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The Crop Producer’s Risk Management Decisions

The Crop Producer’s Risk Management Decisions. Bruce Babcock and Dermot Hayes Iowa State University. “Time” in the Corn Market. Monthly Iowa Corn Price Declines, 1979-. 80 Through 1999-00 Marketing years. Percent of time Prices. Declined. 70%. 60%. 50%. 40%. 30%.

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The Crop Producer’s Risk Management Decisions

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  1. The Crop Producer’s Risk Management Decisions Bruce Babcock and Dermot Hayes Iowa State University

  2. “Time” in the Corn Market

  3. Monthly Iowa Corn Price Declines, 1979- 80 Through 1999-00 Marketing years Percent of time Prices Declined 70% 60% 50% 40% 30% 20% 10% 0% 80% Jun-Jul Sep.-Oct. Jul.-Aug. May-Jun Apr.-May Oct.-Nov. Jan.-Feb. Nov.-Dec. Dec.-Jan. Feb.-Mar. Aug.-Sep. Mar.-Apr.

  4. Iowa Corn and Soybeans Crop Insurance Decision in 2003

  5. Government Programs • Four primary forms of government support • LDP: Price guarantee on all harvested bushels (Iowa corn at about $1.90 per bushel) • CCP: Price guarantee on a fixed number of bushels for prices between $1.90 and $2.24 per bushel. • DP: Guaranteed payment of about $30 per acre ($0.19 per bushel) • Crop insurance: pays off when yield or revenue is low

  6. Net Farm Income and Government Payments

  7. Not Tied To Prod Structure of Paymentsfor Corn Target Price $2.60 Regardless Of Market Fixed Payment $0.28 $2.32 Counter-Cyclical Payment Only If… $1.98 Loan Deficiency Payment Loan Rate Prod Req.

  8. Purpose of Farm Programs • Commodity programs (DP, LDP, CCP) • support aggregate income of sector • Crop Insurance • support farmers’ individual incomes

  9. Is the “Farm Problem” Fixed? • Farmers have raised their expectation of revenue • Investment decisions and land rental agreements will reflect higher profitability • What happens when revenue is less than projected?

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