February 2017 updates from Ag Decision Maker

Ag Decision Maker

Business Solutions for Farms and Agribusiness from Iowa State University Extension and Outreach

February Newsletter (pdf)

New and Updated Files


Iowa Farm Outlook

Outlook Information for Crops and Livestock

Livestock — Livestock Market Adjustments and Opportunities
Crops — A Little Brighter Outlook, For Now


AgMRC Renewable Energy  Report

Ag Marketing Resource Center

Choices

A publication of Agricultural & Applied Economics Association AAEA

Ag Decision Maker (AgDM)

An agricultural economics and business website.

Videos provide financial tips, explain mediation

Chad Hart, ISU Extension Grain Marketing Economist, highlights new Iowa State University Extension and Outreach videos for today’s current farm financial situation.

With commodity prices low and projected to stay that way over the next couple years, farmers have begun to feel the pinch in their pocketbooks. This has made managing the finances of the farm that much more important. With this in mind, Iowa State University Extension and Outreach has released two videos that deal with the current farm financial situation and what can be done to alleviate financial pressure.

I host the first video, titled Tips for Managing Margins. It offers ideas for how to weather the next few years of low crop prices like protecting capital, reviewing production costs and renegotiating loans.

The second video, called Understanding Farm Mediation, was created in partnership with Iowa Mediation Service and is about the process of mediation. Mediation is an option available to farmers as they work with their creditors to find a mutually beneficial solution to a delinquent secured agricultural debt of $20,000 or more.

This short video provides tips to help farmers better understand what mediation is and when it may be necessary. It describes the process and provides a step-by-step guide on how to prepare for mediation.

While mediation is available should it be needed, ISU Extension and Outreach also provides these financial resources to help farmers create a financial plan for their operation:

  • The Iowa Concern Hotline provides free legal information to both rural and urban Iowans. Services are available 24 hours a day, 7 days a week by calling 1-800-447-1985.
  • The Center for Agricultural Law and Taxation provides information about the application of developments in agricultural law and taxation.
  • Farm Financial Associates are available to provide a no-cost look at a farm’s complete financial situation.
  • The Beginning Farmer Center helps inform and support those who are getting started in farming. It also works with established farmers on succession planning for when they leave the industry.

January 2017 updates from Ag Decision Maker

Ag Decision Maker

Business Solutions for Farms and Agribusiness from Iowa State University Extension and Outreach

January Newsletter (pdf)

New and Updated Files


Iowa Farm Outlook

Outlook Information for Crops and Livestock

January Newsletter

Livestock — Pork industry shaping itself for the future
Crops — Crop Usage Has Never Been Better


AgMRC Renewable Energy  Report

Ag Marketing Resource Center

Choices

A publication of Agricultural & Applied Economics Association AAEA

Ag Decision Maker (AgDM)

An agricultural economics and business website.

December 2016 updates from Ag Decision Maker

Ag Decision Maker

Business Solutions for Farms and Agribusiness from Iowa State University Extension and Outreach

December Newsletter (pdf)

New and Updated Files


Iowa Farm Outlook

Outlook Information for Crops and Livestock

December Newsletter

Livestock — Glean More Information from Cattle Market Reports
Crops — A Projected Change in the Balance


AgMRC Renewable Energy  Report

Ag Marketing Resource Center

Choices

A publication of Agricultural & Applied Economics Association AAEA

Ag Decision Maker (AgDM)

An agricultural economics and business website.

Consider Use of a Basis Contract to Market Corn

Steven D. Johnson, Ph.D., Farm Management Specialist, Iowa State University Extension and Outreach, shared marketing tools and tips for the 2016 crop.

Johnson_Steve_smKeep an eye on your local basis to see if you should continue to store or price some of your corn. Farmers who have unpriced corn might consider using a basis contract to market at least a portion of those bushels. An attractive basis in late December and the need for cash will be the main drivers for farmers to move some of those stored bushels. Most of the cash price movement in late fall and early winter months typically comes from better basis being offered as farmers slow grain movement. In addition, two 3-day weekends in late December increase the odds of potential “quick ship” bids to meet processor demands for additional bushels.

Seasonal futures price trends indicate corn futures prices don’t typically rally in the fall and winter months. That’s because most everything is known about the Northern Hemisphere feed grain crops by then, and that’s where nearly 85% of the world production takes place. However, most farmers will be reluctant to give up ownership of bushels at sub-$3.50 per bushel cash corn prices.

Farmers need to pay attention to the costs of ownership

Chart of storage costs, on farm vs. commerical

Cost of 2016 Corn Ownership

Compare the cost of storing corn at a commercial elevator to your own on-farm storage costs. The ISU Extension and Outreach Iowa Commodity Challenge website can show you how. It uses the following 2016 crop assumptions: cash corn is valued at $3.11 per bushel at a central Iowa elevator when about 50% of the Iowa harvest was complete. Interest is accruing on stored grain at a rate of 5% or 1.75% if the USDA marketing loan is used. On-farm storage is 1 cent per bushel per month while commercial storage is 16 cents for the first 90 days and 2.8 cents per bushel for each month thereafter. Note the cash prices (dotted line) are below the typical cost of corn ownership as of late November.

Cost of 2016 Corn Ownership

Once you store corn, imagine how much cash prices will need to improve each month to justify storage. Commercial storage could easily be 3 to 4 times more expensive per bushel than on-farm storage costs. The cash price received for commercially stored bushels will also reflect the basis offered at that commercial storage facility. If history is any indication, the likelihood of selling those cash corn bushels above the cost of storage probably means a significant futures price rally is needed (more likely in the spring months)and improvement in the basis.

How does a basis contract actually work?

Most grain merchandisers offer a marketing tool called a basis contract. A farmer delivers cash corn and eliminates storage costs and basis risks. The merchandiser buys a corn futures contract (goes long) in a deferred month on behalf of the farmer. The merchandiser will likely charge a small service fee of 1 to 2 cents per bushel subtracted when the basis contract is settled, likely in the spring.

Upon delivery of the cash bushels, a farmer can collect 70% to 80% of the corn’s value. The merchandiser holds the remaining 20% to 30% balance of the cash value to make potential margin calls should futures prices decline. Any excess funds minus the 1- to 2-cent service fee are returned to the farmer upon settling the basis contract.

Eliminating storage costs and basis risk

The farmer needs to convey to the merchandiser a date and price at which the farmer wishes to have this long futures position lifted. Consider being “long” the May 2017 or July 2017 corn futures contracts when using a basis contract to increase the chance of benefiting from a spring futures price rally.

Discuss risks and rewards with your merchandiser when you’re initiating cash sales and basis contracts. Be sure you understand the risk of being “long” futures and the flow of cash funds involved in the transaction. The farmer isn’t able to take advantage of the carry offered in the futures markets with a basis contract. However, there are several advantages a basis contract provides. Those include providing cash to help pay expenses and meet your farm operation’s cash flow needs, elimination of storage costs and basis risk, and minimizing the concern for on-farm stored corn quality.

Take the Iowa Commodity Challenge and learn new marketing skills

The website featuring the Iowa Commodity Challenge has related crop marketing information including 14 videos and a 65-page Marketing Tools Workbook.

Ag Decision Maker (AgDM) 

An agricultural economics and business website.

 

Results of 2016 Iowa State University Land Value Survey to be released on December 13, 2016

Wendong Zhang, 2015

Photo credit: ISU Center for Agricultural and Rural Development

A news conference will be held at 10:30 a.m. on Tuesday, December 13 to announce the results of the 2016 Iowa Land Value Survey conducted by the Center for Agricultural and Rural Development (CARD) at Iowa State University and Iowa State University Extension and Outreach. This year’s conference will take place in the Horton Room of the ISU Alumni Center, located on the ISU campus in Ames.

For those who can’t attend the conference, a livestream will be available on YouTube. Submit questions to the Twitter account, @CARD_ISU, using the hashtag #ISUlandvalue. Questions will be addressed following Dr. Wendong Zhang’s presentation.

 

Ag Decision Maker (AgDM)

An agricultural economics and business website.

November 2016 updates from AgDM

Ag Decision Maker

Business Solutions for Farms and Agribusiness from Iowa State University Extension and Outreach

November Newsletter (pdf)

New and Updated Files


Iowa Farm Outlook

Outlook Information for Crops and Livestock

November Newsletter

Livestock — Pasture and Range Conditions and Prices: A Year in Review
Crops — Strong Demand and Few Extra Bushels Help


AgMRC Renewable Energy  Report

Ag Marketing Resource Center

CARD – Agricultural Policy Review

Center for Agricultural and Rural Development

Choices

A publication of Agricultural & Applied Economics Association AAEA

Ag Decision Maker (AgDM)

An agricultural economics and business website.

Iowa Commodity Challenge Helps Improve Crop Marketing Skills

Steve Johnson, ISU extension field specialist, shares details on the Iowa Commodity Challenge, a program developed with Chad Hart, ISU extension economist and Ed Kordick, Iowa Farm Bureau, offers simulation using real world prices to help explore various marketing strategies.

Steve Johnson, ISU ExtensionThe Iowa Commodity Challenge is an educational series developed by Iowa State University Extension and Outreach and the Iowa Farm Bureau that reflects real world crop markets so users can explore how various tools work – without putting their actual money on the table.

The materials, hosted on the Ag Decision Maker website, include 14 instructional videos explaining various aspects of marketing. Three new videos – Successful Market Planning, Using Crop Contracts and Working with Your Grain Merchandiser – have been recently added.

Also included is an updated 65-page Marketing Tools Workbook and a variety of learning activities. The workbook provides the basics on marketing tools as well as setting personal marketing goals and resources participants can use on their own farm operation.

Participants can choose to participate in an online grain market simulation game to help improve marketing skills. The game includes using futures and ag options as marketing tools, and participation can also help users improve strategies to sell cash corn and soybeans.

Iowa Commodity Challenge partners“It gives players a chance to look at commodity markets and how they work over the course of several months,” said Steve Johnson, farm management specialist with ISU Extension and Outreach. “The simulation reflects what is going on in the real world markets so participants are able to try out marketing strategies in a setting where they can explore how these various marketing tools work without risk.”

As a part of the online grain market simulation game; participants are given 75,000 bushels of corn and 25,000 bushels of soybeans stored commercially to market before spring using March 2017 corn and soybean futures. Storage costs will accrue on bushels as if they were in the bin (six cents per bushel per month).

Crop marketing is difficult and the stakes are high. Participating in the Iowa Commodity Challenge will provide greater understanding of marketing tools available and aid in making decisions in the noisy world of crop marketing.

Ag Decision Maker (AgDM) 

An agricultural economics and business website.

Farm Bill Safety Net Payments Provide Producers Small Cushion

ajsmplastina_alejandro_2014Alejandro Plastina, ISU Extension Economist, and Ann Johanns, Extension Program Specialist, provide an explanation of the data used in calculating 2015 ARC-CO payments in Iowa.

Final data on 2015 county level yields was recently released by the USDA Farm Service Agency. This is the final information needed for calculating payment rates under the Agriculture Risk Coverage-County (ARC-CO) program.

The Marketing Year Average (MYA) prices for the marketing year starting Sept. 1, 2015 and ending Aug. 31, 2016 were $3.61 for corn and $8.95 for soybeans. The payments released by the USDA Farm Service Agency starting in October 2016 are for crop acres enrolled during the 2015 crop year.

Payments under the 2014 Farm Bill are tied to the base acres on a farm and are not influenced by the crop grown in the payment year.

ARC-CO Payments

2015 ARC-CO payments on corn base acres (payments rounded to nearest dollar)

2015 ARC-CO payments on corn base acres (payments rounded to nearest dollar)

ARC-CO payments by base acre for corn and soybeans are shown in Figures 1 and 2. Under the ARC-CO program, producers receive payment on 85 percent of their base acres. This 15 percent reduction is factored into the values seen in the related figures. Furthermore, a 6.8 percent deduction is applied due to the federal government’s sequestration of the budget. Seven counties (Appanoose, Decatur, Henry, Lucas, Marion, Monroe and Washington), all located in the south central and southeast portion of the state, will not see a payment for corn or soybean acres.

Eight counties (Clarke, Jefferson, Keokuk, Pottawattamie, Ringgold, Van Buren, Warren and Wayne) will receive a payment on soybean acres and not on corn. Another 26 counties will receive a corn payment and no soybean payment (Adair, Bremer, Buena Vista, Calhoun, Carroll, Cerro Gordo, Clay, Davis, Dickinson, Emmet, Floyd, Franklin, Guthrie, Hancock, Howard, Humboldt, Kossuth, Madison, Mitchell, Monona, Palo Alto, Pocahontas, Sac, Winnebago, Worth and Wright). Base acres enrolled in ARC-CO in the remaining fifty-eight counties will receive a payment at some level for both crops.

soybeanpayments2016

2015 ARC-CO payments on soybean base acres (payments rounded to nearest dollar)

PLC Payments

With the 2014 Farm Bill, Iowa producers had two options to choose from, ARC-CO or Price Loss Coverage (PLC). The PLC program provided a safety net for producers should the MYA prices be below the set reference prices of $3.70 for corn and $8.40 for soybeans. No payments were seen in Iowa under the PLC program for 2014, but a small payment will be received for corn base acres enrolled in PLC for 2015. The payment per bushel will be $0.07 (after 6.8 percent sequestration) and based on yield information at the farm level. Producers were given the option to update their yield information with FSA during program sign-up.

Statewide Payments

The average ARC-CO payment per base acre on corn was $33.51 and $15.68 for soybean acres in Iowa. With over 22 million base acres in the state enrolled in ARC-CO or PLC, estimated payments for Iowa producers under ARC-CO for the 2015 marketing year is approximately $646 million with another $3.8 million going towards corn base acres enrolled in PLC.

More information on the 2014 Farm Bill, including decision tools to see detailed calculations of payments by county, are available through the Ag Decision Maker website. Maps of payments can be found through the Center for Agricultural and Rural Development Farm Bill mapping tool. Projections for 2016/17 payments are updated regularly as information is released by USDA FSA.