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Maintaining Profitability January 2008

Maintaining Profitability January 2008. Craig A. Chase Farm Management Field Specialist. Presentation Objectives. Net Farm Income Forecast Cost of Production Margins Sizing up the Market Strategies for Managing Margins . Net Farm Income. * Forecast .

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Maintaining Profitability January 2008

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  1. Maintaining ProfitabilityJanuary 2008 Craig A. Chase Farm Management Field Specialist

  2. Presentation Objectives • Net Farm Income Forecast • Cost of Production • Margins • Sizing up the Market • Strategies for Managing Margins

  3. Net Farm Income * Forecast Source: USDA Economic Research Service, Sept. 2007.

  4. Costs of Production • Seed • Fertilizer • Chemicals • Insurance • Machinery • Labor • Grain handling and storage • Land

  5. Direct Cost of Crop Production ($/A)Historical vs. 2008 Estimate Source: U of IL Extension Economics, October 2007.

  6. Non-Land Costs vs. Gross Revenue ($/A)Historical vs. 2008 Estimates $308.00 $200.00 $235.00 $154.00 Source: U of IL Extension Economics, October 2007.

  7. 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

  8. Crop Rotation Calculator

  9. http://www.extension.iastate.edu/agdm/crops/xls/a1-80rotationprofitabilitycalculator.xlshttp://www.extension.iastate.edu/agdm/crops/xls/a1-80rotationprofitabilitycalculator.xls

  10. http://www.extension.iastate.edu/agdm/crops/xls/a1-80nratecalculator.xlshttp://www.extension.iastate.edu/agdm/crops/xls/a1-80nratecalculator.xls

  11. Corn after SB $3.00 price $.32 N 122 pounds

  12. Corn on Corn $4.00 price $.40 N 178 pounds

  13. Corn Nitrogen Rate Calculator Corn on Corn $4.00 price $.70 N 152 pounds Source: http://extension.agron.iastate.edu/soilfertility/nrate.aspx

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

  15. Managing Machinery Costs Combine Operations

  16. Cash Rent as % of Gross RevenueIowa Average Yield x December Cash Price 45% 35% Source: ISU Extension Economics, 2007.

  17. Share of Gross RevenueExample--Corn Cash rent is equal to 35% of Gross Income from Corn Actual yield is 200 bu. of Corn Harvest market price is $4.00/bu Gross Income is (200 x $4.00) = $800/A Cash Rent is 35% x $800, or $280/A

  18. Share of Gross RevenueExample-Soybeans Cash rent is equal to 45% of Gross Income from Soybeans Actual yield is 50 bu. of Soybeans Harvest market price is $10.00/bu. Gross Income is (50 x $10.00) = $500/A Cash Rent is 45% x $500, or $225/A

  19. Flexible Cash Rent Leases http://www.extension.iastate.edu/agdm/wholefarm/xls/c2-21flexiblerentanalysis.xls

  20. Flexible Cash Rent Leases http://www.extension.iastate.edu/agdm/wholefarm/xls/c2-21flexiblerentanalysis.xls

  21. Sizing Up the Market

  22. U.S. Planted Acreage Trend & Outlook ◊ - Estimated * - Forecast Source: USDA National Ag Statistics Service & ISU Extension Economics, October 2007.

  23. Develop a Marketing Plan Avoid the Five Common Mistakes in Grain Marketing?!?! • 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

  24. Decision Tree for Sizing Up the Market Source: U of MN, CFFM, 2007.

  25. Understand Seasonal Price Trends Source: U of MN, CFFM, 2007. Fact: Since 1990, the May cash corn price has exceeded October in 14 of 17 years (82%).

  26. Seasonal Corn Futures Trend CBOTdata Source: U of MN, CFFM, 2007.

  27. Understand Seasonal Price Trends Source: U of MN, CFFM, 2007. Fact: Since 1990, the May cash soybean price has exceeded October in 12 of 17 years (71%).

  28. Seasonal Soybean Futures Trend CBOTdata Source: U of MN, CFFM, 2007.

  29. Corn & Soybean Basis Variability

  30. http://www.card.iastate.edu/ag_risk_tools/basis_maps/INDEX.ASPXhttp://www.card.iastate.edu/ag_risk_tools/basis_maps/INDEX.ASPX

  31. Storage Costs for Corn

  32. Corn Carry Strategies Dec. $5.10 Jan 25, 2008 Source: CBOT & ISU Extension Economics, 2008.

  33. Storage Costs for Soybeans

  34. Soybean Carry Strategies Nov. $12.32 Jan 25, 2008 Source: CBOT & ISU Extension Economics, 2008.

  35. Strategies for Maintaining Profitability Plan Pre-Harvest Crop Sales Utilize Crop Revenue Insurance Develop Efficient Grain Management & Storage Focus on Gross Crop Revenue and Margins Plan 2008 Crop Rotation: Tillage, Seed & Fertility

  36. ISU Crop Marketing Web Sites Grain and Oilseed Market Analysiswww.econ.iastate.edu/faculty/wisner 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) www.extension.iastate.edu/agdm Crop Marketing Newsletters/Webcasts www.extension.iastate.edu/polk/farmmanagement

  37. Questions….. Any questions or comments? Thank You for This Opportunity! Craig A. Chase Farm Management Field Specialist 720 7th Avenue SW Tripoli, IA 50676 (319) 882-4275 cchase@iastate.edu

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