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Lower Crop Insurance Guarantees in 2014

November 25, 2013
money down drain
  
 
 

Issued by Gary Schnitkey, University of Illinois

Futures prices on December 2014 corn and November 2014 soybean contracts are considerably below 2013 projected prices. This suggests that crop insurance guarantees will be considerably lower in 2014 as compared to 2013. As a result, most farmers will face considerable losses before crop insurance makes payments in 2014.

Likely 2014 Projected Prices

In the Midwest, projected prices for corn and soybean crop insurance contracts are set based on settlement prices of Chicago Mercantile Exchange (CME) futures contracts during the month of February. The December contract is used for corn and the November contract is used for soybeans.

In recent years, projected prices for corn have been above $5.50 (see Table 1). The projected price was $6.01 per bushel in 2011, $5.68 in 2012, and $5.65 in 2013. Current futures contract levels serve as a good indicator of futures prices during the month of February. The settlement price of the December 2014 contract was $4.51 per bushel on Monday, November 18th. A $4.51 projected price for 2014 would be $1.14 lower than the $5.65 projected price for 2013.

tab1.jpg

In the three most recent years, projected prices for soybeans have been above $12.50 (see Table 1). The projected price was $13.49 per bushel in 2011, $12.55 in 2012, and $12.87 in 2013. The settlement price of the November 2014 soybean contract was $11.51 per bushel on Monday, November 18th. An $11.51 projected price would be $1.36 below the $12.87 projected price for 2013.

Lower Per Acre Guarantees

Lower projected prices translate into lower per acre crop insurance guarantees. Take, for instance, a 190 bushel guarantee yield on an 80% Revenue Projection (RP) policy, a typical guarantee yield and coverage level in northern and central Illinois.

Given these parameters, the 2013 guarantee is $859 per acre (80% coverage level x 190 bushel per acre guarantee yield x $5.65 projected price). A 2014 projected price of $4.51 would result in a $173 per acre lower guarantee of $686 per acre (80% coverage level x 190 bushel per acre guarantee yield x $4.51 projected price).

In 2014, non-land costs of producing corn are projected near $540 per acre and cash rent for farmland with a 190 bushel guarantee yield averages near $290 per acre, giving $830 per acre in costs. An 80% coverage level has a guarantee of $686, considerably below the $835 cost level. An 85% coverage level has a $728 per acre guarantee, still below $830 of costs. In most cases, farmers will be in a loss situation before crop insurance makes payments on corn.

For soybeans, a 52 bushel per acre guarantee yield and an 80% RP policy is typical in northern and central Illinois. Given these parameters, the 2013 per acre guarantee is $535 per acre (80% coverage level x 52 bushel per acre guarantee yield x $12.87 projected price). An $11.51 projected price in 2014 would result in a $56 lower guarantee of $479 per acre (80% coverage level x 52 bushel per acre guarantee yield x $11.51 projected price).

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COMMENTS (2 Comments)

splined
What makes no sense is for government to continually be awarding those with the greatest probability of the greatest incomes the largest income guarantees as well as giving the largest insurance subsidies to those with the greatest income probabilities. What this is doing is privatizing profits and socializing losses and turbocharging the growth of the largest farms. Anyone with any math capabilities can understand that this is no win economic climate for smaller farmers. It is kind of like awarding the wealthiest congressmen with the largest salary. For decades this government created "largest farmers always get the largest government income guarantees" has been eliminating smaller farmers from the industry. It should be obvious to everyone that farmers respond in a big way to government income guarantees by the recent explosion in farmland values driven in a large part by government guaranteeing that farmers can gross $1000- plus per acre growing corn.
6:25 PM Nov 25th
 
splined
What makes no sense is for government to continually be awarding those with the greatest probability of the greatest incomes the largest income guarantees as well as giving the largest insurance subsidies to those with the greatest income probabilities. What this is doing is privatizing profits and socializing losses and turbocharging the growth of the largest farms. Anyone with any math capabilities can understand that this is no win economic climate for smaller farmers. It is kind of like awarding the wealthiest congressmen with the largest salary. For decades this government created "largest farmers always get the largest government income guarantees" has been eliminating smaller farmers from the industry. It should be obvious to everyone that farmers respond in a big way to government income guarantees by the recent explosion in farmland values driven in a large part by government guaranteeing that farmers can gross $1000- plus per acre growing corn.
6:25 PM Nov 25th
 



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