The Latest

Events

  1. California: Advanced Precision Farming Course Offered Online, Nov. 14 – Dec. 16

    November 14 @ 8:00 am - December 16 @ 5:00 pm
  2. Texas: Private Pesticide Applicator License Training, Dec. 6, 15

    December 6 @ 8:00 am - December 15 @ 5:00 pm
  3. Kansas: K-State Program to Help Farmers Deal with Historic Ag Downturn

    December 7, 2016 @ 8:00 am - February 15, 2017 @ 5:00 pm
  4. Alabama: Corn and Wheat Short Course, Auburn, Dec. 12-13

    December 12 @ 8:00 am - December 13 @ 5:00 pm
  5. Texas: 55th Blackland Income Growth Conference, Waco, Dec. 13

    December 13 @ 8:00 am - 5:00 pm
  6. Indiana: Crop Adviser Conference, Indianapolis, Dec. 13-14

    December 13 @ 8:00 am - December 14 @ 5:00 pm
  7. Indiana: Beginning Farmer Workshop, Indianapolis, Dec. 14

    December 14 @ 8:00 am - 5:00 pm
  8. Indiana: 4 Farm Law, Taxes Workshops Available in Dec., Jan.

    December 14, 2016 @ 8:00 am - January 13, 2017 @ 5:00 pm
  9. Missouri: Crop Management Conference, Columbia, Dec. 15-16

    December 15 @ 8:00 am - December 16 @ 5:00 pm
  10. Texas: Corn Growers Conference, Austin, Jan. 3-5

    January 3, 2017 @ 8:00 am - January 5, 2017 @ 5:00 pm
  11. South Carolina: Ag Marketing Seminar, Myrtle Beach, Jan. 4-6

    January 4, 2017 @ 8:00 am - January 6, 2017 @ 5:00 pm
  12. South Carolina: 4 Upcoming Forest Management Workshops for Woodland Owners

    January 12, 2017 @ 8:00 am - February 10, 2017 @ 5:00 pm
  13. Delaware Ag Week to Feature Record-Setting Soy Farmer, Harrington, Jan. 12

    January 12, 2017 @ 8:00 am - 5:00 pm
  14. Louisiana: LSU Offers 3 Irrigation Workshops in Jan., Feb.

    January 17, 2017 @ 8:00 am - February 14, 2017 @ 5:00 pm
  15. Illinois: 4 Regional Crop Management Conferences in Jan., Feb.

    January 18, 2017 @ 8:00 am - February 15, 2017 @ 5:00 pm
  16. Texas: Red River Crops Conference, Childress Jan. 24-25

    January 24, 2017 @ 8:00 am - January 25, 2017 @ 5:00 pm
  17. Indiana: Ag Business Management Workshop, West Lafayette, Jan. 31 – Feb. 2

    January 31, 2017 @ 8:00 am - February 2, 2017 @ 5:00 pm
  18. Arkansas: Agribusiness Conference, Jonesboro, Feb. 8

    February 8, 2017 @ 8:00 am - 5:00 pm
  19. Texas: National Cotton Council Meeting, Dallas, Feb. 10-12

    February 10, 2017 @ 8:00 am - February 12, 2017 @ 5:00 pm

Nebraska: Interpeting Crop Insurance Projected Prices

Ernst Undesser
By Cory Walters and Monte Vandeveer, University of Nebraska-Lincoln Extension March 7, 2014

The March 15 crop insurance deadline is just around the corner. To aid with your contract selection, consider projected prices and how they are set.

The USDA Risk Management Agency (RMA) uses futures markets to determine crop insurance projected prices. Average new crop futures prices (December for corn, November for soybeans) during February determine corn and soybean projected prices.

2014 Corn & Soybean Projected Prices

Graph of implied floor pricesfor corn and soybeans under various scenarios

Click Image to Enlarge

Chart of 2014 projected price volatility for corn and soybean

Click Image to Enlarge

Projected prices for 2014 are $4.62/bushel for corn and $11.36/bushel for soybeans (subject to final RMA approval). Compared to last year, prices are down $1.03/bushel for corn and $1.51/bushel for soybeans (Figure 1). The impacts of lower projected prices are twofold.  First, crop insurance revenue guarantees will decrease. Second, producer-paid premiums will decrease.

Current new-crop December corn and November soybean futures prices are higher than RMA projected prices, which are the average prices for the entire month of February. This implies a slightly stronger chance of harvest prices being higher than projected prices. Producers should strongly consider the use of a revenue protection (RP) policy to capture benefits (i.e., implied call option) associated with the harvest price being greater than projected prices. After the 2012 drought producers realized the benefits of RP policies in 2013 when 91% of insured corn acres and 91% of insured soybean acres were covered under an RP policy.

A year ago, many producers shifted to higher guarantee levels with their policies. For the first time in Nebraska, more acres were insured at the 75% guarantee level than at the 70% level for corn, soybeans, and wheat.  In fact, in 2013 more Nebraska soybeans acres were insured at the 80% guarantee than at the 70% level. One reason for this shift to higher coverage may have been to offset lower APH average yields produced by the 2012 drought.

 

Another reason may have been the relatively attractive revenue guarantee levels resulting from higher prices. For 2014, producers interested in higher guarantee levels will get some help from the lower projected crop prices, which will make insurance premiums proportionately lower.

Revenue coverage provides an implicit price floor for a given level of yield.  Holding yields constant at Actual Production History (APH) levels, we can calculate the crop insurance price floor (i.e., implied put price) using this year’s projected prices.  We show this for both corn and soybeans in Figure 2. For example, for corn using an 85% coverage level the crop insurance price floor is $3.93 ($4.62/bushel x 0.85 coverage level).

This means that if a producer’s actual yield equals the APH, then an indemnity would be paid if the harvest price (determined in October) falls below $3.93.  As coverage levels decline, the crop insurance floor price also declines. For corn, each 5% decline in coverage level reduces the crop insurance price floor by $0.23/bushel. For soybeans, each 5% decline in coverage level reduces the crop insurance price floor by $0.57/bushel. Consequently, higher coverage levels increase the probability of payments. Producers must balance this higher probability of payments with the corresponding costlier premium.

In addition to calculating projected prices, RMA also determines the price volatility.  Price volatility is important because a lower volatility implies lower premiums. For 2014, price volatility for corn is 0.19 and for soybeans is 0.13 (Figure 3).  Compared to last year, corn price volatility is down 0.01 for corn and 0.04 for soybeans.

Consequently, we expect a larger premium reduction in soybeans than corn based upon the volatility factors.  While lower volatility reduces premiums, it also implies a relatively tighter price range between now and harvest.  Using this criterion, we would then expect corn and soybeans to stay in a relatively tighter trading range than experienced last year.

Ernst Undesser
By Cory Walters and Monte Vandeveer, University of Nebraska-Lincoln Extension March 7, 2014