Managing Crop Risks: A Model
Public and Private Partnership
Steven D. Johnson
Farm & Ag Business Management
Field Specialist
| Region 1: Ron Hook | Region 2: Kelvin Leibold | Region 3:
Robert Tigner | Region 4: Tom Olsen | Region 5: Steve
Johnson | Region 6: Craig Chase | Region 7: Tim Eggers
| Region 8: Bob Wells | Region 9: Jim Jensen |
Iowa State University
Extension Budget, 2003-04
Gifts
2%
User Fees
Federal
12%
19%
20%
30%
Grants
State
17%
County
Presentation Objectives
• Review the history of “Managing Crop
Risks” program
• Current program and agenda
• Program topics
• Creating “value” for clients
• Show me the “money”
• The “road ahead”
Educational Deliverables
•
•
•
•
•
•
Conference
Seminars
Workshops
Discussion Groups
One on One
Web-site:
www.ManagingCropRisks.com
• Emerging technologies: video and
MacroMedia Breeze
The Early Years
• Daylong Conference in held one
location (November and January)
– Sponsored by ISU Extension, Farm
Credit Services of America and Wallaces
Farmer (Farm Progress Companies)
– Outside speakers on a variety of
financial and market risk topics
– Registration fee of $50 with Farm Credit
guaranteeing 50 participants at $30
each
The Later Years
• Workshops scattered around Iowa
with county extension and FCS
Market Place offices coordinating
(December or January)
– Sponsored by ISU Extension and Farm
Credit Services of America
– Selected speakers on financial, market
and weather risk topics
– Registration fee of $10 with Farm Credit
inviting customers and prospects
ISU Extension Corn Train:
Managing Crop Risks
Current Program
• Risk Management Workshop in January
– Sponsored by Farm Credit Services of America in
cooperation with ISU Extension
– 2 ½ hour program with a complimentary meal
– Nineteen locations statewide
– Phone register 48 hours in advance
– Farm Credit invites customers, prospects and
Extension field staff to attend
– All programs are listed on Extension calendar
Locations for 2005 Managing Crop
Risks
Program Agenda
• “Risk Free Crop Farming” including a
video:
– “Weather Outlook for 2005” with Elwynn
Taylor
• Utilizing Crop Insurance Tools
• Outside speaker invited by Farm Credit
Services
• Meal prior to program or afterwards
• Registration and door prizes
Government
Farm
Program
$
Crop
Insurance
Products
Crop Marketing
Strategies
Four Types of Government
Farm Program Payments
• Direct payment (DP)
• Counter-cyclical payment (CCP)
• Loan deficiency payment (LDP)
or marketing loan gain (MLG)
• Subsidized crop insurance
premiums
– 38% to 59% paid by Government
Government Payments
for Corn
Total Expected Revenue-Corn
$/bu.
$3.00
$2.50
$2.00
Direct Pmt
$1.50
CC Pmt
$1.00
LDP Pmt
Harv.Price
$0.50
.7
6
$2
.6
5
$2
.5
4
$2
.4
3
$2
.3
2
$2
.2
1
$2
.1
0
$2
.9
9
$1
.8
8
$1
$1
.7
7
$0.00
Season Average Price
Source: Edwards, ISU Extension Economist
Structure of Program
Payments
for Corn
Target Price
Not
Tied
To
Prod
Prod
Req.
$2.63
Regardless
Of Market
Fixed
Payment
$0.28
$2.35
Counter-Cyclical
Payment
Loan Rate
Only If…
Loan Deficiency
Payment
$0.40
$1.95
Maximum
CCP
2004 Acres Insured in Iowa
7,000,000
6,000,000
5,000,000
4,000,000
CORN
SOYBEANS
3,000,000
2,000,000
1,000,000
0
Actual
Production
History
Crop
Revenue
Coverage
Group Risk Group Risk
Income
Plan
Protection
Income
Protection
Revenue
Assurance
Insurance Coverage by Iowa Farmers in 2004
3,500,000
3,000,000
2,500,000
2,000,000
CORN
SOYBEANS
1,500,000
1,000,000
500,000
0
50
55
60
65
70
75
80
85
90
Corn Insurance Comparison
Price Increase
MPCI
RA-HPO/CRC
150 bu/A
150 bu/A
Coverage
75%
75%
Base Price
$2.20
$2.32
Guarantee
112 ½ bu/A
$261/A
100 bu/A
100 bu/A
Harvest Price ‘05
-------
$3.50/bu
New Guarantee
-------
$393.75/A
$27.50/A
$43.75/A
APH
Harvest Yield
Indemnity
2005 Corn Strategy using Crop Revenue
Coverage or
Revenue Assurance w/HPO
X
150 bu/A APH
75% level of coverage
112 ½ bu/A Guaranteed Yield
X
$2.32/bu Dec. Corn Futures in Feb.
$
261/A Guaranteed Revenue
Probability of Cash Corn Price Outlook
2005 – 06 Marketing Year
$2.55/bu
18%
Source: Wisner, Iowa State Univ. Extension Economist, 4-1-05
Probability of Cash Corn Price Outlook
2005 – 06 Marketing Year
$2.05/bu
60%
$2.55/bu
18%
Source: Wisner, Iowa State Univ. Extension Economist, 4-1-05
Cash Corn Price Outlook Probability
‘05 – ‘06 Marketing Year
$2.05/bu
60%
$2.55/bu
18%
$2.00/bu
22%
Source: Wisner, Iowa State Univ. Extension Economist, 4-1-05
Pre-Harvest
Crop
Marketing
Plan
$
Crop
Insurance
Revenue
Tools
Execution of
Your Marketing
Plan
Show me the money
• Revenue Generation at $36/hour
– Conceptualization and Development – 1 hour per
site
– Travel – 3 hours per site
– Set-up and presentation – 5 hours per site
– Office staff time of 2 hours per site @ $25/hour
– Campus support of $50 per site for video and
development
• Total of $400 per site for development and
training
• Revenue Generation of $300 sent to ISU
Cross Promote other
Extension Programs
Ag Management e-School
(AMES) Non-Credit Web
Courses
www.extension.iastate.edu/ames
•
•
•
•
•
•
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Financial Decision Making
Farmland Ownership
Farm Leasing Arrangements
Farm Machinery Economics
Advanced Livestock Marketing
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Copyright  2002
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The Road Ahead
• Iowa programs in January 2006
• Nebraska and South Dakota programs
in December 2005
• Similar theme, agenda and use of web
site
• Beyond 2006
– Driven by the Market Place
– Must continue to “add value” to clients
– University role as objective 3rd party
Small Group Discussions
Group Interaction
Ask the “Expert”
Sample Farm
• APH = 150/bu A Corn
• Use Revenue Assurance w/HPO at 75% level of
coverage
• Total Production Cost = $350/A
• Marketing Plan
– Sell 50% of new crop corn in the spring
– Average futures price of $2.50/bu
– Average basis at harvest of $ .25/bu under
• No Marketing Plan
– Average cash price of $2/bushel at harvest on all
bushels
• Compare APH Yields vs. High Yield vs. Low Yield
150 bu/A Average Corn Yield
(Marketing Plan)
Copyright© 2004 with Permission
150 bu/A Average Corn Yield
(No Marketing Plan)
Copyright© 2004 with permission.
180 bu/A Average Corn Yield
(Marketing Plan)
Copyright© 2004 with permission.
180 bu/A Average Corn Yield
(No Marketing Plan)
Copyright© 2004 with permission.
131 bu/A Average Corn Yield
(Marketing Plan)
Copyright© 2004 with permission.
131 bu/A Average Corn Yield
(No Marketing Plan)
Copyright© 2004with permission.
“Train the Trainer”
Thank You!
Steven D. Johnson
Farm & Ag Business Management
Field Specialist
ISU Polk County Extension
5201 NE 14th Street, Suite A
Des Moines, IA 50313
(515) 261-4215
sdjohns@iastate.edu
www.extension.iastate.edu/polk/
farmmanagement.htm