February 9, 2016
Use of YA, YE, and TA in Determining Yield for Crop Insurance
Farmers and other insureds often have alternatives for determining yields used in crop insurance guarantee and premium calculation resulting from Yield Adjustment (YA), Yield Endorsement (YE), and Trend-Adjustment Yield Endorsement (TA). The APH Yield Calculator has been added to the 2016 Crop Insurance Decision Tool to aid in evaluating these alternatives. As a general rule, farmers should pick the alternative resulting the highest Actual Production History (APH) yield. Often, this results from 1) using TA, 2) using YE in years where it is available and excluding the yield increases the Actual Production History (APH) yield, and 3) using YA is the actual yield is below the YA substitute yield and YE is not available.
February 8, 2016
Weekly Outlook: Exports of Ethanol and Distillers' Grains Remain Strong
U.S. exports of fuel ethanol were generally small prior to 2010. For 2010, the U.S. Energy Information Administration (EIA) estimated exports at 398.5 million gallons. Exports peaked at just under 1.2 billion gallons in 2011 when Brazilian ethanol supplies were in short supply. Exports declined to 619 million gallons in 2013, but recovered to 846 million gallons in 2014.
February 5, 2016
Balancing Business and Financial Risk
Total risk can be divided into two major categories: business risk and financial risk. Business risk involves the variability of the farm's return to assets. Business risk arises from variability in production levels (e.g., yield variability), output prices (e.g., corn price variability), and input prices (e.g., fertilizer price variability), as well as changes in legal aspects of the business and personnel. Financial risk arises from the financial claims of the farm's creditors. Financial risk is caused by uncertainty pertaining to interest rates, lending relationships, changes in market value of assets used as collateral, and changes in cash flow used to repay debt. With the relatively high crop net returns experienced from 2007 to 2013, for many farms, financial risk was not a large concern. Under the current environment in which crop net returns are relatively low, financial risk is becoming a much larger issue. In this article, case farms are used to examine the relationship between business, financial, and total risk, and to illustrate what happens to each of these risks when interest rates and leverage change.
February 3, 2016
The Competitive Position of Ethanol as an Octane Enhancer
In the farmdoc daily article of January 13, 2016 we chronicled the recent sharp decline in crude oil and gasoline prices that has resulted in the "upside-down" relationship of ethanol prices exceeding gasoline prices. Figure 1 shows wholesale ethanol and CBOB gasoline prices at the U.S. Gulf, and it indicates that ethanol prices have remained well above gasoline prices over the last month. We noted in the previous article that crude oil and gasoline prices could remain low for an extended period, perhaps threatening the competitive position of ethanol in gasoline blends. However, the RFS conventional ethanol mandate provides a safety net for domestic ethanol consumption even when ethanol prices are above gasoline prices. In addition, the conventional ethanol mandate implies that the price of ethanol would have to remain above the ethanol plant "shut down" price in order to ensure that mandated quantities of ethanol are produced. We did acknowledge that a continuation of high ethanol prices relative to gasoline prices opens the possibility that ethanol will become a relatively expensive source of octane in gasoline blends. Here, we examine the price relationship between ethanol and the alternative sources of octane known as aromatics as an indication of the competitive position of ethanol as an octane enhancer.
February 2, 2016
Release of iFarm Premium Calculator and iFarm Payment Evaluator
Two new web-based decision tools are now available in the crop insurance section of farmdoc. The ifarm Premium Calculator provides farmer-paid premiums for insurance products on a per acre basis. The ifarm Insurance Evaluator provides performance evaluations of alternative crop insurance products for a case farm within a county. These computer tools are supported by the National Center for Supercomputing Applications (NCSA) at the University of Illinois. Evaluations of crop insurance are available for corn and soybeans in the Midwest, Great Plains, and eastern United States. The web-based design of these products are scalable to different platforms including laptop computers, tablets, and phones.