NewCrop Pricing

1
(No Transcript)
2
New-Crop Pricing

When is the best chance for
reaching price goals?

What tools will best fit my
needs?

What are the risks?

How much to sell?

• 18-24 months to sell?

3
(No Transcript)
4
(No Transcript)
5
Understand LDPs CCPs before you Forward Price

• LDPs paid if Posted County Price is below loan
  rate
• Dont forward price below loan rate
• Counter Cyclical Payment paid if U.S. Mktg. Year
  avg. cash price direct payment is below target
  price
• Trigger Prices 05 Corn 2.35, SB 5.36/bu.
  (Iowa equiv. Lower)

6
(No Transcript)
7
(No Transcript)
8
Risk premium in early new-crop forward corn
contracts?
9
Corn yields, selected Iowa counties
10
NEWER TOOLS WHY INSURANCE
IS IMPORTANT WITH
PRE-HARVEST PRICING

Worst-case

over-sold, with high
prices

Few bushels means high cost/
bu
.

High price means loss from buying
back elevator contract

Insurance that fits with forward sales
CRC or RA with harvest-price Option
--maintains long cash position
11
REVENUE INSURANCE BASICS
Corn, soybeans

Minimum Revenue
is of Historical Yield x Feb. Avg. of
New-Crop CBOT Price
CRC Coverage increases

if Harvest
Futures are Above Feb. Avg.
RA has this feature as an add-on

Result provides

replacement value
on lost bushels
12
Check out these web sites
http//aede.osu.edu/Programs/AgRisk/ http//www.f
armdoc.uiuc.edu//cropins/insurance/premium_index.a
sp
13
2004 CRC EXAMPLE low yld.
Feb. avg. price of Dec. corn, 2.83 Farm APH
yield 143 bu./a. Insurance _at_ 70 143 x .7 100
bu./a. 100 x 2.83 283/a. gross revenue Actual
yield and price 120 bu. 1.99 Actual insured
income 239/A. Indemnity Payment 283-239
44/A.
14
2004 CRC EXAMPLEActual yield
Feb. avg. price of Dec. corn, 2.83 Farm APH
yield 143 bu./a. Insurance _at_ 70 143 x .7 100
bu./a. 100 x 2.83 283/a. gross revenue Actual
yield and price 200 bu. 1.99 Actual insured
income 398/a. Actual received income
200x1.65330 Indemnity Payment None
15
CRC EXAMPLE not a substitute for marketing
Feb. avg. price of Dec. corn, 2.83 Farm APH
yield 143 bu./a. Insurance _at_ 70 143 x .7 100
bu./a. 100 x 2.83 283/a. gross revenue Actual
yield and price 200 bu. 1.65. Income for
insurance 398/a. (Actual 330) Hedged 100
bu./A. _at_ 2.80 local price 445/A. or
2.235/bu. avg. price Gain vs. CRC alone
115/A. CRC is a Companion tool for marketing
16
FORWARD PRICINGAND NO INSURANCE
Pricing 100 Bu./a. _at_ 2.50 pre-harvest
price Actual yield, 55 bu./a., over-sold by 45
bu. Harvest price _at_ 3.00 (Dec. Fut.
3.30) Buy-back cost on contract 45 bu./a. x
.50 22.50 per acre loss on contract
17
PRE-HARVEST CONTRACT WITH CRC rising prices
Feb. avg. of Dec. futures 2.83 Min. income 100
bu./a. X 2.83 283/a. Actual income 55 bu. x
3.30 181.50/a. Effective insurance 3.30x100
bu./a. 330/a. Indemn. payment 330-181.50
148.50/a. Buy-back cost on contract
22.50/a. Net 126/A. Indemn. Pmt. without
harvest price 101.50/a. Net after contract
buy-back 79/A.
18
GROSS INCOME RESULTS
With no insurance 55 x 2.50 - 22.50
115/a. With CRC 55 x 2.50 286 - (22.50
Contract buy- back) 263.50/A. Without
harvest insurance protection 55 x 2.50
101.50 - ( 22.50 contract buy- back)
216.50/a. Difference 47/a.
19
INCOME RESULTS, ZERO YIELD
With no insurance -50/A. (Before deducting
any costs) With CRC 330- (50 contract
buy-back) 280/a. Without harvest insurance
protection 286 - (50 contract buy-back)
236/a. Difference 44/a.
20
PUT OPTIONS PURCHASESAND NO INSURANCE
Pricing 100 Bu./a. _at_ 2.50 pre-harvest put bought
at 0.18/bu. Actual yield, 55 bu./a.,
over-committed by 45 bu. Harvest price _at_ 3.00
(Dec. Fut. 3.30) Put is worthless. Cost on 45
bu./a. x 0.18 8.10 per acre Cost doesnt
change with price. Could cover with APH
21
The Chicago Board of TradeDenatured Fuel Ethanol
Futures Contract(Just started trading)
22
Gasoline Varies Depending On Where You Are
Source ExxonMobil
23
U.S. Ethanol Production By Firm
Source US Dept. of Energy
24
Historic U.S. Ethanol Production
25
2004 Ethanol Use by Market
Source Renewable Fuels Assoc. (RFA)
26
2004 Corn Usage by Segment
Source Renewable Fuels Assoc. (RFA)
27
Cash Ethanol Nearby Corn Futures
28
Cash Ethanol Nearby Unleaded Gasoline Nearby
Crude Oil
29
Ethanol Crack Spread May 03 through Feb 05
30
(No Transcript)
31
Mktg. program of 3 Successful Iowa Grain
Marketers
Farmer I Has farm storage, low debt --Prices
50 of crop in Feb.-May for winter delivery,
sometimes more --Collects LDP _at_ harvest --Uses
HTAs, watches processor basis
Farmer II has no on-farm storage, cash
rent -- Prices expected production up to
harvest-price revenue insured in Feb.-May --
Sells the rest at harvest or occassionally uses
price later contracts, takes harv. LDP --
Adjusted rotation to ¾ corn, ¼ beans because of
mkts., yields, sb diseases
32
(No Transcript)
33
(No Transcript)