Feed Price Outlook/Strategy Ideas Managing Through Stress: A Livestock Information Event Webcast throughout Iowa Feb. 4, 2013 Chad Hart Associate Professor/Grain Markets Specialist chart@iastate.edu 515-294-9911 1 1

U.S. Corn Supply and Use 2008 2009 2010 2011 2012 Area Planted (mil. acres) 86.0 86.4 88.2 91.9 97.2 Yield (bu./acre) 153.9 164.7 152.8 147.2 123.4 Production (mil. bu.) 12,092 13,092 12,447 12,360 10,780 Beg. Stocks 1,624 1,673 1,708 1,128 989 Imports 14 8 28 29 100 Total Supply 13,729 14,774 14,182 13,516 11,869 Feed & Residual 5,182 5,125 4,795 4,548 4,450 Ethanol 3,709 4,591 5,019 5,011 4,500 Food, Seed, & Other 1,316 1,370 1,407 1,426 1,367 Exports 1,849 1,980 1,834 1,543 950 Total Use 12,056 13,066 13,055 12,527 11,267 Ending Stocks 602 Season-Average Price ($/bu.) 4.06 3.55 5.18 6.22 7.40 The corn market is tight and keeps getting tighter. Source: USDA-WAOB 2 2

U.S. Soybean Meal Supply and Use 2009 2010 2011 2012 Production (thou. short tons) 41,707 39,251 41,025 38,200 Beg. Stocks 235 302 350 300 Imports 160 180 216 250 Total Supply 42,101 39,732 41,591 38,750 Domestic 30,640 30,301 31,550 29,750 Exports 11,160 9,081 9,741 8,700 Total Use 41,800 39,382 41,291 38,450 Ending Stocks Season-Average Price ($/short ton) 311.27 345.52 393.53 445.00 Soybean meal demand has held strong in the face of drought-driven high prices. Source: USDA-WAOB 3 3

Prices The crop/feed markets have backed off the record highs, but feed pricing is still a major challenge for livestock producers.

World Corn Production Source: USDA-WAOB Corn production in the rest of the world is expected to increase slightly as the Southern hemisphere chases those high prices. Source: USDA-WAOB 5 5

Corn Grind for Ethanol Other sectors of demand, such as ethanol, have backed off as well. The drought didn’t necessarily play favorites.

Current Corn Futures 6.74 5.57 5.36 Source: CME Group, 1/28/2013 Using corn as the leading feed indicator, feed prices are expected to decline significantly until we are well into 2013. And the general outlook for the next couple of years is for sustained higher feed costs. 5.36 Source: CME Group, 1/28/2013

Acreage Shift by State Top: Planted in 2012 Bottom: Change from 2011 Weather was great for planting in 2012 (just not for producing). To hold acreage we will need great planting weather again. Top: Planted in 2012 Bottom: Change from 2011 Units: 1,000 acres Source: USDA-NASS

Lingering drought concerns still overhang feed markets.

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 So livestock margin protection is key to surviving and building on 2013. There are several marketing moves to protect margins: futures hedges, forward contracts, options, etc. Often the issue is to take advantage when positive margins appear. For example, futures seem to be offering breakeven margins for mid-2013 and mid-2014 currently. Source: ISU Extension

Price Volatility Options, while expensive, offer producers the opportunity to capture value from the potential of lower feed costs. As the graph shows, the volatility in the current corn market indicates a significant potential for corn prices to move to extreme levels (above $9 or before $4.50). Call options for corn can protect livestock producers from the impact of high corn prices, but allow them to partially capture the benefits of lower corn prices if they occur.

Thoughts for 2013 and Beyond Supply/demand concerns Soil moisture issues Biofuel and export strength Worldwide response to drought-induced pricing 2012/13 USDA Futures (1/28/13) 2013/14 Corn $7.40 $6.74 $5.57 Soybeans $14.25 $13.92 $12.45 Risk management Know what your margins are and what the markets are offering Lock in positive margins when you can

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/