Ag Decision Maker

The 2013 Iowa Farm Custom Rate Survey followed the recent trend of small, but consistent increases in rates each year. According to William Edwards, Iowa State University Extension and Outreach economist, most operations showed increases of three to five percent over the average rates in the 2012 survey.

The values reported on the survey are the average of all the responses received for each category. The range of the highest and lowest responses received is also reported. These values are intended only as a guide.

“There are many reasons why the rate charged in a particular situation should be above or below the average,” Edwards said. “These include the timeliness with which operations are performed, quality and special features of the machine, operator skill, size and shape of fields, number of acres contracted and the condition of the crop for harvesting. The availability of custom operators in a given area will also affect rates.”

Several new operations and services were included in the 2013 survey, including vertical tillage, providing a seed tender, soybean combining with a draper head and mowing lawns.

The Ag Decision Maker offers a Decision Tool to help custom operators and other farmers estimate their own costs for specific machinery operations. The Machinery Cost Calculator can be found under Crops, then Machinery in the Ag Decision Maker table of contents.

The 2013 Iowa Farm Custom Rate Survey can be downloaded from the Extension Online Store, https://store.extension.iastate.edu, or the Ag Decision Maker website, www.extension.iastate.edu/agdm/, as Information File A3-10, Iowa Farm Custom Rate Survey. Print copies will be available at county extension offices.

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Crops, Machinery

Greg Brenneman, ISU Extension Ag Engineering Specialist, highlights the importance of protecting grain in storage as the weather changes.

So far this harvest, a lot of corn and soybeans have gone into storage at temperatures in the 70s and some 80s. With grain this warm, moisture migration and spoilage can occur quickly, even with fairly dry grain. With forecast highs in the 50s with lows in the 30s for this weekend and next week, grain bin fans should be running by the end of the week to get stored grain cooled down as soon as possible.

While we want stored grain cooled to 30-35 degrees for winter storage, the sooner we get grain temperatures down, the better. Every 10 degree drop in grain temperature will nearly double the allowable storage time. Fans might need to be run several times during the fall to get grain down to wintertime storage temperatures.

The time required to completely cool a bin of grain depends on fan size. In general terms, a large drying fan will take 10-20 hours to cool a bin of grain. However, a small aeration fan can take a week or more to completely cool a full bin. In either case, it is best to measure the temperature of the air coming out of the grain to see if cooling is complete. It is much better to error on the side of running the fan too long rather than turn it off too soon.

If grain is dried down to the proper moisture and correctly cooled, it should store very well through the winter. Even so, it is best to check stored grain at least every two weeks during the winter and once a week in warmer weather.  For more details, order a copy of “Managing Dry Grain in Storage” AED-20 from Midwest Plan Service at http://www.mwps.org/ or check out more grain storage information at http://www.ag.ndsu.edu/graindrying.

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Dry Soil Conditions and Liquid Manure Application
8/15/2012 – The current drought in Iowa has created changes in soil structure including fracturing and cracking, leading producers to wonder about the potential of leaching in drainage lines and groundwater.

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On July 25, 2012, ISU Extension and Outreach specialists presented a webinar on Crops and Livestock Options During Drought. Links to each portion of the webinar are provided below. For more drought informaiton, visit Dealing with Drought – 2012.

• Introduction and weather
  • Introduction
  • Current weather and forecast
• Crops
  • Soybeans: What to look for to monitor yield potential
  • Corn: What to look for to monitor yield potential
  • Diseases and drought
  • Alternative crops for forage, soybeans for forage
• Cattle management
  • Stretching stressed pastures and CRP hay value
  • Drought stressed corn silage: harvest, storage and feed value
  • Nitrate risk in silage and testing, treatment and other risks
• Economic considerations
  • Valuing drought stressed silage and logistics of CRP
  • Calculating crop insurance
  • Forward pricing grain and talking to the buyer

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Crop Outlook, Crops, Livestock, Meetings and Events

Have questions on financial concerns related to drought, crop insurance, etc.?

Leave a comment with your question and we will find the best experts to answer your questions at Iowa State University. Several commonly asked questions on crop insurance are also available here.

Other options for assistance from ISU Extension and Outreach include: Crops Watch Blog, Iowa Beef Center Blog, Hortline – Call 515-294-3108 (10 a.m. to noon and 1-4:30 p.m., Monday through Friday) or hortline@iastate.edu, Iowa Vegetables blog. Or, call the Iowa Concern Hotline at: 1-800-447-1985. By calling Iowa Concern one has access to an attorney for legal education, stress counselors, and Information and Referral services for a wide variety of topics.

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Crop Insurance, Crop Outlook, Crops, Livestock, Other

Contributed by William Edwards, extension economist

Corn that has suffered severe drought damage is sometimes harvested as silage instead of as grain.  It can still have significant feed value if harvested at the right stage.  See the article “Alternatives for Drought-damaged Corn—Grain Crop or Forage” for harvesting recommendations.  Any damaged acres that are covered by crop insurance should be viewed by an adjustor and released by the insurance company before harvesting takes place.

Grain producers may be willing to sell to the corn standing in the field, to be harvested by the livestock producer or a custom operator.  The buyer and the seller must agree on a selling price.  The seller would need to receive a price that would give at least as good a return as could be received from harvesting the corn as grain.  The buyer would need to pay a price that would not exceed the feeding value of the corn.  Within that range the price can be negotiated. 

One ton of normal, mature standing corn silage at 60% to 70% moisture can be valued at about 8 times the price of a bushel of corn.  For a $6.00 corn price, a ton of silage would be worth about $48 per ton. However, drought stressed corn may have only 5 bushels of grain per ton of silage instead of the normal 6 to 7 bushels.  A value of about 6 times the price of corn would more appropriate.  For silage with little grain content, a factor of 5 times the price of corn can be used.

If the crop is sold after being harvested and transported, those costs must be added to that value, typically $5 to $10 per ton, depending on whether it is done by a custom operator or the buyer, and the distance it is hauled.  A buyer would only consider the variable costs for harvesting and hauling, whereas a custom operator would need to recover fixed costs, as well.

An electronic spreadsheet for estimating a value for corn silage, for both the buyer and the seller, is available from Ag Decision Maker.

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Crop Outlook, Crops

Contributed by William Edwards, extension economist

Nearly 90 percent of the corn and soybean acres in Iowa are covered by multiple peril crop insurance. Drought damage is an insurable loss under these policies. Producers should consult with their crop insurance agents before harvesting or destroying any drought-damaged crops, however.

The agent will notify a certified crop adjustor to appraise the insured crops. Keep in mind that when damage is widespread, adjustors cannot be everywhere at once. The adjustor may declare the crop a complete loss. If it has significant yield potential, it can be left and harvested in the fall. If the producer elects to harvest it early, as silage, check strips can be left to verify the actual yield achieved. In any case, the acres must be released by the insurance company before the crop can be harvested early or destroyed.

Any insurance indemnity payments will be settled based on actual harvested production over the entire insurance unit. Fields declared a complete loss will be combined with any harvested acres in the same insurance unit to calculate the final yield. Yield losses are equal to the farm’s historical yield times the level of guarantee purchased, minus the actual yield.

Ninety percent of the insured acres in Iowa are covered by Revenue Protection insurance policies in 2012. Yield losses will be paid at a rate equal to the average CME futures price during the month of October, if it exceeds the average February price of $5.68 for corn (December contract) or $12.55 for soybeans (November contract).

Following harvest, the usual evidence of actual production should be collected and submitted to the crop insurance agent as soon as possible if it appears that a payment is likely, but not later than 15 days after the end of the insurance period, which is Dec. 10 for corn and soybeans in Iowa. If a producer has a history of selling more than half the crop in the tax year following harvest, reporting of crop insurance proceeds can be deferred to the next tax year.

More information about crop insurance policies and procedures can be found on the Ag Decision Maker website.

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Crop Insurance, Crops

Iowa State University Extension specialists have compiled a list of resources to help you deal with drought. See the website from ISU Extension.

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Crops, Livestock, Meetings and Events

Contributed by Steve Johnson, Extension Farm Management Field Specialist.

Most farms utilize a crop insurance product that provides a revenue guarantee on a percentage of their actual production history (APH). The most common product used by Iowa farmers is likely Revenue Protection (RP).

Using policies such as Revenue Protection (RP) or Revenue Protection with the Harvest Price Exclusion (RPE) guarantee both yield and price using farm level APHs. However, RPE does not offer a higher harvest guarantee should the harvest price (futures price average in October) be higher than the projected price (futures price average in February).

The Yield Protection (YP) is also a farm-level product, but does not trigger an indemnity unless a yield loss first occurs. The indemnity for both RPE and YP are limited to the projected price only, no adjustment should the harvest price be higher than the projected price.

Pre-harvest marketing strategies

The 2012 projected price is $5.68 per bushel for corn and $12.55 per bushel for soybeans, respectively. Use of RP or RPE guarantees the farm’s APH times the level of coverage. These are often referred to as the guaranteed bushels or the farm’s insurance bushels.

Let’s use an example to understand how the Revenue Projection (RP) product works. Say your farm’s average APH is 170 bu/acre and you elect the 75 percent level of coverage; your guaranteed bushels are 128 bu/acre. To calculate the revenue guarantee you simply multiply the guarantee bushels (128 bu./acre) times the projected price of $5.68/bu. to get $727/acre.

Using RP in 2012 should provide a comfort level in selling bushels for delivery on a portion of your guaranteed bushels. Should a natural peril like drought occur, any shortfall in bushels below the 128 bu./acre should trigger an indemnity payment calculated at the $5.68/bu. projected price.

Shortfall in harvest yield

Now the proverbial question: “What if I don’t raise those bushels that I’ve committed to delivery?” Use the example above and understand that the harvest yield estimated was only 100 bu/acre, but your guaranteed bushels were 128 bu/acre. Your indemnity will simply reflect those missing 28 bu/acre times $5.68/bu. or $159/acre. If you’d committed all 128 bu/acre to delivery, you’ll still need to work with your grain merchandiser to “buy back” those extra bushels as soon as you collect your crop insurance indemnity payment.

Most times there will simply be a charge of 10 to 20 cents per bushel since other merchandiser bushels can be substituted for your shortfall. Since you’ll be collecting an indemnity payment following harvest reflecting $5.68/bu., the impact of “buy back” bushels is negated. Should the harvest price (futures price average in October) be less than the futures price that you contracted bushels for delivery, the “buy back” will be even less and reward your pre-harvest marketing strategy.

Note this indemnity reflects a futures price average, which is to your advantage. That’s because the futures prices in most Corn Belt locations tend to be higher than the cash price used for “buy back” bushels. This is especially true at harvest when basis (cash minus futures) tends to be the widest.

Revenue guarantee vs. harvest guarantee

Where many farms struggle in utilizing crop revenue insurance coverage and pre-harvest marketing of bushels for delivery is the ability to recalculate the revenue guarantee. The example includes two extreme harvest price estimates. The high harvest price is $8/bu. and generates an indemnity of $224/acre. The low harvest price is $4/bu. but creates a much larger indemnity totaling $327/acre.

That’s because in the example, the actual harvest yield is multiplied times the higher of the projected or harvest price to create the calculated revenue. To determine the indemnity, subtract the calculated revenue from the harvest guarantee.

The $8/bu. harvest price estimates allow for a new harvest guarantee to be calculated, since $8/bu. is higher than the $5.68/bu. projected price. Note this calculation is not available for the RPE product, since you have an exclusion of the harvest price.

Selling Your Guaranteed Bushels

The key is the indemnity for any shortfall in bushels uses the projected price and has a minimum of the $5.68/bu. The advantage of the RP over RPE is that should the harvest price be greater than the projected price, a new harvest guarantee is calculated.

If you choose to pre-harvest sell bushels for delivery, consider timing those sales when December corn futures or November soybean futures are higher than the projected prices.  This way you’re guaranteed that if you come up short of bushels, you can collect a minimum of the projected price.

Conclusion

The use of crop insurance revenue products such as Revenue Protection (RP) can easily be used in combination with a pre-harvest sales strategy that commits guaranteed insurance bushels to delivery. 

Use of forward contracts and hedge-to-arrive contracts are common tools for selling these bushels. It’s still important to understand how to use a variety of marketing tools. For bushels that you prefer not to commit to delivery, consider protecting the futures price with tools such as futures hedges and/or buying put options.

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