Cost of Production Outlook Southern Outlook Conference Atlanta, GA September 23, 2008 Lori Wilcox

Overview Macroeconomic impacts Prices paid by farmers index Costs of production Net return implications FAPRI Baseline process

Source:

Source: June 2008 = $10.82 a historical high followed by $10.33 in Oct. 2005

Source: avg production = 1,700,000(MMcf) within 3% of 1970’s avg. 18% above 1980’s avg. 11% above 1990’s avg avg production = 1,700,000(MMcf) within 3% of 1970’s avg. 18% above 1980’s avg. 11% above 1990’s avg.

Source: Global Insight, August 2008

August FAPRI-MU Baseline WTI crude range $130 to $105/barrel ($120 avg.) –September 22, 2008 futures - $120.92/barrel Natural gas range $9 to $10 per Mbtu –September 22, 2008 futures - $7.94

Putting the Pieces Together Macro Prices Paid Cost of Prod. Net Returns

Source: USDA/NASS Agricultural Prices 2 nd Qtr 2008 fertilizer prices are % higher than average prices for 2002

Source: Yara

Fertilizer Prices US $/ton US April Survey Price Data (USDA) (Qtr2) est. DAP $337$442$850$867 Anhydrous Ammonia $521$523$755$862 Superphosphate $324$418$800$1,036 Source: USDA/NASS Agricultural Prices

Source: FAPRI-MU August 2008 Update

Prices Paid by Farmers - % Changes Source: FAPRI-MU August 2008 Update

Putting the Pieces Together Macro Prices Paid Cost of Prod. Net Returns

ERS Regions beginning in 1995 CR,SG,WH,SB,CT CR,WH,SB,SK CR,SG,SB CR,WH,SB,CT,PN SG,WH,SB,RC,CT CR,SG,WH,SB,CT,PN WH,RC,CT,SK WH

Lake States Corn Belt Northeast Southeast I N. Plains Southeast II S. Plains Delta Pacific ERS Regions Prior to 1995 – Followed State Boundaries

Regional Mapping FAPRI-MU –US cost of production model based on current ERS regional designations –US crop model based on state production mapped to COP model regions –Continued expansion of state-level model components (including those for ACRE) Incentive to maintain current mapping

Corn and Soybean Variable COP Source: FAPRI-MU August 2008 UpdateVariable Cost = Operating Cost + Hired Labor US $/Acre

Cotton and Rice Variable COP Source: FAPRI-MU August 2008 UpdateVariable Cost = Operating Cost + Hired Labor US $/Acre

Wheat and Sorghum Variable COP Source: FAPRI-MU August 2008 UpdateVariable Cost = Operating Cost + Hired Labor US $/Acre

(FAPRI)2008(USDA)2009(FAPRI) Variable Cost$239.88$349.40$337.51$ Fertilizer$99.72$172.06$166.75$ Fuel$32.42$51.42$47.13$52.60 Variable Cost = Operating Cost + Hired Labor

(FAPRI)2008(USDA)2009(FAPRI) Variable Cost$109.88$148.54$139.44$ Fertilizer$15.26$30.92$24.73$39.58 Fuel$17.12$26.92$25.84$27.43 Variable Cost = Operating Cost + Hired Labor

(FAPRI)2008(USDA)2009(FAPRI) Variable Cost$428.69$559.25$509.41$ Fertilizer$58.42$111.70$92.66$ Fuel$42.41$66.66$63.98$67.94 Variable Cost = Operating Cost + Hired Labor

(FAPRI)2008(USDA)2009(FAPRI) Variable Cost$493.49$697.90$638.77$ Fertilizer$96.61$185.57$153.25$ Fuel$133.83$210.39$201.91$ Variable Cost = Operating Cost + Hired Labor

(FAPRI)2008(USDA)2009(FAPRI) Variable Cost$100.36$151.03$136.14$ Fertilizer$37.29$71.31$59.15$92.13 Fuel$19.36$30.44$29.22$31.02 Variable Cost = Operating Cost + Hired Labor

(FAPRI)2008(USDA)2009(FAPRI) Variable Cost$429.84$580.48$536.79$ Fertilizer$71.52$143.92$115.94$ Fuel$63.27$99.79$95.46$ Variable Cost = Operating Cost + Hired Labor

Putting the Pieces Together Macro Prices Paid Cost of Prod. Net Returns

U.S. Corn Market Returns Source: FAPRI-MU August 2008 Update (Does not include Government Payments)

U.S. Soybean Market Returns Source: FAPRI-MU August 2008 Update (Does not include Government Payments)

U.S. Wheat Market Returns Source: FAPRI-MU August 2008 Update (Does not include Government Payments)

U.S. Cotton Market Returns Source: FAPRI-MU August 2008 Update (Does not include Government Payments)

U.S. Rice Market Returns Source: FAPRI-MU August 2008 Update (Does not include Government Payments)

FAPRI Baseline Process November 2008 – Preliminary Baseline December 2008 – Baseline Review Jan./Feb – Final Baseline –Deterministic and Stochastic –Presented to Congress by early March University of Missouri, Iowa State University, Texas A&M University, University of Arkansas, Texas Tech University, & Arizona State University

Thank you and Questions?