publication archive: Gary Schnitkey
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 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 9, 2013
Payments by U.S. Farm Safety Net Program: Differences by Crop
An important aspect of the on-going debate over the new farm bill is the proposed elimination of direct payments. This proposal differentially impacts the program crops, prompting a debate among crops and geographical regions over the distribution of payments by farm safety net programs. We believe this issue is the most important in the farm bill debate. We therefore examine it in more detail. This post specifically compares the distribution of payments by the direct payment, crop insurance, and price risk programs. The comparison begins with the 2003 crop year because the counter-cyclical program, an important price risk program, was initially enacted in the 2002 Farm Bill.Posted by Carl Zulauf and Gary Schnitkey Permalink Tweet
May 7, 2013
Questions That Will be the Focus of the Upcoming Farm Bill Debate
Farm Bill markup likely will begin soon in both the Senate and House Agricultural committees. Much of the focus for traditional program crops will be around three programs: a revenue program, a target price program, and a supplemental crop insurance program. While the exact nature of the programs will depend on negotiations, what is almost certain is that the programs' rationale will be risk management. Given a risk management focus, Farm Bill negotiations will need to debate and somehow resolve the following seven questions.Posted by Gary Schnitkey and Carl Zulauf 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 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.
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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 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.
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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.
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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 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 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 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
March 1, 2013
Evaluating Your Crop Insurance Options in 2013
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 2013. For the majority of the midwest, the Projected Price for corn is $5.65 and the volatility factor relating to the price risk is anticipated to be .20. For soybeans, the Projected Price is $12.87 and the volatility factor is likely to be .17. For comparison, the 2012 prices (volatility factors) were $5.68 (.22) and $12.55 (.18) 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 both 2011 and 2012 which has important implications for premiums and for the value of the Harvest Price options embedded in many products.Posted by Bruce Sherrick and 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.
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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 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 8, 2013
Distribution of Crop Insurance Net Farm Payments by Crop and State
This post examines the distribution of net insurance payments by crop and by state. It briefly discusses two factors that help determine the distribution and ends with a discussion of policy issues, notably a potential alternative subsidy method that would change the distribution of payments.Posted by Carl Zulauf and Gary Schnitkey Permalink Tweet
February 6, 2013
List of Alternatives Being Discussed to Reduce Farm Premium Subsidies in Crop Insurance
Cost of crop insurance programs may be an issue this year, either via the farm bill or other legislation. Regardless, discussion of its cost is increasing. Moreover, it seems likely that the cost of crop insurance will become more prominent in future farm safety net discussions. The reason is simple: it is the largest cost program in the farm safety net. Moreover, crop insurance is no longer a small spending program. U.S. policy deliberations differ for large and small spending programs. Discussions of small spending programs focus on the program's value to beneficiaries. In contrast, discussions of large spending programs focus on whether the program is fair and appropriate for both beneficiaries and the U.S. public.Posted by Carl Zulauf, Gary Schnitkey and Art Barnaby 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 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.
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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
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 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.
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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 28, 2012
Risks Faced by Farms with High Cash Rents
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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 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 23, 2012
Landowner and Farmer Returns under Share Rental Arrangements with Differing Prices
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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 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 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 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 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%.
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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 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 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.
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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 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
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 26, 2012
Comparison of Changes in Program Spending in the Senate and House Farm Bills
The Senate passed their version of the 2012 Farm Bill on June 21, 2012. On July 5 Representative Frank Lucas, Chairman of the House of Representatives Committee on Agriculture released a draft of the Federal Agriculture Reform and Risk Management Act of 2012 which was passed by the House Ag Committee on July 11, 2012. Both the Senate and House Committee versions of the 2012 Farm Bill have been scored by the Congressional Budget Office (CBO) to achieve significant savings - more than $23 billion for the Senate version and more than $35 billion for the House Committee bill over the 10 fiscal years from 2013 through 2022.Posted by Nick Paulson, Gary Schnitkey, and Carl Zulauf 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.
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July 20, 2012
Springfield RMA Releases "Crop Insurance during a Drought"
The Springfield Regional Office of the Risk Management Agency (RMA) released a fact sheet entitled Crop Insurance during a Drought. This publication covers the following topics: notification of drought loss, appraisal of drought loss, and frequently asked questions.Posted by Gary Schnitkey Permalink Tweet
July 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.
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July 10, 2012
First Draft of New House Farm Bill
On July 5, 2012, the U.S. House Committee on Agriculture released a discussion draft of the 2012 Farm Bill. The Bill's title is the Federal Agriculture Reform and Risk Management Act (FARRM). This article summarizes provisions in FARRM that concern the safety net for U.S. crops: The provisions are in Title I, Commodities and Title XI, Crop Insurance.Posted by Carl Zulauf, Gary Schnitkey and Nick Paulson 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.
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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 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.
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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
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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 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.
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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.
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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 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 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.
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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.
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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.
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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 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.
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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.
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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.
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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.
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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.
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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.
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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.
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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
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.
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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 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.
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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.
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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).
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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 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.
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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.
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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.
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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.
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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 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.
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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 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 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 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 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 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.
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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 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.
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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 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 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
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 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 8, 2011
Agriculture in the Republican Proposal Presented by Paul Ryan
On April 5th, Paul Ryan released a Republican proposal that describes broad outlines of Federal spending over the next decade. The document entitled "The Path to Prosperity: Restoring America's Promise" makes little mention of agricultural spending. Agriculture not receiving much focus makes sense given that spending on commodity and crop insurance programs constitutes only .5 percent of Federal outlays, hence the size of agricultural programs have very little impact on total Federal expenditures and Federal deficits.Posted by Gary Schnitkey Permalink Tweet
April 6, 2011
Putting Agricultural Spending Into Perspective
Policy debates are currently dominated by the budget. While this is true regardless of whether or not the topic is agriculture related spending, the heat has been put on ag spending - specifically farm programs - in many recent popular press articles. It is not difficult to find criticisms of farm programs and claims of their partisan motivations,and attacks against proposals which seem light on farm program spending cuts. The relatively healthy ag economy and significant increase in farm income levels over the past few years are the most often argued points against the current design of farm programs, and have made it increasingly difficult to continue to justify the need to support and smooth farm incomes.Posted by Nick Paulson and Gary Schnitkey 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.
Posted by Gary Schnitkey Permalink Tweet
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:
Posted by Gary Schnitkey Permalink Tweet
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
