July 29, 2016
Why is Revenue More Variable over the Growing Season in Kansas than Illinois?
This article examines why revenue is more variable over the growing season for Kansas than Illinois farms. Revenue variability is a function of 3 factors: (1) variability of price, (2) variability of yield, and (3) the correlation between changes in price and yield. The analysis finds that variability of yield is the primary factor associated with the higher revenue variability of Kansas farms. The so-called "natural hedge", which is a negative correlation between price and yield, exists but is a much less important factor.
July 28, 2016
Implied Probabilities for Corn and Soybeans Prices for 2016
RMA establishes Projected Prices (PP) each year at the end of February for crop insurance contracts that serve as minimum indemnification prices for crop insurance contracts. For revenue insurance contracts not specifically designated with Harvest Price Exclusion (HPE), the PP can be supplanted by a Harvest Price if prices during the month of October average higher levels than the PP. During the time between the determination of the Projected Price and the final Harvest Price, market prices move in response to changes in growing conditions, expected usage, and remaining future supply and demand risks. It is important to understand the evolving probabilities of future price levels to effectively manage revenue risk. The purpose of this post is to introduce a new tool available at the farmdoc crop insurance evaluation site that helps to understand the market's implied price distribution at any point in time and the implication for possible levels of crop revenue.
July 27, 2016
The Profitability of Biodiesel Production in 2016: Feasting on an Expiring Tax Credit?
The U.S. biodiesel production industry has a distinct "feast or famine" pattern in terms of profitability. The industry made very large profits in 2011 and 2013, but losses in most years previous to 2011 and losses again in 2014 and 2015. The feast or famine pattern has been closely tied to expiration of the $1 per gallon biodiesel tax credit in the face of binding RFS biodiesel mandates. The biodiesel tax credit is once again scheduled to expire at the end of 2016. The purpose of this article is to investigate whether a boom in biodiesel prices and profits is ongoing similar to the booms that occurred in previous years when the biodiesel tax credit expired.
July 26, 2016
Growth in Crop Costs and Cash Rents
Crop costs, which include seed, pesticide, and fertilizer costs, have grown more in recent years than have cash rents. Between 2014 and 2015, costs did decline, with most of the reductions coming from cash rents and fertilizer costs. Seed and pesticide costs have not decreased much. Continuing cost cuts are needed, particularly as Agricultural Risk Coverage (ARC) payments likely decrease for the 2017 year. It remains to be seen how much cost are reduced the 2017 growing year.
July 25, 2016
Weekly Outlook: Cattle Markets Can Recover
Lower cattle prices have been the story this spring and summer. Beef supply has been large due to heavy placements of heavy calves and the beginning of more females coming to market as herd expansion may be slowing. Retail beef prices have been slow to come down and this has limited consumer purchases of beef in relation to abundant pork and poultry supplies.