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Crop Outlook and ACRE

Crop Outlook and ACRE. CFNB Annual Crop Insurance Update Meeting Storm Lake, Iowa February 19, 2009 Chad Hart Assistant Professor/Grain Markets Specialist chart@iastate.edu 515-294-9911. U.S. Corn Supply and Use. +574. -638. -686. $3.90. Source: USDA-WAOB, Feb. 2009.

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Crop Outlook and ACRE

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  1. Crop Outlook and ACRE CFNB Annual Crop Insurance Update Meeting Storm Lake, Iowa February 19, 2009 Chad Hart Assistant Professor/Grain Markets Specialist chart@iastate.edu 515-294-9911

  2. U.S. Corn Supply and Use +574 -638 -686 $3.90 Source: USDA-WAOB, Feb. 2009

  3. U.S. Soybean Supply and Use -35 +50 $9.00 +0.25 $9.25 Source: USDA-WAOB, Feb. 2009

  4. Drought in South America Source: USDA-WAOB, Feb. 2009

  5. Argentine Drought Impacts (Early Reports) 2007 Production Corn 20.9 million tons Soybeans 46.2 million tons January 2009 USDA Estimates Corn 16.5 million tons -21% Soybeans 49.5 million tons +7% Current USDA Estimates Corn 13.5 million tons -35% Soybeans 43.8 million tons -5% January Estimates from Buenos Aires Cereal Exchange (BACE) Corn 12.3 to 13.7 million tons -35 to -41% Soybeans 34.5 to 38.2 million tons -17 to -25% Feb. Estimate from BACE Soy 40 million tons -13% Source: Dow Jones Newswires

  6. Chinese Corn Production Source: USDA-WAOB, Jan. 2009

  7. Soybeans in China Source: USDA-PSD, Jan. 2009

  8. Livestock Adjustments Sows farrowing: Sept-Nov 2008 2.99 million, down 6% from last year Dec-Feb 2009 2.97 million, down 3% from last year Mar-May 2009 3.01 million, down 2% from last year Broiler-type eggs set: 203 million, down 7% from last year Broiler chicks placed: 166 million, down 6% from last year Feedlot placements: 2.02 million, down 5% from last year Sources: Various USDA-NASS reports

  9. Ethanol Margins Source: ISU, CARD

  10. Biodiesel Margins Source: ISU, CARD

  11. Renewable Fuels Standard (RFS)

  12. U.S. Blended Motor Gasoline Consumption Source: Energy Information Administration

  13. Outside Influences (Jan. 2007 = 1)

  14. Outside Influences (Sept. 2008 = 1)

  15. Corn & Soybean Area Growth rate of 1.55 million acres per year

  16. CRP Expiring Contracts Source: USDA-FSA

  17. Input Costs Source: USDA, Agricultural Prices, Jan. 2009

  18. Ammonia Prices Source: http://www.fertilizerworks.com/html/market/ TheMarket.pdf

  19. Iowa Corn Prices vs. Costs Source: USDA-NASS and Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf

  20. Iowa Soybean Prices vs. Costs Source: USDA-NASS and Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf

  21. Estimates for 2009 Iowa Costs December 2009 Corn Futures = $3.875 (2/18/09) November 2009 Soy Futures = $8.3575 (2/18/09) Source: Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-20.pdf

  22. Exchange Rates (Jan. 2003 = 1) Source: USDA, ERS

  23. Exchange Rates (Jan. 2003 = 1) Source: USDA, ERS

  24. 2007 World Corn Exports Drought issues for 2008 crops Source: USDA, FAS

  25. 2007 World Soybean Exports Drought issues for 2008 crops Source: USDA, FAS

  26. Pace of Corn Export Sales Source: USDA, FAS

  27. 2008 U.S. Corn Exports Source: USDA, FAS

  28. Pace of Soybean Export Sales Source: USDA, FAS

  29. 2008 U.S. Soybean Exports Source: USDA, FAS

  30. U.S. Stocks-to-Use Ratios

  31. World Stocks-to-Use Ratios

  32. Finishing Out the 2008 Crop Year • General economic conditions • A lot of recent market trade has been tied to reaction to the financial crisis and the world’s response • Economic slowdown raises concern about export and energy demand • Most important ag. statistic: Exchange rates or South American production • Current futures are indicating 2008 season-average prices of $3.75-4.25 for corn and $8.75-9.25 for soybeans • Stress on South American crops has provided some support for prices

  33. Thoughts for 2009 and Beyond • Many of the storylines from 2008 will continue • Tight stocks for corn (worldwide) and soybeans (U.S.) • The competition for acreage • Ethanol’s buildout & livestock’s adjustment • Energy price & general economy concerns • Market volatility will remain high • Link to the energy markets • More market players with different trading objectives • Given current factors, the 2009 outlook is for crop prices around $3.75 for corn and $8.00-8.25 for soybeans • Key factor: Economic growth returns by mid 2010

  34. Average Crop Revenue Election (ACRE) • ACRE is a revenue-based counter-cyclical payment program • Based on state and farm-level yields per planted acre and national prices • Producers choose between the current price-based counter-cyclical payment (CCP) program and ACRE • There are still some details to be worked out about ACRE (stay tuned)

  35. Farmer Choice • Starting in 2009, producers will be given the option of choosing ACRE or not • Can choose to start ACRE in 2009, 2010, or beyond • Once you’re in ACRE, you stay in ACRE until the next farm bill • If you sign up for ACRE, you must do so for all eligible crops • Deadline for sign-up, June 1 of each year • Producers choosing ACRE agree to 20% decline in direct payments and 30% decline in loan rates

  36. ACRE Settings ACRE is based on planted acres Total acres eligible for ACRE payments limited to total number of base acres on the farm Farmers may choose which planted acres are enrolled in ACRE when total base area is exceeded

  37. Loan Rates under ACRE Corn $1.365 Soybeans $3.50 Current Loan Rates Corn $1.95 Soybeans $5.00

  38. Average Direct Payments Per Payment Acre for Iowa Please note the 83.3 or 85% rule has not been yet to these payments.

  39. ACRE • Program has state and farm trigger levels, both must be met before payments are made • Expected state and farm yield based on 5 year Olympic average yields per planted acre • ACRE price guarantee is the 2 year average of the national season-average price

  40. ACRE Set-up for Iowa Soybeans The 2008 yield and price are USDA’s February 2009 estimates. So the expected state yield would be 50.3 bushels per acre and the ACRE price guarantee would be $9.68 per bushel.

  41. ACRE Structure ACRE revenue guarantee = 90% * ACRE price guarantee * Expected state yield For our example, the ACRE revenue guarantee is 90% * $9.68/bu. * 50.3 bu./acre $438.21/acre ACRE actual revenue = Max(Season-average price, Loan rate) * Actual state yield per planted acre

  42. ACRE Structure ACRE Farm revenue trigger = Expected farm yield * ACRE price guarantee + Producer-paid crop insurance premium Let’s assume farm yields equal to state yields and use the average producer-paid crop insurance premium for 2008 50.3 bu./acre * $9.68/bu. + $17.58/acre $504.48/acre

  43. ACRE Payment Triggers ACRE actual farm revenue = Max(Season-average price, Loan rate) * Actual farm yield per planted acre Given our example, ACRE payments are triggered when ACRE actual revenue is below $438.21/acre and ACRE actual farm revenue is below $504.48/acre

  44. ACRE Payments • Payment rate = Min(ACRE revenue guarantee – ACRE actual revenue, 25% * ACRE revenue guarantee) • Payments made on 83.3% of planted/base acres in 2009-11, 85% in 2012 • ACRE payment adjustment: Payment multiplied by ratio of Expected farm yield to Expected state yield

  45. ACRE Payment Timing Payments can begin as soon as practicable possible after the end of the marketing year So 2009 ACRE payments could start to be paid out in October 2010 There are no provisions for advance payments

  46. ACRE vs. CCP CCP pays out No CCP payments No ACRE payments ACRE pays out

  47. An Example for 2009 To start, we need the expected state and farm yields and the ACRE price guarantee Expected state yield 50.3 bu/acre Expected farm yield 55.0 bu/acre 2004-08 Olympic average of yields per planted acre ACRE price guarantee $9.68/bu Average of 2007 and 2008 season-average prices ACRE Revenue Guarantee $438.21 90% * $9.68/bu * 50.3 bu/acre ACRE Farm Revenue Guarantee $552.40 $9.68 * 55 bu/acre + $20/acre

  48. Example (continued) For 2009, we need the actual state yield, the actual farm yield , and the season-average price Actual state yield 45 bu/acre Actual farm yield 55 bu/acre Season-Average Price $9.00/bu ACRE Actual Revenue $405.00 $9.00/bu * 45 bu/acre ACRE Farm Actual Revenue $495.00 $9.00/bu * 55 bu/acre

  49. Example (continued) State Trigger ACRE Revenue Guarantee $438.21 ACRE Actual Revenue $405.00 So we’ve met the state trigger • Farm Trigger • ACRE Farm Revenue Guarantee $552.40 • ACRE Farm Actual Revenue $495.00 • So we’ve met the farm trigger

  50. Example (continued) ACRE Payment $30.25 Min(25%*$438.21, $438.21 – $405.00) * (55 bu/acre / 50.3 bu/acre) * 83.3%

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