The Crop Producers Risk Management Decisions

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The Crop Producers Risk Management Decisions

• Bruce Babcock and Dermot Hayes
• Iowa State University

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Time in the Corn Market
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Monthly Iowa Corn Price Declines, 1979-
80 Through 1999-00 Marketing years
Percent of time Prices
Declined

70
60
50
40
30
20
10
0
80
Jun-Jul
Sep.-Oct.
Jul.-Aug.
Oct.-Nov.
Apr.-May
May-Jun
Nov.-Dec.
Jan.-Feb.
Dec.-Jan.
Feb.-Mar.
Aug.-Sep.
Mar.-Apr.
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Iowa Corn and Soybeans Crop Insurance Decision in
2003
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Government Programs

• Four primary forms of government support
• LDP Price guarantee on all harvested bushels
  (Iowa corn at about 1.90 per bushel)
• CCP Price guarantee on a fixed number of bushels
  for prices between 1.90 and 2.24 per bushel.
• DP Guaranteed payment of about 30 per acre
  (0.19 per bushel)
• Crop insurance pays off when yield or revenue is
  low

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Net Farm Income and Government Payments
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Structure of Paymentsfor Corn
Target Price
2.60
Regardless Of Market
Fixed Payment
0.28
2.32
Counter-Cyclical Payment
Only If
1.98
Loan Rate
Loan Deficiency Payment
Prod Req.
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Purpose of Farm Programs

• Commodity programs (DP, LDP, CCP)
• support aggregate income of sector
• Crop Insurance
• support farmers individual incomes

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Is the Farm Problem Fixed?

• Farmers have raised their expectation of revenue
• Investment decisions and land rental agreements
  will reflect higher profitability
• What happens when revenue is less than projected?