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Soybean Outlook and the New Farm Bill Programs

Soybean Outlook and the New Farm Bill Programs. Iowa Soybean Association Annual Meetings Ames, Iowa December 19, 2008 Chad Hart Assistant Professor/Grain Markets Specialist chart@iastate.edu 515-294-9911. U.S. Soybean Supply and Use. -30. +30. $9.85. -0.85. $9.00.

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Soybean Outlook and the New Farm Bill Programs

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  1. Soybean Outlook and the New Farm Bill Programs Iowa Soybean Association Annual Meetings Ames, Iowa December 19, 2008 Chad Hart Assistant Professor/Grain Markets Specialist chart@iastate.edu 515-294-9911

  2. U.S. Soybean Supply and Use -30 +30 $9.85 -0.85 $9.00 Source: USDA-WAOB, Dec. 2008

  3. World Soybean Production Source: USDA-WAOB, Dec. 2008

  4. Biodiesel Margins Source: ISU, CARD

  5. Renewable Fuels Standard (RFS)

  6. Outside Influences (Sept. 2008 = 1)

  7. Corn & Soybean Area Growth rate of 1.55 million acres per year

  8. Input Costs Source: USDA, Agricultural Prices, Nov. 2008

  9. Iowa Soybean Prices vs. Costs Source: USDA-NASS and Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf

  10. Rough Estimates for 2009 Iowa Soybeans November 2009 Soybean Futures = $8.96 (12/17/08)

  11. Exchange Rates (Jan. 2007 = 1) Source: OANDA.com

  12. Pace of Soybean Export Sales Source: USDA, FAS

  13. U.S. Stocks-to-Use Ratios

  14. World Stocks-to-Use Ratios

  15. Thoughts for 2008 • General economic conditions • A lot of recent market trade has been tied to reaction to the financial crisis and the world’s response • Economic slowdown raises concern about export and energy demand • Energy demand • Higher energy prices did constrain demand • Will it recover? • Most important ag. statistic: Crude oil price or Dow Jones Index • Current futures are indicating 2008 season-average prices of $3.50-4.00 for corn and $8.50-9.00 for soybeans

  16. Thoughts for 2009 and Beyond • Many of the storylines from 2008 will continue • Tight stocks for both corn and soybeans • The competition for acreage • Ethanol’s buildout & livestock’s adjustment • Energy price & general economy concerns • Market volatility will remain high • Link to the energy markets • More market players with different trading objectives • Given current factors, the 2009 outlook is for crop prices around $4.00 for corn and $8.75 for soybeans • Key factor: Economic growth returns by late 2009

  17. Average Crop Revenue Election (ACRE) ACRE is a revenue-based counter-cyclical payment program Based on state and farm-level yields per planted acre and national prices Producers choose between the current price-based counter-cyclical payment (CCP) program and ACRE There are still some details to be worked out about ACRE (stay tuned)

  18. Farmer Choice Starting in 2009, producers will be given the option of choosing ACRE or not Can choose to start ACRE in 2009, 2010, or beyond Once you’re in ACRE, you stay in ACRE until the next farm bill If you sign up for ACRE, you must do so for all eligible crops Producers choosing ACRE agree to 20% decline in direct payments and 30% decline in loan rates

  19. ACRE Set-up for Iowa Soybeans Please note the years used in the price average is under debate and may change The 2008 yield and price are the latest USDA’s 2008 estimates. So the expected state yield would be 50.3 bushels per acre and the ACRE price guarantee would be $9.55 per bushel.

  20. ACRE Structure ACRE revenue guarantee = 90% of ACRE price guarantee * Expected state yield For our example, the ACRE revenue guarantee is 90% * 50.3 bu./acre * $9.55/bu. $432.33/acre ACRE actual revenue = Max(Season-average price, Loan rate) * Actual state yield per planted acre

  21. ACRE Structure ACRE Farm revenue trigger = Expected farm yield * ACRE price guarantee + Producer-paid crop insurance premium Let’s assume farm yields equal to state yields and use the average producer-paid crop insurance premium for 2008 (so far) 50.3 bu./acre * $9.55/bu. + $17.58/acre $498.22/acre

  22. ACRE Payment Triggers ACRE actual farm revenue = Max(Season-average price, Loan rate) * Actual farm yield per planted acre Given our example, ACRE payments are triggered when ACRE actual revenue is below $432.33/acre and ACRE actual farm revenue is below $498.22/acre

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

  24. ACRE vs. CCP CCP pays out No CCP payments No ACRE payments ACRE pays out

  25. You Don’t Have to Decide Today ACRE signup will not be for a while, probably next spring at the earliest Once the ACRE rules are finalized, there will be a number of decision tools available to help producers Preliminary ACRE information and tools are available at: http://www.extension.iastate.edu/agdm/crops/html/a1-45.html http://www.card.iastate.edu/ag_risk_tools/acre/

  26. Supplemental Revenue Assistance Payments Program (SURE) Provides payments to producers in disaster counties for crop losses Based on crop insurance program, non-insured crop assistance program, and disaster declarations Whole-farm revenue protection, not commodity-specific

  27. SURE Triggers Declared “disaster county” by Secretary of Agriculture or contiguous to one Farm with losses exceeding 50% of normal production in a calendar year

  28. SURE Guarantee Farm guarantee is the sum of 115%*Crop insurance price election*Crop insurance coverage level*Planted acres* Max(APH or CCP yield), for insurable commodities 120%*NCAP price election*Planted acres* Max(NCAP or CCP yield), for non-insurable commodities For an individual crop, the guarantee can not be greater than 90% of the crop’s expected revenue

  29. SURE Expected Farm Revenues Expected farm revenue is the sum of Max(APH or CCP yield)*Planted acres*100% of the crop insurance price for insurable commodities 100% of NCAP yield*100% of NCAP price*Planted acres for non-insurable commodities

  30. SURE Actual Farm Revenues Actual farm revenue is the sum of Harvested acres*Farm yield*National season-average price for all commodities 15% of direct payments All CCP or ACRE payments All marketing loan benefits All crop insurance or NCAP payments Any other disaster assistance payments

  31. SURE Payments Payments set as 60% of the difference between farm guarantee and actual farm revenue Payments limited to $100,000 per producer Payments not known until end of marketing year

  32. SURE Calculator USDA has created a calculator for SURE http://www.fsa.usda.gov/Internet/FSA_File/sure_calculator.xls http://www.fsa.usda.gov/Internet/FSA_File/calculator_instructions.pdf Calculator limited to yield based crops Does not address value loss crop, prevented planting, double cropping, and several other scenarios

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

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