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Risk Environment for Agriculture

Risk Environment for Agriculture. Agricultural Credit School Ames, Iowa June 8, 2009 Chad Hart Assistant Professor/Grain Markets Specialist chart@iastate.edu 515-294-9911. Brief List. General economic conditions Food, feed, and energy demand Agricultural, energy, and trade policy

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Risk Environment for Agriculture

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  1. Risk Environment for Agriculture Agricultural Credit School Ames, Iowa June 8, 2009 Chad Hart Assistant Professor/Grain Markets Specialist chart@iastate.edu 515-294-9911

  2. Brief List General economic conditions Food, feed, and energy demand Agricultural, energy, and trade policy Input and output pricing Production / crop progress

  3. Population Source: U.S. Bureau of the Census, International Data Base

  4. Real GDP, 2008 Projections Sources: International Financial Statistics, Global Insight

  5. Real GDP, 2009 Projections Sources: International Financial Statistics, Global Insight

  6. Per Capita Meat Consumption Source: FAPRI

  7. Government Deficits Source: Congressional Budget Office, May 2009

  8. Wheat Statistics Sources: USDA, FAPRI

  9. Corn Statistics Sources: USDA, FAPRI

  10. Liquid Fuel Usage Source: Energy Information Administration

  11. Crude Oil Prices Source: Energy Information Administration

  12. Crude Oil Futures Prices Source: NYMEX

  13. Price Movements Since 2007

  14. Ethanol Margins Source: ISU, CARD

  15. Renewable Fuels Standard (RFS)

  16. Draft Lifecycle GHG Reductions Source: EPA, May 2009

  17. CARB Fuel Carbon Values Source: CA Air Resources Board, April 2009

  18. Countries Pursuing Biofuels • US • Brazil • Argentina • Colombia • Paraguay • Canada • Uruguay • Mexico • Thailand • New Zealand • South Africa • South Korea • Philippines • Indonesia • Pakistan • China • India • Malaysia • Australia • Japan • EU • Russia • Not a complete list

  19. Average Crop Revenue Election (ACRE) Gives producers a one-time option to choose a revenue-based counter-cyclical payment program, starting in 2009 Producers choose between the current stable of programs or ACRE Producers choosing ACRE agree to 20% decline in direct payments and 30% decline in loan rates

  20. 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

  21. ACRE Structure ACRE revenue guarantee = 90% of ACRE price guarantee * Expected state yield ACRE actual revenue = Max(Season-average price, Loan rate) * Actual state yield per planted acre Farm revenue trigger = Expected farm yield * ACRE price guarantee + Producer-paid crop insurance premium

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

  23. World Trade Organization Ongoing negotiations for WTO agriculture agreement Targeting changes in domestic support, tariffs, tariff quotas, and export subsidies Both general and product-specific guidelines for agricultural policy changes

  24. U.S. Corn Progress Source: USDA, Crop Progress

  25. U.S. Soybean Progress Source: USDA, Crop Progress

  26. Input Costs Source: USDA, Agricultural Prices, May 29, 2009

  27. Changing Basis Patterns

  28. Basis Last Year

  29. Basis This Year

  30. Crop Price Variability Price distributions for corn based on May prices for the following July futures

  31. Iowa Corn Prices vs. Costs 2009 Futures-based Season-average Price Estimate $4.35 Latest USDA U.S. 2008 Season-average Price Estimate $4.20 Latest USDA Iowa 2008 Season-average Price Estimate $3.95 Preliminary estimates for 2009 costs are over $4 per bushel. Source: USDA-NASS and Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf

  32. Iowa Soybean Prices vs. Costs 2009 Futures-based Season-average Price Estimate$10.00 Latest USDA U.S. 2008 Season-average Price Estimate $9.85 Latest USDA Iowa 2008 Season-average Price Estimate $9.65 Preliminary estimates for 2009 costs are nearly $10 per bushel. Source: USDA-NASS and Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf

  33. Thank you for your time!Any questions?My web site:http://www.econ.iastate.edu/faculty/hart/

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