1. March 5, 2014 Steven D. Johnson Farm & Ag Business Management Specialist (515) 957-5790 sdjohns@iastate.edu www.extension.iastate.edu/polk/farm-management

2. Presentation Objectives Understand the Current Financial Strength of U.S. Agriculture Provide Risk Management Goals & Strategies Highlight U.S. Weather Outlook/Crop Insurance Review the Role of Revenue Protection to protect Crop Yields and Prices Utilize Seasonal Price Trends and tie Pre-Harvest Marketing to Insurance Bushels Conceptualize the New Farm Program and Commodity Crop Enrollment Choices Compare Potential 2014 Payments for County ARC, Farm ARC and PLC Programs Highlight Crop Risk Management Web Sites.

3. Source: USDA Economic Research Service, November 2013 U.S. Net Farm Income Trends * - Forecast

4. U.S. Farm Debt-to-Asset Ratio * - Forecast Source: USDA Economic Research Service, November 2013

5. 2014 U.S. Planted Acre Forecast Crop2008200920102011201220132014F Percent change Corn86.086.488.291.997.295.492.0-3.5% Soybeans75.777.577.475.077.276.579.53.9% Wheat63.259.253.654.455.756.255.5-1.2% All cotton9.59.111.014.712.310.411.510.5% Minor feed grains15.813.611.410.512.614.612.4-14.8% Rice3.03.13.62.7 2.52.916.5% Total 8 crops253.1248.9245.2249.4257.7255.5253.8-0.7% CRP34.633.731.331.129.526.826.0-3.1% 8 crops + CRP287.7282.6276.5280.5287.2282.3279.8-0.9% Fig 10 Source: USDA World Outlook Board, February 2014

6. 2008/092009/102010/112011/122012/132013/142014/15F Wheat6.784.875.707.247.776.805.30 Corn4.063.555.186.226.894.503.90 Soybeans9.979.5911.3012.5014.4012.709.65 Cotton47.8062.9081.5088.3072.5076.0068.00 Rice16.8014.4012.7014.5014.9016.0015.90 Wheat, corn and soybeans in dollars per bushel; rice in dollars per hundredweight; cotton in cents per pound. Numbers in red denote record levels. Fig 11 Crop Prices to Decline from Record Highs Source: USDA NASS, WASDE and World Outlook Board, February 2014

7. Utilize Revenue Crop Insurance Coverage, Pre- Harvest Marketing & Enrolling in ARC Learn to Use a Variety of Crop Marketing Tools; Implement Written Plans Know Your Costs; Be Shrewd in Making Input Decisions Invest Wisely in Operational Excellence: Be a Low-Cost Producer Crop Risk Management Goals & Strategies Reconsider 2015 Fixed Farm Leases; Consider Flexible Cash Leases Source: Johnson, ISU Extension, March 2014

8. Iowa Land Value & Cash Rental Rate Trends 2013 Averages Cash Rent: $270/A Land Value: $8716/A 3.10% Source: Duffy & Edwards, ISU Extension Economics, May/December 2013

9. Source: http://droughtmonitor.unl.edu/, March 11, 2014

10. El Niño (ENSO) Neutral until Spring Source: www.bom.gov.au/climate/enso/, March 11, 2014 Spring/Summer Forecast: The tropical Pacific Ocean subsurface has warmed substantially in recent weeks, which is likely to result in a warming of the ocean surface in the coming months. The tropical Pacific Ocean with temperatures approaching or exceeding El Niño thresholds by the summer months.

11. Elwynn Taylor’s 2014 Risk Wheel Neutral Summer = 53% risk of above trendline corn yield La Niña Summer = 70% risk of below trendline corn yield El Niño Summer = 70% risk of above trendline corn yield Source: Taylor, ISU Extension Climatologist, February 2014

12. Corn Insurance Coverage (2013) Revenue Protection = 86% of Insured Acres (Illinois) vs. 95% (Iowa) IAIL GRIP/GRP1%8% YP3% RPHPE1%3% RP95%86% IowaIllinois Source: USDA Risk Management Agency, October 2013

13. Soybean Insurance Coverage (2013) Revenue Protection = 87% of Insured Acres (Illinois) vs. 95% (Iowa) IAIL GRIP/GRP1%6% YP3%4% RPHPE1%3% RP95%87% IowaIllinois Source: USDA Risk Management Agency, October 2013

14. Marketing Revenue Protection (RP) Guaranteed Insurance Bushels Source: Johnson, ISU Extension, February 2014

15. Deductible? Revenue Protection – RP (65%-85% Levels) Unit Coverage? (Basic, Optional or Enterprise)? Supplemental: Hail, Wind & Green Snap, Total Weather or Varying Projected Price? Trend-Adjusted APH Yield Endorsement ? 2014 Crop Insurance Decisions Source: Johnson, ISU Extension, March 2014 2014 Projected Prices: Corn = $4.62/bu, Soybeans= $11.36/bu

16. Delivery of Corn Bushels with Revenue Protection (RP) Marketing Strategy Pre-Harvest Sell for Delivery up to 153 Bu/A Price Guarantee is Higher of the Projected Price vs. Harvest Price Slight Basis Risk Must Plant the Crop (Prevented Planting = 60%) 180 Bu/A Actual Production History (APH) RP @ 85% Level of Coverage 153 Bu/A Guarantee X $4.62/bu Projected Price Deductible 15% = 27 Bu/A = $707/A Revenue Guarantee Source: Johnson, ISU Extension, March 2014

17. Source: USDA Risk Management Agency & CME Group, Nov. 2013 Corn Insurance Prices vs. Seasonal Highs

18. December Corn Futures Seasonals Source: www.cmegroup.com, October 2013 2008-12 Average High $5.90 2003-07 Average High $2.92 2013 High $5.93

19. Soybean Insurance Prices vs. Seasonal Highs Source: USDA Risk Management Agency & CME Group, Nov. 2013

20. November Soybean Futures Seasonals Source: www.cmegroup.com, October 2013 2003-07 Average High $6.10 2013 Average High $12.66 2008-12 Average High $11.14

21. Expect New Crop futures prices to rally with spring planting uncertainty (Seasonals): Consider forward contracts/HTAs (Delivery) for Guaranteed Insurance Bushels Futures Hedges (Non-Delivery) Bushels Buy Put Options (Non-Delivery) Bushels Sell Bushels to meet Fall/Winter Cash Flow: Consider new-crop sales for both corn and soybeans (use spring/summer month rallies) Avoid long-term commercial storage. Strategies for Marketing 2014 Crop Source: Johnson, ISU Extension, March 2014

22. Farm Bill 10-year Baseline (FY 2014 to FY 2023) Source: The Agricultural Act of 2014, February 2014

23. New Farm Program Commodity Crop Choices Marketing Loan National Rates: $1.95/bu Corn $5.00/bu Soybeans (5 years: 2014-18) Source: The Agricultural Act of 2014, February 2014

24. New 5-Year Farm Program Implementation Plan Proposed JANFEBAPRMARMAYJUNJULAUGSEPOCTNOVDECJAN 20142015 Agricultural Act of 2014 Commodity Crop Program Education Commodity Crop Rules and Regulations Released FEB Commodity Crop Program Sign-up Livestock Disaster Assistance Program Conservation Programs (EQIP & CSP) Source: Secretary of Ag Vilsack, February 28, 2014

25. FSA Commodity Crop Enrollment Decisions County ARC 85% of base acres, Revenue Trigger = 5-yr. OA county yields X 5-yr. OA MYA price (Estimated Price: $5.30/bu corn & $12.17/bu soybeans ) County ARC 85% of base acres, Revenue Trigger = 5-yr. OA county yields X 5-yr. OA MYA price (Estimated Price: $5.30/bu corn & $12.17/bu soybeans ) Farm ARC 65% of base acres, Revenue Trigger = 5-yr. OA farm yields X 5-yr. OA MYA price (If elected, revenue summed across all commodity crops on farm. Farm ARC 65% of base acres, Revenue Trigger = 5-yr. OA farm yields X 5-yr. OA MYA price (If elected, revenue summed across all commodity crops on farm. PLC 85% of base acres, Price only Trigger = $3.70/bu corn, $8.40/bu soybean reference prices PLC 85% of base acres, Price only Trigger = $3.70/bu corn, $8.40/bu soybean reference prices Enrollment at FSA: Summer/Fall - Base and/or Yield updates ; Winter - ARC or PLC sign-up. If a farm fails to enroll in either ARC or PLC in 2014, then PLC serves at the default for 2015 through 2018. One-time choice (irrevocable) by FSA farm number (need both operator and landlord signatures). Base acres can be reallocated using 2009-12, but can’t exceed farm’s total historic base. Source: www.farmdocdaily.illinois.edu, Feb. 12, 2014

26. Reallocating Base Acreage Farm Historic: 100 Total Base Acres Corn 50 Acres Soybeans 50 Acres Source: www.farmdocdaily.illinois.edu, March 6, 2014

27. Base Acreage Reallocation Example #1 CornSoybeansTotal Source: www.farmdocdaily.illinois.edu, March 6, 2014

28. Corn 65 Acres Soybeans 35 Acres Reallocation Example #1 Can be requested at ARC/PLC Sign-up Source: www.farmdocdaily.illinois.edu, March 6, 2014

29. CornSoybeansTotal Base Acreage Reallocation Example #2 Source: www.farmdocdaily.illinois.edu, March 6, 2014

30. Corn 75 Acres Soybeans 25 Acres Reallocation Example #2 Can be requested at ARC/PLC Sign-up Source: www.farmdocdaily.illinois.edu, March 6, 2014

31. Comparing ARC Average Prices vs. PLC Reference Prices Agriculture Risk Coverage (ARC) Year Corn Soybeans 2009 $3.55$ 9.59 2010 $5.18$11.30 2011 $6.22$12.50 2012 $6.89$14.40 2013 $4.50$12.70 Agriculture Risk Coverage (ARC) Year Corn Soybeans 2009 $3.55$ 9.59 2010 $5.18$11.30 2011 $6.22$12.50 2012 $6.89$14.40 2013 $4.50$12.70 Price Loss Coverage (PLC) Corn = $3.70/bu. Soybeans = $8.40/bu. Price Loss Coverage (PLC) Corn = $3.70/bu. Soybeans = $8.40/bu. ARC 5-yr. OA MYA Prices Corn = $5.30/bu. Soybeans = $12.17/bu. ARC 5-yr. OA MYA Prices Corn = $5.30/bu. Soybeans = $12.17/bu. Source: www.farmdocdaily.illinois.edu, Feb. 20, 2014

32. County ARC: Calculating Corn Revenue Source: www.farmdocdaily.illinois.edu, Feb. 20, 2014

33. County ARC: 2014 Corn Potential Payment Source: www.farmdocdaily.illinois.edu, Feb. 20, 2014

34. County ARC: Calculating Soybean Revenue Source: www.farmdocdaily.illinois.edu, Feb. 20, 2014

35. County ARC: 2014 Soybean Potential Payment Source: www.farmdocdaily.illinois.edu, Feb. 20, 2014

36. Farm ARC: 2014 Corn & Soybean Combined Revenue Guarantee Source: www.farmdocdaily.illinois.edu, Feb. 20, 2014

37. Farm ARC: 2014 Corn & Soybean Combined Potential Payment Source: www.farmdocdaily.illinois.edu, Feb. 20, 2014

38. PLC: Corn 2014 Payment Potential Source: www.farmdocdaily.illinois.edu, Feb. 20, 2014

39. PLC: Soybean 2014 Payment Potential Source: www.farmdocdaily.illinois.edu, Feb. 20, 2014

40. Crop Risk Management Web Sites Crop Risk Management - ISU Polk County (Farmland Owners Newsletter, Webcasts and Videos, Updates on Crop Marketing Strategies, Government Farm Programs & Farmland Leasing) www.extension.iastate.edu/polk/farm-management Farm Doc – U of IL Extension Economics (Daily e-Newsletter, FAST Tools, Newsletters, Publications) www.farmdoc.illinois.edu Ag Manager – Kansas State Extension Economics www.agmanager.info Purdue Extension Economics www.agecon.purdue.edu/extension Ag Decision Maker – ISU Extension (Iowa Commodity Challenge Curriculum, Monthly e-Newsletter, Decision Tools, Newsletters, Publications, Voiced Media) www.extension.iastate.edu/agdm Source: Johnson, ISU Extension, March 2014