A tool to help sort out your marketing options
The weeks leading up to spring planting require a great deal of planning for farmers. This year, deciding what type and level of crop insurance to buy will likely require a more strategic thought
process than in years past to manage risk regardless of how 2013 shakes out.
Since it looks like the government will continue to financially support crop insurance, it’s important to enhance your understanding of how different insurance plans work and how to manage your marketing efforts as conditions change.
With the help of Silveus Insurance Group, we can now analyze the profitability of various crop insurance plans. Once you decide which level of insurance to purchase and determine your costs of production, yield, cash sales, futures and option positions, etc., you can plot the bottom-dollar impact on your operation (see table below).
For example, let’s assume a Midwest farm with 625 acres of corn has a five-year yield average of 160 bu. per acre for total production of 100,000 bu. The producer estimates total per-acre costs before a return on investment of $4.50. The table plots this producer’s net profit per acre potential with no crop insurance and an 85% revenue protection. The two extremes in coverage options will help isolate the effects of carrying a high level of crop insurance plan versus not buying insurance.
As of mid-January, December 2013 corn was trading close to $5.70. At 160 bu., this producer could net around $161 per acre with 85% revenue protection coverage or $19 per acre with no insurance coverage.
If we see at least 98 million corn acres planted with yield above 160 bu. per acre, the downside price target of $5 pushes the potential loss to $51 per acre. Giving up $21 per acre to protect against a $212 per acre loss may be the easiest decision that farmers have to make this year.
Watch for additional marketing strategies that can add to Midwest farmers’ net profit per acre in future issues of Farm Journal.
For more tips on maximizing insurance coverage, visit www.FarmJournal.com/crop_insurance
This material has been prepared by a sales or trading employee or agent of Utterback Marketing Services, Inc., and Silveus Insurance Group based on information taken from trade and statistical services and other sources believed to be reliable. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication when making trading decisions. Full disclosure at www.FarmJournal.com. For information on risks and strategies, call (877) 898-4324 or e-mail firstname.lastname@example.org.
- February 2013