Maintaining Profitability January 2008 Craig A. Chase Farm Management Field Specialist

Presentation Objectives Net Farm Income Forecast Cost of Production Margins Sizing up the Market Strategies for Managing Margins

Net Farm Income * Forecast Source: USDA Economic Research Service, Sept. 2007.

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Costs of Production Seed Fertilizer Chemicals Insurance Machinery Labor Grain handling and storage Land This slide to the end, 5-7 minutes

Direct Cost of Crop Production ($/A) Historical vs. 2008 Estimate Source: U of IL Extension Economics, October 2007.

Non-Land Costs vs. Gross Revenue ($/A) Historical vs. 2008 Estimates $308.00 $200.00 $235.00 $154.00 Source: U of IL Extension Economics, October 2007.

Tools for Evaluation Crop Rotation Calculator Crop Rotation Calculator http://www.extension.iastate.edu/agdm/crops/xls/a1-20croprotation.xls Crop Rotation Calculator http://www.extension.iastate.edu/agdm/crops/xls/a1-80rotationprofitabilitycalculator.xls Crop Rotation N Calculator http://www.extension.iastate.edu/agdm/crops/xls/a1-80nratecalculator.xls Machinery Economics http://www.farmdoc.uiuc.edu/pubs/FASTtool.asp?section=FAST This slide to the end, 5-7 minutes Flexible Rent Calculator http://www.extension.iastate.edu/agdm/wholefarm/xls/c2-21flexiblerentanalysis.xls

Crop Rotation Calculator This slide to the end, 5-7 minutes

http://www. extension. iastate http://www.extension.iastate.edu/agdm/crops/xls/a1-80rotationprofitabilitycalculator.xls This slide to the end, 5-7 minutes

http://www.extension.iastate.edu/agdm/crops/xls/a1-80nratecalculator.xls This slide to the end, 5-7 minutes

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Corn after SB $3.00 price $.32 N 122 pounds This slide to the end, 5-7 minutes

Corn on Corn $4.00 price $.40 N 178 pounds

Corn Nitrogen Rate Calculator Corn on Corn $4.00 price $.70 N 152 pounds Source: http://extension.agron.iastate.edu/soilfertility/nrate.aspx

Machinery Economics Field Operations http://www.farmdoc.uiuc.edu/pubs/FASTtool.asp?section=FAST This slide to the end, 5-7 minutes

Managing Machinery Costs Combine Operations This slide to the end, 5-7 minutes

Cash Rent as % of Gross Revenue Iowa Average Yield x December Cash Price 45% 35% Source: ISU Extension Economics, 2007.

Share of Gross Revenue Example--Corn Cash rent is equal to 35% of Gross Income from Corn Actual yield is 200 bu. of Corn Harvest market price is $4.00/bu Gross Income is (200 x $4.00) = $800/A Cash Rent is 35% x $800, or $280/A

Share of Gross Revenue Example-Soybeans Cash rent is equal to 45% of Gross Income from Soybeans Actual yield is 50 bu. of Soybeans Harvest market price is $10.00/bu. Gross Income is (50 x $10.00) = $500/A Cash Rent is 45% x $500, or $225/A

Flexible Cash Rent Leases This slide to the end, 5-7 minutes http://www.extension.iastate.edu/agdm/wholefarm/xls/c2-21flexiblerentanalysis.xls

Flexible Cash Rent Leases This slide to the end, 5-7 minutes http://www.extension.iastate.edu/agdm/wholefarm/xls/c2-21flexiblerentanalysis.xls

Sizing Up the Market

U.S. Planted Acreage Trend & Outlook ◊ - Estimated * - Forecast Source: USDA National Ag Statistics Service & ISU Extension Economics, October 2007.

Develop a Marketing Plan Avoid the Five Common Mistakes in Grain Marketing?!?! 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

Decision Tree for Sizing Up the Market Source: U of MN, CFFM, 2007.

Understand Seasonal Price Trends On average from October to May, the price of corn rises 25 cents per bushel. But averages are deceiving! Since 1990, the price rise from Oct to May has been as high as $1.10 (1995/96) and as low as negative 23 cents in 2004/2005. Source: U of MN, CFFM, 2007. Fact: Since 1990, the May cash corn price has exceeded October in 14 of 17 years (82%).

Seasonal Corn Futures Trend CBOT data Source: U of MN, CFFM, 2007.

Understand Seasonal Price Trends On average from October to May, the price of beans rise 55 cents per bushel. But averages are deceiving! In 2003/2004 the increase was $3.40 from Oct to May! Other notable years include 1995/96, 1996/97 (increases of $$1.51 and $1.39 respectively) and 1998/99 when cash prices declined 67 cents. Source: U of MN, CFFM, 2007. Fact: Since 1990, the May cash soybean price has exceeded October in 12 of 17 years (71%).

Seasonal Soybean Futures Trend CBOT data Source: U of MN, CFFM, 2007.

Corn & Soybean Basis Variability

http://www.card.iastate.edu/ag_risk_tools/basis_maps/INDEX.ASPX

Storage Costs for Corn

Corn Carry Strategies Jan 25, 2008 Dec. $5.10 Sep $5.13 July $5.19 May $5.11 Mar $4.98 Source: CBOT & ISU Extension Economics, 2008.

Storage Costs for Soybeans

Soybean Carry Strategies Nov. $12.32 Jan 25, 2008 Sep $12.47 Jul $12.75 May $12.61 Mar $12.43 Source: CBOT & ISU Extension Economics, 2008.

Strategies for Maintaining Profitability Plan Pre-Harvest Crop Sales Utilize Crop Revenue Insurance Develop Efficient Grain Management & Storage Focus on Gross Crop Revenue and Margins Plan 2008 Crop Rotation: Tillage, Seed & Fertility

ISU Crop Marketing Web Sites Grain and Oilseed Market Analysis www.econ.iastate.edu/faculty/wisner Corn and Soybean Basis (State and County) www.card.iastate.edu/ag_risk_tools/ Ag Econ Periodicals, Publications and Programs www.econ.iastate.edu/outreach/agriculture/ Ag Decision Maker (Crop Updates/ Publications Decision Tools) www.extension.iastate.edu/agdm Crop Marketing Newsletters/Webcasts www.extension.iastate.edu/polk/farmmanagement

Thank You for This Opportunity! Questions….. Any questions or comments? Thank You for This Opportunity! Craig A. Chase Farm Management Field Specialist 720 7th Avenue SW Tripoli, IA 50676 (319) 882-4275 cchase@iastate.edu