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Farm Income & Management Strategies November 13 th , 2009

Farm Income & Management Strategies November 13 th , 2009. Managing 2010 Risks & Revenue. Year-end Income & Expense Decisions. Cash Flow Marketing Strategies. 2010 Cost of Production Estimates. On-Farm vs. Commercial Storage Issues. Steven D. Johnson

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Farm Income & Management Strategies November 13 th , 2009

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  1. Farm Income & Management StrategiesNovember 13th, 2009 Managing 2010 Risks & Revenue Year-end Income & Expense Decisions Cash Flow Marketing Strategies 2010 Cost of Production Estimates On-Farm vs. Commercial Storage Issues Steven D. Johnson Farm & Ag Business Management Specialist (515) 957-5790sdjohns@iastate.edu www.extension.iastate.edu/polk/farmmanagement.htm

  2. Presentation Objectives Review Net Farm Income Projections & Farm Financial Trends Highlight Year-end Cash Flow and Income Tax Strategies Provide 2009 Crop Price Estimates Review Grain Storage, Marketing & Cash Flow Decisions Provide 5 Strategies for Reducing Input Costs Highlight 2010 Cost of Production, Price Forecasts & Risk Management Tools Summarize 5 Strategies & 5 Websites for Managing Crop Risks & Revenue

  3. U.S. Net Farm Income * - Forecast Source: USDA Economic Research Service, August 2009

  4. Source: Jolly, ISU Extension Economics, September 2009

  5. Source: Jolly, ISU Extension Economics, January 2009

  6. Source: Jolly, ISU Extension Economics, January 2009

  7. 2009 Income Tax Strategies • Section 179 Expense Method Depreciation • Expense up to $250,000 in 2009 • To be reduced to $134,000 (indexed) in 2010 • Additional First-Year Depreciation • 50% of the basis for qualifying property • Utilizing Available Deductions & Exemptions • Income Tax Averaging • Elected Farm Income (EFI) averaged over prior 3 years Source: www.calt.iastate.edu

  8. Percent of Cash Crops Sold by Month Corn Sales: Fall Sales, Peak in January, level rest of year Soybeans Sales Peak in October, High in January, decreases monthly Source: USDA NASS, 1990-09, October 2009

  9. Corn Cash Price & Probability Forecast 2009-10 Marketing Year 79.3 M Acres Harvested 162.9 Bu/A Avg. Yield $3.45/bu 65% $3.75/bu 18% $3.35/bu 17% Source: Wisner, ISU Biofuels Economist, November 2009

  10. Corn Futures Carry Dec. 2010 $4.39 November 12th, 2009 Good Carry into spring/summer months – utilize on-farm storage and monitor grain quality Source: www.cmegroup.com

  11. Corn Basis Trends Source: www.farmprogress.com November 2009

  12. Corn Storage Costs .89 .69 .49 .56 .30 .44 .32 .20 Assumption: Corn is Valued at $3.50/bu - Financed @ 7% APR Source: Johnson, ISU Extension, November 2009

  13. Corn Shrink & Drying Costs Assumptions: Dry bushels are valued is $3.50/bu, 190 bu/A @ 15% moisture. Handling losses equal .25% of total wet bushels, 1.4 shrink factor,, $ .035 per point drying charge. Source: www.farmdoc.illinois.edu, Oct. 21st, 2009

  14. Soybean Cash Price & Probability Forecast 2009-10 Marketing Year 76.6 M Acres Harvested 43.3 Bu/A Avg. Yield $ 8.95/bu 65% $10.50/bu 18% $ 8.55/bu 17% Source: Wisner, ISU Biofuels Economist, November 2009

  15. Soybean Futures Chart Source: www.jimwyckoff.com, Oct. 30th, 2009

  16. Soybean Futures Carry Nov. 2010 $ 9.99 November 12th, 2009 Lack of Carry, little incentive to hold soybeans beyond winter months Source: www.cmegroup.com

  17. Soybean Basis Trends Source: www.farmprogress.com November 2009

  18. Soybean Storage Costs 1.00 .70 .69 .40 .49 .29 .10 Assumption: Soybeans are Valued at $9.50/bu - Financed @ 7% APR Source: Johnson, ISU Extension, November 2009

  19. 5 Strategies for Reducing Input Costs Plan Ahead: Cash Flow & Income Tax Decisions Focus on “Revenue per Acre” Negotiate Inputs Based on Volume Purchases Sell Commercially Stored Bushels, Monitor On-Farm Quality Book 2010 Fertilizer and Fuel Early Source: Johnson, ISU Extension, November 2009

  20. 2010 Crop Cost Estimates $667 $629 $437 180 bu/a 165 bu/a 50 bu/a Average Yield $3.49/bu $4.04/bu $8.74/bu Cost per bushel Source: Duffy, ISU Extension Economist, November 2009

  21. Corn Estimates through 2010-11 $4.20 $4.06 $3.75 $3.45 Source: Wisner, ISU Biofuels Economist, November 2009

  22. New Crop Corn Seasonal Trend 80% Odds that Spring Price is higher than Fall 79% Odds: Spring Price Exceeds Harvest Price Source: www.cmegroup.com U of MN, CFFM, 2009

  23. Soybean Estimates through 2010-11 $10.10 $10.00 $8.95 $8.25 Source: Wisner, ISU Biofuels Economist, November 2009

  24. New Crop Soybean Seasonal Trend 67% Odds that Spring Price is higher than Fall 79% Odds: Spring Price Exceeds Harvest Price Source: www.cmegroup.com U of MN, CFFM, 2009

  25. 2009 Crop Insurance for Iowa Corn Acres Source: USDA Risk Management Agency, October 2009

  26. Corn Historical Crop Insurance Prices 2006 1995 1993 1997 2002 Source: USDA Risk Management Agency, October 2009

  27. Crop Revenue Insurance Coverage(with SURE) • CRC or RA Coverage170 bu/A APH75% Level$4.04 bu/A Spring and Fall Price • SURE Coverage115% of Revenue Coverage Source: Johnson, ISU Extension, November 2009

  28. ACRE vs. CCP Payments for Corn CCP pays out No CCP No ACRE payments ACRE pays out $2.35 Source: ISU Extension Economics, November 2009

  29. Iowa 2009 Corn Yield & National Cash Price to Trigger ACRE Source: Johnson, ISU Extension, November 2009

  30. 2009 Crop Insurance for Iowa Soybean Acres Source: USDA Risk Management Agency, October 2009

  31. Soybean Historical Crop Insurance Prices 2009 2007 2003 1993 2005 1990 1995 2002 Source: USDA Risk Management Agency, October 2009

  32. Iowa 2009 Soybean Yield & National Cash Price to Trigger ACRE Source: Johnson, ISU Extension, November 2009

  33. ACRE vs. CCP Payments for Soybeans CCP pays out No CCP No ACRE payments ACRE pays out $5.56 CCP Trigger - $5.56 in 2010-12 Source: ISU Extension Economics, November 2009

  34. Comparing ACRE Payments to CCP 2010 ACRE Cash Price Triggers: Corn = $3.35/bu Soybeans = $8.55 /bu Source: ISU Extension Economics, November 2009

  35. 5 Strategies for Managing Revenue Risk Consider 2010 ACRE Enrollment by June 1st Prove Your 2009 Yields, Update APH Pre-Harvest Sell Bushels, Utilize Seasonal Trends Sell 2009 Crops to Match Cash Flow & Storage Use Crop Insurance Revenue Products Source: Johnson, ISUE Farm Mgt., Sept. 2008. Source: Johnson, ISU Extension, November 2009

  36. Risk Management Web Sites Crop Risk Management - ISU Polk County (Newsletters, Updates and Webcasts) www.extension.iastate.edu/polk/farmmanagement CALT – ISU Center for Agricultural Law and Taxation www.calt.iastate.edu Farm Doc – U. of Illinois Extension www.farmdoc.illinois.edu Ag Manager – Kansas State University Extension www.agmanager.info Ag Decision Maker – ISU Extension (Decision Tools, Newsletters, Publications and Voiced Media) www.extension.iastate.edu/agdm Source: Johnson, ISU Extension, November 2009

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