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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.

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Yield Adjustments, but Still Record Crops (10/12/16)

Chad Hart, ISU Extension Grain Marketing Economist, provides a summary of the latest USDA reports.

Hart_Chad-thumbUSDA updated its projections for the 2016 corn and soybean crops. And while the national corn yield is reduced, the national soybean yield is increased and record production is still on the books for both crops. The national corn yield is set at 173.4 bushels per acre, down a bushel from last month, but still 2.4 bushels above the previous record set in 2014. With the yield this high, a 15 billion bushel corn crop is projected to be heading in from the fields during harvest. Combined with the 1.7 billion bushel carryover, total corn supplies for the 2016/17 marketing year stand at 16.85 billion bushels. Corn usage is also projected at record levels, but demand has not been able and is not projected to keep up with the supply surge. Corn export projections are raised 50 million bushels, bringing total usage up to a record 14.5 billion bushels. The end result is an ending stock level roughly 600 million bushels higher than we had for the 2015/16 marketing year, but slightly lower than last month’s estimate. That slight tightening of ending stocks gave USDA a little room to raise their projected price range by 5 cents per bushel, with the midpoint now at $3.25 per bushel.

The national soybean yield is projected at 51.4 bushels per acre, up 0.8 bushels from last month and well above the previous record. With production approaching 4.3 billion bushels, the soybean market has never had more beans to work with. So again, it’s a story of record supplies and demand, but demand growth lags behind supply growth. Soybean export projections are raised 40 million bushels, bringing total usage to 4.1 billion bushels. But ending stocks are projected to double and price projections are held steady, with the midpoint of the season-average farm price range set at $9.05 per bushel.

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Stocks Inline with Expectations (9/30/16)

Chad Hart, ISU Extension Grain Marketing Economist, provides a summary of the latest USDA reports.

Hart_Chad-thumbStock levels for corn and soybeans were up in the most recent USDA report, but the trade expected that as we move into the next marketing year. Corn ending stocks were estimated at 1.74 billion bushels, up just 6 million bushels from last year. While total corn stocks are about the same, farmers are holding more back on the farm than they did last year. Strong demand from the ethanol and export sectors boosted June-August corn disappearance by 9 percent. For soybeans, we entered the 2016/17 marketing year with 197 million bushels in storage. That’s 3 percent above last year’s level. And reversing the pattern for corn, less soybeans are being held by farmers on the farm. Summer crush and export demand were firm as well, with June-August soybean disappearance increasing by 55 percent. So the stocks report confirmed strong demand for corn and soybeans, but stocks still grew year-over-year.

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Flood damaged crops, crop insurance payments, and lease contracts

William Edwards, retired extension economist, on issues from flooding regarding crop insurance, rented acres and looking ahead to 2017.

edwardswm_finalSome Iowa corn and soybean producers are facing substantial if not complete crop losses due to flooding. Fortunately, nearly 90 percent of Iowa’s corn and soybean acres are protected by Multiple Peril Crop Insurance (MPCI).

Crop insurance

Most Iowa producers purchase crop insurance policies with a 75 to 85 percent level of coverage. This means that if crops are a total loss, the producer must withstand the first 15 to 25 percent of the loss. However, in 2016 nearly 90 percent of the crop acres insured in Iowa were covered under Revenue Protection policies, which offer an increasing guarantee if prices increase between February and October. So far, this has added about $.80 per bushel to soybean guarantees, while the current corn futures price is actually below the February average. Moreover, since Revenue Protection (RP) policies are settled at the average nearby futures price during the month of October, rather than local cash prices, farmers receive a bonus equal to the fall grain basis in their area.

Producers with crops that have been totally destroyed by flooding will not have to incur the variable costs of harvesting. This could save around $20 per acre for soybeans and perhaps $50 per acre for corn, depending on potential yields and drying costs. Nevertheless, even producers who carried insurance at a high coverage level could be looking at net revenues near or below those obtained from normal yields this year.

2016 flooded bean field

Potential losses

For example, assume an insured tract has an expected corn yield and insurance proven yield of 175 bushels per acre. A normal crop marketed at $3.00 per bushel would bring $525 per acre. The insurance indemnity payment for an 80 percent RP guarantee, zero yield, and a February futures price of $3.86 would equal 175 bu. x $3.86 x 80% = $540. Saving $50 in harvest costs would give an equivalent of $590 per acre, or $65 above the value of a normal crop.

For soybeans, assume both the expected yield and the proven yield are 60 bushels per acre, and the crop could be marketed at $9.00 per bushel. Gross income for a normal crop would be $540 per acre. The insurance payment for a complete crop failure and a $9.65 October futures price would be 60 bu. x $9.65 x 80% = $463. Savings of $20 in harvesting costs brings the equivalent of $483 per acre, or $57 below the value of a normal crop.

In many cases, of course, flooded acres will make up only a portion of the insured unit, so production from non-flooded acres will be averaged in with the zero yields from the flooded acres.

The real question is how much will it cost to clean up fields and bring them back into production next year? Most Iowa farmers have not had experience with fields being under water for extended periods of time, so effects are difficult to estimate. Problems will range from physically removing debris to leveling eroded areas to restoring fertility.

Flooded field, 2016

Rental contracts

What do these questions imply for rental contracts? A great deal of uncertainty, for one thing. Lease agreements in Iowa continue in effect for another year under the same terms if they were not terminated on or before September 1.

Landowners will have to bear the burden of mitigating flood damages – that goes with owning property. But, a better solution may be for renters and owners to work together to repair the damage and bring the land back into production. Farm operators may have access to machinery that can help accomplish the job that owners do not. In return, tenants should be compensated for their efforts, either directly, through a significant discount on the 2017 rent, or with a long-term lease.

Next year

In some cases there may be doubt as to whether land flooded this year can even be planted next year. Risk Management Agency rules state that land must be physically available for planting to be insurable. Land that cannot be planted due to weather events that occurred before the sales closing date (March 15 in Iowa) is not eligible for prevented planting payments. When operators report their 2016 production, they can request that their 2016 yield histories reflect a value equal to 60 percent of the county “T-yield” rather than a zero or very low yield.

Close communication and cooperation between owners, crop insurance agents and renters can be a “win-win” strategy in the long run, but recovery may take several years.

Additional information about managing flood damaged cropland will be available from Iowa State University Extension and Outreach as the waters recede and the situation is assessed. Keep in mind, dealing with issues from flooding can be stressful. Reach out to resources such as the Iowa Concern Hotline, with trained staff who are available to listen.

Iowa Concern –All calls, chats, and emails are free and confidential. Language interpretation available.

  • 24/7 Phone Support – Trained staff take your calls via a toll-free hotline at 1-800-447-1985.
  • Live Chat Services – Live chat for online, one-on-one support.
  • Email an Expert – Send your questions related to legal issues, finance, stress and crisis or disaster to our staff.

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Supply and Demand Move Higher (7/12/16)

Chad Hart, ISU Extension Grain Marketing Economist, provides a summary of the latest USDA reports.

Hart_Chad-thumbThe July updates from USDA pushed both crop supplies and demands higher. But in the longer run, stock levels are projected to be higher, with steady to lower prices. On the supply side, the revised acreage and stock numbers from last month were fully incorporated into the projections. Corn production was increased by 110 million bushels, while soybean production rose by 80 million.

On the demand side, there were several offsetting moves. For corn in both old and new crop settings, feed and ethanol usage were lowered, while food and export usage rose. For soybeans, export demand was increased for both old and new crop. Crush demand was lifted slightly for the new crop, but seed and other uses were lowered for the old crop. Putting all of the shifts together results in slightly lower old crop ending stocks, but higher new crop (2016/17) stocks.

Season-average prices were held steady for soybeans, at $9.05 for the 2015/16 crop and $9.50 for the 2016/17 crop. Corn season-average prices were reduced by 5 cents on the 2015/16 crop to $3.65 per bushel and by 10 cents on the 2016/17 crop to $3.40 per bushel.

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Positive Demand News from USDA (6/10/16)

Chad Hart, ISU Extension Grain Marketing Economist, provides a summary of the latest USDA reports.

Hart_Chad-thumbUSDA’s June updates contained good news on the demand front for corn and soybeans. International demand continues to strengthen, while domestic usage holds steady. With no major changes on the supply side, this implies lower ending stocks and projections of higher prices. Starting with corn, the losses and delays in the South American harvest have opened up some off-season selling opportunities for the U.S. Old crop (2015/16) exports were raised 100 million bushels as a result. Although corn imports were increased slightly, the overall impact for old crop corn is a 95 million drop in ending stocks and a 10 cent increase in the season-average price to $3.70 per bushel. That drop in ending stocks, combined with another increase in new crop (2016/17) exports of 50 million bushels, lowered new crop ending stocks by 145 million bushels. The changes added 15 cents to the new crop corn season-average price estimate, raising it to $3.50 per bushel.

For soybeans, both old crop domestic and international demand were on the upswing. Crush added 10 million bushels, while exports grew by 20 million bushels. With the 30 million bushel drop in old crop ending stocks, USDA raised its 2015/16 season-average price by 20 cents to $9.05 per bushel. As with corn, the export demand increase extended into the new crop as well, adding another 15 million bushels. That pushed new crop ending stocks below 300 million bushels and lifted the 2016/17 season-average price estimate by 40 cents, to $9.50 per bushel.

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April Demand Update (4/12/16)

Chad Hart, ISU Extension Grain Marketing Economist, provides a summary of the latest USDA reports.

Hart_Chad-thumbThe World Ag Supply and Demand Estimates update for April contained some modest changes for the crop balance sheets. For U.S. soybeans, the only changes were a 15 million bushel bump in export demand and a slight decline in seed demand, based on last month’s Prospective Plantings report. Projected soybean ending stocks were lowered to 445 million bushels, but the midpoint of the 2015/16 season-average price range remains steady at $8.75 per bushel. For U.S. corn, the adjustments were mixed. Feed demand was reduced 50 million bushels, based on the quarterly disappearance pattern from the Grain Stocks report. Corn usage for ethanol was increased 25 million bushels as ethanol production has held near record levels over the 1st three months of the calendar year. Thus, corn ending stocks were raised 25 million bushels and the midpoint of the 2015/16 season-average price range fell 5 cents to $3.55 per bushel.

World corn production for 2015/16 was increased by 3 million metric tons, with 1 million of that going to increased imports for Mexico and Southeast Asia and 2 million projected to be held in stock. China’s feed usage of corn is projected to rise by 2 million metric tons, but that increase is expected to be met by drawing down existing internal stocks. World soybean production for 2015/16 was lowered slightly as declines in Chinese and Indian production offset an increase from Argentina. Global soybean trade was raised, based on stronger exports to China, Japan, and Mexico.

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Plans for a Whole Lot of Corn (3/31/16)

Chad Hart, ISU Extension Grain Marketing Economist, provides a summary of the latest USDA reports.

Hart_Chad-thumbThe end of March is an active time for the crop markets and USDA. It’s when we get our first look at the 2016 crop year from the producers’ perspective with the release of USDA’s Prospective Plantings report. We also receive an update on demand via USDA’s Grain Stocks report. And as we typically see, these reports contained a few surprises to mull over as planting approaches, mainly for new crop prospects. Starting with the stocks/demand picture, the trade estimates going into the stocks report were fairly close to the USDA numbers. As of March 1, 7.81 billion bushels of corn were being held in storage. That’s 1% higher than last year at this time. Quarterly corn disappearance for the December-February time frame was 3.43 billion bushels, slightly lower than last year. Overall corn demand and usage has been relatively stable. Soybean stocks came in at 1.5 billion bushels, up 15% from last year. That is the highest soybean stock number for March since the 2006/07 crop. Quarterly soybean disappearance for the December-February time frame was 1.18 billion bushels, 1% lower than last year.  So the build-up of soybean stocks has more to do with supply than demand. In total, old crop usage turned up to be in-line with expectations.

That’s not the case with plantings and the potential for new crop production. The biggest discrepancies between trade expectations and the planting report were for corn and wheat. Projected corn plantings came in at 93.6 million acres. The trade expectation was roughly 90 million. So prospective corn plantings are 3.6 million above expectations and 5.6 million above last year. Meanwhile, projected wheat area dropped to 49.6 million acres, roughly 2 million below expectations and 5 million below last year. Soybean planted area was also down to 82.2 million acres, which was 800,000 less than expectations and 450,000 below last year. Looking at specific state projections, the boost in corn area is coming mostly from the Great Plains and Corn Belt. The largest moves are in Kansas and North Dakota, adding 650,000 acres each, as traditional wheat area heads to corn production. Illinois and Iowa are adding 400,000 corn acres each this year. Out of the 48 states listed in the corn table, only 7 are projected to have fewer corn acres than last year, with the largest reduction being 20,000 acres. The soybean planting story hinges mainly on Missouri. Missouri farmers indicated they would plant nearly one million more acres of soybeans this year, following the planting issues they had last year. Illinois and North Dakota are projected to gain significant soybean area as well.  However, many states (including Iowa) are projected to lower soybean plantings. Iowa and 9 other states are set to reduce soybean plantings by at least 100,000 acres each. Hence, despite the strong surge in area from Missouri, the national soybean planting area is projected to decline.

Given trend yields of 168 bushels per acre for corn and 46.7 bushels per acre for soybeans, the projected acreage points to another round of massive crops. Corn production would reach 14.38 billion bushels, which would be another record corn crop. Soybean production would approach 3.8 billion bushels, which would be the 3rd largest soybean crop in history. And for markets already dealing with large supplies, these prospective plantings do not help. So the markets will be looking for Mother Nature to slow the supply train down.

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Shrinking Numbers (1/12/16)

Chad Hart, ISU Extension Grain Marketing Economist, provides a summary of the latest USDA reports.

Hart_Chad-thumbThe January USDA reports provide the final production estimates for last year’s crops and an update on current and projected crop usage. With today’s reports, USDA found a number of areas to shrink. Starting with corn, final planting area was established at 88 million acres, down 400,000 from previous estimates. The national corn yield estimate was reduced by nearly a bushel to 168.4 bushels per harvested acre. That combination reduced national corn production by 53 million bushels to 13.6 billion bushels. So last year’s corn crop is still the 3rd largest on record, but it is a little smaller than first measured. Corn demand was also reduced in the export and food, seed, and other industrial uses categories. Overall, demand was lowered by 60 million bushels, while supplies only slipped by 43 million. So corn ending stocks for the 2015/16 marketing year were raised by 17 million bushels to 1.8 billion. And the midpoint of the season-average price range was dropped to $3.60 per bushel, down 5 cents from the previous estimate.

For soybeans, in general is the same. Planted area was reduced by 500,000 acres to 82.7 million acres. The national soybean yield was set at 48 bushels per acre, down 0.3 bushels. Total soybean supplies fell 51 million bushels to 4.15 billion. Soybean exports were lowered 25 million bushels, while seed and residual use dropped 2 million. However, unlike corn, the drop in supplies exceeded the drop in demand. So soybean ending stocks for 2015/16 were lowered to 440 million. But USDA moved the midpoint of their season-average price range lowered to more closely match recent futures prices, with the current midpoint at $8.80 per bushel, down 10 cents.

Thinking forward to the 2016 planting season, one of the bigger items in today’s report was the winter wheat acreage. Cropland sown to winter wheat is not generally available for corn and soybean production (unless winterkill hits hard or the area has potential for double cropping). This fall’s wheat planting came in at 36.6 million acres, down 2.85 million from the previous year. So there will be more available for corn and soybean production this spring, especially in the Plains states.

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