Crop Marketing Outlook for 2010 Welton, Iowa January 25, 2010 Chad Hart Assistant Professor/Grain Markets Specialist chart@iastate.edu 515-294-9911 1

U.S. Corn Supply and Use 2007 2008 2009 Area Planted (mil. acres) 93.5 86.0 86.5 Yield (bu./acre) 150.7 153.9 165.2 Production (mil. bu.) 13,038 12,092 13,151 Beg. Stocks 1,304 1,624 1,673 Imports 20 14 10 Total Supply 14,362 13,729 14,834 Feed & Residual 5,913 5,246 5,550 Ethanol 3,049 3,677 4,200 Food, Seed, & Other 1,338 1,276 1,270 Exports 2,437 1,858 2,050 Total Use 12,737 12,056 13,070 Ending Stocks 1,764 Season-Average Price ($/bu.) 4.20 4.06 3.70 USDA’s 2009 projections based on conditions around Jan. 1. It would be the largest corn crop, surpassing 2007. Demand is projected to recover across the board (higher feed, ethanol, and export demand), but we may want to watch feed demand as this increase is likely harvest loss (not feed use). Ethanol demand is about 100 million bushels above mandate levels. Export demand is being helped with some smaller customers buying early. Ending stocks are up with the record crop, but could decline with additional harvest losses. Current price estimate of $3.70/bushel is around market levels ($3.65-3.70). Source: USDA 2 2

U.S. Soybean Supply and Use 2007 2008 2009 Area Planted (mil. acres) 64.7 75.7 77.5 Yield (bu./acre) 41.7 39.7 44.0 Production (mil. bu.) 2,677 2,967 3,361 Beg. Stocks 574 205 138 Imports 10 13 8 Total Supply 3,261 3,185 3,507 Crush 1,803 1,662 1,710 Seed & Residual 93 101 177 Exports 1,159 1,283 1,375 Total Use 3,056 3,047 3,262 Ending Stocks 245 Season-Average Price ($/bu.) 10.10 9.97 9.65 USDA’s 2009 projections based on conditions around Jan. 1. It would be the largest soybean crop. Crush demand is projected to recover slightly, based on soybean meal export demand. Export demand has remained strong as China continues to buy and other markets have started to pick up. Longer-term, we will see increased export competition from South America. Ending stocks are rebounding, but still very tight. Current price estimate of $9.65/bushel is now well above market levels ($9.30-9.40, just within the last couple of days). Source: USDA 3 3

Storage Issues Source: Hurburgh and Elmore, ICM News, 10/15/09 Storage and quality issues are concerns. Two wet crops in a row, increased drying costs. Hail damage in some areas leading to mold problems. Source: Hurburgh and Elmore, ICM News, 10/15/09 4 4

World Corn Production Source: USDA World corn production has projected to be up slightly, with the U.S. increase offsetting a drop in the rest of the world. Half of the drop in the rest of the world is in China (drought). South America is not moving to offset the fall in corn production in the rest of the world. Source: USDA 5 5

World Soybean Production World soybean production is projected to be up, with increases in the U.S., Brazil, and Argentina. We are looking at record production out of South America. Source: USDA 6 6

Soybeans – Argentina & Brazil Area has shifted strongly to soybeans. And production is expected to rebound from last year’s drought. So we will have a lot more competition on the export front in a few months as their harvest kicks in. Source: USDA 7 7

Corn Export Sales Source: USDA, FAS Corn sales are roughly in line with last year, but a recent upkick has put us above last year’s pace. Hopeful signs include early purchases by some non-traditional markets. Source: USDA, FAS

Soybean Export Sales Source: USDA, FAS Early soybean sales to China are double last year’s pace. China, thus far, has purchased more than the equivalent of Iowa’s soybean production. So export strength continues in that market. But as we look later in the year, competition will build from South America. Source: USDA, FAS

Crude Oil Prices Sources: EIA, NYMEX Crude oil is working its way back up, providing room for higher ethanol and crop prices. Sources: EIA, NYMEX

Renewable Fuels Standard (RFS) Crop Year Billion Bushels 2008 3.57 2009 4.11 2010 4.43 2011 4.64 Over the near term, corn-grain ethanol is the big biofuel. The table shows the corn needed to create enough ethanol to meet the conventional biofuel targets. For the 2008 crop year, the mandate called for 3.57 billion bushels of corn for ethanol. We used 3.7 billion bushels. For the 2009 crop year, the mandate points to 4.11 billion bushels and projected usage is at 4.2 billion bushels. By 2015, we are looking at roughly 5 billion bushels worth of demand. 11 11

Ethanol Margins Source: ISU, CARD The graph breaks ethanol prices into costs and returns on a per gallon basis. Yellow is energy costs to create a gallon of ethanol. Maroon is corn costs (less distillers grains value) to create a gallon of ethanol. Blue is all other costs and returns. The black line is a rough measure of breakeven for the industry. The high returns in 2005 and 2006 spurred on ethanol development. The breakeven returns of the last year have halted that construction. But margins have improved in the last few months. Source: ISU, CARD

Outside Influences (Jan. 2007 = 1) Biofuels have linked the energy and agricultural markets. We followed oil high to its record highs and followed it most of the way down. Ethanol policy helped put the brakes on ethanol’s price fall (in comparison to oil) and provided somewhat of a floor for crop prices. But with oil heading upward again, crop prices will follow.

Corn The next few years have changed that relationship. Crop prices are now much more responsive to tighter stocks.

Corn Futures Source: CBOT, 1/22/10 Fairly good carry in the corn market through July. Dec. 2010 futures point to higher prices for the 2010 crop and higher insurance prices this spring. Source: CBOT, 1/22/10

Soybean Futures Source: CBOT, 1/22/10 The soybean market has built in a little carry through July, but prices fall after that. The fall is partially based on the upcoming South American crop. Futures for the 2010 crop had been hanging in the $10 range. Soybean crop insurance prices should be higher for 2010. Source: CBOT, 1/22/10

Iowa Corn Prices vs. Costs Early numbers from Mike Duffy show corn costs backing down to 2008 crop year levels.

Iowa Soybean Prices vs. Costs Soybean costs also fall, but hold above 2008 crop year levels.

Thoughts for 2009/10 and Beyond General economic conditions Recession: Are we done yet? Projected economic recovery is a major key for crop prices for the 2009 and 2010 marketing years Weakness in the dollar helping exports, but dollar may fight back Supply/demand concerns Livestock numbers continue to decline Possible record South American soybean crop USDA is indicating 2009 season-average prices in the neighborhood of $3.70 for corn and $9.65 for soybeans Futures Jan. 22: Corn $3.51, Soy $9.33 2010/11 based on futures Jan. 22: Corn $3.81, Soy $9.01

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/faculty/hart/ Iowa Farm Outlook: http://www.econ.iastate.edu/outreach/agriculture/periodicals/ifo/ Ag Decision Maker: http://www.extension.iastate.edu/agdm/