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Business Matters: Avoid an October Surprise

October 4, 2013
By: Chris Barron, Top Producer Columnist
 
 
Chris Barron

During October, our yields become more apparent as our combines roll through the fields. We’ll be able to calculate our production costs with more certainty on a per bushel basis.

This firms up our understanding of per-acre costs, allowing us to determine price objectives to  achieve acceptable profit levels.

For example, if corn yield comes in 20 bu. per acre higher than expected, production cost could drop as much as 50¢ per bushel, depending on your total expenses. Conversely, if yields come in 20 bu. per acre lower than you anticipated, productions costs of $4.80 per acre could easily turn into $5.30 per acre, or 50¢ higher.

Just as we need to understand how yields affect our profit potential, we also need to have a clear understanding of our risk-management tools.

Track Payment Potential. Crop insurance can be confusing, but it’s critical to know and understand where you are at all times. Stay in close contact with your insurance agent during October. Make sure you have a clear understanding of your exact Average Production History (APH), coverage level that you purchased, and the total revenue guarantee that you have on a per acre basis. Remember, the fall price is determined by the average daily close of the December futures contract. Below is a snapshot of a tool I designed to help you track your potential indemnity payment in the event that the fall price comes in lower than the spring price of $5.65 per bushel for corn. Go to the link in the red box to download the spreadsheet and fill in your individual farm’s data. As the fall price moves, you can stay current throughout October with your "potential" indemnity. At the end of the month, plug in the exact fall price, and then when harvest is complete, plug in your actual yield.

This tool is designed to provide an accurate perspective of your level of risk and opportunity. Don’t just sit around and wait for a surprise; be proactive and understand your opportunities as they develop. This tool also includes a soybean indemnity revenue estimator.

One final thought: Try to keep close tabs on what you have already sold and the revenue generated from those sales. Incorporate that information with what we discussed above. If you have very little sold, you might want to be more aggressive in getting sales on the books, especially once you understand your per bushel cost.

No one truly knows where prices will end up. The only sure way to be profitable is to manage and understand your risks, then take disciplined actions when profit opportunities occur.

Visit www.TopProducer-Online.com/Indemnity_Estimator to download the spreadsheet below in its entirety.

Chris Barron is director of operations and president of Carson and Barron Farms Inc. in Rowley, Iowa. He is also a farm business consultant and the author of the AgWeb.com blog, "Ask a Margins Expert." To submit questions and comments, e-mail Chris at cbarron@cb-farms.com.

corn indemnity revenue estimator

 

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FEATURED IN: Top Producer - October 2013

 
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