Alan Kluis of Sucessful Farming has a very good article on marketing and lock in in your crop insurance plans for the upcoming crop year. In the article, he indicates you need to allocate your bushels between insured bushels (A bushels) and non-insured bushels (B bushels). On the insured bushels, you need to meet with your crop insurance agent and figure out the best crop revenue insurance policy for your farming operation. He indicates one of the benefits of these bushels is that it reduces your financial risk if you get a large portion of your crops sold ahead. It allows you a “license to sell”.
The A bushels (the insured bushels) are the bushels that you can aggressively sell ahead by hedging since you have insured them.
The B bushels (the non-insured bushels) will be price protected with put options. However, the key question is what price level. The difference can be $15 per acre for corn and $10 per acre for soybeans.
Here are 7 questions that Alan says will help evaluate which policy is best for you:
- What is the price guarantee that you can lock in when the average February price is computed on February 26, 2010.
- How high is your actual production history (APH) versus your farms productivity. The higher your APH the more revenue you can lock in.
- What is the price level of the CRC guarantee compared to the actual price at the March 13th signup. A higher market price on March 13th makes putting on more hedges a possible better alternative than buying higher percentage CRC policy.
- Does your farm qualify for a lower cost enterprise discount? This can be a huge cost savings or allow you to buy a higher guarantee.
- What are your yield prospects for 2010. If you still have your 2009 corn crop out in the field as you read this, it may make getting a bumper crop difficult.
- Are you comfortable using hedges or hedge to arrive contracts to get the crop forward sold? The most profitable farms that he had worked with in 2009 had their crop mostly sold ahead by summer.
- Can you use puts to get price protection on your B bushels.
As he indicated “The most profitable farms I worked with this year had a lot of corn and soybeans sold ahead by mid summer. They made money on the hedges, money on the corn puts, lost money on the soybean puts, but most important, they harvested a great crop and they had a lot of revenue locked in on every acre they grew.”
This is a great article to read and I look forward to reading Alan’s column every month.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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