Managing Risk Has Never Been More Important

Crop insurance is one of the best risk management tools you can use.

Published on: Jan 9, 2012

Export market demand, weather challenges and tightening global supplies have given producers some of the hottest markets for the broadest range of crops. But will it continue?

Nicholas Piggott, North Carolina State University Extension Economist, addressed those issues Monday during the American Farm Bureau Federation annual meeting in Honolulu, Hawaii.

U.S. ag exports are projected to be a record $137 billion in 2011. “Why?” asked Piggott. “The weak dollar, crop shortfall overseas and rising world demand.”

EPA raising the ethanol blend rate to 15% (a 50% increase) also boosts demand for corn. “However, so far, ending ethanol blenders tax credit (45 cents per gal. on January 1) has had little impact on the corn market,” noted Piggott.

The economist declared, “Markets do work. Farmers are now making money from the market and not direct payments.”

Piggott expects fierce bidding for acres in 2012 and 2013. “We should see more cvorn acres this year unless soybean prices go higher. Prices are the most important variable.”

With all the volatility, farmers need to spend more time on marketing, advised Piggott. “Be aware of the volatility. Today we see higher highs, lower lows.”

For corn Piggott said both beginning and ending stocks are low which leaves very little margin. “If we don’t get more corn acres, corn prices will go up.”

Soybeans are different story, according to Piggott. “We have more soybeans starting the season and ending stocks are up a bit.” He said crush demand is one factor that will affect the scenario.

Some basics that could affect the commodity markets include the economy, specifically the European financial crisis and the U.S. budget; establishment of more free trade agreements such the those proposed with Columbia, Panama and Koras.

The bottom line, according to Piggott, is “expect substantial price volatility. That’s not a bad thing. But you have to be disciplined.”

He said risk management tools such as crop insurance and forward contracting in small parcels will be important.