Crop Insurance Crop Budgets MARCH 15. Gibson Insurance Group. Come Visit Us

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1 Gibson Insurance Group Crop Insurance 2016 The Risk Management Specialists Volume 16, Issue 1 February 2016 Come Visit Us 2016 Crop Budgets Booth 104 Western Farm Show Kansas City Feb Inside this issue: A Look at the Replant Option 5 Whole Farm Unit 7 MARCH 15 Is the last day to either obtain a policy or make changes to your present insurance policy GIBSON INSURANCE GROUP 337 Highway 50 East P.O. Box 795 Tipton, MO Phone: Fax: Twenty four months ago few of us thought the days of $8.80 soybeans and $3.70 corn would return any time soon but this in fact has happened. There are several factors that lead us to the prices that we see today. There will be no quick cure in the near future short of a catastrophic event. Prices ebb and flow every year but the exception to these markets is the extreme levels of prices that we have seen. $8.00 corn and $15.00 soybeans were not good for the stability of the ag sector. These prices not only cut demand but they encouraged inputs to rise very rapidly as well. Today we are seeing markets that have tumbled to low levels and inputs that are coming down but not nearly at the rate of commodity prices. Over the last two decades of writing this budget newsletter I have always been able to at least figure a small return to land, labor, and management with the use of the protection provided by crop insurance. This year, with the current prices, most producers will not be able to cover their variable costs with this tool alone. Cost cutting and good marketing will be more important this year than ever before. On my operation, I will look at every crop produced making individual marketing plans for the expected production and make every effort to be as efficient as possible. Crops like double crop soybeans may go unplanted this year unless the markets give us an opportunity to price this commodity between now and June. The start of 2016 looks like a year where we plan on covering our cash costs of the farming operation. In the short run, cash income must be sufficient to cover expenses like seed, fertilizer, chemicals, insurance, cash rent, and hired labor. However in the long run, income must be enough to cover all production expenses and provide a return to the resources being used. Over the next couple of years profitability will return to agriculture as inputs, cash rent, and land prices correct to the prices of the commodities. Unfortunately costs and prices do not always move together. In this budget newsletter, we have decided to use the university of Missouri Extension crop budgets for five different scenarios that most farmers will choose from this year. GMO corn will be the most common corn budget used. It has the highest seed costs due to the genetic traits that have been added to the seed. A non GMO budget has also been added this year for producers who are trying to control cost by not buying traits and are willing to add extra management to control problems if they occur. This budget is also attractive to those producers

2 2016 Non-GMO Corn Budget of Units Units Cost $/ Unit Seed Bags Nitrogen 165 Pounds Phosphate 70 Pounds Potash 45 Pounds Limestone 0.5 Tons Starter Fertilizer 0 Acre Zinc 0 Pounds Sulfur 0 Pounds Boron 0 Pounds Pre-Emerge 1 Acre Post-Emerge 1 Acre Insecticide 1 Acre Drying Fuel & Electricity* 125 Bushels Machinery Fuel 1 Acre Machinery Repairs 1 Acre Hauling & Transportation* 125 Bushels Labor 1 Acre Custom Application 1 Acre Interest (1/2 year at 6.0%) 0.5 Acre 6.00% GMO Corn Budget of Units Units Cost $/Unit Seed Bags Nitrogen 165 Pounds Phosphate 70 Pounds Potash 45 Pounds Limestone 0.5 Tons Starter Fertilizer 0 Acre Zinc 0 Pounds Sulfur 0 Pounds Boron 0 Pounds Pre-Emerge 1 Acre Post-Emerge 1 Acre Insecticide 1 Acre Drying Fuel & Electricity 125 Bushels Machinery Fuel 1 Acre Machinery Repairs 1 Acre Hauling & Transportation* 125 Bushels Labor 1 Acre Custom Application 1 Acre Interest (1/2 year at 6.0%) 0.5 Acre 6.00% Variable Acre $ Page 2 Crop Insurance 2016 Variable Acre $ $17.33 $7.67 $32.67 $57.67 $82.67 $ $ $12.27 $39.77 $67.27 $94.77 $ $ $ $41.87 $71.87 $ $ $ $ $ $71.47 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $44.11 $19.11 $5.89 $30.89 $55.89 $80.89 $ $14.51 $12.99 $40.49 $67.99 $95.49 $ $ $15.09 $45.09 $75.09 $ $ $ $ $44.69 $77.19 $ $ $ $ $ $74.29 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Returns Above s Yield Dollars Per Bushel (Bu) $3.25 $3.50 $3.75 $4.00 $4.25 $4.50 $4.75 Returns Above s Yield Dollars Per Bushel (Bu) $3.25 $3.50 $3.75 $4.00 $4.25 $4.50 $4.75

3 2016 Grain Sorghum Budget of Units Units Cost $/ Unit Seed 0.16 Bags Nitrogen 125 Pounds Phosphate 60 Pounds Potash 40 Pounds Limestone 0.5 Tons Starter Fertilizer 0 Acre Zinc 0 Pounds Sulfur 0 Pounds Boron 0 Pounds Pre-Emerge 1 Acre Post-Emerge 1 Acre Fungicide 0 Acre Insecticide 1 Acre Drying Fuel & Electricity* 110 Bushels Machinery Fuel 1 Acre Machinery Repairs 1 Acre Hauling & Transportation* 110 Bushels Labor 1 Acre Custom Application 2 Acre Interest (1/2 year at 6.0%) 0.5 Acre 6.00% 9.44 Variable Acre $ Yield Returns Above s Dollars Per Bushel (Bu) $3.25 $3.50 $3.75 $4.00 $4.25 $4.50 $ ($144.19) ($131.69) ($119.19) ($106.69) ($94.19) ($81.69) ($69.19) Volume 16, Issue 1 Page Crop Budgets (continued) who choose to market grain into the special markets that require grains that are not modified. For soybeans, both a RR budget and a Liberty budget will be used for comparison. Conventional beans are also gaining popularity again but the costs of producing conventional beans have become very similar to both Roundup and Liberty with the extra chemicals needed to control water hemp in this area. Finally, some producers are taking another look at grain sorghum this year. In 2015, milo has sold at a premium to corn for much of the year. Currently it is $0.37 less than corn at the terminals but it will have some cost savings when compared to the production of corn. There is little that we can do to change the costs of putting out a crop regardless what it is. Yes, we could skimp on fertilizer for a year or two but this would be a decision that would have negative consequences in the future. Our best plan would be to keep costs as low as possible and to a good job of marketing what we produce. Marketing to most of us is a very emotional exercise. Remember this market will not fall forever. We have to be cautious and not sell do to the fear that these markets will never rebound. Yes, the trend is currently down but we must ask ourselves what is the down side risk as compared to the upside potential of the market. There is no question, large supplies of commodities are on hand to work through. The important thing to remember is that this is old news and it has already been factored into the market. The dollar index is within one point of being at its high over the last 12 months. This too is old news and has been factored into the current market. On the other hand, if you look at the commitment of traders report that was issued this week you would notice that 60 ($114.59) ($99.59) ($84.59) ($69.59) ($54.59) ($39.59) ($24.59) 70 ($84.99) ($67.49) ($49.99) ($32.49) ($14.99) $2.51 $ ($55.39) ($35.39) ($15.39) $4.61 $24.61 $44.61 $ ($25.79) ($3.29) $19.21 $41.71 $64.21 $86.71 $ $3.81 $28.81 $53.81 $78.81 $ $ $ $33.41 $60.91 $88.41 $ $ $ $ $63.01 $93.01 $ $ $ $ $ $92.61 $ $ $ $ $ $287.61

4 2016 Liberty Link Soybean Budget of Units Units Cost $/ Unit Seed 1.1 Bags Nitrogen 0 Pounds Phosphate 40 Pounds Potash 65 Pounds Limestone 0.5 Tons Foliar Fertilizer 0 Acres Burn Down Herbicides 0 Quarts Pre-Emerge 1 Acre Post-Emerge - Liberty 36 Ounces Fungicide 1 Acres Insecticide 1 Acre Drying Fuel & Electricity* 0 Bushels Machinery Fuel 1 Acre Machinery Repairs 1 Acre Hauling & Transportation* 45 Bushels Labor 1 Acre Custom Application 1 Acre Interest (1/2 year at 6.0%) 0.5 Acre 6.00% 7.29 Page 4 Crop Insurance 2016 Variable Acre $ $7.41 $22.41 $37.41 $52.41 $67.41 $82.41 $ $49.06 $66.56 $84.06 $ $ $ $ $90.71 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ ($42.27) ($29.77) ($17.27) ($4.77) $7.73 $20.23 $ ($0.62) $14.38 $29.38 $44.38 $59.38 $74.38 $ $41.03 $58.53 $76.03 $93.53 $ $ $ $82.68 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Returns Above s Yield Dollars Per Bushel (Bu) $8.50 $9.00 $9.50 $10.00 $10.50 $11.00 $ ($34.24) ($21.74) ($9.24) $3.26 $15.76 $28.26 $ Roundup Ready Soybean Budget Seed 1.1 Bags Nitrogen 0 Pounds Phosphate 40 Pounds Potash 65 Pounds Limestone 0.5 Tons Foliar Fertilizer 0 Acres Burn Down Herbicides 0 Quarts Pre-Emerge 1 Acre Post-Emerge 1 Acre Fungicide 1 Acres Insecticide 1 Acre Drying Fuel & Electricity* 0 Bushels Machinery Fuel 1 Acre Machinery Repairs 1 Acre Hauling & Transportation* 45 Bushels Labor 1 Acre Custom Application 1 Acre Interest (1/2 year at 6.0%) 0.5 Acre 6.00% 7.52 Yield of Units Units Cost $/ Unit Returns Above s Variable Acre $ Dollars Per Bushel (Bu) $8.50 $9.00 $9.50 $10.00 $10.50 $11.00 $11.50

5 Volume 16, Issue 1 Page Crop Budgets (continued) the commercial traders have gone from a very net short position to a substantial net long position. This is important, the commercials are the end users of the products that we produce. They have possibly recognized that these markets maybe near the bottom and they are purchasing their inputs at these low levels. This switch could be a possible sign of some strength returning to the grain markets. As for my own marketing plan, I will remain on the sidelines until certain opportunities exist. My goals for this year is to market my corn at $4.50 and soybeans in the $9.75 range. When and if this opportunity arises I will pull the trigger on that day. This goal may appear to some to be unrealistic based on current prices. However, I understand that this marketing season is still young and opportunities will arise. The success of this plan will be very dependent on weather, the economy, and the reaction of other commodities not related to agriculture. If prices rebound to these levels, profitability will be restored to agriculture this year. A Look at the Replant Option Time is quickly approaching for the rush to get crops into the ground. For the 2016 crop year there have been a few changes made to the Supplemental Replant Option Policy. The loss payments and the premium are now being calculated based on the share percentage of the acres reported and there has been a $250 loss deductible added to each policy. Using the $30 per acre that most producers have chosen, you will need to replant at least 8.5 acres in order for a Supplemental Replant Option payment to be paid. Your current crop policy already has some replant coverage included. However, you have to meet certain criteria. You can only collect the replant payment that is included with your crop policy if you meet the 20/20 rule. Simply put you can only collect payment if you have to replant the greater of 20 acres or 20% of a unit. For example, on a 100 acres of corn in unit the adjuster determines that 18 acres needs to be replanted. Since the 18 acres does not meet the 20 acres or 20% of the field rule, you would not receive a payment. If you have taken the Supplemental Replant Option, you can collect a replant payment from the first acre that needs to be replanted. IMPORTANT If your farming entity has changed from last year either by death, divorce, or business type you must notify the office for a policy change immediately. Failure to do so could have serious implications for your crop coverage (This also includes any SBI s listed on your policy) THE STATEMENTS CONTAINED IN THIS PAMPHLET ARE FOR INFORMATIONAL PURPOSES ONLY AND DO NOT CONSTITUTE AN INTERPRETATION OF THE TERMS AND CONDITIONS OF ANY INSURANCE POLICY. NOTHING CONTAINED HEREIN WAIVES, VARIES OR ALTERS ANY TERM OR CONDITION OF ANY INSURANCE POLICY. ELIGIBILITY FOR COVER- AGE, ENTITLEMENT TO AN INDEMNITY AND LIABILITY FOR PREMIUM MAY VARY. PLEASE REVIEW YOUR INSURANCE POLICY TO DETERMINE WHICH TERMS AND CONDITIONS ARE APPLICABLE TO YOU Non-Discrimination Statement Non-Discrimination Policy The U.S. Department of Agriculture (USDA) prohibits discrimination against its customers, employees, and applicants for employment on the bases of race, color, national origin, age, disability, sex, gender identity, religion, reprisal, and where applicable, political beliefs, marital status, familial or parental status, sexual orientation, or all or part of an individual's income is derived from any public assistance program, or protected genetic information in employment or in any program or activity conducted or funded by the Department. (Not all prohibited bases will apply to all programs and/or employment activities.)

6 Page 6 Crop Insurance 2016 A Look at the Replant Option (continued) IMPORTANT NOTICE Starting in 2016 RMA is allowing Soybeans to be insured in these counties Howell McDonald Webster Wright Phelps Starting in 2016 RMA is allowing Corn to be insurable in Howell This option can help better control the risk associated with planting each season. With $30 per acre replant coverage minus the $250 deductible the 100 acres of corn in unit with 18 acres that needs to be replanted you would collect a payment of $290. Let s say that you have a 450 acres of corn in unit with 100% share that needs 95 acres replanted. Your policy will pay approximately $36 per acre replant and your Replant Option will pay $30 per acre replant. - The policy will pay 95 acres X $36 per acre = $ The Replant Option will pay (95 acres X $30 per acre X 1.0 Share) - $250 = $2600 For those 95 acres of corn, you would collect a payment of $6020. Another benefit that is included with the Replant Option is Early Bird Planting. The Early Bird allows you to get into the field faster if the conditions are right for planting. You are able to plant up to 20 days earlier than the initial plant date. For example, the initial plant date for soybeans is April 20 th you can plant as early as April 5 th. However, there is a downside to using the Early Bird option. You can only collect the payment for the Replant Option and not the payment for the replant included within your policy since the land was planted before the initial plant date. You will have to decide if the risk of planting early and only collecting the Replant Option payment (if needed) is worth the reward of being able to harvest and market early. The Replant Option cannot be used if your land is considered high-risk or if it is covered under written agreement. It will not pay if the $250 deductible per policy is not met. It also does not have to be renewed each year. If you need to make changes or cancel, you need to contact our office by sales closing each year. If you have any questions, please contact our office. Important Note: It does not matter if you have the Replant Option or not if you need to replant you must call the office so we can turn in a claim and you then have to wait on an adjuster to call and give you the okay to replant.

7 Volume 16, Issue 1 Page 7 Whole Farm Unit Over the years it has always been the goal and mission of this agency to give our clients usable information about new crop risk management products. If the products are good and have a use in our risk management arsenal we suggest using them. If they are not we also feel the responsibility to explain why these products are not in the best interest for the majority of our producers. The 2014 Farm Bill expanded a program called the Whole Farm Unit and is being pushed by certain people in this industry as a one size fits all risk management product. In reality, think of Whole Farm Unit as a size 7 work boot. This boot would be great for the person with a size 7 foot but would be painful for many and unusable for my size 12 foot. Whole Farm Unit takes all the commodities that are produced on a farming operation, averages them together, and insures revenue based on the last five years reported figures of your schedule F tax return. To make this product work best a producer would need to raise 3-4 different commodities, all having a significant percentage of the total revenue that is produced in the operation. Whole Farm Revenue would work very good for the truck garden farmer who is producing several different crops and products to sell that do not have crop insurance plans in the counties where they are produced. In this case this operation may be the size 7. For the majority of the producers in this area, this product would be less than satisfactory. First, most of us produce commodities that have insurance plans in the counties we farm. Second, few of us raise more than 3 crops. Third, most of us do not have all of our farming operations operating under one entity, which is a requirement for this program. Lastly, even fewer of us would like to turn over our tax returns for the last 5 years to agents or companies to scrutinize in order to write this policy. I struggle with the thinking of the people who designed this product as certain expenses are not recognized as acceptable to producing a crop. As a producer of corn I have always assumed that drying that commodity to a point that allows safe storage was an expense to the that farming operation. I have also been of the opinion that the transportation of grain to market was also a cost associated with producing corn. The Whole Farm Unit program does not considered these expenses as part of the cropping enterprise. The risk management tools we have today are not perfect, but they do provide our industry with protection to our producers with very little abuse. The integrity of our program needs to be protected at all costs as our industry is always being scrutinized by the tax paying public, by special interest groups and those that are anti-agriculture. You might recognize that there some frustration in the tone that this is written. It s not that the program is bad, in fact it could be very beneficial for a select few operations, but it is definitely not the one size fits all that it has been hyped by some to be. Finally, I believe this product could become a moral hazard for those producers who have intentions of collecting a payment with a Whole Farm Unit policy regardless of the revenue produced on their operations. IMPORTANT Contact the office Immediately IF Your farming entity has changed from last year either by death, divorce, marriage, or business type You have not signed an AD form at FSA Your contact information has changed (mailing address, phone, etc.) You are adding land or breaking out grass fields for your crop operation Failure to do so could have serious implications for your crop coverage.

8 Crop Insurance 2016 GIBSON INSURANCE GROUP Agents Main Office Dean Gibson Brian Huhmann Matt Rowell Chris Lynch Boonville Steve Timm Milan Michelle Smith Montrose Brandon Jurgensmeyer West Plains Shane Rhoads Lebanon Seth Burns Rural Crime Meeting Hosted by California FFA Open to the Public Thursday March 3 at 7:30 PM At California High School Ag Building Presenters: Missouri State Highway Patrol Rural Crime Unit Moniteau County Sheriff s Department Please join us to learn more about rural crime and how we can prevent it in our area GIBSON INSURANCE GROUP, INC. P.O. BOX 795 TIPTON, MO 65081