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Published August 25, 2014, 10:05 AM

Harvest and crop insurance guarantees

As I reflect on my past market tracking, we’ve lost 50 cents per bushel on new-crop corn and another 70 cents per bushel on soybean harvest delivery prices in the past month. The price decline is being fueled by the large portion of excellent crop ratings across the nation as a whole.

By: Will Walter, Agweek

As I reflect on my past market tracking, we’ve lost 50 cents per bushel on new-crop corn and another 70 cents per bushel on soybean harvest delivery prices in the past month. The price decline is being fueled by the large portion of excellent crop ratings across the nation as a whole.

With the price decline and the local crops showing some stress from dry conditions lately, it makes me look at our crop insurance guarantee levels. Fortunately, the spring crop insurance price was $4.62 on corn and $11.36 on soybeans. For corn, the spring price is the average of the Decemeber corn futures price in the month of February.

The spring price for soybeans is the average of the November futures price in the month of February.

For example, if I have a 125 bushel-per-acre yield, based on my Actual Production History, multiplied by a common 75 percent level of coverage 125 times 0.75 equals 93.75 metric tons, times $4.62 equals $433 per acre of revenue coverage. If the fall harvest price (Chicago futures) is in the $3.25 range (August 2014 was $3.61) a revenue loss will not occur until the yield drops below 133 metric tons. $433 divided by $3.25 equals 133.23 metric tons.

So in this example, a yield above your APH of 125 metrics tons per acre could result in a revenue loss from the lower harvest price.

This leads me into a potential scenario of 2015 in which the spring price could be in the $3.50 range. This would allow for a revenue guarantee of: 125 metric tons times 0.75 equals 93.75 metric tons, times $3.50 equals $328 per acre for 2015. This would be a decline of $105 per acre from 2014. According to the data from our 2013 South Dakota Annual Report Book, the average cash rented cornfield had $420 total expenses, excluding rent.

This represented $348 of direct costs, and $72 overhead costs. So as cash rental rates are negotiated for next year’s growing season, please be aware of the potential of $100 less of guarantee. I’m sure this will be preached over and over by March 1. In addition to an early awareness, I bring this up now because oral leases renew each year, unless terminated by Sept. 1. Not to point fingers at either party, but it is likely the last lease you entered had prices above $5 on corn and $12 soybeans used as a reference of past or potential revenue. Another option to consider is a flex lease arrangment where a set base cash rent is paid plus a bonus, based on revenue.

This somewhat incorporates a cash and share rental arrangement. These can be as simple or complex as desired between parties. For simplicity, I’ve used corn and soybeans in these examples, but the concept pertains to any commodities we grow in South Dakota.

Editor’s note: Walter is a farm business management instructor and program director at Mitchell (S.D.) Technical Institute.

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