Tuesday, May 31, 2011

Plant or Bust

I thought I would pass this on to my farmer reader friends. The picture is our smallest corn a year ago today.

"Today marks corn’s crop insurance D-Day for much of North Dakota, southern Illinois kicks in May 31 and most of the core Corn Belt June 5. After those dates, growers who bought Revenue Protection policies with harvest-price coverage must decide to (1) abandon corn and claim prevented planting coverage of $6.01/bu.; (2) plant corn late and take 1% per day reduced insurance coverage up to 25 days but be rewarded if harvest prices are higher than $6.01/bu.; (3) skip the prevented planting claim and switch to soybeans (4) take prevented planting indemnity and plant soybeans 25 days later (“This turns a lot of people off because it cuts your insurance payment in half and hurts your APH yields,” says Farm Credit Services of Mid-America crop insurance specialist Cory Gault. So let’s assume #4 is not a viable alternative).

Normally, corn growers would default to soybeans. But surprisingly, crop insurance agents like Jarrod Bennett (see last post) expect growers to take the “safe,” no-risk option this year, even if it means collecting prevented planting claims and taking the summer off. He says most of his clients will collect $400-$600 per acre with a pp claim, so who would take the risk of planting soybeans? Farmers in Ohio I talked with are running the numbers, but growers like Mark Ruff call this a “sad but true” situation. He’s toying with the idea that maybe he’d tile some of those wet empty fields this summer, rather than try to plant beans.

In today’s FarmDocDaily e-newsletter, University of Illinois economist Gary Schnitkey details his analysis, and you can summarize it as a “plant corn first, but take the summer off if you can’t” conclusion.
“Basically, I don’t see soybeans competing economically with corn prior to the end of May. After the end of May, then soybeans have to compete with prevented planting corn and prevented planting corn wins,” he says. By Schnitkey’s updated calculations, a grower with Revenue Protection or Yield coverage would net $382/acre to $466 with a 150-bu. yield guarantee on corn by taking a prevented planting claim. Growing soybeans with no yield loss and corn with reduced yield prospects would net about $373 for corn or $363/acre for soybeans because of higher direct and machinery costs. In other words, someone with 85% coverage and a 150-bu. APH yield would make about $100 per acre more with a prevented planting claim than if they took the weather risk and got just 120 bu. corn.

Schnitkey assumes the grower will average corn prices of $6.40 and soybeans $13.30 for the season. With higher prices or yields, the results could swing the other direction. So if you’re a bull who thinks corn will be at $9 by harvest, then keep planting corn as long as possible. Or you could take the summer off.

A blog posting by University of Minnesota Extension economist Kent Olson and Extension agronomist Jeff Coulter today didn’t analyze the insurance choices, but cautioned growers not to be too quick to substitute soybeans for corn. Based on historic Minnesota farm records from the center for Farm Financial Management, they had forecasted net revenue per acre at $443 for 2011 corn, versus $195 for soybeans.

“These estimates indicate a tremendous advantage for corn over soybean and the need for a large decrease in corn yield before soybean is more profitable than corn,” Olson and Coulter said. That’s especially true since corn planting problems will likely lead to higher prices this summer; even with no change in prices, you’d need a 25% drop in corn yield to make someone better off planting soybeans."

It will be interesting to see how all this shakes out. I know corn is going in the ground in southwest Ohio.


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