1. Crop Marketing Outlook for 2010
Ag Summit
Treynor, Iowa
January 22, 2010
Chad Hart
Assistant Professor/Grain Markets Specialist 1

2. U.S. Corn Supply and Use 2007 2008 2009 Area Planted (mil. acres) 93.5
86.0
86.5
Yield
(bu./acre)
150.7
153.9
165.2
Production
(mil. bu.)
13,038
12,092
13,151
Beg. Stocks
1,304
1,624
1,673
Imports 20 14 10
Total Supply
14,362
13,729
14,834
Feed & Residual
5,913
5,246
5,550
Ethanol
3,049
3,677
4,200
Food, Seed, & Other
1,338
1,276
1,270
Exports
2,437
1,858
2,050
Total Use
12,737
12,056
13,070
Ending Stocks
1,764
Season-Average Price
($/bu.)
4.20
4.06
3.70
USDA’s 2009 projections based on conditions around Jan. 1. It would be the largest corn crop, surpassing Demand is projected to recover across the board (higher feed, ethanol, and export demand), but we may want to watch feed demand as this increase is likely harvest loss (not feed use). Ethanol demand is about 100 million bushels above mandate levels. Export demand is being helped with some smaller customers buying early. Ending stocks are up with the record crop, but could decline with additional harvest losses. Current price estimate of $3.70/bushel is around market levels ($ ).
Source: USDA 2 2

3. Record yields in many states.
Source: USDA 3 3

4. U.S. Soybean Supply and Use
2007
2008
2009
Area Planted
(mil. acres)
64.7
75.7
77.5
Yield
(bu./acre)
41.7
39.7
44.0
Production
(mil. bu.)
2,677
2,967
3,361
Beg. Stocks
574
205
138
Imports 10 13 8
Total Supply
3,261
3,185
3,507
Crush
1,803
1,662
1,710
Seed & Residual 93
101
177
Exports
1,159
1,283
1,375
Total Use
3,056
3,047
3,262
Ending Stocks
245
Season-Average Price
($/bu.)
10.10
9.97
9.65
USDA’s 2009 projections based on conditions around Jan. 1. It would be the largest soybean crop. Crush demand is projected to recover slightly, based on soybean meal export demand. Export demand has remained strong as China continues to buy and other markets have started to pick up. Longer-term, we will see increased export competition from South America. Ending stocks are rebounding, but still very tight. Current price estimate of $9.65/bushel is now well above market levels ($ , just within the last couple of days).
Source: USDA 4 4

5. Records in several areas.
Source: USDA 5 5

6. Storage Issues Source: Hurburgh and Elmore, ICM News, 10/15/09
Storage and quality issues are concerns. Two wet crops in a row, increased drying costs. Hail damage in some areas leading to mold problems.
Source: Hurburgh and Elmore,
ICM News, 10/15/09 6 6

7. World Corn Production Source: USDA
World corn production has projected to be up slightly, with the U.S. increase offsetting a drop in the rest of the world. Half of the drop in the rest of the world is in China (drought). South America is not moving to offset the fall in corn production in the rest of the world.
Source: USDA 7 7

8. Corn – Argentina & Brazil
South American corn area is down over the past two years. Last year’s drought pulled production down as well.
Source: USDA 8 8

9. World Soybean Production
World soybean production is projected to be up, with increases in the U.S., Brazil, and Argentina. We are looking at record production out of South America.
Source: USDA 9 9

10. Soybeans – Argentina & Brazil
Area has shifted strongly to soybeans. And production is expected to rebound from last year’s drought. So we will have a lot more competition on the export front in a few months as their harvest kicks in.
Source: USDA 10 10

11. Hog Returns vs. Corn Prices
Margins have been improving recently, even with higher crop prices. Looking for demand strength both here and abroad.
Sources: ISU Extension, Farrow-to-Finish;
USDA-NASS

12. 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
Based on current futures, adjusted for average Iowa basis. Breakeven around $40/head. Margins look decent for hogs placed now through March, but head south as we go into summer. There is some recovery in margins next fall.
Source: Dr. John Lawrence, ISU Extension

13. 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
Based on current futures, adjusted for average Iowa basis. Breakeven around $150/head. Margins look decent for cattle placed now, but head south over the spring and summer. There is some recovery in margins next fall.
Source: Dr. John Lawrence, ISU Extension

14. Exchange Rates (Jan. 2003 = 1) Source: USDA, ERS
The dollar had been on a long-run slide, but turned around quickly last fall. The slide resumed in As the dollar falls, our agricultural exports look less expensive to the rest of the world and exports tend to increase. USDA export projections are up with the fall of the dollar. But the dollar may fight back in 2010, especially if interest rates increase.
Source: USDA, ERS

15. Corn Export Sales Source: USDA, FAS
Corn sales are roughly in line with last year, but a recent upkick has put us above last year’s pace. Hopeful signs include early purchases by some non-traditional markets.
Source: USDA, FAS

16. 2009 U.S. Corn Exports Source: USDA, FAS
Africa and South Asia have been early buyers. Japan is a little behind last year’s pace, but is expected to continue as our largest export market.
Source: USDA, FAS

17. Soybean Export Sales Source: USDA, FAS
Early soybean sales to China are double last year’s pace. China, thus far, has purchased more than the equivalent of Iowa’s soybean production. So export strength continues in that market. But as we look later in the year, competition will build from South America.
Source: USDA, FAS

18. 2009 U.S. Soybean Exports Source: USDA, FAS
It’s China, but we are now seeing growth in other markets (such as Mexico).
Source: USDA, FAS

19. Crude Oil Prices Sources: EIA, NYMEX
Crude oil is working its way back up, providing room for higher ethanol and crop prices.
Sources: EIA, NYMEX

20. Renewable Fuels Standard (RFS)
Crop
Year
Billion Bushels
2008
3.57
2009
4.11
2010
4.43
2011
4.64
Over the near term, corn-grain ethanol is the big biofuel. The table shows the corn needed to create enough ethanol to meet the conventional biofuel targets. For the 2008 crop year, the mandate called for 3.57 billion bushels of corn for ethanol. We used 3.7 billion bushels. For the 2009 crop year, the mandate points to 4.11 billion bushels and projected usage is at 4.2 billion bushels. By 2015, we are looking at roughly 5 billion bushels worth of demand. 20 20

21. Ethanol Margins Source: ISU, CARD
The graph breaks ethanol prices into costs and returns on a per gallon basis. Yellow is energy costs to create a gallon of ethanol. Maroon is corn costs (less distillers grains value) to create a gallon of ethanol. Blue is all other costs and returns. The black line is a rough measure of breakeven for the industry. The high returns in 2005 and 2006 spurred on ethanol development. The breakeven returns of the last year have halted that construction. But margins have improved in the last few months.
Source: ISU, CARD

22. Outside Influences (Jan. 2007 = 1)
Biofuels have linked the energy and agricultural markets. We followed oil high to its record highs and followed it most of the way down. Ethanol policy helped put the brakes on ethanol’s price fall (in comparison to oil) and provided somewhat of a floor for crop prices. But with oil heading upward again, crop prices will follow.

23. Corn
The relationship between corn prices and ending stocks used to be fairly stable, but…

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

25. Corn Futures Trade Source: CFTC
Another factor is a recent return of the funds in the market.
Source: CFTC 25 25

26. Iowa Crop Basis
The corn basis has been around its average. Tight soybean stocks and strong export demand led to a flip in the soybean basis. As harvest progress picked up, weakness built in. I expect basis levels will tighten as we work through this winter and spring, back towards average levels (but not quite reaching the averages).

27. Projected 2009 Season-Average Corn Price
The futures market was more bearish over most of the growing season, but has flipped to the bullish side since October. The futures market has consistently pointed to a 2009/10 season-average price of $3.70 to 3.80 for the past month, but the reports on Jan. 12 brought the market down to where USDA is.

28. Projected 2009 Season-Average Soy Price
As with corn, the futures market has flipped to the bullish side since October. The futures market has consistently pointed to a 2009/10 season-average price of $9.50 to for the past month, mostly in the $9.80 range. But the Jan. 12 reports brought the market on the bearish side. As USDA moved up to $9.65, the market backed down to the $9.30 – 9.40 range.

29. Corn Futures Source: CBOT, 1/21/10
Fairly good carry in the corn market through July. Dec futures point to higher prices for the 2010 crop and higher insurance prices this spring.
Source: CBOT, 1/21/10

30. Soybean Futures Source: CBOT, 1/21/10
The soybean market has built in a little carry through July, but prices fall after that. The fall is partially based on the upcoming South American crop. Futures for the 2010 crop had been hanging in the $10 range. Soybean crop insurance prices should be higher for 2010.
Source: CBOT, 1/21/10

31. Ratio: Nov. 2010 Soy/Dec. 2010 Corn
Futures prices for the 2010 crop have been favoring corn recently. Average around 2.5, above 2.5 favor soybeans.
Source: CBOT

32. Input Costs Source: USDA, Agricultural Prices, Dec. 30, 2009
Fertilizer and fuel prices better than last year, but seed and machinery are up. Overall, cost changes favor corn.
Source: USDA, Agricultural Prices, Dec. 30, 2009

33. Iowa Corn Prices vs. Costs
Early numbers from Mike Duffy show corn costs backing down to 2008 crop year levels.

34. Iowa Soybean Prices vs. Costs
Soybean costs also fall, but hold above 2008 crop year levels.

35. Thoughts for 2009/10 and Beyond
General economic conditions
Recession: Are we done yet?
Projected economic recovery is a major key for crop prices for the 2009 and 2010 marketing years
Weakness in the dollar helping exports, but dollar may fight back
Supply/demand concerns
Livestock numbers continue to decline
Possible record South American soybean crop
USDA is indicating 2009 season-average prices in the neighborhood of $3.70 for corn and $9.65 for soybeans
Futures Jan. 21: Corn $3.55, Soy $9.34
2010/11 based on futures Jan. 21: Corn $3.89, Soy $9.01

36. 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: