Yield Adjustments, but Still Record Crops (10/12/16)

Chad Hart, ISU Extension Grain Marketing Economist, provides a summary of the latest USDA reports.

Hart_Chad-thumbUSDA updated its projections for the 2016 corn and soybean crops. And while the national corn yield is reduced, the national soybean yield is increased and record production is still on the books for both crops. The national corn yield is set at 173.4 bushels per acre, down a bushel from last month, but still 2.4 bushels above the previous record set in 2014. With the yield this high, a 15 billion bushel corn crop is projected to be heading in from the fields during harvest. Combined with the 1.7 billion bushel carryover, total corn supplies for the 2016/17 marketing year stand at 16.85 billion bushels. Corn usage is also projected at record levels, but demand has not been able and is not projected to keep up with the supply surge. Corn export projections are raised 50 million bushels, bringing total usage up to a record 14.5 billion bushels. The end result is an ending stock level roughly 600 million bushels higher than we had for the 2015/16 marketing year, but slightly lower than last month’s estimate. That slight tightening of ending stocks gave USDA a little room to raise their projected price range by 5 cents per bushel, with the midpoint now at $3.25 per bushel.

The national soybean yield is projected at 51.4 bushels per acre, up 0.8 bushels from last month and well above the previous record. With production approaching 4.3 billion bushels, the soybean market has never had more beans to work with. So again, it’s a story of record supplies and demand, but demand growth lags behind supply growth. Soybean export projections are raised 40 million bushels, bringing total usage to 4.1 billion bushels. But ending stocks are projected to double and price projections are held steady, with the midpoint of the season-average farm price range set at $9.05 per bushel.

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Stocks Inline with Expectations (9/30/16)

Chad Hart, ISU Extension Grain Marketing Economist, provides a summary of the latest USDA reports.

Hart_Chad-thumbStock levels for corn and soybeans were up in the most recent USDA report, but the trade expected that as we move into the next marketing year. Corn ending stocks were estimated at 1.74 billion bushels, up just 6 million bushels from last year. While total corn stocks are about the same, farmers are holding more back on the farm than they did last year. Strong demand from the ethanol and export sectors boosted June-August corn disappearance by 9 percent. For soybeans, we entered the 2016/17 marketing year with 197 million bushels in storage. That’s 3 percent above last year’s level. And reversing the pattern for corn, less soybeans are being held by farmers on the farm. Summer crush and export demand were firm as well, with June-August soybean disappearance increasing by 55 percent. So the stocks report confirmed strong demand for corn and soybeans, but stocks still grew year-over-year.

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Supply and Demand Move Higher (7/12/16)

Chad Hart, ISU Extension Grain Marketing Economist, provides a summary of the latest USDA reports.

Hart_Chad-thumbThe July updates from USDA pushed both crop supplies and demands higher. But in the longer run, stock levels are projected to be higher, with steady to lower prices. On the supply side, the revised acreage and stock numbers from last month were fully incorporated into the projections. Corn production was increased by 110 million bushels, while soybean production rose by 80 million.

On the demand side, there were several offsetting moves. For corn in both old and new crop settings, feed and ethanol usage were lowered, while food and export usage rose. For soybeans, export demand was increased for both old and new crop. Crush demand was lifted slightly for the new crop, but seed and other uses were lowered for the old crop. Putting all of the shifts together results in slightly lower old crop ending stocks, but higher new crop (2016/17) stocks.

Season-average prices were held steady for soybeans, at $9.05 for the 2015/16 crop and $9.50 for the 2016/17 crop. Corn season-average prices were reduced by 5 cents on the 2015/16 crop to $3.65 per bushel and by 10 cents on the 2016/17 crop to $3.40 per bushel.

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Positive Demand News from USDA (6/10/16)

Chad Hart, ISU Extension Grain Marketing Economist, provides a summary of the latest USDA reports.

Hart_Chad-thumbUSDA’s June updates contained good news on the demand front for corn and soybeans. International demand continues to strengthen, while domestic usage holds steady. With no major changes on the supply side, this implies lower ending stocks and projections of higher prices. Starting with corn, the losses and delays in the South American harvest have opened up some off-season selling opportunities for the U.S. Old crop (2015/16) exports were raised 100 million bushels as a result. Although corn imports were increased slightly, the overall impact for old crop corn is a 95 million drop in ending stocks and a 10 cent increase in the season-average price to $3.70 per bushel. That drop in ending stocks, combined with another increase in new crop (2016/17) exports of 50 million bushels, lowered new crop ending stocks by 145 million bushels. The changes added 15 cents to the new crop corn season-average price estimate, raising it to $3.50 per bushel.

For soybeans, both old crop domestic and international demand were on the upswing. Crush added 10 million bushels, while exports grew by 20 million bushels. With the 30 million bushel drop in old crop ending stocks, USDA raised its 2015/16 season-average price by 20 cents to $9.05 per bushel. As with corn, the export demand increase extended into the new crop as well, adding another 15 million bushels. That pushed new crop ending stocks below 300 million bushels and lifted the 2016/17 season-average price estimate by 40 cents, to $9.50 per bushel.

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April Demand Update (4/12/16)

Chad Hart, ISU Extension Grain Marketing Economist, provides a summary of the latest USDA reports.

Hart_Chad-thumbThe World Ag Supply and Demand Estimates update for April contained some modest changes for the crop balance sheets. For U.S. soybeans, the only changes were a 15 million bushel bump in export demand and a slight decline in seed demand, based on last month’s Prospective Plantings report. Projected soybean ending stocks were lowered to 445 million bushels, but the midpoint of the 2015/16 season-average price range remains steady at $8.75 per bushel. For U.S. corn, the adjustments were mixed. Feed demand was reduced 50 million bushels, based on the quarterly disappearance pattern from the Grain Stocks report. Corn usage for ethanol was increased 25 million bushels as ethanol production has held near record levels over the 1st three months of the calendar year. Thus, corn ending stocks were raised 25 million bushels and the midpoint of the 2015/16 season-average price range fell 5 cents to $3.55 per bushel.

World corn production for 2015/16 was increased by 3 million metric tons, with 1 million of that going to increased imports for Mexico and Southeast Asia and 2 million projected to be held in stock. China’s feed usage of corn is projected to rise by 2 million metric tons, but that increase is expected to be met by drawing down existing internal stocks. World soybean production for 2015/16 was lowered slightly as declines in Chinese and Indian production offset an increase from Argentina. Global soybean trade was raised, based on stronger exports to China, Japan, and Mexico.

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Estimating Crop Insurance Indemnity Payments

Contributed by Steve Johnson, Extension Farm Management Field Specialist, sdjohns@iastate.edu.

Johnson_Steve_smHarvest prices determined in October will have a large impact on the size of the potential crop insurance indemnity payments for corn and soybeans. Current futures prices suggest that crop insurance revenue policies on corn will make indemnity payments on some farms, particularly those that purchased revenue policies at high coverage levels and are experiencing yields below their Actual Production History (APH). In Iowa, there’s a better chance for insurance indemnity payments on corn than there is for soybeans this fall. It would likely take a significant drop in soybean yields to likely trigger such a payment.

Crop Insurance Indemnity Payments

The 2013 projected price for corn is $5.65 per bushel. That’s the average settlement price of the December Chicago Mercantile Exchange (CME) corn futures contract during February. This projected price is used to set crop insurance guarantees and the premium paid by farmers. The harvest price is used to calculate revenue on which crop insurance indemnity payments are based. The harvest price for corn equals the average of settlement prices of the December CME corn futures contract during October. Settlement prices during the first 10 days of October suggest a harvest price of $4.40 per bushel. The final harvest price can vary before the end of the month, but this number provides a good starting point for evaluating corn payments.

An estimate of a $4.40 harvest price is 78% of the $5.65 projected price ($4.40 harvest price divided by $5.65 projected price = 78%). If actual yield equals the guarantee yield on revenue polices of an 80% level or greater coverage levels, it will likely trigger an indemnity payment. So an actual yield that falls 22% or more below the APH should command attention by the farmer. They will need to notify their crop insurance agent and make sure good records can verify this actual yield.

The projected price for soybeans is $12.87 per bushel. That’s the average settlement price of the November CME soybean futures contract during February. The first 10 days of settlement prices during October for November soybean futures suggest a harvest price of $12.75 per bushel. Similar to corn, the soybean harvest price is not yet known, but $12.75 is a useful starting point for evaluating a potential insurance indemnity payment on soybeans.

A $12.75 harvest price is 99% of the $12.87 projected price. Because 99% is above coverage levels offered by crop insurance revenue products, a yield loss has to occur before crop insurance indemnity payments would be made. Since corn and soybean yields will vary across farms and most farmers use enterprise unit coverage, crop insurance indemnity payments will also vary. A farmer should contact their crop insurance agent regarding the actual yield records necessary for an indemnity claim, updating their APH with this year’s harvest numbers or making their 2013 premium payment.

For farm management information and analysis visit Ag Decision Maker at www.extension.iastate.edu/agdm; ISU farm management specialist Steve Johnson’s site is at www.extension.iastate.edu/polk/farm-management.

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Small Adjustments This Month (7/11/13)

Chad Hart , ISU Extension Grain Marketing Economist, provides a summary of the latest USDA report.

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This morning’s supply and demand report mostly held to expectations.  Old crop stocks remain very tight, while new crop stocks are projected to increase.  Acreage was set by the June “Acreage” report and yields were held steady.  That put an additional 30 million bushels of soybeans in the 2013/14 projections, while corn production slipped by 55 million bushels.  On the demand side, there were no adjustments to soybean demand.  Corn feed was raised 50 million bushels for old crop, but lowered 50 million for new crop.  New crop exports were also lowered 50 million.  In the end, projected 2013/14 prices remain the same, $4.80 for corn and $10.75 for soybeans.

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Fall harvest prices & indemnity payments

Contributed by Steve Johnson, Extension Farm Management Field Specialist, sdjohns@iastate.edu.

The USDA Risk Management Agency (RMA) will release the final fall harvest prices for revenue protection crop insurance policies on November 1st. As of October 15th, those harvest prices are near $7.50 per bushel for corn and $15.38 per bushel for soybeans.

These final harvest price numbers are the final piece of information to finalize potential indemnity payments for Revenue Protection crop insurance coverage. Iowa farmers chose Revenue Protection on 92% of the insured corn acres and 91% of the insured soybean acres in 2012.

Many Iowa farms that suffered significant production losses in 2012 will receive indemnity payments over the next few months reflecting these harvest prices. Both the December corn futures price and the November soybean futures price have increased between the projected price (determined in February) and the harvest price (determined in October) periods. Should a production shortfall occur, that loss would be compensated at the higher harvest price. Farms that chose to insure their crops with a Yield Protection policy may also receive an indemnity payment for yield losses, but the loss will be paid at the February price level.

Many farmers use revenue protection coverage along with pre-harvest marketing strategies and commit a portion of their guaranteed bushels to delivery. This harvest price is critical if any lost production must be replaced at higher market prices for on-farm feeding or to fulfill delivery on a forward cash or hedge-to-arrive grain contract.

Shortfall of contracted bushels

Once farmers realize that they cannot deliver all the bushels they’ve contracted, they should work with the grain merchandiser on a strategy to make up the shortfall in bushels or pay the replacement value of those bushels.

To illustrate how indemnity payments are determined an example of Revenue Protection (RP) coverage for corn is featured.

2012 Revenue Protection (RP) example:

A loss occurs when the bushels of corn produced for the unit fall below the production guarantee as a result of damage from a covered cause loss. This example assumes 175 bushels per acre APH yield, 75-percent coverage level, and basic unit coverage.

175 bushels per acre X .75 = 131.3 bushel guarantee*

100 bushels per acre actually produced

131.3 bushels – 100 bushels = 31.3 per acre loss

31.3 per acre loss X $7.50 per bushel (harvest price determined in October) = $234.75 net indemnity*

* Figures shown on a per acre basis. Guarantees and losses are paid are on a unit basis. See individual policy provisions.

Summary

As long as the farmer did not commit to delivery of more than the 131.3 bushels per acre, he or she should have adequate fund to make up the shortfall in bushels or pay the replacement value of those bushels.

Delaying settlement beyond early November leaves farmers in a speculative position for those bushels that they were unable to deliver. Should the futures price move even higher beyond this time frame, the replacement cost would increase. Regardless, the need to work with the grain merchandiser is critical should you fall short on contracted bushels.

Adapted from USDA RMA’s 2012 COMMODITY INSURANCE FACT SHEET, Corn—Crop Revenue Coverage, January 2012.

Updated information on fall harvest prices will be posted on the AgDM blog and website as it becomes available.

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