Moisture-Related Dry Bushel Crop Insurance Claims

Crop insurance is a crucial consideration for farmers, and understanding how moisture affects dry bushels is essential. When it comes to corn, the standard moisture level for crop insurance purposes is 15%, while for soybeans, it is 13%. This means that the volume of the crop is adjusted to this standard moisture percentage before being reported to the insurance agent. The moisture content of the crop directly impacts its weight, and thus, the number of dry bushels it represents. For example, 1,000 wet bushels of corn at 20% moisture would equate to 940 dry bushels at 15% moisture. This adjustment is known as the shrink factor and is crucial for accurately calculating crop insurance claims.

Corn drying and shrink comparison

Corn producers have a variety of options when it comes to marketing their crop. One such decision is the moisture level at which they deliver their grain. If the producer has limited storage or drying capacity, selling grain directly from the field at a moisture level above the required level can be convenient. The elevator or processor will accept the grain, weigh it, and convert it to a certain quantity of "wet" bushels, which are then dried to an acceptable level of moisture. The net revenue paid to the producer can be calculated by applying a moisture discount factor to the selling price or by drying the grain first and adjusting the volume for shrink.

Moisture Discount Approach

Under the moisture discount approach, the total pounds of corn delivered are first divided by 56 pounds to calculate the number of "wet" bushels. A moisture discount is then applied for each point of moisture above the standard level, which is typically 15% for number 2 corn. This discount reflects the cost of drying the grain to the required moisture level and the loss of weight that will occur during the drying process. The weight loss includes the removal of water and the loss of dry matter due to kernel breakage and respiration.

For example, let's assume a grower delivers 56,000 pounds of corn with an average moisture content of 20.5%. This would result in 1,000 wet bushels. If the current selling price is $5.00 per bushel and the elevator is assessing a moisture discount of 2.0% for each point of moisture above 15%, the moisture discount would be 11% (5.5 points x 2.0%). The value of the discount is then calculated by multiplying the selling price by the discount percentage, resulting in a discounted price of $4.45 per bushel. The net revenue for the 1,000 wet bushels would be $4,450.

Drying Cost and Shrink Factor Approach

Another approach is to charge the producer the direct cost of drying the corn to an acceptable moisture level and then apply a shrink factor to adjust the volume of wet bushels for water loss and handling loss. This allows the buyer to adjust the drying charge based on the actual cost of fuel and electricity.

Using the same example, assume that the elevator is charging a drying fee of $0.048 per wet bushel per point of moisture removed. For 1,000 bushels of 20.5% moisture corn, the drying charge would be $264. Additionally, assume a shrink factor of 1.4% of the volume of grain is assessed for each point of extra moisture. In this case, the final volume of dry grain would be 923 bushels. The seller will then be paid $5.00 per bushel for the dry grain, resulting in a net revenue of $4,351 after deducting the drying charge.

On-Farm Drying

Some corn producers may choose to dry their grain themselves, which allows them to store the grain in their own facilities and avoid potential bottlenecks when delivering grain at harvest time. However, on-farm drying may require extra transportation and may not be as efficient as a large commercial drying system. The cost of on-farm drying depends on various factors, including the type of drying system used, the amount of moisture to be removed, and the current price of drying fuel and electricity.

In summary, corn producers have several options when it comes to drying and shrink comparisons. The moisture discount approach offers convenience and simplicity, while the drying cost and shrink factor approach allows for more precise adjustments based on actual costs. On-farm drying provides flexibility but may incur additional costs and require efficient drying systems. The choice between these options depends on various factors, including the producer's capacity, market conditions, and the particular discount and drying cost factors at the time of sale.

Moisture discount approach

The moisture discount approach is one of the options available to corn producers when it comes to marketing their crop. This approach is particularly useful when the producer has limited storage or drying capacity. Instead of drying the grain themselves, they can sell it directly to an elevator or processor, who will accept the grain, weigh it, and convert it to a certain quantity of "wet" bushels. The moisture discount factor is then applied to the selling price, or the grain can be dried first and the volume adjusted for shrink.

Under the moisture discount approach, the total pounds of corn delivered are divided by 56 pounds to calculate the number of "wet" bushels. A moisture discount, expressed as a percentage of the current number 2 selling price, is assessed for each wet bushel. This discount accounts for the cost of drying the grain to a number 2 moisture level and the loss of weight that will occur during this process. The weight loss includes the water removed, as well as an estimated loss of dry matter due to volatile compound escape, kernel breakage, and seed respiration, known as "handling loss".

For example, let's consider a grower who delivers 56,000 pounds of corn to an elevator, which tests at 20.5% average moisture. Dividing by 56 pounds per bushel gives a total of 1,000 wet bushels. Assuming the current number 2 price is $5.00 per bushel, and the elevator is assessing a moisture discount of 2.0% for each point of moisture above 15% (the standard for number 2 corn), the moisture discount for this corn is 11% (5.5 points x 2.0% per point). The value of the discount is then calculated by multiplying the discount percentage by the selling price: 11% x $5.00, resulting in a value of $.55 per wet bushel. The discounted price of $4.45 is applied to the 1,000 wet bushels, resulting in a net revenue of $4,450.

It is important to note that the moisture discount approach focuses on the selling price rather than the bushels of wet corn delivered, even though the loss is largely due to the difference in volume between the number 2 bushels and the wet bushels. An alternative approach is to charge the producer for the direct cost of drying the corn and then apply a shrink factor to adjust for water loss and handling loss.

For corn producers, understanding the moisture discount approach and other options available is crucial for making informed decisions about their crop marketing strategies.

Drying cost and shrink factor

When it comes to drying crops, corn producers, for instance, are faced with a variety of choices. One option is to sell grain directly from the field at a moisture level above that needed to achieve a quality grade. The elevator or processor will accept the grain, weigh it, convert it to a certain quantity of "wet" bushels, and then dry it to an acceptable level of moisture. The net amount of revenue paid to the producer can be calculated by applying a moisture discount factor to the selling price, or by drying the grain first and adjusting the volume for shrink.

Under the moisture discount approach, the total pounds of corn delivered are first divided by 56 pounds to calculate the number of “wet” bushels. A moisture discount, reflecting the cost of drying the grain to a certain moisture level and the loss of weight that will occur in the drying process, is then assessed against each wet bushel. This weight loss is primarily due to the water removed in the drying process, but it also includes an estimated loss of dry matter due to the escape of some volatile compounds, kernel breakage, and respiration of the seed itself. This dry matter loss is also called “handling loss”. The assumed percentage of handling loss will vary from buyer to buyer.

Another approach is to charge the producer the direct cost of drying the corn to an acceptable moisture level, and then assess a shrink factor to adjust the volume of wet bushels for the water loss and assumed handling loss. This allows the buyer to easily adjust the drying charge based on the actual cost of fuel and electricity each year.

For crop insurance, corn is shrunk to 15% and soybeans to 13%. For example, 1,000 wet bushels of corn at 20% moisture would be multiplied by the 20% moisture factor of .9400, resulting in 940 dry bushels at 15%.

Crop insurance shrink factors

For example, let's consider corn and soybeans, two commonly insured crops. To calculate the number of dry bushels of corn from a certain number of wet bushels, you would multiply the number of wet bushels by the shrink factor for corn. The standard shrink factor for corn is 0.9400, meaning that 1000 wet bushels of corn at 20% moisture would be equivalent to 940 dry bushels (15%) after adjusting for moisture. For soybeans, the standard shrink factor is 0.9677, so 1000 wet bushels of soybeans at 13% moisture would be equivalent to 968 dry bushels after adjusting for moisture.

It is important for farmers to be aware of these shrink factors when reporting their production to insurance adjusters, as it can significantly impact the amount of insurance coverage they receive. By understanding the moisture content of their crops and applying the appropriate shrink factor, farmers can ensure they are accurately reporting their production and receiving the correct amount of insurance coverage.

The USDA provides standardized shrink charts for various crops, including corn, soybeans, popcorn, and wheat. These charts are used by farmers to determine the correct number of bushels when reporting production for crop insurance. Adjusters also use these charts to verify the accuracy of the reported production and calculate any necessary adjustments during the claims process.

Weight loss during drying

Weight loss during the drying process of grains is referred to as "shrink" and is expressed as a percentage of the original quantity before drying. This weight loss is calculated by dividing the weight of water lost by the total initial weight of the grain, then multiplying by 100.

For example, consider 1,000 lb. of corn at 25% moisture. This corn contains 250 lb. of water and 750 lb. of dry matter. If the grain is dried to 15.5% moisture, the dried corn will still contain 750 lb. of dry matter, but now the dry matter will make up 84.5% of the total weight. Therefore, the total weight of the dried grain is 750 lb. divided by 0.845, or 887.57 lb. This means that 112.43 lb. of water was removed during drying (250 lb. - 137.57 lb.). Now that the weight of water lost has been calculated, the total water shrink percentage can be calculated by dividing 112.43 (lb. of water removed) by 1,000 (total initial grain weight) and multiplying the result by 100. The total water shrink is 11.24%.

The weight loss during drying is not only due to the removal of water but also includes some loss of dry matter, often called "handling loss". This loss is typically much smaller than the water loss and is due to the loss of volatile compounds, kernel breakage, and respiration of the seed. Research at Iowa State University found actual handling losses from 0.22% to 1.71% at commercial drying facilities and from 0.064% to 1.33% at farm-based facilities.

When selling wet grain, it is important to evaluate not only the per-bushel price quotes but also the shrink factors and final moisture contents. By understanding the "pencil shrink" process used by grain buyers to calculate the final weight after drying, sellers can maximize their net sale.

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