1. Land Values, Policy, and Markets
Kansas City, Missouri
Oct. 2, 2014
Chad Hart
Associate Professor/Crop Markets Specialist 1 1

2. 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

3. 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

4. Crop Prices for the Next Decade
Source: USDA-ERS

5. Crops
Livestock 5 5

6. Net Farm Income

7. Net Farm Income

8. Iowa Land Values
Source: Mike Duffy, ISU

9. Iowa Land Values – Log Scale
Source: Mike Duffy, ISU

10. Land Values and Income
Source: Mike Duffy, ISU

11. Land Values and Income
Source: Mike Duffy, ISU

12. Net Farm Income

13. 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

14. 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

15. PLC: Corn 2014 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.

16. ARC-CO: 2014 Corn Revenue Guarantee
Year
Yield
MYA Price
ARC Price
2009
163.4
$3.55
$3.70
2010
184.1
$5.18
2011
174.2
$6.22
2012
133.2
$6.89
2013
146.3
$4.45
Oly. Ave.
161.3
$5.28
Here’s the 5 years of price and yield data for Howard County, Iowa corn. The gray 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 $5.32 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: Howard County, Iowa actual corn yields. Revenue Guarantee equals 86% of Benchmark.

17. ARC-CO: 2014 Potential Corn Payment
ARC Revenue Guarantee = $ per acre
ARC Max Payment Rate = $85.22 per acre
But ARC-CO is paid on 85% of base acres
and 85% of $85.22 is $72.44
Price: $3.50
$4.00
$4.50
$5.00
Yield: 100
$72.44
125
150
$49.21
$0.00
175
$27.96
200
Let’s say that in 2014, the Howard County, Iowa average corn yield turns out to be exactly the 5-year Olympic average yield (161.3 bushels per acre). Then, if the corn price falls below $4.57 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 $86 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.

18. ARC-IC: 2014 Corn & Soybean Combined Revenue Guarantee
Year
Corn Yield
ARC Price
Revenue
Soy Yield
2009
163.4
$3.70
$604.58
43.3
$9.59
$415.25
2010
184.1
$5.18
$953.64
54.5
$11.30
$615.85
2011
174.2
$6.22 $
51.1
$12.50
$638.75
2012
133.2
$6.89
$917.75
45.7
$14.40
$658.08
2013
146.3
$4.45
$651.04
40.1
$13.00
$521.30
Oly. Ave.
$840.81
$591.97
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 $846 per acre and soybeans has a benchmark revenue of $593 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 $745 per acre (= 60%*$ %*$593). The ARC revenue guarantee is 86% of the benchmark, so $641 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
Source: Schulte, ISU Extension, June 2014

19. ARC-IC : 2014 Potential Corn & Soybean Combined Payment
Actual 2014 farm yields: Corn 150 bushels per acre
Soy 45 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%*$ %*$ = $549.00
ARC-IC is paid on 65% of base acres
ARC-IC Payment = $48.18 per acre (65% of $ $549.00)
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 $677 per acre and soybeans has an actual revenue of $502 per acre. Then the overall actual revenue is calculated as $607 per acre (= 60%*$ %*$502). The ARC payment rate would be $34 per acre ($641 - $607) and the ARC payment per base acre would be $22 per acre (= 65%*$34, as ARC-IC is paid on 65% of base acres).
Source: Schulte, ISU Extension, June 2014

20. 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.

21. 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.

22. 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.
ARC pays, PLC does not

23. U.S. Corn Supply and Use 2010 2011 2012 2013 2014 Area Planted
(mil. acres)
88.2
91.9
97.2
95.4
91.6
Yield
(bu./acre)
152.8
147.2
123.4
158.8
171.7
Production
(mil. bu.)
12,447
12,360
10,780
13,925
14,395
Beg. Stocks
1,708
1,128
989
821
1,181
Imports 28 29
162 35 30
Total Supply
14,182
13,517
11,932
14,781
15,607
Feed & Residual
4,795
4,557
4,329
5,175
5,325
Ethanol
5,019
5,000
4,648
5,125
Food, Seed, & Other
1,407
1,428
1,403
1,375
1,405
Exports
1,834
1,543
731
1,925
1,750
Total Use
13,055
12,528
11,111
13,600
13,605
Ending Stocks
2,002
Season-Average Price
($/bu.)
5.18
6.22
6.89
4.45
3.50
Source: USDA-WAOB 23 23

24. U.S. Soybean Supply and Use
2010
2011
2012
2013
2014
Area Planted
(mil. acres)
77.4
75.0
77.2
76.5
84.8
Yield
(bu./acre)
43.5
41.9
39.8
43.3
46.6
Production
(mil. bu.)
3,329
3,094
3,034
3,289
3,913
Beg. Stocks
151
215
169
141
130
Imports 14 16 36 80 15
Total Supply
3,495
3,325
3,239
3,509
4,058
Crush
1,648
1,703
1,689
1,730
1,770
Seed & Residual 88 90 5
114
Exports
1,501
1,365
1,320
1,645
1,700
Total Use
3,280
3,155
3,099
3,379
3,583
Ending Stocks
475
Season-Average Price
($/bu.)
11.30
12.50
14.40
13.00
10.00
Source: USDA-WAOB 24 24

25. Projected Corn Yields Top: 2014 Yield Bottom: Change from last month
Units: Bu/acre
Source: USDA-NASS

26. Corn Objective Yield Data
Source: USDA-NASS

27. Projected Soybean Yields
Top: 2014 Yield
Bottom: Change from last month
Units: Bu/acre
Source: USDA-NASS

28. Soybean Objective Yield Data
Source: USDA-NASS

29. World Corn Production
Source: USDA-WAOB 29 29

30. World Soybean Production
Source: USDA-WAOB 30 30

31. 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
Source: ISU Extension

32. 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
Source: ISU Extension

33. U.S. Meat Production & Prices
Source: USDA-WAOB 33 33

34. Corn Export Shifts
Source: USDA-FAS

35. Corn Export Sales
Source: USDA-FAS

36. Soybean Export Sales
Source: USDA-FAS

37. Soy Export Shifts
Source: USDA-FAS

38. Corn Grind for Ethanol

39. Current Corn Futures
3.60
3.27
Source: CME Group, 9/19/2014

40. Current Soybean Futures
9.44
9.38
Source: CME Group, 9/19/2014

41. 2014/15 Crop Margins

42. 2015/16 Crop Margins

43. 1-Month Temperature Outlook
Source: NOAA-CPC

44. 1-Month Precipitation Outlook
Source: NOAA-CPC

45. Thoughts for 2015 and Beyond
Supply/demand concerns
Projected record corn and soybean crops
Markets have adjusted downward to absorb projected supplies
Projected negative margins for 2014 and 2015 crops
Cool, wet conditions may hamper harvest and impact crop quality
2013/14
USDA
2014/15
Futures
(9/19/14)
2015/16
Corn
$4.45
$3.50
$3.27
$3.60
Soybeans
$13.00
$10.00
$9.44
$9.38

46. World Corn Markets
Source: USDA 46 46

47. Arable Land

48. 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: