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Risk Environment for Agriculture. Ag. Credit School Ames, Iowa June 4, 2019 Chad Hart Associate Professor/Crop Markets Specialist chart@iastate.edu 515-294-9911. Iowa Corn Prices vs. Costs. Iowa Soybean Prices vs. Costs. Iowa Corn Costs. Overall 69% increase. 59%. 35%. 90%. 69%.
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Risk Environment for Agriculture Ag. Credit School Ames, Iowa June 4, 2019 Chad Hart Associate Professor/Crop Markets Specialist chart@iastate.edu 515-294-9911
Iowa Corn Costs Overall 69% increase 59% 35% 90% 69% Source: AgDM A1-21
Iowa Soybean Costs Overall 63% increase 59% 48% 81% 42% Source: AgDM A1-21
Crop Prices for the Next Decade Source: USDA-OCE
GDP Growth Source: USDA-OCE
U.S. Crude Oil Prices Source: USDA-OCE
World Corn Markets Source: USDA
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
Corn Acres Insured in 2018 87% of all corn acres are insured
Soy Acres Insured in 2018 88% of all soybean acres are insured
PLC pays, ARC does not Neither pay Both pay ARC pays, PLC does not
Value of Ag Trade Source: USDA-FAS
U.S. Ag Exports Source: USDA-FAS
Margin Maneuvers • Negotiate lower land rental rates • Explore variety choice (seed cost vs. seed benefits) • Soil test and apply required fertilizer • Examine and control other input costs (pesticides, herbicides, etc.) • Be more aggressive marketing on rallies • May look to limit losses, as opposed to capture profits • Singles & doubles vs. Home run strategy
Margin Maneuvers • Fully utilize government programs • ARC-CO, PLC, crop insurance • Break price into futures and basis components to capture improvements in either • Put the pencil to paper and calculate storage benefits/costs • Will a traditional seasonal price swing cover storage costs? • What are futures prices telling you about storage opportunities now? • Remember, Rome wasn’t built in a day • It took us awhile to get into this situation and it will take awhile to get out.
Revenue Mix Source: USDA-OCE
Revenues vs. Costs Source: USDA-OCE
Farm Incomes Source: USDA-ERS
A Multi-dimensional Issue Source: Takle et. al., 2013
Communication is Key • With your clients and your supervisors • No one wants an unwelcome financial surprise • Fewer surprises mean fewer conversations with regulators • But it does require a few more conversations with clients
Understanding Clients • What’s a “typical” year for them look like? • Production • Cash flow • Marketing • How far are they along their career path? • Beginning • Mid-career • Transitioning out • Do you see changes in the farm or in the client? • Is the client willing to discuss the changes?
Summary Ag Stats Source: Federal Reserve of Chicago
Summary Ag Lending Stats Source: Federal Reserve of Chicago
Iowa Loans Source: Hansen, 2018, IDoB
Examiner Experience Source: Hansen, 2019, IDoB
Thank you for your time!Any questions?My web site:http://www.econ.iastate.edu/~chart/Iowa Farm Outlook:http://www.econ.iastate.edu/ifo/Ag Decision Maker:http://www.extension.iastate.edu/agdm/