1. Market Outlook, Farm Bill, and Crop Insurance
WinField Sales Leadership Meeting
Shoreview, Minnesota
Mar. 25, 2015
Chad Hart
Associate Professor/Crop Markets Specialist 1 1

2. U.S. Corn Supply and Use 2011 2012 2013 2014 2015 Area Planted
(mil. acres)
91.9
97.3
95.4
90.6
89.0
Yield
(bu./acre)
147.2
123.1
158.1
171.0
166.8
Production
(mil. bu.)
12,360
10,755
13,829
14,216
13,595
Beg. Stocks
1,128
989
821
1,232
1,777
Imports 29
160 36 25
Total Supply
13,517
11,904
14,686
15,472
15,397
Feed & Residual
4,557
4,315
5,036
5,300
5,275
Ethanol
5,000
4,641
5,134
5,200
5,225
Food, Seed, & Other
1,428
1,397
1,367
1,395
1,410
Exports
1,543
730
1,917
1,800
1,850
Total Use
12,528
11,083
13,454
13,695
13,760
Ending Stocks
1,637
Season-Average Price
($/bu.)
6.22
6.89
4.46
3.70
3.50
Sources: USDA-WAOB , USDA-OCE 2015 2 2

3. U.S. Soybean Supply and Use
2011
2012
2013
2014
2015
Area Planted
(mil. acres)
75.0
77.2
76.8
83.7
83.5
Yield
(bu./acre)
41.9
40.0
44.0
47.8
46.0
Production
(mil. bu.)
3,094
3,042
3,358
3,969
3,800
Beg. Stocks
215
169
141 92
385
Imports 16 41 72 25 20
Total Supply
3,325
3,252
3,570
4,086
4,205
Crush
1,703
1,689
1,734
1,795
1,840
Seed & Residual 88
105 97
116
Exports
1,365
1,317
1,647
1,790
1,820
Total Use
3,155
3,111
3,478
3,701
3,775
Ending Stocks
430
Season-Average Price
($/bu.)
12.50
14.40
13.00
10.20
9.00
Sources: USDA-WAOB , USDA-OCE 2015 3 3

4. Corn Yields Top: 2014 Yield Bottom: Change from last year
Units: Bu/acre
Source: USDA-NASS

5. Soybean Yields Top: 2014 Yield Bottom: Change from last month
Units: Bu/acre
Source: USDA-NASS

6. World Corn Production
Source: USDA-WAOB 6 6

7. World Soybean Production
Source: USDA-WAOB 7 7

8. 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
Source: ISU Extension

9. 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
Source: ISU Extension

10. U.S. Meat Production & Prices
Source: USDA-WAOB 10 10

11. Corn Export Shifts
Source: USDA-FAS

12. Corn Export Sales
Source: USDA-FAS

13. Soybean Export Shifts
Source: USDA-FAS

14. Soybean Export Shifts
Source: USDA-FAS

15. Crude Oil Prices
Sources: EIA and CME

16. Strength of the U.S. Dollar
Source: Federal Reserve

17. Corn Grind for Ethanol

18. Ethanol Stocks

19. Current Corn Futures
3.98
3.74
Source: CME Group, 3/24/2015

20. Current Soybean Futures
10.00
9.27
Source: CME Group, 3/24/2015

21. 2014/15 Crop Margins

22. 2015/16 Crop Margins

23. Corn Prices vs. Costs
Per Bushel Cost calculated as Per Acre Cost from ISU Extension divided by Actual Yield per Acre
Sources: USDA-NASS for Prices, Duffy for Costs

24. Soybean Prices vs. Costs
Per Bushel Cost calculated as Per Acre Cost from ISU Extension divided by Actual Yield per Acre
Sources: USDA-NASS for Prices, Duffy for Costs

25. Thoughts for 2015 and Beyond
Supply/demand concerns
Record corn and soybean crops, but also record demand
Markets are in a holding pattern, waiting for news
Watching South American crop progress and U.S. acreage
Projected negative margins for 2014 and 2015 crops
2014/15
USDA
2015/16
Futures
(3/24/15)
Corn
$3.70
$3.50
$3.74
$3.98
Soybeans
$10.20
$9.00
$10.00
$9.27

26. Farm Bill: Old vs. New Direct Payments (DP)
Countercyclical Payments (CCP)
Marketing Loans (LDP)
Revenue Countercyclical Payments (ACRE)
Countercyclical Payments (PLC)
Marketing Loans (LDP)
Revenue Countercyclical Payments (ARC)
New programs, but they have strong similarities to previous programs

27. PLC: Corn Payment Potential
Reference Price = $3.70 per bushel
Payment Yield = 150 bushels per acre
Marketing Year Price ($/bu)
PLC Payment Rate ($/bu)
PLC Payment ($/base acre)
$3.10
$0.60
$76.50
$3.20
$0.50
$63.75
$3.30
$0.40
$51.00
$3.40
$0.30
$38.25
$3.50
$0.20
$25.50
$3.60
$0.10
$12.75
$3.70
$0.00
Notes: PLC payments are made on 85% of base acres.

28. ARC-CO: 2014 Corn Revenue Guarantee
Year
Yield
MYA Price
ARC Price
2009
141.0
$3.55
$3.70
2010
149.0
$5.18
2011
128.0
$6.22
2012
138.0
$6.89
2013
115.0
$4.46
Oly. Ave.
135.7
$5.29
Benchmark Revenue = $ per acre
ARC Revenue Guarantee = $ per acre
Notes: Revenue Guarantee equals 86% of Benchmark.

29. ARC-CO: 2014 Potential Corn Payment
ARC Revenue Guarantee = $ per acre
ARC Max Payment Rate = $71.79 per acre
But ARC-CO is paid on 85% of base acres
and 85% of $77.92 is $61.02
Price: $3.00
$3.50
$4.00
$4.50
Yield: 100
$61.02
125
$46.62
150
$14.75
$0.00
175
$4.12
200

30. ARC-IC: 2014 Corn & Soybean Combined Revenue Guarantee
Year
Corn Yield
ARC Price
Revenue
Soy Yield
2009
157.0
$3.70
$580.90
43.0
$9.59
$412.37
2010
186.0
$5.18
$963.48
55.0
$11.30
$621.50
2011
187.0
$6.22 $
56.0
$12.50
$700.00
2012
163.0
$6.89 $
50.0
$14.40
$720.00
2013
156.0
$4.46
$695.76
46.0
$13.00
$598.00
Oly. Ave.
$927.44
$639.83
In 2014, if the farm is planted 60% to corn and 40% to soybeans, then
Benchmark Revenue = $ per acre
Revenue Guarantee = $ per acre

31. ARC-IC : 2014 Potential Corn & Soybean Combined Payment
Actual 2014 farm yields: Corn 180 bushels per acre
Soy 50 bushels per acre
Marketing year prices: Corn $4.00 per bushel
Soy $10.50 per bushel
Calculated revenues: Corn $ per acre
Soy $ per acre
ARC Revenue: 60%*$ %*$ = $642.00
ARC-IC is paid on 65% of base acres
ARC-IC Payment = $36.83 per acre (65% of $ $642.00)

32. PLC pays, ARC does not Neither pay Both pay ARC pays, PLC does not
The choice depends on where you expect prices and yields to be over the next 5 years. There are price/yield combinations where PLC pays and ARC does not. There are also price/yield combinations where ARC pays and PLC does not.

33. Three Choices PLC + SCO ARC-County ARC-Individual
Price protection with top-up county-level insurance protection
ARC-County
County-level revenue protection based on historical averages
ARC-Individual
Farm-level revenue protection based on historical averages
Choice holds for crop years

34. Corn Marketing Year Average Price Projections

35. Soybean Marketing Year Average Price Projections

36. Supplemental Coverage Option (SCO)
An additional policy to cover “shallow losses”
Shallow loss = part of the deductible on the producer’s underlying crop insurance policy
SCO has a county-level payment trigger
Indemnities are paid when the county experiences losses greater than 14%
Premium subsidy: 65%
Starts in 2015
Can’t have ARC and SCO together

37. Supplemental Coverage Option (SCO)RP
RPHPE YP

38. Crop Insurance One of many risk management strategies
Traditionally set up to protect farmers in times of low crop yields
Now offers coverage for low prices
Available on over 100 commodities

39. Why Crops Fail

40. Federal Crop Insurance
Federal Crop Insurance Corporation – 1938
Government’s initial move in crop insurance
Federal Crop Insurance Act of 1980
Premium subsidies
Federal Crop Insurance Reform Act of 1994
Catastrophic coverage and higher subsidies
Agricultural Risk Protection Act of 2000
The 2008 and 2014 Farm Bills

41. Federal Crop Insurance: A Public/Private Partnership
The Federal Government works with private insurance companies to offer crop insurance.
Since 1998, all federal crop insurance products are sold and serviced by private companies.
The Federal Government sets and/or approves premium rates and insurance terms.
Both entities share risks and returns from crop insurance.

42. Federal Crop Insurance

43. Product Innovation
Agricultural insurance products developed by private companies, reviewed and approved by FCIC
Examples:
Crop Revenue Coverage (CRC)
Revenue Assurance (RA)
Income Protection (IP)
Group Risk Income Protection (GRIP)
Livestock Risk Protection (LRP)
Livestock Gross Margin (LGM)

44. Federal Crop Insurance: Total Acres Insured

45. Crop Insurance Top 10s Crop Acres (million) Corn 78.94 Soybean 73.76
Pasture
52.78
Wheat
47.90
Cotton
10.35
Sorghum
5.30
Forage
3.07
Rice
2.66
Barley
2.18
Canola
1.70
State
Acres (million)
Texas
44.44
North Dakota
23.45
Iowa
22.21
Illinois
19.20
Kansas
18.82
Minnesota
17.68
Nebraska
17.63
South Dakota
15.95
Montana
10.44
Indiana
9.33

46. Crop Insurance Top 10s Crop Premiums ($ billion) Corn 3.65 Soybean
2.26
Wheat
1.45
Cotton
0.72
Sorghum
0.21
Pasture
0.20
Apples
0.10
Potatoes
Rice
0.09
Dry Beans
0.08
State
Premiums
($ billion)
Texas
0.98
North Dakota
0.91
Iowa
0.74
South Dakota
0.72
Illinois
0.68
Kansas
0.67
Minnesota
0.66
Nebraska
0.58
California
0.39
Missouri
0.38

47. Crop Insurance Top 10s Crop Liabilities ($ billion) Corn 43.94 Soybean
27.45
Wheat
9.26
Cotton
4.04
Almonds
2.19
Rice
1.78
Nursery
1.56
Grapes
1.49
Orange Trees
1.31
Potatoes
1.17
State
Liabilities
($ billion)
Iowa
13.28
Illinois
10.89
Minnesota
8.76
Nebraska
7.83
California
7.71
North Dakota
5.54
Indiana
5.15
South Dakota
4.86
Kansas
4.82
Texas
4.74

48. Types of Crop Insurance
Individual Yield (YP)
Individual Revenue (RP and RPE)
Area Yield (AYP)
Area Revenue (ARP and ARPE)

49. Example Farm
A 100 acre corn farm in Anoka County, Minnesota with a 5-year average yield of 150 bu/acre
Purchases insurance at the 80% coverage level
Spring price: $4.15/bu (average of Feb. prices for Dec. corn futures)

50. Individual Yield Insurance (YP)
Farmer chooses percentage of expected yield to insure
Expected yield measured by average yield
Price at which the crop is valued is set up front and does not change
If yields are 100 bushels per acre, the farmer receives $83.00 per acre = $4.15/bu * (80% * 150 bu/ac bu/ac)

51. Yield Insurance Payout Graph
No Payout
Payout

52. Yield Insurance is like an Option

53. Individual Revenue Insurance (RP or RPE)
Farmer chooses percentage of expected revenue to insure
Expected revenue measured by average yield times initial crop price
Price at which the crop is valued can move with price changes in the market

54. Individual Revenue Insurance (RP or RPE)
In our example, the farmer has insured $ of revenue per acre (80% * $4.15/bu * 150 bu/ac)
Final value of the crop determined by average futures prices over harvest period

55. Individual Revenue Insurance (RP or RPE)
If yields are 100 bushels per acre and harvest prices average $3.50, the farmer receives $ per acre
0.80*$4.15/bu.*150 bu./acre $3.50/bu.*100 bu./acre

56. RPE Payout Graph
No Payout
Payout

57. Rev. Insurance is like an Option

58. Individual Revenue Insurance (RP)
This policy has a “harvest price option”
If the harvest price is greater than the planting price, then the harvest price is used in all calculations
In essence, the policy is giving you a put option with the strike price at the planting price

59. Harvest Price Option

60. Individual Revenue Insurance (RP)
If yields are 100 bushels per acre and harvest prices average $5.50, the farmer receives $ per acre
0.80*$4.15/bu.*150 bu./acre $5.50/bu.*100 bu./acre
5.50

61. RP Payout Graph No Payment Neither Pay RPE Pays YP Pays Both Pay
RP Pays

62. Corn Insurance Prices

63. Soybean Insurance Prices

64. What Units to Choose? Optional Units: Each farm is separate
Basic Units: Combine owned and cash rented acres in same county
Enterprise Units: Combine all acres of the same crop in same county
Whole Farm: Combine all crops in county

65. Current Subsidy Rates 60% 64% 80% 65% 59% 70% 75% 55% 77% 48% 68% 71%
Coverage level
Basic Units
Optional Units
Enterprise Units
Whole Farm Units
60%
64%
80%
not avail.
65%
59%
70%
75%
55%
77%
48%
68%
71%
85%
38%
53%
56%

66. 2015 Insurance Premiums Per Acre Premiums ($ per acre)
Cov. Level YP RPHPE RP_
50%
55%
60%
65%
70%
75%
80%
85%
For our example farm in Anoka County, MN for corn

67. Choosing Insurance Policy
Choice depends on several factors
Type of farm and crop mix
How well the county average yield represents your farm
Your marketing strategy

68. Corn Acres Insured in 2014
87% of all
corn acres
are insured

69. Soy Acres Insured in 2014
88% of all
soybean acres
are insured

70. 2014 Corn and Soy Coverage Levels

71. Coverage Levels for YP

72. Coverage Levels for RPHPE

73. Coverage Levels for RP

74. 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: