Crop Input and Technology Decisions: Risk Management. Gary Schnitkey University of Illinois

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1 Crop Input and Technology Decisions: Risk Management Gary Schnitkey University of Illinois

2 Topics 1. General economic principles related to input choice 2. Corn versus soybean choice 3. Crop insurance Late planting decisions Rescue sprays and crop insurance

3 General Economic Principle 1 Production practices generally have to stand on their profit merits Being as profitable as possible is a good risk management strategy Better ways to control risk: Crop insurance Rental arrangements (share rent less risky than variable cash, less risky than cash rent) Marketing grain (spreading sales) Financial (debt levels and credit reserves)

4 General Economic Principle 2 When the profit implications are unclear, having a portfolio of production practices is a good risk management practice Planting multiple hybrids or varieties Using several weed control measures

5 General Economic Principle 3 We see little relationship between seed, fertilizer, and chemical costs and yield

6 General Economic Principle 4 High Profit Producers and Low Cost Producers Return Group 1 Low Mid High $ per Acre Gross revenue Costs Direct Power Other Non-land costs Operator and farmland return Direct cost categories Fertilizer Pericides Seed Total direct costs

7 General Economic Principle 5 A production input must pay in terms of yield Fungicide costs $20 for corn $5.00 is the expected harvest time price Need 4 bushel ($20 / $5) to justify funcide

8 Corn Versus Soybeans

9 Corn, Central Illinois High Productivity Year P 2013P Yield per acre Price per bu $4.07 $3.62 $5.34 $5.95 $7.40 $5.80 LDP per bu $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Crop revenue $810 $695 $897 $1,035 $895 $1,131 ACRE and LDP revenue Other gov't payments Crop insurance proceeds Gross revenue $857 $732 $953 $1,082 $1,099 $1,131 Total non-land costs $428 $534 $452 $503 $514 $510 Operator and land return $429 $198 $501 $579 $585 $621

10 Corn Versus Soybean Returns, Central Illinois, High-Productivity Farmland

11 Crop Budgets Favor Corn Corn- Corn- Soybeans- Soybeansafter- after- Continuous after- after-two Soybeans Corn Corn Corn Years-Corn Yield per acre Price per bu $5.80 $5.80 $5.80 $12.80 $12.80 Gross revenue $1,148 $1,090 $1,044 $730 $755 Total direct costs $362 $377 $377 $177 $177 Total power costs $92 $92 $92 $83 $83 Total overhead costs $56 $56 $56 $48 $48 Total non-land costs $510 $525 $525 $308 $308 Operator and land return $638 $565 $519 $422 $447

12 But Need to Look in Longer Run Corn Soybean $530 Corn-Corn-Soybeans $550 Continuous Corn $519 For continuous corn have to et 185 bushels with corncorn-soybeans Need to consider rotation considerations Soybeans allows higher corn-aftersoybean returns into rotation

13 Operator and Farm Returns by Percent of Acres in Corn, Illinois FBFM, Averages for

14 Corn-Soybeans Rotation Tool in Planting Decision Model Corn-Soybean Rotation Tool Budget Defaults Budget Input Corn- Corn- Soybeans- Rotation Returns After- After- Soybeans- After-Two- Default = Central Ill. -- High Soybeans Corn After-Corn Years-Corn Rotation Return Print Average yields (bu. per acre) /2 corn Market price (per bu.) $5.40 $5.40 $13.00 $ /2 soybeans $ 521 Crop Revenue $ 1,069 $ 1,015 $ 728 $ 754 Other Revenue Other Revenue /3 corn Government Payments /3 soybeans $ 529 Revenue per acre $ 1,093 $ 1,039 $ 752 $ 778 Direct Costs $ per acre Continuous corn $ 519

15 Rotations and $4.50 Corn and $10.50 Soybeans Corn Soybean $336 Corn-Corn-Soybeans $338 Continuous Corn $285 For continuous corn have to et 191 bushels to breakeven with corn-cornsoybeans Need to consider rotation considerations Soybeans allows higher corn-aftersoybean returns into rotation

16 Crop Insurance Products RP Revenue Protection, Farm, Revenue with guarantee increase RP-HPE Revenue Protection with harvest price exclusion, Farm, Revenue with no increase YP Yield Protection, Farm, Yield GRP Group Risk Plan, County, Yield GRIP Group Risk Income Plan, County, Revenue no increase GRIP-HP Group Risk Income Plan with Harvest Price, County, Revenue with guarantee increase

17 Percent Acres Insured, Illinois, Corn, 2012 Coverage Level RP RPHPE YP GRP GRIP GRIPH % 0.1% 2.6% % 0.0% 0.1% % 0.0% 0.1% % 0.2% 0.4% 0.0% % 0.6% 0.5% 0.0% 0.0% 0.0% % 1.0% 0.8% 0.0% 0.0% 0.0% % 1.8% 0.5% 0.0% 0.0% 0.0% % 2.4% 0.4% 0.0% 0.0% 0.1% % 0.3% 4.8% Total 61.6% 6.1% 5.4% 0.4% 0.3% 4.9% 78.8% of planted corn acres were insured

18 Percent Acres Insured, Illinois, Soybeans, 2012 Coverage Level RP RPHPE YP GRP GRIP GRIPH % 0.3% 3.8% % 0.0% 0.1% % 0.1% 0.2% % 0.4% 0.8% 0.0% % 0.6% 0.7% 0.0% 0.0% 0.0% % 1.2% 1.0% 0.0% 0.0% 0.0% % 1.8% 0.7% 0.0% 0.0% 0.0% % 1.4% 0.4% 0.0% 0.0% 0.1% % 0.1% 2.8% Total 62.5% 5.7% 7.7% 1.3% 0.2% 3.0% 80.4% of planted soybean acres were insured

19 RP Guarantee Example Corn Soybeans TA-APH yield Projected price (February price) Projected harvest price (avg during Oct) RP uses higher of projected or harvest price in guarantee Coverage level 80% 80% Guarantee (Corn 185 x 7.50 x.80) $1,110 $616 Yield below which payments occur

20 RP Payments, Corn Harvest TA-APH Yield x Coverage Level 1 Yield bu/acre This is the guarantee yield. $ per acre 2 2 Equals the yield shortfall (guarantee yield - harvest yield) x $7.50 harvest price.

21 Prevented Planting Farmers can take crop insurance prevented planting payment if can not plant by final planting date Final Planting Date varies but is June 5 for corn in many counties Should consider taking it at that point Preventing planting will receive scrutiny

22 After June 5 (Varies by County) If have not planted corn because of weather, can Take prevented planting payment Still plant corn Plant soybeans

23 Prevented Planting in FAST Planting Decision Model Prevented Planting Comparison Tool State: County: Indiana Allen Net returns from prevented planting COMBO plan Corn RP Soybeans RP Coverage level 80% 80% APH yield (bu. per acre) Projected price ($ per bu.) $5.68 $12.55 Prevented planting factor 60% 60% Final planting date 6/5 6/20 Prevented planting payment $409 $271 Weed control costs Crop insurance premium Net returns ($ per acre) $377 $244

24 Planting Comparison Net Returns from Planting Corn for Different Yields and Prices Harvest Cash Actual Yield Price Price $ per acre $ / bu. $ / bu.

25 Rescue Sprays and Crop Insurance Fungicide, insecticide sprays in late July and August Good farming practices require that practice be undertaken if that practice aids the farm in reaching its yield goal

26 Resources FarmdocDaily ( Management section of farmdoc have crop budgets and actual results

27 Towards Bottom of Management Section

28 Planting Decision Model Microsoft Excel spreadsheet Available for download from the FAST section of farmdoc Has modules for Corn-soybean rotations tool Corn-soybean-wheat rotation tool Return by planting date Replant calculator Prevented planting calculator

29 Thank you and Questions Gary Schnitkey

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