New Crop Costs

[TOM4CWB]

Dear Charlie,

I see Malcolm has estimated his new crop costs in Australia as follows:

"I now
need $284/t port basis for my grain to have a long term
viable grain growing operation. (This rises to $334/t if my
yield drops by 33% and I cut out any expenses I can).
About 12 months ago I would have put my target price at
average yields at $189/t. It has basically lifted by $95/t in
just over 12 months!! The main culprits are fertilisers,
sprays, fuel, council rates, and interest rates. I have not
changed my machinery expenditure numbers, and am not
paying myself any more."

Has the Alberta Gov. started this process in anticipation of input costs for programs in 2009?

I see a 33% drop in production from normal... is considered a planning criteria.

Is there any programing that could cover the 'emergency' disaster costs... like those folks in the Peace River that have lost, say, 75% and are not able to buy insurance to cover the higher cost factors?

[charliep]

On the last question, all farmers (including Peace
River ones) will have coverage increase via the
Variable Price Benefit. October prices will be higher
than the coverage levels last winter and coverage will
increase accordingly in Alberta.

On the first question, what would suggest
governments do? Perhaps government should let the
market work (both output and input). That would
seem to be a theme in other threads.

[makar]

I dont have the vpb and dont know anyone who does, i wonder how many took this option.

[TOM4CWB]

Makar,

Everyone in Alberta has Variable Price Benefit... it is part of the base program that Production Insurance in Alberta provides.

If prices rise over the summer... the value of the production insurance increases based on October/fall prices.

My question was on inputs... as in the past there have been many payments that were based on increased costs to growers... which the feds and prov. are the biggest beneficiary's... through massive tax takes on these inputs.

When Oil/Fert/Chem co's make billions... and gov.'s take in billions on taxes they get from these products... that come out of our pockets... perhaps a rebate is in order!

[skhadenuf]

The variable price option only helps if you are in a claim situation. If not your in for a massive shock when reading your new premium statement. Generally speaking asside from hail not a lot of low enough yields combined withe the poor coverages to trigger many claims therefore that's going to be a money grab, just my opinion but when the final numbers come out on premium paid and claim amounts paid out, here sask crop insurance is going to be in a massive surplus to the point where it will be an embarrassment, while many many are going to go broke with slightly below average yields or lower.
Charlie, what do you mean when you say that government should let the market work, how the heck does the market help you when you've got nothing in the bin?

[charliep]

Positings have noted the differences in Alberta and
Saskatchewan.

In Alberta, variable price benefit is a standard
feature of crop insurance and premiums included
in the premium when you signup. October is the
month when the potential new prices are
calculated.

In Saskatchewan, the variable price option is a
selected feature and an extra cost premium. My
understanding (someone will have to help) is the
new coverage prices are calculated in July as well
as the premiums for extra coverage.

Alberta has tried to be visible on how fall prices
are established (use futures/basis or visible cash
markets). Not sure Saskatchewan.

Too date, crop insurance has been based on
replacement of crop - i.e. percent of
local/individual yield times market price. The
market price is established mid winter - 4 to 5
months prior to seeding and 9 months prior to
harvest so a challenge (perhaps unrealistic) in
hitting the real level. The summer/fall
recalculation allows the 2 provinces to more
accurately reflect true losses. The question then
becomes who pays the premiums for extra
coverage or how they are allocated. The last
comment also applies - no claim/extra cost and
no benefit.

Overtime there has been discussion in Alberta
(can't comment about Saskatchewan) about
allowing more flexibility in setting crop insurance
coverage levels based on cost of production and
from there probability of a claims situation (it is
insurance). Also talk in Alberta about using
contracted prices in the coverage price calculation
(also implications premiums).

Just to note that we may be talking about 2
different things here. The old Ag Policy
Framework and the new Growing Forward separate
production type insurance and what might be
called income stabilization. This would be CAISP
and whatever new program under growing
forward. Has been some discussion about how to
include higher costs in these margin calculations.

Also note the revenue insurance program in
Alberta and adjustments to support prices here
(Alberta's equivalent to the US loan rate releasing
lots of differences).

These are some of the tools. Which ones should
government use? What private industry tools are
available? What can a farmer do themselves?

[skhadenuf]

Charlie, sounds like there is more difference to the sk vs alta programs than I thought. Like the idea of having variable price premium known when you sign up. Just my opinion but all of the gov programs were based upon $2 wheat and $7-$8 dollar canola and inputs were fraction of what it is now so those old numbers are quite ineffective when you have a bad year. It seams as though we are always basing our future on the past when we should be basing our future on the future ie realistic costs etc.

[stubblejumper]

Sask crop insurance has been reviewing their program all summer the are looking for input as to what a new program will look like. So far from what I hear there has been little interest from producers. To easy to sit in the coffee shop and bitch instead of getting involved.

[charliep]

Will note there is lots of good work being done on the crop insurance topic. An example is a WRAP project entitled "Individualized Area-Based Insurance" funder by the Private Sector Risk Management Partnership (Feds/APF money). The first part has been completed and I know there was application for a second stage including expansion to Manitoba (KAP involvement. Couldn't find information on the PSRMP website.

To the last posting, would encourage all farmers to be aware and perhaps involved in the development of risk management products either as individuals or through farm organizations.