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Showing posts from March, 2013

A flexible land rental agreement benefits in a dry year

By David Bau, Extension Educator, University of Minnesota

Farmland rental rates have increased dramatically the last few years as commodity prices have reached record levels and remained high compared to historic averages. But grain prices will go lower again, and rental rates often lag and do not decline as rapidly. This will leave farmers with high rental rates locked in, creating a loss for the year. A dry year producing lower yields will expand this loss; here the farmers bear all the risk. One way to share the risk and rewards with the landlord is to enter into a flexible land rental agreement. This will reduce the loss for the farmer and share more risk with the landlord.

In 2008, Iowa State Extension reported that nearly 12 percent of all cash leases were flexible. In Minnesota, less than 10 percent of leases are flexible. In a dry year, I encourage farmers and landlords to consider setting up a flexible agreement.

Flexible leases have several advantages:

The actual rent paid adjus…

What can livestock producers do to protect against dry year costs?

By David Bau, Extension Educator, University of Minnesota

In dry years, livestock producers are exposed to increasing feed costs. Concurrently, liquidation from producers who have run out of feed--or who are reducing livestock numbers to match feed supplies--can cause prices for the finished product to go lower. What can livestock producers do in a dry year to protect against higher feed costs and less than profitable market prices?

Producers should constantly monitor their cost of production for their livestock enterprise. If the markets allow a producer to lock in a profit on the future contracts, they should do it. They still are exposed to varying local basis and quality premiums or discounts.

If the producer raises their own feed, they should still account for the current feed costs when looking at locking a profitable price for the finished commodity.

Locking in feed supplies and costs can also give producers some assurance in a dry year. If hay prices are going up, look at reducing…

How to market grain in a dry or drought year

By David Bau, Extension Educator, University of Minnesota

How should a farmer approach commodity marketing plans in a dry year? Last year was the driest year on record since the 1950s in the United States. Crops varied widely across the country, but Minnesota was fortunate to receive May rains and timely rains thereafter in parts of the state. Minnesota's average corn year led the country. Unfortunately, going into the 2013 crop year, Minnesota's sub soil moisture is at extremely low levels--much lower than the 2012 conditions. What can a farmer do to enhance their commodity marketing under these conditions?

Start by considering purchasing a higher level of insurance coverage. The majority of farmers purchase 75 percent coverage level and some form of revenue product that insures both yield and price. The prices for soybeans and corn are set at the average of the November and December futures contract during the month of February each year. The 2013 prices are set at $5.65 for c…