farm income & management strategies november 13 th , 2009
DESCRIPTION
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 - PowerPoint PPT PresentationTRANSCRIPT
Farm Income & Management Strategies
November 13th, 2009
Steven D. JohnsonFarm & Ag Business Management Specialist
(515) [email protected]
www.extension.iastate.edu/polk/farmmanagement.htm
2010 Cost of ProductionEstimates
Year-end Income & Expense DecisionsCash Flow Marketing Strategies
Managing 2010 Risks & Revenue
On-Farm vs. Commercial Storage Issues
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
U.S. Net Farm Income
* - Forecast
Source: USDA Economic Research Service, August 2009
US Farm Assets and Liabilities: 1960 to 2009
0
500
1,000
1,500
2,000
2,500
60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08PYear
$ B
illi
on
Total Assets Non-Real Estate Debt Real Estate Debt Total Debt
Source: Jolly, ISU Extension Economics, September 2009
US Farm Debt Levels: 1960-2009
0
25
50
75
100
125
150
175
200
225
60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08PYear
$ B
illi
on
Real Estate Non-Real Estate
Source: Jolly, ISU Extension Economics, January 2009
US Farm Debt to Asset Ratios: 1960 to 2008
0
5
10
15
20
25
60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08PYear
Per
cen
t
Farm Debt/Asset Ratios
Source: Jolly, ISU Extension Economics, January 2009
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
Percent of Cash Crops Sold by Month
Source: USDA NASS, 1990-09, October 2009
Corn Sales: Fall Sales, Peak in January, level rest of year
Soybeans Sales Peak in October, High in January, decreases monthly
$3.75/bu 18%
$3.45/bu 65%
$3.35/bu 17%
Corn Cash Price & Probability Forecast
2009-10 Marketing Year
Source: Wisner, ISU Biofuels Economist, November 2009
79.3 M Acres Harvested162.9 Bu/A Avg. Yield
July$4.24
May $4.16
Mar.$4.06
Dec.$3.91
Corn Futures Carry Dec. 2010$4.39
Source: www.cmegroup.com
November 12th, 2009
Good Carry into spring/summer months – utilize on-farm storage and monitor grain quality
Corn Basis Trends
Source: www.farmprogress.com November 2009
Corn Storage Costs
Assumption: Corn is Valued at $3.50/bu - Financed @ 7%
APR
.20
.30
.32
.49
.44
.69
.56
.89
Source: Johnson, ISU Extension, November 2009
Corn Shrink & Drying CostsGrain
Moisture Level
Wet Bushels
Sold Bushels ShrinkLoss
Drying Cost
Shrink & Drying
30% 231 bu/A 183 bu/A $25 /A $121 /A $146 /A
25% 216 bu/A 186 bu/A $15 /A $76 /A $91 /A
20% 202 bu/A 188 bu/A $6 /A $35 /A $41 /A
15% 190 bu/A 190 bu/A $0 /A $0 /A $0 /A
Source: www.farmdoc.illinois.edu, Oct. 21st, 2009
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.
$10.50/bu 18%
$ 8.95/bu 65%
$ 8.55/bu 17%
Soybean Cash Price & Probability Forecast
2009-10 Marketing Year
Source: Wisner, ISU Biofuels Economist, November 2009
76.6 M Acres Harvested43.3 Bu/A Avg. Yield
Soybean Futures Chart
Source: www.jimwyckoff.com, Oct. 30th, 2009
Jul $10.04
May $9.99
March$9.96
Jan.$9.90
November 12th, 2009
Soybean Futures CarryNov. 2010$ 9.99
Source: www.cmegroup.com
Lack of Carry, little incentive to hold soybeans beyond winter months
Soybean Basis Trends
Source: www.farmprogress.com November 2009
Soybean Storage Costs
Assumption: Soybeans are Valued
at $9.50/bu - Financed @ 7% APR
.10
.29
.40.49
.70
.69
1.00
Source: Johnson, ISU Extension, November 2009
5 Strategies for Reducing Input Costs
Plan Ahead: Cash Flow & Income Tax Decisions
Sell Commercially
Stored Bushels,
Monitor On-Farm Quality
Book 2010 Fertilizer and Fuel Early
Negotiate Inputs
Based on Volume
Purchases
Focus on “Revenue per Acre”
Source: Johnson, ISU Extension, November 2009
2010 Crop Cost Estimates
$667$629
$437
$4.04/bu $3.49/bu $8.74/buCost per bushel
Average Yield 165 bu/a 180 bu/a 50 bu/a
Source: Duffy, ISU Extension Economist, November 2009
Corn Estimates through 2010-11
$4.20$4.06
$3.45$3.75
Source: Wisner, ISU Biofuels Economist, November 2009
New Crop Corn Seasonal Trend
79% Odds: Spring Price Exceeds Harvest Price
Chicago December Corn Futures, 1990-2009 average1-J
an 1-F
eb
1-M
ar 1-A
pr
1-M
ay
1-J
un
1-J
ul
1-A
ug
1-S
ep
1-O
ct
1-N
ov
1-D
ec
255
260
265
270
275
280
285
290
295
300
approximate dates
cent
s pe
r bu
shel
Source: www.cmegroup.com U of MN, CFFM, 2009
80% Odds that Spring Price is higher than Fall
Soybean Estimates through 2010-11
$10.10
$10.00
$8.95$8.25
Source: Wisner, ISU Biofuels Economist, November 2009
New Crop Soybean Seasonal Trend
79% Odds: Spring Price Exceeds Harvest Price
Source: www.cmegroup.com U of MN, CFFM, 2009
Chicago November Soybean Futures, 1990-2009 average1-
Jan
1-Fe
b
1-M
ar
1-Apr 1-
May
1-Ju
n 1-Ju
l
1-Aug
1-Se
p
1-O
ct
1-N
ov
605
615
625
635
645
655
665
675
685
approximate dates
cent
s pe
r bu
shel
67% Odds that Spring Price is higher than Fall
2009 Crop Insurance for Iowa Corn Acres
Source: USDA Risk Management Agency, October 2009
Corn Historical Crop Insurance Prices
19951993
2002
2006
1997
Source: USDA Risk Management Agency, October 2009
CRC or RA Coverage170 bu/A APH75% Level$4.04 bu/A Spring and Fall Price
Crop Revenue Insurance Coverage
(with SURE)
SURE Coverage115% of Revenue Coverage
Source: Johnson, ISU Extension, November 2009
ACRE vs. CCP Payments for Corn
ACRE pays out
No ACRE payments
CCP pays out
No CCP
$2.35
Source: ISU Extension Economics, November 2009
Iowa 2009 Corn Yield & National Cash Price to Trigger ACRE
2009-10 Nat’l Avg
Cash Price
180 bu/A 183 bu/A 186 bu/A
$3.55 $0 $0 $0
$3.45 $15/A $5/A $0
$3.35 $33/A $23/A $13/A
$3.25 $51/A $41/A $31/A
Source: Johnson, ISU Extension, November 2009
2009 Crop Insurance for Iowa Soybean Acres
Source: USDA Risk Management Agency, October 2009
Soybean Historical Crop Insurance Prices
19951993 2002 20052003
1990
2007 2009
Source: USDA Risk Management Agency, October 2009
Iowa 2009 Soybean Yield & National Cash Price to Trigger
ACRE 2009-10 Nat’l Avg
Cash Price
50 bu/A 51 bu/A 52 bu/A
$9.40 $0 $0 $0
$9.20 $0 $0 $0
$9.00 $7/A $0 $0
$8.80 $17/A $8/A $0
Source: Johnson, ISU Extension, November 2009
ACRE vs. CCP Payments for Soybeans
ACRE pays out
No ACREpayments
CCP pays out
No CCP
CCP Trigger - $5.56 in 2010-12
$5.56
Source: ISU Extension Economics, November 2009
Comparing ACRE Payments to CCP
Source: ISU Extension Economics, November 2009
2010 ACRE Cash Price Triggers:Corn = $3.35 /buSoybeans = $8.55 /bu
Source: Johnson, ISUE Farm Mgt., Sept. 2008.
Consider 2010 ACRE
Enrollment by June 1st
Prove Your 2009
Yields, Update
APHSell 2009 Crops to Match Cash
Flow & Storage
Use Crop Insurance Revenue Products
5 Strategies for Managing Revenue Risk
Pre-Harvest Sell
Bushels, Utilize
Seasonal Trends
Source: Johnson, ISU Extension, November 2009
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 Extensionwww.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