1. Department of Economics 2010 Grain Market Outlook 2010 Ag Economy & Grain Market Outlook Hills, Iowa Feb. 24, 2010 Chad Hart Assistant Professor/Grain Markets Specialist chart@iastate.edu 515-294-9911

2. Department of Economics U.S. Corn Supply and Use Source: USDA 2007200820092010 Area Planted(mil. acres)93.586.086.589.0 Yield(bu./acre)150.7153.9165.2160.9 Production(mil. bu.)13,03812,09213,15113,160 Beg. Stocks(mil. bu.)1,3041,6241,6731,719 Imports(mil. bu.)20141015 Total Supply(mil. bu.)14,36213,72914,83414,894 Feed & Residual(mil. bu.)5,9135,2465,5505,350 Ethanol(mil. bu.)3,0493,6774,3004,500 Food, Seed, & Other(mil. bu.)1,3381,2761,2651,290 Exports(mil. bu.)2,4371,8582,0002,100 Total Use(mil. bu.)12,73712,05613,11513,240 Ending Stocks(mil. bu.)1,6241,6731,7191,654 Season-Average Price($/bu.)4.204.063.703.60

3. Department of Economics Source: USDA

4. Department of Economics U.S. Corn Harvest Progress Source: USDA

5. Department of Economics U.S. Soybean Supply and Use Source: USDA 2007200820092010 Area Planted(mil. acres)64.775.777.577.0 Yield(bu./acre)41.739.744.042.9 Production(mil. bu.)2,6772,9673,3613,260 Beg. Stocks(mil. bu.)574205138210 Imports(mil. bu.)101388 Total Supply(mil. bu.)3,2613,1853,5073,478 Crush(mil. bu.)1,8031,6621,7201,655 Seed & Residual(mil. bu.)93101177168 Exports(mil. bu.)1,1591,2831,4001,325 Total Use(mil. bu.)3,0563,0473,2973,147 Ending Stocks(mil. bu.)205138210330 Season-Average Price($/bu.)10.109.979.458.80

6. Department of Economics Source: USDA

7. Department of Economics U.S. Soybean Harvest Progress Source: USDA

8. Department of Economics Storage Issues Source: Hurburgh and Elmore, ICM News, 10/15/09

9. Department of Economics World Corn Production Source: USDA

10. Department of Economics Corn – Argentina & Brazil Source: USDA

11. Department of Economics World Soybean Production Source: USDA

12. Department of Economics Soybeans – Argentina & Brazil Source: USDA

13. Department of Economics Hog Returns vs. Corn Prices Sources: ISU Extension, Farrow-to-Finish; USDA-NASS

14. Department of Economics Cattle Returns vs. Corn Prices Sources: ISU Extension, Yearling Steers; USDA-NASS

15. Department of Economics Hog Crush Margin Source: Dr. John Lawrence, ISU Extension The Crush Margin is the return after the pig, corn and soybean meal costs. Carcass weight: 200 poundsPig price: 50%of 5 mth out lean hog futures Corn: 10 bushels per pigSoybean meal: 150 pounds per pig

16. Department of Economics Cattle Crush Margin Source: Dr. John Lawrence, ISU Extension The Crush Margin is the return after the feeder steer and corn costs. Live weight: 1250 poundsFeeder weight: 750 pounds Corn: 50 bushels per head

17. Department of Economics Exchange Rates (Jan. 2003 = 1) Source: USDA, ERS

18. Department of Economics Corn Export Sales Source: USDA, FAS

19. Department of Economics 2009 U.S. Corn Exports Source: USDA, FAS

20. Department of Economics Soybean Export Sales Source: USDA, FAS

21. Department of Economics 2009 U.S. Soybean Exports Source: USDA, FAS

22. Department of Economics Renewable Fuels Standard (RFS) Crop Year Billion Bushels 20083.57 20094.11 20104.43 20114.64

23. Department of Economics Ethanol Margins Source: ISU, CARD

24. Department of Economics Ethanol Blending Advantage

25. Department of Economics Crude Oil Prices Sources: EIA, NYMEX

26. Department of Economics Outside Influences (Jan. 2007 = 1)

27. Department of Economics Corn 1990 - 2006

28. Department of Economics Corn

29. Department of Economics Soybeans

30. Department of Economics Corn Futures Trade Source: CFTC

31. Department of Economics Soybean Futures Trade Source: CFTC

32. Department of Economics Iowa Crop Basis

33. Department of Economics Projected 2009 Season-Average Corn Price

34. Department of Economics Projected 2009 Season-Average Soy Price

35. Department of Economics Corn Futures Source: CBOT, 2/23/10

36. Department of Economics Soybean Futures Source: CBOT, 2/23/10

37. Department of Economics Ratio: Nov. 2010 Soy/Dec. 2010 Corn Source: CBOT

38. Department of Economics Input Costs Source: USDA, Agricultural Prices, Jan. 29, 2010

39. Department of Economics Iowa Corn Prices vs. Costs

40. Department of Economics Iowa Soybean Prices vs. Costs

41. Department of Economics Thoughts for 2009/10 and Beyond  General economic conditions  Projected economic recovery is a major key for crop prices  Weakness in the dollar helps exports, but dollar may fight back  Nearby crude oil prices floating in mid to upper $70’s  Supply/demand concerns  Livestock numbers continue to decline  South America: Record soybean crop and large corn crop  2009/10:USDA:Corn $3.70, Soy $9.45 Futures:Corn $3.52, Soy $9.32  2010/11:USDA:Corn $3.60, Soy $8.80 Futures:Corn $3.87, Soy $8.94

42. Department of Economics 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  Program has state and farm trigger levels, both must be met before payments are made

43. Department of Economics 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

44. Department of Economics ACRE Payments  Payment rate = Min(ACRE revenue guarantee – ACRE actual revenue, 25% * ACRE revenue guarantee)  ACRE payment adjustment: Payment multiplied by ratio of Expected farm yield to Expected state yield  Payments made on 83.3% of planted acres in 2009-11, 85% in 2012 (up to total base acres)

45. Department of Economics 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. Department of Economics ACRE Set-up for 2009 Iowa Corn YearYield per Planted Acre (bu./acre) 2004181.0 2005173.0 2006166.0 2007171.0 2008169.0 Olympic Average171.0 YearSeason-average Price ($/bu.) 20074.20 20084.06 Average4.13 So the expected state yield would be 171.0 bushels per acre and the ACRE price guarantee would be $4.13 per bushel.

47. Department of Economics Using Latest USDA Projections  ACRE revenue guarantee = $635.61/acre  90% * $4.13/bu. * 171.0 bu./acre  Proj. ACRE actual revenue = $673.40/acre  $3.70/bu. * 182.0 bu./acre  No payments under this scenario  Would need yields to fall to 172 bu/acre or price to fall to $3.49 to trigger payments

48. Department of Economics ACRE Payment Rate Matrix ($/acre) $2.90$3.10$3.30$3.50$3.70$3.90$4.10$4.30$4.50 174131.0196.2161.4126.610.00 176125.2190.0154.8119.610.00 178119.4183.8148.2112.610.00 180113.6177.6141.615.610.00 182107.8171.4135.010.00 184102.0165.2128.410.00 18696.2159.0121.810.00 18890.4152.8115.210.00 19084.6146.618.610.00 Price Yield USDA

49. Department of Economics ACRE Set-up for 2010 Iowa Corn YearYield per Planted Acre (bu./acre) 2005173.0 2006166.0 2007171.0 2008169.0 2009182.0 Olympic Average171.0 YearSeason-average Price ($/bu.) 20084.06 20093.70 Average3.88 The 2009 yields and prices are USDA’s Jan. 2010 estimates. So the expected state yield would be 171.0 bushels per acre and the ACRE price guarantee would be $3.88 per bushel.

50. Department of Economics 2010 Iowa Corn ACRE Guarantee  By formula, the ACRE revenue guarantee would be $597.13/acre  90% * $3.88/bu. * 171.0 bu./acre  But the ACRE revenue guarantee can not change by more than 10%  2009 guarantee = $637.15/acre  Allowed range is $572.05 to $699.17  So 2010 proj. guarantee is $597.13/acre

51. Department of Economics ACRE Set-up for 2009 Iowa Soybeans YearYield per Planted Acre (bu./acre) 200449.0 200552.0 200650.5 200752.0 200846.5 Olympic Average50.5 YearSeason-average Price ($/bu.) 200710.10 20089.97 Average10.04 So the expected state yield would be 50.5 bushels per acre and the ACRE price guarantee would be $10.04 per bushel.

52. Department of Economics Using Latest USDA Projections  ACRE revenue guarantee = $456.32/acre  90% * $10.04/bu. * 50.5 bu./acre  Proj. ACRE actual revenue = $481.95/acre  $9.45/bu. * 51 bu./acre  No payments under this scenario  Would need yields to fall to 48 bu/acre or price to fall to $8.94 to trigger payments

53. Department of Economics ACRE Set-up for 2010 Iowa Soybeans YearYield per Planted Acre (bu./acre) 200552.0 200650.5 200752.0 200846.5 200951.0 Olympic Average51.2 YearSeason-average Price ($/bu.) 20089.97 20099.45 Average9.71 The 2009 yields and prices are USDA’s Jan. 2010 estimates. So the expected state yield would be 51.2 bushels per acre and the ACRE price guarantee would be $9.71 per bushel.

54. Department of Economics 2010 Iowa Soybean ACRE Guarantee  By formula, the ACRE revenue guarantee would be $447.44/acre  90% * $9.71/bu. * 51.2 bu./acre  But the ACRE revenue guarantee can not change by more than 10%  2009 guarantee = $456.32/acre  Allowed range is $410.69 to $501.95  So 2010 proj. guarantee is $447.44/acre

55. Department of Economics ACRE vs. CCP ACRE pays out No ACRE payments CCP pays No CCP payments

56. Department of Economics Quick Comparison (Your results may vary) Source: William Edwards, ISU Extension

57. Department of Economics 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

58. Department of Economics Supplemental Revenue Assistance Payments Program (SURE)  Part of the 2008 Farm Bill  Permanent disaster assistance  Provides payments to producers in disaster counties for crop losses  Run by the Farm Service Agency, USDA  Covers the 2008-2011 crops

59. Department of Economics Supplemental Revenue Assistance Payments Program (SURE)  Based on crop insurance program, non- insured crop assistance program, and disaster declarations  Whole-farm revenue protection, not commodity-specific

60. Department of Economics SURE Triggers  Declared “disaster county” by Secretary of Agriculture or contiguous to one  Farm with losses exceeding 50% of normal production (value) in a calendar year  At least one crop must have a 10% (or greater) production loss

61. Department of Economics All Crops Must Be Covered  But there are some exceptions  Pasture  Crops with an expected value of less than 5% of the total expected value of production on the farm  Value = Crop insurance price X yield  Crops on which the producer has received a waiver

62. Department of Economics SURE Guarantee for 2009 and Beyond  Farm guarantee is the sum of  115%*Crop insurance price election*Crop insurance coverage level*Planted acres* Max(APH or CCP yield), for insurable commodities  120%*NCAP price election*Planted acres* Max(NCAP or CCP yield), for non-insurable commodities  For an individual crop, the guarantee can not be greater than 90% of the crop’s expected revenue

63. Department of Economics

64. SURE Increases Guarantees  Adds 20% to value of crop insurance guarantee if signed up by March 2008; else 15%.  Minimum for 2008 is 80.5% (equivalent of 70% guarantee x 115%)  Maximum is 90% Crop insurance guarantee 2008 SURE guarantee 2009-11 SURE guarantee 65%80.5%74.75% 70%84%80.5% 75%90%86.25% 80%90% 85%90%

65. Department of Economics SURE Actual Farm Revenues  Actual farm revenue is the sum of  Harvested acres*Farm yield*National season- average price for all commodities  15% of direct payments  All CCP or ACRE payments  All marketing loan benefits  All crop insurance or NCAP payments  Net of premiums (to a minimum of $0)  Any other disaster assistance payments

66. Department of Economics SURE Payment  Guarantee minus actual revenue aggregated for all crops x 60%  Limit of $100,000 per year per payment limitation

67. Department of Economics 2008 SURE Map

68. Department of Economics 2009 SURE Map

69. Department of Economics Will I get a SURE payment?  Are you in an eligible county or have a 50% or greater production loss  Do you have a 10% production loss on at least one crop  Price declines matter Corn $5.40 to $4.06 = 24.8% Soybeans $13.36 to $9.97 = 25.4% So, even higher yields, up to 120% of the APH yield, on other crops could still result in a SURE payment.

70. Department of Economics Acres Insured in 2008 Corn and Soybeans--Iowa Source: Dr. William Edwards, ISU Extension

71. Department of Economics Acres Insured in 2009 Corn and Soybeans--Iowa Source: Dr. William Edwards, ISU Extension

72. Department of Economics February and Harvest Prices 2009 Source: Dr. William Edwards, ISU Extension

73. Department of Economics Indemnity Prices: Corn (revenue insurance) Source: Dr. William Edwards, ISU Extension

74. Department of Economics Indemnity Prices: Soybeans (revenue insurance) Source: Dr. William Edwards, ISU Extension

75. Department of Economics Lower Indemnity Prices in 2010? CornAPH (Yield)Revenue 2009$4.00$4.04 2010$3.90? Soybeans 2009$9.90$8.80 2010$9.15? Source: Dr. William Edwards, ISU Extension

76. Department of Economics Feb. Prices on Dec. Corn ’10 Ave. $3.96, so far ’09 Ave. $4.04

77. Department of Economics Feb. Prices on Nov. Corn ’10 Ave. $9.21, so far ’09 Ave. $8.80

78. Department of Economics Coverage level Basic Unit subsidy rate New rate for Enterprise Units New rate for Whole Farm Units 60% 64% 80% not avail. 65% 59% 80% 70% 59% 80% 75% 55% 77%80% 48% 68%71% 85% 38% 53%56% Premium Subsidy Rates Source: Dr. William Edwards, ISU Extension

79. Department of Economics Source: Dr. William Edwards, ISU Extension

80. Department of Economics Biotech Endorsement (BE) Available in the entire Corn Belt. Must be at least 75% of the acres in the insurance unit. Still need 20% as refuge acres (EPA). Less documentation this year. Lack of compliance penalty is loss of premium discount only. Discount available on yield (APH) or revenue (RA, CRC) but not on group policies Estimated at 10-15% discount, overall. Source: Dr. William Edwards, ISU Extension

81. Department of Economics Specialty Soybean Crops Can now be insured separately. Low yields will not drag down the APH yield for conventional beans. Must be covered with an APH (yield) policy, not a revenue policy. Can use past records to create an APH yield for each type of soybeans. Indemnity price is higher of contract price or conventional APH soybean indemnity. Source: Dr. William Edwards, ISU Extension

82. Department of Economics Large seeded food grade – Soybeans commonly used for tofu, soymilk,and miso Small seeded food grade – Soybeans commonly used for sprouts, or for natto soybeans Low linolenic acid – Soybeans used to produce soybean oil with a linolenic acid level of 3% or less Low saturated fat – Soybeans containing 50% less saturated fat than conventional soybeans High protein – Soybeans containing protein levels of 43% or greater Specialty Soybean Crops Source: Dr. William Edwards, ISU Extension

83. Department of Economics Key Points for 2010 1.SURE and ACRE do not reduce the need for crop insurance. 2.Indemnity prices will be mixed, some higher, some lower. 3.Compare RA and CRC premiums. 4.Higher enterprise unit subsidy allows higher coverage levels. 5.Biotech endorsement expanded. 6.Specialty soybeans can be insured separately. Source: Dr. William Edwards, ISU Extension

84. Department of Economics Agricultural GHG Emissions Source: EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2007

85. Department of Economics Climate Change Legislation Source: Congressional Research Service American Clean Energy and Security Act of 2009 (H.R. 2454) Requires utilities to supply an increasing percentage of their demand from a combination of energy efficiency savings and renewable energy (6% in 2012, 9.5% in 2014, 13% in 2016, 16.5% in 2018, and 20% in 2021-2039). Provides for issuing, trading, banking, retiring, and verifying renewable electricity credits. Establishes targets to cap and reduce greenhouse gas (GHG) emissions, annually, so that GHG emissions from capped sources are reduced to 97% of 2005 levels by 2012, 83% by 2020, 58% by 2030, and 17% by 2050; and establish a federal GHG registry. Provides for trading, banking and borrowing, auctioning, selling, exchanging, transferring, holding, or retiring emission allowances.

86. Department of Economics Climate Change Legislation Source: Craig Raysor, Gillon & Associates, PLLC Agriculture provisions in H.R. 2454 Provides some exemptions from the GHG emission reduction requirements for agriculture and forestry Provides incentive-based approach to GHG emission reduction/capture Allows USDA to help establish eligible GHG offset practices and review of those practices Shifts question on indirect-land-use to an independent panel for study with EPA and USDA to review in the future Allows for a specific exemption for livestock (enteric fermentation from ruminant animals) from uncapped emissions guidelines

87. Department of Economics Key Assumptions The US economy was already on a slow growth path for energy consumption, the analysis assumes that this continues Coal fired plants largely shut down and are replaced by nuclear Enormous reliance on international and domestic offsets If we cannot build the large number of nuclear plants or find the international offsets, then the price of carbon will increase at about twice the reported rate Source: ISU, Dermot Hayes presentation, Oct. 2009

88. Department of Economics Energy Sources Source: EPA Analysis of H.R. 2454, June 23, 2009

89. Department of Economics GHG Emissions & Abatements Source: EPA Analysis of H.R. 2454, June 23, 2009

90. Department of Economics Domestic Offsets Implementing regulations not yet written Uncertainty about how the offsets would work in agriculture, particularly for conservation tillage, but the intention is clearly to use these offsets as a way to stimulate agricultural incomes Consideration of leakage is prohibited pending a study Heavy reliance on the growth of trees on pasture and crop land Source: ISU, Dermot Hayes presentation, Oct. 2009

91. Department of Economics Domestic Offsets Source: EPA Analysis of Waxman-Markey, April 20, 2009

92. Department of Economics Shifting Land Patterns Source: EPA, “Greenhouse Gas Mitigation Potential in U.S. Forestry and Agriculture”, Nov. 2005

93. Department of Economics International Offsets Must be a developing country that is a member of a unilateral or multilateral emissions reduction agreement with the United States Must have the technical capacity to monitor, measure, report and verify forest carbon fluxes resulting from deforestation Must have the capacity to reduce emissions from deforestation, including strong forest governance The international offset project itself must be shown to result in permanent verifiable reductions that are net of any leakage measures Source: ISU, Dermot Hayes presentation, Oct. 2009

94. Department of Economics Carbon Prices Increase Over Time Source: EPA Analysis of H.R. 2454, June 23, 2009

95. Department of Economics Prices Are Sensitive to Offsets Source: EPA Analysis of H.R. 2454, June 23, 2009

96. Department of Economics Energy Price Paths Source: EPA Analysis of H.R. 2454, June 23, 2009

97. Department of Economics Impacts on an Average Household Source: EPA Analysis of H.R. 2454, June 23, 2009

98. Department of Economics USDA Estimates Source: USDA, Office of Chief Economist Statement of Joseph Glauber, before House Ag Committee, 12/2/09 2012-2018 Production Costs Changes

99. Department of Economics Land Use Changes Source: USDA, Office of Chief Economist Statement of Joseph Glauber, before House Ag Committee, 12/3/09 Allowance Prices

100. Department of Economics Land Use Changes by 2050 Source: USDA, Office of Chief Economist Statement of Joseph Glauber, before House Ag Committee, 12/3/09 ForestCroplandPasture (million acres) Corn Belt22.5-20.6-1.8 Great Plains--1.7-3.8 Lake States15.1-12.1-2.2 Northeast2.4-1.9-0.5 Rocky Mts.7.7-5.3-1.7 Pacific SW0.0 Pacific NW0.2 -0.2 South Central10.0-6.4-3.6 Southeast1.11.2-1.9 Southwest--8.2-8.2

101. Department of Economics Offset Revenues Source: USDA, Office of Chief Economist Statement of Joseph Glauber, before House Ag Committee, 12/3/09

102. Department of Economics Crop Production Changes Source: USDA, Office of Chief Economist Statement of Joseph Glauber, before House Ag Committee, 12/3/09

103. Department of Economics Livestock Production Changes Source: USDA, Office of Chief Economist Statement of Joseph Glauber, before House Ag Committee, 12/3/09

104. Department of Economics Thank you for your time! Any questions? My web site: http://www.econ.iastate.edu/faculty/hart/ Iowa Farm Outlook: http://www.econ.iastate.edu/outreach/agriculture/periodicals/ifo/ Ag Decision Maker: http://www.extension.iastate.edu/agdm/