1. Managing Margins in 2016 and Beyond
Crop Advantage Series
Burlington, Iowa
Jan. 8, 2016
Alejandro Plastina
Assistant Professor
Chad Hart
Associate Professor 1 1

2. U.S. Corn Supply and Use 2012 2013 2014 2015 2015 Δ Area Planted
(mil. acres)
97.3
95.4
90.6
88.4
Yield
(bu./acre)
123.1
158.1
171.0
169.3
Production
(mil. bu.)
10,755
13,829
14,216
13,654
Beg. Stocks
989
821
1,232
1,731
Imports
160 36 32 30
Total Supply
11,904
14,686
15,479
15,415
Feed & Residual
4,315
5,040
5,315
5,300
Ethanol
4,641
5,124
5,209
5,200 25
Food, Seed, & Other
1,397
1,369
1,359
1,380
Exports
730
1,920
1,864
1,750
-50
Total Use
11,083
13,454
13,748
13,630
-25
Ending Stocks
1,785
Season-Average Price
($/bu.)
6.89
4.46
3.70
3.65
Source: USDA-WAOB 2 2

3. U.S. Soybean Supply and Use
2012
2013
2014
2015
2015 Δ
Area Planted
(mil. acres)
77.2
76.8
83.3
83.2
Yield
(bu./acre)
40.0
44.0
47.5
48.3
Production
(mil. bu.)
3,042
3,358
3,927
3,981
Beg. Stocks
169
141 92
191
Imports 41 72 33 30
Total Supply
3,252
3,570
4,052
4,203
Crush
1,689
1,734
1,873
1,890
Seed & Residual
105
107
145
133
Exports
1,317
1,638
1,843
1,715
Total Use
3,111
3,478
3,861
3,738
Ending Stocks
465
Season-Average Price
($/bu.)
14.40
13.00
10.10
8.90
Source: USDA-WAOB 3 3

4. Corn Yield Estimate Top: 2015 Estimated Yields
Bottom: Change from last month
Units: Bushels/acre
Source: USDA-NASS

5. Soybean Yield Estimate
Top: 2015 Estimated Yields
Bottom: Change from last month
Units: Bushels/acre
Source: USDA-NASS

6. World Corn Production
Source: USDA-WAOB 6 6

7. World Soybean Production
Source: USDA-WAOB 7 7

8. U.S. Meat Production & Prices
Source: USDA-WAOB 8 8

9. Corn Export Sales
Source: USDA-FAS

10. Soybean Export Sales
Source: USDA-FAS

11. Strength of the U.S. Dollar
Source: Federal Reserve

12. Crude Oil Prices
Sources: EIA and CME

13. Corn Grind for Ethanol

14. Current Corn Futures
3.76
3.58
3.48
Source: CME Group, 1/7/2016

15. Current Soybean Futures
8.56
8.35
8.43
Source: CME Group, 1/7/2016

16. 2015/16 Crop Margins

17. 2016/17 Crop Margins

18. Iowa Corn Prices vs. Costs

19. Profitability analysis in Iowa: Rented Corn Acres
Units
2012
2013
2014
2015f
a. State Yield
Bu/Ac
137
164
178
189
b. Iowa Farm Price
$/Bu
6.92
4.49
3.70
3.65
c. Crop Revenue (=axb)
$/Ac
948
736
659
690
d. Average Crop Insurance Payment
123
132 83
n/a
e. Income from Crop (=c+d)
1071
868
742
f. Average State Cash Rent
252
270
260
246
g. Average Non-land Production Cost
517
513
495
499
h. Total Production Cost (=f+g)
769
783
755
745
i. Net Farm Income from Corn (=e-h)
302 85
-13
-55
j. Net Farm Income w/o Crop Ins. (=i-d)
$/Ac
179
-47
-96
-55
Corn producers who rent need to finance these gaps with $ from other sources!
Sources: USDA/NASS, RMA, AgDM File A1-20

20. Net Farm Income: Corn
$/Acre

21. Profitability analysis in Iowa: Rented Soybean Acres
Units
2012
2013
2014
2015f
a. State Yield
Bu/Ac
45.0
45.5
51.5
56.0
b. Iowa Farm Price
$/Bu
14.40
13.10
9.96
8.90
c. Crop Revenue (=axb)
$/Ac
648
596
513
498
d. Average Crop Insurance Payment 27 25 26
n/a
e. Income from Crop (=c+d)
675
621
539
f. Average State Cash Rent
252
270
260
246
g. Average Non-land Production Cost
288
272
275
h. Total Production Cost (=f+g)
540
542
530
521
i. Net Farm Income from Soy (=e-h)
135 79 9
-23
j. Net Farm Income w/o Crop Ins. (=i-d)
$/Ac
108 54
-17
-23
Soybean producers who rent need to finance these gaps with $ from other sources!
Sources: USDA/NASS, RMA, AgDM File A1-20

22. Net Farm Income: Soybeans
$/Acre

23. Profitability in Perspective: Living Expenses
How many acres (50% corn-50% soybeans) are needed to support $40,000 in living expenses?
2012
2013
2014
2015
100% Rented Acres
183
487
Not Possible!
Fully Owned Acres 85
114
155
193
Half-Owned Acres
125
198
371
700
@ $7,900/acre (2015):
193 acres  $1.5 mil. in land value = equity
700 acres  $5.5 mil. in land value = $2.8 mil. equity
Sources: USDA/NASS, RMA, AgDM File A1-20

24. Corn Profits: Dollars per Rented Acre
What can happen in 2016?
Corn Profits: Dollars per Rented Acre
2016 Revenue compared to 2015
-10%
-5% 0%
+5%
+10%
2016
Cost of Production compared to 2015
-199
-164
-130
-95
-61
-161
-127
-92
-58
-23
-124
-90
-55
-21 14
-87
-52
-18 17 51
-50
-15 19 54 88

25. Soybean Profits: Dollars per Rented Acre
What can happen in 2016?
Soybean Profits: Dollars per Rented Acre
2016 Revenue compared to 2015
-10%
-5% 0%
+5%
+10%
2016
Cost of Production compared to 2015
-125
-100
-75
-50
-25
-98
-74
-49
-24 1
-72
-48
-23 2 27
-46
-21 3 28 53
-20 5 30 54 79

26. Profitability analysis in Iowa: Rented Acres
CORN
SOYBEANS
Units
2015f
2016f
Change
a. State Yield
Bu/Ac
189
177
-6% 56 50
-11%
b. Iowa Farm Price
$/Bu
3.65
3.58
-2%
8.90
8.35
e. Income from Crop (=axb)
$/Ac
690
634
-8%
498
418
-16%
f. Average State
Cash Rent
246
239
-3%
g. Average Non-land Production Cost
499
461
275
267
h. Total Production Cost (=f+g)
745
700
521
506
j. Net Farm Income w/o Crop Ins. (=e-h)
-55
-66
-23
-88
Sources: USDA/NASS, RMA, AgDM File A1-20

27. 9 Strategies to manage margins
Major concern: cash flow / liquidity
Solvency hit, but still strong:
Declining land values in Iowa
Declining machinery values
Long term problem  strategy for 2-3 years

28. Strategies: 1. Protect your working capital
Revise recent asset purchases
Revise share of rented land
Revise scale of operation and fixed costs over next 2-3 years
Manage taxes: visit with tax advisor
Deferred payment contracts
S179
Carry back operating losses to obtain tax refunds
First line of defense against financial stress!
Burn rate in 2015, puts you on a weaker position for 2016 and 2017.

29. Strategies: 2. Avoid cash shortages
Plan for operating losses (renters)
Secure operating loan/emergency loan terms
Be very careful with new capital expenditures
Maintain cash reserves and operating credit lines:
Cash Costs / Acre
Soy after corn
Corn after soy
Corn after corn
Non-land (excl. labor)
$185-$200
$320-$385
$360-$425
Land
$225-$300
All Cash Costs
$410-$500
$545-$685
$585-$725
Operating losses – particularly for renters!!
Decline in expensing and reduced flexibility to delay sales because of lower prices.
Source: File A1-20, Ag Decision Maker

30. Strategies: 3. Diversify Income
Add or don’t lose non-farm income
Consider alternative sources of revenue with your assets: custom work, snow removal, truck driving in fall & winter, ???

31. Strategies: 4. Revise production costs
Revise production plans, especially for rented land (renegotiate land rent?)
Can you make changes that generate savings that offset reductions in revenue?
 N 20 lbs per acre? Savings $10. If yield  smaller than 2.7 $3.65/bu, GO AHEAD! Otherwise, NO GO.
Switch to seeds with fewer traits (+crop management)? Net savings $25/acre. If yield  smaller than 6.8 $3.65/bu, GO AHEAD! Otherwise, NO GO.
Seek volume discounts in seeds, chemicals, etc.
Visit with agronomist: update your production skills, evaluate how to control costs

32. Strategies: 5. Actively Manage Risks
Know your break-even prices
Design a marketing plan with price and date targets and stick to it
Lock-in margins whenever possible
Revise crop insurance (Explore ways to maintain protection while lowering costs)
Revise use of forward contracts & crop insurance to finance inputs
Crop insurance will not be quite as protective as in recent years, but it is useful to manage risks. Don’t expect to make money out of it, just like you don’t expect to make money out of your car insurance, your home owners insurance, etc.

33. Strategies: 6. Revise family living expenses
193 fully owned acres to afford $40,000 in living expenses
Revise family living expenditures:
Vacation plans
House remodeling plans
Truck purchase
340 fully owned acres to afford $70,000 in living expenses
Tight repayment capacity makes lenders nervous. And there has been a trend in recent years to change loan terms to shorter schedules, from 30 year mortages to 20 or 15 year mortgages, from 10 year machinery loans to 7 or 5 year machinery loans.

34. Strategies: 7. Secure repayment capacity
Short repayment schedules reduce cash flow vs. long repayment schedules
Try to extend repayment schedules on equipment & real estate loans (low interest rates)
Work a plan with your lender(s) for
Tight repayment capacity makes lenders nervous. And there has been a trend in recent years to change loan terms to shorter schedules, from 30 year mortages to 20 or 15 year mortgages, from 10 year machinery loans to 7 or 5 year machinery loans.
Talk sooner than later.

35. Strategies: 8. Revise Growth Strategy
Depending on your growth stage:
Offload unproductive assets
Downsize
Slow down growth
Beginning farmers: wait to buy land
Align short term needs with long term growth goals
For Beg.Farmers how long to wait: don’t get too eager. Make sure to have the financial strength to do it.

36. Strategies: 9. Know your ARC/PLC Payments
Payments vary widely across counties and programs
If any 2014 ARC-CO Payments, use to cash flow
Corn: 2015 corn yields similar to 2014 yields. ARC-CO payments similar too.
Soy: 2015 corn yields different from 2014 yields. ARC-CO payments different too: Higher payments for central and southern counties and lower payments for northern counties.
No PLC payments in Small payments likely in corn base acres in 2015.
Source: Iowa Farm Bureau Federation

37. 2015 ARC-CO Payments per Corn Base Acre (issued Oct 2016)
State Average:
$44 per base acre
$69
Y 182.6; OAY 170.8
$52
Y 191.0; OAY 168.6
$64
Y 183.6; OAY 167.8
Projections based on:
2015/16 USDA Price Projection:
Corn $3.65
2) Guaranteed Price:
Corn $5.29
3) Projected 2015 County Yields = 2014 County Yields × 2015 CRD Yield / 2014 CRD Yield
$49
Y ; OAY 164.3
$39
Y 189.9; OAY 163.8
$56
Y 185.1; OAY 167.2
$37
Y 171.3; OAY 150.6 $5
Y 159.9; OAY 117.0
$20
Y 170.2; OAY 134.5

38. 2015 ARC-CO Payments per Soy Base Acre 2015 yields projected with CRD yields (issued Oct 2016)
State Average:
$19 per base acre $8
Y 60.0; OAY 50.5 $2
Y 57.8; OAY 47.0 $7
Y 59.7; OAY 50.9
Projections based on:
2015/16 USDA Price Projection:
Soybeans $8.90
2) Guaranteed Price:
Soybeans $ 12.27
3) Projected 2015 County Yields = 2014 County Yields × 2015 CRD Yield / 2014 CRD Yield
$39
Y 51.8; OAY 48.7
$25
Y 55.7; OAY 50.0
$29
Y 57.7; OAY 52.1
$36
Y 48.1; OAY 46.4
$18
Y 47.0; OAY 41.3
$11
Y 54.2; OAY 45.8

39. 2015 ARC-CO Payment Calculator http://www. extension. iastate

40. 2015 PLC Payments per Corn Base Acre MYA Price $3.65 per bushel
State Average:
$5 per base acre $5
Yield bu $6
Yield bu $5
Yield bu $5
Yield bu $5
Yield bu $5
Yield bu
Projections based on:
1) Payment Yields = CCP Yields
2) 2015/16 MYA Prices:
Corn $ / bushel $5
Yield bu $4
Yield 99.5 bu $5
Yield bu

41. 2015 PLC Payments per Soy Base Acre MYA Price $8.90 per bushel
State Average:
$0 per base acre $0
Yield 40.7 bu $0
Yield 38.6 bu $0
Yield 40.6 bu $0
Yield bu $0
Yield 39.1 bu $0
Yield 40.7 bu
Projections based on:
1) Payment Yields = CCP Yields
2) 2015/16 USDA MYA Prices:
Soybean $ 8.90 / bushel $0
Yield 35.5 bu $0
Yield 33.3 bu $0
Yield 35.4 bu

42. PLC Payment Calculator http://www. extension. iastate

43. Summary Expect low to negative margins in 2016 Visit with:
Agronomist – control costs?
Lender – refinance, lower payments?
Tax advisor – refunds from previous years?
Crop insurance agent – change coverage?
Use Ag Decision Maker:

44. Thank you for your time. Any questions. Ag Decision Maker: http://www