Combining SURE, Crop Insurance, and
Marketing
Presented to
2009 National Extension Risk Management
Education Conference
Presenter
G. Art Barnaby, Jr., Ph.D.
Professor,
Agricultural Economics
Kansas State University
Email barnaby@ksu.edu
Check out our WEB page at
http://www.AgManager.info
Kansas State University, Copyright 2009, All Rights Reserved; 03/25/09.
1
Marketing Plans

Farmer sells everything at harvest.

Farmer stores everything and sells out of the grain bin.



buy puts, sell futures, forward contracts, counter
cyclical/marketing loan, ACR etc.
Farmer feeds his grain to hogs, cattle, dairy cows, etc.
All Marketing Plans assume bushels will be produced at
harvest otherwise, it is a speculative position.
Kansas State University, Copyright 2009, All Rights Reserved; 03/25/09.
2
Replacement Corn Bushels Using 75% APH (MPCI) with an Average Yield of 13,333 Bushels,
Assuming $3.50 APH Price, a 30 Cent Under Basis, and a Price Increase
11,000
10,500
10,000
541
9,500
Replacement Bushels
1,463
9,000
2,222
2,857
8,500
3,396
8,000
10,000
7,500
9,459
8,537
7,000
7,778
6,500
7,143
6,604
6,000
5,500
$3.80/$3.50
$4.00/$3.70
$4.40/$4.10
$4.80/$4.50
Harvest Price
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$5.20/$4.90
$5.60/$5.30
3
Replacement Corn Bushels Using 75% CRC/RA-HPO with an Average Yield of 13,333 Bu.,
Assuming a $4.00 CBOT Spring Price, a 30 Cent Under Basis, and a Price Increase
11,000
10,500
857
811
732
667
612
566
10,000
Replacement Bushels
9,500
9,000
8,500
8,000
10,000
10,000
10,000
10,000
10,000
10,000
$3.80/$3.50
$4.00/$3.70
$4.40/$4.10
$4.80/$4.50
$5.20/$4.90
$5.60/$5.30
7,500
7,000
6,500
6,000
5,500
Harvest Prices
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4
Sell 10,000 Bushels of Corn with MPCI Coverage
CBOT/CASH
52,000
51,000
50,000
$5.00/$4.70
49,000
48,000
47,000
Replacement Bushels
46,000
45,000
44,000
43,000
42,000
41,000
40,000
$4.00/$3.70
39,000
38,000
37,000
40,000
36,000
37,000
35,000
35,000
34,000
CBOT
SALES
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MPCI
5
Sell 10,000 Bushels of Corn with MPCI Coverage with a Price Increase
CBOT/CASH
52,000
51,000
50,000
$5.00/$4.70
49,000
48,000
47,000
Replacement Bushels
46,000
45,000
10,000
44,000
43,000
42,000
10,000
41,000
40,000
$4.00/$3.70
39,000
38,000
37,000
40,000
36,000
37,000
35,000
35,000
34,000
CBOT
SALES
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MPCI
6
Sell 10,000 Bushels of Corn with CRC Coverage with a Price Increase
CBOT/CASH
52,000
51,000
50,000
$5.00/$4.70
49,000
48,000
47,000
Replacement Bushels
46,000
45,000
10,000
44,000
43,000
15,000
42,000
10,000
41,000
40,000
$4.00/$3.70
39,000
38,000
37,000
40,000
36,000
37,000
35,000
35,000
34,000
CBOT
SALES
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CRC/RA-HPO
7
SUpplemental REvenue Assistance
Supplemental Revenue Assistance Payments (SURE)
Adds supplemental “free” whole farm revenue insurance
coverage
Requires all crops to be insured or pay NAP fees, if there
is no insurance available
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8
SUpplemental REvenue Assistance (SURE)
SURE guarantee = planted & considered planted acres x %
crop insurance coverage x adjusted APH/APH/program
yield x CI price election x 115% (120% in 2008 , in
Stimulus Bill)
Adjusted SURE aph= If less than 4 years of history,
farmers can drop one “plugged” yield. If more than 4
years, all “plugged” yields will be dropped in SURE
adjusted aph?
SURE cap = 90% x planted acres x adjusted
APH/APH/program yield x insurance price guarantee
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9
SUpplemental REvenue Assistance (SURE)
Revenue to count = indemnities, prevented planting,
15% of direct payments, CC, ACRE, marketing loan
gains, crop values (harvested acres x yield x MYA
price)
SURE Payment = SURE Guarantee less the Revenue to
count X 60%
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10
Technical Corrections
Requires a 10 percent yield loss due to natural
causes on at least one crop of economic
significance for SURE eligibility. Economic
significance means the expected revenue from the
crop must be at least 10% (changed to 5%) of
total crop revenue.
Eliminates counting of “ghost” & de minimis crops
in SURE guarantee, revenue to count and do not
require insurance or NAP fees.
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13
Table 1. Estimated Weighted National Average Price
and Projected % ACRE Price loss and % SURE Price
Loss (03/19/09)
Grain
SoyCrop
Wheat
Month
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Month
Sep
Oct
Nov
Dec
Jan
Feb
beans
5.02
4.37
4.26
4.05
4.36
4.13
4.60
3.96
3.68
2.87
3.27
2.85
10.70
9.94
9.38
8.97
9.97
9.58
6.80
$6.89
4.10
$4.34
3.20
$3.34
9.35
$9.91
% of 08-09 NASS Price Settled3
88%
63%
72%
70%
2008 RA & SURE Strike
2008 RA Harvest Price
2008 NASS SURE Claim Price
$ Price Loss in SURE Claim
% Price Loss in SURE Claim
8.60
8.60
6.89
$1.71
20%
5.40
3.74
4.34
$1.06
20%
5.06
3.87
3.34
$1.72
34%
13.36
9.22
9.91
$3.45
26%
FSA Est. 2008/09 NASS Price
Current Est. 2008/09 NASS Price 2
7.62
7.16
7.64
7.43
6.67
6.28
5.91
5.90
6.32
Corn Sorghum
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14
Summary of farm bill crop insurance title
Administratively, USDA increased the price limits on
CRC from current levels to 2 times base price, e.g.
increased corn from $5.54 cap ($4.04 + $1.50) to
$8.08 and eliminated the downside price limit.
Administratively, USDA will apply this same price limit
to RA for the first time. Limit also applies to GRIP.
Conduct a pilot that increases the subsidy rate on
enterprise & whole farm units to match optional unit
subsidy.
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15
Increased subsidy rate on enterprise &
whole farm units
Coverage Level
50
55
60
65
70
75
80
85
Current Subsidy Level 67% 64% 64% 59% 59% 55% 48% 38%
Increase Subsidy for:
Enterprise Units*
80% 80% 80% 80% 80% 77% 68% 53%
Whole Farm Units*
n/a n/a n/a 80% 80% 80% 71% 56%
*New increased subsidy for Enterprise and Whole Farm units are only on
insurance plans and in counties that RMA offers Enterprise and Whole Farm units.
Kansas State University, Copyright 2009, All Rights Reserved; 03/25/09.
16
Enterprise Unit vs. Optional Units


Optional units insure a crop by “field” so an insurance
claim on one field will not be affected by the yields on
other fields. Enterprise unit combines all of a farmers’
crop acres together for a single crop. This lowers the
risk of paying a claim, but this can be offset by buying a
higher coverage level.
For example, changing from 65% optional units to an
80% enterprise RA/CRC unit will do the following; 1.
increases subsidy, 2. receive enterprise premium
discount, 3. increases the total dollars of revenue
guaranteed, 4. lowers the deductible but often lowers
premiums too, and 5. increases “free” SURE coverage.
Kansas State University, Copyright 2009, All Rights Reserved; 03/25/09.
17
SURE and Crop Insurance is a Joint Decision
Increasing crop insurance coverage will increase the SURE
coverage too.
Spot loss can be covered with private hail, (in some cases
wind, fire, freeze or other perils) and the indemnity payments
will not count against the SURE payments.
CRC and RA-HPO have different enterprise definitions.
Kansas State University, Copyright 2009, All Rights Reserved; 03/25/09.
18
Apply Tools to Case Farm
Describe Farm
Make crop insurance and SURE decision
Make pre-harvest marketing decisions, with yield risk.
Compare highest net income for 1 of 4 possible years
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19
You are John or Mary Sample. With your spouse, you manage a crop farm with
Wheat and other crop enterprises. Presently the acreage is split between
Wheat and other crops. However, your landlords are demanding a cash rent
increase but you intend to retain those Wheat acres. There are several bank
notes outstanding for land and machinery. You have budgeted out your Wheat
and other crop operations and you expect to have sufficient income to cover
production costs, scheduled principal and interest payments, and living
expenses.
Your financial situation, however, is sensitive to changes in crop yields and
market prices. So you are willing to consider some alternative pricing
strategies to manage your price risk exposure. You are also considering the
purchase of crop and/or hail insurance. You may purchase MPCI, CRC\RAHPO, RA\IP, GRP, GRIP-HRO or Catastrophic crop insurance. If you wish, you
may add supplemental hail coverage to your crop insurance purchase.
Your assignment is to manage the production and marketing risk for the 2010
Wheat crop. Beginning in September 2009, you will have 4 opportunities to
forward price any portion of your expected crop by forward cash contracts,
hedging with futures, or by purchasing put options (a form of "price
insurance"). The dates on which you may price the crop are September 10,
February 11, Mar 31, and May 6. You may not sell more than 100,000 bushels of
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20
Wheat before harvest using any combination of the various marketing
alternatives offered.
If you change your mind, you may buy back futures you sold and/or sell back
any put options you purchased -- in effect "cancel" your "price" insurance.
However, you may not cancel forward cash contracts. All Wheat sales will be
completed before or by June 17, 2010 (harvest). Also at harvest, all forward
contracts will be met even if you have to buy grain on the cash market and any
futures contracts and/or put options will be offset.
If an LDP is available at harvest, you will be required to take it at that time.
There will be no post-harvest storage or ownership and you will not be able to
take any actions to “hedge” the counter-cyclical payment (CCP). All
participants will receive the same direct payment and the same CCP if a CCP is
paid during the 2010/11 marketing year.
You will not know what your "actual" yield will be until harvest. At that time
you will "draw" one of four possible yields. If you suffer a crop loss it will be
due either to "other causes" (insured under MPCI, CRC, RA, RA-HPO, GRP,
GRIP-HRO or CAT) or to "hail". You will receive no GRP or GRIP-HRO payment
if cause of loss is hail. The probability of suffering a crop loss will be provided
at the time crop insurance is to be purchased (September 30, 2009).
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21
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22
Year
Farm
Current
66.4
Year 2 18.6 9.0
Year 3
40.8
Year 4
45.0
Year 5
52.7
Year 6
48.4
Year 7
36.7
Year 8
35.4
Year 9
42.2
Year 10
43.1
Avg Yield
APH Yield
SURE
GRIP/GRP
Kansas State University,
42.0
42.9
47.7
28.6
Copyright 2009, All Rights Reserved; 03/25/09.
County
45.5
Yr 11
8.6
Yr 12
28.5
Yr 13
24.3
Yr 14
34.9
Yr 15
37.9
Yr 16
25.1
Yr 17
24.3
Yr 18
28.9
Yr 19
29.5
Yr 20
38.3
35.6
19.3
21.0
25.1
22.6
23.6
17.7
31.0
32.5
28.8
23
Wheat: September 30
Number of Acres
2,331.0
Please Circle only ONE Dollar Amount ! (Rounded to $100)
CRC /RAHPO
$5.00
CBOT
GRP GRIP-HRO
$129
$143
CBOT
CBOT
RA/IP
$5.00
CBOT
Coverage
1. 80% MP/CRC/RA $22,900 $41,300 $37,300
GRP/
90% GRIP
$9,600
$25,000
2. 75% MP/CRC/RA $16,600 $29,200 $26,200
GRP/
85% GRIP
$6,800
$19,200
3. 70% MP/CRC/RA $12,400 $21,400 $19,100
GRP/
80% GRIP
$4,600
$13,700
$ XXXXX
$ XXXXX
Coverage
4.
MPCI
$4.50
P Election
Catastrophic
Catastrophic
$300
NONE $ XXXXX
In early summer, your crop's development is about 7-10 days behind average. It's been hot and dry but your
crop has benefited from locally cooler temperatures. Based on the condition of the crop today, you think
your yield could be higher than your APH. The weather forecast includes widely scattered thunderstorms,
with locally damaging wind and hail. You are considering purchasing additional private hail insurance.
GRP/
5. 80% Basic Hail + $34,100 $52,500 $48,500
90% GRIP $32,000 $47,400
CI Coverage
GRP/
6. 75% Basic Hail + $27,800 $40,400 $37,400
85% GRIP $29,200 $41,600
CI Coverage
GRP/
7. 70% Basic Hail + $23,600 $32,600 $30,300
80% GRIP $27,000 $36,100
CI Coverage
8. CAT Basic Hail + $22,700 $ XXXXX $ XXXXX
$ XXXXX
$ XXXXX
CI Coverage
WORKSHOP YIELD "DRAWS"
PROBABILITY OF YIELD AND CAUSE OF LOSSES (IF ANY)
Yield Prob
Cause
Prob
Cause
% Loss
Total
Production
9 15% Other Causes
5% Hail Loss %
83.3%
20,000
Bu.
21 20% Other Causes
10% Hail Loss %
58.3%
50,000
Bu.
43 25% No Loss
5% Hail Loss %
16.7%
100,000
Bu.
51 20% No Loss
No Loss
120,000
Bu.
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-------
24
Assume a Market Price of
SUMMARY,
$7.00
Corn: March 15
(Payments Rounded to $ 1,000)
No Private Hail Added
Cov
$4.50
Total
Premium
Prem.
per Ac.
Yes,
<------------Yield-------------->
9
21
| | $ Cov
43 | | Hail
$10.00
Total Bushels
80,000
36,000 80%
SURE
75,000
33,750 75%
SURE
70,000
31,500 70%
SURE
30,000
13,500 CAT
SURE
GRP/GRIP
166,667
155,556
40,000 80%
SURE
75,000 75%
SURE
70,000 70%
SURE
Premium
Selected
Private Hail Added
Prem.
per Ac.
<------------Yield-------------->
9
21
43
$217,000
$0
$194,000
$0
$172,000
$0
$163,000
$0
$163,000
$23,000
$0
$23,000
$0
$23,000
$0
$47,000
$0
$47,000
| |
MPCI
$22,900
16,600
12,400
300
41,300
29,200
21,400
MPCI & PRIVATE HAIL
| |
$9.82
$270,000
$24,000
7.12 ______
$248,000
$26,000
5.32
$225,000
$22,000
0.13
$74,000
$0
$135,000
$0
$113,000
______
$0
$90,000
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
CRC / RA-HPO
88,889
Harvest Price Increase
17.72
$420,000
$84,000
12.53
$385,000
$88,000
______
9.18
$350,000
$82,000
|
|
|
|
|
|
|
$60
$34,100
$14.63
60
27,800
11.93
60
23,600
10.12
120
22,700
9.74
| |
120
22,678
9.73
|
|
|
|
|
|
|
CRC / RA-HPO & PRIVATE HAIL
| |
$210,000
$88,000
$175,000
$91,000
______
$140,000
$85,000
$0
$0
$0
$0
$0
$0
RA / IP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$387,000
$24,000
$364,000
$26,000
$342,000
$22,000
$307,000
$0
$233,000
60
52,500
60
40,400
60
32,600
22.52
$537,000
$292,000
$84,000
$88,000
17.33
$502,000
$257,000
$88,000______
$91,000
______
13.99
$467,000
$222,000
$82,000
$85,000
$23,000
$0
$23,000
$0
$23,000
$0
RA / IP & PRIVATE HAIL
| |
| |
88,889
83,333
77,778
40,000 80%
SURE
37,500 75%
SURE
35,000 70%
SURE
37,300
26,200
19,100
16.00
260,000
50,000
$60,000
11.24
235,000
$62,000
______
8.19
210,000
$58,000
$64,000
25,000
$66,000
______
0
$62,000
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0| |
$0
0
$0
0
$0
60
48,500
20.81
| |
| |
| |
| |
60
37,400
16.04
60
19,100
8.19
$377,000
$132,000
$23,000
$60,000
$64,000
$352,000
$107,000
$62,000______
$66,000
$327,000
$82,000
$58,000
$62,000
$0
$23,000
$0
$23,000
$0
25
September 10, 2009
MARKET INDICATORS: Presently, wheat is in short supply everywhere in the world.
Weekly exports of United States wheat have been well above the USDA's marketing
year forecast and can be sustained at the current levels for only a few more weeks
because there is very little wheat left to sell. Most producers have already sold their
2009 production. Consequently, overseas buyers are shifting purchases to new crop
wheat.
There are nearly ideal planting conditions for HRW in the Plains. Harvest of row crops
will be later than average imposing delays in planting SRW but many of those acres
are expected to be planted to corn in the spring. Double crop soybeans\wheat are
likely to remain. EU wheat production, which is up 6 mmt (4.9%) this year, is expected
to increase another 2-4 percent in 2010/11. Australia is expecting a larger crop this
year than recent drought reduced yields. Ideal growing conditions in Australia are
expected to increase their crop by 5 mmt (20%) from last year.
China is not exporting corn this year. The Argentine government has restricted
further corn exports. Russia is reportedly limiting wheat exports to keep internal price
from rising.
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26
Pricing Opportunities for Wheat on 09/10/09 To Be Delivered at Harvest
KCBOT Futures Expected
Put
Expected
or Put Option + Harvest - Option
= Net
Strike Price
Basis
Premium
Price
+
=
SHOULD I SELL SOME Wheat TODAY? (Y/N)
WHAT QTY?
HOW?
WHY?
KCBOT July Wheat Futures =
$5.00
KCBOT
KCBOT
Jul Option
CALL
Put
Jul Option
CALL
Put
Strike Price Premium Premium
Strike Price
Premium
Premium
- - - - - - - - - - - - - - - - - - - - - - - ($/Bu.) - - - - - - - - - - - - - - - - - - - - - - 6.80
0.15
1.91
5.20
0.52
0.72
5.50
0.41
0.90
5.00
0.59
0.59
5.40
0.44
0.84
4.80
0.69
0.50
Forward Contract Bid = $4.20 for Jun 17 Delivery (Avg Basis -$0.25/bu.)
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27
Case Problem, 2010 Weekly July Wheat Futures (High, Low, Close)
$5.60
$5.40
$5.20
Sep 10
$ 5.00
$5.00
$4.80
7/2/08
8/6/08
9/10/08
10/15/08
11/19/08
12/24/08
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1/28/09
3/4/09
4/8/09
5/13/09
6/17/09
28
Pricing Opportunities for Wheat on 09/10/09 To Be Delivered at Harvest
KCBOT Futures Expected
Put
Expected
or Put Option + Harvest - Option
= Net
Strike Price
Basis
Premium
Price
+
=
SHOULD I SELL SOME Wheat TODAY? (Y/N)
WHAT QTY?
HOW?
WHY?
KCBOT July Wheat Futures =
$5.00
KCBOT
KCBOT
Jul Option
CALL
Put
Jul Option
CALL
Put
Strike Price Premium Premium
Strike Price
Premium
Premium
- - - - - - - - - - - - - - - - - - - - - - - ($/Bu.) - - - - - - - - - - - - - - - - - - - - - - 6.80
0.15
1.91
5.20
0.52
0.72
5.50
0.41
0.90
5.00
0.59
0.59
5.40
0.44
0.84
4.80
0.69
0.50
Forward Contract Bid = $4.20 for Jun 17 Delivery (Avg Basis -$0.25/bu.)
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29
MARKETING LEDGER
Name Art's Worksheet
Total
Transaction
SEP 10
FEB 11
MAR 31
MAY 6
Harvest Revenue
CBOT Futures
Futures Price
$5.00
Quantity Sold
5,000
Quantity Bought
xxxxxx
Gain (Loss)/Bu
Total Gain (Loss)
PUTS
Strike Price
$5.00
Premium
$0.59
Quantity Bought
5,000
Quantity Sold
xxxxxx
Gain (Loss)/Bu
Total Gain (Loss)
CALLS
Strike Price
Premium
Quantity Bought
Quantity Sold
xxxxxx
Gain (Loss)/Bu
Total Gain (Loss)
Forward Cash Contract
Price Bid
$4.20
Quantity
10,000
Total Revenue
$42,000
Bushels Produced
Harvest Sales
- Bu. Frwrd Contract
Price @ Harvest
Quantity Delivered
Quantity Delivered
Hrvst Sales Revenue
Total Revenue
------------------------------------------------------------------------------Average Price Received = Total Payments Received / Total bushels Produced
(Bushel) =
/
Bushels
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30
Case Problem, 2010 Weekly July Wheat Futures (High, Low, Close)
$7.60
$7.40
$7.20
$7.00
$6.80
$6.60
Feb 11
$ 6.00
$6.40
$6.20
$6.00
Mar 31
$ 5.50
$5.80
May 6
$ 5.70
$5.60
$5.40
$5.20
Sep 10
$ 5.00
$5.00
Jun 17, Harvest
$ 4.80
$4.80
7/2/08
8/6/08
9/10/08
10/15/08
11/19/08
12/24/08
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1/28/09
3/4/09
4/8/09
5/13/09
6/17/09
31
Name_________________________________
Art’s Worksheet
1 . Acres Harvested
2,331.0
$+
2 . Average Yield [See "B." on "Yield Slip"]
Yield Draw Bu\Ac.
3 . Total Bushels [See "C." on "Yield Slip"]
Bus.
4 . Ttl Crop Mrkt Income [See Mktng Ledger]
$+
Sales
5 . Crop Insurance Pymnts [See "Payout" Tbl]
$+
Indemnity
6 . SURE Pymnts [See "Payout" Tbl]
$ + SURE
7 . LDP Payments [See "Yield Slip"]
$+
8 . Counter Cyclical Payments
$+
$0
9 . Direct Payments
$+
$29,000
10 . Crop Insurance Premium Expenses
$ -Ins.
11 . Ttl Prod Expns [See "D." on "Yield Slip"]
$-
12 . Net Income [Lines (4+5+ 6+ 7+ 8+9) - (10+11)]
$
Kansas State University, Copyright 2009, All Rights Reserved; 03/25/09.
pymt
Prem
Costs
32
MARKETING LEDGER
Name Art's Worksheet
Total
Transaction
SEP 10
FEB 11
MAR 31
MAY 6
Harvest Revenue
CBOT Futures
Futures Price
$5.00
$6.00
$5.50
$5.70
$4.80
Quantity Sold
5,000
10,000
10,000
Quantity Bought
xxxxxx
5,000
Gain (Loss)/Bu
($1.00)
Total Gain (Loss)
($5,000)
PUTS
Strike Price
$5.00
$5.00
Premium
$0.59
Quantity Bought
5,000
$0.17
Quantity Sold
xxxxxx
5,000
Gain (Loss)/Bu
($0.42)
Total Gain (Loss)
($2,100)
CALLS
Strike Price
$6.00
Premium
$0.13
Quantity Bought
10,000
Quantity Sold
xxxxxx
Gain (Loss)/Bu
Total Gain (Loss)
Forward Cash Contract
Price Bid
$4.20
$5.40
$5.00
$5.30
Quantity
10,000
10,000
10,000
10,000
Total Revenue
$42,000
$54,000
$50,000
$53,000
Bushels Produced
Harvest Sales
- Bu. Frwrd Contract
Price @ Harvest
Quantity Delivered
Quantity Delivered
Hrvst Sales Revenue
Total Revenue
------------------------------------------------------------------------------Average Price Received = Total Payments Received / Total bushels Produced
(Bushel) =
/
Bushels
Kansas State University, Copyright 2009, All Rights Reserved; 03/25/09.
33
MARKETING LEDGER
Name Art's Worksheet
Total
Transaction
SEP 10
FEB 11
MAR 31
MAY 6
Harvest Revenue
CBOT Futures
Futures Price
$5.00
$6.00
$5.50
$5.70
$4.80
Quantity Sold
5,000
10,000
10,000
Quantity Bought
xxxxxx
5,000
Gain (Loss)/Bu
($1.00)
$0.70
$0.90
Total Gain (Loss)
($5,000)
$7,000
$9,000
$11,000
PUTS
Strike Price
$5.00
$5.00
Premium
$0.59
Quantity Bought
5,000
$0.17
Quantity Sold
xxxxxx
5,000
Gain (Loss)/Bu
($0.42)
Total Gain (Loss)
($2,100)
($2,100)
CALLS
Strike Price
$6.00
Premium
$0.13
Quantity Bought
10,000
Quantity Sold
xxxxxx
Gain (Loss)/Bu
($0.13)
Total Gain (Loss)
($1,300)
($1,300)
Forward Cash Contract
Price Bid
$4.20
$5.40
$5.00
$5.30
Quantity
10,000
10,000
10,000
10,000
Total Revenue
$42,000
$54,000
$50,000
$53,000
$199,000
Bushels Produced
100,000 Harvest Sales
- Bu. Frwrd Contract (40,000) Price @ Harvest
$4.50
Quantity Delivered
60,000 Quantity Delivered
60,000
Hrvst Sales Revenue
$270,000
Total Revenue
$476,600
------------------------------------------------------------------------------Average Price Received = Total Payments Received / Total bushels Produced
$4.77 (Bushel) = $476,600 /
100,000 Bushels
Kansas State University, Copyright 2009, All Rights Reserved; 03/25/09.
34
Name_________________________________
Art’s Worksheet
1 . Acres Harvested
2,331.0
$+
2 . Average Yield [See "B." on "Yield Slip"]
43
3 . Total Bushels [See "C." on "Yield Slip"]
100,000
Bu\Ac.
Bus.
4 . Ttl Crop Mrkt Income [See Mktng Ledger]
+
$+
5 . Crop Insurance Pymnts [See "Payout" Tbl]
+
$+
0.00
6 . SURE Pymnts [See "Payout" Tbl]
+
$+
0.00
7 . LDP Payments [See "Yield Slip"]
$+
0.00
8 . Counter Cyclical Payments
$+
$0
$+
$29,000
9 . Direct Payments
+
$476,600
300
10 . Crop Insurance Premium Expenses
$-
11 . Ttl Prod Expns [See "D." on "Yield Slip"]
$-
345,000
12 . Net Income [Lines (4+5+ 6+ 7+ 8+9) - (10+11)]
$
160,300
Kansas State University, Copyright 2009, All Rights Reserved; 03/25/09.
35
What Did We Learn Today?


Was this a realistic market? Could this case study really
happen?
Farming the same farm, same cost, except for the level
of insurance, but a wide range in outcomes. While there
is luck involved with production agriculture, management
decisions do make a difference.

A written plan is more likely to be followed.

Options will not protect from “small” price changes.
Kansas State University, Copyright 2009, All Rights Reserved; 03/25/09.
36
What Did We Learn Today?


Many farmers do just fine by selling in increments and
trying to get a high average rather than trying to pick
the top of the market. Often times the more
complicated marketing plans don’t add a great deal, but
no decision is also a decision.
GRP/GRIP leaves farmers with the yield basis risk.
Kansas State University, Copyright 2009, All Rights Reserved; 03/25/09.
37
What Did We Learn Today?


GRP/GRIP is selling best in locations where it maybe
underrated and APH overrated?
RA-HPO/CRC expands the marketing window, up to two
years before harvest. Most farmers are more
comfortable forward selling grain when the inventory is
guaranteed and their indemnity payment is not delayed
5 to 10 months as is the case for GRP/GRIP
Kansas State University, Copyright 2009, All Rights Reserved; 03/25/09.
38
SUMMARY







ACRE
Participation in either or
both programs
Start Date 2009
Signup, before June 1
(annually)
After signup, in ACRE for
the duration of Farm Bill
Cost 20% Direct & 30%
loan reduction & no CC
Farm Serial #

SURE

Participation in either or
both programs
Start Date 2008
Signup, None; May have
to “certify” all acres
insured
Annual (May 18 for 2008)
Insure all crops

Whole farm, all crops




Kansas State University, Copyright 2009, All Rights Reserved; 03/25/09.
39
Thank You
DR. G. A. “ART” BARNABY, JR.
KANSAS STATE UNIVERSITY
& 4B AG CONSULTANTS, LLC
PHONE: 785-532-1515
EMAIL: barnaby@ksu.edu
Check out our WEB page at
http://www.AgManager.Info
Copyright
2007,Copyright
All Rights
Reserved
Kansas
State University,
2009, All Rights
Reserved; 03/25/09.
40