1. Ag Outlook for 2011 Iowa Chapter of ASFMRA and RLI Annual Meeting
Ames, Iowa
Feb. 3, 2011
Chad Hart
Assistant Professor/Grain Markets Specialist 1 1

2. Livestock Marketing Information Center
Data Source: USDA-NASS, Compiled & Analysis by LMIC 2

3. Source: USDA

4. Cattle and Hog Prices
Source: CME Group

5. 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
Cattle also had a decent And the story is very similar to hogs.
Source: Shane Ellis, ISU Extension

6. 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
Hogs had a decent 2010, following the tragedies of 2008 and The outlook remains good for the next couple of months, but margins weaken in the middle of the year. Expansion is not likely.
Source: Shane Ellis, ISU Extension

7. Livestock Marketing Information Center
Data Source: USDA-NASS, Compiled & Analysis by LMIC 7

8. Livestock Marketing Information Center
Data Source: USDA-NASS, Compiled & Analysis by LMIC 8

9. Livestock Marketing Information Center
Data Source: USDA-NASS, Compiled & Analysis by LMIC 9

10. Livestock Marketing Information Center
Data Source: USDA-NASS, Compiled & Analysis by LMIC 10

11. Cattle/Beef Prices
Source: USDA

12. Hog/Pork Prices
Source: USDA

13. Source: USDA

14. Livestock Marketing Information Center
Data Source: USDA-ERS & USDA-FAS, Compiled & Analysis by LMIC 14

15. Livestock Marketing Information Center
Data Source: USDA-ERS & USDA-FAS, Compiled & Analysis by LMIC 15

16. Livestock Marketing Information Center
Data Source: USDA-ERS & USDA-FAS, Compiled & Analysis by LMIC 16

17. Livestock Marketing Information Center
Data Source: USDA-NASS, Compiled & Analysis by LMIC 17

18. Source: USDA

19. Class III Milk Prices
Source: CME Group

20. Thoughts for 2011 and Beyond
Continued economic recovery is a major key for livestock prices
Meat demand is recovering
Meat supplies tightened up with smaller herds/flocks
Feed costs have continued to march higher
The combination implies livestock expansion will take awhile
Poultry in 2010, Hogs maybe in 2012, and Cattle after that

21. U.S. Corn Supply and Use 2007 2008 2009 2010 Area Planted (mil. acres)
93.5
86.0
86.4
88.2
Yield
(bu./acre)
150.7
153.9
164.7
152.8
Production
(mil. bu.)
13,038
12,092
13,092
12,447
Beg. Stocks
1,304
1,624
1,673
1,708
Imports 20 14 8
Total Supply
14,362
13,729
14,774
14,175
Feed & Residual
5,913
5,182
5,140
5,200
Ethanol
3,049
3,709
4,568
4,900
Food, Seed, & Other
1,338
1,316
1,371
1,380
Exports
2,437
1,849
1,987
1,950
Total Use
12,737
12,056
13,066
13,430
Ending Stocks
745
Season-Average Price
($/bu.)
4.20
4.06
3.55
5.30
The arrows show the changes from last month. Stocks continue to shrink. But even with national yields down to bushels per acre, we’re still looking at the 3rd largest corn crop ever. But it’s relatively short due to the strong demand for corn. Demand jumped in the 1st quarter of the 2010 marketing year as old crop corn was blended and used. Ethanol demand is projected to continue to exceed the Renewable Fuels Standard. That’s enough to push stocks-to-use to 5.5%, the lowest level since And push prices higher with USDA at the $5.30 level for an average 2010/11 price.
Source: USDA 21 21

22. U.S. Soybean Supply and Use
2007
2008
2009
2010
Area Planted
(mil. acres)
64.7
75.7
77.5
77.4
Yield
(bu./acre)
41.7
39.7
44.0
43.5
Production
(mil. bu.)
2,677
2,967
3,359
3,329
Beg. Stocks
574
205
138
151
Imports 10 13 15
Total Supply
3,261
3,185
3,512
3,495
Crush
1,803
1,662
1,752
1,655
Seed & Residual 93
106
108
110
Exports
1,159
1,279
1,501
1,590
Total Use
3,056
3,047
3,361
3,355
Ending Stocks
140
Season-Average Price
($/bu.)
10.10
9.97
9.59
11.70
For soybeans, the January USDA reports knocked the 2010 crop behind So we just had the 2nd largest soybean crop we’ve ever produced. Soybean crush, seed, and residual demand were slightly reduced. Soybean export demand remains at record pace. But the drop in supplies is enough to lower 2010/11 ending stocks. Prices are up, with USDA at $11.70 per bushel for the 2010/11 marketing year.
Source: USDA 22 22

23. World Corn Production Source: USDA
La Nina and the dry conditions in Argentina are beginning to show in the USDA numbers for South America. USDA pulled their Argentina corn estimate down 6 percent from last month and the reports from Argentina suggest we’ll see further reductions in the future.
Source: USDA 23 23

24. World Soybean Production
It’s the same story for soybeans.
Source: USDA 24 24

25. Corn Export Sales Source: USDA, FAS
Corn exports are up slightly, but the last few weeks have been disappointing.
Source: USDA, FAS

26. Corn Export Shifts Source: USDA, FAS
The Japanese market improving and Egypt has doubled its purchases from last year, but Mexico is off significantly. Overall, we’re still nearly 4% above last year, but the gap is narrowing.
Source: USDA, FAS

27. Soybean Export Sales Source: USDA, FAS
We’re still on record pace for soybean exports, but like with corn, the gap is narrowing.
Source: USDA, FAS

28. Soy Export Shifts Source: USDA, FAS
But so far, Chinese sales are still up over 100 million bushels and we continue to see some growth in other areas (Mexico and Indonesia). But the pace has slowed recently.
Source: USDA, FAS

29. Renewable Fuels Standard (RFS)
Crop
Year
Billion Bushels
2009
4.11
2010
4.43
2011
4.64
2012
4.86
Biofuels, especially ethanol, are still a major market driver. The Renewable Fuels Standard (RFS) outlines the government’s minimum levels for blending and use. The RFS points to 4.43 billion bushels of corn for ethanol out of the 2010 crop. USDA is currently at 4.9 billion bushels. So corn demand via ethanol is holding above the government requirement as production and blending margins have been positive for some time. 29 29

30. Ethanol Margins Source: ISU, CARD
And futures prices indicate positive margins may last through 2011 and But higher corn prices could squeeze those margins.
Source: ISU, CARD

31. Ethanol Blending Advantage
As you compare the prices of a gallon of E10 to a gallon of regular unleaded gasoline, you see that E10 has offered fuel blenders a price advantage for most of the past four years. In fact, for most of the time, the advantage exceeded the tax credit of 4.5 cents per gallon. But the recent run-up in corn and ethanol prices, along with relatively flat gasoline prices, has put the squeeze on the blending margin. If margins continue to fall, we could see ethanol plants back off of production and shut down, like we saw in late 2008 and early 2009.

32. Fuel Prices
The relative pricing between gasoline and ethanol will be key for ethanol’s continuing growth. 32 32

33. Projected 2010 Season-Average Corn Price
As the crop got smaller and the demands got larger, projected stocks were reduced and prices headed north. Both the futures market and USDA have been north of $5 for corn for the last few months. With the latest report, we’ll likely see futures indicate season-average prices over $5.50.

34. Projected 2010 Season-Average Soy Price
Similar stock tightness has allowed soybean futures to go into the teens and put the season-average price near the $12 range. The futures will likely make a run at $13 for a season-average price.

35. Projected 2011 Season-Average Corn Price
The pressure’s on for 2011.

36. Projected 2011 Season-Average Soy Price

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

38. Iowa Corn Prices vs. Costs
Margins look good for the 2010 and 2011 crops. But costs will likely catch us in 2012.

39. Iowa Soybean Prices vs. Costs
Returns are also very strong for soybeans.

40. Principal Crop Area Source: USDA-NASS
Given crop prices, I expect to see a recovery in principal crop area, like we saw in 2007/08.
Source: USDA-NASS

41. States with Room to Grow
Million acres
Competing Crops
North Dakota
2.249
Wheat, corn, soy
South Dakota
1.400
Missouri
0.930
Rice, cotton, soy
Arkansas
0.715
Illinois
0.535
Texas
0.466
Cotton, corn, soy
Georgia
0.395
Mississippi
0.284
Cotton, rice, soy
North Carolina
Louisiana
0.283
And these are the states that have room to expand.

42. New Crop Futures Price Movements
Wheat
Corn
Soybeans
Cotton
MGE Sept.
CME Dec.
CME Nov.
ICE Dec.
($/bu.)
($/lb.)
June 1
5.81
4.04
9.22
0.75
Feb. 2
10.13
5.98
13.75
1.18
Change
74%
48%
49%
57%
And it’s not just corn and soybeans looking for acreage.

43. Thoughts for 2011 and Beyond
General economic conditions
Continued economic recovery is a major key for crop prices
Chinese inflation, European credit tightening, and Middle Eastern unrest have hit the markets
Long-term oil price remain in the $90 range
Supply/demand concerns
South America: La Niña impacts
Will supply be able to keep pace with demand?
2010/11: USDA: Corn $5.30, Soy $11.70
Futures (as of 2/2/2011): Corn $5.48, Soy $12.25
2011/12:
Futures (as of 2/2/2011): Corn $5.83, Soy $13.16

44. 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: