1. The Crop Producer’s Risk Management Decisions
Bruce Babcock and Dermot Hayes
Iowa State University

3. “Time” in the Corn Market

4. Monthly Iowa Corn Price Declines, 1979-
80 Through Marketing years
Percent of time Prices
Declined
70%
60%
50%
40%
30%
20%
10% 0%
80%
Sep.-Oct.
Oct.-Nov.
Nov.-Dec.
Dec.-Jan.
Jan.-Feb.
Feb.-Mar.
Mar.-Apr.
Apr.-May
May-Jun
Jun-Jul
Jul.-Aug.
Aug.-Sep.

13. Iowa Corn and Soybeans Crop Insurance Decision in 2003

14. Government Programs Four primary forms of government support
LDP: Price guarantee on all harvested bushels (Iowa corn at about $1.90 per bushel)
CCP: Price guarantee on a fixed number of bushels for prices between $1.90 and $2.24 per bushel.
DP: Guaranteed payment of about $30 per acre ($0.19 per bushel)
Crop insurance: pays off when yield or revenue is low

15. Net Farm Income and Government Payments

16. Structure of Payments for Corn
Target Price
$2.60
Not
Tied To
Prod
Fixed
Payment
Regardless
Of Market
$0.28
$2.32
Counter-Cyclical
Payment
Only If…
$1.98
Loan Rate
Loan Deficiency
Payment
Prod
Req.

17. Purpose of Farm Programs
Commodity programs (DP, LDP, CCP)
support aggregate income of sector
Crop Insurance
support farmers’ individual incomes

24. Is the “Farm Problem” Fixed?
Farmers have raised their expectation of revenue
Investment decisions and land rental agreements will reflect higher profitability
What happens when revenue is less than projected?