Insult and Injury

August 1, 2008 04:10 AM

It was like rubbing salt in his wounds. On July 3, 2008, Howard Goodhue wove his way around the low spots in his Carlisle, Iowa, field, dodging the potholes that were remnants of the 2008 floods. He was planting this field for the second time this year—corn in May, soybeans now. His first crop was drowned out by nearly 10' of water less than a month earlier.

Dust drifted through the air behind his soybean drill. The injury was done, but the insult came with the realization that this field could really use a good rain. "The fish are feeding on my inputs," Howard had said in mid-June, at the height of the flood.

Howard and his son Corey are not alone. Farmers throughout the country have battled water and drought, scrambled to get a crop planted and, in many cases, replanted.

About 20% of respondents in a Farm Journal Media survey say they were forced to replant some portion of their land. On an acreage basis, it equaled 3% of the total farmed by the respondents.

Numbers fluctuate. Even now, the industry is questioning how many acres of corn and soybeans ended up in the ground. Still more questions remain unanswered about yield potential, given the fact that the survey shows that corn and soybean planting was delayed two or more weeks for 34% of producers.

When USDA announced its June acreage estimates, it cautioned the numbers would likely not be accurate. Much of the Midwest, from Indiana to Nebraska, was inundated with rainfall. Epic flooding occurred throughout the region during mid- June as USDA's survey was being completed. The agency collected new figures in July and will release updated estimates Aug. 12.

The Farm Journal Media survey indicates that farmers had actually planned considerably more corn acres than USDA reported in its March intended acreage estimate. High prices held farmers' interest in corn and only slightly fewer acres were planned for 2008 compared with last year's record-setting crop (see table).

Midwest rains, of course, dampened those plans, with the survey showing just more than 80 million in the ground. Soybean acres also suffered, but likely more due to continued strong corn prices than water.

Droughts, too. Out West and down South, the story was different. What the Midwest couldn't stop, these farmers can't get started. They need rain and lots of it.

Farmer and farm business management coach Dick Wittman is in his fourth year of significant rain shortages in the past five on his Lapwai, Idaho, cereal-grain operation.

Wittman is concerned that weather problems, combined with rising input costs, will make farmers more hesitant to use sound forward marketing practices in the future. While he understands the potential concern with selling a crop before it is produced, he says the need to use history as a guide will be more important than ever.

"When you get your hands burned not growing enough crop to fill contracts, you start becoming cautious about tapping strategies that worked in the past," he says. "But rather than reject a previously successful practice, maybe you just use it more moderately.

"For example, when you look at recent corn, soybean and wheat prices, why would you not consider selling 10%, or 25% or even a third of a crop when prices are in historically high ranges and can guarantee 50% to 100% operating margins?"

Goodhue says that because he farms primarily flood-plain ground, it is nearly impossible for him to forward sell production. He's not sure from one year to the next if he'll have crop. "That's one lesson we have learned on this farm," he says.

"Federal crop insurance products have taken a lot of the risk out of forward pricing some of the crop," Wittman adds. "However, when price swings exceed the maximum level covered with crop revenue insurance products, that adds a new risk."

For example, he says, "when you can insure wheat for $6.27/bu. with a $2 maximum additional harvest price coverage, you are only covered on short bushels up to $8.27… what do you do when prices run to the $10 to $12 range?"

With commodity prices as high as they are today, Wittman says there is an increasing need to manage the farm's financial expectations and relate these goals to a clearly defined cost of production.

Get Help Without Insurance

In this year of abundant disaster, the Supplemental Revenue Assistance Program (SURE) allows uninsured farmers to receive disaster payments under a one-time waiver because of the delays getting a completed farm bill through Congress. In a recent Farm Journal Media survey, 32% of almost 1,400 respondents reported plantings affected by weather and, of them, almost 17% did not have crop insurance.

Until Sept. 16, 2008, farmers can still qualify for disaster payments by paying a fee of $100/crop/county, up to a limit of $300/county or $900/farm for catastrophic coverage (CAT) or the Non-Insured Assistance Protection (NAP), says Dan McGlynn, deputy director for Production, Emergency, and Compliance Division at USDA's Farm Service Agency. "The main thing is they must take coverage on all their crops."

"Most people will insure corn, soybeans, wheat, etc. But think forages, think of pasture, those are all crops as well, but insurance isn't available on all those crops," says Brad Lubben, University of Nebraska farm policy specialist. "You have to use NAP in order to receive disaster payments."

To be eligible for a SURE claim, a farm must be in a county or adjacent to a county that has been declared an agricultural disaster area. Farms not meeting this criteria can still qualify if 50% or more of a crop is lost across the farm, he says.

SURE originates from the regular emergency programs, so it has similar attributes, Lubben says. But the calculation for payment has changed. If you bought crop insurance before the regular deadline, the formula is 115% of your coverage, Lubben says. "So if you bought 70% coverage, you multiply it by 115% and you get 80% coverage. However, SURE is capped at 90%. So if you bought insurance at 80%, 115% is about 92%, but SURE ends at 90%."

Art Barnaby, Kansas State University Extension economist, explains the SURE payment under the waiver: "It's 50% of the yield times 60% of the price, then 60% of the claim. So it's about 17¢ on the dollar for losses unless farmers had higher levels of crop insurance."

To contact Greg Vincent, e-mail

Top Producer, Summer 2008

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