farmgate: Uncertain Market Prices. High Production Costs. How Do You Cover Your Risk?
You are operating in a new era of financial risk in agriculture. The bullish market of the past two years is history. But the high cost of production is the present. How do you manage production, marketing, and revenue risk in the current environment? Is the answer a wing and a prayer? Is the answer a seat of the pants marketing plan? To manage today’s risk will take some expense, but it will also take knowing what crop insurance programs to select. And there are many decision aids available.
Farming was simple for Dad. It is complex for you. But managing the financial risk in an era of weak markets and strong production costs is a challenge that can be met with the proper tools. Many of those tools are available from the Farmdoc crop insurance program, created by University of Illinois ag economists, which cover multiple Cornbelt states.
The Premium Calculator will provide your crop insurance premium regardless of the county in which you farm in the 12 North Central states plus Maryland. After entering your state, county, and crop into the calculator, along with your 2009 APH yield, you will be provided with a table that indicates crop insurance premiums for various coverage levels and your yield and revenue guarantees for both farm-level insurance policies and county-level products. The Biotech Yield Endorsement is also detailed. The advantage of the premium calculator will help you create a crop budget before you have to meet with your crop insurance agent early in March. The Premium Calculator can be downloaded into Microsoft Excel software on your computer, or you can use the online calculator.
The Payment Simulator will evaluate a range of insurance products for both corn and soybeans in Minnesota, Iowa, Illinois, Indiana, and Maryland. The Payment Simulator will detail the premiums for various coverage levels, then shows the percent of years that a certain coverage level will make an indemnity payment, along with the average payment. It will also provide data for policies with the Biotech Endorsement. The Payment Simulator is available as an online decision aid.
Farmers wanting to explore a variety of options with crop insurance programs will be able to use the “What If” analyzer. It is a spreadsheet tool that you can download onto your computer, if you have Microsoft Excel software. The “What If” tool will compute your crop insurance premium, calculate your payment from various crop insurance products with prices and yields that you supply. It will also compare your farm yield to a county yield, if you want to consider the use of a county-level crop insurance product, such as GRIP. It will be of particular value to corn and soybean producers across the Cornbelt.
An extensive resource is also available which will provide background on types of insurance, how they are calculated, their benefits, and their limitations. Various examples are also provided, which address CAT, Crop Revenue Coverage, Revenue Assurance, and Group Risk Income Plan. One of the particularly important factsheets combines the use of crop insurance and making marketing decisions. Farm Management Specialist Gary Schnitkey outlines which of the common crop insurance tools are applicable for producers who make limited use of pre-harvest hedging or who aggressively hedge prior to harvest, as well as those who have either strong or vulnerable financial positions.
All of the decision aids can be used reliably between now and the crop insurance sign-up deadline on March 15. Premiums are already set, so costs are known. The only unknowns are the price guarantees for revenue products that depending on futures closes during the month of February.
Summary:
Financial fears can be eased somewhat with the use of crop insurance in a year when production costs are high and prices are not as high as in recent years. To help with a crop insurance program, there are many decision aids that will indicate the level of premium under different crops, coverage levels, and on various farms. The decision aids will also provide the opportunity to explore different levels of risk, and potential payments.
Posted by Stu Ellis on February 10, 2009 12:55 AM to farmgate