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Iowa Agriculture Risk Management Strategies - Price Trends, Cost Analysis, and Insurance Options

Explore the current financial landscape of agriculture in Iowa, focusing on crop prices, production costs, and the role of federal crop insurance. Learn about risk management strategies, government programs, and ways to optimize revenue amidst changing market conditions.

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Iowa Agriculture Risk Management Strategies - Price Trends, Cost Analysis, and Insurance Options

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  1. Risk Environment for Agriculture Ag. Credit School Ames, Iowa June 4, 2019 Chad Hart Associate Professor/Crop Markets Specialist chart@iastate.edu 515-294-9911

  2. Iowa Corn Prices vs. Costs

  3. Iowa Soybean Prices vs. Costs

  4. Iowa Corn Costs Overall 69% increase 59% 35% 90% 69% Source: AgDM A1-21

  5. Iowa Soybean Costs Overall 63% increase 59% 48% 81% 42% Source: AgDM A1-21

  6. Crop Prices for the Next Decade Source: USDA-OCE

  7. GDP Growth Source: USDA-OCE

  8. U.S. Crude Oil Prices Source: USDA-OCE

  9. World Corn Markets Source: USDA

  10. Crop Insurance • One of many risk management strategies • Traditionally set up to protect farmers in times of low crop yields • Now offers coverage for low prices • Available on over 100 commodities

  11. Causes of Loss for Iowa Corn, 1948-2010

  12. Causes of Loss for Iowa Soy, 1955-2010

  13. Federal Crop Insurance

  14. Federal Crop Insurance:Total Acres Insured

  15. Corn Acres Insured in 2018 87% of all corn acres are insured

  16. Soy Acres Insured in 2018 88% of all soybean acres are insured

  17. 2017 Corn and Soy Coverage Levels

  18. PLC pays, ARC does not Neither pay Both pay ARC pays, PLC does not

  19. Value of Ag Trade Source: USDA-FAS

  20. U.S. Ag Exports Source: USDA-FAS

  21. Margin Maneuvers • Negotiate lower land rental rates • Explore variety choice (seed cost vs. seed benefits) • Soil test and apply required fertilizer • Examine and control other input costs (pesticides, herbicides, etc.) • Be more aggressive marketing on rallies • May look to limit losses, as opposed to capture profits • Singles & doubles vs. Home run strategy

  22. Margin Maneuvers • Fully utilize government programs • ARC-CO, PLC, crop insurance • Break price into futures and basis components to capture improvements in either • Put the pencil to paper and calculate storage benefits/costs • Will a traditional seasonal price swing cover storage costs? • What are futures prices telling you about storage opportunities now? • Remember, Rome wasn’t built in a day • It took us awhile to get into this situation and it will take awhile to get out.

  23. Revenue Mix Source: USDA-OCE

  24. Revenues vs. Costs Source: USDA-OCE

  25. Farm Incomes Source: USDA-ERS

  26. A Multi-dimensional Issue Source: Takle et. al., 2013

  27. Communication is Key • With your clients and your supervisors • No one wants an unwelcome financial surprise • Fewer surprises mean fewer conversations with regulators • But it does require a few more conversations with clients

  28. Understanding Clients • What’s a “typical” year for them look like? • Production • Cash flow • Marketing • How far are they along their career path? • Beginning • Mid-career • Transitioning out • Do you see changes in the farm or in the client? • Is the client willing to discuss the changes?

  29. Summary Ag Stats Source: Federal Reserve of Chicago

  30. Summary Ag Lending Stats Source: Federal Reserve of Chicago

  31. Iowa Loans Source: Hansen, 2018, IDoB

  32. Examiner Experience Source: Hansen, 2019, IDoB

  33. Thank you for your time!Any questions?My web site:http://www.econ.iastate.edu/~chart/Iowa Farm Outlook:http://www.econ.iastate.edu/ifo/Ag Decision Maker:http://www.extension.iastate.edu/agdm/

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