This Week in Ag #5

It’s Commodity Classic week. This is one of the ag industry’s most important shows, and among my favorite times of the year. I’ll be in Orlando for the show, as will Lyndon Smith, Barrett Smith and Michael Gardner. #Classic23 is expected to draw around 5,000 farmers. But what makes this show exceptional is not the number of farmers who attend, it’s the type of farmers who attend. On average, farmer attendees operate 3,500 acres, earn $3.5 million in gross income and annually purchase $383,000 in fertilizer, $429,000 in seed and crop protection products and $718,000 in equipment. Moreover, these farmers are highly influential. Many serve on state and national boards for the corn, soybean, wheat and sorghum associations, elected by their peers to do so. This is also where state and national yield contest winners are recognized. Among attendees, 72% say Commodity Classic is the most important event they attend all year. And as is often the case, #Classic23 will include a speaking appearance by the U.S. Secretary of Agriculture.

March 15 is one of those red-letter dates for farmers. That’s the sales deadline for purchasing federal crop insurance. While most insurance plans you’re familiar with – health, auto or home – are considered protection against unforeseen or disastrous events, crop insurance is a risk management tool, offering revenue assurance. It guarantees a set level of gross revenue per acre, provided the farmer attempts to harvest their crop. Here’s how a typical plan works: farmers provide 5-year average yield data for their farms. They select a coverage level of protection (50-85% of their average yield). This yield number is multiplied by the USDA spring commodity price and that’s what you’re guaranteed to earn, no matter what carnage Mother Nature may inflict. This year, the set commodity prices are $5.91 for corn and $13.76 for soybeans. So if your 5-year average corn yield is 200 bu/A, and you purchase 85% coverage, you are guaranteed to gross $1,004.70 per acre. Farmers pay premiums based on the level of coverage they select; the higher your coverage level, the higher your premium. In talking to friends who sell the FCIP, most farmers in the Mid-South are choosing 70-75% coverage, while those in the Midwest are going higher, opting for 80-85%. Usually – and last year was a notable exception – the risk of events such as drought or frost in the Mid-South is lower than in the Midwest. In examining the habits of the most financially successful farmers in the Midwest, most choose the highest coverage levels. There are several supplements that farmers can add to their plans, which includes options to capture additional profit if the commodity prices rise above the pre-set prices. As the name implies, Federal Crop Insurance is a product of the U.S. government. While there are many sellers, all FCIP products are the same. Farm Credit associations sell crop insurance, as do many local insurance agents, Farm Bureau agents and even the Farmer’s Business Network. These sellers compete based on service, relationships, risk management advice and convenience. FCIP premiums are subsidized by the federal government – to the tune of about $7 billion annually, as farmers pay roughly 40% of the total premiums. Thus, this food safety net program, bankrolled mainly by the government, has come under scrutiny from many groups. About 2/3 of FCIP subsidies go to the largest 10% of farmers. And while FCIP is offered for over 120 crops, about 70% of policies cover corn, soybeans, wheat and cotton. Several specialty crop growers say crop insurance is not practical for their operation. Thus, many critics believe FCIP encourages monocropping, which leads to soil degradation. Crop rotation systems are key components of a robust regenerative agriculture system. More than 85% of row-crop farmers rely on FCIP. This can make it an instrument to incentivize various behaviors and practices. For example, farmers who plant cover crops can reduce premiums by $5 per acre. A recent analysis found that fields utilizing cover crops and no-till practices were 24% less likely to be declared “prevent plant” and receive an insurance payment. This could be a data point used in crafting current Farm Bill legislation.

When it comes to growing corn and soybeans, nobody does it better than Illinois farmers. The Prairie State – named after the tall prairie grasses that once canvassed its rich dark soils – is home to the USA’s top 5 corn-producing counties and the top 11 counties for soybean yield. Stark County, which neighbors the county where my family farm sits, produced an average corn yield of 240 bu/A in 2023, while Piatt County on the eastern side of the state raised an average soybean yield of 74 bu/A. So how did the silty clay loam soils of Illinois form, and become so fertile, with topsoil in many parts of the state measured in feet, not inches? It started with the glaciers, which leveled the land and brought about a mineral-rich sediment known as loess. Prairie grasses soon took hold, and while the above-ground vegetation died in the winter, it provided a natural layer of mulch while their fibrous root systems remained alive, creating a vibrant underground ecosystem filled with life. If this sounds familiar, adding life to the soil is the basis for today’s regenerative ag systems. You leave the soil undisturbed and constantly promote diverse biology in the soil. Interestingly, the early pioneers thought Illinois soils to be unproductive. Back then, tree populations were the indicator of productive soils, and trees were few and far between. The reason was fire, which frequently spread uninhibited across the flat lands by gusty winds. This greatly reduced the number of trees. Among those settlers wanting to farm, they found the task nearly impossible, as the massive roots of the prairie grass, while sustaining vegetation reaching eight feet tall, created a thick sod. In 1837, a now famous Illinois blacksmith named John Deere invented the self-cleaning steel plow. This allowed farmers to slice through the sod and turn up the rich soil, making it accessible for planting crops. Forever changing the landscape of the prairie, and the course of our nation’s history.

Good and bad news for E15. The EPA approved a move by eight Midwest governors requiring low-volatility gasoline in their states and ensuring drivers have year-round access to fuel blends with 15% ethanol. Unfortunately, the policy is delayed until the summer of 2024. Last spring, amid record high gas prices and anti-Russian sentiment, the President directed the EPA to temporarily lift its annual summer disruption (a policy based on outdated regulatory barriers) of E15 sales. That effort saved consumers an average of 16 cents per gallon, reduced dependency on foreign sources and reduced greenhouse gas emissions. Last April, Midwestern governors took action – as granted to them in the Clean Air Act – by informing the EPA of their low-volatility gas plans. The Act gives the EPA 90 days to approve the plans, yet it’s now taken them ten months to respond, and they have delayed the action until next year. Having E15 available year-round removes a major barrier for retailers and opens the door for stations to join the 2,900 retailers currently selling the product. On the heels of the EPA decision, 17 U.S. Senators issued a letter to the President urging him to direct the EPA to allow for the supply of E15 to go uninterrupted this year. As is often the case with ethanol, the letter was signed with bipartisan support, by senators from the major corn-producing states. Going forward, the letter states, “net consumer savings from E15 could exceed $20 billion annually while also reducing carbon emissions by 17.62 million tons, the equivalent of taking 3.8 million cars off the road each year.” Given that gas prices are such a political hot button, and climate action is a top priority for his base, you can be optimistic that the letter will be strongly considered.