Managing Crop Margins in 2009
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Transcript of Managing Crop Margins in 2009
Managing Crop Margins in 2009
Craig A. ChaseFarm Management Field Specialist
Presentation Objectives
• Cost of Production
• Sizing up the Market
• Strategies/Tools for Managing Margins
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
Baseline assumptions
• Diesel $2.50• N $.68, P $.90 K $.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
2009 Base Estimated Costs of Production per Bushel
$5.40$5.10
$4.88$4.48 $4.32 $4.21
$10.04$9.81 $9.64
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
Low Medium High
Cont Corn Corn/Sb Soybeans
2009 Estimated Costs of Production per Acre
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
Low Medium High
Cont Corn Corn/Sb Soybeans
Source: Schnitkey, U of IL Ext. Economics, Oct. 2008.
Direct Cost of Crop Production ($/A)Historical vs. 2009 Forecast
36%
19%
Non-Land Costs vs. Gross Revenue ($/A)
Historical vs. 2009 Forecast
Source: Schnitkey, U of IL Ext. Economics, Oct. 2008.
$177/A
$200/A
Sizing Up the Market
• 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 PlanAvoid the Five Common Mistakes in
Grain Marketing?!?!
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
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
Corn Basis
Jul $10.03
May $9.92
Mar $9.80
Jan. $9.72
Dec. 11th , 2008
Soybean Futures CarryNov. 2009$10.07
Source: www.cbot.com December 2008.
Lack of carry, difficult to justify storage long-term
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
Soybean Basis
New Crop Corn Seasonal Trend
Source: CBOT data compiled by the U of MN, CFFM, 2008.
Chicago December Corn Futures, 1990-2008 average1-
Jan 1-
Feb
1-M
ar
1-Ap
r
1-M
ay
1-Ju
n
1-Ju
l
1-Au
g
1-Se
p
1-O
ct
1-N
ov
1-D
ec
250
255
260
265
270
275
280
285
290
295
approximate dates
cent
s pe
r bu
shel
79% Odds: Spring Price Exceeds Harvest Price
$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.
December 2009 Corn Futures
New Crop Soybeans Seasonal Trend
Chicago November Soybean Futures, 1990-2008 average1-
Jan 1-Fe
b
1-M
ar
1-Ap
r
1-M
ay
1-Ju
n
1-Ju
l
1-Au
g
1-Se
p
1-O
ct
1-N
ov
605
615
625
635
645
655
665
approximate dates
cent
s pe
r bu
shel
Source: CBOT data compiled by the U of MN, CFFM, 2008.
68% Odds: Spring Price Exceeds Harvest Price
$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.
November 2009 Soybean Futures
Tools for Evaluation
Machinery Economicshttp://www.farmdoc.uiuc.edu/pubs/FASTtool.asp?section=FAST
Crop Rotation Calculatorhttp://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.xlsCrop Rotation Calculator
http://www.extension.iastate.edu/agdm/crops/xls/a1-80nratecalculator.xls
Crop Rotation N Calculator
Flexible Rent Calculator
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 Calculator
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?
http://extension.agron.iastate.edu/soilfertility/nrate.aspx
Corn after SB$4.00 price$.75 N 104 pounds
Corn on Corn
$4.50 price
$.75 N
157 pounds
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).
Machinery costs
Fixed costs Variable costs
Depreciation
Interest
Storage
Insurance
Repairs
Labor
Fuel
http://www.farmdoc.uiuc.edu/pubs/FASTtool.asp?section=FAST
Machinery Economics
Field Operations
Managing Machinery Costs
Combine Operations
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)?
Tenants’ Residual
http://www.extension.iastate.edu/agdm/wholefarm/xls/c2-20croplandcashrent.xls
Computing a Cropland Cash Rental Rate
Flexible Cash Rent Leases
Decision #4
• Does the lease terms provide for some profitability?
• Can I re-negotiate the lease or move it toward a flexible terms lease?
Crop Insurance
http://www.farmdoc.uiuc.edu/cropins/index.asp
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.
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.
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.
Conclusions
• Know your costs of production. • Make cuts and changes where they
will do you the most good.• Follow a good marketing plan.
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
MNwww.cffm.umn.edu
• Corn Nitrogen Rate Calculator Calculatorhttp://extension.agron.iastate.edu/soilfertility/nrate.aspx
ISU Crop Marketing Web Sites• Grain and Oilseed Market Analysis
http://www.econ.iastate.edu/outreach/agriculture/periodicals/ifo/
• Corn and Soybean Basis (State and County)www.card.iastate.edu/ag_risk_tools
• Ag Econ Periodicals, Publications and Programswww.econ.iastate.edu/outreach/agriculture/
• Ag Decision Maker (Crop Updates/ Publications Decision Tools)http://www.extension.iastate.edu/agdm
Questions…..
Any questions or comments?
Thank You for This Opportunity!
NOTE: This presentation can be found athttp://www.extension.iastate.edu/agdm/fieldstaff/
cchase.html
Craig A. ChaseFarm Management Field Specialist
720 7th Avenue SWTripoli, IA 50676(319) 882-4275