Farmers hope for profits with record prices

Near record crop prices are fuelling the possibility of a profitable growing season

Near record crop prices are fuelling the possibility of a profitable growing season as Ponoka County farmers prepare for spring seeding.

“With canola fluctuating around $14.50 per bushel and barley averaging about $5.30 in March, farmers are hoping the weather co-operates better this year so they can cash in on these high prices with bumper crops,” says Lorelei Hulston, provincial insurance manager for Agriculture Financial Services Corporation (AFSC), which administers crop insurance in Alberta on behalf of the provincial and federal governments.

“Producers would like to avoid the disappointment of last year,” says Hulston. “Prices were high and the growing season looked promising. Then came a series of unexpected weather and disease issues that left many with below average yields and crop insurance claims.”

Close to $532 million was paid out through crop insurance across Alberta last year, including Ponoka County. Claims were triggered by several factors including widespread hail, lack of moisture, and heat stress caused by hot July weather.

“Many canola fields were hit by an unexpected disease called aster yellows. Diseases like sclerotinia and insects like army cutworms also became a problem,” says Hulston.

Mother Nature is in control

“It still ended up being a decent year financially for many — thanks to high grain prices — but it was far from what they’d hoped for,” says Hulston. “With crop prices even higher this spring, there’s a lot of value farmers will want to protect this year,” she adds, reminding producers of the upcoming April 30 deadline to apply for crop insurance in Alberta.

Whether prices remain at near record highs — allowing farmers to cash in once they harvest crops this fall — depends mainly on the weather, says Charlie Pearson, a provincial crop market analyst with Alberta Agriculture and Rural Development. “Mother Nature is in control.”

Grain prices could drop 10 to 20 per cent

Pearson explains today’s high prices were created by last year’s drought in the U.S., Russia, Ukraine, and South America — leaving tight corn and oilseed supplies worldwide. “If the world gets good weather and decent crops, we’ll have larger grain supplies this fall — causing prices to drop 10 to 20 per cent depending on how much grain is harvested,” he predicts. “But if drought conditions continue in these major grain growing regions of the world and supplies tighten further, prices could climb higher.”

While he expects grain prices will soften this fall, Pearson says strong demand for meat and cooking oil in China and the U.S. ethanol policy should keep prices “historically high and profitable for most producers.”

SPE protects high prices

“However, we’ll probably see wild price swings. Historically there’s more market volatility when prices are high,” he explains. “It’s a good year for farmers to consider locking in some of the profitable prices being forecast with a tool like the Spring Price Endorsement (SPE).” The SPE is an optional crop insurance rider that compensates farmers if prices drop 10 to 50 per cent between spring and fall on harvested crops.

If grain prices climb higher — by 10 to 50 per cent — a built-in crop insurance feature called the Variable Price Benefit (VPB) insures farmers at the higher price if their crop fails, adds Hulston. The VPB paid out nearly $108 million in 2012 — a record amount — when prices jumped by up to 50 per cent on some crops between spring and fall.

Hulston expects interest in the SPE will rise this year as producers look for ways to protect against falling prices, but she says the production guarantee crop insurance provides will once again be the key reason farmers insure as much as 14 million acres of Alberta cropland this spring.

Weather is always a wild card

Dennis Duncan, who grows 2,000 acres of canola, wheat, and barley near Bentley, says weather and disease are his biggest risks this year.

“Weather is always the wild card,” says Duncan. “We have good moisture for spring seeding but after that, it’s a crap shoot. And world markets? Who knows?” He explains that’s why he always takes crop insurance with the hail endorsement rider, and might add on the SPE this year.

“Crop insurance is a necessity,” says Duncan, noting last year he was expecting his biggest crop year ever but ended up with only average yields due to aster yellows. He adds while hail is usually a major concern, he managed to avoid hail damage last year.

All-risk coverage

Like Duncan, most farmers enrolled in crop insurance take the highest coverage levels — insuring 70 to 80 per cent of their average crop yield — because it’s impossible to predict what might impact their crops each year, says Hulston. The majority also take the hail endorsement rider, she says, noting about 60 per cent of crop insurance premiums are subsidized by government. “It’s all-risk coverage that insures everything from drought and hail to frost, flooding, insects, wind, disease, and wildlife.”

As producers fill out their crop insurance forms, Hulston reminds them to declare all acres they intend to seed this year — whether they plan to insure them or not — to be eligible for the Unseeded Acreage and Reseeding Benefits if those fields become flooded.

Farmers can also Auto-Elect Straight Hail Insurance coverage at a two-per-cent discount if they choose that option with their crop insurance before April 30. And producers wishing to defer claim payments until the next calendar year are urged to notify AFSC as soon as possible, because once claim cheques are issued, payments can no longer be deferred.

Producers with questions about crop insurance can contact their local AFSC District Office or the AFSC Call Centre at 1-877-899-AFSC (2372) before the April 30 deadline.