1. Managing Margins in 2016 and Beyond
Boone, Iowa
Feb. 15, 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
88.0
Yield
(bu./acre)
123.1
158.1
171.0
168.4
Production
(mil. bu.)
10,755
13,829
14,216
13,601
Beg. Stocks
989
821
1,232
1,731
Imports
160 36 32 50 10
Total Supply
11,904
14,686
15,479
15,382
Feed & Residual
4,315
5,040
5,315
5,300
Ethanol
4,641
5,124
5,209
5,225 25
Food, Seed, & Other
1,397
1,369
1,359
1,370
Exports
730
1,920
1,864
1,650
-50
Total Use
11,083
13,454
13,748
13,545
-25
Ending Stocks
1,837 35
Season-Average Price
($/bu.)
6.89
4.46
3.70
3.60
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
82.7
Yield
(bu./acre)
40.0
44.0
47.5
48.0
Production
(mil. bu.)
3,042
3,358
3,927
3,930
Beg. Stocks
169
141 92
191
Imports 41 72 33 30
Total Supply
3,252
3,570
4,052
4,151
Crush
1,689
1,734
1,873
1,880
-10
Seed & Residual
105
107
145
131
Exports
1,317
1,638
1,843
1,690
Total Use
3,111
3,478
3,861
3,701
Ending Stocks
450 10
Season-Average Price
($/bu.)
14.40
13.00
10.10
8.80
Source: USDA-WAOB 3 3

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

5. Soybean Yield Estimate
Top: 2015 Estimated Yields
Bottom: Change from last year
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
3.72
3.60
3.54
Source: CME Group, 2/12/2016

15. Current Soybean Futures
8.66
8.43
8.45
Source: CME Group, 2/12/2016

16. 2015/16 Crop Margins

17. 2016/17 Crop Margins

18. Iowa Corn Prices vs. Costs

19. Net Farm Income: Corn
$/Acre

20. Net Farm Income: Soybeans
$/Acre

21. 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

22. 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.

23. 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

24. 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, ???

25. 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 2.75 $3.60/bu, GO AHEAD! Otherwise, NO GO.
Switch to seeds with fewer traits (+crop management)? Net savings $25/acre. If yield  smaller than 6.95 $3.60/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

26. 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.

27. 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.

28. 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.

29. 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.

30. Strategies: 9. Know your ARC/PLC Payments
Payments vary widely across counties and programs
No PLC payments in Small payments likely in corn base acres in 2015.
If any 2014 ARC-CO Payments, use to cash flow
Corn: higher yields in 2015 (except CRDs 8 & 9), and lower 5-y OA yields (except for CRDs 5, 8, 9). Lower ARC-CO payments (except for CRDs 8 & 9) even with lower prices.
Soybeans: higher yields in 2015 (except for CRDs 4 & 7), but higher 5-y OA yields (except for CRDs 1, 2 , 7). Higher ARC-CO payments (except for CRDs 1-3).
Source: Iowa Farm Bureau Federation

31. 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:

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