Microsoft PowerPoint - 111128 Managing Crop Risks in Volatile Times Webcast Handout [Read-Only] [Compatibility Mode](515) 957-5790 sdjohns@iastate.edu
Presentation Objectives • Highlight Net Farm Income Trends, Tax Strategies
and Return to Land & Management • Review U.S. Supply & Demand Estimates and 2011
Crop Price ForecastsCrop Price Forecasts • Discuss 2012 Crop Cost Estimates, Revenue and
Margin Forecasts • Highlight 5 Crop Related Uncertainties that Could
Impact Crop Input Costs & Cash Prices • Note Federal Government Spending & LikelyNote Federal Government Spending & Likely
Impact on the 2012 Farm Bill Commodity Title • Summarize 5 Crop Risk Management Strategies
& 5 Related Websites
2010 79.1
Source: USDA Economic Research Service, August 2011
Year-End Income Tax Strategies • Pre-pay 2012 Expenses
– Include on your invoice specific items purchased • Defer Payment of Grain Sales • Defer Crop Insurance ProceedsDefer Crop Insurance Proceeds
– Include a statement you are making a choice under IRC section 451(d) and Treasury Regulation section 1.451-6 that your normal business practice would have included income from the destroyed or damaged crops in gross income for the following tax year.
• Purchase Depreciable Property Section 179– Section 179
– Bonus Depreciation on New Equipment • Utilize the Lowest Federal Income Tax Bracket • Make Retirement Plan Contributions
Source: IRS and ISU Extension Economics, December 2011
3
$400 $327
$159
$438
$650
* - Estimated
Source: WASDE, ISU Ext. Econ. Iowa Costs, Yields, & Nat’l Prices, Oct. 2011
$6.70
843
4
Area Planted (million acres) Area Harvested (million acres)
Yield per Harvested Acre (bu.) Beginning Stocks (million bu.)
91.9
83.9
146.7
1,128
Imports Supply, Total
,
Corn Chart
5
$407
$343 $257
$203
$337
* - Estimated
Source: WASDE, ISU Ext. Econ. Iowa Costs, Yields, & Nat’l Prices, Oct. 2011
6
195
$12.60
U.S. Soybean Supply/Demand & Price
Area Planted (million acres)
Area Harvested (million acres)
75.0
73.7
41.3
77.4
76.6
43.5
88
32
3,080
195
$11.30
87
43
3,280
215
7
U.S. Dollar Chart
8
77 M
57 M
31 M
2012 U.S. Corn Acreage & Yield Matrix
Planted Corn Acres
Harvested Acres For
In Millions In Millions 155 bu/A 160 bu/A 165 bu/A
92 83.72 13 13.4 13.8
92.5 84.18 13.05 13.46 13.89
93 84.63 13.1 13.54 13.96
93.5 85.08 13.19 13.61 14.04
94 85.54 13.26 13.69 14.11
Source: USDA WASDE & ISU Economics, December 2011
* Estimates in Billion Bushels U.S. Corn Demand for 2012-13 = 13.34 Billion Bushels
9
$852
$1,013
$161
Inputs $408
$796
$1,103
$307
Inputs $358
10
49
2012 Margin Estimate: Soybeans following Corn
$548
$673
$125
Inputs $183
11
1. Global Demand (competing exports and
5. Global Supply (acreage & yield)(competing exports and
feed rationing) 2. Hedge & Index Fund
Positions 3. Technical Signals and
Price Volatility 4. Outside Markets: (Crude Oil, U.S. Dollar Value
Index, Precious Metals)
yield) 6. U.S. & Global Economic Debt and Recovery 7. Biofuel Tax Credits Extension & Renewable Fuels Standard (RFS) Mandate 8. Random Shocks (Egypt, Libya, Syria, Iran, etc.)
Source: Johnson, ISU Extension, December 2011
, ) y , y , , )
Protect Profits & Create Price Floors
Separate Delivery vs. Non Delivery of B h l ( f f t d ti )Bushels (use of futures and options)
Make 2012 Sales to Match Known Costs and Profit Margins
Source: Johnson, ISU Extension, December 2011
12
• Financial & Trade
Milit• Military
• Government Debt
Funds’ Aversion to Risk• Funds’ Aversion to Risk
• Inflation & Interest Rates
During winter months, a  La Niña episode tends to …
1) Lead to dry conditions in  th  Pl i
La Niña Affect on U.S. Weather
southern Plains,
2) Intensify the Atlantic hurricane  season, which will increase  precipitation in the Southeast  U.S.
3) Latest La Niña forecast to peak towards the end of 2011 andtowards the end of 2011, and persist into early 2012.
4) Unlikely that the current La Niña will be as strong as the La Niña event of 2010-11.
Source: El Niño Southern Oscillation (ENSO), Nov. 23rd, 2011
13
FY 2012 Federal Spending (in Billions) Other Spending: Government Protection, Transportation, Education and Farm Programs
All numbers are Estimated
Source: www.usgovernmentspending.com, Oct. 2011
2008 to 2012 Farm Program Transition
• Potential loss of Direct Payments ($10 to $30 per acre) • Potential loss of SURE (SUpplemental Revenue)
Disaster Assistance (expired with 2011 crop) • Crop Insurance Coverage remains with few changes • Modified Crop Revenue Plan replaces ACRE (Average
Crop Revenue Election)Crop Revenue Election) • Uses Planted acres annually, not Base acres • Uses 5-year Olympic Average Price • Triggered by Revenue losses at 2 levels: County or Crop
Reporting District and Farm-level Revenue Loss
• Managed by the Farm Service Agency.
Source: Johnson, ISU Extension, December 2011
Farm Program 10-Year Baseline Funding
Total: $149.4 Billion
over 10 Years
%
Deductible?
2012 Crop Insurance Decisions
(Basic, Optional or Enterprise)
Policy?y
16
Assets that Improve Harvest Crop
Marketing Strategies Reduce Debt
Management Tools:
Working Capital
Management Tools: Flex Cash Leases,
Futures, Options, etc.
Source: Johnson, ISU Extension, December 2011
5 Crop Risk Management Web Sites • Crop Risk Management - ISU Polk County
(Monthly Crop Marketing Strategies Newsletter & Webcast, Updates on Crop Insurance, Farmland Leasing & Grain Contracts)
www.extension.iastate.edu/polk/farmmanagement • Farm Doc U of IL Extension Economics• Farm Doc – U of IL Extension Economics
(FAST Tools, Newsletters, Publications and FarmDoc Daily e-Newsletter)
www.farmdoc.illinois.edu • Ag Manager – Kansas State Extension Economics
www.agmanager.info • ISU Center for Agricultural Law and Taxation
www calt iastate eduwww.calt.iastate.edu • Ag Decision Maker – ISU Extension
(Decision Tools, Newsletters, Publications, Voiced Media and monthly e- Newsletter)
www.extension.iastate.edu/agdm