Ag Outlook C US Bank Ag Education Seminar Osage, Iowa Feb. 27, 2014 Chad Hart Associate Professor/Crop Markets Specialist chart@iastate.edu 515-294-9911 1 1

U.S. Corn Supply and Use 2010 2011 2012 2013 2014 Area Planted (mil. acres) 88.2 91.9 97.2 95.4 92.0 Yield (bu./acre) 152.8 147.2 123.4 158.8 165.3 Production (mil. bu.) 12,447 12,360 10,780 13,925 13,985 Beg. Stocks 1,708 1,128 989 821 1,481 Imports 28 29 162 35 25 Total Supply 14,182 13,517 11,932 14,781 15,491 Feed & Residual 4,795 4,557 4,335 5,300 5,400 Ethanol 5,019 5,000 4,648 Food, Seed, & Other 1,407 1,428 1,396 1,400 1,430 Exports 1,834 1,543 731 1,600 1,550 Total Use 13,055 12,528 11,111 13,300 13,380 Ending Stocks 2,111 Season-Average Price ($/bu.) 5.18 6.22 6.89 4.50 3.90 Source: USDA-WAOB for 2010-13 2 2

U.S. Soybean Supply and Use 2010 2011 2012 2013 2014 Area Planted (mil. acres) 77.4 75.0 77.2 76.5 79.5 Yield (bu./acre) 43.5 41.9 39.8 43.3 45.2 Production (mil. bu.) 3,329 3,094 3,034 3,289 3,550 Beg. Stocks 151 215 169 141 150 Imports 14 16 36 30 15 Total Supply 3,495 3,325 3,239 3,459 3,715 Crush 1,648 1,703 1,689 1,700 1,725 Seed & Residual 130 88 90 99 105 Exports 1,501 1,365 1,320 1,510 1,600 Total Use 3,280 3,155 3,099 3,309 3,430 Ending Stocks 285 Season-Average Price ($/bu.) 11.30 12.50 14.40 12.70 9.65 Source: USDA-WAOB for 2010-13 3 3

Soy Export Shifts Source: USDA-FAS

Corn Grind for Ethanol

Crop Thoughts for 2014 and Beyond Supply/demand concerns Demand rebounding? Yes, so far, so good Acreage allocation for 2014: Where do the extra corn acres go? Markets favoring soybeans in the short term and corn longer term 2013/14 USDA 2014/15 Unofficial Futures (2/26/14) Corn $4.50 $3.90 $4.54 $4.48 Soybeans $12.70 $9.65 $13.05 $11.35

Cattle Crush Margin The Crush Margin is the return after the feeder steer and corn costs. Live weight: 1250 pounds Feeder weight: 750 pounds Corn: 50 bushels per head Source: ISU Extension

U.S. Beef Supply and Use 2010 2011 2012 2013 2014 Beg. Stocks (mil. lb.) 565 585 600 608 582 Production 26,414 26,292 25,996 25,800 24,433 Imports 2,297 2,057 2,220 2,250 2,285 Exports 2,299 2,785 2,453 2,583 2,335 Domestic Use 26,392 25,548 25,755 25,493 24,440 Ending Stocks 525 Price, Steers ($/cwt.) 95.38 114.73 122.86 125.89 136.00 Price, All Fresh Beef ($/lb.) 4.02 4.44 4.69 4.94 Source: USDA-WAOB 8 8

Hog Crush Margin The Crush Margin is the return after the pig, corn and soybean meal costs. Carcass weight: 200 pounds Pig price: 50% of 5 mth out lean hog futures Corn: 10 bushels per pig Soybean meal: 150 pounds per pig Source: ISU Extension

U.S. Pork Supply and Use 2010 2011 2012 2013 2014 Beg. Stocks (mil. lb.) 525 541 542 625 620 Production 22,456 22,775 23,270 23,215 23,437 Imports 859 803 802 879 880 Exports 4,224 5,189 5,381 4,992 5,140 Domestic Use 19,075 18.388 18,608 19,107 19,177 Ending Stocks Price, Barrows & Gilts ($/cwt.) 55.06 66.11 60.88 64.05 63.00 Retail Value ($/lb.) 3.11 3.43 3.47 3.64 Source: USDA-WAOB 10 10

Crops Livestock 11 11

Source: droughtmonitor.unl.edu

3-Month Temperature Outlook Source: NOAA-CPC

3-Month Precipitation Outlook Source: NOAA-CPC

Corn Costs 98% 81% 57%

Net Farm Income

Iowa Land Values Source: Mike Duffy, ISU

Land Values and Income Source: Mike Duffy, ISU

Land Values and Income Source: Mike Duffy, ISU

Farm Bill: Old vs. New Direct Payments (DP) Countercyclical Payments (CCP) Marketing Loans (LDP) Revenue Countercyclical Payments (ACRE) Countercyclical Payments (PLC) Marketing Loans (LDP) Revenue Countercyclical Payments (ARC) New programs, but they have strong similarities to previous programs

Two Waves First wave: Choice on base acreage and yield updating Probably occurs June-July timeframe Second wave: Choice on farm bill programs Probably Sept-Oct Harvest the crop and farm bill at the same time

Producer Choice Have one-time choice between: PLC or ARC (can pick by commodity) If ARC is chosen, pick between county and individual coverage If individual coverage is chosen, must be taken for all covered commodities on the farm 2014-2018 crop years

PLC vs. CCP and DP

Revenue Programs Think of ARC-County as crop-by-crop ARC-Individual Benchmark revenue 5-yr OA county yield * 5-yr OA MYA price Sum across crops of [5-yr OA (farm yield * MYA price) *crop acreage] Actual crop revenue County yield * Max(MYA price or loan rate) Sum across crops of [Farm production * Max(MYA price or loan rate)] / Total planted acres of all covered crops Revenue guarantee 86% of benchmark Think of ARC-County as crop-by-crop Think of ARC-Individual as whole farm

Supplemental Coverage Option (SCO) An additional policy to cover “shallow losses” Shallow loss = part of the deductible on the producer’s underlying crop insurance policy SCO has a county-level payment trigger Indemnities are paid when the county experiences losses greater than 14% Premium subsidy: 65% Starts in 2015 Can’t have ARC and SCO together

Thank you for your time. Any questions. My web site: http://www. econ Thank you for your time! Any questions? My web site: http://www.econ.iastate.edu/~chart/ Iowa Farm Outlook: http://www.econ.iastate.edu/ifo/ Ag Decision Maker: http://www.extension.iastate.edu/agdm/