Today begins the first official discovery day of the corn and soybean (and other crops) spring projected prices for 2015 crops. As I write this post, corn is enjoying a rally of about 7 cents and beans are up about the same. Not sure where they will close today, but I thought I would take current prices and see how this year's estimated crop insurance guarantees compares to the last two years as compared to total budgeted costs. I am using data from the University of Illinois for highly productive crop land. The estimated yields for these crops would be about 196 bpa for corn and 57 bpa for soybeans.
I will key in the non-land costs which are $615, $588, $582 for 2013-2015, respectively. The 2013 discovery price was $5.65. If we assumed 85% RP coverage, a farmer was able to obtain about $941 of guaranteed coverage for that year. This is about 153% of budgeted non-land costs, leaving a fair margin to cover cash rents or land payments plus profit to the owner after factoring in farm payments and the revenue from the 15% of corn bushels not covered by a guarantee.
For 2014, the discovery price was $4.62 resulting in a guarantee of about $770 which is about 130% of total non-land costs. There is still a margin to cover land costs, however, it is certainly much lower than 2013.
For 2015, assuming that December, 2015 futures prices averages the current opening price of $4 (corn has already dropped 3 cents off of the price I quoted at the beginning of this blog post), the guarantee at the 85% coverage level would drop to about $666. If we subtract the non-land budgeted costs from this number, we arrive at excess margin of about $84 or about 114% of non-land costs. I am not aware of much high quality land rents in Illinois going for this price. However, the farmer still has 15% of their bushels that have not been priced. Let's assume another 30 bushels (196 X .15% rounded) at $4. This gives us another $120 of gross revenue. Since highly productive Illinois crop land is probably not going to have any ARC-CO or minimal PLC payments, this leaves the farmer with about $200 to cover all land costs and return on investment. If a farmer owns all of their land with no debt, then this would provide some return to their operation, however, it is substantially lower than the $1,000 per acre income from 2013 and probably around $900 return for 2014 (higher than budgeted amounts due to increase in yields). For other farmers, 2015 will be a year of net losses from growing corn unless yields and/or prices are higher than budgeted.
Every farm operation will be slightly different from these examples, but 2015 is not shaping up to be a year where farmers can expect a crop insurance guarantee to cover much more than non-land costs.
For soybeans, 2013 resulted in a guarantee of about $608 (57 bpa X $12.55 X 85%). This was about 165% of budgeted non-land costs. For 2014, the guarantee was about $550 resulting in about 147% of non-land costs. For 2015, today's opening price (if it averages this for the whole month) of $9.45 results in a guarantee of about $458 which is about 122% of non-land costs. If we assume the remaining 9 bushels are worth about $85, we end up with total revenues of about $543 which leaves about $175 to cover land costs. This is actually about $25 less than corn using today's prices. Unless bean growers locked in bean prices a few months ago at those higher prices, corn may actually end up netting more than beans (or at least losing less).
It will be interesting to see where final numbers end up and this is very early in the month. I will do an update after final spring prices are posted.