When we look back a year from now or five years from now at the drought of 2012, one of the most extraordinary things we will have learned is that each farm was effected differently by the drought.
Neighbors just down the road from each other or farms just a couple miles apart will have completely different outcomes from this growing season. Why?
From conversations I've had with farmers, Extension agents and other agriculture professionals, the main factors impacting farmers are not how much rain they did or didn't receive but whether they had crop insurance or not, what kind of coverage they had and if they have to buy expensive feed for dairy cows or livestock. That may sound bizarre given everyone's prayers for rain during the past three months, but it's a fact.
The USDA is predicting that corn yields will average 130 bushels per acre in Wisconsin this year, down from 157 bushels in 2011. Nationally, yields are expected to average 122 bushels per acre, a drop of 24 bushels from last year due to the drought gripping much of the Midwest.
If your corn yield losses are not enough to trigger a crop insurance payment, then likely your yields are in the 120-bushel range or higher. Thank your lucky stars. While you definitely experienced a yield loss, it's not enough to trigger a payment. If you are a crop farmer and you didn't forward contract all of your corn prior to the end of June, then you will benefit from the 30% increase in corn and soybean prices since it became evident southern Wisconsin was in a drought three months ago.
For example, even if you average $6 per bushel on 125 bushels of corn, that works out to $750 an acre. It's not a hefty profit, but a profit nonetheless. If you sell your crop for $7 per bushel on 125-bushel yield, that will work out to $875 an acre.
Southern Wisconsin farmers who planted their corn in April took the biggest hit on yield with many predicted to average only about 80 bushels per acre. Farmers who have sandier or lighter soils also are experiencing lower yields. An 80-bushel yield average will likely trigger a crop insurance payment. Farmers who took out the highest level of yield protection paid a higher premium but if their yield losses were significant enough to qualify for a payment, they will also receive higher payments.
According to crop insurance agent Jeff Riedeman, farmers can take out yield protection insurance ranging from 50% to 85% of their historical farm yields.
Riedeman illustrates how much money a farmer would receive in the following example:
A payment would kick in at anything averaging below 126 bushels per acre for a farmer whose corn has averaged 180 bushels per acre during the past 10 years and who bought yield protection crop insurance at the 70% level. If that farmer averaged 80 bushels of corn per acre, initially he would receive $5.68 per bushel up to 126 bushels guaranteed at $716 per acre. He would receive $261.28 per acre – 126 bushels minus 46 bushel times $5.68 per bushel. Let's say that same farmer had revenue protection insurance and the price comes in at $7.68 in October for December corn which is $2 per bushel higher. Because he had revenue protection, that farmer would receive another check for $92 per acre.
In addition to selling crop insurance, Riedeman also farms 200 acres. He says it costs him $2,000 a year to insure his crops at the 70% revenue protection level.
"That's $100,000 worth of protection per year which covers my costs of putting in a crop," Riedeman says. "That's enough coverage to ensure that I will break even. I won't make a profit that year, but I also won't have to go to the bank and ask for a loan to keep farming another year."
The dry weather that we've been experiencing in much of Wisconsin the past three weeks is a reminder that we're not out of the woods yet when it comes to drought. If we don't get a significant amount of rain to recharge our dry soils this fall and winter and next spring, we could be in for continued drought in 2013.
Those who are fortunate enough to survive the drought of 2012 without crop insurance may want to spend some time this winter investigating how much it would cost to insure your crops from a possible drought next year. While you may have dodged a bullet this year, you may not be so lucky next year. Ask your neighbor.
If you would like to talk to Jeff Riedeman, you can call him at Nolan Insurance in Brandon at 920-346-2241.