Cost of Production Outlook

1. Cost of Production Outlook Southern Outlook Conference Atlanta, GA September 23, 2008 Lori Wilcox wilcoxl@missouri.edu www.fapri-mu.org

2. Overview • Macroeconomic impacts • Prices paid by farmers index • Costs of production • Net return implications • FAPRI Baseline process

3. $1 per gallon increase over the past 10 months with some recent decline $2.50+ per gallon increase over the past 4 years Source: http://tonto.eia.doe.gov/oog/info/wohdp/diesel.asp

4. June 2008 = $10.82 a historical high followed by $10.33 in Oct. 2005 Source: http://tonto.eia.doe.gov/dnav/ng/ng_sum_lsum_dcu_nus_m.htm

5. 2008 avg production = 1,700,000(MMcf) • within 3% of 1970’s avg. • 18% above 1980’s avg. • 11% above 1990’s avg. Source: http://tonto.eia.doe.gov/dnav/ng/ng_sum_lsum_dcu_nus_m.htm

6. Source: Global Insight, August 2008

7. August FAPRI-MU Baseline • WTI crude range $130 to $105/barrel ($120 avg.) • September 22, 2008 futures - $120.92/barrel • Natural gas range $9 to $10 per Mbtu • September 22, 2008 futures - $7.94

8. Putting the Pieces Together Macro Net Returns Prices Paid Cost of Prod.

9. 2nd Qtr 2008 fertilizer prices are 300-400% higher than average prices for 2002 Source: USDA/NASS Agricultural Prices

10. Source: Yara

11. Fertilizer PricesUS $/ton Source: USDA/NASS Agricultural Prices

12. Source: FAPRI-MU August 2008 Update

13. Source: FAPRI-MU August 2008 Update

14. Source: FAPRI-MU August 2008 Update

15. Source: FAPRI-MU August 2008 Update

16. Prices Paid by Farmers - % Changes Source: FAPRI-MU August 2008 Update

17. Putting the Pieces Together Macro Net Returns Prices Paid Cost of Prod.

18. ERS Regions beginning in 1995 CR,WH,SB,SK CR,SG,WH,SB,CT CR,WH,SB,SK WH CR,SG,SB WH,RC,CT,SK CR,WH,SB,CT,PN CR,SG,WH,SB,CT,PN SG,WH,SB,RC,CT

19. ERS Regions Prior to 1995 – Followed State Boundaries Pacific Lake States Northeast N. Plains Corn Belt Southeast I Delta Southeast II S. Plains

20. Regional Mapping • FAPRI-MU • US cost of production model based on current ERS regional designations • US crop model based on state production mapped to COP model regions • Continued expansion of state-level model components (including those for ACRE) • Incentive to maintain current mapping

21. Corn and Soybean Variable COP US $/Acre Source: FAPRI-MU August 2008 Update Variable Cost = Operating Cost + Hired Labor

22. Cotton and Rice Variable COP US $/Acre Source: FAPRI-MU August 2008 Update Variable Cost = Operating Cost + Hired Labor

23. Wheat and Sorghum Variable COP US $/Acre Source: FAPRI-MU August 2008 Update Variable Cost = Operating Cost + Hired Labor

24. Variable Cost = Operating Cost + Hired Labor

25. Variable Cost = Operating Cost + Hired Labor

26. Variable Cost = Operating Cost + Hired Labor

27. Variable Cost = Operating Cost + Hired Labor

28. Variable Cost = Operating Cost + Hired Labor

29. Variable Cost = Operating Cost + Hired Labor

30. Putting the Pieces Together Macro Net Returns Prices Paid Cost of Prod.

31. U.S. Corn Market Returns (Does not include Government Payments) Source: FAPRI-MU August 2008 Update

32. U.S. Soybean Market Returns (Does not include Government Payments) Source: FAPRI-MU August 2008 Update

33. U.S. Wheat Market Returns (Does not include Government Payments) Source: FAPRI-MU August 2008 Update

34. U.S. Cotton Market Returns (Does not include Government Payments) Source: FAPRI-MU August 2008 Update

35. U.S. Rice Market Returns (Does not include Government Payments) Source: FAPRI-MU August 2008 Update

36. FAPRI Baseline Process • November 2008 – Preliminary Baseline • December 2008 – Baseline Review • Jan./Feb. 2009 – Final Baseline • Deterministic and Stochastic • Presented to Congress by early March • University of Missouri, Iowa State University, Texas A&M University, University of Arkansas, Texas Tech University, & Arizona State University

37. Thank you and Questions? wilcoxl@missouri.edu www.fapri-mu.org