Sep 18, 2014
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Current Marketing Thoughts

RSS By: Kevin Van Trump,

Kevin Van Trump has over 20 years of experience in the grain and livestock industry.

Crop Insurance Numbers You Need to Know for 2014?

Nov 20, 2013

The federal crop insurance program has been a vital part of most producers marketing and management plan.  As you are aware, the details for the crop insurance program next year are tied up in negotiations in Washington DC, with the Farm Bill.  I wanted to give scenarios that could play out in the next few months, under the present system.   

2014 Corn Risk:  Keep in mind our only real farm "safety net" moving forward looks to be federal crop insurance.  The problem is our crop insurance guarantee next year could be substantially lower than the past few years. Remember last years guarantee was set at $5.65 in Feb. In 2012 the guarantee was set at $5.68. For a producer with an APH of 150 and 80% RA that essentially guaranteed revenue of between $678 and $682 per care.  Now all of a sudden we are staring ......Click here for all my comments...

Best Case Scenario: For argument sake assume for a moment that South America starts to run into some weather problems and Chinese demand has been greatly understated.  The corn market in turn the DEC14 corn contract trades somewhere between $4.75 and $5.25 per bushel  during the month of February 2014...Click here for all my comments... 

Most Likely Scenario: Market gains some traction on increasing demand but is weighed down even more heavily on thoughts of increasing global supply.  Trade stays imbedded in what has been a continuing downhill channel and prices for the DEC14 corn contract end up trading somewhere between $3.75 and $4.25 per bushel during the month of February.  In return the producer with the 150 APH and 80% coverage would be guaranteed just $480 per acre. A whopping $200 per acre less than the previous two years. 

Worst Case Scenario: The market aggressively backpedals in early-2014 on near perfect growing conditions in south AMerica and talk of another 14 billion bushel crop possible coming down the pipe here in the US.  All the bad news is in the market so to speak and we trade between $3.25 and $3.75 during the month of February.  The producer with a 150 APH and 80% coverage is now left with a guarantee of just $420 per acre.  Ouch!...Click here for all my comments...

Playing Out The Same Scenario For Soybeans: You ask why producers may end up planting more soybeans and few corn acres. Let me show you soybeans look like the safer play:  In 2012 the spring guarantee was set at $12.55, in 2013 it was set at $12.87. Meaning 40 bushel APH with 80% coverage had guarantees of between $401 and $412 per acre. If you assume the front-end of the trade remains fairly strong and prices stay at their current level, an $11.50 price guarantee, the producers with the above mentioned APH and coverage would be looking at a guarantee of $368 per acre.  Basically $35 to $40 less than the past two-years.  If you want to argue a similar case to corn and depreciate the current value of soy in a similar fashion, which I don't think is accurate (considering how tight current supplies are) you would have to take the average Feb price of NOV14 soybeans down to around $10.15. Even at a $10.15 ...Click here for all my comments... 

2014/15 Summary: Yes, there are many NEW private type insurance policies being offered that can help producers insure a higher price guarantee for corn. And we are also seeing all types of technological bells and whistles being offered to help producers increase yields in order to offset cheaper price, but I am just not sold on the fact US producers are going to roll out another 93-94 million corn acres with prices setting back in such a bold fashion, especially considering many "corn-on-corn" guys have been looking for any excuse they could find the past couple of years to work in a full-rotaion of soybeans. My thoughts are, some of the smarter producers will continue to look ways reduce their out of pocket expense by rolling into more bean acres, and perhaps even buying-down their crop insurance for corn. Why pay the big premiums for insurance with guarantees at such low levels? I suspect more guys will simply use it as a type of catastrophic coverage and try to keep their investment dollars as low as possible.  Kind of like sitting at a black jack table when the dealer turns hot. Smart players tend to throttle back their bets in an attempt to best ride out the wave. The aggressive and often broke gamblers however do just the opposite, often raising their stakes looking for a complete reversal.  Bottom-line, you have to prepare yourself for the fact the bears might deal us an extended series of bearish cards. The last thing you want to do is run out of chips before the cards turn back bullish. Best Advice: Continue to prepare for the worst and hope for the best.  This theory tends to keep you in the game the longest! Click here for my daily report....     

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