Lower commodity prices and tighter margins expected this year
As the April 30 crop insurance deadline approaches and area farmers prepare to seed their crops, an Alberta crop market analyst says grain growers will be facing some challenges this year.
Prices on most commodities, including wheat, canola, and barley, have dropped roughly 40 per cent from the near-record prices Alberta farmers enjoyed last spring, says Charlie Pearson, a provincial crop market analyst with Alberta Agriculture and Rural Development (ARD).
Meanwhile input costs to grow a crop, such as fertilizer, seed, herbicides, and fungicides, haven’t dropped proportionately – creating a cost-price squeeze that is forcing farmers to really sharpen their pencils as they prepare for the growing season, says Pearson.
A review of crop costs between January 2013 and 2014 shows fertilizer prices fell 10 to 15 per cent, but have now climbed back to last year’s February levels due in part to seasonal demand, notes Jason Wood, a production crop economist with ARD. Diesel fuel has increased 13 per cent, but producers will be pleased to hear most seed costs and chemical prices have held steady, says Wood, noting treated canola seed varieties have increased 2 to 14 per cent.
“Margins will be a lot tighter than the last few years. Farmers will have to assess every input they use to ensure it gives them the best bang for their buck,” says Pearson. He points out today’s lower grain and oilseed prices are due to a general decline in world prices and huge, record grain yields harvested in Alberta and across Western Canada last fall.
Another issue facing farmers this year is the backlog of grain waiting to be shipped by rail for export to international markets. “It’s creating cash flow challenges for farmers, and keeping grain and oilseed prices lower in Western Canada than other parts of the world where grain supplies are still relatively tight and demand is strong,” Pearson explains, adding he doesn’t expect commodity prices to move much in Alberta this year.
April 30 crop insurance deadline
“Farmers are preparing to manage their way through the challenges this year, and as always good risk management will be important,” says Nancy Smith, with Agriculture Financial Services Corporation (AFSC) – the provincial Crown corporation that administers crop insurance across Alberta on behalf of the provincial and federal governments. She reminds farmers of the upcoming April 30 crop insurance deadline.
“Most producers will invest $200 to $300 or more per acre into their crops over the growing season, and they don’t want to risk losing that to a hailstorm or some other unexpected weather event,” says Smith. She explains that’s why more than 75 per cent of Alberta farmers insured about 15 million acres of annual crops across the province last year.
About $295 million was paid out on crop insurance claims for the 2013 crop year across Alberta, including the counties of Stettler, Paintearth, and Camrose, says Smith. The lion’s share of payouts last year – roughly $219 million – was triggered under the Hail Endorsement (HE) rider, an option 90 per cent of producers choose because hail is such a major weather risk in Alberta.
Despite more than 3,700 HE claims, actual losses under the production guarantee that crop insurance provides were only $36 million – among the lowest ever, says Smith. She explains crop insurance allows farmers to insure up to 80 per cent of their average production on most crops.
“If yields fall below that, a claim is triggered. Even many farmers with hail damage harvested above average yields last fall because growing conditions were ideal across much of the province. Unfortunately the prices weren’t there for farmers in the fall,” says Smith.
$38.8 million paid on SPE claims
The Spring Price Endorsement (SPE) rider on crop insurance triggered $38.8 million in claims when commodity prices on many crops fell up to 25 per cent last fall. The SPE compensates farmers when crop prices fall 10 per cent or more between spring and fall, explains Smith. Other perils that triggered claims included excess moisture, which led to unseeded acres in some areas.
Kurt Cole, who runs a mixed grain and cattle operation near Brownfield, says lower commodity prices and tight margins are forcing him to think outside the box this year. “We won’t grow as much canola, wheat, or peas as usual. We’ll look at growing cheaper input crops that we can market domestically to increase cash flow,” says Cole, whose bins are still full of last year’s grain.
Cole says the one thing that won’t change this year is the risk he faces once his crops are seeded and he’s dumped $150 to $300 per acre of inputs into the ground. “I look out and see thunderstorms roll by and wonder what’s going to fall. Every day we live with the fact that our crops could be gone in five minutes,” says Cole, explaining that’s why he takes crop insurance.
“We try to cover about 80 per cent of our input costs with insurance,” he says, noting his crops have been wiped out by hail and drought over the years.
Increased straight hail coverage
Changes to crop insurance this year include increased Straight Hail coverage, which producers can Auto-Elect with their policy by April 30. “Previously we capped Straight Hail coverage at $150/acre for most crops. We’ve now increased coverage to $225/ acre for dryland cereals, and $325/acre for dryland canola and chickpeas. For irrigated crops, coverage has increased to $400/acre for cereals, and $425/acre for canola and chickpeas,” says Smith. Farmers who Auto-Elect Straight Hail also receive a two per cent premium discount.
Smith encourages producers to review and ask questions about their crop insurance to ensure they understand the options and coverage choices available this year. “For example with lower commodity prices, crop insurance premiums and dollar coverages will come down because the value of the crops being insured is less. Producers may want to review their coverage level and endorsements because premium costs per acre in most cases are now lower,” she explains, adding that about 60 per cent of crop insurance premiums are subsidized by government.
For more information about crop insurance, producers can contact their local AFSC Branch or the AFSC Call Centre at 1-877-899-AFSC (2372) before the April 30 deadline.