Bruce Travis of Travis Crop Insurance in Creston said there is a possibility a drought this summer could slash yields, while driving prices higher than what crop insurance covers. Such circumstances would leave many farmers, well, high and dry.
Travis said landlords tend to assume farmers sell at the higher market price. Landlords don’t realize how many farmers forward-contracted the corn they’ll have this fall when prices hit $4 or 5, even though they could’ve received $7 now. He likened it to having a car that becomes an overnight collector’s item. Most owners would sell before demand peaked.
“Generally landlords will say, ‘Well you could have got $7 for your corn last year, we need to up your rent from $200 to $400,’” Travis said.
There is no guarantee grain prices will remain high into 2022. It’s possible some farmers may not see a tangible benefit from the current spike.
There are many variants of crop insurance but Travis only sells the type that provides the maximum coverage of up to double the spring price, as do most agents he knows in the Creston area. “A farmer would sure have to argue with ‘em a lot to buy something other than that,” he said.
Crop insurance protects farmers in the event they don’t produce the number of bushels they signed a contract to provide.
“[If] we get rain the rest of the summer, you’ll see this thing flatten out. The markets won’t be so high. But if we get a drought with the demand shortage that we have right now, that’s when we start seeing... what I call crazy prices,” Travis said. He said farmers are happy with higher prices yet nervous about what’s to come, pointing out that prices rose that morning.
Mitch Montag, Location Manager at the Gavilon grain elevator in Creston, said prices were down 40 to 50 cents Thursday. “As we get up to these higher levels, it’s more volatility,” he said.
Gavilon’s Creston facility buys and sells corn and soybeans — typically selling to Southern markets like the Southwestern United States, Texas and Mexico. Montag said higher prices don’t necessarily mean higher profits for his company either. “We hedge the grain when it comes in. So, I mean higher prices don’t translate into us making more money,” Montag said.
Montag and Travis both emphasized production losses in South America as the most prominent reason for the surge. They said last summer’s derecho did have an impact but it was more subordinate.
Montag said South Americans had a slow harvest for their first crop in February, which resulted in lower yields and added a risk premium to the market. Then they had insufficient rains for their second crop, exacerbating the shortage.
Travis does a great deal of business in the Ames area, and said the derecho hit his clients there particularly hard, “one with a million dollar loss, wiped him out completely.”