Add protection against rising input costs by adding Margin Protection coverage to your 2022 crop insurance plan.
Right now there is a lot of volatility in both the grain and input markets. 2022 corn and soybean market prices are currently at prices that allow most producers to operate at a profitable level, but rising fuel and input costs may change that picture. A Margin Protection Plan allows you to set a 2022 price of $5.06 for corn and $12.56 for soybeans now. Margin Protection is an area-based insurance plan that provides coverage against an unexpected decrease in operation margin caused by reduced county yields, reduced grain prices, increased prices of certain inputs, or any combination of these events.
Margin Protection Features
- Coverage up to 95% of the trend-adjusted county yield and revenue.
- Protection factors up to 1.2.– MP can pay up to $1.20 for every dollar of loss.
- Highly subsidized to keep farmer premiums at a low level.
- A premium credit is applied to MP when purchased with an underlying policy such as RP.
- Initial price discovery is August 15 – September 14.
- Uses the same harvest price as RP.
- Purchase deadline is September 30
Getting into the policy
– Margin Protection provides you coverage against an unexpected decrease in your operating margin (revenue less input costs). Margin Protection is area based, using county-level estimates of average revenue and input costs to establish the amount of coverage and indemnity payments. Because Margin Protection is area-based (average for a county), an individual farm may have a decrease in its margin, but may not receive an indemnity or vice-versa,
-Margin Protection can be purchased by itself, or in conjunction with a Yield Protection or Revenue Protection policy. If you buy a Yield Protection or Revenue protection policy, you will receive a Margin Protection premium credit to reflect that indemnity payments from one policy can offset payments from the other.
Margin Protection provides coverage that is based on an expected margin for each applicable crop, type, and practice.
Expected Margin = Expected Revenue – Expected Costs, where:
- Expected revenue (per acre) is the expected county yield multiplied by a projected commodity price
- Expected cost (per acre) is the dollar amount determined by multiplying the quantity of each allowed input by the input’s projected price.
You may choose to cover anywhere from 70 percent to 90 percent of your expected margin. A higher level of coverage will have a higher premium rate.
Determining the Margin
When determining the margin two types of inputs are considered, those subject to price change as listed below, and those not subject to price change (i.e., fixed from planting to harvest). Inputs not subject to price change are not specifically identified, but include, seed, machinery, operating costs (other than fuel), and similar expenses. Inputs subject to price change are identified in the Margin Provisions and include the following:
- Corn- Diesel, Urea, Diammonium Phosphate price (DAP), Potash, Interest
- Soybeans Diesel, DAP, Potash, Interest
A loss may be paid if the harvest margin is less than the trigger margin. If there is a loss paid under your Yield Protection or Revenue Protection policy, the indemnity amount from that policy will be subtracted from any loss under your Margin Protection policy. Any indemnities owed will be paid when final county yields are available, in the spring of the following year.
With all the volatility heading into 2022, adding Margin Protection should be something to highly consider. Give me a call to discuss your options. Deadline to sign up is September 30th.
Crop Insurance Specialist
Kari [email protected]
The Logistics Whipsaw for US Agriculture
US ag is getting a logistical whipsaw from international shipping companies due to the Wuhan China Coronavirus pandemic. Ports are experiencing unprecedented shipping delays due to a shortage of dock workers who are out due to either illness from the virus, or being quarantined from getting exposure to an infected person. Here is a link to a video that the U.S. Coast Guard made of the ships that are waiting to unload off one California port.: https://s29755.pcdn.co/wp-content/uploads/2021/02/DOD_108183439-1024×576-1769k-6025cee060084-1.mp4 As you can see, there are thousands of containers that are backed up on the dock as well as dozens of ships at sea waiting to unload. The US ag chemical industry relies on many products which are produced in Asian countries, and many of those delayed containers are full of the active ingredients which need to be shipped to US formulation plants and converted into crop protection products that will be sprayed onto the 2021 crop. Some products will be made “just in time” to be applied to spring crops, but others will not make it on time. The result is that many products are going up in price, product shortages are expected, and alternative pest control solutions are either not as effective or more expensive. If you have not already, get your crop protection chemicals procured as soon as possible!
There’s another negative whipsaw effect from the Wuhan China Coronavirus. US consumers are buying 10% more “stuff” imported from Asia as they sit at their homes and peruse internet shops that deliver to their doors. If the communist China coast guard put out a flyover of their ports, you would see even more thousands of containers backed up on their docks waiting to be loaded onto ships. Usually 50% of the containers that hit our US ports are filled back up with USA made products like agricultural commodities and sent back to Asia. That’s down to only 25% right now because the shippers aren’t waiting around for them to get filled. Europe is experiencing the same phenomenon. More info on that from Brownfield ag here:https://brownfieldagnews.com/news/more-u-s-imports-backlogging-commodity-export-movement/
It’s a whipsaw. Shipping rates are higher, input costs are going up, and it is harder to deliver our US grown products to our export customers thanks to the Wuhan China Coronavirus. But there is good news too. Commodity prices are up, and we will be planting corn in 60 days!
The days are starting to get longer and we are all beginning to enjoy a little more sunshine as the winter fades into spring of 2021. This is the time of year many enjoy vacations to warm destinations or the many activities in our wonderful outdoors here in the Midwest. I particularly enjoy ice fishing with friends from the warmth of an insulated hut. It is a good time to reflect on past results and make plans for the future before the busyness of Spring rolls around. 2021 marks Quality Ag’s 25th year in business and we are kicking it off with a very important investment for you, our customers.
Your fields will be sprayed a little differently by us here in 2021 than in previous years. In the same way that GPS guidance has essential eliminated foam markers for sprayer navigation, you will now be seeing the newest innovation in sprayer application- ExactApply. The John Deere ExactApply technology is the latest GPS innovation that allows our sprayers to be controlled right down to the individual spray tips. We are in the process of mapping your fields, including interior boundaries like terraces and waterways, so we can use the ExactApply technology that we have adopted for the future. You can learn more about ExactApply here: https://www.deere.com/en/campaigns/ag-turf/production-system/application-rowcrop.html We are dedicated to providing you with your best possible result when you entrust your crop protection to Quality Ag. The ExactApply system will allow us to have boom shutoff control in 20” sections where in the past it could be as much as 120 feet. Each individual nozzle responds to the Real Time Kinetic (RTK) GPS sensors on the spray rig and puts out the same rate of chemical, whether it is a nozzle at the outside of the boom during a turn or on the inside. This investment in ExactApply technology is part of our long term commitment to you to be your preferred supplier for your spraying needs. We have a pair of John Deere Gators that will be out mapping until the spring season starts. ExactApply will help us spray your fields in the most precise and efficient way possible. Another benefit that you will see less unnecessary tracking in your tilled fields caused by marking out waterways. This system will shut each nozzle off as it enters an interior field boundary, like a waterway or steep back terrace, and automatically turn back on when it is back over your planted crop. This will reduce the potential of rainwater running down the wheel tracks and eroding your tilled soil. We are dedicated to being your most valued agronomy partner and the ExactApply system will help us further that goal. Thank you for entrusting your crop to us; it is a responsibility that we took very seriously when we started in 1996, still do today, and plan to continue for many years to come.
Merry Christmas 2020 from all of us here at Quality Ag. Thank you very much to all of our customers, vendors, and associates of all sorts. I’d like to take “Merry Christmas” to a little deeper level today. Obviously we are celebrating the birth of the Savior of the world. God has become man-incarnate. This has happened because of the Lord’s love for us, and because of one woman’s “yes”. Mary is the mother of Jesus, the mother of God, and also our mother. She told God “yes” and it was done according to God’s word. We all have an earthly mother and through the incarnation-the birth-of Jesus, we now also have a heavenly mother with Mary.
This Christmas season of 2020, we will have many opportunities to both be thankful and helpful and charitable, as well of plenty of things to complain about. The world has not been in a spot like this in 100 years. For our part here at Quality Ag, we want to be helpful and charitable, and to avoid complaining as much as possible. So, we are looking for someone to help. The staff at our buying group, IAP, found someone they were able to help at our Fresno headquarters. Please email me ([email protected])if you have someone or some charity that you support and would like for us to pitch in as well. Like Mary, the answer will be “yes”. Merry Christmas, and God bless you and your families today.
Thanks and blessings to all who have served our country today. Here’s a bit of history if you did not already know it:
It was Sunday, December 7th, 1941–Admiral Chester Nimitz was attending a concert in Washington, DC. He was paged to the phone and it was president Roosevelt. He told Admiral Nimitz what had happened at Pearl Harbor and that he (Nimitz) would now be the Commander of the Pacific Fleet.
Admiral Nimitz made arrangements and flew immediately to Hawaii. When he landed at Pearl Harbor, there was such a spirit of despair, dejection, and defeat that you would have thought the Japanese had already won the war.
Admiral Nimitz was given a boat tour of the destruction wrought on Pearl Harbor by the Japanese. Big sunken battleships and navy vessels cluttered the waters everywhere he looked. As the tour boat returned to dock, the young helmsman of the boat asked, “Well Admiral, what do you think after seeing all this destruction?”
His reply shocked everyone within the sound of his voice. Admiral Nimitz said, “The Japanese made three of the biggest mistakes an attack force could ever make, or God was taking care of America. Which one do you think it was?”
Shocked and surprised, the young helmsman asked, “What do mean by saying the Japanese made the three biggest mistakes an attack force ever made?” Nimitz explained…
Mistake #1: The Japanese attacked on Sunday morning. Nine out of every ten crewmen of those ships were ashore on leave. If those same ships had been lured to sea and been sunk–we would have lost 38,000 men instead of 3,800.
Mistake #2: When the Japanese saw all those battleships lined in a row, they got so carried away sinking those battleships, they never once bombed our dry docks opposite those ships. If they had destroyed our dry docks, we would have had to tow every one of those ships to America to be repaired. As it is now, the ships are in shallow water and can be raised. One tug can pull them over to the dry docks, and we can have them repaired and at sea before we could have towed them to America. And I already have crews ashore anxious to man those ships.
Mistake #3: Every drop of fuel in the Pacific theater of war is above ground in the storage tanks five miles away over that hill. One attack plane could have strafed those tanks and destroyed our fuel supply. That’s why I say the Japanese made three of the biggest mistakes an attack force could make, or God was taking care of America.
This story is a great testament to the power of positive thinking and optimism. Admiral Nimitz was able to see a “silver lining” in a situation and circumstance where everyone else saw only despair and defeat. President Roosevelt had chosen the right man for the right job. We desperately needed a leader that could see the “silver linings”.
Optimists tend to view hardships as hardcore learning experiences but only temporary setbacks. Even the most miserable day holds the possibility that tomorrow could be much better!
Have a great Pearl Harbor day, and God bless America!
2021 Crop Expenses and Breakevens- a Planning Discussion
By Joe Sinclair. November 11, 2020
We are only 5 months away from beginning to plant our 2021 crop, so now is the time to start planning for it. It may seem like an undesirable exercise to begin so soon after the current crop has been harvested, but it still needs to be done. This blog post is NOT intended to be a “down to the penny” analysis for your crop expenses, but will serve as a beginning to your planning where you can put in the expenses for YOUR own enterprise-which will be different than any other enterprise on the planet.
To begin, our commodity prices are higher, so we can raise our yield goals if our costs are not raised significantly. As always, our number one cost is our land cost. Some farms are too high at free rent and others are cheap at $250. Right now good marketers can layer in corn sales at $4, and beans $10 a lot of places in the Midwest. There is a LOT of variability in basis though!
Variable inputs like fertilizer should be indexed to yield goal. Don’t apply 400 bushels worth of fertilizer onto 55 CSR2 ground! Current prices for fertilizer are going to be around 65 cents per bushel of corn and 92 cents for soybeans. So if you want to shoot for 200 bushel corn your fertilizer is going to be around $130 an acre, and that includes your N. You will spend around $55 an acre for 60 bushel beans.
Many inputs are fixed- like planting, harvesting, and crop protection chemicals. It costs the same to kill the weeds in a 250 bushel corn yield environment as it does in a 150 bushel field. Combining 65 bushel corn after a drought is the same per acre as a 300 bushel bin buster. Here is a link to ISU’s extension paper on 2020 custom rates: https://www.extension.iastate.edu/agdm/articles/plastina/PlaMar20.html
As you can see, if you hire it all done, the average for corn is $132 and Beans is $119 per acre for operations. Obviously, every enterprise is different, but it’s nice to see what the custom rates are. ISU has a great extension website that you can access a lot of data from for no charge other than your support from your taxes.
Other expenses to deduct from your top line income will include your crop insurance, interest on an operating line, and wages for yourself and others who get the work done. So: here’s an oversimplified example for a 200 bushel yield goal on an Iowa farm where the landlord doesn’t hate for the tenant to have a chance at a profit:
Income: 200 bu. corn at $4.00 less 10 cents trucking to the elevator: $780
Government subsidy: ?
Expenses: Land $200, Seed $95, Fertilizer $130, Herbicide $45, Fungicide $20, Machinery and fuel $100, Crop insurance $25, Interest $30, Wages $15. Expenses Total: $660
Bottom Line: We have a good chance at a 2021 profit even without a subsidy. We could not say that at this time last year. Don’t overpay for land and you can make money in ’21!
Mid-Harvest 2020 Yields Report
Our 2020 harvest is underway, and results are mixed. We can however, make a few generalizations about how 2020 turned out. Here’s a link to the current Midwest drought map:
As you can see, we are in a drought. Droughts take extended time to develop, but we can get a flood in one night.
As the drought developed, our earliest corn was not hurt as badly as our later corn- so our early maturing corn which was planted early has been yielding over 200 bushels in most soils with a CSR over 65. The lighter ground is still good -160 plus. The later (replant) corn was flowering during the July/August heat and wind. It is 30-40% behind our early corn.
In Southern Iowa, we need August rain to get good soybean yields. We didn’t get it. Especially damaged by the drought were our earliest varieties which were planted early-the 2.8-3.0’s. They did not receive any benefit of the early September rainfall; they had already reached maturity. Yields for those beans ranged from 18-40 bushels per acre depending on soil type. We are now getting into the later maturing varieties and they are significantly better, but we won’t have any bin busters south of highway 92.
As you work north the situation is all about the Derecho wind storm which devastated uncounted acres. Moisture in northern Iowa was mostly adequate, and fantastic yields are being reported. Nearly 300 bushel corn and lots of soybeans in the 70’s.
2020 was a S*** show for lots of reasons that we won’t go into here. Please be safe as you work your way through harvest, and know that we are here for all your current crop needs and an optimistic outlook for our 2021 prospects. Our topic next week will focus on input and commodity price trends for that 2021 crop; we will need to make some planting decisions and marketing decisions real soon.
Grass changes with the season.
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