February 2012 Steven D. Johnson Farm & Ag Business Management Specialist (515)

Presentation Objectives Highlight 2011 Crop Insurance Coverage Review Crop Insurance Changes for 2012 and Related Decisions before March 15 th Discuss the New Trend-Adjusted Yield Endorsement and Historical Projected vs. Harvest Prices Highlight 2012 U.S. Planted Acreage Forecasts and Impact of Weather Discuss Marketing Strategies that can Leverage Revenue Protection Coverage Summarize 5 Crop Insurance Strategies & 5 Related Crop Insurance Web Sites

Iowa Corn & Soybean Insurance Coverage (2011) Revenue Protection = 88.5% of Insured Acres Source: USDA Risk Management Agency, September 2011

Level of Coverage - Iowa Corn & Soybean 2011 Acres Source: USDA Risk Management Agency, October % 0.22% 0.61% 7.70% 16.66% 33.20% 27.50% 11.09% 0.99% 2.12% 0.21% 0.60% 7.28% 15.23% 32.93% 28.73% 12.04% 0.86%

Coverage LevelOptional Units (Fields in Section) Enterprise Units (Fields in County) 65%59%80% 70%59%80% 75%55%77% 80%48%68% 85%38%53% Same Crop Insurance Premium Subsidies Source: USDA Risk Management Agency, October 2009

New in Crop Insurance for 2012 Trend-Adjusted APH Yield Endorsement Lower premiums rates: Iowa roughly 13% lower for corn and 9% for soybeans New county transitional yields (T-Yields) Discontinuation of the Biotech Yield Endorsement (BYE) Dates changed: – new acres insured from sod busting/CRP (Mar. 15) – acreage report deadline (July 15) –crop insurance billing date (Aug. 15). Source: USDA Risk Management Agency, November 2011

Deductible? Revenue Protection – RP (65%-85% Levels) Unit Coverage? (Basic, Optional or Enterprise) Additional Hail, Wind or Greensnap Policy? Trend-Adjusted APH Yield Endorsement ? Source: Johnson, ISU Extension, February Crop Insurance Decisions

County APH Crop Yield Trend Adjustment Source: National Crop Insurance Services, Nov. 2011

Trend-Adjusted APH Yield Endorsement Example of a Typical County Corn Trend Adjustment Factor = : 13 years X 2.5 = 32.5 bu/A 2011: 1 year X 2.5 = 2.5 bu/A Actual Yield = bu/A or TA Yield Option = bu/A Source: Iowa Crop Insurance Industry, February 2012

Iowa Corn Actual vs. Trend-Adjusted Yields Source: Hart, ISU Ext. Econ & USDA NASS, February 2012

Iowa Soybean Actual vs. Trend-Adjusted Yields Source: Hart, ISU Ext. Econ & USDA NASS, February 2012

Important Iowa Crop Insurance Dates Sales Closing Date: March 15 th – Product, Level of Coverage, Unit Structure and Trend-Adjusted Yield Endorsement Production Reporting (Previous Year): April 29 th Initial Planting Dates: April 11 th Corn and April 21 st Soybeans Final Planting Dates: May 31 st for Corn and June 15 th for Soybeans Acreage Reporting Deadline: July 15 th Premium Penalty Assessed: Beginning October 1 st End of Crop Insurance Period: Earlier of when the Crop is Harvested or December 10 th. Source: Johnson, ISU Extension, February 2012

Leveraging Revenue Protection (RP) Source: Johnson, ISU Extension, February 2012

Pre-Harvest Marketing Strategies Revenue Protection = Insurance Bushels that can be committed to Delivery Insurance Bushels = APH X Level of Coverage X Higher of Projected vs. Harvest Price Combine Insurance Bushels sold for Delivery along with the use of Futures and Options Strategies for Non-Delivery bushels.

December ‘12 Corn Futures Chart Source: Jan. 16 th, 2012

Delivery of Corn Bushels with Revenue Protection (RP) Example Marketing Strategy Pre-Harvest Sell for Delivery up to 140 Bu/A Price Guarantee is Higher of the Projected Price vs. Harvest Price Slight Basis Risk Must Plant the Crop 175 Bu/A Actual Production History (APH) 80% Level of Coverage 140 Bu/A Guarantee X $5.80/bu Projected Price Deductible 20% = 35 Bu/A = $812/A Revenue Guarantee Source: Johnson, ISU Extension, February 2012

December Corn Futures Seasonals ( ) Source: Usset, CFFM, U of MN, October 2011

Corn: Projected vs. Harvest Price Source: USDA Risk Management Agency, November 2011

2012 U.S. Planted Acreage Forecast * Forecast Source: USDA NASS & Johnson, ISU Extension, December M 77 M 57 M 30 M

What the “double-dip” La Niña means for 2012… 1)Fewer weather extremes compared to 2010 & )Dry 2011 fall matches analog years of 1971, 1974, 1999 and 2008, but duration is similar to )Expect this La Niña to last into March )Odds are 60% shift to El Niño by summer months. La Niña Affect on U.S. Weather Source: Wolter, NOAA, January 2012

Elwynn Taylor’s 2012 Risk Wheel Neutral Summer = 53% risk of above trend line corn yield La Niña Summer = 70% risk of below trend line corn yield El Niño Summer = 70% risk of above trend line corn yield Source: Taylor, ISU Extension Climatologist, January 2012

2012 U.S. Corn Acreage & Yield Matrix Planted Corn Acres Harvested Acres For Grain (91%) * 5-bu/A Below Trendline *Trendline Yield Estimate * 5-bu/A Above Trendline In Millions 155 bu/A160 bu/A165 bu/A Source: USDA WASDE & ISU Economics, January 2012 * Estimates in Billion Bushels U.S. Corn Demand for = 13.2 Billion Bushels

November ‘12 Soybean Futures Chart Source: Jan. 16 th, 2012

November Soybean Futures Seasonal ( ) Source: Usset, CFFM, U of MN, October 2011

Soybeans: Projected vs. Harvest Price Source: USDA Risk Management Agency, November 2011

Source: Johnson, ISU Extension, February 2012 Pre-Harvest Marketing Thoughts Revenue Protection preferred for sale of Crop Insurance Bushels = Delivery Bushels (Guaranteed Higher of Projected vs. Harvest Price) New Barometer on March 1 st : the Projected Price (February average) for Delivery Bushels Generate adequate Cash Flow Needs for Fall 2012 through Winter of Use of Futures and Options Strategies for Non- Delivery Bushels.

Source: Johnson, ISUE Farm Mgt., Sept Consider Pre- Harvest Marketing Bushels using Revenue Protection Prove your APH yields annually by Farm Level (Optional Units) Lower 2012 Premiums but Higher Revenue Risk Use Revenue Protection (RP) Products (Consider Additional Hail/Wind Coverage) 5 Crop Insurance Strategies Understand Unit Coverage & New Trend-Adjusted Yield Endorsement Source: Johnson, ISU Extension, February 2012

5 Crop Insurance Web Sites Ag Decision Maker – ISU Extension Econ (Decision Tools, Newsletters, Publications, Voiced Media, Monthly e- Newsletter) USDA Risk Management Agency (RMA) Farm Doc – U. of Illinois Extension Econ Ag Manager – K-State Extension Econ Crop Risk Management - ISU Polk County (Crop Marketing Newsletter & Crop Insurance Updates, Webcasts) Source: Johnson, ISU Extension, February 2012