July 26, 2012
Continuing Drought Means Most Farmers Will Turn Fall Focus From Combines to Crop Insurance
COLUMBIA, Mo. - A look at a line graph of corn and forage quality will remind you of a ski slope. Producers are watching their crops dry up and yields drop.
There is good news, though. Ray Massey, University of Missouri Extension social sciences professor, said most of Missouri's corn acres have revenue-protection crop insurance.
"In other words, most farmers' revenues from combined crop sales and insurance indemnities should be good," Massey said. "Corn prices have already increased a dollar-and-a-half in the last three weeks."
"A smaller percentage of acreage has harvest price exclusion coverage, which will cover only the guaranteed price but will not include adjustments for a rise in corn prices," Massey said.
Forage crops aren't faring any better than corn, so some producers may be contemplating corn for grazing, hay or silage. Don't do anything to your crop until you contact your insurance company, Massey said. They will need to send out an adjuster to evaluate crop damage. He said one of two decisions could occur at that time.
"He'll make a determination on the spot, saying this is your yield and you can now destroy the crop, which will make it available for silage," Massey said. "Or they'll ask you to leave a strip. You can harvest the rest as silage, but that one strip must be left until harvest, and that will be used to determine yield for the entire field."
Producers with revenue protection for corn acres contracted for a guaranteed minimum price $5.68 for whatever percentage they insured, Massey said. The final recovery price will be the average of the October prices on the December corn futures.
"On every day in October they'll take the closing price, average those up, and sometime in the first couple of days in November they'll say this is what the insurance price is going to be," Massey said.
The current corn price on the futures market is $7.70 a bushel, so who knows what that price will be come November. Massey said there is a cutoff point for revenue protection recovery. The recovery cannot go more than double the guaranteed price.
"If it were to get up to $11.36 a bushel, the insurance company will cap the price," Massey said. "But I don't know anybody that's calling for $11 per bushel of corn."
Producers with corn delivery contracts face a different dilemma.
"Hopefully, they didn't contract very much," Massey said. "If they have a contract that they're not going to be able to fill, they are still legally obligated."
Unless the producer chooses to default on the contract and risk going to court, they have two options.
"They will need to purchase corn on the market and deliver it, or they can negotiate a settlement price for the contracted corn," Massey said.
Soybean producers face the same situation, and the process for insured soybean acres is the same. Massey stresses that producers must contact their insurance agent before making any decision to prevent voiding their coverage.