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Jul. 23, 2012 by Marcia Zarley Taylor, DTN Executive Editor Auburn, Ill., farmer Tim Seifert already expects his corn yields to plunge from his 10-year average of 217 bushels per acre to as low as 130 to 160 bpa this season. Ironically, he's feeling "very confident" his revenues won't suffer a similar wipeout. Not only did he purchase an 80% Revenue Protection policy that will shield him from losses, but he expects to collect much of the 47% price increase that's buoyed markets since late June on the unsold portion of his crop. Corn in a field near Centralia, Ill., in early July shows yield damage. If Illinois's average corn yield tumbles to 135 bushels per acre and fall prices stay at $7, as University of Illinois economist Gary Schnitkey expects, typical revenue insurance payments will run over $300 per acre and more than compensate for production loss. (DTN photo by Pam Smith)"I'll need all the crop insurance coverage I signed up for," he says, still hoping for rain that will salvage his soybeans. "But at this stage, my major concern is whether the government will have enough money to pay us." This year's corn crop is shaping up as a disaster of epic proportions for livestock producers, ethanol plants and the export industry. It will likely make a huge dent in the federal crop insurance budget and decades of profit margins for private insurers. Surprisingly, grain producers who need not push the panic button yet. Growers who have yet to sell much of the 2012 crop may indeed end the year with better revenues than if they'd produced a normal yield worth $4.60 per bushel -- the season average cash price USDA expected farmers to receive just a few weeks ago. Many growers are in that situation. Seifert had pre-priced about 56 bu./acre at a mere $5.60, far below the $7.50 or more he expects to capture on anything he harvests now. Plus, his crop insurance policy will reimburse him in full for lost bushels at harvest prices, up to the unlikely limit of $11.36/bu. The bottom line is, "I can make more money on a partial crop at $7.50 than a 200 bu. crop at $4," he says. "If the drought hadn't been so widespread and lifted prices, I'd be in a totally different situation." That optimism hinges on commodity prices staying high through the month of October, when crop insurance payment rates are settled. But while U.S. crop producers face what could be the worst drought since 1988, the majority share Seifert's confidence. Of 408 producers surveyed on DTN's 360 online poll this week, 65% said they were confident or very confident their crop insurance would adequately cover their revenue this year. Some 17% said they were "somewhat uneasy" and another 6% were "very uneasy" about adequate insurance coverage. Another 10% said they self insured. COMFORT ZONE At a minimum, Kansas State University economist Art Barnaby expects crop insurance contracts to pay out $10 billion to $11 billion in indemnities this year based on current crop damage, although some crop insurance carriers and farm organizations believe $40 billion may be more likely if prices stay high through October or if more acres like those in northern Indiana yield zero production. In 2011, growers claimed a record $10.8 billion in losses. "I don't want to argue with Art Barnaby because he's a very smart man," says Iowa Farm Bureau President Craig Hill. "But he isn't taking into consideration that this is an anomaly event. The zeroed out acres in Indiana, Illinois and southern Missouri will be collecting $700/acre, not the normal $40/acre payments. This will be big money and serious dollars." To read the rest of the article click here. Tweet |
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