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February 2012

February 2012. Steven D. Johnson Farm & Ag Business Management Specialist (515) 957-5790 sdjohns@iastate.edu www.extension.iastate.edu/polk/farmmanagement. Presentation Objectives. Highlight 2011 Crop Insurance Coverage

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February 2012

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  1. February 2012 Steven D. Johnson Farm & Ag Business Management Specialist (515) 957-5790sdjohns@iastate.edu www.extension.iastate.edu/polk/farmmanagement

  2. Presentation Objectives Highlight 2011 Crop Insurance Coverage Review Crop Insurance Changes for 2012 and Related Decisions before March 15th Discuss the New Trend-Adjusted Yield Endorsement and Historical Projected vs. Harvest Prices Highlight 2012 U.S. Planted Acreage Forecasts and Impact of Weather Discuss Marketing Strategies that can Leverage Revenue Protection Coverage Summarize 5 Crop Insurance Strategies & 5 Related Crop Insurance Web Sites

  3. Iowa Corn & Soybean Insurance Coverage (2011) Revenue Protection = 88.5% of Insured Acres Source: USDA Risk Management Agency, September 2011

  4. Level of Coverage - Iowa Corn & Soybean 2011 Acres 33.20% 32.93% 28.73% 27.50% 16.66% 15.23% 12.04% 11.09% 7.70% 7.28% 2.03% 2.12% 0.99% 0.86% 0.61% 0.60% 0.22% 0.21% Source: USDA Risk Management Agency, October 2011

  5. Same Crop Insurance Premium Subsidies Source: USDA Risk Management Agency, October 2009

  6. New in Crop Insurance for 2012 • Trend-Adjusted APH Yield Endorsement • Lower premiums rates: Iowa roughly 13% lower for corn and 9% for soybeans • New county transitional yields (T-Yields) • Discontinuation of the Biotech Yield Endorsement (BYE) • Dates changed: • new acres insured from sod busting/CRP (Mar. 15) • acreage report deadline (July 15) • crop insurance billing date (Aug. 15). Source: USDA Risk Management Agency, November 2011

  7. 2012 Crop Insurance Decisions Unit Coverage? (Basic, Optional or Enterprise) Deductible? Additional Hail, Wind or Greensnap Policy? Revenue Protection – RP (65%-85% Levels) Trend-Adjusted APH Yield Endorsement ? Source: Johnson, ISU Extension, February 2012

  8. County APH Crop Yield Trend Adjustment Source: National Crop Insurance Services, Nov. 2011

  9. Trend-Adjusted APH Yield Endorsement Example of a Typical County Corn Trend Adjustment Factor = 2.5 1999: 13 years X 2.5 = 32.5 bu/A 2011: 1 year X 2.5 = 2.5 bu/A Actual Yield = 174.7bu/A or TA Yield Option = 194.5bu/A Source: Iowa Crop Insurance Industry, February 2012

  10. Iowa Corn Actual vs. Trend-Adjusted Yields Source: Hart, ISU Ext. Econ & USDA NASS, February 2012

  11. Iowa Soybean Actual vs. Trend-Adjusted Yields Source: Hart, ISU Ext. Econ & USDA NASS, February 2012

  12. Sales Closing Date: March 15th – Product, Level of Coverage, Unit Structure and Trend-Adjusted Yield Endorsement Production Reporting (Previous Year): April 29th Initial Planting Dates: April 11th Corn and April 21st Soybeans Final Planting Dates: May 31st for Corn and June 15th for Soybeans Acreage Reporting Deadline: July 15th Premium Penalty Assessed: Beginning October 1st End of Crop Insurance Period: Earlier of when the Crop is Harvested or December 10th. Important Iowa Crop Insurance Dates Source: Johnson, ISU Extension, February 2012

  13. Leveraging Revenue Protection (RP) Source: Johnson, ISU Extension, February 2012

  14. Pre-Harvest Marketing Strategies • Revenue Protection = Insurance Bushels that can be committed to Delivery • Insurance Bushels = APH X Level of Coverage X Higher of Projected vs. Harvest Price • Combine Insurance Bushels sold for Delivery along with the use of Futures and Options Strategies for Non-Delivery bushels. Source: Johnson, ISU Extension, February 2012

  15. December ‘12 Corn Futures Chart Source: www.jimwyckoff.com, Jan. 16th, 2012

  16. Delivery of Corn Bushels with Revenue Protection (RP) Example • Marketing Strategy • Pre-Harvest Sell for Delivery up to 140 Bu/A • Price Guarantee is Higher of the Projected Price vs. Harvest Price • Slight Basis Risk • Must Plant the Crop Deductible 20% = 35 Bu/A RP @ 80% Level of Coverage 140 Bu/A Guarantee X $5.80/bu Projected Price 175 Bu/A Actual Production History (APH) = $812/A Revenue Guarantee Source: Johnson, ISU Extension, February 2012

  17. December Corn Futures Seasonals (1990-2011) Source: Usset, CFFM, U of MN, October 2011

  18. Corn: Projected vs. Harvest Price Source: USDA Risk Management Agency, November 2011

  19. 2012 U.S. Planted Acreage Forecast 94 M 77 M 57 M 30 M * Forecast Source: USDA NASS & Johnson, ISU Extension, December 2011

  20. La Niña Affect on U.S. Weather • What the “double-dip” La Niña means for 2012… • Fewer weather extremes compared to 2010 & 2011. • Dry 2011 fall matches analog years of 1971, 1974, 1999 and 2008, but duration is similar to 1988-89. • Expect this La Niña to last into March 2012. • Odds are 60% shift to El Niño by summer months. Source: Wolter, NOAA, January 2012

  21. Elwynn Taylor’s 2012 Risk Wheel La Niña Summer = 70% risk of below trend line corn yield Neutral Summer = 53% risk of above trend line corn yield El Niño Summer = 70% risk of above trend line corn yield Source: Taylor, ISU Extension Climatologist, January 2012

  22. 2012 U.S. Corn Acreage & Yield Matrix * Estimates in Billion Bushels U.S. Corn Demand for 2012-13 = 13.2 Billion Bushels Source: USDA WASDE & ISU Economics, January 2012

  23. November ‘12 Soybean Futures Chart Source: www.jimwyckoff.com, Jan. 16th, 2012

  24. November Soybean Futures Seasonal (1990-2011) Source: Usset, CFFM, U of MN, October 2011

  25. Soybeans: Projected vs. Harvest Price Source: USDA Risk Management Agency, November 2011

  26. Pre-Harvest Marketing Thoughts • Revenue Protection preferred for sale of Crop Insurance Bushels = Delivery Bushels(Guaranteed Higher of Projected vs. Harvest Price) • New Barometer on March 1st: the Projected Price (February average) for Delivery Bushels • Generate adequate Cash Flow Needs for Fall 2012 through Winter of 2012-13 • Use of Futures and Options Strategies for Non-Delivery Bushels. Source: Johnson, ISU Extension, February 2012

  27. 5 Crop Insurance Strategies Prove your APH yields annually by Farm Level (Optional Units) Consider Pre-Harvest Marketing Bushels using Revenue Protection Lower 2012 Premiums but Higher Revenue Risk Understand Unit Coverage & New Trend-Adjusted Yield Endorsement Use Revenue Protection (RP) Products (Consider Additional Hail/Wind Coverage) Source: Johnson, ISUE Farm Mgt., Sept. 2008. Source: Johnson, ISU Extension, February 2012

  28. 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/farmmanagement Source: Johnson, ISU Extension, February 2012

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