If your 2022 yields are near trend levels and your costs are in check, you should have a profitable 2022. However, losses for 2022 are possible, even if the highest coverage level of crop insurance is used, cautions Gary Schnitkey, University of Illinois ag economist.
As such, your crop insurance decisions are a key part of your risk management plan for this year.
For 2022, the U.S. spring crop insurance prices include:
- $5.90 per bushel for corn; this is the second highest on record.
- $14.33 per bushel for soybeans; this is a new record.
- $5.88 per bushel for grain sorghum; this is up 33% from last year.
- $9.19 per bushel for spring wheat; this is up 41% from last year.
Check out the crop insurance tools from farmdoc.
In running the numbers on corn and soybean production in central Illinois, Schnitkey shows these potential cash guarantees, net returns and breakeven cash rents for different crop insurance coverage levels.
“Soybeans’ expected net return of $8 per acre is higher than corn’s expected net return of -$50 per acre, indicating there is less downside risk for soybeans, given that an 85% coverage level is used for both crops,” Schnitkey says.
Another factor he says you should consider is the low likelihood of ARC and PLC payments.
“We also have to remember in this situation that unlike most years or maybe years past, we will not be getting ARC or PLC payments when revenue protection or crop insurance kicks in because we’re at much higher prices,” he says.
What steps should you take in this environment? Schnitkey suggests the following:
- Buy the underlying crop insurance policy at high coverage levels. Most Illinois farmers use Revenue Protection (RP) as their crop insurance product and purchase that product at high coverage levels. Most farmers purchase at 80% and 85% coverage levels in northern and central Illinois. Southern Illinois farmers used 75% and 80% coverage levels. Use of RP at high coverage levels continues to be a good risk management practice for 2022.
- Consider using supplemental policies, such as the Supplemental Coverage Option (SCO) or Enhanced Coverage Option (ECO), or a private policy offered by crop insurance companies. These products can further reduce risk, although not as well as RP decreases risks. SCO and ECO are based on county yields, which leaves the risk that the county has a good yield while the farm does not. Private products often have limits to their coverage. Furthermore, the premiums of the supplemental policies should be compared to expected net returns given that yields and prices are near projected levels. Often, premiums on supplemental policies will significantly reduce expected profits.
- Price more grain than usual. Typically, Illinois farmers usually have about 20% of their expected corn production priced by the end of March. Having a higher percentage (30% to 40%) of grain priced this year may be warranted, particularly since current prices result in profitable production. Increasing use of pre-harvest hedging as a percent of expected production by 10 percentage points may be warranted.
Check out the crop insurance tools from farmdoc.
Read more about crop insurance:
Spring Crop Insurance Price Looks to Smash Records for Soybeans
5 Crop Insurance Products to Consider in 2022
Layer Your Protection: Shallow Loss Crop Insurance Products
New Crop Insurance Program for Farmers Who Split-Apply Nitrogen
