us crop production, 2007 grainmil. acmil. bu corn86.513,074 soybeans62.82,585 wheat52.12,067...
TRANSCRIPT
US Crop Production, 2007
Grain Mil. Ac Mil. buCorn 86.5 13,074Soybeans 62.8 2,585Wheat 52.1 2,067Sorghum 6.8 505Barley 3.5 212Oats 1.5 92
US Corn Acres and Yield
0
20
40
60
80
100
120
140
160
180
1994
-95
1995
-96
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
Harvested Acres (Millions) Bushels per acre
113.5160.4
US Corn Utilization (Million Bushels)
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
1994
-95
1995
-96
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
Feed & Residual Food,Industrial, and Seed Exports Carryover
Food, Industrial, and Seed Use of Corn
0500
1,0001,5002,0002,5003,0003,5004,0004,5005,000
1994
-95
1995
-96
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
0%
5%
10%
15%
20%
25%
30%
35%
40%
Million Bushels % of Production
US Soybeans, Acres and Yield
0
10
20
30
40
50
60
70
80
1994
-95
1995
-96
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2005
-06
2006
-07
2007
-08
Harvested Acres (Millions) Bushels per Acre
33.9
42.5
US Soybean Utilization (Million Bushels)
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
1994-95
1995-96
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2005-06
2006-07
2007-08
Crush Exports Other Carryover
US Wheat Acres and Yield
0
10
20
30
40
50
60
70
1994
-95
1995
-96
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
Harvested Acres (million) Bushels per acre
35.144.2
US Wheat Utilization
0
500
1000
1500
2000
2500
3000
3500
4000
1994
-95
1995
-96
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
Feed and Residual Food Seed Exports Carryover
Grain Marketing Channel Local elevators
– Often initial collection point for grain– Grading, drying, some storage– First pricing point– Some processing (particularly feed)
Subterminal elevators– Concentrate grain for shipment– Limited storage– Purchase from local elevators
Grain Marketing Channel
Terminal Elevators– Processing – Exports
Export terminal elevators– Ocean port or seaway– Limited storage
Grain Pricing Central price discovery point for grain is the
commodity futures markets. Local markets price on a basis to the futures Basis accounts for
– Location: transportation and local supply and demand conditions
– Time: storage cost relative to a futures delivery– Form: type of grain, quality and condition
Grain Pricing
Global supply and demand factor in through the futures market daily
Local prices based on futures through a basis unique to each market
Basis within a market impacted by local conditions
Transportation Decisions
Alter place or location utility Must compare price difference to cost
difference High first cost and lower marginal cost
– Fixed amount to load commodity– Lower marginal cost of extra miles
Cost difference by type of transportation
Truck Transportation
Low fixed – high variable– 90% of cost is fuel, wages, and maintenance– Trucker doesn’t invest in the road
Dominate short haul choice Grain shipments by tuck increasing
– Regional grain processing– Consolidation of livestock production
Rail Transportation
High fixed cost – low variable– Rail line owns tracks and terminals– Fixed costs may be 30-50% up to 70% of
total costs Economies of size in labor and
switching cost so movement to “unit” trains (100 cars).
Differential pricing for large and small customers
Barge Transportation
Low fixed cost – low variable cost– 25,000 miles of inland waterways– 6 miles per hour travel speed.
70% of exported grain moves down the Mississippi River
Transportation Unit ComparisonGrain transportation cost by method
Average Miles
Hauled
Tons per
Unit
Bushels per
Unit
Truck 86 26 910
Rail 674 100 3,500
Barge 891 1,500 52,500
100 Car Unit Train 10,000 350,000
15 Barge Tow 22,500 787,500
Transportation Shares and Fuel Efficiency
Grain transportation
Truck Rail Barge
Tons Hauled 66.4% 17.6% 8.3%
Ton-Miles 16.6% 44.1% 27.4%
Ton-Miles per Gallon 59 202 514
Bulk to Container Shipping
Move from commodities to HVP– For example, identity preserved (IP) grain
Can handle small lots In 2002 52% of ag trade value was shipped
by containers compared to 15% of the weight.
Farmers may market container loads of grain direct to customer
Container Advantages Less handling of grain thus less damage Container acts as storage Can be transported on container train or ship Faster delivery time to final customer Good backhaul rates from Asia due to trade
imbalance– 40% utilization rate going to Asia– 100% utilization coming from Asia
Storage as a strategy Grain must be dry and stay in condition On farm Off farm at elevator Add time utility
On Farm Storage Advantages
Avoid harvest time low prices Avoid lines at elevator Increases marketing period Helps management of income for taxes Low marginal cost for longer storage Allows quality control for livestock feed May be needed for IP grain
On Farm Storage Disadvantages
Extra handling of grain Risk of adverse price change while in
storage (may be offset with hedging) Risk of grain going out of condition Added investment and tax (on farm) Must finance storage (opportunity cost of
the money tied up in grain)
Drying and conditioning grain
Corn harvested at higher moisture than can be safety stored– Harvest may begin with moisture at 20-25%– No. 2 corn is 14.5% moisture– Store at 13.5% moisture or less to avoid
spoilage and storage loss– Harvest losses increase as moisture declines
» Drying in the field reduces drying cost but increases harvest loss
Storage and drying cost example
Harvest mid-October at 19.5% moisture Store until mid-May and sell
Harvest price (14.5% moisture) $2.30
Extra dry @ $.02/point x 1 pt +0.02
Storage (on-farm) $.01/month +0.07
Interest @ 9.0% x 7/12 x $2.30 +0.12
May price needed to breakeven $2.51
Iowa Corn and Soybean Price Index, 1995-2004
90
95
100
105
110
S O N D J F M A M J J A
Corn Soybeans Average
On Farm Corn Storage Return From September1989-90 to 2004-05 Crop Years
0%
10%
20%
30%
40%
50%
60%
70%
O N D J F M A M J J A
$(0.15)
$(0.10)
$(0.05)
$-
$0.05
$0.10
$0.15
Percent Positive Net Storage Return
Storage cost at $.01/month plus 7% interest on initial value
On Farm Soybean Storage Return from September1989-90 to 2004-05 Crop Years
0%
10%
20%
30%
40%
50%
60%
70%
O N D J F M A M J J A
-$0.30
-$0.20
-$0.10
$0.00
$0.10
$0.20
$0.30
$0.40
Percent Positive Net Storage Return
Storage cost at $.01/month plus 7% interest on initial value
Other Cash Grain Tools USDA Farm Program Tools
– Marketing loan– Loan Deficiency Payment (LDP)– Can use one or the other but not both on the
same bushel of grain
Marketing Loan
USDA program started in 1996 16 crops including corn and soybeans Designed to help farmers market their
crop throughout the year by providing the farmer a loan until the grain is sold
Grain serves a collateral Nine month maximum loan
Two Price Components
Loan Rate– Amount that the commodity is valued at– Set by USDA
Posted County Price (PCP) – Is calculated daily for each county by Farm
Service Agency of the USDA– Based the higher of the Kansas City or New
Orleans Gulf price– Accounts for transportation back to county
How it works
Farmer borrows from government after harvest at the loan rate
Pays back at later date at the PCP
Marketing Loan Repaying the loan
– Prices > loan rate + accrued interest » repay loan + interest
» sell the grain at the higher price
– Price < loan rate + accrued interest» repay loan at the PCP
» keep difference (loan rate – PCP)
» you still own the grain
– Nonrecourse» Deliver the grain and keep the loan payment
Loan deficiency payment Difference between the loan rate and PCP LDP is not repaid Must have ownership of grain Coordinate paperwork with FSA office Collect at any time before it expires Unless grain is sold or priced at the time the
LDP is collected the farmer is speculating on the price of the grain
Marketing Loan or LDP
ML is a free price floor (put option)– Guaranteed minimum price (loan rate)– Sell at higher price less storage and interest
LDP has price risk– Hope for falling prices to maximize LDP– Then hope for rising prices to sell grain– Problem arise if markets fall after taking LDP
Expected Returns and Risks of Alternative Marketing Strategies
Marketing Alternative LDP Now + Put Under Loan + LDP, Hedge, and Store Until Summer Store Until Summer Store Until Summer
Expected Revenue $51,875.20 $44,304.23 $51,675.00
5% chance that revenue will be below $39,525.41 $32,000.00 $50,113.5910% chance that revenue will be below $41,816.80 $34,121.20 $50,441.1025% chance that revenue will be below $45,939.84 $38,244.23 $51,033.9750% chance that revenue will be below $51,216.95 $43,521.34 $51,688.3475% chance that revenue will be below $57,003.88 $49,308.27 $52,293.9890% chance that revenue will be below $62,992.82 $55,297.21 $52,875.1295% chance that revenue will be below $66,664.02 $58,968.42 $53,266.58
Marketing Loans and LDP
WTO ruled that cotton LDP is “trade distorting
Provides US farmers with minimum price guarantee
Reducing risk may lead to a shift in the supply curve