1. Risk Environment for Agriculture
Ag. Credit School
Ames, Iowa
June 13, 2017
Chad Hart
Associate Professor/Crop Markets Specialist 1 1

2. Iowa Corn Prices vs. Costs

3. Iowa Soybean Prices vs. Costs

4. Iowa Corn Costs
Overall 13% increase
21%
16% 8% 8%
Source: AgDM A1-21

5. Iowa Soybean Costs Overall 24% increase 21% 6% 27% 39%
Source: AgDM A1-21

6. Crop Prices for the Next Decade
Source: USDA-OCE

7. GDP Growth
Source: USDA-OCE

8. U.S. Crude Oil Prices
Source: USDA-ERS

9. World Corn Markets
Source: USDA 9 9

10. Crop Insurance One of many risk management strategies
Traditionally set up to protect farmers in times of low crop yields
Now offers coverage for low prices
Available on over 100 commodities

11. Causes of Loss for Iowa Corn, 1948-2010

12. Causes of Loss for Iowa Soy, 1955-2010

13. Federal Crop Insurance

14. Federal Crop Insurance: Total Acres Insured

15. Corn Acres Insured in 2016
87% of all
corn acres
are insured

16. Soy Acres Insured in 2016
87% of all
soybean acres
are insured

17. 2016 Corn and Soy Coverage Levels

18. 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.

19. President’s Budget Request
Source: OMB, 2018 Budget

20. Value of Ag Trade
Source: USDA-FAS

21. U.S. Ag Exports
Source: USDA-FAS

22. Margin Maneuvers Negotiate lower land rental rates
Explore variety choice (seed cost vs. seed benefits)
Soil test and apply required fertilizer
Examine and control other input costs (pesticides, herbicides, etc.)
Be more aggressive marketing on rallies
May look to limit losses, as opposed to capture profits
Singles & doubles vs. Home run strategy

23. Margin Maneuvers Fully utilize government programs
ARC-CO, PLC, crop insurance
Break price into futures and basis components to capture improvements in either
Put the pencil to paper and calculate storage benefits/costs
Will a traditional seasonal price swing cover storage costs?
What are futures prices telling you about storage opportunities now?
Remember, Rome wasn’t built in a day
It took us awhile to get into this situation and it will take awhile to get out.

24. Revenue Mix
Source: USDA-ERS

25. Revenues vs. Costs
Source: USDA-OCE

26. Farm Incomes
Source: USDA-ERS

27. A Multi-dimensional Issue
Source: Takle et. al., 2013

28. Communication is Key With your clients and your supervisors
No one wants an unwelcome financial surprise
Fewer surprises mean fewer conversations with regulators
But it does require a few more conversations with clients

29. Understanding Clients
What’s a “typical” year for them look like?
Production
Cash flow
Marketing
How far are they along their career path?
Beginning
Mid-career
Transitioning out
Do you see changes in the farm or in the client?
Is the client willing to discuss the changes?

30. Source: Federal Reserve of Chicago
Summary Ag Stats
Source: Federal Reserve of Chicago

31. Summary Ag Lending Stats
Source: Federal Reserve of Chicago

33. Iowa Loans
Source: Hanson, 2017, IDoB

34. Examiner Experience
Source: Hanson, 2017, IDoB

35. Thank you for your time. Any questions. My web site: http://www. econ
Thank you for your time! Any questions? My web site: Iowa Farm Outlook: Ag Decision Maker: