Albin News Readers,
Mother nature sent us all a message this week that we have turned the corner on winter and spring is in fact on it’s way again. When the first cold snap of fall hits, it’s a great motivator to make sure there’s enough food, fuel, etc to make it through the winter. When the first warm snap of spring hits, we start looking around for the seed catalogues, baby chicks, and any good reason to fall in love again. Speaking of seed catalogues, I just got the third one in the mail. A day like today makes me want to call them up and ask for “one of everything please.” I know this is just a warm snap and we have March and April yet to go but it still get the ol’ blood pumping.
In community news, there will be a raffle to support the senior lunch program at the community center. Tickets are $2/each and the prize is ½ of a buffalo processed and delivered to your freezer. For more information or to purchase tickets, contact Michelle Childers at the Albin Community Center (246-3558).
Also, the community center is getting news doors and new gym lights. Because of the construction, the gym will be unavailable for open gym basketball and other events starting the week of the 21st of Feb and going approximately two weeks. Aside from the gym, the rest of the community center will remain open and available for normal use.
In Ag news, the ag markets have continued to be volatile, mostly in the upward direction. However, as we move into spring, I think it’s safe to say that daily movements of $0.20/bu or more and $1.00/cwt on cattle will become commonplace. On top of this, farming inputs, such as fuel and fertilizer, have also doubled or nearly doubled. Not only does this volatility make it difficult to know when and how much of our crop to market, it’s also hard to know in what way to market crops (hedges, options, cash contracts, basis contracts, etc). Simply put, it can get complicated. What it all boils down to is what the USDA calls “risk management.” They’ve got a subsidiary of the USDA called the Risk Management Agency or RMA, which is responsible for laying out the ground rules for federally subsidized crop insurance.
In a year like this, when the crop prices can shoot up then drop off a cliff, it’s easy to hesitate on taking a good crop price because it’s so easy to be wrong. However, if farmers don’t take some kind of price protection, they could end up raising one of the most expensive crops ever and find it’s not worth much at harvest time. One of the ways to address this is to make a reasonable estimate of what it costs to raise a crop and then try to set a “floor price” that covers these costs and allows for more profit if the market moves up. Typically this is done using options on the futures market (for wheat, corn, or soybeans) or through a written contract with a processor for specialty crops (organic crops, dry beans, sunflowers, millet, etc). However, the RMA has been offering insurance products that would do the same thing on a percentage of the expected crop.
This brings me to my main point which is a way to approach marketing crops in a volatile year like this using a relatively new tool in the tool box offered by the RMA through your regular crop insurance agent. This year, there will be two basic types of crop insurance offered, “yield protection” insurance that guarantees a certain yield, and “Revenue protection” that guarantees a certain revenue to the farmer. The great thing about the revenue protection is that it costs more, but it essentially sets a floor price for you. To do this, the RMA picks a window of time (usually a certain month) and averages out the closing prices for say corn over that month and calls that the price level at which they’ll over insurance. The idea is that they will do this early enough that farmers can decide if their price protection worth getting or if they want to just purchase yield protection insurance and find some other way to protect the price they’ll receive for their crops. As it turns out, the price for 2011 corn is being set over the month of February and so far the closing prices have averaged out to $6.05/bu!! I’m pretty sure that’s a price we would all like to have for a floor for next year. You can watch this process in action at this RMA website link. http://www3.rma.usda.gov/apps/pricediscoveryweb/CropsInDiscovery.aspx The price for winter wheat has already been set and is at $7.15 for next year.
This brings us to the subject of cost. If a farmer has a yield history of 150 bu/ac and insures at the 70% level, then the total revenue guarantee per acre at $6.00/bu would be a whopping $630/acre. Although I’m a youngster, I can remember when good irrigated ground could be bought for $630/ac. To guarantee this revenue will be pretty expensive. However, take a minute and look at it this way. With revenue guarantees this high, you can more than likely guarantee yourself a profit even with the high insurance cost. This means, you can focus on farming and if prices keep going up, you will still benefit.
A way to cut down on the cost of purchasing revenue protection insurance is to look at enterprise units. As most of you know, an enterprise unit is when a farmer combines farm ground on multiple sections and averages the revenue or production protection across a broader area. To do this, you have to have 20 acres or at least 20% of your cropland in multiple sections of ground. Doing an enterprise unit reduces the cost of insurance by 60%. Some may feel like this reduces their chances of getting a settlement. However, it does what good marketing plan should: reduces marketing costs while protecting revenue for the farm as a whole.
In conclusion, the crops that are eligible for revenue protection and enterprise units are corn, wheat, soybeans, and sunflowers. Organic corn and organic wheat are also eligible. Other crops are only eligible for yield protection insurance. There is a March 15 deadline to request for revenue protection and enterprise units. There is no penalty if you do not end up planting a crop in multiple sections.
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