When Harvey Duschen looks back on his 2004 crop he kicks himself for missing out on a terrific opportunity.
Though he used revenue insurance to protect his crop, he admits he wasn't nearly as aggressive on the marketing side as he should have been.
“I was probably like 90% of the guys out there who didn't forward price as much of my crop as I should have,” Duschen says. “It's not often you have a chance to price $3 corn in the spring and collect a 30¢ LDP at harvest. I sure woke up to the idea of pairing marketing with insurance this year.”
Despite missing out on this opportunity, Duschen, who farms 283 acres at La Motte, IA, takes consolation in that he did discover the value in using a revenue insurance policy where a base price and a harvest price are established.
“The advantage of the harvest price option dawned on me following the steep price drop,” he says. As prices fell, producers holding policies that establish a base price and a harvest price, such as revenue assurance (RA) with the harvest price option or crop revenue coverage (CRC), essentially saw an increase in the covered yield.
Kent Thiesse, a loan officer with MinnStar Bank in Lake Crystal, MN, says this is because the guaranteed revenue per acre is calculated using the higher of the base price or harvest price, and the value of the harvested yield is calculated using the harvest price.
For example, Thiesse explains, a corn farmer with an actual production history (APH) of 150 bu./acre and a coverage level of 80% typically can claim an indemnity payment when the yield drops below 120 bu./acre.
However, because of the steep price drop in 2004, farmers using revenue insurance with a harvest price option could claim losses above their normal APH. In a real-life example, he shows how the covered yield for corn rose to 165 bu. There was a comparable percentage increase in the covered yield for soybeans as well.
By understanding this relationship between price and covered yield in revenue insurance products, it makes the decision to be an aggressive marketer a little easier, experts say.
In fact, Risk Management Agency Deputy Administrator Tim Witt says, “If you're going to go to a revenue product you really should strongly consider pairing it with a marketing plan to maximize your dollars.”
Kurt Koester, a marketing consultant with AgriSource in Waukee, IA, strongly advises his customers to market up to their amount of yield coverage in a year like 2004.
“We've developed two tracks of advice; one is more aggressive and one more conservative. For those who choose the more aggressive track, we've encouraged coverage levels of 75% or higher to allow a higher percentage of forward sales.”
Koester says those who followed the aggressive track in 2004 were able to price 75% of their corn sales at $2.88 in December Chicago Board of Trade (CBOT) corn futures, and 70% of their soybean sales at $6.75 in the November CBOT futures.
The key to success, Koester stresses, is taking full advantage of crop insurance to price ahead.
Thiesse, who does not sell crop insurance, agrees and points out that in years like 2004, taking full advantage means growers can market bushels even beyond their APH.