publication archive: management
June 18, 2013
Prevented Planting Payments versus Planting Soybeans
Listen to MP3 podcastSoybean planting has been delayed in many areas of the Midwest. Since final planting dates for corn have passed, farmers who have purchased the COMBO insurance policy are eligible to take prevented planting payments for corn. Soon all final planting dates for soybeans will have passed and all Midwestern farmers will be eligible for soybean prevented planting payments. In this post, returns from prevented planting payments are compared to planting soybeans. For corn, prevented planting payments almost always will be larger than expected returns from planting soybeans in late June. Prevented planting payments for soybeans are less than prevented planting payments for corn. Taking the prevented planting payments for soybeans will become more economically attractive if soybean plantings are further delayed.
Posted by Gary Schnitkey Permalink Tweet
June 13, 2013
Release of Revenue and Costs for Corn, Soybeans, Wheat, and Double-Crop Soybeans
The publication entitled "Revenue and Costs for Corn, Soybeans, Wheat, and Double-Crop Soybeans" has been revised and is available on farmdoc. Revisions from the last publication includes an update of 2012 results and an updated to projections for 2013.Posted by Gary Schnitkey Permalink Tweet
June 11, 2013
Farm Program Payments under Alternative Proposals
Commodity program payments under alternative House and Senate proposals are estimated for corn produced in McLean County, Illinois. Payments are estimated for 2013 through 2016 given average yields for three price scenarios: 1) a $4.50 Market Year Average (MYA) price for each year from 2013 through 2016, 2) a $4.00 MYA price, and 3) a $3.50 MYA price. Under all price scenarios, the Average Crop Revenue Election (ACRE) program has higher payments than commodity programs proposed by the Senate and House Agriculture Committees.Posted by Gary Schnitkey Permalink Tweet
June 6, 2013
Expected Price Support Payments for Corn and Soybeans
The current farm bill proposals being debated in the Senate and House continue to include price supports in the commodity title while repealing the current system of direct and countercyclical (DCP) payments. More detailed discussions of the modified price support programs - AMP in the Senate, and PLC in the House - were provided in recent posts. Today, attention is turned towards comparing the expected payments each program might generate for corn and soybean producers.Posted by Nick Paulson Permalink Tweet
June 4, 2013
Non-land Costs Continue to Increase
Non-land costs continued to increase in 2012. Data from Illinois Farm Business Farm Management indicate that non-land costs in central Illinois on high-productivity farmland averaged $581 per acre for corn in 2012, up $78 per acre from non-land costs in 2011. Non-land cost for soybeans averaged $353 per acre, up $50 per acre in 2011. Non-land costs in 2012 represent record high levels for both corn and soybeans.Posted by Gary Schnitkey Permalink Tweet
May 30, 2013
Evaluating Taking Prevented Planting Payments for Corn
Listen to MP3 podcastDue to continuing wet weather, some farmers will not have planted all their corn by the final planting dates contained in their crop insurance policies. Once the final planting date has been reached, a farmer that has purchased the COMBO product (RP, RP with exclusion, or YP) will have the option of taking a prevented planting payment. In many cases, taking the prevented planting payment will be an economically attractive alternative.
Posted by Gary Schnitkey Permalink Tweet
Crop Insurance Program Losses in Perspective
A recent post provided the magnitude of crop insurance losses related to the drought and other events of 2012, showing the concentrated losses in the heart of the corn belt, and corresponding closely to the areas experiencing the most severe drought conditions. Ensuing debates related to the Crop Insurance Title in the Farm Bill, and arguments by both supporters of crop insurance, and opponents alike have pointed to the experience and have used individual details to argue such things as: payments were too high to farmers; or, that more shallow loss coverage is needed; or, or that company losses were too great, or that rates are too high or too low; or, that subsidy was greater than needed to attract participation -- the point is that a single year's loss experience does not provide a very complete context to evaluate the performance of the program, and the extreme nature of the drought led to numerous extreme individual experiences. Furthermore, it is actually quite difficult to meaningfully aggregate across time due to the changing nature of coverage provided year to year, evolving product designs and customer shares, and the overall scale of the program that follows both price levels and participation rates through time.Posted by Bruce J. Sherrick and Gary D. Schnitkey Permalink Tweet
May 29, 2013
Payment Expectations for the 2013 ACRE Program
The June 3rd deadline for enrolling Farm Service Agency farms into Average Crop Revenue Election (ACRE) for 2013 is rapidly approaching. On ACRE enrolled farms, direct payments will be reduced by 20% (on most farms, between a $3.50 and $5.00 per acre reduction). For this reduction in direct payments, there is chance for ACRE payments. ACRE payments will occur when state revenue is below a guarantee. Farmers concerned about low revenues will find ACRE attractive.Posted by Gary Schnitkey Permalink Tweet
May 21, 2013
Farmland Prices and Interest Rates
Farmland prices continue to increase during the first part of 2013. However, farmland prices appear to be in line with current agricultural returns and current levels of interest rates. Currently, interest rates are low, leading to support for high and increasing farmland prices. A rising interest rate environment could lead to downward pressure being placed on farmland prices. In this post, historical interest rates are examined to place the current interest rate environment into context.Posted by Gary Schnitkey Permalink Tweet
May 17, 2013
Changes in Farm Debt
The economic and financial environment that has been in place in the recent past has led to strong farm earnings. While some expense categories have been high, the combination of yields and prices has been such that earnings have exceeded expectations. While earnings have been good, there has been a record level of investment back into the farm; some of that has been with cash and some has been with borrowed funds. Today's post will look at the changes in leverage that have taken place from 1996 to 2012 as measured by the Interest Expense Ratio.Posted by Bradley L. Zwilling and Dwight D. Raab Permalink Tweet
May 14, 2013
Balance Sheets on Grain Farms from 2005 to 2011
Listen to MP3 podcastThe period of high grain farm incomes since 2006 has led to an overall strengthening of balance sheets on grain farms. Some concerns exist that much of this strengthening could erode quickly during a period of lower returns and declining farmland prices. While these concerns are legitimate, farmers have generally prepared themselves well to withstand lower returns. How much financial stress farms face likely will depend on the ability to curtail capital expenditures and family living withdrawals once a lower returns environment occurs.
Posted by Ben Hugenberg and Gary Schnitkey Permalink Tweet
May 10, 2013
Comparing Current and 1970 Farm Prosperity: Cash Farm Expenses
This post is the 4th in a series that contrasts and compares the farm prosperity of the 1970s with the current period of farm prosperity. This post examines U.S. farm expenses during the two periods.Posted by Carl Zulauf Permalink Tweet
May 3, 2013
A Historical Perspective on Illinois Farmland Sales
Farmland prices have soared in recent years, leading to increased interest in farmland markets and in factors affecting farmland prices. Sales records from the Illinois Department of Revenue (IDOR) allow for detailed comparisons of parcel-level information through time and for the construction of summary price trends and other descriptive statistics.Posted by Erik D. Hanson and Bruce J. Sherrick Permalink Tweet
May 1, 2013
Late Planting and Tools in FAST
Listen to MP3 podcastLittle planting so far this spring and the continued prospects of rain bring on the potential for farmers to shift from corn to soybeans. The Planting Decision Model, a part of FAST Microsoft Excel spreadsheet series, includes a "Returns by Planting Date" module which calculates projected returns from corn and soybeans by planting date in northern, central, and southern Illinois. There also is an online version of this tool. According to projections in this tool, corn will be the more profitable to plant in all areas until late May. In central Illinois, corn is projected more profitable than soybeans into June.
Posted by Ryan Batts and Gary Schnitkey Permalink Tweet
April 30, 2013
Farm Bill Negotiations: Selection between Three Programs
After last year's failed attempt, Congress will again try to pass a Farm Bill this year. Mark up in both the Senate and House Agricultural Committees likely will occur in the near future. Given bills passed last year in the full Senate and by the House Agricultural Committee, along with proposals put forward this year by farm groups, it is possible to gain a feel for the types of programs likely to be included in the Farm Bill. This year, negotiations likely will be around three programs: a revenue program, a target price program, and a supplemental insurance program. A passed Farm Bill likely will include two, if not all three, of these programs, giving farmers choices among the programs. The exact nature of each program will be determined by negotiations.Posted by Gary Schntikey and Carl Zulauf Permalink Tweet
April 25, 2013
How Much of the 2013 Corn Crop Will Be Planted Late?
The spring rains that have improved soil moisture conditions in many areas have been welcomed as favoring a return to more normal corn yields in 2013 following the drought of a year ago. At the same time, persistent and heavy precipitation (including snow in northern areas) that has delayed the start to corn planting raise concerns that late planting will have a negative impact on yield potential. Planting date, of course, is not the only factor and probably not the most important factor impacting corn yields. There are ample historical examples of late planted crops that yielded near or above trend value, early planted crops that yielded below trend value, and timely planted crops that yielded both above and below trend value. Still, timeliness of planting is an important consideration for yield potential at this stage of the season. Here, we address the likelihood that a larger than average percentage of the corn crop will be planted late this year.Posted by Darrel Good and Scott Irwin Permalink Tweet
April 23, 2013
The 2013 ACRE Decision
Listen to MP3 podcastFarmers and landowners have until June 3rd to enroll their Farm Service Agency (FSA) farms into the Average Crop Revenue Election (ACRE) program, an alternative within the 2008 Farm Bill to the Direct and Counter-Cyclical program (DCP). While ACRE likely will pay less than DCP, enrollment in ACRE may still be advisable as ACRE will make large payments if revenue is low. Hence, ACRE provides significant risk protection.
Posted by Gary Schnitkey Permalink Tweet
April 19, 2013
More Corn...More Profit???
Posted by Bradley L. Zwilling and Dwight D. Raab Permalink Tweet
April 18, 2013
Comparing Current and 1970 Farm Prosperity: Farm Debt
This post is the third in a series that contrasts and compares the farm prosperity of the 1970s with the current period of farm prosperity. This post examines U.S. farm debt during the two periods.Posted by Carl Zulauf and Nick Rettig Permalink Tweet
April 16, 2013
Release of 2013 ACRE Payment Estimator
The 2013 ACRE Payment Estimator is a FAST Excel spreadsheet that provides an evaluation of payments from the Average Crop Revenue Election (ACRE) program for the 2013 marketing year. This program provides state and crop specific estimates of price and yields under which ACRE will make payments. It also estimates the percent of time ACRE will pay and estimates the expected payments from ACRE.Posted by Gary Schnitkey Permalink Tweet
April 11, 2013
Have Not Filed Your Return Yet?
While April 15 is rapidly approaching, if you have not filed your federal or state income tax return, you should not panic. You can file for an automatic 6-month extension of time to file. This will make your return due on October 15. Individuals file for an extension for a number of reasons.Posted by Gary Hoff Permalink Tweet
April 9, 2013
2013 Cash Rents on Professionally Managed Farmland in Illinois
Listen to MP3 podcastThe Illinois Society of Professional Farm Managers and Rural Appraisers conducts an annual study of farmland prices and cash rents. As part of this process, the Society asks its membership what cash rents will be for the upcoming production year. Society members indicate that the 2013 cash rents for farmland with expected corn yields over 190 bushels per acre will be $396 per acre, up $17 from the 2012 rent of $379 per acre.
Posted by Gary Schnitkey Permalink Tweet
April 4, 2013
Recent Price Changes Alter Relative Corn and Soybean Returns
Listen to MP3 podcastUSDA's March 2013 estimates of corn stocks were substantially higher than trade estimates, initiating a substantial decline in both corn and soybean prices during the past week. In this article, the relative profit impacts for 2013 crops of these price changes are examined. During the first quarter of 2013, price changes have increased expected soybean returns relative to expected corn returns.
Posted by Gary Schnitkey Permalink Tweet
April 2, 2013
Shifts in Planting Acres across States Largely Follow Previous Trends
USDA's 2013 Planting Intentions report provides detail on prospective plantings by state. These state figures will change as plantings progress through the growing season. Moreover, these state values have a margin of error around them. Hence, one should not read too much into state changes at this point. Given these caveats, state acre changes are interpreted below, as many of the state changes continue trends observed in recent history.Posted by Gary Schintkey Permalink Tweet
March 28, 2013
Geographical Acreage Changes between 2006 and 2012 in Corn, Soybeans, Wheat, and Cotton
USDA's release of the 2013 Planting Intentions report again focuses attention on acreage shifts between crops. Herein, historical acre changes across counties are documented for corn, soybeans, wheat, and cotton; four crops with large acreages. Examining these changes documents geographical changes having occurred in the past, perhaps providing indications of any acreage changes that may occur in the near future.Posted by Gary Schnitkey Permalink Tweet
March 26, 2013
Release of an Updated FAST Tool: Balance Sheet Program
The Balance Sheet program has been updated to include two new features: 1) saving multiple users and years to a database and 2) preforming trend analysis. The tool allows users to calculate beginning and ending balance sheets, income statement, statement of cash flows, and a report of the user's financial ratios, as well as deferred tax calculation. Users can generate financial statements for a one-year (simple balance sheet) or two-year period (beginning and ending year). The balance sheet program is a Microsoft Excel spreadsheet, part of our FAST series of tools.Posted by Ryan Batts 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
March 15, 2013
Control What You Can
Even though the 2013 crop isn't planted many of the inputs were secured some time ago. Nitrogen for the 2013 crop was likely priced (and paid for) as early as March/April of 2012 before the 2012 crop was planted. Seed, fertilizer and pesticides are typically booked and paid for prior to the end of the preceding year. Securing inputs at the lowest cost is the driving force behind many of these decisions although end of year tax planning can drive inputs to be purchased prior to the end of the year.Posted by Brad Zwilling and Dwight Raab Permalink Tweet
March 14, 2013
TIAA-CREF and the University of Illinois Launch TIAA-CREF Center for Farmland Research
TIAA-CREF, a leading financial services provider, today launched the TIAA-CREF Center for Farmland Research at the University of Illinois. The new center will enhance the university's research and educational initiatives for its students and the agricultural community, including investors, farmers, researchers and businesses.Posted by Bruce Sherrick Permalink Tweet
March 13, 2013
Prices Paid for Farm Inputs vs. Prices Received for Crops: Implications for Managing Risk and Farm Policy
The prices that U.S. farms receive for crops have increased far less than have the prices U.S. farms pay for inputs. This difference is often presented as an indication of the economic pressure U.S. farms confront and thus used to justify the need for a farm safety net in general and price supports in particular. This article examines in greater detail the differential trends in crop output and farm input prices, drawing implications for managing risk and farm policy.Posted by Carl Zulauf and Nick Rettig Permalink Tweet
March 12, 2013
Early Planting and Final Planting Dates for Crop Insurance
COMBO crop insurance products - which include Yield Protection (YP), Revenue Protection with harvest price exclusion (RPwExcl), and Revenue Protection (RP) plans - have earliest planting dates and final planting dates. This year, the Risk Management Agency (RMA) revised earliest planting dates. This post details earliest and final planting dates for corn and soybeans in Illinois. It also provides a description of the impacts of these dates on insurance coverage.Posted by Gary Schnitkey Permalink Tweet
March 7, 2013
Relationship between Crop Returns and Acreage Decisions
Relative corn and soybean prices over the past few crop years have encouraged expansion of corn acreage and the use of more corn intensive rotations throughout much of the Midwest. In general, and in central and northern Illinois in particular, increased corn acreage has come at the expense of fewer acres being planted to soybeans and, to a lesser extent, wheat.Posted by Nick Paulson Permalink Tweet
March 5, 2013
Crop Insurance Product Recommendations
This blog post discusses a "basic" product which will be appropriate for most farm situations. This "basic" product uses Revenue Protection (RP) insurance. Also discussed are situations in which Group Risk Income Plan with the Harvest Revenue Option (GRIP-HR) and RP with the Harvest Price Exclusion (RP-HPE) are appropriate choices. The post summarizes an online webinar that is available for viewing when deciding between crop insurance products.Posted by Gary Schnitkey Permalink Tweet
February 26, 2013
2013 Illinois County Yields and GRIP Payments
Listen to MP3 podcastThe National Agricultural Statistical Service (NASS) recently released county yields for corn and soybeans for 2012. These yields confirm that the drought significantly lowered 2012 production, with extremely low yields being prevalent in southern Illinois. Corn yields were more impacted than soybean yields. With county yield estimates, Group Risk Income Plan with the harvest price option (GRIP-HR) can be estimated. Most counties will have GRIP-HR payments for corn, with many counties having large payments. Fewer counties had GRIP-HR payments for soybeans.
Posted by Gary Schnitkey Permalink Tweet
February 22, 2013
2013 Farm Program Choice: An Initial Perspective
Congress extended the 2008 Farm Bill to the 2013 crop. Thus, farms will have the decision to enroll in either the Direct and Counter-Cyclical Program (DCP) or Average Crop Revenue Election (ACRE) program. Enrollment status in the 2012 farm program does not matter. Any Farm Service Agency farm serial number, hereafter simply referred to as a farm, can enroll or not enroll in the 2013 ACRE program. This post discusses this decision. It is not an easy decision. It involves consideration of all 3 farm safety net programs: the traditional DCP program, the ACRE election option, and crop insurance. As in prior years, ACRE appears to offer more risk management assistance than DCP, especially for crops associated with the midwest and plains. However, unlike prior years, ACRE also appears, in general, to offer higher price risk assistance relative to individual crop insurance. Thus, as of late February 2013, the context in which the 2013 ACRE decision will be made is likely to differ from that of prior years.Posted by Carl Zulauf and 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
February 19, 2013
Projected Prices and Soybean-to-Corn Price Ratios in 2013
Based on settlement prices during the first half of February, the projected price for corn will be $5.73 per bushel for corn and $13.01 for soybeans, giving a soybean-to-corn price ratio of 2.27 (2.27 = $13.01 / $5.73). The 2013 corn projected price will be near the 2012 projected price and the 2013 soybean projected price will be above the 2012 level. The 2.27 soybean-to-corn price ratio is slightly above the average of price ratios in recent years.Posted by Gary Schnitkey Permalink Tweet
February 15, 2013
Know Your Term Debt and Capital Lease Coverage Ratio
From your accounting records, you've likely prepared (or had prepared) your financial documents for 2012. Those financial statements tell the story of your successes and challenges for 2012. As one of a series of measures that help tell that financial story of your farm operation, lets' consider the Term Debt and Capital Lease Coverage Ratio in today's post.Posted by Brad Zwilling and Dwight Raab Permalink Tweet
February 12, 2013
GRIP-HR: A Good Product for 2013
Listen to MP3 podcastGroup Risk Income Plan with the Harvest Revenue Option (GRIP-HR) has features that make it an attractive crop insurance product this year. GRIP-HR will make large payments in a drought year, a concern of many farmers as dryness extends across much of the western corn-belt and Great Plains. GRIP-HR also will make large payments if prices decline, a distinct possibility given large projected plantings of corn. Large planting, combined with normal yields, would lead to large supplies and potentially large price declines. Under the price decline scenario, GRIP-HR will make larger payments than Revenue Protection (RP), the most popular crop insurance product. Herein, payments of GRIP-HR and RP are compared under different yield and price scenarios.
Posted by Gary Schnitkey Permalink Tweet
February 5, 2013
Low Crop Revenue Most Likely Due to Lower Prices
Much of the Great Plains and western corn-belt still is in drought, leading to concerns about a drought in 2013. While a drought in 2013 is a possibility, a more likely scenario resulting in low crop revenue is declining prices combined with near normal yields. Herein, historical yield and price changes are used to illustrate potential revenue scenarios under drought yields, near normal yields, and above average yields. Then, situations in which low revenues occur from historical yield and price changes are identified.Posted by Gary Schnitkey Permalink Tweet
February 1, 2013
2013 Crop Insurance Projected Prices, Volatilities, and Harvest Price Impacts
The Risk Management Agency (RMA) "resets" various features of the crop insurance programs annually to reflect the market's estimate of the value of crops intended for production in the current year. Among the most important factors are (1) projected prices, (2) volatility factors, and (3) harvest prices. Projected prices directly determine the insurable value of production, and thus impact premiums as well. The volatility factor is a measure of the price risk the market associates with potential price changes in the production year, and thus directly impacts the calculated costs of insurance. Finally, the harvest price has the potential to increase the amount of insurance coverage in effect if prices increase between the end of the projected price discovery period and the harvest price determination period. The purpose of this article is to describe the processes used to establish each of these features and to discuss important implications for crop insurance in 2013.Posted by Bruce Sherrick and Gary Schnitkey Permalink Tweet
January 29, 2013
The 75 to 85% Coverage Level Choice for RP Crop Insurance
The most popular crop insurance choice is Revenue Protection (RP), with coverage levels of 75%, 80%, and 85% being the most used. Often the choice of coverage level with RP is difficult. Comparisons of premiums and guarantees across coverage levels with production costs provide useful information in making coverage level choices. Those comparisons are made in this article for a Sangamon County farm example.Posted by Gary Schnitkey Permalink Tweet
January 25, 2013
Landlord Characteristics in the USA and in Illinois
The USDA collects a large amount of information directly from farmers and ranchers across the United States. Farmers and ranchers own the majority of the land dedicated to the production of agricultural products, yet a significant portion of our nation's farmland is rented or leased from non-operating landlords. In 2010, the USDA collected detailed information on land tenure, ownership patterns, and rental agreements through supplemental questions in the Agricultural Resource Management Survey. The goal was to provide more detailed information on land rental agreements and address important questions about landlord characteristics.Posted by Todd Kuethe and Jennifer Ifft Permalink Tweet
January 24, 2013
Rental Agreements in the USA and in Illinois
The USDA collects a large amount of information directly from farmers and ranchers across the United States. Farmers and ranchers own the majority of the land dedicated to the production of agricultural products, yet a significant portion of our nation's farmland is rented or leased from non-operating landlords. In 2010, the USDA collected detailed information on land tenure, ownership patterns, and rental agreements through supplemental questions in the Agricultural Resource Management Survey. The goal was to provide more detailed information on land rental agreements and address important questions about landlord characteristics.Posted by Todd Kuethe and Jennifer Ifft Permalink Tweet
January 23, 2013
More Corn in 2013?
Listen to MP3 podcastIn the next several months, planting decisions will be finalized, with one of the central question being how much corn will be planted. Herein, the corn versus soybean planting decision for 2013 is examined for high-productivity farmland. If more corn acres are to be planted in 2013, more corn likely needs to be planted on high-productivity farmland. In most cases, switching to more corn on high productivity farmland means a reduction in 2013 soybean acres. While planting corn is projected more profitable in 2013, a longer run perspective indicates that planting more corn in 2013 may reduce profits in future years.
Posted by Gary Schnitkey Permalink Tweet
January 18, 2013
Management Review of 2012...While Looking Forward to 2013
Steven Covey is the author of the 'Seven Habits of Highly Effective People'. One of those seven habits is to 'begin with the end in mind'. So lets' begin 2013 by thinking about the end of 2013 and how your 2013 accrual income statement and balance sheet might turn out ...and lets' do that with a review of 2012. An introspective look the management of your operation for 2012 could provide good insight for bettering your management skills and abilities looking forward into 2013. The Good Lord gives us all different gifts in terms of the skills we have. The trick is to know ourselves well enough that we have the ability to seek outside assistance or education for the areas where our skills lack.Posted by Bradley L. Zwilling and Dwight D. Raab Permalink Tweet
January 17, 2013
Farmland Tenure in the USA and in Illinois
The USDA collects a large amount of information directly from farmers and ranchers across the United States. Farmers and ranchers own the majority of the land dedicated to the production of agricultural products, yet a significant portion of our nation's farmland is rented or leased from non-operating landlords. In 2010, the USDA collected detailed information on land tenure, ownership patterns, and rental agreements through supplemental questions in the Agricultural Resource Management Survey. The goal was to provide more detailed information on land rental agreements and address important questions about landlord characteristics.Posted by Todd Kuethe and Jennifer Ifft Permalink Tweet
January 15, 2013
Crop Insurance Use in 2012 and 2013 Projections
In 2012, most corn and soybean acres were insured with Revenue Protection (RP) crop insurance products using 75% and higher coverage levels. It is likely that 2013 crop insurance use will be similar to 2012 use.Posted by Gary Schnitkey Permalink Tweet
January 8, 2013
Crop Insurance Premiums and the 2013 Crop Insurance Decision Tool
The 2013 version of the Crop Insurance Decision Tool is now available for download from the FAST section of farmdoc. If projected prices and volatilities are the same as last year, most corn and soybean premiums in Illinois will be lower in 2013 as compared to 2012.Posted by Gary Schnitkey Permalink Tweet
January 4, 2013
IFES 2012: Overview and Impacts of Proposed Changes in the 2012 Farm Bill
Listen to MP3 podcastThe main issue shaping the political debate around the 2012 Farm Bill is the desire to cut spending for deficit reduction. While farm programs do not represent the biggest piece of the Farm Bill pie, they are the main targets for program modifications and reductions in overall support as they become more difficult to justify with farm incomes reaching record levels.
Posted by Nick Paulson Permalink Tweet
January 3, 2013
IFES 2012: Crop Insurance - 2012 Performance and Updates for 2013
Listen to MP3 podcastThough final numbers will not be known until early 2013, crop insurance policies resulted in very large indemnity payments over a large region of the Corn Belt for both corn and soybeans for the 2012 crop. Policies that included the harvest price option benefitted significantly from the increased harvest prices (corn = $7.50 and soybeans = $15.39) relative to March projected prices (corn of $5.68 and soybeans of $12.55), and the resulting increased guarantees. Producers without claims benefitted from the higher market prices that accompanied the lower production due to drought. The Risk Management Agency has announced several important changes to available crop insurance programs for the 2013 crop year as well and these will be identified and discussed including substantial changes to group policies, extensions and expansions of the Trend Adjusted APH endorsement, impacts of rerating, and the likely impact of the payouts from this year's policies.
Posted by Bruce Sherrick Permalink Tweet
December 26, 2012
IFES 2012: 2013 Projected Crop Farm Incomes: A Drought Reprieve
Listen to MP3 podcastNet farm incomes in 2012 on many grain farms will be above expectations, even given relatively low corn and soybean yields caused by the drought. This will occur because of two factors countering yield losses: 1) higher corn andsoybean prices and 2) crop insurance payments. Corn and soybean prices increased beginning in the summer and fall of 2012. Cash prices for corn were in the mid-$6.00 range per bushel in the spring, reaching the high-$7.00 per bushel range in the fall. Soybeans were in the $14 range in April and reached the $15 range in the fall of 2012. Price increases partially countered yield declines on farms that did not have a great deal of per-harvest hedging in the spring.
Posted by Gary Schnitkey Permalink Tweet
December 21, 2012
Your Farm's Financial Health (Debt-to-Asset Ratio)
The end of another year approaches - time to close out your accounting records for the year and review financial statements to assess the financial health of your business.This post will focus on the debt-to-asset ratio and how it tells about the risk exposure of your business.Posted by Bradley L. Zwilling and Dwight D. Raab Permalink Tweet
December 18, 2012
Per Acre Non-land Costs of Grain Farms of Different Sizes
Listen to MP3 podcastConsiderable interest exists in examining per acre costs for grain farms of different sizes. Herein data from grain farms enrolled in Illinois Farm Business Farm Management (FBFM) are examined to determine per acre costs of farms of different size, breaking down those costs into non-land and land components. Only financial costs are included in this study, opportunity costs for unpaid labor, management, and equity are not included. Average non-land costs do not vary across farms of different size. Land costs tend to increase with farm size.
Posted by Gary Schnitkey Permalink Tweet
December 14, 2012
RIN Stock Update: Implications of the 2012 Drought
Today's post provides an update on U.S. ethanol production and imports through August, and projections for 2012 ending Renewable Identification Number (RIN) stocks. Prior analyses of the available stock of RINs accumulated over the past three years through the RFS2's banking provision are available on farmdoc daily. These previous estimates indicated an ending stock level for 2011 of approximately 2.64 billion gallon RINs which could be used for mandate compliance in 2012 as an alternative to physical blending, providing up to 960 million bushels of flexibility in revealed demand for corn-for-ethanol if ethanol blending margins declined. Ethanol production and exports through the first quarter of 2012, and the expectation for a slowing in ethanol production due to the drought's impact on corn prices, suggested the likely use of a portion of available RIN stocks for mandate compliance in 2012 and a lower carry in to 2013.Posted by Nick Paulson Permalink Tweet
December 12, 2012
Range in 2013 Market Year Average Prices for Soybeans Suggested by History
Current Chicago Mercantile Exchange (CME) futures prices suggest that market year average (MYA) soybean prices for 2013 will be near $13.00 per bushel. Obviously, prices could vary from $13.00. In this post, historical price changes are used to evaluate possible 2013 MYA prices. Historical price changes suggest there is an 11% chance of the MYA price being below $10.00 and a 19% chance of MYA price being below $11.00 per bushel.Posted by Gary Schnitkey Permalink Tweet
December 11, 2012
Will ACRE Pay in 2012?
ACRE, or the Average Crop Revenue Election, is a revenue based program contained in 2008 Farm Bill. In Illinois, 2012 ACRE payments for corn are possible if the Market Year Average (MYA) price for corn averages below $7.00 per bushel. In Illinois, ACRE payments are unlikely for soybeans or wheat.Posted by Gary Schnitkey Permalink Tweet
December 4, 2012
Range in 2013 Market Year Average Prices for Corn Suggested by History
Current Chicago Mercantile Exchange (CME) futures prices suggest that market year average (MYA) corn prices for 2013 will be near $6.00 per bushel. Obviously, prices could vary from $6.00. In this post, historical price changes are used to evaluate possible 2013 MYA prices. Historical price changes suggest there is an 8% chance of the MYA price being below $4.50 and a 19% chance of MYA price being below $5.00 per bushel.Posted by Gary Schnitkey Permalink Tweet
November 29, 2012
Farmland Turnover in Illinois
There have been several very notable land sales in Illinois and surrounding states setting new high per acre sales prices in many areas, and leading to increased interest by others in evaluating both potential sales and purchasing opportunities. This year, there again seems to be a flurry of end-of-year farmland auctions and new listings of farm properties. Recently, at two separate meetings I have heard reports by professional appraisers that new requests are "flooding in" for farmland appraisals supporting end of year decisions about trust creation or sale. Casual explanations of the turnover activity include elevated concern about tax and estate law changes, efforts to take advantage of market momentum, strong balance sheets and derived demand from recent high income years, and continuing strong investor demand. Others have suggested that the level of activity in the farmland market is not that unusual and that there are often peaks in the 4th and 1st quarters each year -- and that this year is thus not abnormal at all. And on the other side of the argument, farmers and investors seeking additional land to continue to cite thin market conditions; neighbor bidding wars are noted as explanations of high sales prices; numerous reports occur of auctions that fail to meet reserve requirements; and there remains low interest by absentee owners in selling in the majority of cases.Posted by Bruce J. Sherrick Permalink Tweet
November 28, 2012
Risks Faced by Farms with High Cash Rents
Posted by Gary Schnitkey Permalink Tweet
November 27, 2012
Expiring Tax Provisions
Starting with tomorrow's date (11/28/2012), you have 34 days to put your 2012 tax planning strategies in place. In those same 34 days, it is possible that Congress could enact and the President could sign new legislation that might make you reconsider the tax plans you've put in place using the current tax provisions. This year more than ever be very aware of the changes that could take place prior to the end of the year that might make you re-think your tax plan. If we are fortunate, any legislated changes will occur prior to 1/1/2013 and not after.Posted by Mitchell A. Fruhling and Dwight D. Raab Permalink Tweet
November 20, 2012
2013 Net Farm Income Projections
Current futures prices suggest harvest-time 2013 prices of $5.80 per bushel for corn and $12.40 per bushel for soybeans. Given these prices, 2013 farm incomes likely would be above average. Worst case incomes depend on levels of projected prices used to set crop insurance guarantees. Likely projected prices will provide significant downside revenue protection. To quantify income projections, farm incomes for a 1,200 Illinois grain farm are simulated and presented.Posted by Gary Schnitkey Permalink Tweet
November 16, 2012
Management Review of 2012 - Consider the Role of Advisers to Your Farm Business
The work of harvest may be complete, but the work of managing never ends. Many of you have, or will soon, begin your tax planning strategies now that we know the number of bushels produced and the size of your crop insurance claim (or estimated amount).Posted by Bradley L. Zwilling and Dwight D. Raab 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 6, 2012
2013 Crop Revenue Risk: Waiting for Projected Prices
For farmers taking revenue crop insurance, the lowest possible revenues for 2013 largely will be determined when projected prices for crop insurance are set of the end of February 2013. Currently, Chicago Mercantile Exchange (CME) futures contract used to set projected prices are near $6.35 for corn and $13.40 for soybeans. Herein, projected prices of these levels are placed in historical context. Then, historical changes in futures prices from December to February are examined to quantify downside risk to futures prices between now and February.Posted by Gary Schnitkey Permalink Tweet
November 1, 2012
2012 Harvest Prices for Corn and Soybeans: Implications for Crop Insurance Payments
The 2012 crop insurance harvest prices will be $7.50 per bushel for corn and $15.39 per bushel for soybeans (As of this writing, the Risk Management Agency has not officially released these prices). These harvest prices are considerably above projected prices, with increases begin large by historical standards. As illustrated below, Revenue Protection (RP) and Group Risk Income Plan with the Harvest Price option (GRIP-HR) insurance policies will make large payments under low yield scenarios.Posted by Gary Schnitkey Permalink Tweet
October 30, 2012
Current Fertilizer Prices, Natural Gas, and Longer-Run Supply
According to the Agricultural Marketing Service (AMS), the average anhydrous ammonia price in Illinois currently is $853 per ton, an increase over the $815 per ton price at the beginning of August. Diamonnium Phosphate (DAP) price is $628 per ton and potash price is $599 per ton. Both DAP and potash prices have been stable since August.Posted by Gary Schnitkey 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 23, 2012
Landowner and Farmer Returns under Share Rental Arrangements with Differing Prices
Posted by Gary Schnitkey Permalink Tweet
October 19, 2012
The Increasing Waistline of the Deferred Tax Monster
Agricultural producers are allowed to use the cash method of accounting for calculating income for federal and state tax purposes. This causes inevitable and numerous differences between taxable farm income and accrual farm income. For the most part, farm financial statements are not prepared in a way that recognizes the impact these differences have on tax liability, earnings, and net worth. Recognizing the amount of the estimated deferred tax liability and its' possible impact on your operation are part of the analysis of every year's business.Posted by Bradley L. Zwilling and Dwight D. Raab Permalink Tweet
October 18, 2012
Cash Rents and Crop Revenues in Illinois
Tis' the season for negotiating land rental agreements for the 2013 crop year. Recent posts have discussed trends in rental agreements and relative performance of share/flex and fixed cash rent agreements over the past few crop years. Today's post looks at the historical relationship between average cash rent levels in Illinois and average crop revenues. These historical relationships provide some basis for expectations for cash rental rates in the coming crop years.Posted by Nick Paulson Permalink Tweet
October 16, 2012
Cash Rents Given Differing Price Levels
Corn and soybean prices have been high in recent years, leading to high farmland returns and increasing cash rents. In the following article, the ability to pay cash rent is examined under differing corn and soybean price scenarios that are likely to occur over the next several years. These price scenarios include 1) 2013 price estimates, 2) long-run price estimates, and 3) low price estimates. The 2013 price projections yield returns that can sustain high cash rents. Lower prices likely will lead to downward pressure on cash rents.Posted by Gary Schnitkey Permalink Tweet
October 12, 2012
Relative Importance of Price vs. Yield variability in Crop Revenue Risk
Managing crop revenue risk is of critical importance for financial success by agricultural producers and a central theme of many government commodity and insurance programs. Debate surrounding the farm bill for example, includes various programs intended to limit revenue variability that arises from low crop prices, production declines as might happen under a drought, and so forth. Crop insurance is critical for most commercial scale producers to protect against the consequences of poor relative crop performance or price declines, but is remains debated whether price risk or yield risk is more likely to influence insurance payments. In general, farm-level crop revenue risk results from price variability, yield variability, relationships between prices and yields, and relationships among the crops produced. It is important to first understand the underlying causes of crop revenue risk to better assess the effectiveness of various strategies and programs that might be used to mitigate crop revenue risk. Improving the understanding of the relative influences of price and yield risk is the intent of this farmdoc daily post.Posted by Bruce Sherrick 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 4, 2012
Rental Rates for Share, Flex, and Cash Rent Agreements in Illinois
The rapid rise in commodity prices and farm income levels over the past few years has resulted in significant increases in cash rent levels for farm land. Last fall, I wrote a post which showed the trend away from share leases to fixed cash rental agreements in Illinois over the past 15 years. In one of this week's posts, Gary Schnitkey discussed some other trends in cash rental agreements, including the continued increase in cash rental rates and the shift towards shorter-term or one-year leases. There are a number of reasons why fixed cash rent agreements might be preferred by both tenants and landlords. For example, they are relatively simple, provide the landlord with a fixed return, and provide more autonomy to the tenant in making management decisions. However, fixed cash rents at high levels imply more risk exposure for the tenant if crop returns fall below expectations due to price declines or yield shortfalls, or production costs are above expected levels. This is especially true for farm operators who are highly leveraged and/or rent a considerable portion of their total acres. Tenants in these situations may find it desirable to use a share or flex arrangement, but have difficulty in convincing landlords to consider an agreement which provides variable payments.Posted by Nick Paulson Permalink Tweet
October 2, 2012
Trends in Cash Rent Leasing Terms
As noted in a previous farmdoc Daily article, cash rent levels have been rising in recent years, with large increases occurring between 2011 and 2012, and more modest increases projected between 2012 and 2013. Besides rent levels, there have been trends in other cash leasing terms. These include 1) a movement toward yearly leases, 2) attempts to verify fertilizer applications, and 3) requirements for yield documentation. Each of these lease terms is discussed below.Posted by Gary Schnitkey Permalink Tweet
September 27, 2012
Interaction between Crop Insurance and Price Support Programs
A key issue framing the 2012 Farm Bill debate is the interaction among farm safety net programs. Attention has focused mostly on the interaction between crop insurance and the shallow loss programs, such as ACRE in the 2008 Farm Bill, ARC in the 2012 Senate Farm Bill, and RLC in the 2012 House Agriculture Committee Farm Bill. In contrast, this article examines the interaction between insurance and the counter-cyclical and marketing loan price support programsPosted by Carl Zulauf Permalink Tweet
September 25, 2012
Wheat Crop Insurance in 2013
Changes in wheat insurance in 2013 are as follows: 1) the Trend Adjustment (TA) yield endorsement will be available for wheat in some counties in 2013, 2) projected prices are higher in 2013 compared to 2012, 3) volatilities are lower in 2013 compared to 2012, and 4) wheat premiums differ in 2013 as compared to 2012. After discussing these changes, suggestions for 2013 are given.Posted by Gary Schnitkey Permalink Tweet
September 21, 2012
Farm Liquidity - Working Capital to Value of Farm Production
Last month we looked at Working Capital which 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 liquidity measures indicate that current assets and current liabilities are important. 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. It is frequent that lenders use a measure of liquidity when evaluating the balance sheet of a potential borrower.Posted by Brad Zwilling and Dwight Raab 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 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 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 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
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 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 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 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 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 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
Illinois Farm Real Estate Continues Double Digit Increase
Each year the National Agricultural Statistics Service of the USDA releases estimated average farm real estate values by state. The estimates are based on surveys of farmers from selected geographical areas. The surveys follow strict statistical guidelines. Estimated values maybe revised the following year based on additional information. Revisions may also be made based on data from the 5-year Census of Agriculture. The methodology and timing of the study has changed over time but the statistical information provides some insight as to the changes in farm real estate values from year to year.Posted by Bradley L. Zwilling 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 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 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 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
Cash Is King
In good times cash is king and in not so good times it is even better. There are three primary liquidity ratios that are important from a business perspective. And we in agriculture are no different. A cash cushion gives one a good position to launch a new initiative and it can be of benefit to fall back on when one?s business may not be able to generate the cash desired.Posted by Brad Zwilling, Jim Locher and Dwight Raab 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 12, 2012
Price Loss Coverage in the House Discussion Bill and Acreage Decisions
Listen to MP3 podcastThe House Agriculture Committee released a discussion draft of the 2012 Farm Bill, which is further described here. This draft includes a target price program called Price Loss Coverage (PLC), a different approach from revenue options in the Senate Farm Bill. If the House Discussion Bill becomes law, farmers will be able to choose between PLC and Revenue Loss Coverage, essentially a county revenue program similar to the ARC program in the Senate Farm Bill. Herein PLC is described. Parameters of the House Bill cause estimated payments from PLC to be higher for wheat, rice, and peanuts than for corn and soybeans, potentially impacting acreage decisions.
Posted by Gary Schnitkey and Carl Zulauf Permalink Tweet
July 3, 2012
Crop Insurance in 2012
Crop insurance could make large payments in 2012 as low yields become increasingly likely as a result of hot, dry growing conditions. Roughly 60% of the corn acres and 50% of soybean acres in Illinois is insured at high coverage levels with revenue products containing guarantee increase provisions. These acres likely with receive large payments if drought conditions continue. After describing crop insurance use in Illinois, potential insurance payments are illustrated.Posted by Gary Schnitkey Permalink Tweet
June 28, 2012
Grain Farm Income Prospects Given Drought Conditions in 2012
Listen to MP3 podcastLow corn and soybean yields are increasingly likely as hot, dry weather is forecast to continue over much of the corn-belt during the critical corn pollination period. Lower yields then lead to questions about grain farm incomes in 2012. Grain farm incomes likely will be above projections made in winter of 2012, assuming that crop prices increase if crop yields are below trend-line levels. However, some farms will suffer losses. Farms that did not purchase crop insurance could face losses. Also, grain farms that have hedged a great deal of expected production could have lower incomes than those farms that have not pre-harvest hedged as much grain.
Posted by Gary Schnitkey Permalink Tweet
June 22, 2012
Machinery Capital Invested on the Farm - Then and Now
The value of machinery on the farm has changed considerably over the recent ten years. Data from a group of grain farm operators who are members of the Illinois FBFM Association details these changes. One would expect that as acreage increases, the value of the complement of machinery needed to till, plant, and harvest those acres to increase as well. While this is obviously a factor, there appears to be other factors involved as well.Posted by Brad Zwilling, Jim Locher and Dwight D. Raab Permalink Tweet
June 21, 2012
Farm Payment Limits: History and Observations
Debate over limits on payments by farm safety net programs has become increasingly passionate. In the current 2012 Farm Bill debate, significant attempts likely will be made (1) to further tighten existing payment limits and (2) to implement limits on crop insurance. Therefore, this post discusses the history and several interrelated topics concerning farm payment limits. Please note, this discussion neither endorses nor opposes payment limits.Posted by Carl Zulauf Permalink Tweet
June 19, 2012
Do Recent Prices Understate Downside Price Risk in Corn?
Yearly changes in Market Year Average (MYA) prices since 1973 have not included any years in which corn prices have decreased by more than 40%. In contrast, a price series beginning in 1886 -- the first year in which the National Agricultural Statistical Service (NASS) reported prices -- contains three percent of the years in which prices have declined by more than 40%. Using a longer-run price series suggests that corn prices have more downside risk.Posted by Gary Schnitkey Permalink Tweet
June 15, 2012
Farmland Values: What do Investors Say?
The Illinois farmdoc team and the Purdue University Center for Commercial Agriculture are hosting the 45th annual Top Farmer Crop Workshop, July 9-11, in West Lafayette, Ind. This year's workshop will cover a number of timely and important issues relevant to commercial farming operations. Farmland markets will be one of the issues examined. Farmland markets in most of the U.S. corn-belt have experienced substantial price appreciation since roughly 2001. At the upcoming Top Farmer workshop we will be presenting some interesting results of a recent Center for Commercial Agriculture survey of 246 farmland investors.Posted by Brent Gloy Permalink Tweet
June 13, 2012
Differences across Crops in Spending Under the 2012 Senate Agriculture Committee Farm Bill
Listen to MP3 podcastThe Farm Bill passed by the Senate Agriculture Committee has commodity program payments tied to risk management through such program as Agricultural Risk Coverage (ARC) and cotton STAX. This emphasis differs from the 2008 Farm Bill where most commodity title payments are direct payments. The emphasis shift from direct payments to risk management changes the mix in spending across crops. Wheat, cotton, rice, and peanuts have larger proportional spending reductions than corn and soybeans. Given a risk management focus, it will be difficult to avoid having some crops taking larger spending reductions.
Posted by Gary Schnitkey Permalink Tweet
June 5, 2012
Performance of the Super Committee Target Price Proposal
Listen to MP3 podcastA target price program that pays when national market year average price falls below a target price may be included as choice for farmers in the next Farm Bill. Farmers would then be able to choose between the target price program and other revenue alternatives. In this post, an analysis is presented of the target price option contained in the Farm Bill proposal made as part of Super Committee deliberations last year. Frequency of payments will vary across crops because the relationship between the proposed target price and long-run price varies across commodities. A target price program would not necessarily make payments in years of low revenue
Posted by Gary Schnitkey Permalink Tweet
May 31, 2012
Olympic Moving Average and Potential Price Protection
Recent discussions over the farm safety net have focused on the need for price protection. This article examines the price protection provided by a 5-year Olympic moving average of price. A specific focus is its performance during the price decline of the late 1990s, the last multiple-year period of low prices experienced by the U.S. crop sector.Posted by Carl Zulauf Permalink Tweet
May 30, 2012
Machinery Cost Estimates for 2012 and 2013
Every two years, the costs of machinery operations are calculated and made available on farmdoc. The 2012 costs now are available under the "Machinery Costs" link in the farmdoc Management section. Overall, costs have increased by about 15 percent between 2010 and 2012. In our estimates, combine costs have declined between 2010 and 2012 because acres covered with the combine are assumed to increase in 2012.Posted by Gary Schnitkey Permalink Tweet
May 22, 2012
Net Returns with ARC under Differing Price Scenarios
Agricultural Risk Coverage (ARC) is a revenue-based, proposed Farm Bill program passed by the Senate Agriculture Committee. In this post, net returns for corn are examined using prices and ARC payments detailed in a May 9, 2012 post. At $4.00 per bushel and below corn prices, ARC will make payments, aiding in cushioning revenue losses. However, ARC payments are not large enough is assure profits, as farmers who cash rent will face losses at prices below $4.00 per bushel.Posted by Gary Schnitkey Permalink Tweet
May 18, 2012
Are Illinois Farmers Getting Older?
There is some thought that the age of the farmer/producer is advancing rapidly and with the barriers to entry into the business of farming, that there are fewer and fewer 'young' farmers. A quick look at a panel of data from the Illinois Farm Business Farm Management Association does support the advancing age level of the farmer. For ease of illustration, farmers were placed into one of three age groups. A 'young' group of those under age 50. A 'middle' group of those age 50 and under age 70. And, a 'mature' age group of those over age 70.Posted by Brad Zwilling, Jim Locher and Dwight Raab Permalink Tweet
May 17, 2012
Annual Payment Limits for the ARC Program and Farm Size in Illinois
The Farm Bill recently passed by the Ag Senate Committee proposes to replace the Direct, Counter-cyclical, and ACRE programs with a crop-specific revenue program called Ag Risk Coverage (ARC). Details about the ARC program have been provided in recent posts. Today I will focus on the proposed $50,000 limit on total payments for ARC and what types of grain farms might be affected by this limitation using some Illinois county examples. These examples show that payment limitations could affect a significant number of grain farms if ARC payments are triggered over the next Farm Bill period. Furthermore, since larger payments are triggered during periods of greater revenue losses, payment limits will tend to be met for smaller operations during periods when support is, arguably, most needed.Posted by Nick Paulson Permalink Tweet
May 15, 2012
Simple versus Olympic Averages in Prices used in Farm Commodity Programs
When historical averages are needed, an Olympic average often is used rather than a simple average in calculating benchmarks in Farm Bill commodity programs. For example, the Agricultural Risk Coverage (ARC) program that was passed by the Senate Agriculture Committee uses Olympic averages of prices and yields in calculating benchmark revenue. In this post, Olympic averages are compared to simple averages for corn and soybean prices. Generally, Olympic and simple averages will track one over time. The relationship of Olympic to simple averages depends on the nature of distributions across time.Posted by Gary Schnitkey Permalink Tweet
May 9, 2012
ARC and Multi-Year Price Declines
Listen to MP3 podcastThe Senate Agriculture Committee recently passed a version of the Farm Bill that now moves for debate in the entire Senate. This Bill replaces direct, counter-cyclical, and SURE payments with Agricultural Risk Coverage (ARC), a revenue-based program that is further described in yesterday's post by Carl Zulauf (see here). In today's post, ARC payments are computed for cases in which prices are low for several years. This emphasis is taken as ARC is specifically designed to provide protection in cases of multi-year revenue losses, cases in in which crop insurance often provides limited protection. ARC payments are computed for corn in Champaign County, Illinois, as further described in the the article.
Posted by Gary Schnitkey Permalink Tweet
May 1, 2012
Impacts of Limits on Crop Insurance Risk Subsidies
Listen to mp3 podcastDiscussion has centered on limiting crop insurance risk subsidies. In a March 2012 report, for example, the General Accounting Office (GAO) used a $40,000 limit on risk subsidies to calculate the number of farms impacted by the limit (see here). In this post, the acres required to reach a $40,000 limit is examined for Illinois farms. Because risk subsidies vary by year, acres required to reach the limit also will vary. Between 2006 and 2012, acres required to reach the limit for average farms in Illinois are between 1,600 and 2,700 acres, not particularly large grain farms. More detail on risk subsidies and acre limits are provided in the following sections.
Posted by Gary Schnitkey Permalink Tweet
April 24, 2012
Payments from a 70% Yield Insurance
In an article entitled Giving it Away Free, the Environmental Working Group proposes that Federal crop insurance programs be replaced with a yield insurance at a 70% coverage level. The 70% yield insurance would have no cost to farmers. In this blog post, size and timing of payments of 70% yield insurances are examined for corn and soybeans in select Illinois counties. Payments from a 70% yield policy would generally be low. As would be expected, areas with higher yield variability would receive higher payments. Payouts from the policy would occur primarily in drought years like 1988, not necessarily corresponding to low revenue years.Posted by Gary Schnitkey Permalink Tweet
April 20, 2012
Covering Your Costs - Part 2
In a previous post, we reviewed the four-year trend for the cost to produce corn. An allocation of the cost to produce soybeans from over 600 farms in each of the previous four years reveals that costs to produce soybeans on higher productivity soils in central lllinois have risen from $485 per acre in 2008 to $591 in 2011 (a 21.8% increase). This includes all costs of production including land. When one considers the estimated cost to produce the 2012 soybean crop, the total cost of production increases by an additional $33 to a total of $624 per acre (a 5.6% increase).Posted by Dwight D. Raab Permalink Tweet
April 19, 2012
Net Payments to Farmers by Crop Insurance: Historical Trends and the 2012 Farm Safety Net Debate
Listen to inteview on MP3 podcastBecause the public subsidizes part of the premium for crop insurance, over time payments by crop insurance to all farms who buy crop insurance exceed the insurance premiums paid by all farms. This paper examines historical trends in crop insurance from the perspective of net insurance payments and also places these payments within the 2012 farm safety net debate.
Posted by Carl Zulauf Permalink Tweet
April 17, 2012
2011 Corn and Soybean Yields in Perspective
Corn and soybean yields in 2011 exhibited variation across Illinois and the Midwest. For corn, some counties in northern Illinois had yields above trend yields, but most of the central and southern Illinois counties had yields below trend. For soybeans, northern Illinois counties had above trend yields while many central and southern counties had yields below trend. Over the Midwest, there also was variation in yields.Posted by Gary Schnitkey Permalink Tweet
April 12, 2012
Graphical Illustrations of Proposed Farm Revenue Programs and Crop Insurance
The Revenue Loss Assistance Program (RLAP) is a proposal put forward by Senators Conrad, Baucas, and Hoeven as a 2012 Farm Bill alternative for making counter-cyclical revenue payments. This alternative differs from others in that crop insurance payments are included in its calculation, often leading to reduced RLAP payments when crop insurance payments occur. Inclusion of RLAP will reduce incentives for farmers to buy higher levels of crop insurance. Impacts on crop insurance purchases are examined in this post for corn given prices in 2012. A more typical price scenario also is examined.Posted by Gary Schnitkey Permalink Tweet
April 10, 2012
Risk Implications of Commodity Programs in the 2012 Farm Bill
The 2012 Farm Bill currently is being debated, with some prospects that it will be passed this year. Much debate centers on the commodity title and how to reconfigure direct payments, the counter-cyclical price and revenue programs (e.g., target price and ACRE programs), and the standing disaster assistance programs (e.g., SURE). Predicting what form these programs will take is difficult. At this point, however, it appears that direct payments will not be included and overall budget outlays authorized in the 2012 Farm Bill will be less than in previous Farm Bills. What likely will result is a counter-cyclical revenue program somewhat similar to the current ACRE program. An ACRE-like program will have risk implications. The risk implications are discussed in this post assuming that providing a safety net is a goal of the 2012 Farm Bill.Posted by Gary Schnitkey Permalink Tweet
April 6, 2012
Understanding the Lifespan and Maturity of a RIN
In the March 15th post, the banking and borrowing provisions for Renewable Identification Numbers (RINs) were described, and an estimate of existing RIN stocks was provided along with a discussion of the potential implications for corn demand if the economics of ethanol blending were to change. Today, I am going to outline the lifespan of a RIN from production, to separation from the physical biofuel, to its eventual assignment for an obligated party's mandate or expiration. Then, we'll take a look at the prices for RINs created in 2010 to relate this maturity information to RIN valuation.Posted by Nick Paulson Permalink Tweet
April 3, 2012
Little Change in Where Corn is Planted in the United States
Listen to MP3 podcastOn March 31st, the U.S. Department of Agriculture reported that 95.9 million acres of corn are projected to be planted in 2012. If these acres are planted, the 95.9 million acres will be 3.9 million acres more than were planted in 2011 and 16.7 million more acres than the average 2001-2005 plantings. Prospective 2012 planted acres are 21 percent higher than the 2001-05 average. While planted acres have increased, where corn is produced in the United States has not changed much. Over the past decade, there have been modest shift in plantings from the eastern to western corn-belt. North Dakota has increased share of acres. Overall though, there is remarkable stability in shares of planted corn acres across states. This suggests that national expected yield should not change much because of where corn is planted and that continued planting of 95.9 million or more acres of corn depends on success with more corn intense rotations.
Posted by Gary Schnitkey Permalink Tweet
March 29, 2012
Cash Holdings Continue to Rise
According to a recent Moody's Investors Services report, U.S. corporate companies are sitting on a record high $1.24 trillion of cash. The Wall Street Journal reports cash and near cash holdings by U.S. nonfinancial firms increased from 9% of GDP in 2003 to 13.9% in 2011. Analysts suggest these increased holdings are partially a reaction to the financial crisis. Some companies are repairing their balance sheets. Although capital investments by corporations are increasing moderately, many companies have been cautious due to the economic outlook and regulatory uncertainty. Due to limited investment opportunities, many companies are simply increasing stock buybacks and dividends to enhance shareholder returns. For example, Apple announced in March they will start paying dividends for the first time since 1995 and also initiate a $10 billion stock buyback next year. The lack of capital investment of this cash does push against stronger economic activity and growth.Posted by Paul Ellinger Permalink Tweet
March 28, 2012
Annual Management Return Performance for Illinois Grain Farms: Yields and Prices
This post is the fourth and final in a series on the characteristics associated with financial performance of Illinois grain farms from 2005 to 2009. The first two posts in this series examined the characteristics of grain farm operations with consistent performance over the 5-year time period ? or farms which were in the top and bottom quartiles for management returns in each of the 5 crop years. The third post shifted focus towards performance on an annual basis ? or what characteristics could be identified for grain farms earning management returns in the top or bottom 25% in any given year from 2005 to 2009. Today's post focuses on crop yield and price levels across operations falling in the top and bottom quartiles for each year, and also provides some summary remarks based on what this series of posts has revealed.Posted by Nick Paulson Permalink Tweet
March 27, 2012
Projected Corn-Soybean Returns Do Not Suggest Shift to Corn in Illinois: An Application of the Planting Decision Model
Listen to MP3 podcastReturns projected using default budgets in the Corn-Soybeans Rotation Tool indicate that corn-soybean rotations have higher projected returns than continuous corn, given that commodity prices are at current harvest-time bids. These projected returns do not suggest shifts in acres from soybeans to corn in Illinois. In this article, the Corn-Soybean Rotation Tool used to make these projections is described. Then, commentary on 2012 planting decisions is given.
Posted by Gary Schnitkey Permalink Tweet
March 21, 2012
farmdoc daily is One Year Old!
Today we celebrate the one year anniversary of farmdoc daily. And what a year it has been! We have published almost 300 articles (291 to be precise) on an amazing array of topics related to ?Corn Belt farm economics.? This has actually exceeded our goal of publishing one original article of research-based analysis and information every business day.Posted by Scott Irwin Permalink Tweet
March 20, 2012
Impacts of Planting before Crop Insurance Earliest Planting Date
Planting may occur earlier than normal this year due to unseasonably warm, dry weather. Some of this planting may occur before the earliest planting date included in the COMBO policy, a crop insurance policy providing farm-level protection. Those acres planted before the earliest planting dates are not eligible for replant payments. Insurance guarantees will exist for crops planted before the earliest planting date given that good farming practices are followed.Posted by Gary Schnitkey Permalink Tweet
March 13, 2012
Will ACRE Pay in 2011 and 2012?
Listen to MP3 podcastAverage Crop Revenue Election (ACRE) - the counter-cyclical revenue program included in the 2008 Farm Bill - is not likely to make payments for corn, soybeans, or wheat in Illinois for the 2011 crop year. For ACRE to make payments on the 2012 crop year, prices would have to decrease precipitously from 2011 levels. If the 2012 actual corn yield is at its benchmark level, the market year average price for 2012 would have to be below $4.20 before ACRE payments would be received on corn in Illinois. In Illinois, 2012 market year average prices would have to be below $10.35 for soybeans and $5.81 for wheat before ACRE would make payments, given that 2012 actual yields are at their benchmark values.
Posted by Gary Schnitkey Permalink Tweet
March 6, 2012
2012 Revenue Guarantees Compared to Costs
Revenue guarantees available from 2012 COMBO plans are compared to costs given that farmland is cash rented. For corn, Revenue Protection (RP) or RP with the harvest price exclusion (RPwExcl) policies at 80% or higher coverage levels will have guarantees that exceed costs given that cash rents are close to average. At higher cash rent levels, guarantees will not be above costs for corn. For soybeans, revenue guarantees will not exceed costs even at ?average? cash rent levels.Posted by Gary Schnitkey Permalink Tweet
March 1, 2012
Crop Insurance Decisions in 2012 - Some Final Thoughts
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 2012. For the majority of the midwest, the Projected Price for corn is $5.68 and the volatility factor relating to the price risk is anticipated to be .22. For soybeans, the Projected Price is $12.55 and the volatility factor is likely to be .18. For comparison, the 2011 prices (volatility factors) were $6.01 (.29) and $13.49 (.23) 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. The Projected Price for corn is determined by averaging the closing December futures price during the trading days of February, and for soybeans by averaging the November Futures closing prices. The volatility factors are determined by an average of the most recent five trading days' implied volatility estimates, scaled for the interval of time from now until the middle of October -- the month during which average prices are used to determine Harvest Prices. For both corn and soybeans, the volatility factors are considerably lower than in 2011 which has important implications for premiums and for the value of the Harvest Price options.Posted by Bruce Sherrick and Gary Schnitkey Permalink Tweet
February 29, 2012
An Annual Look at the Components of Management Returns for Illinois Grain Farms
In posts on December 8th and February 16th, we looked at the various factors determining persistent management return performance on Illinois grain farms over a five-year time period (2005-2009). These analyses indicated that grain farms which consistently achieved management returns in the top 25% (top quartile) of all farms had higher revenues and lower power costs, and tended to be slightly larger operations in terms of total tillable acres with a smaller percentage of cash rented acres. Differences in direct costs were not as large across performance groups, and the differences in revenues tended to be driven more by crop yield variation than price levels received.Posted by Nick Paulson Permalink Tweet
February 28, 2012
Crop Insurance Use in 2011 and Suggestions for 2012
Listen to MP3 podcastIn 2011, most corn and soybean acres in Illinois were insured using Revenue Protection (RP) at a 75% or higher coverage level. At these coverage levels, most acres where insured using enterprise units. For those choosing RP at a 75% or higher coverage level with enterprise units last year, a similar choice in 2012 seems prudent given that the Trend-Adjusted Actual Production History (TA-APH) yield endorsement is added to the RP policy. Some consideration to RP with the harvest price exclusion (RPwExcl) may be warranted. Group Risk Income Plan (GRIP) users may wish to re-evaluate choices as GRIP premiums have gone up will RP premiums have come down. GRIP still has attractive features, but relative costs have changed.
Posted by Gary Schnitkey Permalink Tweet
February 24, 2012
GRIP Payments in 2011
Listen to MP3 podcastOn February 23rd, the National Agricultural Statistical Service (NASS) released county corn and soybean yields for 2011. From these yields, 2011 Group Risk Income Plan (GRIP) payments can be estimated. For corn, GRIP with the harvest revenue option (GRIP-HR) at the 90% coverage level will make payments in 43% of Illinois counties while GRIP without the harvest price option (GRIP-NoHR) will pay in 20% percent of Illinois counties. For soybeans at the 90% coverage level, both GRIP-HR and GRIP-NoHR will pay in 49% of Illinois counties.
Posted by Gary Schnitkey Permalink Tweet
February 21, 2012
Is RP with the Harvest Price Exclusion a Good Option for 2012?
Listen to MP3 podcastI have been asked whether Revenue Protection with the Harvest Price Exclusion (RPwExcl) should be considered as an alternative to Revenue Protection (RP). Unlike RP, RPwExcl does not allow its guarantee to increase if harvest price is above projected price. If RPwExcl is used, I suggest considering a coverage level 5 percent higher than the RP product. These two products have roughly the same premiums. However, payments will vary between the two alternatives. RPwExcl will provide more price protection while RP will provide more yield protection.
Posted by Gary Schnitkey Permalink Tweet
February 17, 2012
Keep In Mind Family Living When Doing Crop Budgets
In 2010, the total noncapital living expenses of 1,200 farm families enrolled in the Illinois Farm Business Farm Management Association (FBFM) averaged $67,605--or $5,634 a month for each family. This average was 3.7 percent higher than in 2009 and 2008. Another $6,604 was used to buy capital items such as the personal share of the family automobile, furniture, and household equipment. Thus, the grand total for living expenses averaged $74,209 for 2010 compared with $72,434 for 2009, or a $1,775 increase per family.Posted by Bradley L. Zwilling Permalink Tweet
February 16, 2012
A Follow Up on the Persistence of Management Returns: Yields and Prices
Back on December 8th, we looked at the persistence of management returns among Illinois grain farms from 2005 to 2009. Today�s post follows up on a few of the questions we received from readers via email. Specifically, we look at the contribution of crop and price levels to the observed variation in revenues earned across farm performance groups.Posted by Nick Paulson Permalink Tweet
February 14, 2012
Projected Prices for Crop Insurance Based on First Two-weeks of February
During February, projected prices used in crop insurance guarantees applicable to Midwestern states are set for corn and soybeans. These projected prices are the averages of daily settlement prices of Chicago Mercantile Exchange (CME) contracts during February, with the December contract used for corn and the November contract for soybeans. Through the first two weeks of February, settlement prices have averaged $5.74 per bushel for corn and $12.35 per bushel for soybeans.Posted by Gary Schnitkey Permalink Tweet
February 7, 2012
Premiums on Trend-Adjusted APH Endorsements
The Trend-Adjusted Actual Production History (TA-APH) allows farmers to increase yields used in calculating guarantees for plans within the COMBO product. For the same guarantee level, farmer-paid premiums will almost always be the same or lower using the TA-APH yield endorsement than without the endorsement. This occurs because of differences in subsidy levels across coverage levels.Posted by Gary Schnitkey and Bruce Sherrick Permalink Tweet
January 31, 2012
Corn-Soybean Planting Decisions and Longer Run Returns
Listen to MP3 podcastIn many areas of central Illinois, corn-after-corn yields were substantially below corn-after-soybean yields in 2010 and 2011. These yield drags, along with large increases in corn costs, have led some farmers to reevaluate corn-soybean cropping decisions. For land productivities that predominate in Illinois, corn-after-corn and continuous corn usually have higher budgeted returns than soybeans. However, more intense corn rotations reduce corn-after-soybeans acres, often some of the most profitable acres on a farm. Reduction in corn-after-soybean acres will impact returns in future years. This article examines the longer-run return impacts of corn-soybean rotations.
Posted by Gary Schnitkey Permalink Tweet
January 25, 2012
ACRE Price Component Forecast, 2012 Crop
Farmers and land owners currently enrolled in the traditional farm programs for the 2011 crop year will have the opportunity to choose between the traditional farm program suite and the ACRE farm program suite for the upcoming 2012 crop year. The traditional suite consists of the direct payment, marketing loan, and price counter-cyclical programs. The ACRE suite consists of the ACRE state revenue program, 80% of direct payments, and marketing loans with a loan rate at 70% of the traditional program's marketing loan rate. The ACRE state revenue benchmark for the 2012 crop will equal (the Olympic average (high and low yield discarded) of a state's yield per planted acre for the 2007-2011 crop years times average U.S. cash price for the 2010 and 2011 crop years). This article looks at a forecast of ACRE's 2012 price component.Posted by Carl Zulauf Permalink Tweet
January 24, 2012
Group Risk Income Plan (GRIP) in 2012
Listen to MP3 podcastRatings changes made by the Risk Management Agency (RMA) will cause premiums for Group Risk Income Plan with the Harvest Price option (GRIP-HR) to be higher in 2012 as compared to 2011. For 90% coverage level policies, 2012 premiums will average 10% higher than 2011 premium for corn across Illinois and 11% higher for soybeans. Higher GRIP-HR premiums, along with lower COMBO product premiums (see here), suggests that farmers who have purchased GRIP in the past may wish to evaluate crop insurance decisions, as relative costs of the products have changed. The remainder of this article first describes GRIP use, and then details changes to expected yield and premium occurring to GRIP in 2012.
Posted by Gary Schnitkey Permalink Tweet
January 20, 2012
Farm Capital Investments
Increased farm earnings in the recent past have led to an increased level of capital purchases. No doubt the increase in the IRS Code Section 179 Expense Election to it's 2011 level of $500,000 did it's part to spur one thinking about a capital purchase to actually make that purchase. Equally, the advent of Bonus Depreciation at a 100% level played it's part in enhancing the level of capital purchases.Posted by Dwight Raab Permalink Tweet
January 18, 2012
COMBO Crop Insurance Premium Changes in 2012
Listen to MP3 podcastThe Risk Management Agency (RMA) undertook a study of corn and soybean premiums and found that insurance premiums were too high relative to insurance payments. As a result, RMA adjusted corn and soybean premiums. In addition, RMA implemented other adjustments that changed premiums, with one of those adjustments relating to enterprise units. In this article, 2011 Revenue Protection (RP) farmer-paid premium are compared to 2012 premium for corn and soybean policies in Illinois.
Posted by Gary Schnitkey and Bruce Sherrick Permalink Tweet
January 10, 2012
2012 Crop Insurance Decision Tool
The 2012 Crop Insurance Decision Tool has been released. The tool is a Microsoft Excel spreadsheet that can be downloaded from the FAST section of farmdoc here. From the FAST download page, place a checkmark next to "2012 Crop insurance Decision Tool" and then press "Download".One part of this tool provides quotes for 2012 corn and soybean crop insurance products in most states in the Midwest, South, and Great Plains . A user has to make a state, county, and crop choice.
Posted by Gary Schnitkey Permalink Tweet
January 6, 2012
Seasonal Fertilizer Prices
Graphs presented here show monthly fertilizer prices beginning in the fall prior to planting through spring and summer. From fall 2008 though summer 2011, prices generally decreased from fall through spring. This decreasing pattern exists primarily because of the dramatic price decreases occurring in 2008-09. Comparing of price patterns across all three years does not suggest a predictable pattern between fall and spring prices.Posted by Gary Schnitkey Permalink Tweet
January 4, 2012
Why Was ACRE a No-Go with Iowa Farmers?
In 2009, crop farmers in Iowa and other states faced the decision of whether to continue with the existing Direct and Counter-cyclical Program (DCP) offered by the Farm Service Agency (FSA) of the United States Department of Agriculture (USDA) or to enroll in a new program called Average Crop Revenue Election (ACRE). The counter-cyclical payments and marketing loans--or loan deficiency payments--available under DCP helped mitigate commodity price risk, while ACRE offered producers a chance to protect against falling crop revenue. However, producers were required to give up some of the benefits of the old program, including a 20% reduction in the direct payments, a 30% reduction in marketing loan rates, and 100% of counter-cyclical payments if they enrolled in ACRE. Prices for the two primary crops grown in Iowa, corn and soybeans, were at high enough levels that counter-cyclical payments and loan deficiency payments were unlikely to be available, so producers had to choose between retaining a small, but certain, cash benefit--80% of the direct payments--each year, and possibly receiving a larger revenue deficiency payment if certain unfavorable combinations of prices and yields occurred in one or more of the next four crop years.Posted by William M. Edwards Permalink Tweet
December 23, 2011
2011 IFES: Crop Insurance - New Features, Programs & Performance
Listen to MP3 podcastThe Risk Management Agency has announced several important changes to available crop insurance programs for the 2012 crop year. Among the most important changes are the approval of the Trend Adjusted APH Yield Endorsement, major base rate revisions, and updates to several technical components in the rating system. Additionally, there are a number of important new private market "Add-on" products, while other features including the BE endorsement and Monsanto's BYA program have been retired. This session is intended to improve your understanding of new programs and features, and help develop an accurate understanding crop insurance alternatives to best manage relevant risks. Additionally, tools available at the farmdoc website that are available to better evaluate your crop insurance options are introduced and demonstrated in this session.
Posted by Bruce Sherrick Permalink Tweet
December 22, 2011
2011 IFES: Stress Testing Agricultural Returns in 2012 and Beyond
Listen to MP3 podcastA period beginning in 2006 and ending sometime in the future likely will be viewed as a "golden age" for crop farm incomes. Beginning in 2006, corn and soybean prices have reached higher levels due to increased use of corn in producing ethanol and sustained export demands for grain. Higher commodity prices then have led to higher net farm incomes for grain farms. For grain farms enrolled in Illinois Farm Business Farm Management (FBFM), net farm income has an average of $66,000 per farm from 2001 through 2006 increasing to $177,000 per farm from 2006 through 2010.
Posted by Gary Schnitkey Permalink Tweet
December 20, 2011
2011 IFES: USDA - NASS Revealed: Procedures in Setting Crop, Livestock and Economic Estimates
Listen to MP3 podcastOverview
The USDA's National Agricultural Statistics Service (NASS) conducts hundreds of surveys every year and prepares reports covering virtually every aspect of U.S. agriculture. Production and supplies of food and fiber, prices paid and received by farmers, farm labor and wages, farm finances, chemical use, and changes in the demographics of U.S. producers are only a few examples of information in NASS reports.
Posted by Brad Schwab and Mark Schleusener Permalink Tweet
December 13, 2011
February Settlement Period Critical in Determining Downside Revenue Risks
Projected prices used to set revenue guarantees for crop insurance are determined based on settlement prices of Chicago Mercantile Exchange contracts during the month of February. Hence, February is a critical month in determining downside revenue risks for 2012. This is illustrated by generating net incomes for a farm given differing projected prices.Posted by Gary Schnitkey Permalink Tweet
December 8, 2011
Persistence in Management Returns for Illinois Grain Farms, 2005-2009
In this post we take a look at the persistence of farm performance as measured by management returns for Illinois grain farms from 2005 to 2009 using data from the Illinois Farm Business Farm Management (FBFM) association. Management returns include gross revenues, direct inputs, power and equipment, building, labor, land, and other miscellaneous costs. Tax costs are not included with the exception of farmland property taxes. A total of 712 Illinois grain farms were included in the analysis. A grain farm was defined to be an operation with more than 90% of total acreage planted to corn and soybeans and less than 40% of the grain produced fed directly to livestock. Additionally, farms generating more than 10% of their total gross revenue through custom farming or livestock enterprises were not included.Posted by Nick Paulson and Xijie Lv Permalink Tweet
December 6, 2011
Trend-Adjusted APH Yield Endorsement
Listen to MP3 podcastNew Trend-Adjusted Yield Endorsement for Federally Sponsored Crop Insurance Products: Beginning with the 2012 crop year, farmers purchasing crop insurance for corn and soybeans in fourteen Midwestern states will have the option to use the Trend-Adjusted Actual Production History (TA-APH) Yield Endorsement. The TA-APH yield endorsement allows farmers to increase yields used in calculating crop insurance guarantees. The product concept submission to RMA was sponsored by the Illinois Corn Marketing Board, and developed in conjunction with faculty from the University of Illinois.
Posted by Gary Schnitkey Permalink Tweet
December 2, 2011
More Iron on the Farm: Machinery Investment Increasing
Farming has always been a very capital intensive business. Substantial investments in land, buildings and machinery are needed to remain viable. Recent farmland price increases are well documented. The Chicago Federal Reserve Bank reported the highest year-over-year increase in farmland values since the 1970s at 25 percent.Posted by Paul Ellinger Permalink Tweet
November 29, 2011
Reductions in Projected 2012 Crop Returns due to Projected Prices Reductions
Listen to MP3 podcastFutures prices for 2012 harvest contracts have fallen throughout the fall of 2011. For corn, the average of Wednesday settlement prices of the December 2012 Chicago Mercantile Exchange (CME) futures contract price during November is $5.40 per bushel, down by $.89 over the average of September prices of $6.29 per bushel. For soybeans, the average Wednesday settlement prices of November 2012 CME contract is $11.30 per bushel in November, a decline of $1.95 over the average of September settlement price of $13.25 per bushel.
Posted by Gary Schnitkey Permalink Tweet
November 23, 2011
Incomes More Sensitive to Price Declines on Cash Rent Farms
Grain farms with a higher percentage of their acres cash rented will have much lower incomes when commodity prices decline than farms with lower percentages cash rented. This is illustrated for a 1,200 cash grain farm under four different price scenarios.Posted by Gary Schnitkey Permalink Tweet
November 17, 2011
Projected Incomes Given Differing Commodity Prices
Net farm incomes are projected for a 1,200 grain farm given four sets of prices:1) Projected 2012 prices ($5.40 for corn, $11.60 for soybeans),These projections aid in evaluating risks that farmers face from price changes.
2) Long-run prices ($4.50 for corn, $11.60 for soybeans),
3) Low price year ($3.50 for corn, $10.50 for soybeans), and
4) Poor price year ($3.00 for corn, $7.00 for soybeans).
Posted by Gary Schnitkey Permalink Tweet
November 16, 2011
Shift from Income Support to Revenue-Based Risk Management in Farm Programs
Changes to Commodity Title programs in the 2012 Farm Bill currently hinge on the budget decisions which will come out of the Joint Committee on Deficit Reduction's (commonly referred to as the "Super Committee") charge to come up with $1.2 trillion in savings over the next 10 years. Existing proposals as to how cuts to agricultural programs will contribute to total savings range from $23 billion to $33 billion. For example, the Obama administration's proposal outlined $33 billion in cuts to farm programs, including the elimination of direct payments and vaguely defined cuts to the crop insurance program. The recent proposal from ranking members of the both the Senate and House Ag Committees suggested $23 billion in reductions to farm bill spending, primarily through the consolidation of existing farm programs.Posted by Nick Paulson Permalink Tweet
November 15, 2011
What is in an Average Cash Rent?
Listen to MP3 podcast Published average cash rents mask the variability that exists in the farmland rental markets. To quantify variability, 2010 cash rents from individual farms in the Illinois Farm Business Farm Management (FBFM) are subtracted from average cash rents published by the National Agricultural Statistical Service (NASS). In 2010, 35 percent of the farm cash rents are within $20 of the average county cash rent. Nineteen percent are between $20 and $60 per acre higher than the average county rent while 10 percent of the farm rents are $60 higher than the average county rent. Twenty-six percent are between $20 and $60 lower than the average county rent and 10 percent are over $60 below the average county rent.Posted by Gary Schnitkey Permalink Tweet
November 9, 2011
Numerous Changes in Crop Production and Consumption Forecasts
The USDA's November Crop Production and WASDE reports released this morning contained a number of changes in production and consumption forecasts for corn, soybeans, and wheat for the current marketing year. Following is a brief summary of those changes.Posted by Darrel Good Permalink Tweet
November 8, 2011
Crop Insurance Harvest Prices in 2011
Last week, the Risk Management Agency (RMA) announced harvest prices for corn and soybean grown in the Midwest. The harvest price for corn is $6.32 per bushel, $.31 per bushel higher than the $6.01 projected price. The harvest price for soybeans is $12.14 per bushel, $1.35 per bushel below the $13.49 projected price.Posted by Gary Schnitkey Permalink Tweet
November 1, 2011
Break-Even Corn-After-Corn Yields and Yield Drags
Listen to MP3 podcastMany Illinois farmers have been disappointed with 2011 corn-after-corn yields, reporting significantly lower corn-after-corn yields compared to corn-after-soybean yields. So as to provide guidance for 2012 planting decisions, break-even corn-after-corn yields are calculated for farms in northern, central Illinois with high-productivity farmland (central-high), central Illinois with low-productivity farmland (central-low) and southern Illinois regions. Break-even corn-after-corn yields are between 24 and 35 bushels lower than corn-after-soybean yields.
Posted by Gary Schnitkey Permalink Tweet
October 27, 2011
Comparison of ARRM versus SRRP Proposal
Farm groups have suggested a number of commodity program designs for the next farm bill. This paper compares simulated payments from two programs. One is the Aggregate Risk and Revenue Management (ARRM) program sponsored by Senators Brown, Thune, Durbin, and Lugar. The other is the Systemic Risk Reduction Program (SRRP) proposed by the American Farm Bureau Federation.Posted by Gary Schnitkey Permalink Tweet
October 25, 2011
Commodity Prices Resulting in $50,000 Net Farm Income
Listen to MP3 podcastCorn and soybean prices that result in $50,000 of net farm income are estimated for a 1,200 acre farm in central Illinois. A $3.70 per bushel for corn and $8.51 per bushel for soybeans results in $50,000 of net income on a grain farm that purchases crop insurance and owns 15 percent, share-rents 45 percent, and cash rents 40 percent of its farmland.
Posted by Gary Schnitkey Permalink Tweet
October 19, 2011
Important Trends in Crop Insurance Coverage Options for 2012
The Risk Management Agency (RMA) recently announced the approval of the Trend Adjusted APH Yield Endorsement for corn and soybean insurance policies for most counties in the major crop production regions beginning with the 2012 crop. The Endorsement was originally proposed by the Illinois Corn Marketing Board, and developed in conjunction with researchers at the University of Illinois and the integrated Financial Analytics and Research (iFAR) consulting group. It is available for all APH-based yield and revenue options in the Combo policy and is elected and applied on a county/crop basis. The endorsement will be available over 820 counties for corn and over 880 counties for soybean policies. The intent of the Policy Endorsement is to improve the accuracy of the estimate of future insured yields, and to allow accurate coverage elections to be made against expected crop production.Posted by Bruce Sherrick Permalink Tweet
October 18, 2011
Relationship between Anhydrous Ammonia and Natural Gas Prices
Listen to MP3 podcastRetail anhydrous ammonia prices again are on the rise. The October 13, 2011 Illinois Production Cost Report by the Agricultural Marketing Service placed the average Illinois price of anhydrous ammonia at $853 per ton, up $52 per ton from the July 7th price of $801 per ton. While anhydrous ammonia prices have been rising, natural gas which is the major cost of producing anhydrous ammonia price has not been rising. This has caused the anhydrous ammonia-to-natural gas price ratio to increase dramatically.
Posted by Gary Schnitkey Permalink Tweet
October 11, 2011
Simulated ARRM Payments Compared to Actual Commodity Program Payments, 1995 to 2010
Senators Brown, Thune, Durbin, and Lugar recently released a Farm Bill proposal entitled the Aggregate Risk and Revenue Management (ARRM) program. If enacted, the ARRM program would replace Direct Payments, Counter-cyclical, Marketing Loan, Average Crop Revenue Election (ACRE), and Supplemental Revenue Assistance Payments (SURE) programs with ARRM. ARRM is a revenue program designed to make payments in years of low revenue. In this article, simulated payments from ARRM from 1995 through 2010 are compared to actual commodity program payments that occurred during that period.Posted by Gary Schnitkey Permalink Tweet
October 7, 2011
Current Commodity Programs and Integrating with Crop Insurance
In an earlier post, integration of farm commodity programs with crop insurance was discussed. There it was noted that crop insurance does not protect against multi-year price declines like those experienced in the mid-1980s and 1998-2002 time periods, and that commodity programs can play a role in providing protection during these multi-year price decline periods. In this post, the ability of current farm programs to provide multi-year price protection is examined. These programs include Direct Payments, Counter-cyclical program, Marketing Loan program, Average Crop Revenue Election (ACRE) program, and Supplemental Revenue Assistance Payments (SURE) program.Posted by Gary Schnitkey Permalink Tweet
October 4, 2011
Farm Commodity Programs Given the Existence of Crop Insurance
The design of farm commodity programs will come into focus as the 2012 Farm Bill is written. Due to budgetary pressures, commodity programs likely will face lower funding levels in future years compared to funding levels resulting from the 2008 Farm Bill. Given lower funding, scrutiny likely will be given to the farm safety net provided by commodity program as well as from crop insurance. In particular, emphasis on making the commodity programs integrate with crop insurance likely will receive attention, with the goal of providing farmers a safety net while at the same time reducing program costs.Posted by Gary Schnitkey Permalink Tweet
September 28, 2011
Coverage Level Choice on Farm-Level Revenue Insurance by Illinois Farmers
When farm-level revenue crop insurance policies are used, most Illinois farmers now purchase 80 and 85 percent coverage levels. In 2011, 71 percent of the corn acres and 60 percent of the soybean acres were insured at 80 and 85 percent coverage levels. Use of 80 and 85 percent coverage levels have increased in recent years, with a large increase occurring in 2009.Posted by Gary Schnitkey Permalink Tweet
September 27, 2011
Cash Rent with Bonus Leasing Arrangement: Description and Example
Listen to MP3 podcastA "cash rent with bonus" leasing arrangement is a variable cash rent lease that has a base rent and the potential for a bonus if crop revenue exceeds target revenue. Variable lease rental arrangements have become more popular in recent years as crop prices have become more variable, thereby making it more difficult to determine satisfactory cash rents. This document describes details of cash rent with bonus arrangements.
Posted by Gary Schnitkey Permalink Tweet
September 21, 2011
Which Entity is Best for My Estate Plan?
It is time to do estate planning and one of the decisions that you will have to make with the help of an attorney is what entity, if any, you should use to hold the investments to protect it and allow you to transfer it to the next generation. While this discussion is centered around a farmer, it has application to anyone doing estate planning. This discussion only covers the basics and observations I have seen in the many estate plans I have worked on with FBFM clients and their attorneys. Further in depth discussion is needed in your specific case.Posted by Gary Goodwin Permalink Tweet
September 20, 2011
Projected Price and Volatility for Wheat Crop Insurance
The discovery period for determining projected prices and volatiles for wheat has ended and the Risk Management Agency (RMA) has released these factors. In Illinois and many other Midwestern states, the 2012 projected price for wheat is $8.20 per bushel. The volatility is .27.Posted by Gary Schnitkey Permalink Tweet
September 16, 2011
Yield Drag and Breakeven Yields between Corn-after-Corn and Soybeans
Initial reports suggest that yields on corn-after-corn (corn produced on land that was in corn the previous year) are significantly lower than corn-after-soybean yields. Lower corn-after-corn yields could cause soybeans to be more profitable than corn-after-corn. On high-productivity farmland, a 27 bushel lower yield for corn-after-corn than for corn-after-soybean could cause soybeans to be more profitable than corn-after-corn.Posted by Gary Schnitkey Permalink Tweet
September 15, 2011
Considering a Variable Cash Lease for 2012
In the Tuesday September 13th post, information about average cash rent trends in Illinois was provided for use in negotiating rent levels for 2012. As cash rent levels continue to rise, producers might be interested in considering variable cash leases as an alternative form of rental arrangement for risk management purposes. Landowners may also be interesting in a variable lease which could offer larger rental payments and greater returns during years resulting in high crop revenues.Posted by Nick Paulson Permalink Tweet
September 14, 2011
Beware of the Increasing Level of Deferred Income Tax
Average (accrual) Net Farm Income for the five year period 2006 to 2010 was $$162,609. Net Farm Income for the five years prior (2001 to 2005) was $58,339. This makes for an increase of $104,270 in average net farm income between the two five-year periods. This should surprise no one and is evidence of higher yields in most of Illinois and increased commodity prices.Posted by Dwight Raab Permalink Tweet
September 13, 2011
Cash Rent Information Available for Setting 2012 Rents
Listen to MP3 podcastWhen setting 2012 cash rents, there are two sets of information that have been recently released that many will find useful. First, the National Agricultural Statistical Service (NASS) released average 2011 cash rent levels by county. Second, the Illinois Society of Professional Farm Managers and Rural Appraisers (ISPFMRA) released average 2011 cash rents and 2012 projected cash rents for different land productivity classes.
Posted by Gary Schnitkey Permalink Tweet
September 9, 2011
Illinois Farmland Investment Performance,... Revisited,... Again...
USDA recently released the 2011 version of its annual summary of farmland values and rental rates, with final values for cropland in Illinois of $5,800/acre representing an 18% increase. Cash rent serves as a proxy for current income, and averaged about 3.2% for the same period. Total farm real estate values increased by roughly 16.3% for the year. Except for 2009, the past seven years have each seen double digit capital gains, and 3-4% annual current income. This performance during a period of unprecedented equity market volatility has resulted in substantially increased attention to the asset class, with an attendant increase in visibility of institutional investors, and resulted in some highly notable sales. Some have begun to question the sustainability or rationality of the current levels, and have used phrases including "bubble" and "overheated". At the same time, there is little evidence to suggest that income values and capitalization costs are anything but rational given the current low interest rates and high relative incomes. But all of these descriptors -- annual returns, capitalized values, volatility through time -- are best viewed as relative indicators -- if the equity markets had been returning 30% annually, the performance of farmland might look relatively poor, for example.Posted by Bruce Sherrick Permalink Tweet
September 8, 2011
Wheat Insurance and the Crop Insurance Decision Tool
In Illinois and other Midwestern states, September 30th is the sales closing date for 2012 crop insurance coverage on winter wheat. By this date, farmers must buy, change, or cancel their Federally-insured crop insurance products for winter wheat, otherwise they will get the same product and coverage level as they received in 2011. The 2012 Crop Insurance Decision Tool is available for download from the FAST section of farmdoc. This tool will give premium quotes for the COMBO product as well as Group Risk Plan (GRP) and Group Risk Income Plan (GRIP) products.Posted by Gary Schnitkey Permalink Tweet
September 7, 2011
Limited Liability Entities and Self Employment Tax Issues: New Tax Court Case Ruling
Lately there has been a lot of discussion with attorneys who work with FBFM field staff and our clients concerning limited liability entities. Should they do business as a Limited Liability Company (LLC) or as a Family Limited Partnership (FLP) or a Limited Liability Limited Partnership (LLLP)?Posted by Gary Goodwin Permalink Tweet
September 2, 2011
Downside Revenue Risk on 2012 Corn
The current settlement price on the December 2012 futures corn contract traded on the Chicago Mercantile Exchange (CME) is suggesting relatively high corn prices for the 2012 year, leading to high 2012 revenue expectations While expectations are high, there is downside risk. On central Illinois farmland, there is a 20 percent chance that crop revenue will be below $850 per acre.Posted by Gary Schnitkey Permalink Tweet
August 31, 2011
Crop Insurance Implications of Aflatoxin in Corn
Weather conditions this year increase the possibility of aflatoxin in corn. In general, aflatoxin does not cause yield losses, but causes quality losses. Quality losses are covered by farm-level crop insurance plans contained in the COMBO product. Within COMBO, discount factors are calculated for grain with aflatoxin. These discount factors then reduce the yield that is used in calculating indemnity payments.Posted by Gary Schnitkey Permalink Tweet
August 24, 2011
Index Numbers of Illinois Farmland Values
Each year the National Agricultural Statistics Service (NASS) of the USDA releases estimated average farm real estate values by state. The estimates are based on surveys of farmers from selected geographical areas. The surveys follow strict statistical guidelines. Estimated values maybe revised the following year based on additional information. Revisions may also be made based on data from the 5-year Census of Agriculture. The methodology and timing of the study has changed over time but the statistical information provides some insight as to the changes in farm real estate values from year to year.Posted by Bradley L. Zwilling Permalink Tweet
August 23, 2011
Likelihood of Safety Net Payments in Illinois for 2011
Much of Illinois has experiences extremely hot, dry weather during July and August, leading to projections for low yields on many farms. Given these low yields, we examine the likelihood of payments under crop insurance, ACRE or the Traditional Counter-Cyclical program, and SURE. These three programs provide farmers with a revenue safety net. Crop insurance will make payments on farms with low yields. ACRE and the traditional counter-cyclical program likely will not make payments because prices will be above levels needed to cause revenue to be below the state guarantee. SURE will not make payments, unless counties in Illinois are declared disaster areas.Posted by Gary Schnitkey Permalink Tweet
August 18, 2011
Projected Crop Reporting District Yields Compared to Historical Yields Given Drought
The National Agricultural Statistical Service (NASS) released projected 2011 corn yields by Crop Reporting District (CRD) on August 12th. In this post, the 2011 projected yields are compared to trend-adjusted historical yields for 1972 through 2010. Comparisons are made for six states for which NASS releases CRD estimates: Illinois, Indiana, Iowa, Missouri, Texas and Oklahoma. Northern Iowa, central Iowa, northern Illinois, western Illinois, and southwest Illinois have 2011 projected yields in the top half of historic trend-adjusted yields. The remaining areas have below average yields. Kansas and Texas have extremely low yields, with some of Kansas and Texas CRD yields being the worst in the 1972 through 2010 period.Posted by Gary Schnitkey Permalink Tweet
August 16, 2011
Near Trend-line Yields Needed in Illinois and Iowa to Meet 12.9 Million Projected Production
In its August 12th report, the National Agricultural Statistical Service (NASS) forecast 12,914 million bushels of corn production in 2011, up by 4 percent from 2010 levels. To meet this production level, corn yields in Illinois and Iowa need to be near the average of historic, trend-adjusted yields.Posted by Gary Schnitkey Permalink Tweet
Near Trend-line Yields Needed in Illinois and Iowa to Meet 12.9 Million Projected Production
In its August 12th report, the National Agricultural Statistical Service (NASS) forecast 12,914 million bushels of corn production in 2011, up by 4 percent from 2010 levels. To meet this production level, corn yields in Illinois and Iowa need to be near the average of historic, trend-adjusted yields.Posted by Gary Schnitkey Permalink Tweet
August 10, 2011
Buying and Selling Machinery Outright vs. Trade
A common issue that often comes up for many of our clients when they are considering machinery replacement is whether to buy the equipment outright and sell their existing piece or to trade with the dealership. One of the first things often thought of is the risk the producer holds by buying the new piece while still holding the older piece, and whether or not it will sell. This risk must be weighed with what is thought to be an appropriate trade in value, but one thing that is often not thought of is the tax advantages that may be realized via the outright sale of your existing piece.Posted by Nate Edlefson Permalink Tweet
August 9, 2011
2011 Illinois Farmland Values Increase 18 Percent
Listen to MP3 podcastAccording to an August 4th report released by the U.S. Department of Agriculture, Illinois farmland price averaged $5,800 per acre in 2011, an increase of 18 percent over the 2010 level of $4,900 (see http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1446). The 2011 increase continues a string of large increases that began in 2004 (see Figure 1). Since 2004, Illinois farmland prices have increased by 222 percent or, stated alternatively, Illinois farmland prices are 2.2 times higher in 2011 than in 2004. The last seven-year period in which land prices increased an equivalent amount was from 1975 through 1981. During this period, Illinois farmland increased from $846 per acre in 1975 to $2,188 per acre in 1981, resulting in farmland prices being 2.6 times higher in 1981 than in 1977.
Posted by Gary Schnitkey Permalink Tweet
August 2, 2011
Wheat/Double-Crop Soybeans Competitive in Southern Illinois for 2012
Listen to MP3 podcastRecently compiled 2012 southern Illinois crop budgets have projected operator and farmland returns for wheat/double crop soybean at $359 per acre. This $359 per acre return compares to $418 per acre from corn-after-soybeans and $315 per acre for soybeans. In 2012 budgets, corn is projected more profitable than wheat/double-crop soybeans. Wheat/double-crop soybeans are projected more profitable than soybeans.
Posted by Gary Schnitkey Permalink Tweet
July 29, 2011
Farmland Prices: Where to from Here?
Agricultural economists recently completed a series of articles dealing with farmland prices that appeared in Choices, a publication of the Agricultural and Applied Economics Association. A general consensus from these articles is that farmland prices are not in a bubble, but current farmland prices may reflect optimist expectations of future farmland returns (see Duffy and Gloy, Boehlje, Dobbins, Hurt, and Baker). Lower farmland returns or higher interest rates could result in lower farmland prices (see Schnitkey and Sherrick).Posted by Gary Schnitkey Permalink Tweet
July 27, 2011
Estate Planning for Farmers May Be Overdue
Looking back over the last two years has seen a lot of changes to estate tax laws. First, we went into 2010 with something I never thought we would see - "a zero estate tax". Then, after much speculation we learned we did have a step up basis but only $3 million to a spouse and $1.3 million for others. Then, let's add a new concept - "portability" into the language (which is allowing married couples to add any unused portion of the estate tax exemption of the first spouse to die to the surviving spouse's estate tax exemption). Then, let's consider current rules only cover 2011 and 2012 years, so we need some new legislation for 2013. Then to top it all off, look at what farmer's taxable estate is now considering land has increased 50% or more in value since 2009.Posted by Gary Goodwin Permalink Tweet
July 26, 2011
Hot, Dry Weather and Crop Insurance
Recent hot, dry weather brings concerns about yield losses. Rains over the weekend alleviated concerns in many areas; however, there are some areas that are short on moisture. While it is too early to estimated 2011 yields with any degree of certainty, it is likely that crops have been under stress and yield losses may occur. In this post, yield protection offered by crop insurance is illustrated. Given current price levels that have harvest prices higher than those used to set crop insurance prices, farmers will need to have yield losses before crop insurance payments. Changes in market prices could change.Posted by Gary Schnitkey Permalink Tweet
July 21, 2011
AgIndex Declines in Second Quarter 2011
An index of 21 publicly traded companies that deal with agriculture declined by 6 percent in the second quarter of 2011. The 6 percent decline in the AgIndex compares to a .5 percent increase in the S&P 500.Posted by Gary Schnitkey and Clay Kramer Permalink Tweet
July 20, 2011
2012 Corn and Soybean Budgets
Listen to MP3 podcastTable 1 contains 2012 corn and soybean budgets for high-productivity farmland in central Illinois. Budgets for other Illinois regions are shown in the appendix. Along with 2012 budgets, Table 1 contains actual results for 2009 and 2010, as summarized from farms enrolled in Illinois Farm Business Farm Management (FBFM). Also shown are 2011 projections. Costs in 2012 are projected to increase, leading to high break-even commodity prices. Projected 2012 commodity prices suggest that 2012 will be a profitable year. Of course, economic situation could change between now and 2012 harvest. Chicago Mercantile Exchange (CME) options contract suggest that prices resulting in very low returns are possible.
Posted by Gary Schnitkey Permalink Tweet
July 15, 2011
Regional Implications of a County-Based ACRE Program
Posted by Nick Paulson Permalink Tweet
July 14, 2011
Forward Contract Delivery Prices Point to Higher 2012 Fertilizer Costs for Corn
In its July 7th report, the Agricultural Market Service reports fertilizer contract prices for fall delivery as $814 per ton for anhydrous ammonia, $688 per ton for Diammonium Phosphate (DAP), and $627 per ton for potash. Using these fertilizer prices too calculate 2012 fertilizer costs grown on high productivity farmland results in $162 per acre. The $162 per ton projection is above 2010 and 2011 costs, but below 2009 costs.Posted by Gary Schnitkey Permalink Tweet
July 6, 2011
Risk Reductions Possible by Hedging 2012 Grain Production in the Summer of 2011
Listen to MP3 podcastIt has been suggested that farmers consider locking in profits for the 2012 production year (see, for example, here). Current commodity price and cost levels suggest it may be possible to lock in profits. To lock in profits, both gross revenue and input costs must be dealt with. As much as possible, gross revenue must be managed to eliminate downside risk. Similarly, input costs must be managed so as to eliminate the possibility of higher costs. This article examines the extent to which gross revenue risk can be reduced by hedging grain and purchasing crop insurance. A future article will examine the process of locking in input costs.
Posted by Gary Schnitkey Permalink Tweet
July 1, 2011
Where Did the Corn Acres Come From?
The U.S. Department of Agriculture released its Acreage Report on June 30th and estimated planted corn acres for 2011 at 92 million acres. The 92 million acres is a 4 million acre increase - or a 4.5 percent increase - over 2010 acres of 88 million acres. A complete list of acre changes by state is shown in Table 1. In general, states in the western corn-belt have large increase in acres. Somewhat surprisingly, most states in the eastern corn-belt have not lost acres.Posted by Gary Schnitkey Permalink Tweet
June 29, 2011
Anhydrous Ammonia Prices: Continued Increases Likely
Anhydrous ammonia prices in Illinois have been slowly increasing since the beginning of 2011. According to Agricultural Marketing Service's first report in 2011, anhydrous ammonia prices averaged $777 per ton across Illinois. Since then, prices have increased an average of $1 per week, reaching $801 per ton at the end of June.Posted by Gary Schnitkey Permalink Tweet
June 22, 2011
Cost to Produce Corn and Soybeans in Illinois--2010
Listen to MP3 podcastIn 2010, the total of all economic costs per acre for growing corn in Illinois averaged $739 in the northern section, $717 in the central section for farmland with "high" soil ratings, $687 in the central section for farmland with "low" soil ratings, and $635 in the southern section. Soybean costs per acre were $524, $539, $493 and $467, respectively (see Table 1). Costs were lower in southern Illinois primarily because of lower land costs. The total of all economic costs per bushel in the different sections of the state ranged from $4.25 to $4.38 for corn and from $8.98 to $9.53 for soybeans. Variations in this cost were related to weather, yields, and land quality.
Posted by Bradley L. Zwilling Permalink Tweet
June 15, 2011
Release of an Updated FAST Tool: Balance Sheet & Historical Financial Statements Program
An updated balance sheet & historical financial statements program is available from farmdoc. This tool allows users to generate financial statements for a one-year (simple balance sheet) or two-year period (beginning and ending year). Financial statements include: beginning and ending balance sheets, income statement, statement of cash flows, and a report of the user's financial ratios, as well as deferred tax calculation. This tool can be downloaded from the FAST section of farmdoc.Posted by Ryan Batts Permalink Tweet
June 8, 2011
Prevented Planting and Late Planting Papers
Purdue agricultural economics faculty released a nice paper detailing the options associated with prevented planting that is available here. They have a spreadsheet for evaluating options at that site.Posted by Gary Schnitkey Permalink Tweet
Prevented Planting Calculator Released as Part of FAST Planting Decision Model
A prevented planting calculator is available from farmdoc that compares net returns from prevented planting, planting corn, and planting soybeans. The calculator is part of our FAST decision series which are Microsoft Excel spreadsheets. The calculator is called the "Planting Decision Model" and can be downloaded from the FAST section of farmdoc or can be directly download from here .Posted by Gary Schnitkey Permalink Tweet
June 2, 2011
Upside Potential Given Up by Taking Corn Prevented Planting Payments
The May 25th farmdoc daily post entitled "Economics of Prevented Planting in Corn" noted that net returns from prevented planting likely will be competitive with net returns from planting corn. A number of readers commented that upside revenue potential is given up by taking a prevented planting payment rather than planting corn. This is true. In this post, net returns from planting corn given different harvest prices and actual yields are examined.Posted by Gary Schnitkey Permalink Tweet
May 25, 2011
Economics of Prevented Planting in Corn
Listen to MP3 podcastFarmers will be able to take prevented planting payments once the "final planting date" is reached in late May or early June. In this article, net returns from taking a prevented planting are compared to expected net returns from planting corn and soybeans. Examples suggest prevented planting have returns competitive with planting corn or soybeans. Hence, farmers could have large incentives to take prevented planting payments once the final planting date has been reached. Number of acres on which prevented planting are taken will depend on 1) weather and 2) expected commodity prices at harvest-time.
Posted by Gary Schnitkey Permalink Tweet
May 24, 2011
Prospects for Corn Acre Losses in 2011
As of May 22, 79 percent of corn has been planted in 15 states that account for 92 percent of corn production in the United States. The 79 percent is near the average from 1980 through 2010. Two areas have low percent plantings: the eastern Corn Belt and the upper Midwest. In these two areas, it is unlikely that other crops such as soybeans will compete for corn acres. However, some farmers may take a prevented planting payment from crop insurance once the final planting date has been reached, thereby reducing the number of corn acres planted in 2011.Posted by Gary Schnitkey Permalink Tweet
May 20, 2011
Honey Bee Health
In the words of Monty Python: "and now for something completely different..."Sitting in East-Central Illinois, when we think agriculture, we think corn and soybeans. I wanted to draw attention to a small but vital portion of Illinois agriculture that is currently in tough straights. Folks worrying about being able to get a crop in the ground this wet spring can probably sympathize with their neighbors in the beekeeping industry who are also struggling against circumstances beyond their control. Many U.S. beekeepers lost an average of a third of their colonies over the past five winters. For some producers, these losses are much worse. While a quarter of commercial producers, defined as those with more than 500 colonies, have losses in the acceptable range of below 15%, another quarter have losses greater than 50% - a devastating cost. These losses not only affect the beekeepers themselves. Many crops that rely on pollination, like California almonds, have been struggling to find enough colonies to pollinate their crops. For those Illinois farmers who grow crops like pumpkins, bees and other pollinators are vital.
Posted by Kathy Baylis Permalink Tweet
May 19, 2011
Prevented and Late Planting Provisions in Crop Insurance
Wet weather this spring again raises questions about prevented planting provisions in crop insurance. This document describes prevented and late planting provisions that apply to the COMBO product and its Revenue Protection (RP), Revenue Protection with Exclusion, and Yield Protection plans. Prevented planting payments do not exist for Group Risk Plan (GRP) and Group Risk Income Plan (GRIP). When considering prevented planting for a specific farm, a crop insurance agent should be contacted. Also, as further describe below, a farmer is not eligible for enterprise unit premium discounts if no planting occurs.Posted by Gary Schnitkey Permalink Tweet
May 18, 2011
Will Hedging 2011 Corn Now Reduce Downside Revenue Risk?
Listen to MP3 podcastIn this paper, graphs show how hedging different proportions of expected corn production impact the chance of having revenue below three benchmarks. Four analyses are presented: one for no insurance and three for Revenue Protection (RP) crop insurance policies with 65, 75, and 85 percent coverage levels. With no insurance, the chance of revenue below $850 per acre is minimized when 71 percent of expected production is hedged. Use of crop insurance lowers the amount hedged needed to minimize risk. Chance of revenue below $850 per acre is minimized with 61 percent hedged for a 65 percent RP policy, 42 percent with a 75 percent RP policy, and 7 percent for an 85 percent RP policy.
Posted by Gary Schnitkey and Bruce Sherrick Permalink Tweet
May 12, 2011
Corn Replanting Decision Tool Released as Part of FAST
A "Corn Replanting Decision Tool" has been released as part of the FAST series of Microsoft Excel spreadsheets. Mathematical functions in this tool estimate yields from the original and replanted stands. Estimated yields, along with cost and crop insurance information, then are used to calculate net income from replanting. This tool is part of the Planting Decision Model, which can be accessed from the FAST section of farmdoc . A direct link to the model download page model is available here.Posted by Gary Schnitkey, Ryan Batts, and Emerson Nafziger Permalink Tweet
May 6, 2011
The ACRE Program Decision for 2011
The ACRE program is now entering its third year of being offered in the 2011/12 marketing year. In 2009, ACRE triggered payments on Illinois corn and wheat acres. Corn farms enrolled in the program received an average payment of $25.17 per acre, while enrolled farms planted to wheat received an average payment of $89.41 per acre. ACRE payments in 2010 are unlikely for enrolled farms planted to corn or soybeans in Illinois due to marketing year price projections for 2010/11 being well above the levels needed to trigger payments. Farms planted to wheat and enrolled in the ACRE program are likely to receive payments again in 2010. Based on the April 8th USDA projection for the 2010/11 marketing year price and 2010 Illinois wheat yields, the average payment will probably be around $40-45 per acre.Posted by Nick Paulson Permalink Tweet
May 4, 2011
Why Every Farmer Should Consider ACRE
Many farms have not been enrolled in the Average Crop Revenue Election (ACRE) program, and instead still are receiving Federal commodity program payments in the traditional manner that includes a counter-cyclical program (see ACRE Program Enrollment in 2009 and 2010 for details). June 1st is the deadline for enrolling farms into ACRE that still are in the counter-cyclical program. Farmers and land owners may wish to consider ACRE as ACRE's revenue protection is significantly better than price protection offered by the counter-cyclical program. Moreover, ACRE's revenue protection differs from the protection offered by crop insurance.Posted by Gary Schnitkey Permalink Tweet
May 3, 2011
Profitability and Farm Size on Grain Farms in Illinois
The effect of farm size on profitability is an issue continually analyzed and debated by agricultural economists. Profitability is impacted by a number of factors, many of which are controlled to some extent by the management decisions of the farm operator. In general, we tend to think there may be increasing returns to scale for grain farms, or that some normalized measure of profitability (i.e. net farm income per acre) may be enhanced by expanding the scale of the operation.Posted by Mak Kern and Nick Paulson Permalink Tweet
April 29, 2011
ACRE Program Enrollment in 2009 and 2010
The Average Crop Revenue Election (ACRE) program was introduced in the 2008 Farm Bill beginning in the 2009 crop year. ACRE provides revenue-based support as an alternative to price-based counter-cyclical programs. By giving up 20% of their direct payments, and having their loan rates reduced by 30%, farmers can enroll their farms in the ACRE program and receive revenue protection based on a State-level, crop specific revenue guarantee.Posted by Nick Paulson Permalink Tweet
April 27, 2011
Planting Delays and Switching to Soybeans: A New FAST Spreadsheet
Listen to the MP3 podcastRecent wet weather again raises concerns about planting delays, potentially leading to questions on whether to plant corn or soybeans on farmland that was scheduled to be planted to corn. We have developed a FAST spreadsheet named the Planting Decision Model that calculates corn and soybean returns by date of planting. Using current commodity prices and costs, switching to more soybeans seems several weeks away. For northern and central Illinois, corn is projected to be more profitable than soybeans throughout May. In southern Illinois, corn is projected to be more profitable than soybeans through the last part of May. Commodity prices play a key role in return differentials. Current commodity prices favor corn compared to what one would expect with more typical prices.
Posted by Gary Schnitkey and Ryan Batts Permalink Tweet
April 26, 2011
How Good Were 2010 Soybean Yields in Illinois?
The Illinois state soybean yield of 51.5 bushels per acre for 2010 was a record high yield. Many counties also had a very good yielding year for soybeans, with 83 percent of the counties having actual yields above their respective trend yields, and 50 counties setting a record high yield. Five counties exceeded 60 bushels, the first year in which county yields exceeded 60 bushels per acre.Posted by Gary Schnitkey Permalink Tweet
How Poor Were 2010 Corn Yields in Illinois?
The state corn yield for Illinois was below trend yield in 2010, with only 23 percent of the years since 1972 having a worst deviation from trend. However, the 2010 state yield was not as poor as yields in 1988 and 1983. Many counties in Illinois fared much worse than the state. For 16 counties, 2010 was the worst yielding year in the 2000s. For ten counties, 2010 ranked as the second or third worst year since 1972. Many of the low-yielding counties were located in western Illinois.Posted by Gary Schnitkey Permalink Tweet
April 21, 2011
Increasing Charitable Yields with Bushel Gifts
If you are planning on making a contribution to 4-H, universities, your church or your favorite charitable group, before you write a check, explore the option of gifting grain directly to the charity or tax exempt organization if you are an operating farmer.Posted by Jim Locher Permalink Tweet
April 15, 2011
Fertilizer Prices Continue Gradual Increase
The April 14th Illinois Production Cost Report reported average fertilizer prices in Illinois as $797 per ton for anhydrous ammonia, $687 per ton for DAP, and $598 per ton for potash. Throughout 2011, fertilizer prices have increased at a gradual rate. Anhydrous ammonia increased $20 per ton, DAP increased $15 per ton, and potash increased $33 per ton so far this year.Posted by Gary Schnitkey Permalink Tweet
April 13, 2011
Performance of Publicly-Traded Agricultural Firms Since 2007
Listen to MP3 podcastThe crop farming sector has been relatively profitability in the past several years while the general economy has gone through a great deal of turmoil. As financial difficulties became apparent in 2008, most publicly-traded companies saw their stock prices decline. In this article, we examine how the stock prices of publicly-traded companies dealing with agriculture performed since 2007. Did agricultural companies experience declines similar to most other companies? Or did their stock prices perform better as a result of profitability within the crp farming sector?
Posted by Clay Kramer and Gary Schnitkey Permalink Tweet
April 3, 2011
Production of Bioenergy Crops in the Midwest
Listen to the MP3 podcastThe Energy Independence and Security Act of 2007 mandates that 79 billion liters of biofuels must be produced annually from non- corn starch feedstocks by 2022. Perennial grasses, switchgrass and miscanthus, could provide the needed biomass with additional benefits that they increase soil carbon, have better nitrogen fixation, provide higher biofuel yield per unit land and can be grown productively on low quality land. Switchgrass and Miscanthus are two of the more promising bioenergy crops because they are relatively higher yielding and have low input requirements. The purpose of this report is to determine the breakeven costs of producing these two energy crops in the Midwest.
Posted by Madhu Khanna, Atul Jain & Anthony Oliver Permalink Tweet
March 25, 2011
Corn Profitability Higher than Soybean Profitability in the Corn-belt: Will Corn Acres Increase?
Listen to MP3 podcastThe current supply and demand situation suggests a need for more corn acres in the upcoming 2011 production year. If corn acres are to increase, a sizable amount of the growth likely will come from the corn-belt. In the corn-belt, increases in corn acres cause reductions in soybean acres, as these two crops compete for acres. As farmers decide the proportion of corn and soybeans to plant, relative profitability of corn and soybeans likely enter into the decision-making process.
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March 17, 2011
Farmland Prices and Bubbles
The Illinois Society of Professional Farm Managers and Rural Appraisers released their annual farmland values report in Bloomington on March 16, 2011 (see www.ispfrma.org for order form). Between January 1, 2010 and December 31, 2010, farmland values increased substantially over Illinois, with variability in increases across regions and farmland qualities. Farmland increased by 14 to 18 percent for northern Illinois and 10 to 20 percent in central Illinois. Higher increases were noted in southern Illinois. Illinois Society results suggest an overall increase of 15 percent in Illinois farmland prices.Posted by Gary Schnitkey Permalink Tweet
March 11, 2011
Crop Insurance in 2011
Listen to MP3The following points address questions that have arisen during the 2011 crop insurance decision season:
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March 3, 2011
Suggestions for the COMBO Product
Like in previous years, Illinois farmers have till March 15th to change their crop insurance coverage for corn and soybeans. Unlike previous years, farmers will not have Crop Revenue Coverage (CRC), Revenue Assurance (RA), Income Protection (IP), and Actual Production History (APH) policies to choose from. These farm-level products have been replaced by the COMBO product.Posted by Gary Schnitkey Permalink Tweet
February 28, 2011
Estimated GRIP-HR Payments for 2010
NASS released county yields for 2010 today (February 28). Based on these yields, I calculated the insurance payments for Group Risk Income Plan with the Harvest Revenue option (GRIP-HR) for Illinois counties.Posted by Gary Schnitkey Permalink Tweet
Almost Final Projected Prices
Projected prices are used to set guarantees on crop insurance.Projected prices for corn and soybeans with a March 15th closing date are based on settlement prices of Chicago Mercantile Exchange contracts during the month of February.Posted by Gary Schnitkey Permalink Tweet
February 24, 2011
Commodity Price Changes and Corn-Minus-Soybean Returns
Even with recent deceases in commodity prices, corn is still projected to be more profitable than soybeans. Current cash bids for fall delivery are about $5.45 per bushel for corn and $12.65 for soybeans. Corn-minus-soybean returns measure return differences. Positive numbers indicate corn is projected to be more profitable than soybeans. Using the above commodity prices, corn-minus-soybean returns are projected at $194 per acre in northern Illinois, $166 per acre for high-productivity farmland in central Illinois, $157 per acre for low-productivity farmland in central Illinois, and $123 per acre in southern Illinois.Posted by Gary Schnitkey Permalink Tweet
February 23, 2011
Higher 2011 GRIP Premiums Still Below Expected Payments
Listen to MP3Group Risk Income Plan with the harvest price option (GRIP-HR) will have higher premiums in 2011 as compared to 2010. Premiums were estimated for corn using a projected price of $6.00 and a volatility of .29. This price and volatility will not be final until the end of February. Hence, actual premium could vary from estimates shown in this paper. Over all counties in Illinois, GRIP-HR premiums will be about 75% higher in 2011 as compared to 2010. Even with these increased premiums, the estimated expected payments exceed farmer-paid premium in most counties of Illinois.
Posted by Gary Schnitkey and Bruce Sherrick Permalink Tweet
February 17, 2011
Acreages and Corn and Soybean Returns
A central question is whether corn acres will increase in the heart of the corn-belt. For total U.S. corn acreage to increase in 2011, acres devoted to corn in Illinois, Iowa, and surrounding states likely have to increase. Corn acre increases in the corn-belt will led to reduction in soybean acres. Countering losses of soybean acres in the corn-belt will be gains in other regions, such as the Great Plains.Posted by Gary Schnitkey Permalink Tweet
February 13, 2011
RP Premium Using Projected Prices and Volatilities on Feb 13th
We are half way through February, indicating that the settlement period for determining crop insurance parameters is half over. As of February 13th, the projected price and volatilities for corn and soybean for states with March 15th crop insurance closings are: Corn: $6.04 projected price, .28 volatility Soybeans: $13.74 projected price, .22 volatilityPosted by Gary Schnitkey Permalink Tweet
Fertilizer prices stabilize in first month and half of 2011
Fertilizer prices have stabilized in the first month and half of 2011. Agricultural Marketing Service (AMS), an agency of the U.S. Department of Agriculture, reports average prices of fertilizer every two weeks.Posted by Gary Schnitkey Permalink Tweet
February 11, 2011
Projected Prices in Mid February
Projected prices are used in setting guarantees on crop insurance products. Corn and soybean projected prices are set during the month of February using settlement prices of Chicago Mercentile Exchange futures contracts. Since February is not over, projected prices are not know with certainty, but we can get a good feel given that we are through the first two weeks of February.Posted by Gary Schnitkey Permalink Tweet
February 3, 2011
SURE Payment Signup
The sign-up period for the 2009 Supplemental Revenue Assistance Payments (SURE) program is from January 10 through July 29, 2010. SURE is a standing disaster assistance program instituted as part of the 2008 Farm Bill. It is a whole farm program making payments when whole-farm revenue falls below a guarantee.Posted by Gary Schnitkey Permalink Tweet
