Assistant Professor/Grain Markets Specialist 2012 Crop Market Outlook Grundy County Fair Grundy Center, Iowa July 26, 2012 Chad Hart Assistant Professor/Grain Markets Specialist chart@iastate.edu 515-294-9911 1 1

U.S. Corn Supply and Use 2008 2009 2010 2011 2012 Area Planted (mil. acres) 86.0 86.4 88.2 91.9 96.4 Yield (bu./acre) 153.9 164.7 152.8 147.2 146.0 Production (mil. bu.) 12,092 13,092 12,447 12,358 12,970 Beg. Stocks 1,624 1,673 1,708 1,128 903 Imports 14 8 28 22 30 Total Supply 13,729 14,774 14,182 13,508 13,903 Feed & Residual 5,182 5,125 4,793 4,550 4,800 Ethanol 3,709 4,591 5,021 5,050 4,900 Food, Seed, & Other 1,316 1,370 1,407 1,405 1,420 Exports 1,849 1,980 1,835 1,600 Total Use 12,056 13,066 13,055 12,605 12,720 Ending Stocks 1,183 Season-Average Price ($/bu.) 4.06 3.55 5.18 6.20 5.90 These are the latest numbers from USDA. Record production and demand is gone. The drought and resulting high prices put a end to the records, except for the potential for prices to reach records again. Feed and export demand took the biggest cuts, but ethanol is also down. Ending stocks are projected to be near 2010 levels. Source: USDA-WAOB 2 2

U.S. Soybean Supply and Use 2008 2009 2010 2011 2012 Area Planted (mil. acres) 75.7 77.5 77.4 75.0 76.1 Yield (bu./acre) 39.7 44.0 43.5 41.5 40.5 Production (mil. bu.) 2,967 3,359 3,329 3,056 3,050 Beg. Stocks 205 138 151 215 170 Imports 13 15 14 Total Supply 3,185 3,512 3,495 3,286 3,235 Crush 1,662 1,752 1,648 1,675 1,610 Seed & Residual 106 110 130 101 124 Exports 1,279 1,499 1,501 1,340 1,370 Total Use 3,047 3,361 3,280 3,116 3,105 Ending Stocks Season-Average Price ($/bu.) 9.97 9.59 11.30 12.40 14.00 For soybeans, a tight market continues to get tighter. USDA ratcheted down demand for the new crop to hold 2012/13 ending stocks at 130 million bushels. Exports took the big cut. Source: USDA-WAOB 3 3

Prices Prices have risen with the temperatures.

Crop Conditions Source: USDA-NASS But dry conditions have weakened the crops, as the crop conditions show. The USDA update reflects the scale of yield loss as they took 20 bushels from corn and 3.4 bushels from soybeans. Source: USDA-NASS

Projection from Corn Conditions Significant downgrading of crop over the last few weeks. My yield projection (138), based on current crop conditions, is 23 bushels below the 20-year trend (161).

Projection from Soy Conditions As the soybean crop can still benefit from later season rains, the yield projection has not slid as much. 40 bushels per acre, as opposed to a 20-year trend of just over 43 bushels per acre.

The latest seasonal outlook shows continuing dry conditions across the Corn Belt. In fact, most of the country is under a drought. Source: NOAA-CPC

World Corn Production Source: USDA-WAOB World corn production is on the upswing as the high prices over the last year provided incentives for corn farmers worldwide to increase production. The biggest shifts are in Argentina, Mexico, Canada, South Africa, and China. Source: USDA-WAOB 9 9

World Soybean Production Soybean prices have also spurred on increased soybean plantings worldwide. South America will lead the charge. Source: USDA-WAOB 10 10

Hog Crush Margin The Crush Margin is the return after the pig, corn and soybean meal costs. Carcass weight: 200 pounds Pig price: 50% of 5 mth out lean hog futures Corn: 10 bushels per pig Soybean meal: 150 pounds per pig While hog margins are not strong right now, the outlook is breakeven at best. Source: Shane Ellis, ISU Extension

Cattle Crush Margin The Crush Margin is the return after the feeder steer and corn costs. Live weight: 1250 pounds Feeder weight: 750 pounds Corn: 50 bushels per head Cattle returns also look better next year. Source: Shane Ellis, ISU Extension

U.S. Meat Production & Prices Higher feed costs have led to lower meat production projections. Source: USDA-WAOB 13 13

Corn Export Shifts Source: USDA-FAS Corn exports for the 2011 crop have been slow, with only Mexico and China buying more. Source: USDA-FAS

Soy Export Shifts Source: USDA-FAS 2011 soybean exports are also lower, but have been improving for the last few months. The key market here is China and they have purchased a lot of soybeans recently. Source: USDA-FAS

Corn Advance Export Sales Advance sales have backed off as prices have risen. Source: USDA-FAS

Soy Advance Export Sales Soybean advance sales have held up better. Source: USDA-FAS

Corn Grind for Ethanol Source: DOE-EIA Negative margins at ethanol plants have finally dragged down production. Source: DOE-EIA

Ethanol Stocks Source: DOE-EIA But stocks have begun to decline as we are in the heart of the summer driving season. Source: DOE-EIA

U.S. Blended Gasoline Consumption 7.6 bil. gal. But the industry still faces blend wall issues as fuel consumption has dropped with the economy and the E-10 market is basically full. 7.4 bil. gal. Source: DOE-EIA, via USDA-ERS

Projected 2011 Season-Average Corn Price Cost The 2011 corn crop looks to be the most profitable corn crop we have ever had with prices averaging $2 per bushel more than costs.

Projected 2011 Season-Average Soy Price Cost The 2011 soybean crop was also highly profitable.

Projected 2012 Season-Average Corn Price The drought has brought in some very strong and profitable prices. Cost

Projected 2012 Season-Average Soy Price Cost The same is true for soybeans.

Iowa Corn Prices vs. Costs For those that have a crop, corn margins have exploded.

Iowa Soybean Prices vs. Costs Soybean margins have also opened with the drought.

Prices Prices have risen with the temperatures.

Iowa Crop Margins At trend yields, the margins are tremendous. But trend yields are not what we’re experiencing. Given my yield projections, take $100 off of the corn figure and $30 off from soybeans. Those are still very good margins.

Current Corn Futures 7.28 6.30 5.84 5.21 Source: CME Group, 7/23/2012 Based on current futures prices, national season-average cash price estimates for corn are $6.30 for the 2011 crop, $7.28 for 2012, $5.84 for 2013, and $5.21 for 2014. So longer-term prices are settling in at the high $4 to $5 range. 5.21 Source: CME Group, 7/23/2012

Current Soybean Futures 14.66 12.52 For soybeans, the estimates are $12.52 for the 2011 crop, $14.66 for 2012, $12.05 for 2013, and $11.77 for 2014. 12.05 11.77 Source: CME Group, 7/23/2012

Thoughts for 2012 and Beyond Supply/demand concerns How about some rain? Biofuel growth and energy demand Will supply be able to keep pace with demand? Drought is pulling supply down But high prices are diminishing demand General economic conditions Continued worldwide economic recovery is a key for crop prices US job recovery, European financial concerns, China? 2011/12: USDA: Corn $6.20; Soy $12.40 Futures (as of 7/23/12): Corn $6.30; Soy $12.52 2012/13: USDA: Corn $5.90; Soy $14.00 Futures (as of 7/23/12): Corn $7.28; Soy $14.66

Thank you for your time. Any questions. My web site: http://www. econ Thank you for your time! Any questions? My web site: http://www.econ.iastate.edu/~chart/ Iowa Farm Outlook: http://www.econ.iastate.edu/ifo/ Ag Decision Maker: http://www.extension.iastate.edu/agdm/