The stakes are higher than ever as farmers in the Ponoka area prepare to seed their fields this spring.
“We’re at record prices on almost all crops. Alberta farmers have never seen levels this high before,” says provincial crop market analyst Charlie Pearson. “The price of canola has jumped 40-to-50 per cent over last year, while crops like red spring wheat and durum have more than doubled in value.
“Area farmers could make a substantial profit this year, after 10 years of struggling with poor returns, says Pearson. “It’s all thanks to a battle for acres worldwide that’s keeping prices high here at home.”
For example, four billion bushels of corn are expected to go into ethanol production in the United States this year – up from three billion last year – putting a squeeze on corn and grain markets, explains Pearson. Wealth in Asia has triggered huge demand for oilseeds and feed grains. “And a global shortage of wheat has been building for years as farmers opted for more profitable crops, and consumption outstripped production. Everything is tight. Competition for acres among crops is fierce, and it’s driving up prices.”
Most Valuable Crop – Most Expensive Too
It all adds up to the most valuable crop area farmers have ever grown – and likely the most expensive one, too, says Pearson, noting fuel and fertilizer costs are also on the rise. He expects some producers will increase their inputs to maximize yields and capture as much profit as possible.
“There’s a lot at stake this year. High prices are irrelevant if there is a weather disaster and you don’t get a crop,” says Pearson. “Most producers I talk to are really analyzing their risk. They’re finding ways to lock in some value now with tools like forward pricing contracts that offer high prices for their grain in the fall, and they are buying crop insurance to lower their risk.”
Weather is Biggest Risk
“Prices are crazy. Our fuel and fertilizer costs are up 10% but profitability is up 120% to 150 per cent. We’ve forward priced some 2008 crop at good prices. It should be a good year – but there is more risk because we have higher costs,” says Lee Erickson, who also plans to put crop insurance on his 7,000 acres of grain crops near Donalda.
“Weather is our biggest risk. When you’re looking at $200 an acre in production costs, you’d have to have really deep pockets to go without insurance,” he says.
Crop Insurance Deadline April 30
The deadline for crop insurance is April 30. Producers can expect to pay more this year because the value of their crops is so much higher, says Avery Cook, Manager of Actuarial Services and Program Readiness with Agriculture Financial Services Corporation (AFSC), the provincial Crown Corporation that administers crop insurance in Alberta.
“When their crop is worth more, the amount of dollar coverage provided by insurance increases proportionately to cover that extra value. So their total premium bill also goes up,” explains Cook. “When you look at the actual premium rates – the price farmers pay per dollar of insurance – they’re pretty close to last year’s rates.” He adds the federal and provincial governments still pay about two-thirds of crop insurance premiums in Alberta and all administration costs. “And this year, we’ve used $50-Million of our surplus to help keep premiums down.”
Most producers will also see their yield coverage increase this year because AFSC has switched to a new system called Individual Coverage, adds Cook. “Now we only look at production yields on your farm when setting coverage. We used to factor in the yields of other farms in your area. Many producers felt that dragged their coverage levels down.” About 75 per cent of insured crops in Alberta will see yield coverage increase.
With Individual Coverage, producers must now include information about their entire land base when filing land reports this year – including insured and uninsured acres for all crops, as well as summer fallow, says Cook. “We need that information to ensure their individual coverage is accurate and to qualify them for all discounts and unseeded acreage benefits. If their land base has changed since last year, they should contact us.” Land reports must be filed within 10 days of seeding, no later than June 20.
Prices Could Climb Higher
With prices so high, Pearson says one of the most valuable features of crop insurance may end up being a built-in tool called the Variable Price Benefit (VPB).
If crop prices climb even higher between now and harvest, the VPB automatically insures producers at those higher prices – up to 50 per cent above the spring price – in the event of crop failure. Cook points out the spring price for canola is $9.53/bu, but canola prices are currently around $12/bu. “The VPB would cover that jump in a claim situation.”
“Whether prices go up or down, insurance offers protection,” he adds, explaining an option called the Spring Price Endorsement covers farmers against price drops of 10-to-50 per cent between the spring and fall.
Pearson predicts high prices are here to stay – at least short term. “If we get perfect weather this summer, we may see prices drop off a bit. But a major crop disaster could send them through the roof.” He expects prices will likely remain fairly high for two or three years “until world grain supplies are replenished and the gap between what’s produced and what’s being consumed narrows.”
Area farmers who have questions about crop insurance this year are invited to attend information meetings being held in Ponoka on April 21. For more details call 1-888-786-7475.