Tuesday, March 10, 2015

RP Crop Insurance Projected Price and Safety-Net for 2015

Todd Davis, Extension Economist, University of Kentucky

The 2014 Farm Bill has made crop insurance the foundation of a crop farm’s safety-net. This safety-net’s projected price, which sets the minimum revenue guarantee for Revenue Protection (RP) insurance, is based on the closing prices for the November soybeans and December corn futures contract during the entire month of February. The 2015 projected price for corn and soybeans are $4.15 and $9.73 per bushel, respectively. The revenue guarantee provided by crop insurance continues to decline from the record price levels of 2011 when the projected prices for corn and soybeans were $6.01 and $13.49 per bushel, respectively.

Figure 1 shows the revenue guarantee provided for a corn farm with an APH yield of 150 bushels per acre with RP insurance coverage levels ranging from 70% to 85%. The projected prices for RP insurance for corn in 2013 and 2014 were $5.65 and $4.62 per bushel, respectively, along with the $4.15 projected price for 2015. Figure 1 also has the 2015 per acre variable cost for corn of $415 (red line) and per acre variable cost plus cash rent of $615 (black line) based on UK crop enterprise budgets for Western Kentucky. The variable costs include the projected RP insurance premium for a farm in Caldwell County with an APH yield of 150 bushels using enterprise units.

The revenue guarantee for corn at the 80% coverage level has declined $180 per acre since 2013. The guarantee in 2013 was $678 per acre and declined to $554 in 2014 (Figure 1). At the projected price of $4.15, the revenue guarantee would drop $56 per acre from 2014 to $498. For perspective, compare the revenue guarantees to the budgeted 2015 total variable cost (red red) and the total variable cost plus cash rent (black line). RP Insurance at 80% coverage in 2013 (blue column) may have provided a revenue guarantee at a level to pay all variable costs and cash rent expense. The same coverage in 2014 had a revenue guarantee that covered all but $50 per acre of all variable costs plus cash rent expense. This deficit is projected to widen in 2015 to not covering $106 of the total variable costs plus cash rent (Figure 1).
Figure 1. Revenue Guarantee for Corn with a 150 Bushel APH Yield
at 70% to 85% Coverage Levels at the 2013, 2014, and 2015 Projected Prices.
Figure 2. Revenue Guarantee for Soybeans with a 50 Bushel APH Yield
at 70% to 85% Coverage Levels at the 2013, 2014, and 2015 Projected Prices.
Soybeans tell a similar story as the projected price has declined from $12.87 per bushel in 2013 to $11.36 per bushel in 2014. The 2015 projected price is $9.73. Figure 2 shows the revenue guarantees for a soybean farm with an APH yield of 50 bushels per acre at the 70, 75, 80, and 85 percent coverage levels.
The soybean guaranteed revenue at the 80% coverage level has declined from $515 per acre in 2013 to $454 per acre in 2014 (Figure 2). The revenue guarantee in 2015 has declined an additional $65 from 2014 to a guarantee of $389 per acre (Figure 2). At 80% coverage, the 2015 soybean revenue guarantee is $47 per acre short of covering all projected variable costs plus cash rent expense (Figure 2).
Figure 3 compares the 2015 projected revenue guarantee provided for corn (blue) and soybeans (red) less each crop’s total variable costs plus cash rent expense at the 70 to 85 percent coverage levels. Because soybeans have lower production costs, RP insurance for soybean may provide a safety-net with a smaller per acre loss than that for corn. At the 85% coverage level, RP insurance for soybeans doesn’t cover $31 of the total variable costs plus cash rent (Figure 3). In contrast, RP insurance for corn doesn’t cover $87 of the total variable costs plus cash rent at the same coverage level (Figure 3).
Figure 3. Revenue Guarantees for Corn (Blue) and Soybeans (Red)
less their respective Total Variable Costs plus Cash Rent Expense.

Farmers are expected to reduce corn acres and increase soybean acres in 2015 based on the relative profitability of both crops. The potentially better safety-net for soybeans will support this acreage shift.

Farmers have until March 15, 2015, to make their crop insurance decisions. Farmers should contact their local crop insurance agent to fully understand the crop insurance alternatives for their farm.



1 comment:

  1. Here is another link from USDA for crop insurance providers: http://www3.rma.usda.gov/tools/agents/companies/2015/kentuckyCI.cfm

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