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Steven D. Johnson Farm & Ag Business Management Specialist (515) 957 -5790 sdjohns@iastate. edu Steven D. Johnson Farm & Ag Business Management Specialist (515) 957 -5790 sdjohns@iastate. edu www. extension. iastate. edu/polk/farm-management

Learning Objectives: Provide Strategies & Tools for Solutions Farm Finances Crop Marketing Risk Management Learning Objectives: Provide Strategies & Tools for Solutions Farm Finances Crop Marketing Risk Management

U. S. Net Farm Income Trends * - Forecast Source: USDA Economic Research Service, U. S. Net Farm Income Trends * - Forecast Source: USDA Economic Research Service, August 2015

Net Farm Income Drops; Debt-to-Asset Ratios Climb Source: USDA Economic Research Service, August 2015 Net Farm Income Drops; Debt-to-Asset Ratios Climb Source: USDA Economic Research Service, August 2015

Case Study 1: Larry Landholder STATUS QUO 1, 500 owned acres; 500 rented Solvent Case Study 1: Larry Landholder STATUS QUO 1, 500 owned acres; 500 rented Solvent operation: • Net Worth $4. 5 million • Real estate equity: $2. 5 million Profitable: • Net farm income: $64, 000 Problem: Liquidity • Working capital -$77, 000 • Annual payments: – 2 Machinery loans $138, 000 – 1 Real Estate loan $95, 000 SOLUTION 1. New 10 -year loan for $130, 000 on Real Estate equity to pay off a machinery loan (annual payments by $7, 000) 2. New 20 -year loan for $800, 000 on real estate equity. (annual payments by $48, 000) a) Pay off the other machinery loan b) Pay down operating loan c) Strengthen cash position Source: Farm Credit Services of America, November 2015

Case Study 1: Financial Changes (as of December 1, 2015) Financial Categories Working Capital Case Study 1: Financial Changes (as of December 1, 2015) Financial Categories Working Capital per Acre Machinery & Equipment Payments (P & I) Machinery Payment per Acre Real Estate Payments (P & I) Real Estate Payments per Acre Solution -$77, 000 Working Capital Status Quo $414, 000 -$34/A $180/A $138, 000 $0 $69/A $0/A $95, 000 $180, 000 $63/A $120/A Source: Farm Credit Services of America, November 2015

Case Study 2: Roy Renter STATUS QUO 200 owned acres; 2, 000 rented Solvent Case Study 2: Roy Renter STATUS QUO 200 owned acres; 2, 000 rented Solvent operation: • Net Worth $4. 0 million • Machinery equity: $2. 0 million Not Profitable in 2015: • Net farm income: -$450, 000 Problem: Liquidity • Working capital $71, 000 • Annual payments: – Machinery loans $290, 000 – Real Estate loans $112, 000 1. 2. 3. 4. SOLUTION Cash Rent reduced $20/acre. Sell equipment for $300, 000. Pay off related loans and restore working capital. Negotiates with bank to pay Interest Only on real estate loans, shifting $40, 000 to non-current liabilities Take new 5 -year loan on machinery equity for $300, 000. Source: Farm Credit Services of America, November 2015

Case Study 2: Financial Changes (as of December 1, 2015) Financial Categories Working Capital Case Study 2: Financial Changes (as of December 1, 2015) Financial Categories Working Capital per Acre Machinery & Equipment Payments (P & I) Machinery Payment per Acre Real Estate Payments (P & I) Real Estate Payments per Acre Solution $71, 000 Working Capital Status Quo $260, 000 $32/A $118/A $290, 000 $125, 000 $132/A $57/A $112, 000 $74, 000 $560/A $370/A Source: Farm Credit Services of America, November 2015

Case Study 3: Peter Paydown STATUS QUO SOLUTION 620 owned acres; 40 rented 1. Case Study 3: Peter Paydown STATUS QUO SOLUTION 620 owned acres; 40 rented 1. Refinance 15 -year real estate loan into 20 -year loan. Solvent operation: (annual payments by • Net Worth $3. 3 million $7, 000) • Real Estate equity: $1. 8 million 2. Take new 20 -year loan on Not Profitable in 2015: real estate equity for • Net farm income: -$76, 000 $140, 000. Pay off a Problem: Liquidity machinery loan for $130, 000 (annual payments by • Working capital $23, 000 $16, 000) • Annual payments: – 3 Machinery loans $108, 000 – 2 Real Estate loans $101, 000 Source: Farm Credit Services of America, November 2015

Case Study 3: Financial Changes (as of December 1, 2015) Financial Categories Working Capital Case Study 3: Financial Changes (as of December 1, 2015) Financial Categories Working Capital per Acre Machinery & Equipment Payments (P & I) Machinery Payment per Acre Real Estate Payments (P & I) Real Estate Payments per Acre Solution $23, 000 Working Capital Status Quo $71, 000 $35/A $108, 000 $80, 000 $164/A $121/A $101, 000 $105, 000 $161/A $169/A Source: Farm Credit Services of America, November 2015

FCSAmerica Financial Guidelines Financial Categories Red Working Machinery Real Estate Capital P&I + Taxes FCSAmerica Financial Guidelines Financial Categories Red Working Machinery Real Estate Capital P&I + Taxes per acre per Acre < $100 >$75 > $300 Yellow $200 -$100 $50 -75 $200 -$300 Green > $200 <$50 < $200 Source: Farm Credit Services of America, November 2015

Corn Revenue vs. Cost Trends Source: Plastina, ISU Extension Economics, October 2015 Corn Revenue vs. Cost Trends Source: Plastina, ISU Extension Economics, October 2015

Corn Return to Management Source: Plastina, ISU Extension Economics, October 2015 Corn Return to Management Source: Plastina, ISU Extension Economics, October 2015

U. S. Corn Ending Stocks & Average Cash Price Source: USDA WASDE, Jan. 2012 U. S. Corn Ending Stocks & Average Cash Price Source: USDA WASDE, Jan. 2012 – Nov. 10, 2015

U. S. Corn Supply and Use 2011 2012 2013 2014 2015 91. 9 97. U. S. Corn Supply and Use 2011 2012 2013 2014 2015 91. 9 97. 3 95. 4 90. 6 88. 4 Area Planted (mil. acres) Yield (bu. /acre) 147. 2 123. 1 158. 1 171 169. 3 Production (mil. bu. ) 12, 360 10, 755 13, 829 14, 216 13, 654 Beg. Stocks (mil. bu. ) 1, 128 989 821 1, 232 1, 731 Imports (mil. bu. ) 29 160 36 32 30 Total Supply (mil. bu. ) 13, 517 11, 904 14, 686 15, 479 15, 415 Feed & Residual (mil. bu. ) 4, 557 4, 315 5, 040 5, 315 5, 300 Ethanol (mil. bu. ) 5, 000 4, 641 5, 124 5, 209 5, 175 Food, Seed, & Other (mil. bu. ) 1, 428 1, 397 1, 369 1, 359 1, 380 Exports (mil. bu. ) 1, 543 730 1, 920 1, 864 1, 800 Total Use (mil. bu. ) 12, 528 11, 083 13, 454 13, 748 13, 655 Ending Stocks (mil. bu. ) 989 821 1, 232 1, 731 1, 760 6. 22 6. 89 4. 46 3. 70 $3. 65 Season-Average Price ($/bu. ) Source: USDA-WAOB, Nov. 10, 2015

Corn Supply vs. Use by Category Use Supply 2013 -14 Use Supply 2014 -15 Corn Supply vs. Use by Category Use Supply 2013 -14 Use Supply 2014 -15 Use Supply 2015 -16 Source: USDA-WAOB, Nov. 10, 2015

Weekly Corn vs. Crude Oil (Reduced Correlation) Source: www. jimwyckoff. com, Nov. 10, 2015 Weekly Corn vs. Crude Oil (Reduced Correlation) Source: www. jimwyckoff. com, Nov. 10, 2015

U. S. Ending Stocks as % of Total Use 12. 9% 12. 4% * U. S. Ending Stocks as % of Total Use 12. 9% 12. 4% * Estimates **Projected Source: USDA WASDE, Jan. 2012 – Nov. 10, 2015

Crop Marketing Matrix 1. Store & wait 2. Delayed price contract 3. Minimum price Crop Marketing Matrix 1. Store & wait 2. Delayed price contract 3. Minimum price contract 1. Basis contract 2. Sell Cash Bushels and Buy Futures or Call Option 3. Minimum price contract Expected Change Basis 1. Hedge 2. Non-roll hedge to arrive 3. Buy put option Futures Price Strengthen Futures Price Up Basis Weaken 1. Cash sale now 2. Forward Contract Down Source: Iowa Commodity Challenge, November 2015

Comparing Storage and Marketing Tools (1990 -2014 NC Iowa Terminal Elevator) On-Farm Storage (Unpriced) Comparing Storage and Marketing Tools (1990 -2014 NC Iowa Terminal Elevator) On-Farm Storage (Unpriced) Commercial Storage (Unpriced) Storage Hedge (Store, Sell July Futures) Store, Buy July Put Option Minimum Price Contract (Sell Cash, Buy July Call Option) Basis Contract (Sell Cash, Buy July Futures) (Net profit/loss per bushel compared to harvest price. ) Source: Knorr, Farm Futures Magazine, September 2015

2016 Crop Cost Estimates (Preliminary) Total Cost Expected Yield bu/A Cost Per Bushel Soybeans 2016 Crop Cost Estimates (Preliminary) Total Cost Expected Yield bu/A Cost Per Bushel Soybeans after Corn $532 50 $10. 64 Corn after Soybeans $742 180 $4. 12 Corn after Corn $794 165 $4. 81 Source: Plastina, ISU Extension Economics, November 2015

2016 Soybeans following Corn Margin Estimates $460 ARC-CO $10 $270 Labor $27 Machinery $79 2016 Soybeans following Corn Margin Estimates $460 ARC-CO $10 $270 Labor $27 Machinery $79 50 bu/A X $9. 00/bu = $450/A $190 Inputs $164 Source: Johnson, ISU Extension, November 2015

2016 Corn following Soybeans Margin Estimates $704 ARC-CO $20 $480 Labor $31 180 bu/A 2016 Corn following Soybeans Margin Estimates $704 ARC-CO $20 $480 Labor $31 180 bu/A X $3. 80/bu = $684/A Machinery $140 $224 Inputs $309 Source: Johnson, ISU Extension, November 2015

2016 Corn following Corn Margin Estimates $647 ARC-CO $20 $532 Labor $34 Machinery $143 2016 Corn following Corn Margin Estimates $647 ARC-CO $20 $532 Labor $34 Machinery $143 Inputs $355 165 bu/A X $3. 80/bu = $627/A $115 Source: Johnson, ISU Extension, November 2015

Calculating Crop Breakeven Costs Corn Yield Expense/Acre $750 175 180 185 190 195 200 Calculating Crop Breakeven Costs Corn Yield Expense/Acre $750 175 180 185 190 195 200 205 210 55 60 65 70 Cost/Bu Soybeans Yield Expense/Acre $525 30 35 40 45 50 Cost/Bu Source: Johnson, ISU Extension, November 2015

Five-Year Farm Program (2014 -2018) Marketing Loan National Rates: $1. 95/bu Corn $5. 00/bu Five-Year Farm Program (2014 -2018) Marketing Loan National Rates: $1. 95/bu Corn $5. 00/bu Soybeans Source: The Agricultural Act of 2014, February 2014

Corn Crop Insurance Coverage (2015) Revenue Protection = 91% to 97% of Insured Acres Corn Crop Insurance Coverage (2015) Revenue Protection = 91% to 97% of Insured Acres (IA, NE, SD) Iowa Nebraska ARP/AYP YP RPHPE RP IA 1% 2% 1% 96% South Dakota NE 0% 8% 1% 91% SD 0% 3% 0% 97% Source: USDA Risk Management Agency, September

Corn Insurance Prices vs. Seasonal Futures Highs Source: USDA RMA & CME Group, October Corn Insurance Prices vs. Seasonal Futures Highs Source: USDA RMA & CME Group, October 2015

December Corn Futures Seasonal Trends (1990 -2015 Indexed) Source: www. cffm. umn. edu, October December Corn Futures Seasonal Trends (1990 -2015 Indexed) Source: www. cffm. umn. edu, October 2015

Solutions for Low Crop Revenue Outlook Net Equity Losses: Improve Record Keeping, Reduce High Solutions for Low Crop Revenue Outlook Net Equity Losses: Improve Record Keeping, Reduce High Fixed Costs, Consider Non-Farm Income Reduce Crop Costs: Renegotiate 2016 Cash Leases, Soil Test, Limit Buying Low Return Inputs, Seek Early Pay Cash Discounts Farms with Cash Flow Problems: Reduce Expenses, Refinance Debt, Sell Non-Earning Assets Crop Marketing: Limit Storing Old Crop beyond early July, Use a Variety of Marketing Tools with Pre-harvest Sales Plan Ahead for 2016 Inputs & Financing Needs: Good Relationships with Input Suppliers, Landlords & Your Lender Source: Johnson, ISU Extension, December 2015

Web Sites with Solutions • ISU Extension - Ag Decision Maker www. extension. iastate. Web Sites with Solutions • ISU Extension - Ag Decision Maker www. extension. iastate. edu/agdm • U of MN (Center for Farm Financial Mgt) www. cffm. umn. edu • U of Illinois Farm Doc www. farmdoc. illinois. edu • ISU Polk County Ext. Farm Management www. extension. iastate. edu/polk/farmmanagement • Farm Credit Services of America www. fcsamerica. com Source: Johnson, ISU Extension, December 2015