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Al Kluis: Creating a marketing plan for 2011

Al Kluis 02/27/2011 @ 11:00pm

“Making crop insurance decisions and marketing decisions are a lot harder than they were five years ago when prices were a lot lower.” This was the comment I got from a young lady at a meeting in central Missouri earlier this winter.

December 2008 CBOT Corn

What happened when December 2011 corn futures rallied above $5.70 and November 2011 soybean futures rallied above $13 this winter?

For farmers, having more income and potential profits doesn't mean more joy– it means more anxiety. Farmers are watching cash rents and input expenses increase; with higher prices comes more risk. This makes creating a marketing plan and using all of the risk-management tools more important than ever.

If prices drop lower into the fall of 2011, you can have real operating losses. There will be no LDP or increases in government payments to offset those losses.

I review the marketing plans that are sent to me by farmers. Someone who does not have the right plan will not just get an “F” for a grade. In this case, it's an “F” as in financial failure. This may sound harsh, but farming today is more high risk than ever.

Crop insurance is a very important part of your risk-management plan. By putting the right risk-management plan (which includes crop insurance) in place, you can reduce your risk, increase your bottom line, and reduce your anxiety level. And for farmers who have the right plan in the right states, they can even insure more bushels (the “A+” bushels).

Farmers with crop insurance can use their marketing plan to create a very profitable farm in 2011, even if prices move lower at harvest. Don't just think of it as crop insurance. Today, it's the backbone of a price insurance plan.

This year the crop insurance terminology has changed. The crop revenue coverage (CRC) and revenue assurance (RA) policies are now called revenue protection (RP) policies. The average yield terminology (actual production history, or APH) is now called yield potential (YP).

The terminology may have changed, but my approach to managing risk is similar to what I have recommended to customers the last three years. I will suggest some minor changes you should consider with the new insurance products that are available in some states and the higher futures prices you are able to lock in.

3-Step Process

Here is my risk-management process.

1. Buy the right RP policy for your farm. You will need to work with a professional who understands your farm and all the different alternatives you now have. Get in early and fill out the worksheets that are available. By the time you are reading this, you will know what the average price for the month of February is for December 2011 corn futures and November 2011 soybean futures. At these high price levels, a 10% change in coverage can raise your minimum revenue by $50 per acre or more.

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