Copyright © 2002 Center for Farm Financial Management, University of Minnesota.


WORKSHOP THEME

" Pre-harvest marketing pays and crop insurance is the tool that allows you to do it with comfort "


Agenda Introduction Playing The Game Seasonality of Grain Markets Impact of Crop Insurance

Decisions Results of The Game


1999-00 Original game and workshop concept were developed by Roger Selley & Doug Jose, University of Nebraska.

2000-01 Winning the Game (soybeans) delivered in Minnesota, 5 regional & 19 local workshops

History


2001-02 Minnesota -- 58 workshops with 1856 participants, used sponsor model

2002-03 Country Hedging – 47 workshops with 1,500 participants (OH, IN, MO, CO, KS, OK, WI), U of MN team presents at Commodity Classic. Nebraska uses sponsor model for 25+ meetings.

History


Your Farm for the Game You have a 1200 acre farm with

600 acres you plan to plant to corn

You have very limited on-farm storage available for corn.


Your Yield History 1984 129 1985 171 1986 191 1987 139 1988 77 1989 177 1990 154 1991 134

1992 167 1993 56 (ouch)

1994 139 1995 131 1996 126 1997 155 1998 173 1999 166 2000 139


Crop Insurance The crop insurance agent for the game

has only one choice for insurance -- 70% CRC with the 100% price election at $2.59/bu.

The APH (proven yield) for crop insurance is 140 bu.

It is available for $8.05 per acre


Playing the Game Opportunity to forward contract corn

during a pre-harvest season

Nine opportunities to sell from the first week of April through the last week in July in two week intervals

Any corn that is not forward contracted will be sold at harvest


Playing the GameForward Pricing for Harvest Delivery Name

CRC? Yes No (Circle one) ID# 99

Week Date1 4-Apr ____ ,000 bu @ $ /bu

Forward Pricing for Harvest Delivery Name

Week Date ID# 99

2 18-Apr ____ ,000 bu @ $ /bu


Playing the Game You must turn in an input each time

even if you are not selling anything

We will provide a brief market update before each marketing decision


Ready to start the game?


3:00

The First Decision Find your input sheet

Decide whether to purchase CRC insurance or not. Please circle yes or no

You have 3 minutes

2:001:000:100:00


Market Report - April 4

One advisory service indicates corn can continue higher as long as the market is trading anything short of an ideal growing season. Current corn planting intentions show a 1.4 million acreage decline from February numbers, but still up 1.9 million from the previous year. Corn belt weather was wet last month but is forecast to be ideal this month. Current forward contract price is $2.09/bu.


Seasonality of Grain Markets


Marketing is Important!

Iowa State University studies show that since 1998 the average Iowa farm has earned 20-30 cents/bushel (including gov’t payments).

Marketing strategies that increase the net price received by just 10 cents per bushel could increase net income by 33-50%!!

We get there by eliminating mistakes!

A Different Approach to Marketing


Pre-harvest marketing is very important!!

On average, the March to May time period offers good forward pricing opportunities.

Crop insurance allows us to forward price with confidence.

Your local loan rate establishes a minimum forward pricing objective.

A Different Approach to Marketing


Year 1-May

1-Oct

Change

1980 2.95 3.49 0.54

1981 3.77 2.87 (0.90)

1982 2.93 2.20 (0.73)

1983 3.03 3.53 0.50

1984 3.04 2.78 (0.26)

1985 2.64 2.26 (0.39)

1986 2.04 1.77 (0.27)

1987 1.87 1.84 (0.03)

1988 2.27 2.95 0.68

1989 2.64 2.39 (0.26)

1990 2.70 2.29 (0.42)

1991 2.53 2.54 0.01

1992 2.53 2.12 (0.41)

1993 2.43 2.43 0.00

1994 2.58 2.14 (0.44)

1995 2.63 3.11 0.48

1996 3.33 2.90 (0.44)

1997 2.76 2.56 (0.20)

1998 2.62 2.05 (0.58)

1999 2.31 2.05 (0.26)

2000 2.62 1.99 (0.63)

2001 2.27 2.11 (0.16)

2002 2.20 2.56

0.36

Ave. 2.64 2.47 (0.17)

December Corn, 1980-2002

16 years (70%) the market declined, an average of 40 cents/bu.

7 years (30%) the market improved, an average of 37 cents/bu.


December Corn Futures, 1980-2000 average

1-O

ct

1-N

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1-D

ec

1-J

an

1-F

eb

1-M

ar

1-A

pr

1-M

ay

1-J

un

1-J

ul

1-A

ug

1-S

ep

1-O

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1-N

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1-D

ec

245

250

255

260

265

270

275

approximate dates

cent

s pe

r bu

shel

But remember your minimum price….


Winning the Game

Some thoughts on post-harvest marketing

The tendency for cash grain prices to rise after harvest is a basis phenomena, and not due to a “bias” in the futures price.

Post-harvest futures direction is a coin toss. The only way to capture the carry at harvest is to sell the carry, using some form of a forward contract.

The 11th Commandment


Impact of Crop Insurance Decisions


Life Insurance

How many of you have life insurance?

Do you hope to collect on your insurance this year?


Health Insurance

How many of you have health insurance?

Do you have the best insurance money can buy?

What if the government paid part of the premium?


Crop Insurance

Crop insurance is like health insurance for your crops.

The better the policy coverage, the lower the deductible, the higher the premium.

Unlike health insurance, the government pays a portion of your crop insurance premium.


Crop Insurance Subsidy

PercentInsuranceCoverage

50 55 60 65 70 75 80 85

2000 Subsidy%

55 46 38 42 32 24 17 13

2001-2003 Subsidy%

67 64 64 59 59 55 48 38


Location

Bu Fwd 1991ID# Ave$ $ Year Ins Fwd $/bu

1 408 * 180,154 101,010 1988 1 69,000 2.01 153,466 222 382 180,076 100,320 1988 1 68,000 2.01 153,076 263 396 179,955 99,160 1988 1 68,000 2.01 154,396 134 1 * 179,871 109,162 1988 1 58,800 2.04 148,302 575 391 179,717 109,083 1993 1 67,000 2.02 146,726 646 405 179,565 98,900 1988 1 64,000 2.02 157,386 47 324 179,383 99,210 1988 1 63,000 2.02 156,496 78 4 * 178,655 113,768 1988 1 58,800 2.02 151,046 379 411 178,536 46,650 1993 0 67,000 2.01 159,156 2

10 219 * 178,516 116,443 1993 1 56,000 2.03 149,816 4411 410 178,359 105,490 1988 1 58,000 2.01 152,756 2912 383 178,336 114,573 1993 1 63,000 2.01 148,926 5413 389 178,332 45,260 1993 0 69,000 2.00 160,246 114 381 * 170,886 122,523 1993 1 57,000 1.91 152,516 3015 407 170,275 66,723 1993 0 21,000 2.01 153,486 2116 3 * 168,025 128,675 1988 1 0 0.00 147,126 6217 2 166,604 74,083 1993 0 0 0.00 151,956 33

1984-2000

$ Rank Worst

20-Nov-01


Group Results1984-00

165,000167,000169,000171,000173,000175,000177,000179,000181,000

45,0

00

50,0

00

55,0

00

60,0

00

65,0

00

70,0

00

75,0

00

80,0

00

85,0

00

90,0

00

95,0

00

100,

000

105,

000

110,

000

115,

000

120,

000

125,

000

130,

000

Worst Year$

Ave

rag

e Y

ear

$


Forward Price 70% vs. Sell at Harvest

Six Even Sales B April 4 through J une 13

With 70% CRC I nsurance

Year

70% Forward

Priced

Sell at

Harvest Diff erence1993 115,187 139,976 -24,789

1994 171,386 146,396 24,990

1995 175,942 209,752 -33,810

1996 200,277 156,373 43,904

1997 197,415 201,139 -3,724

1998 206,136 182,714 23,422

1999 198,529 175,205 23,324

2000 169,294 146,362 22,932

Average 178,655 168,025 10,630


Your New Crop Marketing Plan

Crop name ___________ Acres (a) ___________

Expected yield (b) ___________ bu. Total prod. (a x b) ___________ bu.

Amount to Sell Pre- harvest ___________ % = ___________ bu.

Sale IncrementsI will sell at this price or by this date

Amount Tool Price Objective Trigger Date

__________ bu. _______________ _________$/bu. __________

__________ bu. _______________ _________$/bu. __________

Minimum price at which you will wait to sell crop. Generally loan rate plus someamount.

___________$/bu.


WORKSHOP THEME

" Pre-harvest marketing pays and crop insurance is the tool that allows you to do it with comfort "


Evaluation 2001-02Do you plan to make changes in your crop insurance coverage as a result of what you learned today?

25% Yes43.8 Confirmed what I’m doing31.2 Don’t know, will evaluate

96.4% of the survey participants indicated they were planning to forward contract more grain.


Evaluation 2001-02

Average % Forward Priced

Corn Soybeans

Previous Max 22.5% 9.4%

New Expected Max 55.6% 52.1%

Increase 33.1% 34.6%


Follow-up Evaluation 2001-02

% Actually Forward Priced

Corn Soybeans

2001 Crop Max 16.1% 9.4%

2002 Crop Max 43.7% 33.6%

Increase 27.6% 24.2%


Sponsor Model Sponsor responsiblities:

• Provide the location/facilities• Provide eats and treats• Promote the workshop locally• Pay the University $400

University responsiblities:• Provide promotion materials to sponsor• Present the workshop• Provide the participant materials


Sponsor Model -- Advantages Reduced transaction costs on income Local presence for promotion,

advertising & partnership Eliminates local meeting

arrangements Lower financial risk with low turn out Cover direct program costs – travel,

printing, etc. Pressure on presenters to deliver

quality program


Sponsor Model – Requirements for Success Requires a quality program – name

recognition helps Aggressive promotion to potential

sponsors Provide sponsors with promotional

tools Make sure sponsors understand

their responsibility Assist with statewide promotion


Sponsor Model – Challenges

Private vs. public meetings Logistics of sponsor care –

promotion, billing, follow-up


Reasons for Success

Simple message Fun game Well packaged turn-key program Broad support from commodity

organizations Good teaching teams

Copyright © 2002 Center for Farm Financial Management, University of Minnesota.

Documents

Transcript of Copyright © 2002 Center for Farm Financial Management, University of Minnesota.