1. Steven D. Johnson Farm & Ag Business Management Specialist (515) 957-5790 sdjohns@iastate.edu www.extension.iastate.edu/polk/farm-management

2. Learning Objectives: Provide Strategies & Tools for Solutions Farm Finances Risk Management Crop Marketing

3. Source: USDA Economic Research Service, August 2015 U.S. Net Farm Income Trends * - Forecast

4. Net Farm Income Drops; Debt-to-Asset Ratios Climb Source: USDA Economic Research Service, August 2015

5. Case Study 1: Larry Landholder 1,500 owned acres; 500 rented Solvent operation: Net Worth $4.5 million Real estate equity: $2.5 million Profitable: Net farm income: $64,000 Problem: Liquidity Working capital -$77,000 Annual payments: – 2 Machinery loans $138,000 – 1 Real Estate loan $95,000 1.New 10-year loan for $130,000 on Real Estate equity to pay off a machinery loan (annual payments  by $7,000) 2.New 20-year loan for $800,000 on real estate equity. (annual payments  by $48,000) a)Pay off the other machinery loan b)Pay down operating loan c)Strengthen cash position Source: Farm Credit Services of America, November 2015 STATUS QUOSOLUTION

6. Case Study 1: Financial Changes (as of December 1, 2015) Source: Farm Credit Services of America, November 2015 Financial CategoriesStatus QuoSolution Working Capital -$77,000$414,000 Working Capital per Acre -$34/A$180/A Machinery & Equipment Payments (P & I) $138,000$0 Machinery Payment per Acre $69/A$0/A Real Estate Payments (P & I) $95,000$180,000 Real Estate Payments per Acre $63/A$120/A

7. Case Study 2: Roy Renter 200 owned acres; 2,000 rented Solvent operation: Net Worth $4.0 million Machinery equity: $2.0 million Not Profitable in 2015: Net farm income: -$450,000 Problem: Liquidity Working capital $71,000 Annual payments: – Machinery loans $290,000 – Real Estate loans $112,000 1.Cash Rent reduced $20/acre. 2.Sell equipment for $300,000. Pay off related loans and restore working capital. 3.Negotiates with bank to pay Interest Only on real estate loans, shifting $40,000 to non-current liabilities 4.Take new 5-year loan on machinery equity for $300,000. Source: Farm Credit Services of America, November 2015 STATUS QUOSOLUTION

8. Case Study 2: Financial Changes (as of December 1, 2015) Source: Farm Credit Services of America, November 2015 Financial CategoriesStatus QuoSolution Working Capital $71,000$260,000 Working Capital per Acre $32/A$118/A Machinery & Equipment Payments (P & I) $290,000$125,000 Machinery Payment per Acre $132/A$57/A Real Estate Payments (P & I) $112,000$74,000 Real Estate Payments per Acre $560/A$370/A

9. Case Study 3: Peter Paydown 620 owned acres; 40 rented Solvent operation: Net Worth $3.3 million Real Estate equity: $1.8 million Not Profitable in 2015: Net farm income: -$76,000 Problem: Liquidity Working capital $23,000 Annual payments: – 3 Machinery loans $108,000 – 2 Real Estate loans $101,000 1.Refinance 15-year real estate loan into 20-year loan. (annual payments  by $7,000) 2.Take new 20-year loan on real estate equity for $140,000. Pay off a machinery loan for $130,000 (annual payments  by $16,000) Source: Farm Credit Services of America, November 2015 STATUS QUOSOLUTION

10. Case Study 3: Financial Changes (as of December 1, 2015) Source: Farm Credit Services of America, November 2015 Financial CategoriesStatus QuoSolution Working Capital $23,000$71,000 Working Capital per Acre $35/A$108/A Machinery & Equipment Payments (P & I) $108,000$80,000 Machinery Payment per Acre $164/A$121/A Real Estate Payments (P & I) $101,000$105,000 Real Estate Payments per Acre $161/A$169/A

11. FCSAmerica Financial Guidelines Source: Farm Credit Services of America, November 2015

12. Corn Revenue vs. Cost Trends Source: Plastina, ISU Extension Economics, October 2015

13. Corn Return to Management Source: Plastina, ISU Extension Economics, October 2015

14. U.S. Corn Ending Stocks & Average Cash Price Source: USDA WASDE, Jan. 2012 – Nov. 10, 2015

15. U.S. Corn Supply and Use 20112012201320142015 Area Planted(mil. acres)91.997.395.490.688.4 Yield(bu./acre)147.2123.1158.1171169.3 Production(mil. bu.)12,36010,75513,82914,21613,654 Beg. Stocks(mil. bu.)1,1289898211,2321,731 Imports(mil. bu.)29160363230 Total Supply(mil. bu.)13,51711,90414,68615,47915,415 Feed & Residual(mil. bu.)4,5574,3155,0405,3155,300 Ethanol(mil. bu.)5,0004,6415,1245,2095,175 Food, Seed, & Other(mil. bu.)1,4281,3971,3691,3591,380 Exports(mil. bu.)1,5437301,9201,8641,800 Total Use(mil. bu.)12,52811,08313,45413,74813,655 Ending Stocks(mil. bu.)9898211,2321,7311,760 Season-Average Price($/bu.)6.226.894.463.70$3.65 Source: USDA-WAOB, Nov. 10, 2015

16. Corn Supply vs. Use by Category Source: USDA-WAOB, Nov. 10, 2015 Use Supply 2015-16 Use Supply 2014-15 Use Supply 2013-14

17. Weekly Corn vs. Crude Oil (Reduced Correlation) Source: www.jimwyckoff.com, Nov. 10, 2015

18. U.S. Ending Stocks as % of Total Use * Estimates **Projected Source: USDA WASDE, Jan. 2012 – Nov. 10, 2015 12.4% 12.9%

19. Futures Price Basis 1.Store & wait 2.Delayed price contract 3.Minimum price contract 1.Basis contract 2.Sell Cash Bushels and Buy Futures or Call Option 3.Minimum price contract 1.Hedge 2.Non-roll hedge to arrive 3.Buy put option 1.Cash sale now 2.Forward Contract Crop Marketing Matrix Source: Iowa Commodity Challenge, November 2015

20. Source: Knorr, Farm Futures Magazine, September 2015 On-Farm Storage (Unpriced) Commercial Storage (Unpriced) Store, Buy July Put Option Storage Hedge (Store, Sell July Futures) Minimum Price Contract (Sell Cash, Buy July Call Option) Basis Contract (Sell Cash, Buy July Futures) (Net profit/loss per bushel compared to harvest price.) Comparing Storage and Marketing Tools (1990-2014 NC Iowa Terminal Elevator)

21. 2016 Crop Cost Estimates (Preliminary) Source: Plastina, ISU Extension Economics, November 2015 Total CostExpected Yield bu/ACost Per Bushel Soybeans after Corn Corn after Soybeans Corn after Corn $532 $742 $794 50 180 165 $10.64 $4.12 $4.81

22. 2016 Soybeans following Corn Margin Estimates Labor $27 Inputs $164 Machinery $79 50 bu/A X $9.00/bu = $450/A $460 $190 $270 ARC-CO $10 Source: Johnson, ISU Extension, November 2015

23. 2016 Corn following Soybeans Margin Estimates Source: Johnson, ISU Extension, November 2015 Machinery $140 Inputs $309 180 bu/A X $3.80/bu = $684/A $480 $704 $224 Labor $31 ARC-CO $20

24. 2016 Corn following Corn Margin Estimates Machinery $143 Inputs $355 165 bu/A X $3.80/bu = $627/A $532 $647 $115 Labor $34 ARC-CO $20 Source: Johnson, ISU Extension, November 2015

25. Calculating Crop Breakeven Costs Cost/Bu Expense/Acre $750 Cost/Bu Expense/Acre $525 Yield 703035404550556065 Soybeans Corn Yield 170175180185190195200205210 Source: Johnson, ISU Extension, November 2015

26. Five-Year Farm Program (2014-2018) Marketing Loan National Rates: $1.95/bu Corn $5.00/bu Soybeans Source: The Agricultural Act of 2014, February 2014

27. Corn Crop Insurance Coverage (2015) Revenue Protection = 91% to 97% of Insured Acres (IA, NE, SD) Source: USDA Risk Management Agency, September 2015 IANESD ARP/AYP1%0% YP2%8%3% RPHPE1% 0% RP96%91%97% IowaSouth DakotaNebraska

28. Corn Insurance Prices vs. Seasonal Futures Highs Source: USDA RMA & CME Group, October 2015

29. December Corn Futures Seasonal Trends (1990-2015 Indexed) Source: www.cffm.umn.edu, October 2015

30. Net Equity Losses: Improve Record Keeping, Reduce High Fixed Costs, Consider Non-Farm Income Farms with Cash Flow Problems: Reduce Expenses, Refinance Debt, Sell Non-Earning Assets Crop Marketing: Limit Storing Old Crop beyond early July, Use a Variety of Marketing Tools with Pre-harvest Sales Plan Ahead for 2016 Inputs & Financing Needs: Good Relationships with Input Suppliers, Landlords & Your Lender Solutions for Low Crop Revenue Outlook Reduce Crop Costs: Renegotiate 2016 Cash Leases, Soil Test, Limit Buying Low Return Inputs, Seek Early Pay Cash Discounts Source: Johnson, ISU Extension, December 2015

31. Web Sites with Solutions ISU Extension - Ag Decision Maker www.extension.iastate.edu/agdm U of MN (Center for Farm Financial Mgt) www.cffm.umn.edu www.cffm.umn.edu U of Illinois Farm Doc www.farmdoc.illinois.edu ISU Polk County Ext. Farm Management www.extension.iastate.edu/polk/farm- management Farm Credit Services of America www.fcsamerica.com Source: Johnson, ISU Extension, December 2015