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June 2013. Steven D. Johnson Farm & Ag Business Management Specialist (515) 957-5790 sdjohns@iastate.edu www.extension.iastate.edu/polk/farm-management. Marketing Revenue Protection (RP) Guaranteed Bushels. Source: Johnson, ISU Extension, June 2013. Separate Bushels :

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Presentation Transcript
slide1

June 2013

Steven D. Johnson

Farm & Ag Business Management Specialist

(515) 957-5790sdjohns@iastate.edu

www.extension.iastate.edu/polk/farm-management

slide2

Marketing Revenue Protection (RP) Guaranteed Bushels

Source: Johnson, ISU Extension, June 2013

slide3

Separate Bushels:

Delivery vs. Non-Delivery

  • Revenue Protection = Insurance Bushels that can be committed to Delivery
  • Insurance Bushels = APH X Level of Coverage X Higher of Projected vs. Harvest Price (ie. acts like a subsidized Put Option)
  • Combine Insurance Bushelssold for Delivery along with the use of Futures and Options Strategies for Non-Delivery bushels.

Source: Johnson, ISU Extension, June 2013

slide4

Delivery of Corn Bushels with Revenue Protection (RP)

  • Marketing Strategy
  • Pre-Harvest Sell for Delivery up to 144 Bu/A
  • Price Guarantee is Higher of the Projected Price vs. Harvest Price
  • Slight Basis Risk
  • Must Plant the Crop
  • (Prevented Planting = 60%)

Deductible

20% = 36 Bu/A

RP @ 80% Level of Coverage

144 Bu/A

Guarantee X $5.65/buProjected Price

180 Bu/A

Actual Production History

(APH)

= $814/A Revenue Guarantee

Source: Johnson, ISU Extension, March 2013

slide5
Comparing 2013 Revenue GuaranteesAPH= 180 bu/A Corn, 50 bu/A SoybeansProjected Prices = $5.65/buCorn, $12.87/buSoybeans

Source: Johnson, ISU Extension, March 2013

slide6

Corn Revenue Protection @ 80%Final Yield: 100 bu/A vs. 200 bu/A YieldPrice: $5.65/bu Projected,$4.50/bu vs. $7.50/bu Harvest Pre-Harvest Sales 100 bu/A @ $5.30/bu

Unpriced Bushels = Harvest Price - $.20/bu Basis

$1,260

$960

$894

$860

Source: Johnson, ISU Extension, March 2013

corn insurance prices vs seasonal highs
Corn Insurance Prices vs. Seasonal Highs

Source: USDA Risk Management Agency & CME Group, Nov. 2012

slide8

December Corn Futures Seasonals

2003-07 Average High $2.92

2008-12 Average High $5.90

Source: www.cmegroup.com, October 2012

slide9

New Crop Corn Futures Chart

Projected Price: February Average:

$5.65/bu.

Source: www.FuturesSource.com, June 5, 2013

slide10

Soybean Revenue Protection @ 80%Final Yield: 30 bu/A vs. 60 bu/APrice: $12.87/bu Projected,$11/bu vs. $14/bu Harvest Pre-Harvest Sales30 bu/A @ $12.50/bu

Unpriced Bushels = Harvest Price - $.50/bu Basis

$780

$690

$560

$515

Source: Johnson, ISU Extension, March 2013

soybean insurance prices vs seasonal highs
Soybean Insurance Prices vs. Seasonal Highs

Source: USDA Risk Management Agency & CME Group, Nov. 2012

slide12

November Soybean Futures Seasonals

2008-12 Average High $13.10

2003-07 Average High $6.96

Source: www.cmegroup.com, October 2012

new crop soybean futures chart
New Crop Soybean Futures Chart

Projected Price: February Average:

$12.87/bu.

Source: www.FuturesSource.com, June 5, 2013

slide14

Pre-Harvest Marketing Thoughts

  • Revenue Protection preferred for sale of Crop Insurance Bushels = Delivery Bushels(Guaranteed Higher of Projected vs. Harvest Price)
  • Sell Delivery Bushels (Forward Cash Contract or HTA) when new crop futures are above the Projected Price (February average)
  • Generate adequate Cash Flow Needs for Fall 2013 through the Winter of 2013-14
  • Sell Futures or Buy Put Options for Non-Delivery Bushels.

Source: Johnson, ISU Extension, June 2013

slide15

5 Crop Insurance Strategies

Keep Good Planting and Yield Records

Work with your Crop Insurance Agent & Grain Merchandisers

Use of Revenue Protection (RP) Crop Insurance; consider use of Hail/Wind Endorsements

Caution for Selling Delivery Bushels if taking Prevented Planting

Selling Some Guaranteed Insurance Bushels

(Use the Spring and Summer Months)

Source: Johnson, ISU Extension, June 2013

5 crop insurance web sites
5 Crop Insurance Web Sites

Ag Decision Maker – ISU Extension Econ

(Decision Tools, Newsletters, Publications, Voiced Media, Monthly e-Newsletter)

www.extension.iastate.edu/agdm

USDA Risk Management Agency (RMA)

www.rma.usda.gov

Farm Doc – U. of Illinois Extension Econ

www.farmdoc.illinois.edu

Ag Manager – K-State Extension Econ

www.agmanager.info

Crop Risk Management - ISU Polk County

(Crop Marketing Newsletter & Crop Insurance Updates, Webcasts)

www.extension.iastate.edu/polk/farm-management

Source: Johnson, ISU Extension, June 2013