Associate Professor/Crop Markets Specialist Crop Market Outlook and the Farm Bill Washington, Iowa Jan. 12, 2015 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 97.3 95.4 90.6 Yield (bu./acre) 152.8 147.2 123.1 158.1 171.0 Production (mil. bu.) 12,447 12,360 10,755 13,829 14,216 Beg. Stocks 1,708 1,128 989 821 1,232 Imports 28 29 160 36 25 Total Supply 14,182 13,517 11,904 14,686 15,472 Feed & Residual 4,795 4,557 4,315 5,036 5,275 Ethanol 5,019 5,000 4,641 5,134 5,175 Food, Seed, & Other 1,407 1,428 1,397 1,367 1,395 Exports 1,834 1,543 730 1,917 1,750 Total Use 13,055 12,528 11,083 13,454 13,595 Ending Stocks 1,877 Season-Average Price ($/bu.) 5.18 6.22 6.89 4.46 3.65 Source: USDA-WAOB 2 2

U.S. Soybean Supply and Use 2010 2011 2012 2013 2014 Area Planted (mil. acres) 77.4 75.0 77.2 76.8 83.7 Yield (bu./acre) 43.5 41.9 40.0 44.0 47.8 Production (mil. bu.) 3,329 3,094 3,042 3,358 3,969 Beg. Stocks 151 215 169 141 92 Imports 14 16 41 72 15 Total Supply 3,495 3,325 3,252 3,570 4,076 Crush 1,648 1,703 1,689 1,734 1,780 Seed & Residual 130 88 105 97 116 Exports 1,501 1,365 1,317 1,647 1,770 Total Use 3,280 3,155 3,111 3,478 3,666 Ending Stocks 410 Season-Average Price ($/bu.) 11.30 12.50 14.40 13.00 10.20 Source: USDA-WAOB 3 3

Corn Yields Top: 2014 Yield Bottom: Change from last year Units: Bu/acre Source: USDA-NASS

Soybean Yields Top: 2014 Yield Bottom: Change from last month Units: Bu/acre Source: USDA-NASS

World Corn Production Source: USDA-WAOB 6 6

World Soybean Production Source: USDA-WAOB 7 7

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

U.S. Meat Production & Prices Source: USDA-WAOB 10 10

Corn Export Shifts Source: USDA-FAS

Corn Export Sales Source: USDA-FAS

Soybean Export Shifts Source: USDA-FAS

Soybean Export Shifts Source: USDA-FAS

Corn Grind for Ethanol

Current Corn Futures 4.02 3.79 Source: CME Group, 1/9/2015

Current Soybean Futures 10.22 9.86 Source: CME Group, 1/9/2015

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

Soybean 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

2014/15 Crop Margins

2015/16 Crop Margins

Thoughts for 2015 and Beyond Supply/demand concerns Record corn and soybean crops, but also record demand Markets are in a holding pattern, waiting for news Watching South American crop progress Projected negative margins for 2014 and 2015 crops 2013/14 USDA 2014/15 Futures (1/9/15) 2015/16 Corn $4.46 $3.65 $3.79 $4.02 Soybeans $13.00 $10.20 $10.22 $9.86

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

PLC: Corn Payment Potential Reference Price = $3.70 per bushel Payment Yield = 150 bushels per acre Marketing Year Price ($/bu) PLC Payment Rate ($/bu) PLC Payment ($/base acre) $3.10 $0.60 $76.50 $3.20 $0.50 $63.75 $3.30 $0.40 $51.00 $3.40 $0.30 $38.25 $3.50 $0.20 $25.50 $3.60 $0.10 $12.75 $3.70 $0.00 Notes: PLC payments are made on 85% of base acres.

ARC-CO: 2014 Corn Revenue Guarantee Year Yield MYA Price ARC Price 2009 171.0 $3.55 $3.70 2010 131.0 $5.18 2011 155.0 $6.22 2012 $6.89 2013 156.0 $4.46 Oly. Ave. 147.3 $5.29 Benchmark Revenue = $779.22 per acre ARC Revenue Guarantee = $670.13 per acre Notes: Revenue Guarantee equals 86% of Benchmark.

ARC-CO: 2014 Potential Corn Payment ARC Revenue Guarantee = $670.13 per acre ARC Max Payment Rate = $77.92 per acre But ARC-CO is paid on 85% of base acres and 85% of $77.92 is $66.23 Price: $3.50 $4.00 $4.50 $5.00 Yield: 125 $66.23 $38.36 150 $59.61 $0.00 175 $48.99 200 225

ARC-IC: 2014 Corn & Soybean Combined Revenue Guarantee Year Corn Yield ARC Price Revenue Soy Yield 2009 157.0 $3.70 $580.90 43.0 $9.59 $412.37 2010 186.0 $5.18 $963.48 55.0 $11.30 $621.50 2011 187.0 $6.22 $1163.14 56.0 $12.50 $700.00 2012 163.0 $6.89 $1123.07 50.0 $14.40 $720.00 2013 156.0 $4.46 $695.76 46.0 $13.00 $598.00 Oly. Ave. $927.44 $639.83 In 2014, if the farm is planted 60% to corn and 40% to soybeans, then Benchmark Revenue = $812.40 per acre Revenue Guarantee = $698.66 per acre

ARC-IC : 2014 Potential Corn & Soybean Combined Payment Actual 2014 farm yields: Corn 180 bushels per acre Soy 50 bushels per acre Marketing year prices: Corn $4.00 per bushel Soy $10.50 per bushel Calculated revenues: Corn $720.00 per acre Soy $525.00 per acre ARC Revenue: 60%*$720.00 + 40%*$525.00 = $642.00 ARC-IC is paid on 65% of base acres ARC-IC Payment = $36.83 per acre (65% of $698.66-$642.00)

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

Supplemental Coverage Option (SCO) RP RPHPE YP

Three Choices PLC + SCO ARC-County ARC-Individual Price protection with top-up county-level insurance protection ARC-County County-level revenue protection based on historical averages ARC-Individual Farm-level revenue protection based on historical averages Choice holds for 2014-2018 crop years

PLC pays, ARC does not Neither pay Both pay ARC pays, PLC does not The choice depends on where you expect prices and yields to be over the next 5 years. There are price/yield combinations where PLC pays and ARC does not. There are also price/yield combinations where ARC pays and PLC does not.

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/