Crop Insurance Payments Unlikely to Cover Production Costs

April 14, 2016 12:00 PM
Crop Insurance Payments Unlikely to Cover Production Costs

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.”

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Spell Check

Joe Schmoe
Anywhere, NE
4/14/2016 10:06 PM

  Whats interesting is that loss of $188/a is what a lot of farmers have in new equipment costs and depreciation. Oh let's not forget about the $350-400 cash rent that is being paid out there. I don't see any mention of that in this article.

Carol Hunter
Glen Allan, MS
4/14/2016 09:04 PM

  Alison, What are we all going to do for food if all these guys go broke?

Chappell, NE
4/14/2016 08:26 PM

  " Farm bill safety net payments are soaring"?? Really?!! Mine were ZERO last year and I've been told to expect even LESS this year!! That's the clueless imbeciles we have to deal with in USDA.


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