Institute of Ag Professionals

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1 Institute of Ag Professionals Proceedings of the 2014 Crop Pest Management Shortcourse & Minnesota Crop Production Retailers Association Trade Show Do not reproduce or redistribute without the written consent of author(s).

2 WHY ARE GRAIN PRICES AT A FIVE-YEAR LOW? Edward Usset, Grain Marketing Economist Center for Farm Financial Management Book link Corn & Soybean Digest Columnist Blog

3 Corn Supply and Demand

4 $/bu Minnesota Corn Prices Received by Farmers, How did we get here?

5 million bushels 6,000 U.S. Corn Usage for Ethanol Production, ,000 4,000 3,000 2,000 1,000 0

6 bushels/acre U.S. Corn Yields, /

7 Crop Conditions Index 400 U.S. Corn Crop Conditions, The crop condition index is based on weekly USDA crop ratings. An index of 500 reflects a crop in excellent condition, 400 is good, 300 is fair, 200 is poor and 100 is very poor tracked closely with the average of crop conditions during the four best years since 1990, as measured by yields vs. trend (9-14% above trend) , 94, 2004, 09 average average

8 weeks of usage 14 Corn Ending Stocks in Weeks of Usage,

9 Change in the National Average Corn Price ($/bushel) 60% Changes in Ending Stocks Drive Changes in Corn Prices, % 40% 30% 20% 10% 0% -10% -20% -30% -40% -100% -50% 0% 50% 100% 150% 200% Change in US Corn Ending Stocks from Previous Year (million bushels)

10 Change in the National Average Corn Price ($/bushel) 60% Changes in Ending Stocks Drive Changes in Corn Prices, % 40% 30% 20% 10% 0% -10% -20% -30% -40% -100% -50% 0% 50% 100% 150% 200% Change in US Corn Ending Stocks from Previous Year (million bushels)

11 Change in the National Average Corn Price ($/bushel) 60% Changes in Ending Stocks Drive Changes in Corn Prices, % 40% 30% 20% 10% 0% -10% -20% -30% 2014/15-40% -100% -50% 0% 50% 100% 150% 200% Change in US Corn Ending Stocks from Previous Year (million bushels)

12 Quiz Time! Was that the second Golden Age of American Agriculture?

13 The Golden Age of American Agriculture Anna and Lars Hilden, circa 1918 About the first Golden Age the decade leading up to and during World War I average gross income of farms more than doubled, and the value of these farms more than tripled became benchmark years for calculating parity (price and profit levels on par with the Golden Age)

14 Iowa corn prices relative to production costs, % 50% 40% USDA/NASS Iowa corn price received by farmers USDA/ERS estimate of commodity costs, North Central Region ( ) and Heartland Region ( ) 30% 20% 10% 0% -10% -20% -30% -40% Copyright 2014 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.

15 80% 70% 60% Iowa soybean prices relative to production costs, USDA/NASS Iowa corn price received by farmers USDA/ERS estimate of commodity costs, North Central Region ( ) and Heartland Region ( ) 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% Copyright 2014 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.

16 50% 40% 30% North Dakota wheat prices relative to production costs, USDA/NASS North Dakota spring wheat price received by farmers USDA/ERS estimate of commodity costs, North Central Region ( ) and Northern Great Plains Region ( ) 20% 10% 0% -10% -20% -30% -40% -50% -60% Copyright 2014 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.

17 Soybean Supply and Demand

18 $/bu Minnesota Soybean Prices Received by Farmers, How did we get here?

19 million bushels 3,000 Chinese Soybean Imports, ,500 2,000 1,500 1,

20 million bushels 2000 U.S. Soybean Exports,

21 million bushels 90,000 U.S. Soybean Harvested Acres, ,000 80,000 75,000 70,000 65,000 60,000 55,000 50,000 45,000 40,000

22 bushels per acre 50 U.S. Soybean Yields, /

23 Crop Conditions Index 400 U.S. Soybean Crop Conditions, Selected Years The crop condition index is based on weekly USDA crop ratings. An index of 500 reflects a crop in excellent condition, 400 is good, 300 is fair, 200 is poor and 100 is very poor tracked better than the average of crop conditions during the four best years since 1990, as measured by yields vs. trend average , 94, 2004, 05 average

24 million bushels 4,500 4,000 U.S. Soybean Production, harvested acres * yield = production 3,500 3,000 2,500 2,000 1,500 1,000

25 ending stocks in weeks of usage 12 U.S. Soybean Ending Stocks,

26 Change in the National Average Soybean Price (%) 70% Changes in Ending Stocks and Soybean Prices, % 50% 40% 30% 20% 10% 0% -10% -20% -30% -100% 0% 100% 200% 300% 400% Change in US Soybean Ending Stocks from Previous Year (%)

27 Change in the National Average Soybean Price (%) 70% Changes in Ending Stocks and Soybean Prices, % 50% 40% 30% 20% 10% 0% -10% -20% -30% -100% 0% 100% 200% 300% 400% Change in US Soybean Ending Stocks from Previous Year (%)

28 Change in the National Average Soybean Price (%) 70% Changes in Ending Stocks and Soybean Prices, % 50% 40% 30% 20% 10% 0% -10% -20% 2014/15-30% -100% 0% 100% 200% 300% 400% Change in US Soybean Ending Stocks from Previous Year (%)

29 Quiz Time! My students speak!

30 Quiz Time! Professor Usset is a fantastic teacher. He really cares about his students and is passionate about the subject.

31 Quiz Time! Edward is a great teacher! If he could make the final exam easier, the class would be perfect.

32 Quiz Time! You are one of the best teachers I ever met in my college life. Come and party with me.

33 Quiz Time! The instructor was rather scatter-brained and confused about the content.

34 Will prices be higher by spring?

35 Seasonal Index (Marketing Year Average = 1.0) 1.10 Seasonal Patterns in the National Average Corn Price average 0.90

36 A typical strategy this fall Prices are low - I m going to store grain and wait for higher prices.

37 weeks of usage 12 U.S. Ending Stocks of Corn and Soybeans, Crop Years 10 8 Soybeans Corn Big increases!

38 Seasonal Index (Marketing Year Average = 1.0) 1.10 Seasonal Patterns in the National Average Corn Price (all years average) 0.90

39 Seasonal Index (Marketing Year Average = 1.0) 1.10 Seasonal Patterns in the National Average Corn Price Years when ending stocks increase more than two weeks usage from the previous year (1992,94,96,97,2004) (all years average) 0.90

40 Seasonal Index (Marketing Year Average = 1.0) 1.10 Seasonal Patterns in the National Average Soybean Price (all years average)

41 Seasonal Index (Marketing Year Average = 1.0) 1.10 Seasonal Patterns in the National Average Soybean Price Years when ending stocks increase more than two weeks usage from the previous year (1990,98,2005) (all years average)

42 Summary 1. Why are grain prices at a 4-year low? 2. demand is great, but 3. supply is greater 4. ending stocks are increasing sharply 5. prices will be slow to recover

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