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November 2011 Archive for Risk Management with Insurance Tools

RSS By: Jamie Wasemiller, AgWeb.com

Insurance tools have become an integral part of managing your farming operation. Stay current on insurance tools and how to incorporate them with your current risk management strategies to market your grains throughout the year.

Federal Crop Insurance May be the Last Program Standing

Nov 03, 2011

 

It looks like the farm bill will be written by the four principles of the House and Senate Ag Committee and hopefully they will include it within the bill the Super Committee will present to Congress. If this is true, then the farm bill will be voted within the debt reduction package as a whole. Keep in mind that the debt reduction bill is not amendable. At this point the accepted rumor is that there will be a reduction of $23 billion.
 
How does this dollar figure impact government programs?
 
These are some of the ideas being tossed around the industry:
 
  • $4 billion will be taken from the nutrition program
  • A reduction of CRP acres ranging from 4-7 million acres.
  • Direct and Counter-Cyclical payments along with both the ACRE and SURE programs may go away. This will results in a reduction of around $14 billion.
 
It appears that the Senate Ag Committee has not proposed any reductions within the current Federal Crop Insurance program. This is mainly due to the cuts that were already put in place last year with the new SRA agreement. Federal Crop Insurance may even gain more support if the previously mentioned cuts due, in fact, happen. If so, Federal Crop Insurance could be looked upon as one of the few programs left to protect the farmer.
 
I believe early evidence of this is the introduction of the new Trend-Adjusted APH program being introduced in certain states. The Trend-Adjusted APH adjusts eligible yields, in qualifying APH databases, to reflect long term increases in the county’s historical yield. This should have a positive impact for many farmers within the approved states.
 
That being said, the next questions to consider are what will happen to the items above if the Super Committee’s plan is not approved? What if the “powers-to-be” decide in the future that even more budget cuts needed? In both cases, Federal Crop Insurance may be targeted . . . . especially if prices stay at these high levels. This is just another reason why we need to become more diligent in diverse and effective marketing strategies. Understanding both will ultimately give us the flexibility to thrive in our profession.
 
If you have any questions or would like to know more about how to incorporate insurance and grain marketing, feel free to ask me in the comment section of this blog, or contact me at Jamie@gulkegroup.com.
 
There are substantial risks involved with both futures and options trading. While risk is limited to purchase price when buying an option, it is not limited when selling an option. Commodity trading and other speculative/ hedging investment practices involve substantial risk of loss. Past results are not necessarily indicative of future results when utilizing the commodities markets. This material and any views expressed herein are provided for informational purposes only and should not be construed in any way as an endorsement or inducement to invest.
 
 
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