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Managing Crop Margins in 2009: Strategies, Tools, and Market Insights

Discover effective strategies and tools for managing crop margins in 2009. Explore the impact of changing costs, market dynamics, and new varieties. Learn about crop production costs, market sizing, and valuable tools for evaluating crop rotations, machinery economics, and lease agreements. Make informed decisions to optimize profitability and risk management in a challenging agricultural landscape.

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Managing Crop Margins in 2009: Strategies, Tools, and Market Insights

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  1. Managing Crop Margins in 2009 Craig A. Chase Farm Management Field Specialist

  2. Presentation Objectives • Cost of Production • Sizing up the Market • Strategies/Tools for Managing Margins

  3. Costs for 2009 • Extremely hard to predict this year • Pre-paid vs. spot • Changes in world and domestic demand • Changes due to financial crisis • New varieties and traits • Energy markets

  4. Baseline assumptions • Diesel $2.50 • N $.68, P $.90 K $.72 • LP $1.90 • Corn seed; $250 Soybeans $45/50 lb • Land; $178 $205 $232 • Yields; continuous corn 125 145 165 • Rotated corn 140 160 180 • Soybeans 45 50 55

  5. Direct Cost of Crop Production ($/A)Historical vs. 2009 Forecast 36% 19% Source: Schnitkey, U of IL Ext. Economics, Oct. 2008.

  6. Non-Land Costs vs. Gross Revenue ($/A)Historical vs. 2009 Forecast $200/A $177/A Source: Schnitkey, U of IL Ext. Economics, Oct. 2008.

  7. Sizing Up the Market

  8. Reluctance Toward Pre-Harvest Marketing Failure to Understand and Track Your Local Basis Lack of an Exit Strategy Holding Grain in Storage Too Long Misunderstanding Carrying Charges Develop a Marketing Plan Avoid the Five Common Mistakes in Grain Marketing?!?!

  9. Corn Futures Carry Dec. 2009 $4.52 Dec. 31 , 2008 Good carry through July: rewards on-farm storage Source: www.cbot.com December 2008.

  10. Corn Storage Costs .85 .66 .47 .54 .28 .43 .31 .20 Assumption: Corn is Valued at $4/bu - Financed @ 7% APR Source: Johnson, ISU Ext. Economics, December 2008.

  11. Corn Basis

  12. Soybean Futures Carry Nov. 2009 $10.07 Dec. 11th, 2008 Lack of carry, difficult to justify storage long-term Source: www.cbot.com December 2008.

  13. Soybean Storage Costs .93 .65 .38 .66 .47 .29 .10 Assumption: Soybeans are Valued at $9/bu - Financed @ 7% APR Source: Johnson, ISU Ext. Economics, December 2008.

  14. Soybean Basis

  15. New Crop Corn Seasonal Trend 79% Odds: Spring Price Exceeds Harvest Price Source: CBOT data compiled by the U of MN, CFFM, 2008.

  16. Corn Cash Price & Probability Forecast ’09-’10 Marketing Year $3.80/bu 65% $3.65/bu 17% $4.65/bu 18% Source: Wisner, ISU Biofuels Economist, December 2008.

  17. December 2009 Corn Futures

  18. New Crop Soybeans Seasonal Trend 68% Odds: Spring Price Exceeds Harvest Price Source: CBOT data compiled by the U of MN, CFFM, 2008.

  19. Soybean Cash Price & Probability Forecast ’09-’10 Marketing Year $7.75/bu 65% $7.45/bu 17% $8.45/bu 18% Source: Wisner, ISU Biofuels Economist, December 2008.

  20. November 2009 Soybean Futures

  21. Tools for Evaluation Crop Rotation Calculator http://www.extension.iastate.edu/agdm/crops/xls/a1-20croprotation.xls Crop Rotation Calculator http://www.extension.iastate.edu/agdm/crops/xls/a1-80rotationprofitabilitycalculator.xls Crop Rotation N Calculator http://www.extension.iastate.edu/agdm/crops/xls/a1-80nratecalculator.xls Machinery Economics http://www.farmdoc.uiuc.edu/pubs/FASTtool.asp?section=FAST Flexible Rent Calculator http://www.extension.iastate.edu/agdm/wholefarm/xls/c2-21flexiblerentanalysis.xls

  22. Crop Rotation Calculator http://www.extension.iastate.edu/agdm/crops/xls/a1-80rotationprofitabilitycalculator.xls

  23. Crop Rotation Calculator http://www.extension.iastate.edu/agdm/crops/xls/a1-80nratecalculator.xls

  24. Decision #1 • What should the crop rotation be? • What are the choices? • Are there alternative or specialty crops that are more profitable and that would fit into a rotation?

  25. http://extension.agron.iastate.edu/soilfertility/nrate.aspx

  26. Corn after SB $4.00 price $.75 N 104 pounds

  27. Corn on Corn $4.50 price $.75 N 157 pounds

  28. Decision #2 • What should the fertility program look like? • Can fertility costs be lowered without affecting yields? (over 1/3 of non-land production cost is from fertility).

  29. Machinery costs Fixed costs Variable costs Depreciation Interest Storage Insurance Repairs Labor Fuel

  30. Machinery Economics Field Operations http://www.farmdoc.uiuc.edu/pubs/FASTtool.asp?section=FAST

  31. Managing Machinery Costs Combine Operations

  32. Decision #3 • Does the machinery “fit” the operation ? (not too big or too little) • Do the custom rate charges reflect the costs of the machinery? • Are there some machinery costs that can be re-evaluated (field operations)?

  33. Tenants’ Residual Computing a Cropland Cash Rental Rate http://www.extension.iastate.edu/agdm/wholefarm/xls/c2-20croplandcashrent.xls

  34. Flexible Cash Rent Leases

  35. Decision #4 • Does the lease terms provide for some profitability? • Can I re-negotiate the lease or move it toward a flexible terms lease?

  36. Crop Insurance http://www.farmdoc.uiuc.edu/cropins/index.asp

  37. Decision #5 • Determine the right insurance product to meet your risk management needs. • Make sure you have enough insurance, but are not “over-insured”. • Look at what the insurance product does compared to the farm marketing plan. • Evaluate the new farm bill and how ACRE may affect crop insurance needs.

  38. Conclusions • Input prices have risen dramatically and will show increased volatility. • Some signs world prices have softened but not likely to be seen until current high priced stocks are used. • Take soil tests and only use what is necessary. • Evaluate seed and seeding rates carefully.

  39. Conclusions • Try for flexible lease arrangements. • Consider all the pest management options available. • Don’t simply cut back without carefully evaluating the consequences; you have to spend money to make money. • Consider all the risk management options available.

  40. Conclusions • Know your costs of production. • Make cuts and changes where they will do you the most good. • Follow a good marketing plan.

  41. Risk Management Web Sites Ag Decision Maker – ISU Extension Economics www.extension.iastate.edu/agdm Farm Doc – U of IL Extension Economics www.farmdoc.uiuc.edu Center for Farm Financial Management – U of MN www.cffm.umn.edu Corn Nitrogen Rate Calculator Calculator http://extension.agron.iastate.edu/soilfertility/nrate.aspx

  42. ISU Crop Marketing Web Sites Grain and Oilseed Market Analysis http://www.econ.iastate.edu/outreach/agriculture/periodicals/ifo/ Corn and Soybean Basis (State and County) www.card.iastate.edu/ag_risk_tools Ag Econ Periodicals, Publications and Programs www.econ.iastate.edu/outreach/agriculture/ Ag Decision Maker (Crop Updates/ Publications Decision Tools) http://www.extension.iastate.edu/agdm

  43. Questions….. Any questions or comments? Thank You for This Opportunity! NOTE: This presentation can be found at http://www.extension.iastate.edu/agdm/fieldstaff/ cchase.html Craig A. Chase Farm Management Field Specialist 720 7th Avenue SW Tripoli, IA 50676 (319) 882-4275 cchase@iastate.edu

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