1. Marketing Considerations
Grain Outlook &
Marketing Considerations
Northwest Iowa Farm Business Association
Annual Meeting
Sheldon, Iowa
March 29, 2010
Chad Hart
Assistant Professor/Grain Markets Specialist 1

2. 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
164.9
Production
(mil. bu.)
13,038
12,092
13,131
Beg. Stocks
1,304
1,624
1,673
Imports 20 14 10
Total Supply
14,362
13,729
14,814
Feed & Residual
5,913
5,246
5,550
Ethanol
3,049
3,677
4,300
Food, Seed, & Other
1,338
1,276
1,265
Exports
2,437
1,858
1,900
Total Use
12,737
12,056
13,015
Ending Stocks
1,799
Season-Average Price
($/bu.)
4.20
4.06
3.60
Source: USDA 2 2

3. U.S. Corn Supply and Use 2009 Projected 2009 Current 2010 Area Planted
(mil. acres)
86.0
86.5
89.0
Yield
(bu./acre)
156.9
164.9
160.9
Production
(mil. bu.)
12,365
13,131
13,160
Beg. Stocks
1,790
1,673
1,719
Imports 15 10
Total Supply
14,170
14,814
14,894
Feed & Residual
5,200
5,550
5,350
Ethanol
4,100
4,300
4,500
Food, Seed, & Other
1,300
1,265
1,290
Exports
1,850
1,900
2,100
Total Use
12,450
13,015
13,240
Ending Stocks
1,720
1,799
1,654
Season-Average Price
($/bu.)
3.60
Source: USDA 3 3

4. 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
3,359
Beg. Stocks
574
205
138
Imports 10 13 15
Total Supply
3,261
3,185
3,512
Crush
1,803
1,662
1,730
Seed & Residual 93
101
172
Exports
1,159
1,283
1,420
Total Use
3,056
3,047
3,322
Ending Stocks
190
Season-Average Price
($/bu.)
10.10
9.97
9.45
Source: USDA

5. U.S. Soybean Supply and Use
2009 Projected
2009
Current
2010
Area Planted
(mil. acres)
77.0
77.5
Yield
(bu./acre)
42.6
44.0
42.9
Production
(mil. bu.)
3,240
3,359
3,260
Beg. Stocks
210
138
Imports 3 15 8
Total Supply
3,453
3,512
3,478
Crush
1,675
1,730
1,655
Seed & Residual
172
168
Exports
1,225
1,420
1,325
Total Use
3,073
3,322
3,147
Ending Stocks
380
190
330
Season-Average Price
($/bu.)
8.00
9.45
8.80
Source: USDA

6. 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). Argentina’s crop is rebounding from last year’s drought.
Source: USDA 6 6

7. Corn – Argentina & Brazil
South American corn area is down over the past two years. Last year’s drought pulled production down as well. Production estimates have been raised over the past couple of months.
Source: USDA 7 7

8. 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 8 8

9. 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 as their harvest kicks in.
Source: USDA 9 9

10. Hog Returns vs. Corn Prices
Margins have been improving recently, even with higher crop prices. Looking for demand strength both here and abroad.
Sources: ISU Extension, Farrow-to-Finish;
USDA-NASS

11. 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
Based on current futures, adjusted for average Iowa basis. Breakeven around $40/head. Margins look decent for hogs placed now through May, but head south as we go into summer. There is some recovery in margins next fall.
Source: Dr. John Lawrence, ISU Extension

12. Cattle Crush Margin
The Crush Margin is the return after the feeder steer and corn costs.
Live weight: pounds Feeder weight: 750 pounds
Corn: 50 bushels per head
Based on current futures, adjusted for average Iowa basis. Breakeven around $150/head. Margins looked decent for cattle placed earlier this winter, but head south over the spring and summer. There is some recovery in margins next fall.
Source: Dr. John Lawrence, ISU Extension

13. 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. 13 13

14. 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

15. Ethanol Blending Advantage
Ethanol blending margins have mostly stayed positive, so blenders have continued to pull in ethanol. Margins above 4.5 cents indicate blending is economical without the tax credit. Ethanol blending margin = (wholesale gasoline price + federal taxes) – (90%*wholesale gasoline price + 10%*wholesale ethanol price + federal taxes – tax credit).

16. 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

17. Exchange Rates (Jan. 2003 = 1) Source: USDA, ERS
The dollar had been on a long-run slide, but turned around quickly last fall. The slide resumed in As the dollar falls, our agricultural exports look less expensive to the rest of the world and exports tend to increase. USDA export projections are up with the fall of the dollar. But the dollar may fight back in 2010, especially if interest rates increase. The early call for 2010 shows a relative flat dollar (up against the Euro and Brazilian Real, down against the Yen and the South Korean Won).
Source: USDA, ERS

18. 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

19. 2009 U.S. Corn Exports Source: USDA, FAS
Africa and South Asia have been early buyers. Japan is a little behind last year’s pace, but is expected to continue as our largest export market. A recent trade of some concern, Japan switched a corn purchase over to Argentina.
Source: USDA, FAS

20. 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. Sales have begun to slow down.
Source: USDA, FAS

21. 2009 U.S. Soybean Exports Source: USDA, FAS
It’s China, but we are now seeing growth in other markets (such as Mexico).
Source: USDA, FAS

22. Corn
The relationship between corn prices and ending stocks used to be fairly stable, but…

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

24. Ratio: Nov. 2010 Soy/Dec. 2010 Corn
Futures prices for the 2010 crop have been favoring corn recently. Average around 2.5, above 2.5 favor soybeans.
Source: CBOT

25. Input Costs Source: USDA, Agricultural Prices, Feb. 26, 2010
Fertilizer and fuel prices better than last year, but seed and machinery are up. Overall, cost changes favor corn.
Source: USDA, Agricultural Prices, Feb. 26, 2010

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

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

28. Corn Futures 2010 Rev. Ins. Price $3.99 Source: CBOT, 3/16/10
Fairly good carry in the corn market through July. Dec futures point to higher prices for the 2010 crop and insurance prices around last year’s level.
Source: CBOT, 3/16/10

29. Soybean Futures 2010 Rev. Ins. Price $9.23 Source: CBOT, 3/16/10
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 $9.20 range. Soybean crop insurance prices should be higher for 2010.
Source: CBOT, 3/16/10

30. Pre-Harvest Strategies
56%
52%
52%
52%
72%
68%
68%
68%
Soybean costs also fall, but hold above 2008 crop year levels.
72%
68%
Source: Farm Futures magazine

31. Thoughts for 2009/10 and Beyond
General economic conditions
Continued economic recovery is a major key for crop prices
Weakness in the dollar helps exports, but dollar may fight back
Nearby crude oil prices floating in mid $70’s and lower $80’s
But we’re seeing in long-term prices (over the last month)
Supply/demand concerns
South America: Record soybean crop and large corn crop
Weather concerns for planting
2009/10: USDA: Corn $3.60, Soy $ Futures: Corn $3.49, Soy $9.41
2010/11: USDA: Corn $3.60, Soy $ Futures: Corn $3.70, Soy $8.86

32. 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: