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The difference between success and failure in business is how well that business is able to manage risk. This special issue of The Progressive Farmer provides ideas for managing risk in one of the most volatile times ever in agriculture. 
Protect Your Revenue Neither torrential rains, nor June planting, nor a few close calls with Category 5 tornadoes stopped Tim Recker from delivering what was likely to be a 170-bushel-average corn crop on his Arlington, Iowa, farm this year. Recker lives only a few miles north of then storm-soaked Cedar Rapids, but until 2008 he thought that fickle soybean yields were his only major variable. "Soybeans are another story, but we just don't have corn yield problems in this part of the state," he says. When corn futures first hit the $5 territory last winter, though, volatile commodity prices became one risk Recker couldn't afford to ignore. With a break-even of about $4.20 in 2008 and an insurance guarantee of $5.40, his only decision was "how much to spend." Buying revenue insurance with a harvest price option on corn gave Recker the confidence to forward contract about half of his crop through August "without the heartburn that I couldn't fill it," he says. With the price collapse since June 27, though, he wishes he'd sold even more. Portfolio of products. By embracing revenue coverage, Recker is joining a multitude of Grain Belt growers who now see products like Revenue Assurance (RA), Crop Revenue Coverage (CRC) and Group Risk Income Plans (GRIP) as the best refuge from the hazards of volatile prices. In 2008, for example, these plans accounted for 78% of the insured corn and wheat acres, nearly as many soybeans and 61% of the nation's insured cotton. "Our costs are ratcheting up, and as long as the revenue insurance guarantees run above cost of production, buying them is a no-brainer," Recker says. Although he isn't sure how much his cash rents will run, he's estimating 2009 corn break-evens at $4.80 a bushel—a scary prospect provided cash prices don't recover by spring. If the 2009 insurance guarantee set next March "puts the spring estimated price below my cost of production, this is a different ball game," he adds. 
Not since the birth of modern-day crop insurance in 1980 have growers faced this much reform in their risk-management tools, notes Dennis Daggett, vice president for John Deere Risk Protection in Johnston, Iowa. He says farmers may need to rethink traditional crop insurance buying habits in light of the new farm bill. For starters, "we now have linkages between crop insurance and disaster programs that never existed before," he says. Mandatory cross-compliance. Congress imposed a broad cross-compliance feature in the 2008 farm bill that requires producers to purchase insurance or equivalent coverage on all crops and in all counties where they farm. For the first time, this includes uninsurable crops like pasture, forage, rangeland and specialty crops. Otherwise, they will be ineligible in the event that they want to collect federal disaster assistance in the future. In general, producers might want to consider upgrading if they buy bare-bones CAT (catastrophic) coverage, as many cotton and soybean growers do in the Delta. The better the crop insurance coverage is, the better the aid will be under the new disaster program, called the Supplemental Revenue program (SURE). Details still were being hammered out by USDA at press time, but "SURE is based on the crop insurance coverage level selected by farmers," notes Kansas State University economist Art Barnaby. "Those farmers who select CAT coverage will have their disaster coverage based on 50% coverage at 55% of the price. However, farmers insuring at the 75% level will also have their ‘free' disaster aid based on 75% coverage at 100% of the price election." But the outlays aren't cheap and tend to penalize highly diversified farmers who operate in multiple counties, Barnaby adds. For 2009, uninsured crop disaster assistance policy (NAP) rates will run $100 to $250 per crop, $300 to $750 per county, or $900 to $1,875 per producer for all counties. Dale Artho, a diversified Wildorado, Texas, grower, can attest to that expense. He had a 0.7-acre grass waterway that was not fenced off to keep cattle from grazing it. For 2008, it cost Artho, his wife and his landlord $300 total to buy NAP coverage on that field; without it, none of the other crops that the Arthos raise in three counties would be eligible for disaster aid. Winter wheat used for cattle grazing and grain sorghum cut for silage also require NAP policies. The Arthos and their crop-share landlords spent $7,650 altogether for NAP policies in 2008 and 2009. 
"I have four retired lady schoolteachers on fixed incomes who had to pay $250 each in 2009 to stay eligible for disaster coverage," Artho adds. "I'm not trying to be hard-nosed about it, but that seems like a lot of money for something that we may not need. It's just that there's so much liability and risk in farming, we can't afford to go without it." (After protests, Congress amended the law so at least insurance is not necessary on small parcels where USDA's administrative fee exceeds 10% of the value of that coverage.) Policy premiums. One major unknown is how much premiums for conventional crop insurance will cost in 2009. That's because prices fluctuate based on the value of the crop and a "volatility" factor adjusted by the Risk Management Agency. Since 2004, crop insurance rates, along with other farm production costs, have rocketed. (See chart.) The average Iowa insurance premium now runs $22.74 per acre for corn and $17.57 for soybeans, Iowa State University says. Last year, when subsidy levels changed and crop prices soared, a 90/100 GRIP policy on corn in Allen County, Ind., jumped from $32.97 per acre to a whopping $62.17—or about 90%, notes Tyler Silveus, vice president of Silveus Insurance Group in Warsaw, Ind. True, some of these higher costs reflect the higher per-acre coverage, much like a homeowner's insurance premiums cost more for a $500,000 home than a $100,000 home. "But with another jump like that, people won't be able to pay the bill," says Silveus. If affordability is a major concern, consider switching to enterprise units instead of section-by-section coverage—but only if you have uniform quality land, crop insurance experts say. For example, a large farm insured at an 85% coverage level CRC with enterprise units can knock off up to 35% of premium costs, says Kurt Koester, vice president of AgriSource, a West Des Moines, Iowa, grain marketing and crop insurance agency. "For guys who never collect on their insurance and are having price shocks over their premiums, this might be worth considering. You might have to ask for it though. The premiums are lower so agents may not volunteer it." Build a safety net. One place not to scrimp is buying the harvest price option if you choose revenue coverage. Koester considers it a "must-have" feature in your marketing plan, given volatility in commodity prices that can destroy early sales. "Price rallies at harvest are a grower's worst nightmare," he says. "We had corn go from $6 to $8 in the month of June without a serious weather problem. If we'd had a wet spring followed by a hot, dry summer, people would be talking about $10 corn." Farmers like Tim Recker don't expect traditional farm programs to offer much relief should commodity prices stay depressed. Target prices were set below cost of production in the last farm bill, a meager $2.65 for corn—more than $2 under his cost, he notes. Recker is considering enrolling in the alternative farm program, ACRE, but admits commodity growers can't count on Uncle Sam as their first line of defense for weather or price disasters.
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