1 / 43

Managing Margins in 2016 and Beyond

Managing Margins in 2016 and Beyond. Crop Advantage Series Okoboji, Iowa Jan. 6, 2016. Chad Hart Associate Professor chart@iastate.edu 515-294-9911. Alejandro Plastina Assistant Professor plastina@iastate.edu 515-294-6160. U.S. Corn Supply and Use. Source: USDA-WAOB.

Download Presentation

Managing Margins in 2016 and Beyond

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Managing Margins in 2016 and Beyond Crop Advantage Series Okoboji, Iowa Jan. 6, 2016 Chad Hart Associate Professor chart@iastate.edu 515-294-9911 Alejandro Plastina Assistant Professor plastina@iastate.edu 515-294-6160

  2. U.S. Corn Supply and Use Source: USDA-WAOB

  3. U.S. Soybean Supply and Use Source: USDA-WAOB

  4. Corn Yield Estimate Top: 2015 Estimated Yields Bottom: Change from last month Units: Bushels/acre Source: USDA-NASS

  5. Soybean Yield Estimate Top: 2015 Estimated Yields Bottom: Change from last month Units: Bushels/acre Source: USDA-NASS

  6. World Corn Production Source: USDA-WAOB

  7. World Soybean Production Source: USDA-WAOB

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

  9. Corn Export Sales Source: USDA-FAS

  10. Soybean Export Sales Source: USDA-FAS

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

  12. Crude Oil Prices Sources: EIA and CME

  13. Corn Grind for Ethanol

  14. Current Corn Futures 3.79 3.63 3.51 Source: CME Group, 12/31/2015

  15. Current Soybean Futures 8.47 8.56 8.40 Source: CME Group, 12/31/2015

  16. 2015/16 Crop Margins

  17. 2016/17 Crop Margins

  18. Profitability analysis in Iowa: Rented Corn Acres Corn producers who rent need to finance these gaps with $ from other sources! Sources: USDA/NASS, RMA, AgDM File A1-20

  19. Net Farm Income: Corn $/Acre

  20. Profitability analysis in Iowa: Rented Soybean Acres Soybean producers who rent need to finance these gaps with $ from other sources! Sources: USDA/NASS, RMA, AgDM File A1-20

  21. Net Farm Income: Soybeans $/Acre

  22. Profitability in Perspective: Living Expenses How many acres (50% corn-50% soybeans) are needed to support $40,000 in living expenses? @ $7,900/acre (2015): 193 acres  $1.5 mil. in land value = equity 700 acres  $5.5 mil. in land value = $2.8 mil. equity Sources: USDA/NASS, RMA, AgDM File A1-20

  23. What can happen in 2016? Corn Profits: Dollars per Rented Acre

  24. What can happen in 2016? Soybean Profits: Dollars per Rented Acre

  25. Profitability analysis in Iowa: Rented Acres Sources: USDA/NASS, RMA, AgDM File A1-20

  26. 9 Strategies to manage margins • Major concern: cash flow / liquidity • Solvency hit, but still strong: • Declining land values in Iowa • Declining machinery values • Long term problem  strategy for 2-3 years

  27. Strategies:1. Protect your working capital • Revise recent asset purchases • Revise share of rented land • Revise scale of operation and fixed costs over next 2-3 years • Manage taxes: visit with tax advisor • Deferred payment contracts • S179 • Carry back operating losses to obtain tax refunds

  28. Strategies:2. Avoid cash shortages • Plan for operating losses (renters) • Secure operating loan/emergency loan terms • Be very careful with new capital expenditures • Maintain cash reserves and operating credit lines: Source: File A1-20, Ag Decision Maker

  29. Strategies:3. Diversify Income • Add or don’t lose non-farm income • Consider alternative sources of revenue with your assets: custom work, snow removal, truck driving in fall & winter, ???

  30. Strategies:4. Revise production costs • Revise production plans, especially for rented land (renegotiate land rent?) • Can you make changes that generate savings that offset reductions in revenue? •  N 20 lbs per acre? Savings $10. If yield  smaller than 2.7 bu/acre @ $3.65/bu, GO AHEAD! Otherwise, NO GO. • Switch to seeds with fewer traits (+crop management)? Net savings $25/acre. If yield  smaller than 6.8 bu/acre @ $3.65/bu, GO AHEAD! Otherwise, NO GO. • Seek volume discounts in seeds, chemicals, etc. • Visit with agronomist: update your production skills, evaluate how to control costs

  31. Strategies:5. Actively Manage Risks • Know your break-even prices • Design a marketing plan with price and date targets and stick to it • Lock-in margins whenever possible • Revise crop insurance (Explore ways to maintain protection while lowering costs) • Revise use of forward contracts & crop insurance to finance inputs

  32. Strategies:6. Revise family living expenses • Revise family living expenditures: • Vacation plans • House remodeling plans • Truck purchase 193 fully owned acres to afford $40,000 in living expenses 340 fully owned acres to afford $70,000 in living expenses

  33. Strategies:7. Secure repayment capacity • Short repayment schedules reduce cash flow vs. long repayment schedules • Try to extend repayment schedules on equipment & real estate loans (low interest rates) • Work a plan with your lender(s) for 2016-2017

  34. Strategies:8. Revise Growth Strategy Depending on your growth stage: • Offload unproductive assets • Downsize • Slow down growth • Beginning farmers: wait to buy land • Align short term needs with long term growth goals

  35. Strategies:9. Know your ARC/PLC Payments • Payments vary widely across counties and programs • If any 2014 ARC-CO Payments, use to cash flow • Corn: 2015 corn yields similar to 2014 yields. ARC-CO payments similar too. • Soy: 2015 corn yields different from 2014 yields. ARC-CO payments different too: Higher payments for central and southern counties and lower payments for northern counties. • No PLC payments in 2014. Small payments likely in corn base acres in 2015. Source: Iowa Farm Bureau Federation

  36. 2015 ARC-CO Payments per Corn Base Acre2015 yields projected with CRD yields(issued Oct 2016) State Average: $49 per base acre $72 $71 $70 • Projections based on: • 2015/16 USDA Price Projection: • Corn $3.65 • 2) Guaranteed Price: • Corn $5.29 • 3) Projected 2015 County Yields = 2014 County Yields × 2015 CRD Yield / 2014 CRD Yield $64 $53 $61 $3 $39 $1

  37. 2015 ARC-CO Payments per Soy Base Acre2015 yields projected with CRD yields (issued Oct 2016) State Average: $19 per base acre $8 $2 $7 • Projections based on: • 2015/16 USDA Price Projection: • Soybeans $8.90 • 2) Guaranteed Price: • Soybeans $ 12.27 • 3) Projected 2015 County Yields = 2014 County Yields × 2015 CRD Yield / 2014 CRD Yield $39 $25 $29 $11 $36 $18

  38. 2015 ARC-CO Payment Calculatorhttp://www.extension.iastate.edu/agdm/info/farmbill.html

  39. 2015 PLC Payments per Corn Base Acre MYA Price $3.65 per bushel State Average: $5 per base acre $6 Yield 129.5 bu $5 Yield 125.7 bu $5 Yield 126.8 bu $5 Yield 114.7 bu $5 Yield 126.8 bu $5 Yield 126.3 bu • Projections based on: • 1) Payment Yields = CCP Yields • 2) 2015/16 MYA Prices: • Corn $ 3.65 / bushel $5 Yield 117.5 bu $5 Yield 107.2 bu $4 Yield 99.5 bu

  40. 2015 PLC Payments per Soy Base Acre MYA Price $8.90 per bushel State Average: $0 per base acre $0 Yield 40.7 bu $0 Yield 38.6 bu $0 Yield 40.6 bu $0 Yield 37.0 bu $0 Yield 39.1 bu $0 Yield 40.7 bu • Projections based on: • 1) Payment Yields = CCP Yields • 2) 2015/16 USDA MYA Prices: • Soybean $ 8.90 / bushel $0 Yield 35.4 bu $0 Yield 35.5 bu $0 Yield 33.3 bu

  41. PLC Payment Calculatorhttp://www.extension.iastate.edu/agdm/info/farmbill.html

  42. Summary • Expect low to negative margins in 2016 • Visit with: • Agronomist – control costs? • Lender – refinance, lower payments? • Tax advisor – refunds from previous years? • Crop insurance agent – change coverage? • Use resources @ Ag Decision Maker: http://www.extension.iastate.edu/agdm/

  43. Thank you for your time!Any questions?Ag Decision Maker:http://www.extension.iastate.edu/agdm/

More Related