publication archive: drought
April 17, 2013
Was 2012 Really the 'Big One' for U.S. Corn Yields?
A report from the NOAA Drought Task Force last week about the origins of the 2012 Great Plains drought has generated considerable interest and discussion. The authors of this report concluded that the drought was largely unpredictable based on conditions even a few weeks ahead of the onset of the drought and that it was unlikely to be related to global warming. It also highlighted the devastating impact of the drought conditions on corn yields, an issue we discussed in farmdoc daily posts last summer and fall (here and here). The availability of final corn yields for 2012 provides an opportunity to provide further historical perspective on the full impact of the drought on corn yields.Posted by Scott Irwin Permalink Tweet
March 19, 2013
Drought and Crop Insurance Loss Experience in 2012
Yield losses from the 2012 drought caused large crop insurance payments. In this post, 2012 loss ratios are shown for U.S. counties, thereby allowing areas of high loss experience to be identified. Higher loss ratios occurred in eastern Kansas, Missouri, central and southern Illinois, western Indiana, and western Kentucky. This area corresponds to the area where corn yield losses were most pronounced. The areas of high losses in 2012 bear little relationship to typical losses across the United States.Posted by Gary Schnitkey Permalink Tweet
February 20, 2013
Locating the 2012 Drought Using State Corn Yields
An examination of 2012 corn yields relative to trend yields provides evidence of where the drought had its worst impacts. For corn, the lowest state yields occurred in Kentucky, Missouri, Indiana, and Illinois. Most states in the southeast had above trend yields. Minnesota and North Dakota had yields close to trend.Posted by Gary Schnitkey Permalink Tweet
January 22, 2013
Early Focus on the Prospective Size of the 2013 U.S. Corn Crop
Listen to MP3 podcastThe drought reduced U.S. corn crop of 2012 suggested that corn prices might behave in a pattern generally described as "short crops have long tails." The phrase depicts the expectation of rapidly rising prices that peak near harvest time, decline in an unspecified pattern over the next several months, and return to pre-drought levels as early as the following marketing year. The decline in prices is expected as a result of a slowdown in consumption and a return to normal production.
Posted by Darrel Good Permalink Tweet
November 26, 2012
Focus on Soybean Oil
Listen to MP3 podcastThe sharp increase in soybean prices that began in June 2012 and peaked in early September 2012 was carried more by soybean meal prices than by soybean oil prices. From the June low to the September peak, January 2013 soybean futures increased by 43 percent, January soybean meal futures increased by 51 percent, and January soybean oil futures gained 20 percent. Soybean oil futures are now back to the level of early June, while soybean futures are 13 percent above the early June level and soybean meal futures are 21 percent higher.
Posted by Darrel Good Permalink Tweet
November 19, 2012
Pork Producers Did Not Panic
Listen to MP3 podcastHere is some good advice: If you are in a crisis, DO NOT PANIC! Pork producers were facing a drought driven crisis late last summer. December corn futures had risen as high as $8.49 per bushel, December soybean meal futures had reached $540 per ton. Markets anticipated a fairly rapid period of sow liquidation which depressed the December lean hog futures price to $70 per hundredweight. The bleak outlook called for losses of as much as $50 to $60 per head in the final quarter of this year. A panic response might have been to cover substantial amounts of feed needs at record high prices, to forward price lean hog futures before the outlook worsened, or just sell out altogether.
Posted by Chris Hurt Permalink Tweet
November 15, 2012
2012 Drought, the Harvest Price Option, and Forward Contracting
Droughts always cause farm policy issues because of the stress they cause. A policy issue that has emerged during the 2012 drought concerns whether or not crop insurance should have a harvest price option (HPO). HPO permits the insurance guarantee to be calculated using the insurance price determined at harvest when it is higher than the insurance price determined prior to planting. This article examines the HPO policy issue. See the end of the post for a note on the use of the term, harvest price option.Posted by Carl Zulauf Permalink Tweet
November 13, 2012
Crop Insurance and Rental Arrangements: Lessons from the 2012 Drought
The 2012 drought raised two issues related to crop insurance and rental arrangements. First, it appears that a significant number of share rent landlords did not take crop insurance, resulting in much lower returns for these share rent landlords. Second, variable cash rental arrangements typically have not included crop insurance proceeds in calculating rental payments, leading landlords to receive less of gross revenue than anticipated. Both of these issues are discussed below.Posted by Gary Schnikey Permalink Tweet
November 2, 2012
The Biofuels Era - A Changing of the Guard?
The increase in corn used for ethanol has been a major driver of crop prices in the New Era that began in the Fall of 2006. In the face of one of the worst droughts of the last century this summer, there have been numerous calls to limit the policy incentives to use corn for ethanol production in the upcoming year. The U.S. Environmental Protection Agency (EPA) is currently considering formal requests for this potential relief. While ethanol has garnered nearly all of the headlines in recent years, its role as the leading driver of crop prices may be nearing an end.Posted by Darrel Good and Scott Irwin Permalink Tweet
October 25, 2012
Wheat Feeding
In its October World Agricultural Supply and Demand Estimates (WASDE), the U.S. Department of Agriculture (USDA) increased the estimated feeding of wheat during the current 2012/13 wheat crop year by 95 million bushels to 315 million bushels. This change was prompted by the September 1 stocks report and suggests that increased feeding of wheat will join increased imports and reduced consumption as market responses to the drought-reduced 2012 corn and soybean crops. Therefore, this article examines the historic role of wheat feeding in the U.S. and the factors associated with it.Posted by Carl Zulauf and Nick Rettig Permalink Tweet
October 22, 2012
Cattle Prices Will Continue to Rise
The impacts of the 2012 drought continue to play out in a beef industry discouraged by high feed prices and large cattle feeding losses. In the latest Cattle On Feed report, the USDA confirmed that placements into feed lots dropped sharply in September following substantial declines in July and August. As a result, on-feed numbers are now down nearly three percent as the beef industry is doing its part to reduce corn and other feed usage.Posted by Chris Hurt Permalink Tweet
October 9, 2012
Harvest Prices and Insurance Payments
Crop insurance harvest prices for corn and soybean in the Midwest are determined during October. Most farmers insured using either Revenue Protection (RP) or Group Risk Income Plan with the harvest revenue option (GRIP-HR), both of which have the guarantees based on the higher of the harvest or projected price. Harvest prices will be above the projected prices this year. Because of large yield losses this year, RP and GRIP-HR will make larger payments with higher harvest prices.Posted by Gary Schnitkey Permalink Tweet
October 3, 2012
How Bad Was the 2012 Corn and Soybean Growing Season?
Prior to 2012, the most adverse growing season weather conditions for U.S. corn and soybeans in recent history occurred in 1988. Now that the 2012 season is over, it is instructive to compare the two growing seasons and the impact on the U.S. average yields of the two crops.Posted by Scott Irwin and Darrel Good Permalink Tweet
September 24, 2012
Soybean Prices Tumble, but There are Some Positive Developments
Listen to MP3 podcastNovember 2012 soybean futures reached a high of $17.89 on September 4, but have declined sharply since then. The USDA's September 12 Crop Production report containing a smaller yield and production forecast provided some brief support, but that contract has traded under $16 and is currently about $1.90 below the high. Basis levels have also weakened over the past three weeks. The average cash bid in central Illinois, for example, was $0.03 over November futures on September 4 and $0.13 under on September 21.
Posted by Darrel Good Permalink Tweet
September 20, 2012
The Nested Structure of the RFS2 Biofuel Mandate and RIN Values
In earlier posts, we have discussed various topics related to the RFS2 mandates and, more specifically, the Renewable Identification Number (RIN) system used to enforce mandate compliance. Thus far we have focused directly on the market for ethanol RINs and the information their values contain about the short-term impact mandate waivers may have on corn for ethanol use. In this post, we shift focus towards the advanced component of the mandate which corn-based ethanol cannot fulfill. First, we describe the nested structure of the overall mandate and the implied hierarchy of ethanol RIN values. We then use this hierarchy to calculate a rough estimate of the increase in relative corn prices which would be required to make ethanol produced from advanced feedstocks, such as Brazilian sugar-cane ethanol, competitive with corn-based ethanol in meeting the mandates.Posted by Nick Paulson and Seth Meyer Permalink Tweet
September 19, 2012
Illinois Farm Disaster Areas
U.S. Secretary of Agriculture Tom Vilsack has declared all but four Illinois counties as disaster areas due to the 2012 drought. Those counties not in the disaster area are Cook, DuPage, Kane, and Will. When thinking about a disaster, a casualty loss deduction normally comes to mind. Unfortunately, this is not the case for a drought. Even though the consequences of a drought can be devastating, normally it is not considered a disaster eligible for a casualty loss deduction.Posted by Gary Hoff Permalink Tweet
September 18, 2012
Wheat in 2013?
Recent high wheat prices have led to speculation that wheat acres may increase in 2013. Herein, projected 2013 returns for corn, soybeans, and wheat-double-crop-soybeans are compared to historical averages for southern Illinois. In 2013 budgets, wheat-double-crop-soybean return is closer to corn return and further from soybean return than is typical from a historical perspective, but differences from historical averages are not large. Projected returns do not suggest large increases in wheat acres. However, favorable fall planting weather could lead to more wheat plantings.Posted by Gary Schnitkey Permalink Tweet
September 17, 2012
Early Corn Harvest and September 1 Stocks
Listen to MP3 podcastA larger percentage of the U.S. corn grain acreage was harvested in August this year than is typically the case. The availability of large new crop corn supplies during the last month of the previous marketing year makes it more difficult to anticipate the magnitude of old crop stocks on September 1.
Posted by Darrel Good Permalink Tweet
September 14, 2012
What Price of Crude Oil Makes Ethanol Production Profitable?
There has been a great deal of interest this summer in the ethanol market, RFS mandates, and corn use for ethanol production. This reflects the impact of the historic drought of 2012 in the Midwest and concerns about how reduced corn supplies will be allocated across consumption categories. The focus of this post moves from the short-term to the long-term. In particular, we are interested in analyzing the basic economic question of how high do crude oil prices have to be in order for ethanol production in the U.S. to be profitable. Sometimes this simple but important issue is lost in the blizzard of daily market data and analysis. The answer also helps provide a frame of reference for thinking about the longer-term outlook for the market demand for ethanol.Posted by Scott Irwin Permalink Tweet
September 13, 2012
Projected 2012 Crop Reporting District Yields Relative to Trend-line Yields
USDA's National Agricultural Statistical Service has released projected 2012 Crop Reporting District (CRD) yields for Illinois, Indiana, Iowa, Kansas, and Missouri. These projected CRD yields are compared to trend yields so as to find areas where the 2012 drought caused the largest yield declines in corn and soybeans. Overall, yields are most below trend yields in eastern Kansas, northern Missouri, southern Illinois, and southwest Indiana.Posted by Gary Schnitkey Permalink Tweet
September 12, 2012
USDA September Crop Production and WASDE Reports
Today, the USDA's National Agricultural Statistics Service released the September Crop Production Report that contained new survey-based forecasts of the size of the U.S. corn and soybean crops. The World Agricultural Outlook Board released the monthly WASDE report that contains new estimates and forecasts of U.S. and world supply and consumption of corn, soybeans, and wheat. Following is a brief summary and analysis of the reports.Posted by Darrel Good Permalink Tweet
September 11, 2012
Cash Rents in 2012 and 2013
Listen to MP3 podcastAccording to the National Agricultural Statistical Service (NASS), Illinois cash rents in 2012 increased by 16% over 2011 levels. Cash rents increases between 2012 and 2013 likely will not be as large. Results from a midyear survey by the Illinois Society of Professional Farm Managers and Rural Appraisers suggest increases between 1% and 3%.
Posted by Gary Schnitkey Permalink Tweet
September 10, 2012
Renewed Focus on U.S. Crop Exports
Listen to MP3 podcastCrop markets continue to be heavily influenced by the prospective size of the U.S. corn and soybean crops, with the USDA's September 12 Crop Production report to provide an important update on prospective crop sizes. With prospects for very small crops, the potential strength of export demand for wheat, corn, and soybeans is of increasing importance as crop problems have also been experienced in other parts of the world.
Posted by Darrel Good Permalink Tweet
September 7, 2012
2012 Farm Bill Debate: Multiple-Year Risk Assistance Programs
Most farm safety net provisions in the Farm Bills passed by the full Senate and the House of Representative's Committee on Agriculture can be classified into 3 categories: (1) enhancements to crop insurance, (2) assistance against shallow losses, and (3) assistance against losses that extend across multiple crop years. This farmdoc post focuses on the alternative proposals for multiple-year risk assistance.Posted by Carl Zulauf Permalink Tweet
September 6, 2012
RIN Values: What Do They Tell Us about the Impact of Biofuel Mandates?
The impact of the US drought on the price of corn and other feed grains and oilseeds has made the arcane subject of Renewable Identification Number (RINs) and the role of US biofuel policy of great interest this year. For example, there have been a number of recent calls to the EPA for waivers of the RFS mandates to relieve pressure on food prices for consumers and feed prices for livestock producers. In this post we review the basic economics of the ethanol market both with and without the RFS mandate, and discuss RIN valuation under both conditions. We then provide some speculation as to the support the RFS mandates are currently providing to corn prices based on recently observed RIN prices.Posted by Seth Meyer and Nick Paulson Permalink Tweet
September 5, 2012
Crop Insurance and the Harvest Price Option
Crop insurance will make large payments this year as a result of reduced yields caused by the drought. Contributing to these large payments is the fact that most farmers purchased Revenue Protection (RP), a revenue insurance that has the harvest price option. Under the harvest price option, revenue guarantees increase when the harvest price exceeds the projected price. Crop insurance would have been lower had farmers purchased insurance with the harvest price exclusion. The harvest price option is coming under scrutiny from a policy perspective.Posted by Gary Schnitkey Permalink Tweet
September 4, 2012
Questions About Corn Acreage
Listen to MP3 podcastThe pace of consumption of U.S. corn has been slowing, as evidenced by small weekly exports and export sales, smaller weekly estimates of ethanol production, declining cattle feedlot placements, and increased slaughter of dairy cows and the hog breeding herd. The extent of rationing required in the current marketing year that has just begun, however, is still not clear since the size of the 2012 crop is not yet known.
Posted by Darrel Good Permalink Tweet
August 30, 2012
2012 Drought: Yield Loss, Revenue Loss, and Harvest Price Option
This article examines the impact of the 2012 drought on per acre revenue for corn and soybeans compared with the revenue expected in February. The article also examines the impact of crop insurance and, more specifically, the harvest price option, on per acre revenue. The harvest price option permits the insurance guarantee to be calculated using the higher of the insurance plant price determined in February for corn and soybeans or the price determined at harvest. Despite the reduction in yield caused by the drought, per acre revenue is higher in August than in February for the average U.S. acre of corn and soybeans. To emphasis, the previous statement is for the average acre of corn and soybeans; many farms will have yield declines greater than the average decline. However, the harvest price option may result in some of these farms also having August revenue greater than the February revenue.Posted by Carl Zulauf Permalink Tweet
August 29, 2012
Consumer Spending and Beef Demand
Demand can be measured by the quantities that consumers are willing to buy over a range of different prices. This list of quantities and corresponding prices can be plotted to map out the familiar downward-sloping demand curve, with smaller quantities demanded at higher prices and larger quantities demanded at lower prices. Although "demand" is often used interchangeably - and incorrectly - with the quantity sold, an accurate picture of demand also requires some measure of the prices paid for each of the quantities sold.Posted by Paul E. Peterson Permalink Tweet
August 28, 2012
Crop Insurance in 2013
The 2012 drought raises question about crop insurance coverage in 2013. Specific questions that have been asked are: 1) how much will the Actual Production History (APH) yields decline in 2013 as a result of poor yields in 2012, and 2) will 2013 crop insurance premiums increase as a result of the 2012 drought?Posted by Gary Schnitkey Permalink Tweet
August 27, 2012
Pork Industry Faces Record Losses
Listen to MP3 podcastA tsunami of red ink is about to wash across the pork industry which is facing losses unseen even in the fall of 1998 when hog prices at times approached zero value. The stressors include: more hogs than expected, rapid sow liquidation now underway, and record feed prices. Losses in the final quarter of this year could be $60 per head, exceeding the previous record quarterly losses of $45 per head in the fall of 1998.
Posted by Chris Hurt Permalink Tweet
August 24, 2012
Current Farmland Prices in Line with Farmland Returns and Interest Rates
Farmland prices continue to increase. U.S. Department of Agriculture (USDA) estimates the average 2012 Illinois farmland price at $6,800 per acre, 17 percent higher than the $5,800 price in 2011. The Chicago Federal Reserve Bank (FED) estimates price increases at 15 percent between July 1, 2011 and July 1, 2012 for northern and central Illinois farmland. At the same time farmland prices have increased, cash rents have increased and interest rates have decreased, thereby supporting the increases in farmland prices.Posted by Gary Schnitkey Permalink Tweet
August 23, 2012
The Impact of the 2012 Drought on Corn and Soybean Yield Updates for the PLC Program
The House Ag Committee's 2012 Farm Bill allows farmers to choose between a fixed price support program (PLC) or a county-level revenue program (RLC). The price program, referred to as Price Loss Coverage or PLC, has a similar design to that of the current counter-cyclical program (CCP). Exceptions are that PLC would provide payments based on planted (rather than base) acres, and PLC reference prices are set above current CCP target prices. In addition, producers will have the option of updating their current CCP payment yields.Posted by Nick Paulson Permalink Tweet
August 22, 2012
Non-Harvested Corn and Soybean Acres: Historical Context
The share of acres planted to corn and soybeans that will be harvested in 2012 has emerged as a topic of interest as the U.S. drought has intensified. The topic has garnered even more interest in light of the U.S. Department of Agriculture's (USDA) August crop production report that confirmed double digit declines in average U.S. corn and soybean yields. This article examines the data since 1974 to provide perspective on the share of non-harvested acres. A simple historically-based analysis suggests that the share of corn and soybean acres reported as non-harvested in the August report may be somewhat higher than is consistent with the historical evidence since 1974. However, historical examination provides only a guide and history rarely replicates itself. Thus, this article raises an observation for consideration rather than making a conclusion.Posted by Carl Zulauf Permalink Tweet
August 21, 2012
Projected 2013 Corn and Soybean Budgets
Listen to MP3 podcastBudgets for corn and soybeans grown in Illinois for 2013 are now available on farmdoc. Below, the 2013 budgets are compared to 2011 results and 2012 projections for crops grown in central Illinois on high productivity farmland. Overall non-land costs are projected to be roughly the same in 2013 as in 2012. Projected 2013 returns for corn are projected to be between 2011 and 2012 returns. Projected 2013 soybean returns are lower than 2011 and 2012 returns.
Posted by Gary Schnitkey Permalink Tweet
August 20, 2012
Rationing the 2012 U.S. Soybean Crop
Listen to MP3 podcastThe small South American soybean crop of 2012 will result in much smaller inventories of that crop by the end of the year. However, that draw down in stocks in combination with the much larger harvest expected in 2013 suggests that the pace of consumption of South American soybeans will not have to slow. In contrast, the small U.S. harvest this year will require a substantial reduction in consumption over the next year.
Posted by Darrel Good Permalink Tweet
August 17, 2012
Farm Liquidity - Your Current Ratio
The measures of financial liquidity quantify the ability of your farm to meet the financial obligations as they come due as well as to generate cash to pay family living expenses, income taxes, and make debt payments on time. The typical measures of liquidity under review by your FBFM field staff or lender are: 1) the current ratio, 2) working capital, and 3) the working capital/gross revenue ratio. This post will review the current ratio. The current ratio measures the extent to which current assets, if liquidated, would pay off all current liabilities. The higher the ratio, the greater the liquidity and as we learned in last month's post, cash is king.Posted by Bradley L. Zwilling and Dwight D. Raab Permalink Tweet
August 16, 2012
Shallow Loss Programs and the 2012 Farm Bill Debate
A signature issue of the 2012 farm bill debate is the addition of a shallow loss program to complement existing crop insurance. Shallow loss programs are included in the farm bills passed by the U.S. Senate and the House Committee on Agriculture. Unless the policy environment changes dramatically, the main question is which version(s) of shallow loss programs will be chosen. This article describes the general approach and program specifics of the various shallow loss proposals and offers some limited, initial observations.Posted by Carl Zulauf Permalink Tweet
August 15, 2012
Rationing the 2012 Corn Crop Revisited
A month ago, we presented alternative supply, consumption, and price projections for the 2012-13 marketing year in the context of addressing the question of whether or not prices were high enough to ration a much smaller crop. We concluded at that time that prices were likely still not high enough if the national average yield was below 135 bushels. Now that corn prices have moved higher and the USDA has released the first survey-based forecast of 2012 corn yield and production, we revisit the question of rationing.Posted by Darrel Good and Scott Irwin Permalink Tweet
August 14, 2012
2012 Corn and Soybeans Yields Relative to Historical Yields
On August 10th, the U.S. Department of Agriculture (USDA) released its first estimates of 2012 corn and soybean yields on a state level. As one would expect given the 2012 drought, many states are projected to have poor yields. Relative to trend yields from 1972 through 2011, 2012 corn yields are projected to be the worst in four states. The lowest corn and soybean yields are located in or near the Midwest. Southern and eastern seaboard states have relatively higher yields.Posted by Gary Schnitkey Permalink Tweet
August 13, 2012
Corn and Soybean Forecasts, What's Next?
Listen to MP3 podcastThe USDA's August Crop Production report confirmed prospects for small U.S. corn and soybean crops and the need for consumption of both crops to decline sharply in the year ahead. Prices will now begin to reflect expectations for any changes in the production forecasts and confirmation that the necessary rationing is occurring. Indications of the pace of consumption will be provided by weekly reports of exports, ethanol production, and broiler placements and monthly reports of the domestic soybean crush, cattle feedlot inventories, and dairy cow numbers. New production forecasts will be released in September, October, and November and the final estimate will be released in January.
Posted by Darrel Good Permalink Tweet
August 10, 2012
USDA August Crop Production and WASDE Reports
Today, the USDA's National Agricultural Statistics Service released the August Crop Production Report that contained the first survey-based forecasts of the size of spring planted crops. The World Agricultural Outlook Board released the monthly WASDE report that incorporates these production forecasts into the 2012-13 marketing year supply and demand forecasts. Following is a brief summary of report high lights for corn, soybean, and wheat.Posted by Darrel Good Permalink Tweet
August 9, 2012
Price vs. Revenue Farm Safety Net
An issue of disagreement during the 2012 Farm Bill debate is whether the farm safety net should focus on revenue or price. Until the ACRE program was enacted in the 2008 Farm Bill, farm programs focused on price. This article compares price and revenue programs, focusing on the key role played by the correlation between changes in price and changes in yield. The examination finds that converting to a revenue based farm safety net likely will likely increase the effective risk management provided by the farm safety net and will likely result in more support being provided to Southern crops.Posted by Carl Zulauf Permalink Tweet
August 8, 2012
More Ways to Hedge the RP Guarantee Before Harvest
Recent Farmdoc Daily articles explained how prices in short-crop years often peak early and decline throughout the remainder of the marketing year, and then showed how farmers who insured using Revenue Protection (RP) insurance can use futures to protect insurance payments against a pre-harvest peak in crop prices.Posted by Paul E. Peterson and Gary Schnitkey Permalink Tweet
August 7, 2012
Initial Perspectives of Crop Insurance Underwriting Losses due to the 2012 Drought
There is growing interest in understanding the magnitude of losses in the Federal crop insurance program, and how those losses are to be shared between the Federal government and the crop insurance companies and their reinsurers. At this point, it is difficult to precisely estimate the size of the eventual losses; however, it is safe to assume that losses will be relatively large. Given Federal regulation and restrictions on crop insurance companies' retained exposure, it is highly likely that there are sufficient funds to cover 2012 losses. Additional context and perspective on 2012 losses are provided below.Posted by Gary Schnitkey and Bruce Sherrick Permalink Tweet
August 6, 2012
Drought and the Cattle Industry
Listen to MP3 podcastThe beef industry has already experienced a number of difficult years characterized by falling cow numbers and declining per capita beef supplies. There was hope in the first-half of this year that this downward production phase was coming to an end, but the drought of 2012 has erased those hopes. So, where is the cattle industry today, and what do we know about the impacts of this year's drought?
Posted by Chris Hurt Permalink Tweet
August 2, 2012
Ethanol - Does the RFS Matter?
As we noted in a post last week, drought conditions this summer have become as bad as 1988 and perhaps worse, potentially only rivaled in the last century by 1936. As corn yield expectations have declined issues related to rationing usage in 2012-13 have taken center stage. The full extent of any needed rationing will not be known for a while, but the USDA's August 10 Crop Production report will provide some guidance. Assuming that substantial rationing will be required, the issue becomes one of which consumption sector will make the majority of the adjustment. The primary consumption sectors are exports, feed, and ethanol and by-products. It is generally believed that export demand is relatively price inelastic so that high prices might result in only small declines in exports. The Renewable Fuels Standards (RFS) require minimum levels of blending of renewable biofuels so that ethanol use of corn would presumably remain large even with a small crop and high prices. The bulk of the adjustment to a smaller corn supply, then, might be left to the livestock industry as has typically been the case in previous small crop years.Posted by Scott Irwin and Darrel Good Permalink Tweet
August 1, 2012
An Update on RIN Stocks and Implications for Meeting the RFS2 Mandates with Corn Ethanol
The drought conditions experienced in 2012 have raised concerns over rationing corn usage for the remainder of the 2011/12 and into the 2012/13 marketing years. Of particular interest is how this might impact ethanol producers and obligated parties in meeting the RFS2 mandates in 2013 with corn-based ethanolPosted by Nick Paulson and Seth Meyer Permalink Tweet
July 31, 2012
Release of an Online FAST Tool to Calculate Crop Insurance Payments
The 2012 drought raises the possibility of crop insurance payments this year. An online tool for calculating insurance payments from COMBO products is available from the farmdoc team. This tool will also calculate crop revenue, as well as sales and losses from any hedging.Posted by Ryan Batts and Gary Schnitkey Permalink Tweet
July 30, 2012
Anticipating the Size of the 2012 Corn and Soybean Crops
Listen to MP3 podcastThe National Agricultural Statistics Service (NASS) of the USDA will release the first yield and production forecasts for the 2012 U.S. corn and soybean crops on August 10. The first forecasts of the season are always highly anticipated, but none more than this year as widespread drought conditions have resulted in a wide range of yield and production expectations.
Posted by Darrel Good Permalink Tweet
July 27, 2012
The 2012 Drought and Income Tax Deferral of Crop Insurance and/or Disaster Payments
The drought in significant parts of the corn-belt during the summer of 2012 has raised familiar questions about deferability of crop insurance proceeds. The issue is especially important for those farmers that have a history of reporting crop income in the year after the year of harvest. The Internal Revenue Code allows deferability of crop insurance proceeds if certain requirements are satisfied.Posted by Roger McEowen Permalink Tweet
July 25, 2012
Update on the Shutdown Price of Corn for Ethanol Plants
In a recent post (July 13, 2012), we examined the U.S. supply/demand situation for corn in 2012-13 under various yield scenarios. This analysis focused on the demand rationing that would be required as yields declined. If yield turns out to be above 140 we concluded that prices at the time appeared to be sufficient, and perhaps more than sufficient, to ration usage. However, we argued that an average yield of 135 bushels or less would require substantial further rationing, resulting in record high average prices. It is clear that corn yield prospects have continued to decline in the last two weeks as drought conditions this summer have become as bad as 1988 and perhaps worse, potentially only rivaled in the last century by 1936.Posted by Scott Irwin Permalink Tweet
July 24, 2012
Consider Hedging RP Guarantee before Harvest
Listen to MP3 podcastDuring short crop years, corn and soybeans prices often peak early and then decline throughout the remainder of the marketing year. This suggests that producers may wish to consider pricing some grain before harvest. This is particularly true for farmers who insured using Revenue Protection (RP) insurance, as there may be concern that the harvest-time contracts will peak before the harvest price determination period during October, leading to lower crop insurance payments than implied by current levels of futures prices. Futures markets can be used to hedge up to the yield guarantee implied in RP policies.
Posted by Gary Schnitkey Permalink Tweet
July 23, 2012
Are Soybean Prices High Enough?
Listen to MP3 podcastMuch of the recent attention in commodity markets, at least in the popular press, has focused on the U.S. corn crop and the potential impact of drought conditions on production and prices. The focus has been warranted since corn is the largest U.S. crop; corn is used in a wide variety of food, feed, and industrial products; and corn yields are most susceptible to drought conditions.
Posted by Darrel Good Permalink Tweet
July 20, 2012
Springfield RMA Releases "Crop Insurance during a Drought"
The Springfield Regional Office of the Risk Management Agency (RMA) released a fact sheet entitled Crop Insurance during a Drought. This publication covers the following topics: notification of drought loss, appraisal of drought loss, and frequently asked questions.Posted by Gary Schnitkey Permalink Tweet
July 19, 2012
Current Expectations of Future Corn Prices, and Ghosts of Prices Past
It is generally regarded that futures markets provide the best aggregated beliefs about future prices by market participants, given all currently available information; and thus that current prices are also the best estimate of future prices. Changes in futures prices thus reflect changes in information, or resolution of uncertainty prior to expiration. Even if price levels do not change, market participants generally become more certain about the production and demand as time progresses, and the uncertainty around the prices usually declines with time as well. The prices of options on futures reflect the degree of uncertainty about the futures prices and provide a means to recover additional probabilistic information about price uncertainty, or the probability of prices moving to various other levels, either higher or lower than the current futures price.Posted by Bruce Sherrick Permalink Tweet
July 17, 2012
Likelihood of Payments in 2012 from ACRE, Counter-Cyclical Programs, and SURE
The drought of 2012 raises questions of whether crop farmers will receive payments from 2008 Farm Bill programs. At this point, payments are unlikely from ACRE, the counter-cyclical program, and the marketing loan program. SURE will not make payments for 2012 crops as it is not authorized for the 2012 year. While 2008 Farm Bill programs will not make payments, crop insurance will provide payments for many farmers in IllinoisPosted by Gary Schnitkey Permalink Tweet
July 16, 2012
Expected Price Pattern for Corn and Soybeans
Listen to MP3 podcastWidespread drought conditions continue to reduce the 2012 U.S. corn and soybean yield potential. Yields are now expected to be well below trend value so that this year's production will qualify as "short crops".
Posted by Darrel Good Permalink Tweet
July 13, 2012
Rationing the 2012 Corn Crop - Are We There Yet?
The 2012 corn crop will be much smaller than anticipated earlier in the year when producers planted near-record acreage in a very timely fashion. Prospects then were for an above-trend average U.S. yield and a record large crop in excess of 14.5 billion bushels. A crop of that size would have allowed for an increase in consumption and some build-up in inventories and resulted in much lower prices than experienced over the past year. In May, for example, the USDA saw prospects for U.S. corn stocks to grow from 850 million bushels at the end of the current marketing year to 1.88 billion by the end of the 2012-13 marketing year. The average farm price was expected to decline from $6.15 this year to $4.20 to $5.00 next year.Posted by Darrel Good and Scott Irwin Permalink Tweet
