December Steven D. Johnson

Transcription

1 December 2013 Steven D. Johnson Farm & Ag Business Management Specialist (515) Learning Objectives Review lessons learned from 2013 Understand the impact of the November Crop Reports and weekly futures charts to determine cash price trends Estimate your own 2014 crop costs Utilize the proposed new Commodity Farm Program with crop insurance coverage to manage revenue risk Adopt crop risk management strategies Learn to use a variety of marketing tools 1

2 What Was Different In 2013? Macro Economic Uncertainties Improved Crop Weather Risk On Higher Futures 1. Weather Concerns Globally 2. European Debt Resolutions 3. Strong Asian Economies 4. Non-Commercial Investors (Funds) continue to invest in Commodities 5. Avoidance of U.S. Debt Crisis and Fiscal Cliff Risk Off Lower Futures 1. Improved Weather, Higher Yield Prospects 2. European Union debt contagion, recession grows 3. Global Economy slows 4. Funds reluctant investors 5. Random Shocks (Syria, Egypt, Syria, Iran, North Korea, etc.) Source: Johnson, ISU Extension, November 2012 Strategies for Marketing 2013 Crop Expect New Crop Futures Prices to Remain High Through Spring, Especially Corn: Consider forward contracts/htas (delivery) for insurance bushels Buy put options (non-delivery) bushels Sell Bushels to Meet Fall/Winter Cash Flow: Target soybean sales early, corn bushels mostly spring and summer months Avoid long-term commercial storage Early delivered bushels will bring a premium Source: Johnson, ISU Extension, November

3 December Corn Futures Seasonals Average High $ Average High $ Average High $5.93 Source: October 2013 November Soybean Futures Seasonals Average High $ Average High $ Average High $11.14 Source: October

4 U.S. Corn Supply & Demand Area Planted (mil. acres) Yield (bu./acre) Production (mil. bu.) 13,092 12,447 12,360 10,780 13,989 Beg. Stocks (mil. bu.) 1,673 1,708 1, Imports (mil. bu.) Total Supply (mil. bu.) 14,774 14,182 13,517 11,932 14,837 Feed & Residual (mil. bu.) 5,125 4,795 4,546 4,333 5,200 Ethanol (mil. bu.) 4,591 5,019 5,011 4,648 4,900 Food, Seed, & Other (mil. bu.) 1,370 1,407 1,428 1,396 1,450 Exports (mil. bu.) 1,980 1,834 1, ,400 Total Use (mil. bu.) 13,066 13,055 12,528 11,108 12,950 Ending Stocks (mil. bu.) 1,708 1, ,887 Season-Average Price ($/bu.) $3.55 $5.18 $6.22 $6.89 $4.50 Source: USDA WASDE, Jan Nov. 8, 2013 Corn Ending Stocks & Average Cash Price Source: USDA WASDE, Jan Nov. 8,

5 Weekly Corn Futures Trading Range Source: November 7, 2013 Weekly Corn vs. Crude Oil (Reduced Correlation) The Blend Wall Source: November 7,

6 World Corn Production Source: USDA WASDE, November 8, 2013 Corn & Soybean Futures Carry Adequate Carry for On-Farm Storage, Limited for Commercial Storage July $ Jan. $ Futures Inverse: No Incentive for On-Farm or Commercial Storage May $ Mar. $ Mar. $ May $ Dec.$ July $ Source: Iowa Commodity Challenge, November

7 World Soybean Production Source: USDA WASDE, November 8, 2013 U.S. Soybean Supply & Demand Area Planted (mil. acres) Yield (bu./acre) Production (mil. bu.) 3,359 3,329 3,094 3,034 3,258 Beg. Stocks (mil. bu.) Imports (mil. bu.) Total Supply (mil. bu.) 3,512 3,495 3,325 3,239 3,413 Crush (mil. bu.) 1,752 1,648 1,703 1,689 1,685 Seed & Residual (mil. bu.) Exports (mil. bu.) 1,499 1,501 1,365 1,315 1,450 Total Use (mil. bu.) 3,361 3,280 3,155 3,098 3,243 Ending Stocks (mil. bu.) Season-Average Price ($/bu.) $9.59 $11.30 $12.50 $14.40 $12.15 Source: USDA WASDE, Jan Nov. 8,

8 Soybean Ending Stocks & Average Cash Price Source: USDA WASDE, Jan Nov. 8, 2013 Weekly Soybean Futures Trading Range Source: November 7,

9 Weekly Soybeans vs. U.S. Dollar Index (Inverse Correlation) Source: November 7, 2013 Soybean to Corn Price Ratio vs. U.S. Planted Acres Source: USDA NASS, CME Group, March 2008 to Nov. 8,

10 2014 U.S. Planted Acreage Forecast 94M 80M 58M 27M * Forecast Source: USDA NASS & Johnson, ISU Extension, November 2013 Crop Cost Trends ($/A) (Non-Land) Crop Rotation Source: Johnson, ISU Extension, Jan to Nov

11 Iowa 2014 Crop Cost Estimates (Preliminary) Soybeans after Corn Corn after Soybeans Corn after Corn Total Cost Expected Yield bu/a Cost Per Bushel $ $11.18 $ $4.31 $ $5.02 Source: Johnson, ISU Extension, November 2013 Iowa Breakevens vs. Nat l Cash Prices (Soybeans after Corn) Forecast Source: USDA WASDE & Johnson, ISU Extension, November

12 Iowa Breakevens vs. Nat l Cash Prices (Corn after Soybean, Corn after Corn) Forecast Source: USDA WASDE & Johnson, ISU Extension, November Soybeans following Corn Margin Estimates $550 Labor $29 $ bu/a X $11/bu = $550/A $267 Machinery $85 Inputs $169 Source: Johnson, ISU Extension, November

13 2014 Corn following Soybeans Margin Estimates $810 Labor $34 $ bu/a X $4.50/bu = 810/A Machinery $144 $311 Inputs $321 Source: Johnson, ISU Extension, November Corn following Corn Margin Estimates $742 $553 Labor $37 Machinery $ bu/a X $4.50/bu = $742/A $ 189 Inputs $369 Source: Johnson, ISU Extension, November

14 Commodity Program Proposed (5 years: ) Marketing Loan Rates: $1.95/bu Corn $5.00/bu Soybeans Source: U.S. Congress & Johnson, ISU Extension, November 2013 Comparing ARC or RLC Programs ARC (Senate) RLC (House) Coverage Revenue Revenue % Losses Covered Prices Yields 11% of Farm or 21% of County Guarantee 5-Year Olympic Nat l Average Cash Price 2014 Estimate: $5.30/bu Corn, $11.98/bu Soybeans 5-Year Olympic Average (Farm or County Yield) 15% to 25% of County Guarantee Only 5-Year Olympic Nat l Average Cash Price 2014 Estimate: $5.30/bu Corn, $11.98/bu Soybeans 5-Year Olympic Average (County Yield Only) Payment Rate 65% Farm or 80% County of Eligible Planted Acres 100% of Eligible Planted Acres Payment Limitations $750,000 AGI per Entity $950,000 AGI per Entity Source: 2013 Farm Bill Conference Committee, November

15 Corn Insurance Coverage (2013) Revenue Protection = 92% to 96% of Insured Acres (IA, NE, SD) Iowa Nebraska South Dakota IA NE SD GRIP/GRP 1% 0% 0% YP 3% 7% 3% RP-HPE 1% 1% 1% RP 95% 92% 96% Source: USDA Risk Management Agency, October 2013 Corn Insurance Prices vs. Seasonal Highs Source: USDA Risk Management Agency & CME Group, Nov

16 Soybean Insurance Coverage (2013) Revenue Protection = 91% to 98% of Insured Acres (IA, NE, SD) Iowa Nebraska South Dakota IA NE SD GRIP/GRP 1% 0% 0% YP 3% 8% 2% RP-HPE 1% 1% 0% RP 95% 91% 98% Source: USDA Risk Management Agency, October 2013 Soybean Insurance Prices vs. Seasonal Highs Source: USDA Risk Management Agency & CME Group, Nov

17 Futures Price Futures Price Crop Marketing Tools Forward Contracts/HTAs Generate cash flow, avoid storage costs Target guaranteed insurance bushels Futures Hedges No delivery of bushels, potential margin calls Protects against lower futures prices Options Use both puts and calls Create minimum price contracts Buy puts for unsold bushels Buy calls to replace sold bushels. Source: Iowa Commodity Challenge, November 2013 Crop Marketing Matrix 1. Store and wait 2. Delayed price contract 3. Minimum price contract 1. Basis contract Corn 2. Sell cash bushels and buy futures or call option 3. Minimum price contract Basis 1. Hedge 2. Non-roll hedge to arrive 3. Buy put option Basis 1. Cash sale now 2. Forward contract Soybeans Source: Iowa Commodity Challenge, November

18 Crop Risk Management Strategies Macro Economic Uncertainties May Limit Upside for Crop Prices Use Revenue Protection (RP) and Trend- Adjusted (TA) Yield Option Crop Costs in Know Your 2014 Are Not Costs; Learn to Expected to Use a Variety of Increase Marketing Significantly Tools Let Cash Flow and Profit Margins Drive Marketing (Pre-Harvest Sales of Guaranteed Bushels) Source: Johnson, ISU Extension, December 2013 Crop Risk Management Web Sites Crop Risk Management - ISU Polk County (Monthly Farmland Owners Newsletter, Webcasts and Videos, Updates on Crop Marketing Strategies, Government Farm Programs & Farmland Leasing) Farm Doc U of IL Extension Economics (Daily e-newsletter, FAST Tools, Newsletters, Publications) Ag Manager Kansas State Extension Economics Commodity Challenge (online market simulation game) Ag Decision Maker ISU Extension (Iowa Commodity Challenge Curriculum, Monthly e-newsletter, Decision Tools, Newsletters, Publications, Voiced Media) Source: Johnson, ISU Extension, December