Farm Income & Management Strategies November 13 th, 2009 Steven D. Johnson Farm & Ag Business Management Specialist (515) Cost of Production Estimates Year-end Income & Expense Decisions Cash Flow Marketing Strategies Managing 2010 Risks & Revenue On-Farm vs. Commercial Storage Issues

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

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

Source: Jolly, ISU Extension Economics, September 2009

Source: Jolly, ISU Extension Economics, January 2009

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:

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

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

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

Corn Basis Trends Source: November 2009

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

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: Oct. 21 st, 2009 Assumptions: Dry bushels are valued is $3.50/bu, % moisture. Handling losses equal.25% of total wet bushels, 1.4 shrink factor,, $.035 per point drying charge.

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

Soybean Futures Chart Source: Oct. 30 th, 2009

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

Soybean Basis Trends Source: November 2009

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

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

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

Corn Estimates through $4.20 $4.06 $3.45 $3.75 Source: Wisner, ISU Biofuels Economist, November 2009

New Crop Corn Seasonal Trend 79% Odds: Spring Price Exceeds Harvest Price Source: U of MN, CFFM, % Odds that Spring Price is higher than Fall

Soybean Estimates through $10.10 $10.00 $8.95 $8.25 Source: Wisner, ISU Biofuels Economist, November 2009

New Crop Soybean Seasonal Trend 79% Odds: Spring Price Exceeds Harvest Price Source: U of MN, CFFM, % Odds that Spring Price is higher than Fall

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

Corn Historical Crop Insurance Prices Source: USDA Risk Management Agency, October 2009

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

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

Iowa 2009 Corn Yield & National Cash Price to Trigger ACRE 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

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

Soybean Historical Crop Insurance Prices Source: USDA Risk Management Agency, October 2009

Iowa 2009 Soybean Yield & National Cash Price to Trigger ACRE 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

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

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

Source: Johnson, ISUE Farm Mgt., Sept 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

Risk Management Web Sites Crop Risk Management - ISU Polk County (Newsletters, Updates and Webcasts) CALT – ISU Center for Agricultural Law and Taxation Farm Doc – U. of Illinois Extension Ag Manager – Kansas State University Extension Ag Decision Maker – ISU Extension (Decision Tools, Newsletters, Publications and Voiced Media) Source: Johnson, ISU Extension, November 2009