405.00
So we’ve met the state trigger
Farm Trigger
ACRE Farm Revenue Guarantee $552.40
ACRE Farm Actual Revenue $495.00
So we’ve met the farm trigger

50. Example (continued) ACRE Payment $30.25
Min(25%*$438.21, $ – $405.00)
* (55 bu/acre / 50.3 bu/acre)
* 83.3%

51. 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 $ and $482.03

52. Farmer’s 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

53. 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

54. You Don’t 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:

55. Thank you for your time. Any questions. My web site: http://www. econ
Thank you for your time! Any questions? My web site: Iowa Farm Outlook: Ag Decision Maker: