1. Maintaining Profitability January 2008
Craig A. Chase
Farm Management Field Specialist

2. Presentation Objectives
Net Farm Income Forecast
Cost of Production
Margins
Sizing up the Market
Strategies for Managing Margins

3. Net Farm Income * Forecast
Source: USDA Economic Research Service, Sept

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11. Costs of Production Seed Fertilizer Chemicals Insurance Machinery
Labor
Grain handling and storage
Land
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12. Direct Cost of Crop Production ($/A) Historical vs. 2008 Estimate
Source: U of IL Extension Economics, October 2007.

13. Non-Land Costs vs. Gross Revenue ($/A) Historical vs. 2008 Estimates
$308.00
$200.00
$235.00
$154.00
Source: U of IL Extension Economics, October 2007.

14. Tools for Evaluation Crop Rotation Calculator Crop Rotation Calculator
Crop Rotation Calculator
Crop Rotation N Calculator
Machinery Economics
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Flexible Rent Calculator

15. Crop Rotation Calculator
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16. http://www. extension. iastate
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19. Corn after SB $3.00 price $.32 N 122 pounds
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20. Corn on Corn
$4.00 price
$.40 N
178 pounds

21. Corn Nitrogen Rate Calculator
Corn on Corn
$4.00 price
$.70 N
152 pounds
Source:

22. Machinery Economics Field Operations
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23. Managing Machinery Costs
Combine Operations
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24. Cash Rent as % of Gross Revenue Iowa Average Yield x December Cash Price
45%
35%
Source: ISU Extension Economics, 2007.

25. Share of Gross Revenue Example--Corn
Cash rent is equal to 35% of Gross Income from Corn
Actual yield is 200 bu. of Corn
Harvest market price is $4.00/bu
Gross Income is (200 x $4.00) = $800/A
Cash Rent is 35% x $800, or $280/A

26. Share of Gross Revenue Example-Soybeans
Cash rent is equal to 45% of Gross Income from Soybeans
Actual yield is 50 bu. of Soybeans
Harvest market price is $10.00/bu.
Gross Income is (50 x $10.00) = $500/A
Cash Rent is 45% x $500, or $225/A

27. Flexible Cash Rent Leases
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28. Flexible Cash Rent Leases
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29. Sizing Up the Market

30. U.S. Planted Acreage Trend & Outlook
◊ - Estimated
* - Forecast
Source: USDA National Ag Statistics Service & ISU Extension Economics, October 2007.

31. Develop a Marketing Plan
Avoid the Five Common Mistakes in Grain Marketing?!?!
Reluctance Toward Pre-Harvest Marketing
Failure to Understand and Track Your Local Basis
Lack of an Exit Strategy
Holding Grain in Storage Too Long
Misunderstanding Carrying Charges

32. Decision Tree for Sizing Up the Market
Source: U of MN, CFFM, 2007.

33. Understand Seasonal Price Trends
On average from October to May, the price of corn rises 25 cents per bushel. But averages are deceiving! Since 1990, the price rise from Oct to May has been as high as $1.10 (1995/96) and as low as negative 23 cents in 2004/2005.
Source: U of MN, CFFM, 2007.
Fact: Since 1990, the May cash corn price has exceeded October in 14 of 17 years (82%).

34. Seasonal Corn Futures Trend
CBOT data
Source: U of MN, CFFM, 2007.

35. Understand Seasonal Price Trends
On average from October to May, the price of beans rise 55 cents per bushel. But averages are deceiving! In 2003/2004 the increase was $3.40 from Oct to May! Other notable years include 1995/96, 1996/97 (increases of $$1.51 and $1.39 respectively) and 1998/99 when cash prices declined 67 cents.
Source: U of MN, CFFM, 2007.
Fact: Since 1990, the May cash soybean price has exceeded October in 12 of 17 years (71%).

36. Seasonal Soybean Futures Trend
CBOT data
Source: U of MN, CFFM, 2007.

37. Corn & Soybean Basis Variability

39. Storage Costs for Corn

40. Corn Carry Strategies Jan 25, 2008 Dec. $5.10 Sep $5.13 July $5.19
May $5.11
Mar $4.98
Source: CBOT & ISU Extension Economics, 2008.

41. Storage Costs for Soybeans

42. Soybean Carry Strategies
Nov. $12.32
Jan 25, 2008
Sep $12.47
Jul $12.75
May $12.61
Mar $12.43
Source: CBOT & ISU Extension Economics, 2008.

43. Strategies for Maintaining Profitability
Plan Pre-Harvest Crop Sales
Utilize Crop Revenue Insurance
Develop Efficient Grain Management & Storage
Focus on Gross Crop Revenue and Margins
Plan 2008 Crop Rotation: Tillage, Seed & Fertility

44. ISU Crop Marketing Web Sites
Grain and Oilseed Market Analysis
Corn and Soybean Basis (State and County)
Ag Econ Periodicals, Publications and Programs
Ag Decision Maker (Crop Updates/ Publications Decision Tools)
Crop Marketing Newsletters/Webcasts

45. Thank You for This Opportunity!
Questions…..
Any questions or comments?
Thank You for This Opportunity!
Craig A. Chase
Farm Management Field Specialist
720 7th Avenue SW
Tripoli, IA
(319)