A phrase that farmers and ranchers often hear is “risk management.”
It’s said by bankers, commodity marketers, crop insurance agents, and a host of other agriculture industry professionals.
And we say that for good reason, as anyone that’s involved in agriculture knows the dollars being spent today are historically high.
Currently, commodity prices for grain and livestock are also historically high; thus, it is even more important to manage that risk!
Crop insurance is often an afterthought for most farmers since its cost is typically not in the top five costs of crop production. However, it likely has the largest impact on profitability.
As of February 6, the spring prices for corn and soybeans are $5.96 and $13.67, which are similar to last year and, frankly, can allow producers to lock in great coverages.
For example, a 200-bushel corn APH with 80% coverage has a revenue guarantee of $953.60. These types of coverages can sure help one sleep at night.
If you combine this with some hail insurance or, in certain instances, some area-based coverages like the Supplemental Coverage Option (SCO) or the Enhanced Coverage Option (ECO), you can increase coverages to really protect yourself financially.
A properly tailored insurance plan can mean that you can have a “bad” year farming but still have a “good” year financially.
On the livestock side, the Livestock Risk Protection (LRP) policies have really jumped out in the last 18 months as a benefit to cattle and swine producers.
Some changes have been made to this program to make it much more attractive, and it can sure help you lock in some great prices on cattle and hogs.
With these prices being at historically high levels, make sure you are looking into this option if you have livestock.
LRP policies act similarly to a put option, but they are often cheaper and allow you to ensure a specific head count versus what the CME Contract weights are.
It seems the themes of this article are “historically high” and “risk management.” In the 11 years I have been involved in the agriculture lending industry, interest rates are as high as I have seen, and commodity prices and input prices are near the top.
Therefore, I would be happy to help anyone with their risk management. It doesn’t matter if you’re a cash grain farmer, a hog producer, or a rancher — First Crop Solutions has the products and services you need to help manage risk.
I can also visit with you and look over your policies to ensure that they make the most sense for your individual operation. Feel free to contact me anytime at (605) 940-0896.
Important dates to remember:
March 1 – Spring prices announced
March 15 – Crop insurance sales closing deadline; FSA Program signup deadline