Post on 27-May-2019
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January 30, 2013
Steven D. JohnsonFarm & Ag Business Management Specialist
(515) 957-5790sdjohns@iastate.edu
www.extension.iastate.edu/polk/farm-management
Presentation Objectives• Define Shallow Loss and How ARC and
SCO would work with Crop Insurance• Discuss What’s New in Crop Insurance for
2013 • Highlight the interaction of TA-Option and
Unit Coverage on Final Premiums• Discuss Pre-Harvest Marketing Strategies
using Guaranteed Insurance Bushels • Highlight Seasonal Trends and Crop
Insurance Prices vs. Spring/Summer Highs • Summarize 5 Crop Insurance Strategies &
5 Crop Insurance Related Web Sites
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Next Farm Bill Proposed – Commodity Program
Source: Johnson, ISU Extension, January 2013
Marketing Loan Rates:$1.95/bu Corn
$5.00/bu Soybeans
What is Shallow Loss?
Source: Johnson, ISU Extension, January 2013
Market Receipts
Actual Yield (Up to 200 bu/A) X Market Price Received
($6/bu)
Crop Insurance
175 bu/A APH80% Level
Farmer Paid Crop Insurance Premium
Shallow Loss
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Iowa Crop Insurance Coverage (2012) Revenue Protection (RP) = 91% to 92% of Insured Acres
Source: USDA Risk Management Agency, September 2012
New in Crop Insurance for 2013• Lower premium ratings from most the Corn Belt
• New factors for Trend-Adjusted APH Yield Endorsement (aka TA-Option)
• High Risk Alternative Coverage Endorsement (HR-ACE)
• Destroying Cover Crops
• Don’t forget these dates:– report new insured sod busting/CRP (March 15)
– acreage reporting deadline (July 15)
– crop insurance premiums due (October 1).
Source: USDA Risk Management Agency, November 2012
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Comparing ARC & SCO ProgramsARC SCO
Coverage Revenue Revenue or Yield
% Losses Covered 11% Farm or 21% of County Guarantee
10% to 21% of Coverage Level
Prices 5-Year Olympic Nat’l Average Cash Price
Futures: Projected vs. Harvest Price
Yields 5-Year Olympic Average Yield (Farm or County)
County Expected Yield
Payment Rate 65% Farm or 80% County of Eligible Planted Acres
100% of Planted Acres
Payment Limitations $50,000 per Entity None
Cost None 30% of Expected Cost (70% Subsidy)
Administration Farm Service Agency RMA/Crop Insurance Provider
Source: Schnitkey, U of IL Extension Economics, May 2012
Source: USDA Risk Management Agency, November 2012
2013 Crop Insurance Corn Premiums
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2013 Crop Insurance Soybean Premiums
Source: USDA Risk Management Agency, November 2012
Deductible?
Revenue Protection – RP(65%-85% Levels)
UnitCoverage?
(Basic, Optional or Enterprise)
Additional Hail, Wind
and/or Extra Harvest Expense
Policies?
TA Option?
Source: Johnson, ISU Extension, January 2013
2013 Crop Insurance Decisions
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Trend-Adjusted Yield Option Factors
Source: National Crop Insurance Services, December 2012
Calculating Trend-Adjusted Yields
Example of a Typical Central Iowa County
CornTrend Adjusted Factor = 2.4
1999: 14 years X 2.4 = 33.60 bu/A2012: 1 year X 2.4 = 2.40 bu/A
Actual Yield = 175.5 bu/A
or
TA Yield Option = 194.2 bu/A
Source: Iowa Crop Insurance Industry, January 2013
Year Actual Yield
Yield
Adjustment
Trend‐
Adjusted Yield
1999 155 33.60 188.60
2000 174 31.20 205.20
2002 176 26.40 202.40
2003 175 24.00 199.00
2004 198 21.60 219.60
2005 194 19.20 213.20
2007 175 14.40 189.40
2009 148 9.60 15.60
2011 185 4.80 189.80
2012 175 2.40 177.40
Avg. Yield 175.5 194.20
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Corn Coverage Comparison: #1(Assumes $6.00/bu Projected Price)
80% Level of Coverage
Optional Units vs. Enterprise Units
Source: Iowa Crop Insurance Industry, January 2013
APH 175.5 Bushel
Coverage Level 80 %
Guarantee 140.4 Bushel
2013 Actual APH
$6.00Projected Price
$842Guarantee
$23.60Premium
APH 175.5 Bushel
Coverage Level 80 %
Guarantee 140.4 Bushel
2013 Actual APH
$6.00Projected Price
$842Guarantee
$10.67Premium
Coverage Level Optional Units(Fields in Section)
Enterprise Units(Fields in County)
65% 59% 80%
70% 59% 80%
75% 55% 77%
80% 48% 68%
85% 38% 53%
Crop Insurance Premium Subsidies
Source: USDA Risk Management Agency, October 2009
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Corn Coverage Comparison: #2(Assumes $6.00/bu Projected Price)
Source: Iowa Crop Insurance Industry, January 2013
Optional Units: 85% vs. 80% Level
Actual APH vs. TA Yield Option
APH 175.5 Bushel
Coverage Level 85 %
Guarantee 149.17 Bushel
2013 Actual APH
$6.00Projected Price
$895Guarantee
$37.58Premium
APH 194.2 Bushel
Coverage Level 80%
Guarantee 155.36 Bushel
2013 TA Option
$6.00Projected Price
$932Guarantee
$37.60Premium
Corn Coverage Comparison: #3(Assumes $6.00/bu Projected Price)
Source: Iowa Crop Insurance Industry, January 2013
Enterprise Units: 85% vs. 80% Level
Actual APH vs. TA Yield Option
APH 175.5 Bushel
Coverage Level 85%
Guarantee 149.17 Bushel
2013 Actual APH
$6.00Projected Price
$895Guarantee
$22.28Premium
APH 194.2 Bushel
Coverage Level 80 %
Guarantee 155.36 Bushel
2013 TA Option
$6.00Projected Price
$932Guarantee
$18.78Premium
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Crop Insurance Premium Strategies• Use the TA Option to Increase Revenue
Guarantee
• Compare Savings of Enterprise Units vs. Optional Units (use of TA Option)
• Consider Appropriate Coverage Level along with TA Option and Revenue Guarantee
• Consider Adding Hail, Wind/Greensnap and/or Delayed Harvest Expense Policies:– especially when electing Enterprise Units
– considering committing Delivery Bushels.
Source: Johnson, ISU Extension, February 2013
Persistent Drought, El Niño (ENSO) Neutral
Source: NOAA Climate Prediction Center, Jan. 17th, 2013
During winter months, El Niño Southern Oscillation (ENSO) Neutral forecast:1) Good growing conditions in Argentina, more variable in Brazil. 2) Warm and dry winter conditions in much of the Corn Belt.3) Likely March or April before Northern Hemisphere weather forecast for the 2013.4) Rare for Corn Belt droughts to occur in back to back years.
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Elwynn Taylor’s 2013 Risk Wheel
Neutral Summer = 53% risk of above trend line corn yield
La Niña Summer = 70% risk of below trend line corn yield
El Niño Summer = 70% risk of above trend line corn yield
Source: Taylor, ISU Extension Climatologist, January 2013
Marketing Revenue Protection (RP) Guaranteed Insurance Bushels
Source: Johnson, ISU Extension, January 2013
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Delivery of Corn Bushels with Revenue Protection (RP)
Marketing Strategy
• Pre-Harvest Sell for Delivery up to 144 Bu/A
• Price Guarantee is Higher of the Projected Price vs. Harvest Price
• Slight Basis Risk
• Must Plant the Crop
(Prevented Planting = 60%)
180 Bu/AActual
Production History(APH)
RP @ 80% Level of Coverage
144 Bu/AGuarantee X
$6.00/bu Projected Price
Deductible20% = 36 Bu/A
= $864/A Revenue Guarantee
Source: Johnson, ISU Extension, January 2013
Source: Johnson, ISU Extension, January 2013
Separate Bushels: Delivery vs. Non-Delivery
• Revenue Protection = Insurance Bushels that can be committed to Delivery
• Insurance Bushels = APH X Level of Coverage X Higher of Projected vs. Harvest Price (ie. Acts like a subsidized Put Option)
• Combine Insurance Bushels sold for Delivery along with the use of Futures and Options Strategies for Non-Deliverybushels.
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Comparing 2013 Revenue GuaranteesAPH= 180 bu/A Corn, 50 bu/A Soybeans
Projected Prices = $6.25/bu Corn, $13/bu Soybeans
Source: Johnson, ISU Extension, January 2013
Corn Revenue Protection @ 80%Final Yield: 100 bu/A vs. 200 bu/A Yield
Price: $6.25/bu Projected, $4.50/bu vs. $7.50/bu Harvest Pre-Harvest Sales 100 bu/A @ $6.00/bu
Unpriced Bushels = Harvest Price - $.50/bu
$875$930
$1,000
$1,300
Source: Johnson, ISU Extension, January 2013
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Source: USDA Risk Management Agency & CME Group, Nov. 2012
Corn Insurance Prices vs. Seasonal Highs
December Corn Futures Seasonals
Source: www.cmegroup.com, October 2012
2008-12 Average High $5.90
2003-07 Average High $2.92
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Soybean Revenue Protection @ 80%Final Yield: 30 bu/A vs. 60 bu/A
Price: $13/bu Projected, $11/bu vs. $14/bu Harvest Pre-Harvest Sales 30 bu/A @ $12.50/bu
Unpriced Bushels = Harvest Price - $.50/bu
$505 $515
$690
$780
Source: Johnson, ISU Extension, January 2013
Source: Johnson, ISU Extension, January 2013
Pre-Harvest Marketing Thoughts• Revenue Protection preferred for sale of Crop
Insurance Bushels = Delivery Bushels(Guaranteed Higher of Projected vs. Harvest Price)
• New Barometer on March 1st: the Projected Price (February average) for Delivery Bushels
• Generate adequate Cash Flow Needs for Fall 2013 through the Winter of 2013-14
• Use Futures and Options Strategies for Non-Delivery Bushels.
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Soybean Insurance Prices vs. Seasonal Highs
Source: USDA Risk Management Agency & CME Group, Nov. 2012
November Soybean Futures Seasonals
Source: www.cmegroup.com, October 2012
2003-07 Average High $6.96
2008-12 Average High $13.10
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Source: Johnson, ISUE Farm Mgt., Sept. 2008.
Consider Pre-Harvest Marketing: Selling Portion of Insurance Bushels for Delivery
Prove your APH yields annually by Farm Level
(Optional Units)
Lower 2013 Premium
Ratings; but Higher
Revenue Risks
Choose Revenue Protection (RP) (Consider Adding Hail, Wind and/or Extra Harvest)
5 Crop Insurance Strategies
Understand Unit Coverage & Plan to Take the TA-Option
Source: Johnson, ISU Extension, January 2013
5 Crop Insurance Web Sites
• Ag Decision Maker – ISU Extension Econ(Decision Tools, Newsletters, Publications, Voiced Media, Monthly e-Newsletter)www.extension.iastate.edu/agdm
• USDA Risk Management Agency (RMA)www.rma.usda.gov
• Farm Doc – U. of Illinois Extension Econwww.farmdoc.illinois.edu
• Ag Manager – K-State Extension Econwww.agmanager.info
• Crop Risk Management - ISU Polk County(Crop Marketing Newsletter & Crop Insurance Updates, Webcasts)www.extension.iastate.edu/polk/farm-management
Source: Johnson, ISU Extension, January 2013