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.

Ag Decision Maker (AgDM)

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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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