Minding Ag's Business

If you needed another confirmation that crop insurance protects prices as well as yields, look no further than the tentative price guarantees now in their "discovery" month at the Risk Management Agency. With the swan dive in corn and other commodity prices since last spring, it's become increasingly likely crop revenue insurance policies will be triggered for corn--even if you've had a slightly bigger-than-normal yield this season. The last time price moves of this magnitude triggered payouts was in 2008.

October is the month when RMA sets a harvest price for growers in 31 states, so Chicago futures closings on corn, soybeans, sorghum, cotton and popcorn are a closely watched feature (DTN subscribers see daily running averages on the Ag News page). Through Oct. 9, the Dec. 2014 corn contract averaged $3.33, down 28% from the spring planting guarantee of $4.62/bu. The November 2014 soybean contract was running $9.31, about 18% below their $11.36 spring guarantee.

That means revenue per acre (price times yield) could nosedive for growers with so-so yields or even above-average yields.

In the case of corn, a grower with an 85% Revenue Protection policy could harvest a yield about 20% higher than his 10-year APH yield and still collect an indemnity, says Kansas State University economist Art Barnaby. For example, assume the October futures price closings average $3.35 for the Dec 2014 corn contract. Someone with a 117.6 bu. APH could post up to a 138 bu. corn yield and still get into claim territory, Barnaby says.

A recent analysis by the University of Illinois assumed a corn harvest price of $3.20 and a soybean price of $9.10. Corn and soybean APH yields ran 185 bu. and 57 bu. respectively. In that case, a grower with 80% coverage could harvest up to 214 bu. corn and 57 bu. soybeans and still trigger an indemnity.

Phenomenal yields in some parts of the country obviously offset crop revenue claims. On the other hand many operations in Minnesota and elsewhere with normal or slightly below normal production stand to benefit, Barnaby notes.

For the record, 2008 still holds the all-time biggest collapse between spring and fall prices, a factor that triggered major underwriting losses for the crop insurance industry. Back then the price of corn plunged from $5.40 based on February averages, to $3.74 based on October averages. That $1.66 difference was a drop of 31%--a collapse we're very close to matching.

Follow me on Twitter@MarciaZTaylor

Follow me on Twitter@MarciaZTaylor

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