The bottom line is that 2011 is likely to be a profitable year for farmers.

Determining just how profitable involves a complicated equation that includes number of bushels per acre, price per bushel, level of Revenue Protection (RP) and hedging.

An issue of University of Illinois Farm Economics Facts and Opinions looked at some of the possible scenarios to help farmers juggle the numbers and the risk.

"Most people are buying Revenue Protection insurance products," said U of I Agricultural Economist and Farm Management specialist Gary Schnitkey.

"We wanted to know if you had to hedge grain now, what  its impacts would be at several levels of RP and at no insurance just to get a feel for how much risk is mitigated by different amounts hedged."

Schnitkey compared the RP at 85 percent coverage level, 75 percent coverage level and 65 percent coverage level and no insurance for a central Illinois farm with a 184-bushel average yield.

Visitors to the U of I farmdoc website (http://www.farmdoc.illinois.edu/manage/newsletters/fefo11_09/fefo11_09.html) can view the entire Farm Economics Facts and Opinions issue.

"At low coverage level of insurance, or with no insurance, hedging at least 50 percent of expected production is needed to reduce downside risks to their minimum," Schnitkey said.

"At 75 percent and higher coverage levels, only modest amounts of hedging are needed to reduce risks.

"Using last year's purchases as a guide, most farmers purchased at 80 and 85 percent coverage levels," he said. "At these coverage levels, most of the gains of reducing downside risks are obtained when around 10 percent of expected production is hedged."

Schnitkey added that much higher levels of hedging do not affect downside risks. Farmers with high coverage level insurance policies have large latitude in hedging grain without impacting risk. 

"What are the chances of having revenue below that, giving hedging? Obviously lower yields could happen if we have a poor growing season and prices are currently at what they are now  — about $6 for corn. But in this scenario, gross revenue from an acre will be about $1,000," Schnitkey said.