February Most Important Risk Management Month

February Most Important Risk Management Month

Crop insurance projected prices are set during February.

The new year brings with it grey skies, sometimes snow, sometime rain and a renewal process as the land lies dormant. It can be a time for contemplation, sometimes reflection, and for farmers a time to plan for the coming growing season. And the second month of the each new year, February, may very well be the most important new crop risk management month according to Gary Schnitkey at the University of Illinois.

"During the month of February the projected prices for our crop insurance are set," Schnitkey said. "Last year we had a $6.01 corn price that set our guarantee so that we didn't have much chance of a loss so what that projected price comes in at is very critical. This year we're looking at something closer to $5 or $5.30 for the corn projected price, but a 30 cent difference can make a difference of $30,000 to $40,000 in the lowest revenue we can see from a farm."

Those numbers come from the aggregated Illinois Farm Business Farm Management records. The average farm size is 1200 acres. Here's an example of how farm income moves with price and crop insurance.

"A $5.30 corn price and a $10.30 soybean price results in the lowest revenue on that 1200 acre farm or right around minus $30,000," Schnitkey said. "We lower it 30 cents to $5 and $10 for soybeans that lowest revenue goes from minus $30,000 to minus $60,000 or traps about $30,000."

The month of February then is an extraordinary time on the farm. It is when the real work of risk management can be done.

"That will influence both their coverage levels and may impact what they do on the marketing side," Schnitkey said. "It's unfortunate that we set all our cash rents in the fall, or many of our cash rents in the fall, because it would be nice to have that cash rent decision synced up with our crop insurance projected price decisions."

Crop Insurance prices will be set in the month of February. Farmers will make the decision in the month of March.

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