How to price silage and insurance coverage during periods of drought
Corn that has suffered severe drought damage is sometimes harvested as silage instead of as grain. Questions often arise about how to arrive at a fair price for standing crops such as corn silage when there are no widely quoted market prices.
Pricing drought-damaged silage
Corn silage can still have significant feed value if harvested at the right stage. See the article “Alternatives for Drought-damaged Corn—Grain Crop or Forage” for harvesting recommendations. Any damaged acres that are covered by crop insurance should be viewed by an adjustor and released by the insurance company before harvesting takes place.
Grain producers may be willing to sell corn standing in the field to be harvested by the livestock producer or a custom operator. The buyer and the seller must agree on a selling price. The seller would need to receive a price that would give at least as good a return as could be received from harvesting the corn as grain. The buyer would need to pay a price that would not exceed the feeding value of the corn. Within that range the price can be negotiated.
One ton of normal, mature standing corn silage at 60% to 70% moisture can be valued at about 8 times the price of a bushel of corn. For a $6.00 corn price, a ton of silage would be worth about $48 per ton. However, drought stressed corn may have only 5 bushels of grain per ton of silage instead of the normal 6 to 7 bushels. A value of about 6 times the price of corn would more appropriate.
For silage with little grain content, a factor of 5 times the price of corn can be used.
If the crop is sold after being harvested and transported, those costs must be added to that value, typically $5 to $10 per ton, depending on whether it is done by a custom operator or the buyer, and the distance it is hauled. A buyer would only consider the variable costs for harvesting and hauling, whereas a custom operator would need to recover fixed costs, as well.
An electronic spreadsheet for estimating a value for corn silage, for both the buyer and the seller, is available from Ag Decision Maker.
Insurance coverage for drought-damaged crops
Nearly 90 percent of the corn and soybean acres in Iowa are covered by multiple peril crop insurance.
Drought damage is an insurable loss under these policies. Producers should consult with their crop insurance agents before harvesting or destroying any drought-damaged crops, however.
The agent will notify a certified crop adjustor to appraise the insured crops. Keep in mind that when damage is widespread, adjustors cannot be everywhere at once. The adjustor may declare the crop a complete loss. If it has significant yield potential, it can be left and harvested in the fall.
If the producer elects to harvest it early, as silage, check strips can be left to verify the actual yield achieved. In any case, the acres must be released by the insurance company before the crop can be harvested early or destroyed.
Any insurance indemnity payments will be settled based on actual harvested production over the entire insurance unit. Fields declared a complete loss will be combined with any harvested acres in the same insurance unit to calculate the final yield. Yield losses are equal to the farm’s historical yield times the level of guarantee purchased, minus the actual yield.
Ninety percent of the insured acres in Iowa are covered by Revenue Protection insurance policies in 2012. Yield losses will be paid at a rate equal to the average CME futures price during the month of October, if it exceeds the average February price of $5.68 for corn (December contract) or $12.55 for soybeans (November contract).
Following harvest, the usual evidence of actual production should be collected and submitted to the crop insurance agent as soon as possible if it appears that a payment is likely, but not later than 15 days after the end of the insurance period, which is Dec. 10 for corn and soybeans in Iowa. If a producer has a history of selling more than half the crop in the tax year following harvest, reporting of crop insurance proceeds can be deferred to the next tax year.
More information about crop insurance policies and procedures can be found on the Ag Decision Maker website.