Assistant Professor/Grain Markets Specialist 2012 Crop Market Outlook Butler County Fair Allison, Iowa June 20, 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 95.9 Yield (bu./acre) 153.9 164.7 152.8 147.2 166.0 Production (mil. bu.) 12,092 13,092 12,447 12,358 14,790 Beg. Stocks 1,624 1,673 1,708 1,128 851 Imports 14 8 28 20 15 Total Supply 13,729 14,774 14,182 13,506 15,656 Feed & Residual 5,182 5,125 4,793 4,550 5,450 Ethanol 3,709 4,591 5,021 5,050 5,000 Food, Seed, & Other 1,316 1,370 1,407 1,405 1,425 Exports 1,849 1,980 1,835 1,650 1,900 Total Use 12,056 13,066 13,055 12,655 13,775 Ending Stocks 1,881 Season-Average Price ($/bu.) 4.06 3.55 5.18 6.10 4.60 These are the latest numbers from USDA. The current projections show record supply and record demand, but the supply surge is larger. There are three key numbers to watch over the next month. Acreage will be updated at the end of June. Yields and exports will likely shift (downward) in July. 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 73.9 Yield (bu./acre) 39.7 44.0 43.5 41.5 43.9 Production (mil. bu.) 2,967 3,359 3,329 3,056 3,205 Beg. Stocks 205 138 151 215 175 Imports 13 15 14 Total Supply 3,185 3,512 3,495 3,286 3,395 Crush 1,662 1,752 1,648 1,660 1,645 Seed & Residual 106 110 130 116 125 Exports 1,279 1,499 1,501 1,335 1,485 Total Use 3,047 3,361 3,280 3,111 3,255 Ending Stocks 140 Season-Average Price ($/bu.) 9.97 9.59 11.30 12.30 13.00 For soybeans, a tight market continues to get tighter. USDA ratcheted down demand for the new crop to hold 2012/13 ending stocks at 140 million bushels. Source: USDA-WAOB 3 3

Corn Emergence Source: USDA-NASS The quick pace of this year’s crops has put downward pressure on prices. The 2012 corn crop was one of the fastest to plant and emerge. Usually, early planting translates to higher yields. Source: USDA-NASS

Soybean Emergence Source: USDA-NASS The 2012 soybean crop has also went in quickly. Source: USDA-NASS

Crop Conditions Source: USDA-NASS But dry conditions through May and early June have weakened the crops, as the crop conditions show. The crops still have plenty of time to rebound, but will need timely rains throughout the growing season. Source: USDA-NASS

Projection from Corn Conditions Early projections based on crop conditions are noisy estimates (a lot can happen to change the crop). In general, the early downgrading of conditions usually signals a below-trend line crop.

Projection from Soy Conditions Early projections based on crop conditions are noisy estimates (a lot can happen to change the crop). In general, the early downgrading of conditions usually signals a below-trend line crop.

The latest seasonal outlook shows continuing dry conditions across the southern Corn Belt. If that happens, the corn and soybean crop estimates will decline sizably. 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 10 10

World Soybean Production Soybean prices have also spurred on increased soybean plantings worldwide. South America will lead the charge. Source: USDA-WAOB 11 11

Corn vs. Wheat Source: CME Group, 6/19/2012 Looking at feed demand, wheat’s competition with corn in the feed market is lessening as the wheat-corn price relationship returns to more normal levels. Source: CME Group, 6/19/2012

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 for better returns in 2013. 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 With the exception of beef, meat production is back on the upswing. That should translate into stronger feed demand in the future. Source: USDA-WAOB 15 15

Corn Export Shifts Source: USDA-FAS Corn exports for the 2011 crop have been slow, with only Mexico and China buying more. USDA recently lowered its export estimate by 50 million bushels. 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

Change of Export Pace Both crops are slightly off the pace to meet USDA projections.

Corn Advance Export Sales But advance sales for corn are ahead of last year’s pace. Source: USDA-FAS

Soy Advance Export Sales The same is true for soybeans. Source: USDA-FAS

Corn Grind for Ethanol Source: DOE-EIA With biofuels, ethanol production remains strong. Source: DOE-EIA

Ethanol Stocks Source: DOE-EIA And stocks have begun to decline as we enter 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 nearly $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 2012 corn crop still has profitable prices, but the profits are being squeezed. The potential for a record crop and the lack of economic recovery have lowered prices, while costs have increased. Cost

Projected 2012 Season-Average Soy Price Cost Soybeans still have significant profit potential, but we have seen large swings in prices that will likely continue.

Iowa Corn Prices vs. Costs Corn margins are returning to their long-run average, around zero.

Iowa Soybean Prices vs. Costs Soybean margins are also tightening, but not as quickly.

Iowa Crop Margins Given current prices and trend yields, both crops could provide returns of roughly $60-80 per acre in Iowa.

2012 Crop Prices The rebound in Chinese demand for soybeans helped provide soybeans a boost this spring. Those stronger prices have maintained soybean returns as corn slipped.

Current Corn Futures 5.97 5.45 5.39 5.18 Source: CME Group, 6/19/2012 Based on current futures prices, national season-average cash price estimates for corn are $5.97 for the 2011 crop, $5.45 for 2012, $5.39 for 2013, and $5.18 for 2014. So longer-term prices are settling in at the high $4 to $5 range. 5.39 5.18 Source: CME Group, 6/19/2012

Current Soybean Futures 13.09 12.36 For soybeans, the estimates are $12.36 for the 2011 crop, $13.09 for 2012, $11.92 for 2013, and $11.69 for 2014. 11.92 11.69 Source: CME Group, 6/19/2012

Thoughts for 2012 and Beyond General economic conditions Continued worldwide economic recovery is a major key for crop prices US job recovery, European financial concerns, China? Supply/demand concerns Still need timely rains Biofuel growth and energy demand Will supply be able to keep pace with demand? Nearly 96 million acres of corn might do the trick Roughly 74 million acres of soybeans might not 2011/12: USDA: Corn $6.10; Soy $12.30 Futures (as of 6/19/12): Corn $5.97; Soy $12.36 2012/13: USDA: Corn $4.60; Soy $13.00 Futures (as of 6/19/12): Corn $5.45; Soy $13.09

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/