Marketing and Risk Farming for the Future: Emerging Opportunities in Livestock Production Ames, Iowa Jan. 16, 2014 Chad Hart Associate Professor/Crop Markets Specialist chart@iastate.edu 515-294-9911 1 1

U.S. Corn Supply and Use 2009 2010 2011 2012 2013 Area Planted (mil. acres) 86.4 88.2 91.9 97.2 95.4 Yield (bu./acre) 164.7 152.8 147.2 123.4 158.8 Production (mil. bu.) 13,092 12,447 12,360 10,780 13,925 Beg. Stocks 1,673 1,708 1,128 989 821 Imports 8 28 29 162 35 Total Supply 14,774 14,182 13,517 11,932 14,781 Feed & Residual 5,125 4,795 4,557 4,335 5,300 Ethanol 4,591 5,019 5,000 4,648 Food, Seed, & Other 1,370 1,407 1,428 1,396 1,400 Exports 1,980 1,834 1,543 731 1,450 Total Use 13,066 13,055 12,528 11,111 13,150 Ending Stocks 1,631 Season-Average Price ($/bu.) 3.55 5.18 6.22 6.89 4.40 Source: USDA-WAOB 2 2

World Corn Production Source: USDA-WAOB 3 3

Renewable Fuels Standard (RFS) 4 4

Current Corn Futures 4.46 4.38 4.37 Source: CME Group, 1/14/2014

Corn Prices vs. Costs Per Bushel Cost calculated as Per Acre Cost from ISU Extension divided by Actual Yield per Acre Sources: USDA-NASS for Prices, Duffy for Costs

Export Share of US Production, 2012 Source: USDA ERS “Livestock, Dairy & Poultry Outlook”

Beef Consumption Growth Source: USDA Foreign Agriculture Service PSD Online

Trends in US Protein Consumption Source: USDA Economic Research Service “Food Availability”

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 Source: 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 Source: ISU Extension

Fear, Greed, and Ego Fear of making a bad decision -- Watching prices slip away as you wait Greed of expecting even higher prices -- Not taking advantage of good price opportunities Ego of wanting to claim you caught the market high -- “Lake Wobegon” marketing

Ego Greed Fear

Marketing Plan To avoid fear, greed, and ego dominating your marketing, have a plan and stick to it. A marketing plan outlines your market strategy and your marketing objectives. It should examine marketing opportunities before and after harvest.

Marketing Objectives Get the highest selling price Reduce price risk Pretty tough to do More realistic objective: Obtain better than average prices Reduce price risk Cover cash flow needs Minimize tax liability Look at short and long-term goals for your business

Building a Marketing Plan 5 basic steps: Estimate number of bushels/animals to sell/buy Calculate breakeven price Project price and production scenarios Compare pricing tools and analyze market opportunities Develop a pricing plan

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/