Crop Input and Technology Decisions: Risk Management Gary Schnitkey University of Illinois
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
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)
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
General Economic Principle 3 We see little relationship between seed, fertilizer, and chemical costs and yield
General Economic Principle 4 High Profit Producers and Low Cost Producers Return Group 1 Low Mid High $ per Acre Gross revenue 782 818 892 Costs Direct 226 215 194 Power 129 107 100 Other 116 100 70 Non-land costs 471 422 364 Operator and farmland return 311 395 528 Direct cost categories Fertilizer 109 101 89 Pericides 41 41 35 Seed 76 73 70 Total direct costs 226 215 194
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
Corn Versus Soybeans
Corn, Central Illinois High Productivity Year 2008 2009 2010 2011 2012P 2013P Yield per acre 199 192 168 174 121 195 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 0 8 0 0 0 0 Other gov't payments 25 24 24 24 24 0 Crop insurance proceeds 22 5 32 23 180 0 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
Corn Versus Soybean Returns, Central Illinois, High-Productivity Farmland
Crop Budgets Favor Corn Corn- Corn- Soybeans- Soybeansafter- after- Continuous after- after-two Soybeans Corn Corn Corn Years-Corn Yield per acre 198 188 180 57 59 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
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
Operator and Farm Returns by Percent of Acres in Corn, Illinois FBFM, Averages for 2008-2012
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) 198 188 56 58 1/2 corn Market price (per bu.) $5.40 $5.40 $13.00 $13.00-1/2 soybeans $ 521 Crop Revenue $ 1,069 $ 1,015 $ 728 $ 754 Other Revenue 1 0 0 0 0 Other Revenue 2 0 0 0 0 2/3 corn Government Payments 24 24 24 24-1/3 soybeans $ 529 Revenue per acre $ 1,093 $ 1,039 $ 752 $ 778 Direct Costs $ per acre Continuous corn $ 519
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
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
Percent Acres Insured, Illinois, Corn, 2012 Coverage Level RP RPHPE YP GRP GRIP GRIPH 50 0.4% 0.1% 2.6% 55 0.1% 0.0% 0.1% 60 0.4% 0.0% 0.1% 65 1.1% 0.2% 0.4% 0.0% 70 4.7% 0.6% 0.5% 0.0% 0.0% 0.0% 75 11.4% 1.0% 0.8% 0.0% 0.0% 0.0% 80 22.2% 1.8% 0.5% 0.0% 0.0% 0.0% 85 21.4% 2.4% 0.4% 0.0% 0.0% 0.1% 90 0.4% 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
Percent Acres Insured, Illinois, Soybeans, 2012 Coverage Level RP RPHPE YP GRP GRIP GRIPH 50 1.1% 0.3% 3.8% 55 0.1% 0.0% 0.1% 60 0.6% 0.1% 0.2% 65 1.8% 0.4% 0.8% 0.0% 70 6.4% 0.6% 0.7% 0.0% 0.0% 0.0% 75 14.4% 1.2% 1.0% 0.0% 0.0% 0.0% 80 22.0% 1.8% 0.7% 0.0% 0.0% 0.0% 85 16.1% 1.4% 0.4% 0.0% 0.0% 0.1% 90 1.2% 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
RP Guarantee Example Corn Soybeans TA-APH yield 185 50 Projected price (February price) 5.68 12.55 Projected harvest price (avg during Oct) 7.50 15.39 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 148 40
RP Payments, Corn Harvest TA-APH Yield x Coverage Level 1 Yield 90 110 130 150 170 bu/acre 30 450 600 750 900 1050 50 300 450 600 750 900 70 150 300 450 600 750 90 0 150 300 450 600 110 0 0 150 300 450 130 0 0 0 150 300 150 0 0 0 0 150 1 This is the guarantee yield. $ per acre 2 2 Equals the yield shortfall (guarantee yield - harvest yield) x $7.50 harvest price.
Prevented Planting Farmers can take crop insurance prevented planting payment if can not plant by final planting date Final Planting Date varies but is June 5 for corn in many counties Should consider taking it at that point Preventing planting will receive scrutiny
After June 5 (Varies by County) If have not planted corn because of weather, can Take prevented planting payment Still plant corn Plant soybeans
Prevented Planting in FAST Planting Decision Model Prevented Planting Comparison Tool State: County: Indiana Allen Net returns from prevented planting COMBO plan Corn RP Soybeans RP Coverage level 80% 80% APH yield (bu. per acre) 150 45 Projected price ($ per bu.) $5.68 $12.55 Prevented planting factor 60% 60% Final planting date 6/5 6/20 Prevented planting payment $409 $271 Weed control costs 15 15 Crop insurance premium 17 12 Net returns ($ per acre) $377 $244
Planting Comparison Net Returns from Planting Corn for Different Yields and Prices Harvest Cash Actual Yield Price Price 100 110 120 130 140 150 160 170 $ per acre 4.75 4.45 257 254 251 248 245 273 317 362 5.00 4.70 257 254 251 248 263 310 357 404 5.25 4.95 257 254 251 249 298 348 397 447 5.50 5.20 257 254 251 281 333 385 437 489 5.75 5.45 265 262 259 314 368 423 477 532 6.00 5.70 295 292 289 346 403 460 517 574 6.25 5.95 325 322 319 379 438 498 557 617 $ / bu. $ / bu.
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
Resources FarmdocDaily (www.farmdocdaily.illinois.edu) Management section of farmdoc have crop budgets and actual results
Towards Bottom of Management Section
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
Thank you and Questions Gary Schnitkey schnitke@illinois.edu 217 244-9595