1. Managing Crop Margins in 2009 Craig A. Chase Farm Management Field Specialist

2. Presentation Objectives Cost of Production Sizing up the Market Strategies/Tools for Managing Margins

3. Costs for 2009 Extremely hard to predict this year –Pre-paid vs. spot –Changes in world and domestic demand –Changes due to financial crisis –New varieties and traits –Energy markets

4. Baseline assumptions Diesel$2.50 N$.68, P $.90K $.72 LP $1.90 Corn seed; $250 Soybeans $45/50 lb Land; $178 $205 $232 Yields; continuous corn 125 145 165 –Rotated corn 140 160 180 –Soybeans 45 50 55

7. Source: Schnitkey, U of IL Ext. Economics, Oct. 2008. Direct Cost of Crop Production ($/A) Historical vs. 2009 Forecast 36% 19%

8. Non-Land Costs vs. Gross Revenue ($/A) Historical vs. 2009 Forecast Source: Schnitkey, U of IL Ext. Economics, Oct. 2008. $177/A $200/A

9. Sizing Up the Market

10. Reluctance Toward Pre-Harvest Marketing Failure to Understand and Track Your Local Basis Lack of an Exit Strategy Holding Grain in Storage Too Long Misunderstanding Carrying Charges Develop a Marketing Plan Avoid the Five Common Mistakes in Grain Marketing?!?!

11. Sep $4.38 July $4.28 May $4.18 Mar $4.07 Corn Futures Carry Dec. 2009 $4.52 Source: www.cbot.com December 2008. Dec. 31, 2008 Good carry through July: rewards on-farm storage

12. Corn Storage Costs Assumption: Corn is Valued at $4/bu - Financed @ 7% APR Source: Johnson, ISU Ext. Economics, December 2008..20.28.31.47.43.66.54.85

13. Corn Basis

14. Jul $10.03 May $9.92 Mar $9.80 Jan. $9.72 Dec. 11 th, 2008 Soybean Futures Carry Nov. 2009 $10.07 Source: www.cbot.com December 2008. Lack of carry, difficult to justify storage long-term

15. Soybean Storage Costs Source: Johnson, ISU Ext. Economics, December 2008. Assumption: Soybeans are Valued at $9/bu - Financed @ 7% APR.10.29.38.47.65.66.93

16. Soybean Basis

17. New Crop Corn Seasonal Trend Source: CBOT data compiled by the U of MN, CFFM, 2008. 79% Odds: Spring Price Exceeds Harvest Price

18. $3.65/bu 17% $3.80/bu 65% $4.65/bu 18% Corn Cash Price & Probability Forecast ’09-’10 Marketing Year Source: Wisner, ISU Biofuels Economist, December 2008.

19. December 2009 Corn Futures

20. New Crop Soybeans Seasonal Trend Source: CBOT data compiled by the U of MN, CFFM, 2008. 68% Odds: Spring Price Exceeds Harvest Price

21. $7.45/bu 17% $7.75/bu 65% $8.45/bu 18% Soybean Cash Price & Probability Forecast ’09-’10 Marketing Year Source: Wisner, ISU Biofuels Economist, December 2008.

22. November 2009 Soybean Futures

23. Tools for Evaluation Machinery Economics http://www.farmdoc.uiuc.edu/pubs/FASTtool.asp?section=FAST Crop Rotation Calculator http://www.extension.iastate.edu/agdm/crops/xls/a1-20croprotation.xls http://www.extension.iastate.edu/agdm/wholefarm/xls/c2- 21flexiblerentanalysis.xls http://www.extension.iastate.edu/agdm/crops/xls/a1-80rotationprofitabilitycalculator.xls Crop Rotation Calculator http://www.extension.iastate.edu/agdm/crops/xls/a1-80nratecalculator.xls Crop Rotation N Calculator Flexible Rent Calculator

24. http://www.extension.iastate.edu/agdm/crops/xls/a1-80rotationprofitabilitycalculator.xls Crop Rotation Calculator

25. http://www.extension.iastate.edu/agdm/crops/xls/a1-80nratecalculator.xls Crop Rotation Calculator

26. Decision #1 What should the crop rotation be? What are the choices? Are there alternative or specialty crops that are more profitable and that would fit into a rotation?

27. http://extension.agron.iastate.edu/soilfertility/nrate.aspx

28. Corn after SB $4.00 price $.75 N 104 pounds

29. Corn on Corn $4.50 price $.75 N 157 pounds

30. Decision #2 What should the fertility program look like? Can fertility costs be lowered without affecting yields? (over 1/3 of non-land production cost is from fertility).

31. Machinery costs Fixed costsVariable costs Depreciation Interest Storage Insurance Repairs Labor Fuel

32. http://www.farmdoc.uiuc.edu/pubs/FASTtool. asp?section=FAST Machinery Economics Field Operations

33. Managing Machinery Costs Combine Operations

34. Decision #3 Does the machinery “fit” the operation ? (not too big or too little) Do the custom rate charges reflect the costs of the machinery? Are there some machinery costs that can be re-evaluated (field operations)?

35. Tenants’ Residual http://www.extension.iastate.edu/agdm/wholefarm/xls/c2-20croplandcashrent.xls Computing a Cropland Cash Rental Rate

37. Flexible Cash Rent Leases

38. Decision #4 Does the lease terms provide for some profitability? Can I re-negotiate the lease or move it toward a flexible terms lease?

39. Crop Insurance http://www.farmdoc.uiuc.e du/cropins/index.asp

40. Decision #5 Determine the right insurance product to meet your risk management needs. Make sure you have enough insurance, but are not “over-insured”. –Look at what the insurance product does compared to the farm marketing plan. –Evaluate the new farm bill and how ACRE may affect crop insurance needs.

41. Conclusions Input prices have risen dramatically and will show increased volatility. Some signs world prices have softened but not likely to be seen until current high priced stocks are used. Take soil tests and only use what is necessary. Evaluate seed and seeding rates carefully.

42. Conclusions Try for flexible lease arrangements. Consider all the pest management options available. Don’t simply cut back without carefully evaluating the consequences; you have to spend money to make money. Consider all the risk management options available.

43. Conclusions Know your costs of production. Make cuts and changes where they will do you the most good. Follow a good marketing plan.

44. Risk Management Web Sites Ag Decision Maker – ISU Extension Economics www.extension.iastate.edu/agdm Farm Doc – U of IL Extension Economics www.farmdoc.uiuc.edu Center for Farm Financial Management – U of MN www.cffm.umn.edu Corn Nitrogen Rate Calculator Calculator http://extension.agron.iastate.edu/soilfertility/nrate.aspx

45. ISU Crop Marketing Web Sites Grain and Oilseed Market Analysis http://www.econ.iastate.edu/outreach/agriculture/periodicals/if o/ Corn and Soybean Basis (State and County) www.card.iastate.edu/ag_risk_tools Ag Econ Periodicals, Publications and Programs www.econ.iastate.edu/outreach/agriculture/ Ag Decision Maker (Crop Updates/ Publications Decision Tools) http://www.extension.iastate.edu/agdm

46. Questions….. Any questions or comments? Thank You for This Opportunity! NOTE: This presentation can be found at http://www.extension.iastate.edu/agdm/fieldstaff/ cchase.html Craig A. Chase Farm Management Field Specialist 720 7 th Avenue SW Tripoli, IA 50676 (319) 882-4275 cchase@iastate.edu