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Market Outlook, Farm Bill, and Crop Insurance

Market Outlook, Farm Bill, and Crop Insurance. WinField Sales Leadership Meeting Shoreview, Minnesota Mar. 25, 2015 Chad Hart Associate Professor/Crop Markets Specialist chart@iastate.edu 515-294-9911. U.S. Corn Supply and Use. Sources: USDA-WAOB 2011-14, USDA-OCE 2015.

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Market Outlook, Farm Bill, and Crop Insurance

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  1. Market Outlook, Farm Bill, and Crop Insurance WinField Sales Leadership Meeting Shoreview, Minnesota Mar. 25, 2015 Chad Hart Associate Professor/Crop Markets Specialist chart@iastate.edu 515-294-9911

  2. U.S. Corn Supply and Use Sources: USDA-WAOB 2011-14, USDA-OCE 2015

  3. U.S. Soybean Supply and Use Sources: USDA-WAOB 2011-14, USDA-OCE 2015

  4. Corn Yields Top: 2014 Yield Bottom: Change from last year Units: Bu/acre Source: USDA-NASS

  5. Soybean Yields Top: 2014 Yield Bottom: Change from last month Units: Bu/acre Source: USDA-NASS

  6. World Corn Production Source: USDA-WAOB

  7. World Soybean Production Source: USDA-WAOB

  8. Hog Crush Margin The Crush Margin is the return after the pig, corn and soybean meal costs. Carcass weight: 200 pounds Pig price: 50% of 5 mth out lean hog futures Corn: 10 bushels per pig Soybean meal: 150 pounds per pig Source: ISU Extension

  9. Cattle Crush Margin The Crush Margin is the return after the feeder steer and corn costs. Live weight: 1250 pounds Feeder weight: 750 pounds Corn: 50 bushels per head Source: ISU Extension

  10. U.S. Meat Production & Prices Source: USDA-WAOB

  11. Corn Export Shifts Source: USDA-FAS

  12. Corn Export Sales Source: USDA-FAS

  13. Soybean Export Shifts Source: USDA-FAS

  14. Soybean Export Shifts Source: USDA-FAS

  15. Crude Oil Prices Sources: EIA and CME

  16. Strength of the U.S. Dollar Source: Federal Reserve

  17. Corn Grind for Ethanol

  18. Ethanol Stocks

  19. Current Corn Futures 3.98 3.74 Source: CME Group, 3/24/2015

  20. Current Soybean Futures 10.00 9.27 Source: CME Group, 3/24/2015

  21. 2014/15 Crop Margins

  22. 2015/16 Crop Margins

  23. Corn Prices vs. Costs Per Bushel Cost calculated as Per Acre Cost from ISU Extension divided by Actual Yield per Acre Sources: USDA-NASS for Prices, Duffy for Costs

  24. Soybean Prices vs. Costs Per Bushel Cost calculated as Per Acre Cost from ISU Extension divided by Actual Yield per Acre Sources: USDA-NASS for Prices, Duffy for Costs

  25. Thoughts for 2015 and Beyond • Supply/demand concerns • Record corn and soybean crops, but also record demand • Markets are in a holding pattern, waiting for news • Watching South American crop progress and U.S. acreage • Projected negative margins for 2014 and 2015 crops

  26. Farm Bill: Old vs. New Direct Payments (DP) Countercyclical Payments (CCP) Marketing Loans (LDP) Revenue Countercyclical Payments (ACRE) • Countercyclical Payments (PLC) • Marketing Loans (LDP) • Revenue Countercyclical Payments (ARC) New programs, but they have strong similarities to previous programs

  27. PLC: Corn Payment Potential Reference Price = $3.70 per bushel Payment Yield = 150 bushels per acre Notes: PLC payments are made on 85% of base acres.

  28. ARC-CO: 2014 Corn Revenue Guarantee Benchmark Revenue = $717.85 per acre ARC Revenue Guarantee = $617.35 per acre Notes: Revenue Guarantee equals 86% of Benchmark.

  29. ARC-CO: 2014 Potential Corn Payment ARC Revenue Guarantee = $617.35 per acre ARC Max Payment Rate = $71.79 per acre But ARC-CO is paid on 85% of base acres and 85% of $77.92 is $61.02

  30. ARC-IC: 2014 Corn & Soybean Combined Revenue Guarantee In 2014, if the farm is planted 60% to corn and 40% to soybeans, then Benchmark Revenue = $812.40 per acre Revenue Guarantee = $698.66 per acre

  31. ARC-IC : 2014 Potential Corn & Soybean Combined Payment Actual 2014 farm yields: Corn 180 bushels per acre Soy 50 bushels per acre Marketing year prices: Corn $4.00 per bushel Soy $10.50 per bushel Calculated revenues: Corn $720.00 per acre Soy $525.00 per acre ARC Revenue: 60%*$720.00 + 40%*$525.00 = $642.00 ARC-IC is paid on 65% of base acres ARC-IC Payment = $36.83 per acre (65% of $698.66-$642.00)

  32. PLC pays, ARC does not Neither pay Both pay ARC pays, PLC does not

  33. Three Choices PLC + SCO Price protection with top-up county-level insurance protection ARC-County County-level revenue protection based on historical averages ARC-Individual Farm-level revenue protection based on historical averages Choice holds for 2014-2018 crop years

  34. Corn Marketing Year Average Price Projections

  35. Soybean Marketing Year Average Price Projections

  36. Supplemental Coverage Option (SCO) • An additional policy to cover “shallow losses” • Shallow loss = part of the deductible on the producer’s underlying crop insurance policy • SCO has a county-level payment trigger • Indemnities are paid when the county experiences losses greater than 14% • Premium subsidy: 65% • Starts in 2015 • Can’t have ARC and SCO together

  37. Supplemental Coverage Option (SCO) SCO RP RPHPE YP

  38. Crop Insurance • One of many risk management strategies • Traditionally set up to protect farmers in times of low crop yields • Now offers coverage for low prices • Available on over 100 commodities

  39. Why Crops Fail

  40. Federal Crop Insurance • Federal Crop Insurance Corporation – 1938 • Government’s initial move in crop insurance • Federal Crop Insurance Act of 1980 • Premium subsidies • Federal Crop Insurance Reform Act of 1994 • Catastrophic coverage and higher subsidies • Agricultural Risk Protection Act of 2000 • The 2008 and 2014 Farm Bills

  41. Federal Crop Insurance:A Public/Private Partnership The Federal Government works with private insurance companies to offer crop insurance. Since 1998, all federal crop insurance products are sold and serviced by private companies. The Federal Government sets and/or approves premium rates and insurance terms. Both entities share risks and returns from crop insurance.

  42. Federal Crop Insurance

  43. Product Innovation • Agricultural insurance products developed by private companies, reviewed and approved by FCIC • Examples: • Crop Revenue Coverage (CRC) • Revenue Assurance (RA) • Income Protection (IP) • Group Risk Income Protection (GRIP) • Livestock Risk Protection (LRP) • Livestock Gross Margin (LGM)

  44. Federal Crop Insurance:Total Acres Insured

  45. Crop Insurance Top 10s

  46. Crop Insurance Top 10s

  47. Crop Insurance Top 10s

  48. Types of Crop Insurance • Individual Yield (YP) • Individual Revenue (RP and RPE) • Area Yield (AYP) • Area Revenue (ARP and ARPE)

  49. Example Farm A 100 acre corn farm in Anoka County, Minnesota with a 5-year average yield of 150 bu/acre Purchases insurance at the 80% coverage level Spring price: $4.15/bu (average of Feb. prices for Dec. corn futures)

  50. Individual Yield Insurance (YP) • Farmer chooses percentage of expected yield to insure • Expected yield measured by average yield • Price at which the crop is valued is set up front and does not change • If yields are 100 bushels per acre, the farmer receives $83.00 per acre = $4.15/bu * (80% * 150 bu/ac - 100 bu/ac)

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