Market Outlook & Farm Bill Iowa AFSMRA/RLI Meeting Ames, Iowa Mar. 27, 2014 Chad Hart Associate Professor/Crop Markets Specialist chart@iastate.edu 515-294-9911 1 1

U.S. Corn Supply and Use 2010 2011 2012 2013 2014 Area Planted (mil. acres) 88.2 91.9 97.2 95.4 92.0 Yield (bu./acre) 152.8 147.2 123.4 158.8 165.3 Production (mil. bu.) 12,447 12,360 10,780 13,925 13,985 Beg. Stocks 1,708 1,128 989 821 1,456 Imports 28 29 162 35 25 Total Supply 14,182 13,517 11,932 14,781 15,466 Feed & Residual 4,795 4,557 4,335 5,300 5,400 Ethanol 5,019 5,000 4,648 Food, Seed, & Other 1,407 1,428 1,396 1,400 1,430 Exports 1,834 1,543 731 1,625 1,550 Total Use 13,055 12,528 11,111 13,300 13,380 Ending Stocks 2,086 Season-Average Price ($/bu.) 5.18 6.22 6.89 4.50 3.90 Source: USDA-WAOB for 2010-13 2 2

U.S. Soybean Supply and Use 2010 2011 2012 2013 2014 Area Planted (mil. acres) 77.4 75.0 77.2 76.5 79.5 Yield (bu./acre) 43.5 41.9 39.8 43.3 45.2 Production (mil. bu.) 3,329 3,094 3,034 3,289 3,550 Beg. Stocks 151 215 169 141 145 Imports 14 16 36 35 15 Total Supply 3,495 3,325 3,239 3,464 3,710 Crush 1,648 1,703 1,689 1,690 1,725 Seed & Residual 130 88 90 99 105 Exports 1,501 1,365 1,320 1,530 1,600 Total Use 3,280 3,155 3,099 3,319 3,430 Ending Stocks 280 Season-Average Price ($/bu.) 11.30 12.50 14.40 12.95 9.65 Source: USDA-WAOB for 2010-13 3 3

World Corn Production Source: USDA-WAOB 4 4

World Soybean Production Source: USDA-WAOB 5 5

U.S. Meat Production & Prices Source: USDA-WAOB 6 6

Corn Export Shifts Source: USDA-FAS

Soy Export Shifts Source: USDA-FAS

Corn Grind for Ethanol

Current Corn Futures 4.65 4.64 4.59 Source: CME Group, 3/26/2014

Current Soybean Futures 13.04 11.60 10.96 Source: CME Group, 3/26/2014

Source: droughtmonitor.unl.edu

3-Month Temperature Outlook Source: NOAA-CPC

3-Month Precipitation Outlook Source: NOAA-CPC

Thoughts for 2014 and Beyond Supply/demand concerns Demand rebounding? Yes, so far, so good Acreage allocation for 2014: Where do the extra corn acres go? Markets favoring soybeans in the short term and corn longer term Dry soils to start, but El Niño watch for summer 2013/14 USDA 2014/15 Unofficial Futures (3/26/14) Corn $4.50 $3.90 $4.65 $4.64 Soybeans $12.95 $9.65 $13.04 $11.60

Farm Bill: Old vs. New Direct Payments (DP) Countercyclical Payments (CCP) Marketing Loans (LDP) Revenue Countercyclical Payments (ACRE) Countercyclical Payments (PLC) Marketing Loans (LDP) Revenue Countercyclical Payments (ARC) New programs, but they have strong similarities to previous programs

Two Waves First wave: Choice on base acreage and yield updating Probably occurs June-July timeframe Second wave: Choice on farm bill programs Probably Sept-Oct Harvest the crop and farm bill at the same time

Base Acres Keep current base acres or do a one-time “reallocation” of base acres Reallocation allowed to covered commodities planted between 2009 and 2012 Reallocation in proportion to the ratio of 4-yr average plantings/prevented plantings Total number of base acres limited to total of existing base acres

Payment Yields Keep current CCP payment yield or do a one-time “update” of payment yield on a commodity-by-commodity basis Update: 90% of 2008-2012 yield per planted acre on the farm If the farm yield is below 75% of the 2008-2012 average county yield, then the farm yield is replaced by 75% of the 2008-2012 average county yield County yield: planted or harvested?

Payment Acres For PLC and ARC at the county level, 85% of base acres For ARC at the individual level, 65% of base acres

Producer Choice Have one-time choice between: PLC or ARC (can pick by commodity) If ARC is chosen, pick between county and individual coverage If individual coverage is chosen, must be taken for all covered commodities on the farm 2014-2018 crop years

Reference Prices Old Target Prices Reference Prices Corn $2.63 Wheat $4.17 Soybean $6.00 Sorghum $2.63 Barley $2.63 Oats $1.79 Reference Prices Corn $3.70 Wheat $5.50 Soybean $8.40 Sorghum $3.95 Barley $4.95 Oats $2.40

PLC instead of CCP Price-based support program Reference prices establish targets Works like CCP Payment rate = Max(0, Reference price – Max(MYA price, Loan rate)) Payment = Payment rate * Payment yield * Payment acres

PLC vs. CCP and DP

ARC instead of ACRE Revenue-based support program Revenues based on 5-year Olympic average yields and prices Yields and prices have cups (County T-yields and reference prices) Triggers at county or individual farm level, instead of state level

ARC Payment Rate Payment rate = Max(0, Min(10% of Benchmark revenue, Actual crop revenue – ARC guarantee)) So the basic payment structure is the same as it was under ACRE

Revenue Programs Think of ARC-County as crop-by-crop ARC-Individual Benchmark revenue 5-yr OA county yield * 5-yr OA MYA price Sum across crops of [5-yr OA (farm yield * MYA price) *crop acreage] Actual crop revenue County yield * Max(MYA price or loan rate) Sum across crops of [Farm production * Max(MYA price or loan rate)] / Total planted acres of all covered crops Revenue guarantee 86% of benchmark Think of ARC-County as crop-by-crop Think of ARC-Individual as whole farm

Conservation Conservation Reserve Program 27.5 million acres in 2014 24 million acres in 2017 and 2018 Grassland enrollment capped at 2 million acres

Supplemental Coverage Option (SCO) An additional policy to cover “shallow losses” Shallow loss = part of the deductible on the producer’s underlying crop insurance policy SCO has a county-level payment trigger Indemnities are paid when the county experiences losses greater than 14% Premium subsidy: 65% Starts in 2015 Can’t have ARC and SCO together

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/