1. Department of Economics Risk Environment for Agriculture Agricultural Credit School Ames, Iowa June 8, 2009 Chad Hart Assistant Professor/Grain Markets Specialist chart@iastate.edu 515-294-9911

2. Department of Economics Brief List General economic conditions Food, feed, and energy demand Agricultural, energy, and trade policy Input and output pricing Production / crop progress

3. Department of Economics Population 2008 2020 2050 (billion) World6.678World7.601World9.393 China1.330China1.431India1.808 India1.148India1.362China1.424 U.S.0.304U.S.0.336U.S.0.420 Indonesia0.238Indonesia0.268Nigeria0.357 Brazil0.192Brazil0.212Indonesia0.313 Pakistan0.168Pakistan0.204Bangladesh0.280 Bangladesh0.154Bangladesh0.190Pakistan0.278 Russia0.141Nigeria0.184Brazil0.228 Nigeria0.138Russia0.132Congo0.189 Japan0.127Mexico0.125Mexico0.148 Source: U.S. Bureau of the Census, International Data Base

4. Department of Economics Real GDP, 2008 Projections Sources: International Financial Statistics, Global Insight

5. Department of Economics Real GDP, 2009 Projections Sources: International Financial Statistics, Global Insight

6. Department of Economics Per Capita Meat Consumption Source: FAPRI

7. Department of Economics Government Deficits Source: Congressional Budget Office, May 2009

8. Department of Economics Wheat Statistics Sources: USDA, FAPRI

9. Department of Economics Corn Statistics Sources: USDA, FAPRI

10. Department of Economics Liquid Fuel Usage 200620102015202020252030 (Million Barrels Oil Equivalent per Day)(Percent of 2006 Value) United States20.795%98% 100%105% Canada2.3100% 104%109% Mexico2.171%81%90%95%100% Europe15.792% 95%96% Japan5.288%92%96%92%90% China7.2118%139%168%192%213% India2.789%115%144%159%174% Africa3.0117%120%123%127%130% Central and South America5.7116% 119%125%133% World85.0102%107%113%119%125% Source: Energy Information Administration

11. Department of Economics Crude Oil Prices Source: Energy Information Administration

12. Department of Economics Crude Oil Futures Prices Source: NYMEX

13. Department of Economics Price Movements Since 2007

14. Department of Economics Ethanol Margins Source: ISU, CARD

15. Department of Economics Renewable Fuels Standard (RFS)

16. Department of Economics Draft Lifecycle GHG Reductions Source: EPA, May 2009

17. Department of Economics CARB Fuel Carbon Values Source: CA Air Resources Board, April 2009

18. Department of Economics Countries Pursuing Biofuels  US  Brazil  Argentina  Colombia  Paraguay  Canada  Uruguay  Mexico  Thailand  New Zealand  South Africa  South Korea  Philippines  Indonesia  Pakistan  China  India  Malaysia  Australia  Japan  EU  Russia  Not a complete list

19. Department of Economics Average Crop Revenue Election (ACRE) Gives producers a one-time option to choose a revenue-based counter-cyclical payment program, starting in 2009 Producers choose between the current stable of programs or ACRE Producers choosing ACRE agree to 20% decline in direct payments and 30% decline in loan rates

20. Department of Economics ACRE Program has state and farm trigger levels, both must be met before payments are made Expected state and farm yield based on 5 year Olympic average yields per planted acre ACRE price guarantee is the 2 year average of the national season-average price

21. Department of Economics ACRE Structure ACRE revenue guarantee = 90% of ACRE price guarantee * Expected state yield ACRE actual revenue = Max(Season- average price, Loan rate) * Actual state yield per planted acre Farm revenue trigger = Expected farm yield * ACRE price guarantee + Producer-paid crop insurance premium

22. Department of Economics ACRE Payments Payment rate = Min(ACRE revenue guarantee – ACRE actual revenue, 25% * ACRE revenue guarantee) Payments made on 83.3% of planted acres in 2009-11, 85% in 2012 (up to total base) ACRE payment adjustment: Payment multiplied by ratio of Expected farm yield to Expected state yield

23. Department of Economics World Trade Organization Ongoing negotiations for WTO agriculture agreement Targeting changes in domestic support, tariffs, tariff quotas, and export subsidies Both general and product-specific guidelines for agricultural policy changes

24. Department of Economics U.S. Corn Progress Source: USDA, Crop Progress

25. Department of Economics U.S. Soybean Progress Source: USDA, Crop Progress

26. Department of Economics Input Costs Source: USDA, Agricultural Prices, May 29, 2009

27. Department of Economics Changing Basis Patterns

28. Department of Economics Basis Last Year

29. Department of Economics Basis This Year

30. Department of Economics Crop Price Variability Price distributions for corn based on May prices for the following July futures

31. Department of Economics Iowa Corn Prices vs. Costs Source: USDA-NASS and Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf Preliminary estimates for 2009 costs are over $4 per bushel. 2009 Futures-based Season-average Price Estimate $4.35 Latest USDA U.S. 2008 Season-average Price Estimate $4.20 Latest USDA Iowa 2008 Season-average Price Estimate $3.95

32. Department of Economics Iowa Soybean Prices vs. Costs Source: USDA-NASS and Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf Preliminary estimates for 2009 costs are nearly $10 per bushel. 2009 Futures-based Season-average Price Estimate $10.00 Latest USDA U.S. 2008 Season-average Price Estimate $9.85 Latest USDA Iowa 2008 Season-average Price Estimate $9.65

33. Department of Economics Thank you for your time! Any questions? My web site: http://www.econ.iastate.edu/faculty/hart/