Soybean Outlook and the New Farm Bill Programs

Department of Economics

Soybean Outlook and the New Farm Bill Programs

Iowa Soybean Association Annual MeetingsAmes, Iowa

December 19, 2008

Chad HartAssistant Professor/Grain Markets Specialist

[email protected]


U.S. Soybean Supply and Use

Source: USDA-WAOB, Dec. 2008

-30

-0.85$9.85 $9.00

+30


World Soybean Production

Source: USDA-WAOB, Dec. 2008


Biodiesel Margins

Source: ISU, CARD


Renewable Fuels Standard (RFS)

0

2

4

6

8

10

12

14

16

2009 2010 2011

Bill

ion g

allo

ns

Additional Advanced Biofuels Biodiesel

Cellulosic Biofuels Conventional Biofuels


Outside Influences (Sept. 2008 = 1)

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

Dow Oil Corn Soybeans


130

135

140

145

150

155

160

165

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Mill

ion

acr

es

Corn & Soybean AreaGrowth rate of 1.55 million acres per year


Input Costs

Source: USDA, Agricultural Prices, Nov. 2008


Iowa Soybean Prices vs. Costs

Source: USDA-NASS and Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

11.00

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

$ pe

r B

ushe

l

Season-average Price Cost


Rough Estimates for 2009 Iowa Soybeans

Non-land

Cost

Land Cost

Total Cost

Expected Yield

Cost per Bushel

($/acre) (bu/acre) ($/bu)

268.10 190.00 458.10 49 9.35

268.10 225.00 493.10 49 10.06

November 2009 Soybean Futures = $8.96 (12/17/08)


Exchange Rates (Jan. 2007 = 1)

Source: OANDA.com

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.71

/1/2

00

7

3/1

/20

07

5/1

/20

07

7/1

/20

07

9/1

/20

07

11

/1/2

007

1/1

/20

08

3/1

/20

08

5/1

/20

08

7/1

/20

08

9/1

/20

08

11

/1/2

008

EU Brazil Japan South Korea Mexico


Pace of Soybean Export Sales

Source: USDA, FAS

0%

10%

20%

30%

40%

50%

60%

70%

Week

2006 2007 2008


U.S. Stocks-to-Use Ratios

0%

5%

10%

15%

20%

25%

30%

Corn Soybeans Corn - Avg. 1990-2006 Soy - Avg. 1990-2006


World Stocks-to-Use Ratios

0%

5%

10%

15%

20%

25%

Corn Soybeans Corn - Avg. 1990-2006 Soy - Avg. 1990-2006


Thoughts for 2008General economic conditions

A lot of recent market trade has been tied to reaction to the financial crisis and the world’s responseEconomic slowdown raises concern about export and energy demand

Energy demandHigher energy prices did constrain demandWill it recover?

Most important ag. statistic: Crude oil price or Dow Jones Index

Current futures are indicating 2008 season-average prices of $3.50-4.00 for corn and $8.50-9.00 for soybeans


Thoughts for 2009 and BeyondMany of the storylines from 2008 will continue

Tight stocks for both corn and soybeansThe competition for acreageEthanol’s buildout & livestock’s adjustmentEnergy price & general economy concerns

Market volatility will remain highLink to the energy marketsMore market players with different trading objectives

Given current factors, the 2009 outlook is for crop prices around $4.00 for corn and $8.75 for soybeans

Key factor: Economic growth returns by late 2009


Average Crop Revenue Election (ACRE)

ACRE is a revenue-based counter-cyclical payment programBased 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)


Farmer Choice

Starting in 2009, producers will be given the option of choosing ACRE or notCan choose to start ACRE in 2009, 2010, or beyondOnce 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


ACRE Set-up for Iowa SoybeansYear Yield per Planted Acre

(bu./acre)

2004 48.8

2005 52.2

2006 50.3

2007 51.9

2008 45.1

Olympic Average 50.3

Year Season-average Price ($/bu.)

2007 10.10

2008 9.00

Average 9.55

The 2008 yield and price are the latest USDA’s 2008 estimates.

So the expected state yield would be 50.3 bushels per acre and the ACRE price guarantee would be $9.55 per bushel.

Please note the years used in the price average is under debate and may change


ACRE StructureACRE revenue guarantee = 90% of ACRE

price guarantee * Expected state yieldFor our example, the ACRE revenue guarantee is

90% * 50.3 bu./acre * $9.55/bu.

$432.33/acre

ACRE actual revenue = Max(Season-average price, Loan rate) * Actual state yield per planted acre


ACRE StructureACRE Farm revenue trigger = Expected

farm yield * ACRE price guarantee + Producer-paid crop insurance premiumLet’s assume farm yields equal to state yields

and use the average producer-paid crop insurance premium for 2008 (so far)

50.3 bu./acre * $9.55/bu. + $17.58/acre

$498.22/acre


ACRE Payment TriggersACRE actual farm revenue = Max(Season-

average price, Loan rate) * Actual farm yield per planted acre

Given our example, ACRE payments are triggered when ACRE actual revenue is below $432.33/acre and ACRE actual farm revenue is below $498.22/acre


ACRE PaymentsPayment rate = Min(ACRE revenue

guarantee – ACRE actual revenue, 25% * ACRE revenue guarantee)

Payments made on 83.3% of planted/base acres in 2009-11, 85% in 2012

ACRE payment adjustment: Payment multiplied by ratio of Expected farm yield to Expected state yield


0

20

40

60

80

100

5 6 7 8 9 10 11 12 13 14 15 16 17 18

$ per bushel

Bu

sh

els

pe

r p

lan

ted

ac

re

ACRE vs. CCP

ACRE pays out

No ACRE payments

CCP pays out

No CCP payments


You Don’t Have to Decide TodayACRE signup will not be for a while,

probably next spring at the earliestOnce the ACRE rules are finalized, there

will be a number of decision tools available to help producers

Preliminary ACRE information and tools are available at:

http://www.extension.iastate.edu/agdm/crops/html/a1-45.html

http://www.card.iastate.edu/ag_risk_tools/acre/


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


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


SURE Guarantee

Farm guarantee is the sum of115%*Crop insurance price election*Crop insurance

coverage level*Planted acres* Max(APH or CCP yield), for insurable commodities

120%*NCAP price election*Planted acres* Max(NCAP or CCP yield), for non-insurable commodities

For an individual crop, the guarantee can not be greater than 90% of the crop’s expected revenue


SURE Expected Farm Revenues

Expected farm revenue is the sum ofMax(APH or CCP yield)*Planted acres*100% of

the crop insurance price for insurable commodities

100% of NCAP yield*100% of NCAP price*Planted acres for non-insurable commodities


SURE Actual Farm Revenues

Actual farm revenue is the sum ofHarvested acres*Farm yield*National season-

average price for all commodities15% of direct paymentsAll CCP or ACRE paymentsAll marketing loan benefitsAll crop insurance or NCAP paymentsAny other disaster assistance payments


SURE Payments

Payments set as 60% of the difference between farm guarantee and actual farm revenue

Payments limited to $100,000 per producer

Payments not known until end of marketing year


SURE Calculator

USDA has created a calculator for SURE http://www.fsa.usda.gov/Internet/FSA_File/sure_calculator.xls http://www.fsa.usda.gov/Internet/FSA_File/calculator_instructions.pdf

Calculator limited to yield based crops Does not address value loss crop, prevented planting, double

cropping, and several other scenarios


Thank you for your time!

Any questions?

http://www.econ.iastate.edu/faculty/hart/

Soybean Outlook and the New Farm Bill Programs

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