Risk Environment for Agriculture
Ag. Credit School
Ames, Iowa
June 13, 2017
Chad Hart
Associate Professor/Crop Markets Specialist
[email protected]
515-294-9911
Extension and Outreach/Department of Economics
Iowa Corn Prices vs. Costs
Extension and Outreach/Department of Economics
Iowa Soybean Prices vs. Costs
Extension and Outreach/Department of Economics
Iowa Corn Costs
Overall 13% increase
21%
16%
8%
8%
Source: AgDM A1-21
Extension and Outreach/Department of Economics
Iowa Soybean Costs
Overall 24% increase
21%
6%
27%
39%
Source: AgDM A1-21
Extension and Outreach/Department of Economics
Crop Prices for the Next Decade
Source: USDA-OCE
Extension and Outreach/Department of Economics
GDP Growth
Source: USDA-OCE
Extension and Outreach/Department of Economics
U.S. Crude Oil Prices
Source: USDA-ERS
Extension and Outreach/Department of Economics
World Corn Markets
Source: USDA
Extension and Outreach/Department of Economics
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
Extension and Outreach/Department of Economics
Causes of Loss for Iowa Corn, 1948-2010
Plant Disease
2%
Insects
2%
Other
Wind
6%
4%
Drought
40%
Hail
12%
Frost
3%
Flood
4%
Excess
Moisture
27%
Extension and Outreach/Department of Economics
Causes of Loss for Iowa Soy, 1955-2010
Plant Disease Wind Other
2% 5%
1%
Insects
0%
Drought
28%
Hail
29%
Frost
2%
Flood
6%
Extension and Outreach/Department of Economics
Excess
Moisture
27%
Federal Crop Insurance
Extension and Outreach/Department of Economics
Federal Crop Insurance:
Total Acres Insured
Extension and Outreach/Department of Economics
Corn Acres Insured in 2016
87% of all
corn acres
are insured
Extension and Outreach/Department of Economics
Soy Acres Insured in 2016
87% of all
soybean acres
are insured
Extension and Outreach/Department of Economics
2016 Corn and Soy Coverage Levels
Extension and Outreach/Department of Economics
PLC
pays,
ARC
does
not
Neither pay
Both pay
ARC pays,
PLC does not
Extension and Outreach/Department of Economics
President’s Budget Request
Source: OMB, 2018 Budget
Extension and Outreach/Department of Economics
Value of Ag Trade
Source: USDA-FAS
Extension and Outreach/Department of Economics
U.S. Ag Exports
Source: USDA-FAS
Extension and Outreach/Department of Economics
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
Extension and Outreach/Department of Economics
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.
Extension and Outreach/Department of Economics
Revenue Mix
Source: USDA-ERS
Extension and Outreach/Department of Economics
Revenues vs. Costs
Source: USDA-OCE
Extension and Outreach/Department of Economics
Farm Incomes
Source: USDA-ERS
Extension and Outreach/Department of Economics
A Multi-dimensional Issue
Source: Takle et. al., 2013
Extension and Outreach/Department of Economics
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
Extension and Outreach/Department of Economics
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?
Extension and Outreach/Department of Economics
Summary Ag Stats
Source: Federal Reserve of Chicago
Extension and Outreach/Department of Economics
Summary Ag Lending Stats
Source: Federal Reserve of Chicago
Extension and Outreach/Department of Economics
Extension and Outreach/Department of Economics
Iowa Loans
Source: Hanson, 2017, IDoB
Extension and Outreach/Department of Economics
Examiner Experience
Source: Hanson, 2017, IDoB
Extension and Outreach/Department of Economics
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/
Extension and Outreach/Department of Economics