Extension and Outreach/Department of Economics Ag Outlook, Links to the General Economy, and the...

Extension and Outreach/Department of Economics

Ag Outlook, Links to the General Economy, and the Farm Bill

West Des Moines, IowaNov. 20, 2014

Chad HartAssociate Professor/Crop Markets Specialist

[email protected]


U.S. Corn Supply and Use2010 2011 2012 2013 2014

Area Planted (mil. acres) 88.2 91.9 97.3 95.4 90.9

Yield (bu./acre) 152.8 147.2 123.1 158.8 173.4Production (mil. bu.) 12,447 12,360 10,755 13,925 14,407Beg. Stocks (mil. bu.) 1,708 1,128 989 821 1,236

Imports (mil. bu.) 28 29 160 36 25Total Supply (mil. bu.) 14,182 13,517 11,904 14,782 15,668Feed & Residual (mil. bu.) 4,795 4,557 4,315 5,132 5,375Ethanol (mil. bu.) 5,019 5,000 4,641 5,134 5,125

Food, Seed, & Other (mil. bu.) 1,407 1,428 1,397 1,363 1,385Exports (mil. bu.) 1,834 1,543 730 1,917 1,750Total Use (mil. bu.) 13,055 12,528 11,083 13,546 13,660Ending Stocks (mil. bu.) 1,128 989 821 1,236 2,008

Season-Average Price ($/bu.) 5.18 6.22 6.89 4.46 3.50

Source: USDA-WAOB


U.S. Soybean Supply and Use2010 2011 2012 2013 2014

Area Planted (mil. acres) 77.4 75.0 77.2 76.8 84.2Yield (bu./acre) 43.5 41.9 40.0 44.0 47.5Production (mil. bu.) 3,329 3,094 3,042 3,358 3,958

Beg. Stocks (mil. bu.) 151 215 169 141 92Imports (mil. bu.) 14 16 41 72 15Total Supply (mil. bu.) 3,495 3,325 3,252 3,570 4,065

Crush (mil. bu.) 1,648 1,703 1,689 1,734 1,780Seed & Residual (mil. bu.) 130 88 105 98 115Exports (mil. bu.) 1,501 1,365 1,317 1,647 1,720Total Use (mil. bu.) 3,280 3,155 3,111 3,478 3,615

Ending Stocks (mil. bu.) 215 169 141 92 450Season-Average Price ($/bu.) 11.30 12.50 14.40 13.00 10.00

Source: USDA-WAOB


Projected Corn Yields

Source: USDA-NASS

Top: 2014 YieldBottom: Change from last monthUnits: Bu/acre


Projected Soybean Yields

Source: USDA-NASS

Top: 2014 YieldBottom: Change

from last monthUnits: Bu/acre


World Corn Production

Source: USDA-WAOB


World Soybean Production

Source: USDA-WAOB


Hog Crush Margin

Source: ISU Extension

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 futuresCorn: 10 bushels per pig Soybean meal: 150 pounds per pig


Cattle Crush Margin

Source: ISU Extension

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


U.S. Meat Production & Prices

Source: USDA-WAOB


Corn Export Shifts

Source: USDA-FAS


Corn Export Sales

Source: USDA-FAS


Soybean Export Sales

Source: USDA-FAS


Soy Export Shifts

Source: USDA-FAS


Corn Grind for Ethanol


Current Corn Futures

Source: CME Group, 11/14/2014

3.69

4.04


Current Soybean Futures

Source: CME Group, 11/14/2014

9.97

9.82


Corn Prices vs. Costs

Sources: USDA-NASS for Prices, Duffy for Costs

Per Bushel Cost calculated as Per Acre Cost from ISU Extension divided by Actual Yield per Acre


Soybean Prices vs. Costs

Sources: USDA-NASS for Prices, Duffy for Costs

Per Bushel Cost calculated as Per Acre Cost from ISU Extension divided by Actual Yield per Acre


2014/15 Crop Margins


2015/16 Crop Margins


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 2014 Payment Potential

Notes: PLC payments are made on 85% of base acres.

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 $0.00

Reference Price = $3.70 per bushelPayment Yield = 150 bushels per acre


ARC-CO: 2014 Corn Revenue Guarantee

Notes: Revenue Guarantee equals 86% of Benchmark.

Year Yield MYA Price ARC Price2009 163.4 $3.55 $3.702010 184.1 $5.18 $5.182011 174.2 $6.22 $6.222012 133.2 $6.89 $6.892013 146.3 $4.45 $4.46

Oly. Ave. 161.3 $5.29Benchmark Revenue = $853.28 per acreARC Revenue Guarantee = $733.82 per acre


ARC-CO: 2014 Potential Corn Payment

Price: $3.50 $4.00 $4.50 $5.00

Yield: 100 $72.53 $72.53 $72.53 $72.53125 $72.53 $72.53 $72.53 $72.53150 $72.53 $72.53 $50.00 $0.00175 $72.53 $28.75 $0.00 $0.00200 $28.75 $0.00 $0.00 $0.00

ARC Revenue Guarantee = $733.82 per acreARC Max Payment Rate = $85.33 per acreBut ARC-CO is paid on 85% of base acres

and 85% of $85.33 is $72.53


ARC-IC: 2014 Corn & Soybean Combined Revenue Guarantee

Source: Schulte, ISU Extension, June 2014

YearCorn Yield

ARC Price Revenue

Soy Yield

ARC Price Revenue

2009 163.4 $3.70 $604.58 43.3 $9.59 $415.252010 184.1 $5.18 $953.64 54.5 $11.30 $615.852011 174.2 $6.22 $1083.52 51.1 $12.50 $638.752012 133.2 $6.89 $917.75 45.7 $14.40 $658.082013 146.3 $4.46 $652.50 40.1 $13.00 $521.30

Oly. Ave. $841.30 $591.97

In 2014, if the farm is planted 60% to corn and 40% to soybeans, thenBenchmark Revenue = $741.57 per acreRevenue Guarantee = $637.75 per acre


ARC-IC : 2014 Potential Corn & Soybean Combined Payment

Source: Schulte, ISU Extension, June 2014

Actual 2014 farm yields: Corn 150 bushels per acreSoy 45 bushels per acre

Marketing year prices: Corn $4.00 per bushelSoy $10.50 per bushel

Calculated revenues: Corn $600.00 per acreSoy $472.50 per acre

ARC Revenue: 60%*$600.00 + 40%*$472.50 = $549.00

ARC-IC is paid on 65% of base acres

ARC-IC Payment = $57.69 per acre (65% of $637.75-$549.00)


Supplemental Coverage Option (SCO)An additional policy to cover “shallow losses”Shallow loss = part of the deductible on the

producer’s underlying crop insurance policySCO has a county-level payment triggerIndemnities are paid when the county

experiences losses greater than 14%Premium subsidy: 65%Starts in 2015Can’t have ARC and SCO together


RPRPHPE

YP

SCO

Supplemental Coverage Option (SCO)


Three ChoicesPLC + SCO

Price protection with top-up county-level insurance protection

ARC-CountyCounty-level revenue protection based on historical

averagesARC-Individual

Farm-level revenue protection based on historical averages

Choice holds for 2014-2018 crop years


Neither pay

Both pay

PLC pays, ARC does not

ARC pays, PLC does not


Corn Prices and Recessions


Crop Prices for the Next Decade

Source: USDA-ERS


Net Farm Income


Net Farm Income


Iowa Land Values

Source: Mike Duffy, ISU


Iowa Land Values – Log Scale



Land Values and Income



Land Values and Income



30

40

50

60

70

80

90

100

Cro

p A

crea

ge (m

illio

n ac

res)

Corn Soybeans Wheat Hay Other

Crop Shifts

Source: USDA-NASS


GDP Growth

Source: USDA-ERS


GDP Growth

Source: USDA-ERS

Extension and Outreach/Department of EconomicsSource: USDA-NASS

Iowa Crop Shifts


Renewable Fuels Standard (RFS)

0

5

10

15

20

25

30

35

40

2009 2012 2015 2018 2021

Bill

ion

gallo

ns

Conventional Biofuels Cellulosic BiofuelsBiodiesel Additional Advanced Biofuels


Renewable Fuels Standard (RFS)

Extension and Outreach/Department of EconomicsSource: DOE-EIA, Annual Energy Outlook


Liquid Fuel Usage2007 2015 2020 2025 2030 2035

(Million Barrels Oil Equivalent per

Day) (Percent of 2007 Value)

United States 20.6 98% 100% 102% 104% 107%

Canada 2.3 96% 96% 96% 100% 104%

Mexico 2.1 105% 110% 114% 129% 138%

Europe 15.3 92% 88% 88% 89% 90%

Japan 5.0 84% 86% 86% 84% 82%

China 7.6 132% 153% 178% 201% 222%

India 2.8 114% 129% 139% 154% 168%

Africa 3.1 113% 116% 126% 135% 148%

Central and South America 6.0 110% 112% 117% 125% 133%

World 86.1 103% 107% 113% 121% 128%

Source: DOE-EIA


Population2013 2020 2050

(billion) (billion) (billion)World 7.095 World 7.628 World 9.383

China 1.350

China 1.385

India 1.657

India 1.221

India 1.326

China 1.304

U.S. 0.317 U.S. 0.337 U.S. 0.423Indonesia 0.251

Indonesia 0.267 Nigeria 0.402

Brazil 0.201

Pakistan 0.214 Indonesia 0.300

Pakistan 0.193

Brazil 0.212

Pakistan 0.291

Nigeria 0.175 Nigeria 0.208 Bangladesh 0.250

Bangladesh 0.164Bangladesh 0.183

Brazil 0.232

Russia 0.143Russia 0.142 Ethiopia 0.228

Japan 0.127

Japan 0.126 Philippines 0.172

Source: U.S. Bureau of the Census


World Corn Markets

Source: USDA


Arable Land


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/

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