Thursday, March 9, 2017

2017 Revenue Protection Insurance Projected Prices for Corn and Soybeans and Safety-Net Decisions

Todd Davis, Extension Economist, University of Kentucky
The projected prices for Revenue Protection (RP) crop insurance is established using the December 2017 corn and November 2017 soybeans futures contracts closing prices for the month of February.
Figure 1. 
2017 and Previous Years Corn Revenue Guarantee 
($/Acre) Compared to Total Variable Costs (Red line) 
and Total Variable Costs plus Rent (Black Line) at a 
150 bushel/Acre APH Yield
The 2017 projected prices for corn and soybeans are $3.96 and $10.19 per bushel, respectively. The
revenue guarantee provided by RP insurance for varying coverage levels are compared to the budgeted cost of production and the cost of production plus cash rent to analyze the risk protection provided by RP insurance.

The rainbow of colored columns in Figure 1 and Figure 2 represent the RP insurance revenue guarantees provided for the 2013 (dark blue), 2014 (dark red), 2015 (green), 2016 (orange), and 2017 (light blue) crop years. The multi-year comparison illustrates how the crop insurance safety net has declined over the last five years as ending stocks for corn and soybeans have rebuilt after the 2012 drought. The red line is the 2017 budgeted per acre input costs, and the black line is the input costs plus budgeted cash rent. The corn and soybean APH yields are 150 and 55 bushels/acre, respectively, for Figure 1 and Figure 2.

Figure 2. 
2017 and Previous Years Soybean Revenue Guarantee 
($/Acre) Compared to Total Variable Costs (Red line) 
and Total Variable Costs plus Rent (Black Line) at a 
55 bushel/Acre APH Yield.
The projected price for corn at $3.96 would only be a $0.10/bushel increase over last year’s price and would be $1.69 per bushel below the guarantee in 2013 the year before the 2014 Farm Bill was signed into law (Figure 1). Figure 1 shows that the 2013 coverage may have been sufficient to provide a revenue guarantee that covered per acre input costs and cash rent, which is not the case this year. The $3.96 projected price provides a budgeted safety net that is $12/acre greater than the 2016 guarantee at the 80% coverage level (Figure 1).

Figure 2 demonstrates the potential for an improved revenue safety net for soybeans in 2017. The projected price for soybeans of $10.19/bushel is a $1.34/bushel increase over the 2016 price (Figure 2). The 2017 projected soybean price is $2.68/bushel lower than the 2013 insurance guarantee. Figure 2 suggests that a revenue safety net that covers total inputs and cash rent might be available at the 85% coverage level depending on the APH yield, cost of the insurance, and the farm’s cost structure. At the 80% coverage level, the 2017 revenue guarantee is $59/acre larger than last year (Figure 2).

Figure 3. 
2017 Corn (blue) and Soybean (red) RP Revenue 
Guarantee Compared to Total Variable Costs Plus
Cash Rent for Various Coverage Levels.
Figure 3 provides another reason why soybean planted area is expected to increase in Western Kentucky. The revenue guarantee for corn (blue) is $131/acre less than the Total Variable Costs plus Cash Rent at the 80% coverage level. At the highest coverage level, the deficit is budgeted to be over $100/acre. The soybean revenue safety net is suggesting the potential budgeted return over TVC and rent at the 85% coverage level. While few farmers have historically purchased the 85% level, the 80% coverage may limit the budgeted loss to $11/acre. Soybeans may have a much better RP safety net in 2017 and managers should work with their insurance agent to understand the potential revenue protection benefits versus the cost of increasing coverage for soybeans (Figure 3).

Remember that the deadline to make your 2017 crop insurance decision is March 15, 2017.

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