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.

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.

Ag Decision Maker (AgDM) 

An agricultural economics and business website.

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.

Ag Decision Maker (AgDM) 

An agricultural economics and business website.

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.

 Ag Decision Maker (AgDM) 

An agricultural economics and business website.

Ag Decision Maker text image

Archives