I know it might be hard to hear that market volatility can be good, when you're looking at a crop that's past the point of no return. The weather is the reason for the price spike that we see and then after this, we ride the roller coaster down on a new weather forecast or some other factor beyond our control. Some of you are panicked, sick, and not liking farming this year, but then there are others who are not feeling that way. I will tell you the ones who can be more optimistic are the farmers who selected the right insurance back in March.
Think about why you selected the crop insurance coverage that you did. Originally, in the eastern Corn Belt especially, we were looking at weather patterns that projected heavy rains to come in April and May. Those weather patterns didn't develop and, instead of being excessively wet, it turned dry. There were guys sitting with their planters ready in March, ready to get out and start planting, even ignoring early plant dates in the crop insurance rules. We had great planting conditions and were able to get that crop in the ground. Now the weather has done a full '180' and crop insurance is still holding its position. The spring price for corn is guaranteed at $5.68 and if you chose the Harvest Price Option, you will receive the higher of the spring or fall price. We know how many bushels we've got guaranteed by the coverage level we took. The basic rule is that you can't sell forward unless you have the protection of crop insurance (in case you don't have the crop) and you can't sell more than you have protected.
There's a typical caveat to not selling above what you have protected, and that's the fact that if you bought 85%, then you have to remember that it's 85% of your APH, meaning it's usually less than 85% of a full crop. This year brought some extra coverage opportunity with the trend yield adjustment allowed by the government, which was a bit of a catch-up on yields (using a by-county formula to raise yields covered). Some advisors used this change as a chance to have farmers "buy down" and save a little money on crop insurance. Right now they are probably wishing they had opted for more coverage instead. That would equal a higher percentage of your acres that you can market forward and take advantage of price spikes.
It does happen that farmers sell ahead without the protection of crop insurance or without having high enough coverage levels. That's a little like being a tightrope walker without a safety net. When you fall, it's really going to hurt. Those are the farmers who will go backwards this year. This is where the market motion sickness comes in. Even though we are emotionally tied to our crops, try to think about crop insurance as Dramamine. You're farming, so you're already on the roller coaster ride. You might as well enjoy it.
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