As tempting as it is to write off and rip up this year’s mouldy corn crop, it’s a decision farmers need to consider carefully.
Not only will the outcome affect revenue from this year’s crop, but future crop insurance coverage as well.
The Manitoba Agricultural Service Corporation (MASC) says corn can be written off when more than five per cent of the cobs have more than 10 per cent mould. But MASC believes a lot of mouldy Manitoba corn is worth harvesting and is giving farmers a financial incentive to do so, recognizing the added cost for harvesting and drying, said David Van Deynze, MASC’s manager of claim services.
“At the end of the day if you harvest this crop and get a crop insurance claim and sell your corn the way we think you’ll sell it, you’ll end up with more money in your pocket than if you work it down and only get your insurance coverage,” Van Deynze said.
Normally, on low-quality crops insurance payouts are adjusted to offset the difference between what the farmer earns through the sale of the crop and a payout from crop insurance.
In other words it’s a break-even proposition. But this year it’s different.
“We’re doing this specifically for corn because we recognize the additional problems with it and the need to dry and additional costs,” Van Deynze said.
“It’s also good for us. If it were purely a break-even proposition I think farmers would work it (corn) under because they don’t want the hassle of drying and harvesting. But if we can convince them to harvest their crop and sell it, everything they sell saves us money. So if we pay them a little more than (normal), at the end of the day we paid a lot less (in total)… if they just worked it down.”
Here’s an example of what usually happens. A farmer harvests 100 bushels of mouldy corn and gets $2.50 a bushel for it. The crop insurance price for corn No. 2 CW corn is $4. Crop insurance adjusts the yield to reflect the lower quality and therefore returns by dividing what the farmer received by the crop insurance value. In this case that 100-bushel crop is adjusted to 62 bushels an acre. ($2.50 $4 X 100 = 62). That calculation is known as the grade factor.
But this year the grade factor will be 75 per cent of the market price for mouldy corn divided by the crop insurance corn price. Using the same figures as above the farmer’s yield for crop insurance claim purposes would be 47 bushels an acre – a gain of 16 bushels an acre when calculating an insurance payout. ($2.50 $4 X 100 X 75% = 47)
There’s another advantage for those who harvest their corn – it helps to keep future crop insurance coverage up. Corn coverage is based on each farmer’s average yield over 10 years.
Where corn crops are written off, farmers will receive payments and save harvest and drying costs. But their average yield for 2009 will be zero.
“A lot of guys had zero in ‘04 so if you get two zeros in a 10-year period you’re going to have some pretty sad-looking coverage for a few years,” Van Deynze said. “Automatically it knocks 20 per cent of your long-term average (yield).
“For the guys that are serious long-term corn growers, they’re going to think pretty hard about it.”
It won’t be hard to write off immature, mouldy corn. There’s a fair amount of it east of the Red River, Van Deynze said.
But where the corn was mature and the yields are potentially good, the decision will be harder. Some moulds, but not all, produce toxins, which depending on the levels, limits potential markets. Farmers should test their corn before feeding it to livestock.
Husky Energy’s ethanol plant at Minnedosa is another potential market. However, it needs to manage toxin levels too, because they remain in the distillers dried grains (DGGs) after the corn is made into ethanol. The DGGs are sold for livestock feed.
If a farmer can’t get the established market price, MASC will reduce the grade factor and recalculate the claim.
If the stored corn ends up having no market value based on written evaluations from three legitimate corn buyers, the production will be reduced to zero for claim purposes provided the corn is destroyed. However, the harvested net yield, without any reduction for reduced quality, will continue to be used to determine the farmer’s long-term average yield.
If the crop does not exceed the mould threshold and the farmer destroys the crop MASC adjusters will appraise the field to determine the yield. A representative sample will be required to assess the quality and grade. For claim purposes, the appraised yield will be multiplied by the applicable grade factor to determine net production.
If the crop does not exceed the mould threshold and the farmer harvests the crop normal claim procedures will apply. MASC adjusters will measure the stored production after harvest and record any sales of the 2009 crop made before that date.
Samples of the stored production will be graded by SGS Canada and the related grade factors applied, thereby reducing the production to be counted for claim purposes.
If a farmer can’t market stored corn for close to the established market value, or the stored production is proven to have no market value, the claim will be revised accordingly. The harvested yield, without any adjustment for quality, will be used to determine the farmer’s future probable yield.