1. Crop Markets and the Farm Bill
Strawberry Point, Iowa
Feb. 25, 2015
Chad Hart
Associate Professor/Crop Markets Specialist 1 1

2. U.S. Corn Supply and Use 2010 2011 2012 2013 2014 Area Planted
(mil. acres)
88.2
91.9
97.3
95.4
90.6
Yield
(bu./acre)
152.8
147.2
123.1
158.1
171.0
Production
(mil. bu.)
12,447
12,360
10,755
13,829
14,216
Beg. Stocks
1,708
1,128
989
821
1,232
Imports 28 29
160 36 25
Total Supply
14,182
13,517
11,904
14,686
15,472
Feed & Residual
4,795
4,557
4,315
5,036
5,250
Ethanol
5,019
5,000
4,641
5,134
Food, Seed, & Other
1,407
1,428
1,397
1,367
1,395
Exports
1,834
1,543
730
1,917
1,750
Total Use
13,055
12,528
11,083
13,454
13,645
Ending Stocks
1,827
Season-Average Price
($/bu.)
5.18
6.22
6.89
4.46
3.65
Source: USDA-WAOB 2 2

3. U.S. Soybean Supply and Use
2010
2011
2012
2013
2014
Area Planted
(mil. acres)
77.4
75.0
77.2
76.8
83.7
Yield
(bu./acre)
43.5
41.9
40.0
44.0
47.8
Production
(mil. bu.)
3,329
3,094
3,042
3,358
3,969
Beg. Stocks
151
215
169
141 92
Imports 14 16 41 72 25
Total Supply
3,495
3,325
3,252
3,570
4,086
Crush
1,648
1,703
1,689
1,734
1,795
Seed & Residual
130 88
105 97
116
Exports
1,501
1,365
1,317
1,647
1,790
Total Use
3,280
3,155
3,111
3,478
3,701
Ending Stocks
385
Season-Average Price
($/bu.)
11.30
12.50
14.40
13.00
10.20
Source: USDA-WAOB 3 3

4. Corn Yields Top: 2014 Yield Bottom: Change from last year
Units: Bu/acre
Source: USDA-NASS

5. Soybean Yields Top: 2014 Yield Bottom: Change from last month
Units: Bu/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 Shifts
Source: USDA-FAS

10. Corn Export Sales
Source: USDA-FAS

11. Soybean Export Shifts
Source: USDA-FAS

12. Soybean Export Shifts
Source: USDA-FAS

13. Crude Oil Prices
Sources: EIA and CME

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

15. Corn Grind for Ethanol

16. Current Corn Futures
3.91
3.68
Source: CME Group, 2/24/2015

17. Current Soybean Futures
10.11
9.59
Source: CME Group, 2/24/2015

18. 2014/15 Crop Margins

19. 2015/16 Crop Margins

20. Thoughts for 2015 and Beyond
Supply/demand concerns
Record corn and soybean crops, but also record demand
Markets are in a holding pattern, waiting for news
Watching South American crop progress
Projected negative margins for 2014 and 2015 crops
2013/14
USDA
2014/15
Futures
(2/24/15)
2015/16
Corn
$4.46
$3.65
$3.68
$3.91
Soybeans
$13.00
$10.20
$10.11
$9.59

21. Corn Prices vs. Costs
Per Bushel Cost calculated as Per Acre Cost from ISU Extension divided by Actual Yield per Acre
Sources: USDA-NASS for Prices, Duffy for Costs

22. Soybean Prices vs. Costs
Per Bushel Cost calculated as Per Acre Cost from ISU Extension divided by Actual Yield per Acre
Sources: USDA-NASS for Prices, Duffy for Costs

23. Farm Bill: Old vs. New Direct Payments (DP)
Countercyclical Payments (CCP)
Marketing Loans (LDP)
Revenue Countercyclical Payments (ACRE)
Countercyclical Payments (PLC)
Marketing Loans (LDP)
Revenue Countercyclical Payments (ARC)
New programs, but they have strong similarities to previous programs

24. PLC: Corn Payment Potential
Reference Price = $3.70 per bushel
Payment Yield = 150 bushels per acre
Marketing Year Price ($/bu)
PLC Payment Rate ($/bu)
PLC Payment ($/base acre)
$3.10
$0.60
$76.50
$3.20
$0.50
$63.75
$3.30
$0.40
$51.00
$3.40
$0.30
$38.25
$3.50
$0.20
$25.50
$3.60
$0.10
$12.75
$3.70
$0.00
For PLC, the payment rate is the difference between the reference price and the maximum of either the marketing year average price or the loan rate (if the difference is negative, then the payment rate is zero). Take the payment rate times the payment (or base) yield times 85% to get the PLC payment per base acre.
Notes: PLC payments are made on 85% of base acres.

25. ARC-CO: 2014 Corn Revenue Guarantee
Year
Yield
MYA Price
ARC Price
2009
157.0
$3.55
$3.70
2010
186.0
$5.18
2011
187.0
$6.22
2012
163.0
$6.89
2013
156.0
$4.46
Oly. Ave.
168.7
$5.29
Here’s the 5 years of price and yield data for Hardin County, Iowa corn. The red numbers are the high and low ones that are not used in the Olympic average (remember the Olympic average throws out the high and low). Also, the price used in the average can not be below the reference price specified in the farm bill (in this case, $3.70 for corn). So as the black circle above shows, the price in 2009 was replaced by the reference price. So the 5-year Olympic average yield is bushels per acre. The 5-year Olympic average price is $5.29 per bushel. Combine the two to get the benchmark revenue of $ per acre. The ARC revenue guarantee is 86% of the benchmark, so it’s $ per acre.
Benchmark Revenue = $ per acre
ARC Revenue Guarantee = $ per acre
Notes: Revenue Guarantee equals 86% of Benchmark.

26. ARC-CO: 2014 Potential Corn Payment
ARC Revenue Guarantee = $ per acre
ARC Max Payment Rate = $89.24 per acre
But ARC-CO is paid on 85% of base acres
and 85% of $89.24 is $75.85
Price: $3.50
$4.00
$4.50
$5.00
Yield: 100
$75.85
125
150
$14.86
175
$57.36
$0.00
200
Let’s say that in 2014, the Hardin County, Iowa average corn yield turns out to be exactly the 5-year Olympic average yield (168.7 bushels per acre). Then, if the corn price falls below $4.55 per bushel, ARC will begin to pay. As the table shows, under this scenario, if the corn price falls below $4 per bushel, the ARC payment rate will hit its maximum (based on 10% of the benchmark revenue or $89 in this case). Since ARC-CO is only paid 85% of a farm’s base acres, you can view the ARC payment per base acre as 85% of the ARC payment rate.

27. ARC-IC: 2014 Corn & Soybean Combined Revenue Guarantee
Year
Corn Yield
ARC Price
Revenue
Soy Yield
2009
157.0
$3.70
$580.90
43.0
$9.59
$412.37
2010
186.0
$5.18
$963.48
55.0
$11.30
$621.50
2011
187.0
$6.22 $
56.0
$12.50
$700.00
2012
163.0
$6.89 $
50.0
$14.40
$720.00
2013
156.0
$4.46
$695.76
46.0
$13.00
$598.00
Oly. Ave.
$927.44
$639.83
For farm-level ARC (ARC-IC), the 5-year Olympic average is taken over the revenues (as opposed the prices and yields separately, as in ARC-CO). For each covered crop, a benchmark revenue is determined. Here, corn has a benchmark revenue of $927 per acre and soybeans has a benchmark revenue of $640 per acre. Then an overall benchmark revenue is calculated, based on the percentages of planted acres by crop on the farm in the current year. For this example, let’s assume the farm is a 60/40 corn/soybean split. Then the overall ARC benchmark revenue is $812 per acre (= 60%*$ %*$640). The ARC revenue guarantee is 86% of the benchmark, so $699 per acre.
In 2014, if the farm is planted 60% to corn and 40% to soybeans, then
Benchmark Revenue = $ per acre
Revenue Guarantee = $ per acre

28. ARC-IC : 2014 Potential Corn & Soybean Combined Payment
Actual 2014 farm yields: Corn 180 bushels per acre
Soy 50 bushels per acre
Marketing year prices: Corn $4.00 per bushel
Soy $10.50 per bushel
Calculated revenues: Corn $ per acre
Soy $ per acre
ARC Revenue: 60%*$ %*$ = $642.00
ARC-IC is paid on 65% of base acres
ARC-IC Payment = $36.83 per acre (65% of $ $642.00)
To calculate the actual revenue, the revenue for each crop is computed and the same percentages of planted acres are applied to create an overall actual revenue for the farm. Here, for example, if corn has an actual revenue of $720 per acre and soybeans has an actual revenue of $525 per acre. Then the overall actual revenue is calculated as $642 per acre (= 60%*$ %*$525). The ARC payment rate would be $57 per acre ($699 - $642) and the ARC payment per base acre would be $37 per acre (= 65%*$57, as ARC-IC is paid on 65% of base acres).

29. Supplemental Coverage Option (SCO)
An additional policy to cover “shallow losses”
Shallow loss = part of the deductible on the producer’s underlying crop insurance policy
SCO has a county-level payment trigger
Indemnities are paid when the county experiences losses greater than 14%
Premium subsidy: 65%
Starts in 2015
Can’t have ARC and SCO together
If owner/operators choose PLC, then they are also eligible to purchase SCO in SCO is a county-based crop insurance product that covers yield or revenue losses below 86% of the county guarantee. The SCO coverage sits on top of your other crop insurance (RP, YP, etc.). An example is shown in the following slide.

30. Supplemental Coverage Option (SCO)RP
RPHPE YP
For example, if a producer currently buys 80% RP, then SCO covers county losses between 80-86%. If the producer moves their crop insurance down to 70% RP (click to trigger the animation), then SCO coverage expands to 70-86% for the county.

31. Three Choices PLC + SCO ARC-County ARC-Individual
Price protection with top-up county-level insurance protection
ARC-County
County-level revenue protection based on historical averages
ARC-Individual
Farm-level revenue protection based on historical averages
Choice holds for crop years

32. 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.

33. Corn Marketing Year Average Price Projections
I pulled the CME estimates from Alejandro’s decision tool on a particular day. Of course it will not be the same on the day you use it.
You can get CBO, FAPRI, and USDA with the Show Prices toggle on the University of Illinois tool.
You can get the FAPRI and USDA prices on the Texas A&M tool. That is the toggle we use when looking at projected program payments. The CME price isn’t terribly relevant. The CBO price isn’t terribly relevant. Why do I say that? The Texas A&M tool only uses FAPRI and USDA prices. I can’t show projected payments using the CBO or CME prices easily, and in 45 minutes we don’t have time to show them the results anyway.

34. Soybean Marketing Year Average Price Projections
Same as prior, except for soybeans.
How strong is the confidence in the room that over the next five years we will not see a soybean price that starts with an 8? That’s the kicker on whether you just choose County Agricultural Risk Coverage for Soybeans and forget about it.
Especially for larger operators who might be maxing out on payments and needing diversification for that purpose. Do they choose a farm or two to put soybeans in PLC as a hedge against unforeseen prices?

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: