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Drought 2012. James H. Jensen Farm Management Specialist 319-385-8126 jensenjh@iastate.edu. Pricing Drought-damaged Corn Silage: Short M ethod. Standing silage (buyer harvests) Normal silage: 1 ton = 7 x price of corn Corn price = $6, 1 ton of silage is worth $42

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drought 2012

Drought 2012

James H. Jensen

Farm Management Specialist

319-385-8126

jensenjh@iastate.edu

pricing drought damaged corn silage short m ethod
Pricing Drought-damaged Corn Silage:Short Method

Standing silage (buyer harvests)

    • Normal silage: 1 ton = 7 x price of corn
      • Corn price = $6, 1 ton of silage is worth $42
    • Drought-stressed silage: similar value
      • Less grain but more sugar in stalks
    • Silage with little or no grain content: 5 x price of corn
      • Corn price = $7, 1 ton of silage is worth $35
      • Or, 40% of grass hay price (adjusted for moisture level)
  • Harvested silage: add $5-10 per ton
    • Depends on distance hauled, tonnage per acre
pricing corn silage long m ethod
Pricing Corn Silage: Long Method

Cost to seller

  • Lost income from grain sales
  • Lost income from stover sales or use
  • Added fertilizer expense for next year
  • Minus harvesting costs not incurred

Value to buyer

  • Tied to price of corn and grass hay
  • Lower % grain decreases feed value

Buyer and seller can negotiate within this range.

See Ag Decision Maker decision file A1-65

www.extension.iastate.edu/agdm

crop insurance coverage 2012
Crop Insurance Coverage 2012
  • About 90% of Iowa corn and soybeans acres are covered by MPCI
  • 90% of insured acres have Revenue Protection (RP), 7% Yield Protection (YP)
  • YP bushels covered at February futures price
    • Corn $5.68 / bushel
    • Soybeans $12.55 / bushel
  • RP bushels covered at October futures price (if higher than Feb. price)
    • Dec. corn contract, Nov. soybean contract
crop insurance coverage 20121
Crop Insurance Coverage 2012
  • Guarantee levels: 13% of acres @ 70%

32% of acres @ 75%

34% of acres @ 80%

15% of acres @ 85%

  • Proven yields could be increased for yield trend in 2012
    • Corn by 10-13 bu/acre
    • Soybeans by 2.5 to 3.0 bu/acre
example for corn
Example for Corn
  • RP policy @ 80%, 160 bu/a proven yield
  • October average futures price = $7.70 ?
  • Guarantee = 80% x 160 bu x $7.70 = $986
  • Indemnity payment will be:
    • Yield > 128 bu/a: none
    • Yield = 100 bu/a, 28 bu. x $7.70 = $215.60
    • Yield = 50 bu/a, 78 bu. x $7.70 = $600.60
    • Yield = 0 bu/a, 128 bu. x $7.70 = $985.60
example for soybeans
Example for Soybeans
  • RP policy @ 75%, 52 bu/a proven yield
  • October average futures price = $16.00 ??
  • Guarantee = 75% x 39 bu x $16.00 = $624
  • Indemnity payment will be:
    • Yield > 39 bu/a: none
    • Yield = 30 bu/a, 9 bu. x $16.00 = $144.00
    • Yield = 15 bu/a, 24 bu. x $16.00 = $384.00
    • Yield = 0 bu/a, 39 bu. x $16.00 = $624.00
remember
Remember
  • Production is averaged over all acres in the insured unit
  • Prices could go down by October
  • Some acres are not insured (10%)
  • Some acres have low proven yields
  • Must continue to care for crop
reporting losses
Reporting Losses
  • Contact your crop insurance agent before you harvest or destroy the crop
  • Adjuster will evaluate the crop
  • Possibilities:
    • Declare total loss. Do what you want.
    • Partial loss. Leave it until fall and harvest.
    • Partial loss. Chop it and leave check rows.
reporting losses1
Reporting Losses
  • File a claim within 72 hours after loss is discovered, or within 15 days after crop is or harvested.
  • Must continue to “care for crop”.
  • If harvested, document production in usual way.
  • Add-on policies do not cover drought.
should i harvest the crop
Should I Harvest the Crop?
  • Minimum revenue needed

Variable costs for combining $15.00/a.

(fuel & repairs, or custom charge)

Expected price $7.00? / bu

- Extra P and K fertilizer if harvested

(.375 lb. P@$.65, .30 lb. K @$.60) $.42 / bu.

    • hauling ($.15), drying ($.20) $.35 / bu

=Net price $7.00 - .42 -.35 = $6.23

= Breakeven yield = $15.00 / $6.23 = 2.4 bu/a.

preharvest pricing
Preharvest Pricing
  • Futures contracts: can lift hedges if production is insufficient
  • Options: keep upside price potential open
  • Forward contracts: obligated to fulfill the contract. May have to buy extra bushels.
  • Crop insurance can help.
forward contract with short crop and insurance example
Forward Contract with Short Crop and Insurance: Example
  • 100 acres of corn insured at 80% of 160 bu/a proven yield (12,800 bushels covered)
  • 12,800 bu/a forward contracted @ $6.50
  • Guaranteed revenue is $83,200
  • Crop yields are below expectations
  • Local price goes up to $7.50 at harvest
forward contract considerations
Forward Contract Considerations
  • Crop insurance will help offset cost of buying out a contract.
  • But don’t contract more than you have insured (% guarantee x proven yield).
  • Insurance price will exceed cash price by value of the grain basis in October.
  • Delivery month may be later than October, buy back price could change.
usda emergency programs
USDA Emergency Programs
  • Must be a USDA secretarial disaster county or contiguous county
    • 30% or more damage to at least one crop
    • 8 consecutive weeks as “severe drought”
    • Counties as of July 16
usda emergency programs1
USDA Emergency Programs
  • FSA emergency loans available at 2.25% for actual production losses
  • Haying or grazing of CRP acres
  • Livestock Forage Disaster Program (expired)
  • SURE crop disaster program (expired)
  • ACRE still in effect
haying or grazing crp land
Haying or Grazing CRP Land
  • CRP acres can be hayed or grazed starting August 2.
  • Managed haying/grazing
    • One year out of three, for 90 days
    • Payment reduced 25%
  • Emergency haying/grazing
    • Payment reduced 10%
  • Must apply to FSA
haying or grazing crp land1
Haying or Grazing CRP Land
  • At least 50% of a field or contiguous fields must remain unhayed
  • At least 25% of a field or contiguous fields must remain ungrazed or acreage is grazed at 75% of grazing rate
  • One cutting of hay is allowed by 8/31/12
  • Hay must be removed from CRP by 9/30/12
haying or grazing crp land2
Haying or Grazing CRP Land
  • Practices eligible for emergency haying and grazing are:
    • CP1
    • CP2
    • CP4B
    • CP4D
    • CP10
    • CP25 is eligible for grazing only
livestock forage disaster program
Livestock Forage Disaster Program
  • Must have purchased forage insurance
  • But beginning farmers are exempt
    • Farming less than 10 years
    • Not own a farm > 30% of median county size
  • Payments for up to 3 months depending on severity of drought
  • Monthly payments per head have been about $35 for beef cows , $90 for dairy cows, $8 for ewes
acre program 2012 crop
ACRE Program 2012 Crop
  • Must be enrolled (16% of Iowa acres)
  • State revenue must be below trigger level: CornSoybeans

Iowa trigger $710/a. $522/a.

Projected MY price $5.90 $14.00

Maximum yields 120 bu. 37 bu.

to trigger payment (Iowa average)

  • Farm level must also trigger a loss
farm lease considerations
Farm Lease Considerations
  • Communicate with your landowner
  • Send photos of the crops, pastures
  • Adjustments for 2012?
  • Discuss rent for 2013
    • Yields down, prices up, rent ??
  • Flexible leases: are crop insurance proceeds included in the rent formula?
income tax considerations
Income Tax Considerations
  • Can defer reporting crop insurance proceeds if normally sell over 50% of crop in next tax year. All or nothing.
  • Can defer early sales of market livestock if they would have been sold in next tax year.
  • Sales of breeding livestock due to drought are not taxed if replaced within 2 tax years (4 tax years if in disaster county)
financial considerations
Financial Considerations
  • Rethink marketing plans
  • Revise cash flow budget for 2012
  • Talk to your lender (no surprises)
  • Assess your liquidity
  • Get an income tax estimate
  • Postpone equipment purchases