1. Department of Economics Volatility Gives Rise to Fear, Greed, and Ego Farmers Forum III West Point, Nebraska February 11, 2009 Chad Hart Assistant Professor/Grain Markets Specialist chart@iastate.edu 515-294-9911

2. Department of Economics Price Shifts (Jan. 2007 = 1)

3. Department of Economics Price Shifts (Sept. 2008 = 1)

4. Department of Economics Changes in Price Volatility Source: Zulauf and Roberts, Ohio State

5. Department of Economics Historical Soybean Volatility Changes Source: Zulauf and Roberts, Ohio State

6. Department of Economics Historical Wheat Volatility Changes Source: Zulauf and Roberts, Ohio State

7. Department of Economics Overall Shift Source: Zulauf and Roberts, Ohio State

8. Department of Economics Source: Zulauf and Roberts, Ohio State

9. Department of Economics Source: Zulauf and Roberts, Ohio State

10. Department of Economics Source: Zulauf and Roberts, Ohio State

11. Department of Economics Source: Zulauf and Roberts, Ohio State

12. Department of Economics Source: Zulauf and Roberts, Ohio State

13. Department of Economics Source: Zulauf and Roberts, Ohio State

14. Department of Economics World Stocks-to-Use Ratios

15. Department of Economics World Wheat Stats

16. Department of Economics World Corn Stats

17. Department of Economics World Soybean Stats

18. Department of Economics Factors Leading to Higher Commodity Prices Source: USDA-ERS, Trostle, July 2008

19. 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 Source: U.S. Bureau of the Census

20. Department of Economics Liquid Fuel Use Source: EIA, International Energy Outlook 2007 2004 Million Barrels Oil Equivalent per Day United States 20.7 Canada 2.3 Mexico 2.0 Europe 15.6 Japan 5.4 China 6.4 India 2.5 Africa 2.8 Central and South America 5.4 World 82.5 20102015202020252030 Percent of 2004 Value 103109115121129 100100104104104 110115130135145 99 99100101101 96 96 96 96 96 147164186213245 108128144160176 118139154164175 120137152167180 110118126134143

21. 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

22. 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

23. 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

24. Department of Economics Ammonia Prices Source: http://www.fertilizerworks.com/html/market/ TheMarket.pdf

25. Department of Economics Average Producer-Paid Premiums Nebraska Wheat

26. Department of Economics Average Producer-Paid Premiums Nebraska Corn

27. Department of Economics Average Producer-Paid Premiums Nebraska Soybeans

28. Department of Economics Fear, Greed, and Ego Fear of making a bad decision -- Watching prices slip away as you wait Greed of expecting even higher prices -- Not taking advantage of good price opportunities Ego of wanting to claim you caught the market high -- “Lake Wobegon” marketing Much of the following discussion comes from the online Advanced Grain Marketing course from Iowa State University

29. Department of Economics Greed Fear Ego

30. Department of Economics Marketing Plan To avoid fear, greed, and ego dominating your marketing, have a plan and stick to it. A marketing plan outlines your market strategy and your marketing objectives. It should examine marketing opportunities before and after harvest.

31. Department of Economics Marketing Objectives  Get the highest selling price  Pretty tough to do  More realistic objective: Obtain better than average prices  Reduce price risk  Cover cash flow needs  Minimize tax liability Look at short and long-term goals for your business

32. Department of Economics Building a Marketing Plan 5 basic steps:  Estimate number of bushels to sell  Calculate breakeven price  Project price and yield scenarios  Compare pricing tools and analyze market opportunities  Develop a pricing plan

33. Department of Economics Bushels to Sell  What’s your expected production?  What do you have in storage?  What about on-farm use? Breakeven Costs  What are your production costs?  What are your storage costs?  On-farm vs. off-farm?  What are your cash flow needs?

34. Department of Economics Scenarios  Seasonal price trends  Weather outlook  Export picture  Livestock outlook Tools and Opportunities  Market tools: Futures, options, forward contracts  Government tools: Crop insurance, marketing loans, CCP/ACRE

35. Department of Economics Tentative Pricing Plan  Outline realistic pricing targets  Have periodic price targets and quantities to sell  Have patience and be willing to reevaluate price goals  Remember it’s hard to lose money when making a profit

36. Department of Economics Some Examples University of Nebraska: “Achieving Success with a Business Plan: Case Study to Prepare a Grain Farm Business Plan (CC424) University of Missouri: http://extension.missouri.edu/explore/agguides/agecon/g00600.htm Purdue University: http://www.agecon.purdue.edu/extension/sbpcp/resources/mrktplan.xls AgRisk website: http://www.agrisk.umn.edu/library1/a0000037.pdf

37. Department of Economics Thank you for your time! Any questions? My web site: http://www.econ.iastate.edu/faculty/hart/ Iowa Farm Outlook: http://www.econ.iastate.edu/outreach/agriculture/periodicals/ifo/ Ag Decision Maker: http://www.extension.iastate.edu/agdm/