Crop Insurance Payments Unlikely to Cover Production Costs

05:00PM Apr 14, 2016
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The price tag for farm bill safety net payments may be soaring, but growers will hardly be rolling in money this year. According to a recent analysis in farmdoc Daily, crop insurance guarantees are likely to fall short of the cost of production this year.

The reason, of course, is low crop prices. In 2016, the projected crop insurance price for corn is $3.86 and for soybeans, $8.85.

That’s not going to be enough to cover the cost of production for many farmers, given the economics involved. “In 2016, total costs on cash rent farmland are projected at $830 per acre,” explains Gary Schnitkey of the University of Illinois, who illustrates the gap with numbers from Logan County, Ill. For corn, “average guarantees in Logan County are $452 per acre on a 65% coverage level, $542 per acre on a 75% coverage level, and $642 per acre at an 85% coverage level. Before payments occur, the farmer would incur a loss of $378 per acre at a 65% coverage leave ($830 total cost - $452 guarantee), $288 at a 75% coverage level, and $188 at an 85% coverage level.”

Soybean growers will also feel a similar squeeze. “Total costs for soybean production on cash rent farmland are projected at $629 per acre,” Schnitkey writes, also using Logan County as an example. “Total costs exceed the 85% guarantee by $198 per acre.”

Could a weather scare make a difference and boost harvest prices enough to close the gap? Of course. But producers shouldn’t bet the farm on it. “Since 1972, October settlement prices were more than 29% higher than projected prices in only two years: 1988 and 2012. In both years, severe droughts occurred in the Midwest,” Schnitkey says. “While a drought of that size is possible, the chances are that a drought that size will not happen.”