Crop Outlook and Risk Management Strategies

Crop Outlook and Risk Management Strategies

With large corn and soybean crops looming, prices are expected to drop significantly for the 2014 harvest.

By Steve Johnson

NOTE: Steve Johnson is the ISU Extension farm management specialist in central Iowa. He can be contacted at [email protected]

BIG CROPS COMING: With large global production shaping up in 2014, average cash prices for corn and soybeans in the 2014-15 marketing year are expected to tumble. Reflecting the potentially lower crop prices, lower cash rents are likely for 2015, a factor in lease negotiations.

The size of the 2014 crop is being determined and the first USDA in-the-field yield estimates will be released August 12, 2014. On Friday, July 11, USDA released its monthly World Ag Supply & Demand Estimates report. The numbers in that update regarding the 2014 U.S. corn and soybean crop are based on yield projections, not actual in the field estimates. The in-the-field yield estimates which will come in August are based on data gathered by USDA-trained enumerators who go out into the fields and make counts of such yield-determining factors as average number of ears per acre, ear weight, etc.

The August numbers, to be released August 12, and subsequent USDA estimates, will help provide a better idea of the potential U.S. crop size and will impact the cash price averages for the 2014-15 crop marketing year that begins on Sept. 1, 2014.

Based on the July 11 WASDE report's projections, with large global production expected for 2014, average cash prices are expected to range from $3.65 to $4.35 per bushel for corn and $9.50 to $11.50 per bushel for soybeans. The midpoint of those cash prices are a drop of 42% for corn from the 2012 highs of $6.89 per bushel and soybeans by 27% off their $14.40 per bushel high, respectively.

Remember, its yield times price minus total costs
However, remember its net revenue -- yield times price minus total costs – that determines if you make money on your 2014 crops. Plugging in harvest cash bid prices times your expected yields might reflect some tight profit margins. Maximizing the yield potential during harvest will go a long way in determining the actual cost per bushel for 2014 crops.

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Making pre-harvest sales during the spring and summer months of 2014 will likely prove profitable again. Use of revenue protection crop insurance as a risk management tool provided a peace of mind in making cash sales when futures were above the 2014 spring projected prices of $4.62 per bushel corn and $11.36 per bushel soybeans, respectively. Those early sales generated fall and winter cash flow and prevented storing a large percent of your crops unpriced.

Controlling the controllable factors
It's time to plan ahead for 2015 crop production, input buying decisions and estimating potential crop profit margins. Overall, crop costs in 2015 should be similar to those in 2014, according to Iowa State University Extension economists.

Early estimates of crop costs for 2015 reflect lower cash rental rates, crop insurance premiums and LP costs. Fertilizer costs, especially nitrogen, are expected to increase slightly, despite the lower cash corn prices. The 2015 U.S. corn planted acres may increase above the 2014 estimate of 91.6 million acres released in the recent June 30 USDA Annual Acreage report. That's because U.S. farmers in 2014 are estimated to have planted 84.8 million acres of soybeans, a new record. Many of these soybean acres will be rotated back to corn in 2015.

Using the New Farm Program risk management tools
The 2014 farm bill will provide two new risk management tools; Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC).  Farmers will soon have to decide in which program they will enroll. Farmers, along with their landowners on rented ground, can make a one-time, unanimous and irrevocable election by FSA farm number for the life of the 5-year farm program. The party at risk will then enroll annually in the ARC county, ARC individual farm or the PLC program. If the farm is not enrolled in ARC or PLC for 2014, then it automatically defaults and can only be enrolled in the PLC beginning in 2015.

Landowners and their farm operators should include as a part of 2015 cash rental rate negotiations a discussion on the base acreage reallocation, and yield updates, as well as the ARC/PLC election and annual enrollment for the 2014 and 2015 crops.

For farm management information and analysis visit ISU's Ag Decision Maker site at www.extension.iastate.edu/agdm; ISU farm management specialist Steve Johnson's site is at www.extension.iastate.edu/polk/farm-management.

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