Chad Hart, ISU Extension Grain Marketing Economist, provides a summary of the latest WASDE report.
For corn, national yield was set back to 178.5 bushels per acre, down 3.3 bushels per acre and even with USDA’s earlier trend. With the downward adjustment in harvested area, that subtracts 378 million bushels from production, lowering total production to 14.9 billion bushels. Iowa was estimated at 191 bu/ac (down 11 bu/ac). Illinois was set at 203 bu/ac, down 4 bu/ac. Minnesota was set at 200 bu/ac, up 3 bu/ac. Indiana was set at 186 bu/ac, down 2 bu/ac. On the demand side, exports were lowered 30 million bushels on old crop, but raised 100 million bushels on new crop. Feed and residual was lowered 100 million bushels as well, but the change here is more related to the thought that smaller crop, smaller losses than reduced feed consumption. And ethanol was lowered 5 million bushels for old crop and 100 million bushels for new crop, on the continued drag in fuel usage. The result is 2020/21 ending stocks declined by 253 million and the 2020/21 season-average price estimate rose 40 cents, to $3.50 per bushel.
For soybeans, national yield was set at 51.9 bu/ac, down 1.4 bu/ac from last month. That subtracts 112 million bushels from production, lowering total production to 4.313 billion bushels. Iowa was estimated at 54 bu/ac, down 4 bu/ac. Illinois was set at 62 bu/ac, down 2 bu/ac. Minnesota was set at 52 bu/ac, up 1 bu/ac. Indiana was set at 60 bu/ac, down 1 bu/ac. On the demand side, no adjustments to new crop. Old crop crush was raised 10 million and old crop exports were raised 30 million. Like with corn, soybean 2020/21 ending stocks fell by 150 million bushels and the 2020/21 season-average price estimate rose 90 cents, to $9.25 per bushel.
Wind is a covered event in Multi-Peril Crop Insurance and farmers whose insured crop acres have been affected by the Derecho may be eligible for indemnity payments.
Affected farmers should file a Notice of Loss (NOL) with their crop insurance agent within 72 hours of the initial time of discovery of damage or loss and follow up in writing within 15 days. When filing a timely NOL is not feasible, a delayed NOL may be accepted.
The NOL allows the Approved Insurance Provider (AIP) to contact the policyholder and make a determination in a case-by-case basis whether an indemnity will be paid. That decision will depend both on field conditions and farmer’s decisions:
A. If the AIP determines that field conditions will prevent farmers from ever being able to mechanically harvest the crop, that production will be considered a full loss.
B. Otherwise, the farmer can choose to: 1. Settle the case based on appraised production; or 2. Take the crop to harvest.
If a farmer chooses to harvest the crop (even if they chose option 1 in the first place), the producer must accept the highest of harvested production or appraised production for claims purposes. Farmers who choose option 1 first and then decide to harvest the crop must file a revised claim.
Practical Guidance for Farmers
Contact your crop insurance agent as soon as possible, and file a NOL.
If you want an immediate release of the field for another use, you can request the use of Representative Sample Areas or RSAs by the AIP. These are areas of a field that the AIP authorizes to leave untouched for later appraisal when an accurate appraisal cannot be made at the present time. Appraisals from the RSAs of the unharvested crop acreage are later used to settle the claim.
You can salvage any remaining crop for use as silage, but your indemnity payment might be affected depending on how the crop is insured: a. Forcorn insured for Grain, once the AIP releases the field for another use, you can harvest for silage without penalty. b. For corn insured for Silage, if you agree to settle in appraised production, but you still attempt to harvest for silage, you must accept the higher of the appraised or the harvested production for claim purposes.
You can hay or graze a second crop without penalty if the ground has been released for another use by the AIP, it is not practical to replant the insured crop, and the second crop will not be insured. This might be of interest to farmers who use cover crops.
The only case in which you are required to physically destroy your crop production is when grain production is mature and no local buyers are willing to purchase it (typically due to molds and toxins in the mature grain), and it is not economical to ship it to other buyers. This is the case of a crop with Zero Market Value (ZMV), and destruction should take place whether the grain has been harvested or is still in the field.
A Claims Advisory from the Risk Management Agency on August 21, 2020 indicated that the damaged crop in the released field for another use is not required to be harvested (even for RSAs appraisals).
If you or someone you know are in need of assistance with stress and disaster management, call or visit online the Iowa Concern Hotline. Trained staff will assist you 24/7 and free of charge when you dial 1-800-447-1985 or go on-line.
Crop Insurance and Farm Finances
An estimated 87% of corn and 90% of soybean acres planted in 2020 are protected by crop insurance purchased by farmers in the spring. Crop insurance is an effective risk management tool, but is not designed to make farmers whole in the event of loss or damage to their crops. Just like with auto insurance, all policies have a deductible.
About 95% of those insured acres are under the Revenue Protection policy. The most comprehensive revenue protection policy has a 15% deductible that can easily amount to more than $100 per acre for corn and $55 per acre for soybean.
For a farmer planting 400 acres of corn and 200 acres of soybean affected by the storm, it means about $55,000 dollars in deductible that will not be available to pay for groceries, fuel, medical bills, principal and interest from existing loans, or inputs for the 2021 season. In many cases, since profit margins are currently so thin, even an 85% coverage level will not suffice to cover all production costs, particularly if the land is cash rented.
Finally, unless the AIP releases all acres in a unit, indemnity payments from crop insurance will not arrive until all crops are harvested and production records are submitted, late in the year. This will put additional strain on the working capital of Iowa farms, 28% of which started the season with vulnerable liquidity levels.
The information provided is for reference purposes only and does not change the terms of the crop insurance policy. Talk to your crop insurance agent about specific questions related to your crop insurance coverage.
Losses due to adverse weather conditions such as hail, frost, freeze, wind, drought, and excess moisture are insurable losses under multiple peril crop insurance.
In 2020, some Iowa farmers, especially in Western Iowa, are suffering the extremes of drought. Losses due to drought are an insurable loss under multiple peril crop insurance. Due to drought conditions, crop insurance claims are expected to be large for losses resulting from both corn and soybean yield declines in addition to a drop in the harvest prices used to calculate indemnity payments.
Another dynamic added to the mix is yield loss due to chemical drift, which is not a covered loss under multiple peril crop insurance.
Question: How many of Iowa’s corn and soybean acres are covered by crop insurance?
Iowa farmers planted 23.4 million acres of corn and soybeans in 2020. Approximately 90% of those acres have been insured using Revenue Protection (RP) multiple peril crop insurance. These insurance policies can guarantee various levels of a percentage of the farm’s average yield times the higher of the projected price (average futures price in the month of February) or the harvest price (average futures price during the month of October), using the November 2020 futures contract for soybeans and the December 2020 futures contract for corn. Most farm operators carry a guarantee of their APH from 65% to 85% level of coverage. The projected prices (futures average prices in February 2020) were $3.88/bu for corn and $9.17/bu for soybeans, respectively.
Question: What should an insured farmer do once a crop loss is recognized?
Notify the insurance agent within 72 hours of the discovery of damage, but not later than 15 days after the end of the insurance period. A notice of loss can be made by phone, in writing or in person. Although drought loss is not immediate, farmers should contact their agent as soon as they feel a loss is present.
Continue to care for the crop using good farming practices and protect it from further damage, if possible.
Get permission from the insurance company, also referred to as your Approved Insurance Provider (AIP), before destroying or putting any crop to an alternative use.
Question: Who will appraise the crops and assess the loss?
The crop insurance company will assign a crop insurance adjuster to appraise the crop and assess the loss. The insured farmer must maintain the crop until the appraisal is complete. If the company cannot make an accurate appraisal, or the farmer disagrees with the appraisal, the company can have the farmer leave representative sample areas. These representative sample areas of the crop are to be maintained – including normal spraying if economically justified – until the company conducts a final inspection. Failure to maintain the representative sample areas could result in a determination that the cause of loss is not covered. Therefore, no claims payment to the producer.
Once appraised the crop can be released by the company to be:
Destroyed – through tillage, shredding, or chemical means; or
Used as silage or feed.
Question: Once released, may I harvest my corn as silage for feed?
Check with your crop insurance company. In a county where corn can be insured as grain only, the corn will be released, or harvested as silage or sold as feed. Any grain will be counted as production for your claim. In a county where corn can be insured as silage, the harvested silage will be counted as production.
Question: What is the difference among insurance units?
Many farmers have chosen to insure their crops using enterprise units in order to pay less expensive insurance premiums. Under enterprise units, losses are calculated by crop by county. Therefore all the corn planted by a farmer in a given county would be added together to determine a loss. If a farmer has chosen optional units, then losses are calculated by crop by field unit. Premiums are typically higher if choosing optional units but a good yield on one field does not cancel out the loss on another field.
Question: When will farmers be receiving indemnity payments for their crop insurance losses?
Adjusters will be busy with the increase in losses in areas that have been impacted. As soon as you are finished harvesting notify your insurance agent and an adjuster will be assigned to you. Insurance companies cannot defer payments to the next tax year, but claims adjusted late in the year may not be paid out until the following year.
Question: What is the maximum price that the harvest time indemnity price (average October futures price) can reach?
The maximum harvest indemnity price values for 2020 are twice of the projected price; or $7.76/bushel for corn and $18.34/bushel for soybeans, respectively.
Question: Can indemnity payments be deferred for income tax purposes until 2021?
A taxpayer using the cash method of accounting claims the income in the year they receive the payment. The insurance company will send the insured a 1099 showing the amount and tax year to report the income.
A farmer, if they are using the cash method of accounting for reporting taxes, can elect to defer crop insurance payments if the loss is due to yield loss and they normally sell more than 50% of their crop the year following harvest. They cannot defer any loss that is due to price loss. Farmers that are using the accrual method of accounting for reporting taxes cannot defer crop insurance payments.
Question: Will I be asked to provide proof of my bushels this year for crop insurance verification?
All multiple peril crop insurance users are subject to production verification on a random basis. If a claim that exceeds $200,000 is filed for an individual crop and policy, verification of production is automatically required by regulation. This also requires a 3-year audit.
Chad Hart, ISU Extension Grain Marketing Economist, provides a summary of the latest WASDE report.
For corn, national yield was set at 181.8 bu/ac, up 3.3 bu/ac from trend. That adds 278 million bushels to production, raising total production to 15.278 billion bushels. Iowa was estimated at 202 bu/ac (again, based on Aug. 1 conditions, up 2% from 2019), but the larger improvements in yields were to our north and east. Illinois was set at 207 bu/ac, up 14.4% from last year. Minnesota was set at 197 bu/ac, up 13.9% from last year. Indiana was set at 188 bu/ac, up 11.2% from 2019. On the demand side, exports were increased 20 million bushels on old crop and 75 million bushels on new crop. The weakening of the dollar, the lower prices, and advance export sales are all supporting these changes. Feed and residual was raised 75 million bushels as well, but the change here is more related to the thought that there are larger crop losses (residual use) for a larger crop than increased feed consumption. So usage went up 170 million, but supply grew by 278 million, so 2020/21 ending stocks rose by 108 million and the 2020/21 season-average price estimate dropped a quarter, to $3.10 per bushel.
For soybeans, national yield was set at 53.3 bu/ac, up 3.5 bu/ac from trend. That adds 295 million bushels to production, raising total production to 4.425 billion bushels. Iowa was estimated at 58 bu/ac (again, based on Aug. 1 conditions, up 5.5% from last year), but the larger improvements in yields were to our north and east. Illinois was set at 64 bu/ac, up 18.5% from last year. Minnesota was set at 51 bu/ac, up 15.9% from last year. Indiana was set at 61 bu/ac, up 19.6% from 2019. On the demand side, exports were increased 75 million bushels on new crop. The weakening of the dollar, the lower prices, and advance export sales are all supporting these changes. Crush was raised 20 million bushels and seed and residual usage went up 5 million bushels. Like with corn, soybean supplies grew more than soybean usage, so 2020/21 ending stocks rose by 185 million bushels (to 610 million bushels) and the 2020/21 season-average price estimate dropped 15 cents, to $8.35 per bushel.
Contributed by Melissa O’Rourke, B.S., M.A., J.D. Farm and Agribusiness Management Specialist, Iowa State University Extension and Outreach, email@example.com
The farm economy is cyclical in nature, and in recent years has been impacted by one crisis after another.Agricultural credit conditions are described as having an overall decline which deepened in the first quarter of 2020 after some signs of improvement in the fourth quarter of last year. On the ISU Extension and Outreach Farm Management team, we hear from farmers and agricultural lenders about rising debt levels, cash flow issues and farm financial stress.
Farm financial stress can generally be thought of as an inability to meet debt service payments – both principal and interest. The severity of the financial stress depends on the debt level, interest rates (cost of the debt), and the farm income available for debt service. In recent years, low interest rates and sufficient farm income have kept financial stress at bay for many operations. Nevertheless, we continue to hear from producers and lenders about elevated levels of financial stress on the farm.
Confronting a tough financial situation is a challenge for anyone. It’s not unusual for producers to procrastinate and avoid facing the problem. Just hoping things will get better is not a solution – but many folks do not know where to start.
Following are several suggested actions to get started in figuring out how to proceed. This list of tactics to consider are not necessarily in a particular order – but presented as possible approaches to move forward and address the problems, depending on the farm business and family circumstances.
Tactic One: Seek support for stress management
Financial difficulties can cause significant emotional stress. Start by talking to someone. Do not be embarrassed to reach out to family members, friends, or professionals who can just listen. A good place to start may be the Iowa Concern Hotline via the website (which includes e-mail or chat) or the toll-free number: 1-800-447-1985. Since 1985, the Iowa Concern Hotline has been available 24/7 with trained counselors who can provide access to an attorney for legal education, stress counselors, information and referral services for a wide variety of topics.
Tactic Two: Gather debt and income information.
While good accounting would direct us all to have current financial documents – starting with a balance sheet (or net worth statement) and income statement – folks who are facing strained finances may have avoided record-keeping tasks. Start by gathering all debt information – both for the farm as well as personal debt (vehicles, credit cards, personal spending). It’s useful to have an online or computer-based accounting system, but do not hesitate to get back on track with a pad of paper or the back of a pizza box. Write it down – balance owed, to whom, and when the next payment is due (monthly, quarterly, annually) and the payment amount. After starting this process, explore the financial planning resources available on the Ag Decision Maker website. Guidance is available on how to build financial statements, including information on understanding and building net worth statements (the balance sheet) and farm income statements.
Next, estimate available expected income during the next twelve-month period. Again, include all possible income from on-farm and off-farm sources.
Part of this information gathering should include collecting any written communication or notices that may have been received from lenders. The act of compiling this financial data is a first step in facing the extent of the problems faced. Defining the problem may help stimulate ideas for solutions. And, to get help from advisors, a fairly-accurate picture will be necessary.
Tactic Three: Evaluate the assets
Again, an updated balance sheet would enumerate and place values on current, intermediate and long-term assets. But think about assets that may not appear on the balance sheet. Go over the most current balance sheet available, and add any assets that might not appear there. Include farm and personal assets. Are there items of equipment no longer needed? Is there a motor home no longer in use? Is there a land parcel that is no longer an essential part of the farm operation? Make conservative, best estimates of the value, and consider whether the asset could be used to generate cash.
Tactic Four: Outline possible plans, identify advisors
Have a personal brainstorming session. This is not intended to be a final, detailed plan, but an outline of possible strategies going forward. To assist, think about who might be able to help identify strategies. This might be the farm bookkeeper, accountant, tax or other financial advisor, a personal lawyer, an insurance professional – someone that can help with financial troubleshooting to focus on where solutions may lie. There may be other respected people with good judgment and a set of clear eyes who could give a fresh perspective on the operation. These are the kinds of people to sit down with, talk things through, and see what ideas might arise.
Tactic Five: Cash generation and belt tightening
Basically, financial problems arise when income exceeds expenses – due to an assortment of causes. Contemplate assets which could be used to generate cash, either through sale or lease—but remember there may be tax consequences of selling depreciated assets. Is there custom work or other services that would raise some income? Explore off-farm employment of one or more household members. Consider both farm business and personal or family-living expenses. Eliminate or reduce discretionary spending. Medical insurance is a significant expense which may be decreased via off-farm employment. Ideas on how to stretch cash flow can be found on the Ag Decision Maker website.
Tactic Six: In-depth farm financial analysis
Iowa State University Extension and Outreach offers a free farm financial planning and analysis program. This service consists of confidential financial counseling, a computerized analysis of the farm business, and possible referral to other useful programs or services. The program uses FINPACK software to provide a more complete picture of the farm’s financial situation. An in-depth plan with options helps a farm operator work with lenders to make decisions for the future. Trained extension associates meet with farm operators to discuss the results of the analysis as well as the impacts of possible changes. The service is offered at no charge.
Tactic Seven: Communicate with bankers, lenders, creditors
Avoidance is not a winning strategy, and it’s common for those facing financial stress to sidestep those to whom money is owed. Make a list of set times to visit in-person about the situation. Bring along the data that has been gathered – accompanied by an outline of proposals to address the problems. Before the meeting, review guidelines of good communication skills. If communication has become strained, consider bringing along one of the other advisors or professionals that may have assisted in brainstorming or analyzing the situation. A third party may be able to serve in a facilitation role, at least to take some of the stress out of the conversation. As part of the communication process, openly share ideas for cash generation or expense reduction. There is the possibility some aspects of the farm operations have become unprofitable and should be eliminated. Talk about ideas for debt restructure – perhaps debts that could be consolidated, or stretched out to reduce payments. In this regard, it may be worthwhile to talk to other lenders who might have a different view of the future potential of the farm business.
Tactic Eight: Professional advice on debt restructure or bankruptcy
Depending on a wide range of factors, it may be wise to seek professional advice on the need for debt restructuring. Iowa State University’s Center for Ag Law and Taxation (CALT) provides a number of resources and articles that can facilitate the thought process. In particular, there is an article on how to find an attorney who has expertise in this field and can provide solid advice on next steps.
Tactic Nine: Explore mediation services
Mediation is a process where parties meet with a neutral third-party who assists in identifying solutions to a problem or dispute. Information is available about agricultural mediation services at the CALT website, including a video about how mediation works. In Iowa, mediation may be a voluntary process – but it may also be mandatory. Iowa Mediation Service is a non-profit organization founded in 1985 and dedicated to solutions for farmers, families, and anyone who may find themselves in need of a dispute resolution expert. There is even a short video that explains agricultural mediation services. If the farm’s financial situation has reached a point where professional mediation services are needed, this is an excellent resource available to Iowa farmers.
Tactic Ten: Contemplate retirement or liquidation
For some folks – depending on age, health, family situation, and many other circumstances – it may be time to consider retirement or partial to full liquidation. Retirement from farming can lead to a new phase of life which could result in new accomplishments. Lessons learned in farming can be a basis for new experiences. While some approach retirement or liquidation with apprehension and a sense of uncertainty, many later report a feeling of relief and freedom to move on to other opportunities and interests. Of course, it is important to consult with a range of advisors regarding tax consequences and obtain guidance on managing future life plans.
In summary, these tactics are offered to provide possible actions for farm families facing financial issues. Consider each action and move forward. Most importantly, avoid isolation at times of stress and work to surround yourself with people who can listen and perhaps provide encouragement or assistance.