1. The Outlook for Crop Agriculture and the New Farm Bill
Peoples National Bank
Appreciation Dinner
Council Bluffs, Iowa
December 1, 2008
Chad Hart
Assistant Professor/Grain Markets Specialist 1

2. U.S. Corn Supply and Use $4.75 $4.40 Source: USDA-WAOB, Nov. 2008
-0.35
$4.40
Source: USDA-WAOB, Nov. 2008 2 2

3. U.S. Soybean Supply and Use
$10.45
-0.60
$9.85
Source: USDA-WAOB, Nov. 2008

4. Renewable Fuels Standard (RFS)
Crop
Year
Billion Bushels
2008
3.57
2009
4.11
2010
4.43
Corn-based ethanol goes in as conventional biofuel. The tables show the amounts of corn needed to meet the conventional biofuel portion of the RFS with corn-grain ethanol. The Renewable Fuels Association lists current ethanol production capacity at billion gallons, with another 2.8 billion gallons under construction. So ethanol capacity is large enough to meet the RFS for the next few years is the 1st year for the biodiesel portion of the RFS, with 500 million gallons of biodiesel needed to meet the mandate. In 2007, we produced roughly 450 million gallons. And the U.S. has enough biodiesel capacity on the ground today to produce over 2 billion gallons of biodiesel from a variety of sources. 4 4

5. Outside Influences (Sept. 2008 = 1)
But the recent weakness in the Dow has pounded oil and the crops significantly.

6. Urea Prices Source: http://www.fertilizerworks.com/html/market/
TheMarket.pdf

7. Iowa Corn Prices vs. Costs
Average return over the time period, -7 cents per bushel. Current corn prices for Iowa are around estimated costs.
Source: USDA-NASS and Duffy and Smith,

8. Iowa Soybean Prices vs. Costs
Average return over the period, 31 cents per bushel. Current Iowa prices still slightly above estimated costs.
Source: USDA-NASS and Duffy and Smith,

9. U.S. Stocks-to-Use Ratios
Even with the revision to higher corn and soybean ending stocks for 2007 and 2008, the U.S. stock situation is tight.

10. World Stocks-to-Use Ratios
But the world has higher than usual soybean stocks. Corn stocks have been tight worldwide for several years.

11. Thoughts for 2008 General economic conditions Energy demand
A lot of recent market trade has been tied to reaction to the financial crisis and the world’s response
Economic slowdown raises concern about export and energy demand
Energy demand
Higher energy prices did constrain demand
Will it recover?
Most important ag. statistic: Crude oil price or Dow Jones Index
Current futures are indicating 2008 season-average prices of $3.60 for corn and $8.50 for soybeans

12. Thoughts for 2009 and Beyond
Many of the storylines from the past few years will continue
Tight stocks for both corn and soybeans
The competition for acreage
Ethanol’s buildout & livestock’s adjustment
Energy price & general economy concerns
Market volatility will remain high
Link to the energy markets
More market players with different trading objectives
Given current factors, the 2009 outlook is for crop prices around $4.50 for corn and $9.50 for soybeans

13. The 2008 Farm Bill
Continues many of the same programs we have currently
Direct payments
Price countercyclical payments (CCPs)
Marketing loans
CRP, EQIP, and other conservation programs
Gives producers a choice on programs
Average Crop Revenue Election (ACRE)
Sets up new permanent disaster program
Supplemental Revenue Assistance Payments Program (SURE)

14. Target Price Changes Crop Unit 2008-09 2010-12 Corn $/bu. 2.63
Soybeans
5.80
6.00
Barley
2.24
Wheat
3.92
4.17
Oats
1.44
1.79
Cotton
$/lb.
0.724
0.7125
Sorghum
2.57

15. Direct Payment Rates Crop Unit 2008-12 Corn $/bu. 0.28 Soybeans 0.44
Barley
0.24
Wheat
0.52
Oats
0.024
Cotton
$/lb.
0.0667
Sorghum
0.35

16. Loan Rate Changes Crop Unit 2008-09 2010-12 Corn $/bu. 1.95 Soybeans
5.00
Barley
1.85
Wheat
2.75
2.94
Oats
1.33
1.39
Cotton
$/lb.
0.52
Sorghum

17. Other Adjustments to Current Programs
Payment acres = 85% of base in 2008 and 2012
Payment acres = 83.3% of base in
Establishes pulse crops (dry peas, lentils, chickpeas) as program crops
Posted county price based on 30-day moving average

18. Average Crop Revenue Election (ACRE)
ACRE is a revenue-based counter-cyclical payment program
Based on state and farm-level yields per planted acre and national prices
Producers choose between the current price-based counter-cyclical payment (CCP) program and ACRE
There are still some details to be worked out about ACRE (stay tuned)

19. Farmer Choice
Starting in 2009, producers will be given the option of choosing ACRE or not
Can choose to start ACRE in 2009, 2010, or beyond
Once you’re in ACRE, you stay in ACRE until the next farm bill
If you sign up for ACRE, you must do so for all eligible crops
Producers choosing ACRE agree to 20% decline in direct payments and 30% decline in loan rates

20. ACRE
Program has state and farm trigger levels, both must be met before payments are made
Expected state and farm yield based on 5 year Olympic average yields per planted acre
ACRE price guarantee is the 2 year average of the national season-average price

21. ACRE Set-up for Iowa Corn
Year
Yield per Planted Acre
(bu./acre)
2004
176.7
2005
168.9
2006
162.7
2007
166.8
2008
161.7
Olympic Average
166.1
Year
Season-average Price ($/bu.)
2007
4.20
2008
4.40
Average
4.30
Please note the years used in the price average is under debate and may change
The 2008 yield and price are USDA’s November 2008 estimates.
So the expected state yield would be bushels per acre and the ACRE price guarantee would be $4.30 per bushel.

22. ACRE Payments
Payment rate = Min(ACRE revenue guarantee – ACRE actual revenue, 25% * ACRE revenue guarantee)
Payments made on 83.3% of planted/base acres in , 85% in 2012
ACRE payment adjustment: Payment multiplied by ratio of Expected farm yield to Expected state yield

23. ACRE vs. CCP CCP pays out No CCP payments No ACRE payments
ACRE pays out

24. Supplemental Revenue Assistance Payments Program (SURE)
Provides payments to producers in disaster counties for crop losses
Based on crop insurance program, non-insured crop assistance program, and disaster declarations
Whole-farm revenue protection, not commodity-specific

25. SURE Triggers
Declared “disaster county” by Secretary of Agriculture or contiguous to one
Farm with losses exceeding 50% of normal production in a calendar year

26. SURE Settings
Participation and revenue guarantee tied to crop insurance
Farm revenue, including some government payments, used to determine payment
Payments set as 60% of the difference between guarantee and actual revenue
Limited to $100,000 per producer
Payments not known or paid until the end of the marketing year

27. Thank you for your time. Any questions. http://www. econ. iastate