How does crop pre sell and insurance work

Being someone that comes from a dairy background I have never dealt with pre selling crops and would like to learn.
So please excuse me in advance if I say something and step on your toes.

From what I understand as a farmer of say corn or beans you have the option of selling your crop in advance of harvest or waiting till harvest time. This is your choice and it is a game you may loose or win big bucks at by choosing the right timing.
If you choose to sell at harvest time that makes it simple because you have a set price on that day and know your output or bushels per acre average.
But if you sell in advance; how is that contract worded????????
We can assume the price is set on future price markets and the yield is set on past years harvest. But what happens on a year like this one when many that have sold a crop they can not deliver because of some disaster????????

As a grain elevator I have a contract with you (the farmer) to deliver said amount of grain for a set price. I may have even sold it on the open market in advance but because you can not deliver the grain I am stuck trying to fill my pre set orders.

So what happens now. Am I and everyone else just out in the cold or do I have a recourse against you the farmer to protect my investment.
I guess the real question I am asking is does the grain elevator or who ever buys grain in advance from a farmer have a insurance option he could have bought to protect him from a farmer not delivering a sold in advance crop.
Lets compare this to something else... I am building a complex. I have a contract with someone to deliver my goods to the job site on a set day for a set price. If he does not deliver I can sue him.. Right. How does this work in farming???

Also if we can do it without hurting anyone's feelings can we discuss how a farmers crop insurance works.
Most of us non farmers assume that a farmer balances his risk and buys insurance based on the cost of it to his needs. A farm is expected to produce X amount but the farmer needs Y amount to survive and make it to next year. So he insures for Y and hopes for the best. Much like I can choose to buy car insurance with a $500 or $1000 deductible based on how much of a hit I can handle on my own in a loss situation.
I think many city people do not understand crop insurance because they feel you are trying to insure a set profit rather than a disaster’s loss. Much like a hardware store wanting to insure that 100 people buy something every day. Any day that sales do not meet a set profit is a insurance claim.

Once again I do not mean this in the wrong way. I just feel many will take a bigger hit than having a flooded house this year because there income has been removed. It is not like they can quit there flooded out job and get a new one somewhere else.
Thanks for taking the time to reply.

It's just like forward contracts in dairy- crop farmer agrees to deliver a certain product at a certain price within a certain time period. If CBOT corn is $7.50 for December- local elevator runs about 40 cents under and will contract with me for $7.10. I get paid upon delivery. Typical to sell several times, in various amounts, and contract for less than total bushels produced. They want the bushels, and opting out is not an option. I buy crop insurance to protect my inputs, and can insure at various crop price levels. Higher coverage requires a higher premium. Yield has to be below a certain level to collect for a poor crop. Yield floor is determined by previous production history on my acres. Now, with the option to insure price, I can have a yield above the yield floor, but still collect on the price guarantee.

Rarely does a crop farmer sell everything he harvests on the day he harvests it. You either contract to sell it now for this coming harvest, or you store your crop and sell it over the winter months following harvest.

Smart stratigy is to sell perhaps 1/10 of your crop every 4-6 weeks, thereby never getting the worst price for all of it - nor do you ever get the best price for all of it. But with a little smarts & knowing historic high & low periods of the year, a person tries to sell for the top 1/3 of the prices, and you come out ahead.

Here in my hilly ground I rarely have a 100% crop failure. Typically in a drought the low ground produces; in a flood the high ground produces, etc. Hail (got hit 2x already) really doesn't kill 100% either. So I typically get 50% of my crop in a worst case.

So I can be pretty confident selling 50% of my crop a year before I plant it, and can store the other 1/2 and sell that the following winter.

This gives me income year around, and lets me watch for grain trends, try to catch more highs.

When I sign a contract to sell for example 2000bu of corn this coming October, I am agreeing to deliver those bu for that price, no matter what. It is all on me.

The elevator may offer me options to buy out my contract, or roll it into the following year if I can't deliver. But if I don't have the 2000 bu to deliver, I need to talk it over with the coop & work something out. Bottom line, I am required to bring that many bu for that price if that is all the coop will allow. If I need to buy 2000bu at $10 a bu to fullfill the contact, so be it - that is my obligation to deliver what I said I'd deliver.

On years when crop prices go down, it is pretty easy to get a deal from the coop & roll into the following year for only a dime a bu or so. In odd years like now, if I contracted for $2 a bu less than what the market has actually gone to, the coop will _want_ that cheap grain, and it will be very difficult to get out of those contracts. This starts to involve lawyers and bankrupties when huge farmers & huge coops get tangled up in non-delivered grain.....

Way back in 2006 or early 2005 many farmers (I was by my coop) were encouraged to sell 2008 fall delivery corn for about $3.25-4.00 around here - maybe 10-25% of your crop. At that time seemed like a good price.

Now it is around $7 a bu.

A lot of farmers will be delivering some corn to the elevator at 1/2 price, compared to what it is worth today.

That is only fair. It is the gamble you mentioned, and the game we all play.

Sign the contract, you deliver what you promised.

These huge price swings always bring hard times for farming. Many coops are in trouble, because when they buy a contract low & prices go up, they need to toos more money into a 'margin call' pot of money. So while the farmer above is getting 1/2 price for his grain, right now the coop is also having to borrow millions of dollars to pay the margin calls. Both sides are losing money right now!!!!

Over the course of time, it all equals out. But these huge price swings will sqweeze some too hatd, and cost them too much for a year or 2, & they will go belly up.

Odd, isn't it? Terrific farm prices are very hard on some that you think should be making mnoney hand over fist.

--->Paul

I was asking my Granfather about this last time I saw him. He said he's never contracted out, that he doesn't produce enough. How much do you need to produce to be able to get a contact on it? Does it matter what part of the country you are in?

For instance, this year he put everything to beans. Made enough corn last year for the cattle. He'll harvest about 200-250 acres in SE Kansas.

Thanks,

Brian

JMS
The last part of your post is odd.
So you are saying not only can you insure that you will harvest X amount of corn off of X amount of acres; if you are willing to invest the money in insurance premiums you can insure the price you recieve per bu.
I did not know that.

Thanks Paul;
That is what I was thinking.

Hopefully these floods in the mid west where some lost all happened early enough in the year that they have not sold a great portion of there future crop; and they can now change to a differant crop. Is it to late to plant beans and try and recover some of the loss?????

Its bad enough to loose your house; and your income (corn) but now you need to go out and buy corn at a higher price because of the short yeild to cover a contract you have.
A people wonder why farming is a hard life.

It's called 'revenue assurance'. Started a year ago or so. Not sure if it is limited to some states. Also, hail coverage is a separate policy. Regarding my previous post- when I make a contract with the elevator, the elevator should cover its risk by contracting on CBOT, etc. When the market is wild, local elevator may take a nickel or so 'protection' overnight- price is lower in anticipation of the market opening lower the next day.

I usually contracted in units/multiples of 900 bushels- one semi-load. No reason why it couldn't be even less.

If you want to play with the big boys based on the CBOT, corn is in 5000 bu units, beans I'm not so sure, maybe 2000bu?

With your local coop or hog feed mill you can likely do much smaller units; my coop will set up 1000 bu corn & 200 bu bean contracts with me just fine. You then are dealing in local prices, not CBOT prices, and you are a smaller player. But, you can do the small contracts.

Everything down 20 cents tonite now, looks like I shoulda made one more contract last Thursday.

--->Paul

Thanks Paul,

Is it common for smaller operations to not contract ahead at all? My grandfather is a lifelong farmer, cow/calf operation with a some crops left over to sell, and is pretty knowledgeable and savvy. That's why I was surprised when he said he's never contracted forward. And if he has a hundred acres of beans at say 40bu/acre, that would be 4000 bushels, wouldn't that be enough to try to take advantage of good/higher prices ahead of time? I'd ask him more about it, but I don't want to be too intrusive into his business.

Thanks again,

Brian