NDSU Assists With Price and Yield Risk Management Decisions

Production costs per acre were the highest in history in 2007 and will be much higher in 2008, says Andy Swenson, North Dakota State University Extension Service farm management specialist.

The NDSU Extension Service has an Excel computer spreadsheet, RiskMGT, which provides information to assist producers in making price and yield risk management decisions. RiskMGT is available at www.ag.ndsu.nodak.edu/aginfo/cropmkt/cic.htm.

“The program simulates gross revenue for different crop insurance and marketing strategies for a range of harvest prices and yields,” Swenson says. “Although input prices have increased greatly, the largest risk to producers is revenue. Prices and yields are more variable than total costs, so producers are faced with challenging decisions because of this uncertainty.”

Producers have until March 15 to sign up for crop insurance and decide on coverage levels.

“Fortunately, given the high cost scenario, the crop insurance protection this year is very good because prices at which producers can insure are at historically high levels,” Swenson says.

For example, the price per bushel used for revenue insurance on wheat, soybeans and corn are $11.11, $13.36 and $5.40, respectively. The revenue insurance price for canola and oil sunflowers is about double from last year, at $0.317 and $0.293 per pound, respectively. The insured price under the actual production history insurance policy for flax is $15 per bushel, compared with $6 in 2007.

Of course, the higher levels of protection come at a cost. For several crops, the cost of crop insurance will be double, compared with last year.

“Although the revenue outlook at this time looks good on paper, no one knows what yields or market prices will be at harvest time,” Swenson says. “It makes sense to look at the revenue outcomes of harvest time prices and yields using different crop insurance and marketing strategies.

“The current high market and crop insurance prices have provided an opportunity to lock in profit using the crop insurance and marketing tools that are available.”

NDSU Agriculture Communication