Managing Crop Margins in 2009 Craig A. Chase Farm Management Field Specialist.
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Transcript of Managing Crop Margins in 2009 Craig A. Chase Farm Management Field Specialist.
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Managing Crop Margins in 2009
Craig A. ChaseFarm Management Field Specialist
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Presentation Objectives
• Cost of Production
• Sizing up the Market
• Strategies/Tools for Managing Margins
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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
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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
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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
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2009 Estimated Costs of Production per Acre
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
Low Medium High
Cont Corn Corn/Sb Soybeans
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Source: Schnitkey, U of IL Ext. Economics, Oct. 2008.
Direct Cost of Crop Production ($/A)Historical vs. 2009 Forecast
36%
19%
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Non-Land Costs vs. Gross Revenue ($/A)
Historical vs. 2009 Forecast
Source: Schnitkey, U of IL Ext. Economics, Oct. 2008.
$177/A
$200/A
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Sizing Up the Market
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• 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?!?!
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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
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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
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Corn Basis
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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
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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
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Soybean Basis
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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
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$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.
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December 2009 Corn Futures
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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
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$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.
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November 2009 Soybean Futures
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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
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http://www.extension.iastate.edu/agdm/crops/xls/a1-80rotationprofitabilitycalculator.xls
Crop Rotation Calculator
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http://www.extension.iastate.edu/agdm/crops/xls/a1-80nratecalculator.xls
Crop Rotation Calculator
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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?
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http://extension.agron.iastate.edu/soilfertility/nrate.aspx
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Corn after SB$4.00 price$.75 N 104 pounds
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Corn on Corn
$4.50 price
$.75 N
157 pounds
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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).
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Machinery costs
Fixed costs Variable costs
Depreciation
Interest
Storage
Insurance
Repairs
Labor
Fuel
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http://www.farmdoc.uiuc.edu/pubs/FASTtool.asp?section=FAST
Machinery Economics
Field Operations
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Managing Machinery Costs
Combine Operations
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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)?
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Tenants’ Residual
http://www.extension.iastate.edu/agdm/wholefarm/xls/c2-20croplandcashrent.xls
Computing a Cropland Cash Rental Rate
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Flexible Cash Rent Leases
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Decision #4
• Does the lease terms provide for some profitability?
• Can I re-negotiate the lease or move it toward a flexible terms lease?
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Crop Insurance
http://www.farmdoc.uiuc.edu/cropins/index.asp
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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.
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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.
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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.
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Conclusions
• Know your costs of production. • Make cuts and changes where they
will do you the most good.• Follow a good marketing plan.
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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
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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
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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