Department of Economics Where are we with today’s economics and crop insurance? Chad Hart...
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Transcript of Department of Economics Where are we with today’s economics and crop insurance? Chad Hart...
Department of EconomicsDepartment of Economics
Where are we with today’s economics and crop insurance?
Chad [email protected]
515-294-9911
2008 Fall Agronomy In-Service TrainingAmes, Iowa
September 18, 2008
Department of Economics
Production Value
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Crops Livestock
Source: USDA-ERS
Department of Economics
Purchased Inputs
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Source: USDA-ERS
Department of Economics
Net Farm Income
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Value of agricultural sector production Purchased inputs Net farm income
Source: USDA-ERS
Department of Economics
Nominal vs. Real
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Net Farm Income Real Net Farm Income (in year 2000 $)
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Department of Economics
Historical Iowa Corn Production Costs
Source: Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf
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Machinery Seed, Chemicals, and Fertilizer Labor Land
Department of Economics
Historical Iowa Soybean Production Costs
Source: Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf
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Machinery Seed, Chemicals, and Fertilizer Labor Land
Department of Economics
Iowa Corn Prices vs. Costs
Source: USDA-NASS and Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf
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Season-average Price Cost
Department of Economics
Iowa Soybean Prices vs. Costs
Source: USDA-NASS and Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf
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Department of Economics
Iowa Corn after Soybeans Estimated Costs per Acre, Jan. 2008
Source: Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-20.pdf
Department of Economics
Iowa Herbicide Tolerant Soybeans after Corn Estimated Costs per Acre, Jan. 2008
Source: Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-20.pdf
Department of Economics
Urea Prices
Source: http://www.fertilizerworks.com/html/market/TheMarket.pdf
Department of Economics
DAP Prices
Source: http://www.fertilizerworks.com/html/market/TheMarket.pdf
Department of Economics
Ammonia Prices
Source: http://www.fertilizerworks.com/html/market/TheMarket.pdf
Department of Economics
Crude Oil Prices
Source: DOE – Energy Information Administration
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Department of Economics
Crude Oil Prices
Source: DOE – Energy Information Administration
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Department of Economics
Crop Costs for Central Illinois
Source: Schnitkey, July 2008
Corn Soybeans
2008 2009%
Change2008 2009
% Change
($/acre) ($/acre)
Fertilizer 118 215 82% Fertilizer 45 98 118%
Fuel and Oil 19 26 37% Crop Ins. 8 12 50%
Crop Ins. 20 27 35% Utilities 3 4 33%
Seed 62 78 26% Seed 42 53 26%
Utilities 4 5 25% Fuel and Oil
18 22 22%
Total Non-land Costs
388 529 36% Total Non-land Costs
239 321 34%
Department of Economics
Rough Estimates for 2009 Iowa Corn
Non-landCost
Land Cost
Total Cost
Expected Yield
Cost per Bushel
($/acre) (bu/acre) ($/bu)
513.05 190.00 703.05 165 4.26
513.05 225.00 738.05 165 4.47
513.05 260.00 773.05 165 4.69
December 2009 Corn Futures = $5.855 (9/17/08)
Department of Economics
Rough Estimates for 2009 Iowa Soybeans
Non-landCost
Land Cost
Total Cost
Expected Yield
Cost per Bushel
($/acre) (bu/acre) ($/bu)
268.10 190.00 458.10 49 9.35
268.10 225.00 493.10 49 10.06
268.10 260.00 528.10 49 10.78
November 2009 Soybean Futures = $11.12 (9/17/08)
Department of Economics
Iowa Corn Prices vs. Costs
Source: USDA-NASS and Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf
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Season-average Price Cost
Average Net Return per Bushel (1972-2007) -$0.07
Department of Economics
Iowa Soybean Prices vs. Costs
Source: USDA-NASS and Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf
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Season-average Price Cost
Average Net Return per Bushel (1972-2007) $0.31
Department of Economics
Net Return OutlookWith costs racing to catch to prices we’ve
seen over the past couple of years, net returns are tightening
So far, the outlook for 2009 looks better than the historical average
But with the volatility we’ve seen across many markets, things can change quickly
Department of Economics
Crop InsuranceOne of many risk management strategies
Traditionally set up to protect farmers in times of low crop yields
Also offers coverage for low prices
Available on over 100 commodities
Department of Economics
Historical Crop Insurance Participation
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87
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Mill
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Yield Revenue
Department of Economics
Why Crops Fail
44%
4%22%
3%
6%
8%
13% DroughtHeatExcess MoistureCold Wet WeatherFreezeHailOther
Department of Economics
Crop Insurance Subsidies
Coverage Level Subsidy %50% - 55% 67%55% - 65% 64%65% - 75% 59%75% - 80% 55%80% - 85% 48% 85% 38%
Department of Economics
Types of Crop Insurance
Individual Yield (APH)
Area Yield (GRP)
Individual Revenue (CRC, IP, RA)
Area Yield - Individual Revenue Combination (GRIP)
Department of Economics
Individual Yield Insurance (APH)
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
In 2008, 1.36 million acres of Iowa corn and 1.09 million acres of Iowa soybeans were covered with an APH policy
Department of Economics
Individual Revenue Insurance(CRC, IP, RA)
Farmer chooses percentage of expected revenue to insure
– Expected revenue measured by average yield times initial crop price
Price at which the crop is valued can move with price changes in the market
Final value of the crop determined by average futures prices over harvest period
Department of Economics
Individual Revenue Insurance(CRC, IP, RA)
CRC and RA have a “harvest price option”
If the harvest price is greater than the planting price, then the harvest price is used in all calculations
In 2008, 9.58 million acres of Iowa corn and 7.17 million acres of Iowa soybeans were covered with individual revenue policies
Department of Economics
Iowa Crop Insurance Figures
Average producer-paid crop insurance premium in Iowa
- Corn $22.74/acre
- Soybeans $17.57/acre
Most typical coverage
- Both crops 75% RA
Department of Economics
Iowa Crop Insurance Figures
Average crop insurance liability in Iowa
- Corn $640.14/acre
- Soybeans $459.77/acre
Total Iowa crop insurance producer-paid premiums
- 2007 $279 million
- 2008 $421 million
Department of Economics
Iowa Crop Insurance Premiums & Prices
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Producer-Paid Premiums Corn RA Price Soy RA Price
Department of Economics
Iowa Crop Insurance Premiums & Prices
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Producer-Paid Premiums Soy RA Price 2.2*Corn Price
Department of Economics
Average Producer-Paid Premiums
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Corn Soybeans
For RA, APH and CRC graphs would look similar
Department of Economics
Insurance Price Settings for 2009
For revenue products, usually set by the Feb. average on harvest-time futures (Nov. for soybeans, Dec. for corn)
For APH, price is based on USDA estimates for season-average price
Department of Economics
Farm Bill Twist
Starting in 2009, farmers will need to participate fully in crop insurance and non-insured crop assistance programs to qualify for the federal government’s new disaster assistance program (SURE)
SURE guarantees and payments are tied to crop insurance decisions
Department of Economics
Thanks for your time!
Any questions?