Steven D. Johnson - WordPress.com...Record 2016 Crop Yields: Crop Reporting District (CRD) Source: USDA NASS, Iowa Field Office, Feb. 23, 2017 Final State Yields: Corn 203 bu/A & Soybeans

1

March 20, 2017

Steven D. JohnsonFarm & Ag Business Management Specialist

(515) [email protected]

www.extension.iastate.edu/polk/farm-management

Learning Objectives• Highlight 2016 Crop Supply/Demand & Cash

Price Outlook

• Provide 2016 ARC-CO Projected Payments

• Discuss Seasonal Trends for Futures Prices, Basis and Using a Variety of Strategies & Tools

• Develop Old & New Crop Marketing Plans

• Highlight 2017 Crop Cost Estimates, Planted Acreage & Weather Outlook

• Utilize Revenue Protection (RP) to Pre-Harvest Market New Crop Corn & Soybeans.

• Provide 5 Crop Risk Management Web Sites.

2

205.5

63.2

200.9

61.1 206.560.6

206.2

61.8207.5

60.8205.5

60.5

191.1

58.1 182.8

55.4

203

60.5

Record 2016 Crop Yields: Crop Reporting District (CRD)

Source: USDA NASS, Iowa Field Office, Feb. 23, 2017

Final State Yields: Corn 203 bu/A & Soybeans 60.5 bu/A

2016 ARC-CO Corn Payments ProjectedOct. 2017: Average of $8.51/A (corn base)

Source: www.extension.iastate.edu/agdm/info/farmbill.html

3

2016 Grundy County ARC-CO Payments Projected(Paid in October 2017)


2016 ARC-CO Soybean Payments ProjectedOct. 2017: Average of $.33/A (soybean base)


4

U.S. Corn Ending Stocks & Average Cash Price

Source: USDA WASDE & 2017 Ag Outlook Forum, March 9, 2017

U.S. Corn Supply and Use2013 2014 2015 2016 2017

Area Planted (mil. acres) 95.4 90.6 88.0 94.0 90.0

Yield (bu./acre) 158.1 171.0 168.4 174.6 170.7

Production (mil. bu.) 13,829 14,216 13,602 15,148 14,065

Beg. Stocks (mil. bu.) 821 1,232 1,731 1,737 2,320

Imports (mil. bu.) 36 32 67 55 50

Total Supply (mil. bu.) 14,686 15,479 15,401 16,940 16,435

Feed & Residual (mil. bu.) 5,040 5,280 5,131 5,650 5,450

Ethanol (mil. bu.) 5,124 5,200 5,206 5,400 5,400

Food, Seed, & Other (mil. bu.) 1,369 1,401 1,429 1,445 1,470

Exports (mil. bu.) 1,920 1,867 1,898 2,225 1,900

Total Use (mil. bu.) 13,454 13,748 13,664 14,620 14,220

Ending Stocks (mil. bu.) 1,232 1,731 1,737 2,320 2,215

Season-Average Price ($/bu.) 4.46 3.70 3.61 $3.40 $3.50


5

World Corn Production 2016-17

Source: USDA WASDE, March 9, 2017

Futures

Price

Futures

Price

Basis Basis

1. Store & wait2. Delayed price contract3. Minimum price contract

1. Basis contract2. Sell Cash Bushels and

Buy Futures or Call Option

3. Minimum price contract

1. Hedge2. Non‐roll hedge to arrive3. Buy put option

1. Spot cash sale now2. Forward Contract

Crop Marketing Matrix

Source: Iowa Commodity Challenge, ISU Ext., March 2017

Old Crop Corn: Eliminate Storage and Basis Risk

Old & New Crop Soybeans: Eliminate Storage, Basis and Futures Price Risk

Old Crop Corn: On-Farm

New Crop Corn/Soybeans:Price Futures in the Spring (Corn), Winter/Spring (Soybeans)

6

Percent of U.S. Crop Marketed by Month (20-Year Averages)

Source: USDA NASS, October 1997 to October 2016

(1996-97 thru 2015-16)

Best Winter Basis? Best

Spring Basis?

Cost of Corn Ownership Example(Cash Price at Mid-Harvest = $3.11/bu., 5% Interest)

Source: Iowa Commodity Challenge, March 2017

On-farm Storage = 1¢ per bu. per month; Commercial Storage at 16¢ for first 90 days, then 2.8¢ per bu. per month thereafter.Interest rate =5% APRCCC Interest rate = 1.75% APR

10/19/16 – 3/1/2017

7

July ’17 Corn Futures

Source: www.cmegroup.com, March 10, 2017

$3.49 @ Harvest

Spring rally price objective: $3.95, $4.00, $4.05, $4.10 ?

• Spot Cash Price(38¢ under July trading @ $3.69) $3.31/bu.

• Seller receives 70% cash value $2.32/bu.

• Grain Merchandiser holds balance $ .99/bu.

• Merchandiser “Buys” July ‘17 Corn Futures for $3.78/bu. on behalf of the Seller

• Note: First Delivery Notice Day for July Contract is about June 29.

Old Crop Corn Strategy: Basis Contract(Updated 3/13/17)


8

• On or before late June (First Delivery Notice Day),. try to sell near the highest July ‘17 corn futures price

• Seller Notifies Merchandiser, who “Sells July Corn Contract” and disperses funds:

If: $4.05/bu. (July futures on 6/23)

$3.69/bu. (July futures on 3/13)

+ .36/bu. +Futures Gain

‐ .02/bu. ‐ Commission

.99/bu. + Balance

$2.32/bu + Advance

$3.65/bu Net

If: $3.50/bu. (July futures on 6/23)

$3.69/bu. (July futures on 3/13)

‐ .19/bu. ‐ Futures Loss

‐ .02/bu. ‐ Commission

.99/bu. + Balance

$2.32/bu + Advance

$3.10/bu Net

Basis Contract Potential (using July Futures)

Source: Iowa Commodity Challenge, March 13, 2017

2017 Iowa Crop Cost Estimates:Conventional Tillage, Average Yields

Source: AgDM File A1-20, Plastina, ISU Extension, January 2017

165 bu/A = $4.08/bu. 180 bu/A =

$3.51/bu.

50 bu/A = $9.66/bu.

9

$16.10 $13.80 $12.08 $10.73 $9.66 $8.78 $8.05 $7.43

$3.71 $3.61 $3.51 $3.41 $3.32 $3.24 $3.16 $3.08

2017 Cost per Bushel Estimates

Cost/BuExpense/Acre

$631

Cost/BuExpense/Acre

$483

Yield 7030 35 40 45 50 55 60 65

Soybeans

Corn

$3.00

Yield 170 175 180 185 190 195 200 205 210

$6.90

$3.51

EstimatedCost/Bu

$3.16

Extra 20 bu/A

$9.66

Estimated Cost/Bu

$8.05

Extra 10 bu/A

Source: Johnson, ISU Extension, January 2017

December Corn Seasonal Trends (2000-2016 Futures Indexed)

Ego

Source: www.cffm.umn.edu, Usset, October 2016

10

December ’17 Corn Marketing Strategy


2017 Projected Price $3.96/bu.

Scale-in Incremental Sales: $4.00, $4.05, $4.10, $4.15, $4.20 ?

New Crop Written Marketing Plan Example

Date BushelsPut

or CallStrikeprice Premium Basis

Estimated. Cash Floor Why? Reason for Action

6/14/17 5,000 Put 4.20 .30 -.30? 3.60 Cover COP, No delivery6/28/17 10,000 Put 4.30 .30 -.30? 3.70 Floor & upside, ait on basis7/12/17 10,000 Put 4.40 .30 -.30? 3.80 Floor & upside, wait on basis

Date BushelsFutures

Price Basis Cash Price Why? Reason for Action

On or before 3/15/17 5,000 4.00 -0.30 3.70 Start New Crop Plan, Fall Cash Flow, Forward Contract

On or before 4/19/17 10,000 4.00 -0.30 3.75 Above COP, Fall Cash Flow, Forward Contract

On or before 5/3/17 10,000 4.05 -0.30 3.80 Above COP, Fall Cash Flow, Forward Contract

On or before 5/17/17 10,000 4.10 tbd tbd Winter Cash Flow, HTA March



Page 58 & 59

Source: Johnson, ISU Extension, March 2017

11

Crop Marketing Plan Components Example

Set a deadline for each action

Scale in sales over price ranges and

time

Can be customized for a variety of tools

Include “Reason for Action”

Page 52 & 53


2017 U.S. Planted Acreage Forecast

90 M88 M

46 M

23 M

Source: USDA NASS & Ag Outlook Forum, February 23, 2017

* Estimated **Forecast

12

Deductible?

Revenue Protection – RP(65%-85% Levels)

UnitCoverage?

(Basic, Optional or Enterprise)

Trend-Adjusted (TA) APH Yield

Endorsement ?

2017 Crop Insurance Decisions

Supplementals: Hail, Wind & Green Snap or Buy-up of Projected Price?


Pre-Harvest Marketing Corn Bushels with Revenue Protection (RP)

Marketing Strategy

• Pre-Harvest Sell for Delivery up to 144 Bu/A

• Price Guarantee is Higher of the Projected Price vs. Harvest Price

• Slight Basis Risk

• Must Plant the Crop

(Prevented Planting = 55% of Production for Corn, Still 60% for Soybeans)

180 Bu/AActual

Production History(APH)

RP @ 80% Level of Coverage

144 Bu/AGuarantee X

$3.96/bu Projected Price

Deductible20% = 36 Bu/A

= $570/A Revenue Guarantee


13

Source: http://droughtmonitor.unl.edu

Elwynn Taylor’s Price 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 2017

14

Source: http://iri.columbia.edu February 16, 2017

El Nino Southern Oscillation (ENSO) 2017 Forecast

Neutral Conditions Fade by Summer

Months: Odds favor a mild El Nino

U.S. Soybean Ending Stocks & Average Cash Price


15

U.S. Soybean Supply and Use2013 2014 2015 2016 2017

Area Planted (mil. acres) 76.8 83.3 82.7 83.4 88.0

Yield (bu./acre) 44.0 47.5 48.0 52.1 48.0

Production (mil. bu.) 3,358 3,927 3,926 4,307 4,180

Beg. Stocks (mil. bu.) 141 92 191 197 420

Imports (mil. bu.) 72 33 24 25 25

Total Supply (mil. bu.) 3,570 4,052 4,140 4,528 4,625

Crush (mil. bu.) 1,734 1,873 1,886 1,940 1,945

Seed & Residual (mil. bu.) 107 146 122 128 135

Exports (mil. bu.) 1,638 1,842 1,936 2,025 2,125

Total Use (mil. bu.) 3,478 3,862 3,944 4,093 4,205

Ending Stocks (mil. bu.) 92 191 197 435 420

Season-Average Price ($/bu.) 13.00 10.10 8.95 $9.60 $9.60


World Soybean Production 2016-17

16

Cost of Soybean Ownership Example(Cash Price at Mid-Harvest = $8.75/bu., 5% Interest)

10/12/16 – 3/1/17On-farm Storage = 1¢ per bu. per month; Commercial Storage at 16¢ for first 90 days, then 2.8¢ per bu. per month thereafter.Interest rate =5% APRCCC Interest rate = 1.75% APR

May ’17 Soybean Futures Chart


Winter Trading Range

$10.88

$9.54 @ Harvest

17

Spot Cash Sale Price: 50¢ under theMay Soybeans trading @ $10.06

less Call Premium PaidBuy a July ‘17 Call Option with a $10.60 Strike Price (Out‐of‐the‐Money) Commission

= Estimated Floor Price*

$9.56

- 20¢

- 2¢

= $9.34

*Option examples do not include commissions and interestJuly Call Option expires on Friday, June 23


Old Crop Soybean StrategiesSold Cash or a Minimum Price Contract

(Updated 3/13/17)

November Soybean Seasonal Trends(2000-2016 Futures Indexed)

Ego

Source: www.cffm.umn.edu, Usset, October 2016

18

November ‘17 Soybean Marketing Strategy


2017 Projected Price $10.19/bu.

Scale-in incremental sales: $10.20, $10.30, $10.40, $10.50 ?

Crop Risk Management Web Sites• Ag Decision Maker – ISU Extension

– (Iowa Commodity Challenge Curriculum: Monthly e-Newsletter, Decision Tools, Newsletters, Publications, 2014 Farm Bill: ARC-CO Payment Calculator)

www.extension.iastate.edu/agdm• Iowa Commodity Challenge

– 14 Crop Marketing Videos, Marketing Tools Workbook, Marketing Game

http://tinyurl.com/iacrops• Dr. Chad Hart –Extension Crop Markets Economist

http://www2.econ.iastate.edu/faculty/hart/• Crop Risk Management - ISU Polk County Ext.

(Crop Marketing & Farmland Owners Updates, Government Farm Programs, Crop Economics and Farmland Leasing Information)

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


Documents

Steven D. Johnson - WordPress.com...Record 2016 Crop Yields: Crop Reporting District (CRD) Source: USDA NASS, Iowa Field Office, Feb. 23, 2017 Final State Yields: Corn 203 bu/A & Soybeans