january 2010 steven d. johnson farm & ag business management specialist (515) 957-5790...
TRANSCRIPT
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January 2010 Steven D. Johnson
Farm & Ag Business Management Specialist(515) 957-5790
[email protected] www.extension.iastate.edu/polk/farmmanagement.htm
Evaluating Crop Insurance Options
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2010 Crop Insurance Considerations
Can my operation withstand a large yield loss or crop price decline?
Should I buy enough crop insurance just to cover my input costs? Should I elect MPCI or Revenue coverage? What level of coverage should I elect? Should I elect Basic, Optional or Enterprise Units? Should I purchase hail insurance along with the MPCI or Revenue
coverage? Should I request the Biotech Endorsement (BE) for corn? How can I forward price a portion of my 2010 crop using various
crop insurance products?
Source: Johnson, ISU Extension, January 2010
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2010 Crop Insurance Decisions
Source: Johnson, ISU Extension, January 2010
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Crop Insurance for Iowa Corn Acres
Source: USDA Risk Management Agency, October 2009
85% of all 2009 insured acres are covered by Revenue Products
Note: Expect CRC & RA to be combined into one “combo product” for 2011
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Level of Coverage for Iowa Corn Acres - 2009
2.99%
0.21% 2.54%
10.55%
20.81%
34.42%
21.59%
7.26%
1.62%
Source: USDA Risk Management Agency, October 2009
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Crop Insurance for Iowa Soybean Acres
Source: USDA Risk Management Agency, October 2009
84% of all 2009 insured acres are covered by Revenue Products
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2.97%
0.20% 0.48%
9.74%
18.58%
33.66%
23.27%
9.54%
1.55%
Level of Coverage for Iowa Soybean Acres - 2009
Source: USDA Risk Management Agency, October 2009
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Crop Insurance Premium Subsidies
Source: USDA Risk Management Agency, October 2009
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Crop Insurance Units
• Optional Units: Each farm is separate
• Basic Units: Combines owned and cash rented acres
• Enterprise Units: Combine all acres of the same crop across the county
• Whole Farm: Combine corn and beans
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Enterprise Unit Overview6 5 4 3 2 1
7 8 9 10 11 12
18 17 16 15 14 13
19 20 21 22 23 24
30 29 28 27 26 25
31 32 33 34 35 36
If all your farm ground has a similar proximity and
productivity, Enterprise Units
could be an advantage Example
Townshipwith 36
sections
However, if you elect Enterprise Units, all corn fields in the
county will be combined for Federal Crop Insurance
coverage.
Source: Johnson, ISU Extension, January 2010
Typical County with 16 Townships
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Basic vs. Optional Unit ExampleShare with Jones 2.00
Share with
Smith 1.00
Share with Jones 2.00
Farm/Section 6 Farm/Section 5
Cash Rent 3.00
Owns 3.00
Farm/Section 7 Farm/Section 8
Share with Jones 2.02
Share with
Smith 1.00
Share with Jones 2.01
Farm/Section 6 Farm/Section 5
Cash Rent 3.01
Owns 3.02
Farm/Section 7 Farm/Section 8
Insured has 3 Basic Units: 1 with Smith = Unit 1.001 with Jones = Unit 2.001 for Cash Rent & Owned = Unit 3.00
Insured has 1 Basic Unit:1 with Smith = Unit 1.00Insured has 4 Optional Units: 1 with Jones = Unit 2.011 with Jones = Unit 2.021 for Cash Rent = Unit 3.011 for Owned = Unit 3.02
Source: Johnson, ISU Extension, January 2010
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Enterprise Unit (EU) Advantages
• Premium savings in 2009 enabled producers to insure crops at higher levels of coverage (move from 75% to 85% level)
• Easier to qualify for Prevent Plant and Replant claims than Optional Units (20/20 rule: minimum of 20 acres or 20% of the unit)
• If already insured, you may improve Actual Production History (APH) yields by combining units and dropping off older yields.
Source: Adapted from Crop Insurance Industry, December 2009
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Enterprise Unit (EU) Disadvantages
• Variability in farm ground and crop rotation• If you have inconsistent crop APHs• Farm ground is dispersed throughout a
county• Localized loss such as hail could occur, so
consider additional crop hail coverage• Irrigated and non-irrigated crops must be
combined• Crop disease and quality issues could arise.
Source: Adapted from Crop Insurance Industry, December 2009
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Biotech Endorsement (BE) Qualifications
• Expanded hybrids and the entire Corn Belt
• 75% of the acres per unit must be planted to qualifying hybrids
• Customer must complete certification form and provide seed invoices by acreage reporting date (typically June 30th or July 15th)
• Producer must keep track of where corn is planted by unit
• Lack of compliance penalty, loss of premium only
• Estimated premium discount of 10-15%.
Source: USDA Risk Management Agency, December 2009
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Specialty Soybean Coverage
• Can be insured separately in 2010 • Must be covered by a yield product, not
revenue• Past yield records can be used to create
APH yield for each type of soybeans• Low yields will not drag down the APH yield
for conventional/GMO beans• Indemnity price is the higher of contract
price or conventional APH soybean indemnity price
Source: USDA Risk Management Agency, December 2009
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2010 Crop Insurance Reminders
• Recordkeeping has become more important with 2008 Farm Program changes
• Keep APH production records for up to 3 years plus current year
• APH yields are used for both SURE and ACRE programs
• Crop insurance policy entity type and Tax ID and/or SSN number needs to match FSA documentation
• Inconsistent information can reduce or eliminate crop insurance loss payments.
Source: USDA RMA & FSA, January 2010
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2010 Crop Insurance Indemnity Prices
Corn APH (Yield) Revenue
2009 $4.00 $4.04
2010 $3.90 Dec. Corn futures in the month of
February
Soybeans
2009 $9.90 $8.80
2010 $9.15 Nov. Soybean futures in the month
of February
Source: USDA Risk Management Agency, December 2009
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New Crop ‘10 Corn Chart
Source: www.jimwyckoff.com, January 25, 2010
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New Crop Corn Seasonal Trend
79% Odds: Spring Price Exceeds Harvest Price
Chicago December Corn Futures, 1990-2009 average1-J
an 1-F
eb
1-M
ar 1-A
pr
1-M
ay
1-J
un
1-J
ul
1-A
ug
1-S
ep
1-O
ct
1-N
ov
1-D
ec
255
260
265
270
275
280
285
290
295
300
approximate dates
cent
s pe
r bu
shel
Source: www.cmegroup.com U of MN, CFFM, 2009
80% Odds that Spring Price is higher than Fall
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Corn Historical Crop Insurance Prices
19951993
2002
2006
1997
Source: USDA Risk Management Agency, October 2009
75% of the Timethe Spring Price is higher than Fall
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New Crop ‘10 Soybean Chart
Source: www.jimwyckoff.com, January 25, 2010
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New Crop Soybean Seasonal Trend
79% Odds: Spring Price Exceeds Harvest Price
Source: www.cmegroup.com U of MN, CFFM, 2009
Chicago November Soybean Futures, 1990-2009 average1-
Jan
1-Fe
b
1-M
ar
1-Apr 1-
May
1-Ju
n 1-Ju
l
1-Aug
1-Se
p
1-O
ct
1-N
ov
605
615
625
635
645
655
665
675
685
approximate dates
cent
s pe
r bu
shel
67% Odds that Spring Price is higher than Fall
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Soybean Historical Crop Insurance Prices
19951993 2002 20052003
1990
2007 2009
Source: USDA Risk Management Agency, October 2009
60% of the Time the Spring Price is higher than Fall
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23%
31%
29%
17%
Roll 7 Roll 8 or 10
$3.12/bu.
$3.91/bu.
$4.80/bu.
$6.28/bu.
Assumes a Neutral ENSO on June 1st, 2010
National Avg. Yield, Dec. 2010 Corn Futures Price at Harvest
Source: Taylor, ISU Extension Climatologist, December 2009
2010 Long-Term Corn Yield Probability
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CRC or RA Coverage170 bu/A APH75% Level$4.00 bu/A Spring and Fall Price
Crop Revenue Insurance Coverage
(with SURE)
SURE Coverage115% of Revenue Coverage
Source: Johnson, ISU Extension, January 2010
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Comparing ACRE Payments to CCP
2010 ACRE Cash Price Triggers:Corn = $3.35 /bu Soybeans = $8.55 /bu
Counter-Cyclical Payment (CCP)Nat’l Cash Price below: $2.35 /bu Corn $5.56 /bu Soybeans
CCP
ACRE
Source: Johnson, ISU Extension, January 2010
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Source: Johnson, ISUE Farm Mgt., Sept. 2008.
Consider 2010 ACRE
Enrollment by June 1st
Prove your APH annually for Optional
Units
Consider Multiple
Pre-Harvest
Marketing Strategies
Use Crop Insurance Revenue Products
(Consider Additional Hail Coverage)
5 Strategies for Managing Revenue Risk
Wrap up Crop Sales with Spring
Seasonal Price
Trends
Source: Johnson, ISU Extension, January 2010
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5 Crop Insurance Web Sites• Crop Risk Management - ISU Polk County
(Crop Marketing Newsletter & Crop Insurance Updates, Webcasts)www.extension.iastate.edu/polk/farmmanagement
• USDA Risk Management Agency (RMA)www.rma.usda.gov
• Ag Manager – K-State Extensionwww.agmanager.info
• Farm Doc – U. of Illinois Extension www.farmdoc.illinois.edu
• Ag Decision Maker – ISU Extension(Decision Tools, Newsletters, Publications and Voiced Media)www.extension.iastate.edu/agdm
Source: Johnson, ISU Extension, January 2010