March 6, 2014
2014 Farm Bill: Reallocating Base Acreage
Continuing the discussion and evaluation of the provisions of the new farm bill, today's post turns to the topic of base acreage. The PLC and County ARC commodity programs are all tied to historical base acreage rather than current production. The Individual ARC program is tied to both current planted and historical base acreage. The 2014 Farm Bill provides the owners of a farm with a one-time opportunity to reallocate their base acres on each Farm Service Agency (FSA) farm. There is no requirement that the farm owner reallocate base acres; the decision to update is voluntary and the owner of the farm may decide to simply retain the current configuration of base acres on the farm. Failure to make an election operates as a decision to retain the current base acre allocation for the farm.Posted by Nick Paulson and Jonathan Coppess
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March 5, 2014
Implying the Probability of an EPA Reversal on the Write Down of the Renewable Mandate from the RINs Market
In a farmdoc daily post on February 19th, it was argued that the RINs market provided an early warning signal about another change in EPA policy. More specifically, the rise of D6 ethanol prices relative to D4 biodiesel prices suggested that RINs traders believed the odds of the EPA reversing the proposed write down of the renewable mandate for 2014 in final rulemaking had increased sharply. The "coupling" of D4 and D6 RINs prices indicated a revised expectation that the renewable mandate for 2014 would exceed the E10 blend wall.Posted by Scott Irwin
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March 4, 2014
Evaluating Crop Insurance Options for 2014
The Risk Management Agency (RMA) has now concluded its price discovery period used to determined final prices and volatility factors for federally sponsored corn and soybean crop insurance products for 2014. For the majority of the cornbelt, the approved Projected Price (PP) for corn is $4.62 and the volatility factor is .19. For soybeans, the projected price is $11.36 with a volatility factor of .13. For comparison, the 2013 prices (volatility factors) were $5.65 (.20) and $12.87 (.17) for corn and soybeans respectively. The Projected Prices are used to determine the guarantee revenue indexes based on futures prices, and do not reflect local basis.Posted by Bruce Sherrick and Gary Schnitkey
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March 3, 2014
Hog Prices Take Off, Probably Due to PED-V
How large are the losses of baby pigs due to PED-V (Porcine Epidemic Diarrhea Virus) and how will the losses reduce slaughter supplies this spring and summer and for the rest of 2014? No one knows the correct answer, but lean hog futures market participants seem to have decided that the losses will be very large for slaughter supplies this spring and summer. In the past two weeks, April lean hog futures have risen by $10.68 and June futures have risen by $6.10 to record highs.Posted by Chris Hurt
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February 28, 2014
Who Wins if the EPA Reverses Itself on the Write Down of the Renewable Mandate in 2014?
There is on-going speculation about the possibility of some adjustment in the EPA's preliminary rule making for 2014 Renewable Fuel Standards (RFS), either in final rule making expected this summer or as a result of a legal challenge. A farmdoc daily post last week noted that the recent rise of D6 ethanol prices relative to D4 biodiesel prices indicates that RINs traders believe the odds of the EPA reversing the proposed write down of the renewable mandate for 2014 in final rulemaking have increased sharply. The purpose of today's post is to examine which biofuel-- ethanol or biodiesel-- would be the big winner if the EPA reverses itself on the write down of the renewable mandate for 2014.Posted by Scott Irwin and Darrel Good
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February 27, 2014
2014 Farm Bill: The Supplemental Coverage Option
The Crop Insurance Title of the 2014 Farm Bill includes provisions for the creation of a new crop insurance program referred to as the Supplemental Coverage Option (SCO). SCO is an optional program which will be available starting in the 2015 crop year. SCO provides supplemental coverage which mimics the producer's individual insurance program choice, covering a portion of the deductible using a county-level measure of yield or revenue. Today's post outlines the details of the SCO program, its eligibility rules and linkages with the new PLC and ARC commodity program options, and offers some considerations for producers in making commodity and crop insurance decisions.Posted by Nick Paulson and Jonathan Coppess
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February 26, 2014
Protecting Futures Customers from Brokerage Firm Failures, Part 4
Earlier posts examined the feasibility of various protection proposals for futures customers and reviewed new CFTC regulations to reduce fellow-customer risk. Today's post concludes this series with a look at other mechanisms to protect customer funds from a brokerage firm failure.Posted by Paul Peterson
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February 25, 2014
Controlling Costs with Lower Crop Revenues: Cash Rents
Corn and soybean prices in 2014 are projected to be much lower than prices between 2010 and 2012. Non-land costs are not projected to come down by the same amounts as revenues have declined. As a result, current projections place operator and farmland returns below average cash rents, leading to the need to reduce cash rents.Posted by Gary Schnitkey
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February 24, 2014
Potential Growth in Corn Used for Ethanol Production
In last week's issue it was argued that corn consumption during the current marketing year appears to be more responsive to lower prices than generally anticipated, particularly in the export market. The responsiveness reflects not only lower corn prices in absolute terms, but also in relation to the price of other feed ingredients. Arguably, corn has become one of the cheaper feed ingredients currently available.Posted by Darrel Good
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February 21, 2014
A Closer Look at Farm Liquidity
There is more than one way to evaluate financial liquidity. Working Capital is expressed in dollars (current assets less current liabilities) and the current ratio which is a relative term (current assets divided by current liabilities). Both of these measures point to the level of liquidity that exists at a point in time and tell of amount of financial cushion available. Farming is known to be an industry where it is all too common to be 'cash poor and asset rich'. Knowing the level of one's cash cushion is always prudent and will be paramount as we deal with lower margin levels. Lenders typically use one or more of these liquidity measures when assessing the financial position of a potential borrower.Posted by Brandy M. Krapf, Dwight D. Raab and Bradley L. Zwilling
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