Market Outlook & Risk Management NW Iowa Young Farmers Meeting Orange City, Iowa Mar. 26, 2015 Chad Hart Associate Professor/Crop Markets Specialist chart@iastate.edu 515-294-9911 1 1

U.S. Corn Supply and Use 2011 2012 2013 2014 2015 Area Planted (mil. acres) 91.9 97.3 95.4 90.6 89.0 Yield (bu./acre) 147.2 123.1 158.1 171.0 166.8 Production (mil. bu.) 12,360 10,755 13,829 14,216 13,595 Beg. Stocks 1,128 989 821 1,232 1,777 Imports 29 160 36 25 Total Supply 13,517 11,904 14,686 15,472 15,397 Feed & Residual 4,557 4,315 5,036 5,300 5,275 Ethanol 5,000 4,641 5,134 5,200 5,225 Food, Seed, & Other 1,428 1,397 1,367 1,395 1,410 Exports 1,543 730 1,917 1,800 1,850 Total Use 12,528 11,083 13,454 13,695 13,760 Ending Stocks 1,637 Season-Average Price ($/bu.) 6.22 6.89 4.46 3.70 3.50 Sources: USDA-WAOB 2011-14, USDA-OCE 2015 2 2

U.S. Soybean Supply and Use 2011 2012 2013 2014 2015 Area Planted (mil. acres) 75.0 77.2 76.8 83.7 83.5 Yield (bu./acre) 41.9 40.0 44.0 47.8 46.0 Production (mil. bu.) 3,094 3,042 3,358 3,969 3,800 Beg. Stocks 215 169 141 92 385 Imports 16 41 72 25 20 Total Supply 3,325 3,252 3,570 4,086 4,205 Crush 1,703 1,689 1,734 1,795 1,840 Seed & Residual 88 105 97 116 Exports 1,365 1,317 1,647 1,790 1,820 Total Use 3,155 3,111 3,478 3,701 3,775 Ending Stocks 430 Season-Average Price ($/bu.) 12.50 14.40 13.00 10.20 9.00 Sources: USDA-WAOB 2011-14, USDA-OCE 2015 3 3

Corn Yields Top: 2014 Yield Bottom: Change from last year Units: Bu/acre Source: USDA-NASS

Soybean Yields Top: 2014 Yield Bottom: Change from last month Units: Bu/acre Source: USDA-NASS

World Corn Production Source: USDA-WAOB 6 6

World Soybean Production Source: USDA-WAOB 7 7

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

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. Meat Production & Prices Source: USDA-WAOB 10 10

Corn Export Shifts Source: USDA-FAS

Corn Export Sales Source: USDA-FAS

Soybean Export Shifts Source: USDA-FAS

Soybean Export Shifts Source: USDA-FAS

Crude Oil Prices Sources: EIA and CME

Strength of the U.S. Dollar Source: Federal Reserve

Corn Grind for Ethanol

Ethanol Stocks

Current Corn Futures 3.98 3.74 Source: CME Group, 3/24/2015

Current Soybean Futures 10.00 9.27 Source: CME Group, 3/24/2015

2014/15 Crop Margins

2015/16 Crop Margins

Corn Prices vs. Costs Per Bushel Cost calculated as Per Acre Cost from ISU Extension divided by Actual Yield per Acre Sources: USDA-NASS for Prices, Duffy for Costs

Soybean Prices vs. Costs Per Bushel Cost calculated as Per Acre Cost from ISU Extension divided by Actual Yield per Acre Sources: USDA-NASS for Prices, Duffy for Costs

Marketing Matrix

Hedging

Options

Corn Marketing Year Average Price Projections

Soybean Marketing Year Average Price Projections

PLC pays, ARC does not Neither pay Both pay ARC pays, PLC does not The choice depends on where you expect prices and yields to be over the next 5 years. There are price/yield combinations where PLC pays and ARC does not. There are also price/yield combinations where ARC pays and PLC does not.

Why Crops Fail

Yield Insurance Payout Graph No Payout Payout

Yield Insurance is like an Option

RPE Payout Graph No Payout Payout

Rev. Insurance is like an Option

RP Payout Graph No Payment Neither Pay RPE Pays YP Pays Both Pay RP Pays

Corn Insurance Prices

Soybean Insurance Prices

Corn Acres Insured in 2014 87% of all corn acres are insured

Soy Acres Insured in 2014 88% of all soybean acres are insured

2014 Corn and Soy Coverage Levels

Coverage Levels for YP

Coverage Levels for RP

Thoughts for 2015 and Beyond Supply/demand concerns Record corn and soybean crops, but also record demand Markets are in a holding pattern, waiting for news Watching South American crop progress and U.S. acreage Projected negative margins for 2014 and 2015 crops 2014/15 USDA 2015/16 Futures (3/24/15) Corn $3.70 $3.50 $3.74 $3.98 Soybeans $10.20 $9.00 $10.00 $9.27

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/