Insurance Guarantees Drop

Corn, Soybean Insurance Guarantees Lowest Since 2016, Giving Farmers Less Coverage Against Potential Price Shocks

Katie Micik Dehlinger
By  Katie Dehlinger , Farm Business Editor
Spring crop insurance guarantees, one of the key components of many farmers' risk management plans, drop for 2020 just as farmers are beginning to prepare for planting. (DTN File Photo)

MOUNT JULIET, Tenn. (DTN) -- Spring crop insurance guarantees for corn and soybeans are the lowest since 2016, which means farmers will have less protection against lower prices in their revenue policies in 2020.

At $3.88 per bushel for corn and $9.17 per bushel for soybeans, the guarantees are down 12 cents and 37 cents, respectively, from last year.

The spring guarantee is computed by averaging the daily close of the December 2020 corn and November 2020 soybean futures contracts throughout the month of February. Commodity prices dropped in the last week of the month as global markets responded to the accelerating spread of the new coronavirus.

"You've got a lower benchmark, a lower revenue guarantee, so you've got less coverage than you would otherwise," Jim Mintert, director of the Center for Commercial Agricultural at Purdue University, said on the sidelines of Commodity Classic last week. "From a farmer's perspective, it's a bummer the market is collapsing this week instead of next week."

Lower guarantees may also lead to lower premiums, depending on some of the volatility factors included in those calculations, he said.

American Farm Bureau Federation chief economist John Newton said the spring crop insurance guarantees can have a wider range of implications as well.

"Not only is crop insurance a key risk management tool for farmers, creditors often use the spring crop insurance prices and revenue to establish a minimum income level (but also including other farm financial indicators) and determine how much credit they will extend to a farmer," he wrote in a recent post that you can find here: https://www.fb.org/….

Mintert said he's hearing concern from farmers that this year could be another difficult one, especially because of how wet the winter has been in Indiana. It's just one reason why he recommends farmers take advantage of the 5% buy-up option for prevented planting. While that option is more expensive than last year, the premium differential is small, he said.

"Rivers are pretty full, reservoirs are pretty full, so it wouldn't take an unusually wet spring to trigger problems," he said.

DTN Senior Ag Meteorologist Bryce Anderson said there are several places where wet ground could be a problem again this year.

"All the Northern growing areas, from the Dakotas to Michigan, fall into that category after record-breaking precipitation in 2019," he said. "The southern and eastern Midwest also fall into that category, especially south and east of a line from Kansas City to Chicago. And the Delta and Southeast have been targeted by heavy rain and flooding already since the first of the year."

Mintert also recommends purchasing the harvest price option, which uses the higher of the spring or fall price that's set during the month of October to determine if the farm has suffered a loss. It's standard on revenue policies unless a farmer opts out, and while it doesn't pay out every year, indemnity payments tend to be large when it does, like in 2012.

DTN Lead Analyst Todd Hultman said it's a good year to consider the harvest price option, especially on soybeans.

"As I see it, USDA's U.S. ending soybean stocks at 425 million bushels is not likely to change much in 2020-21 and could come down. That supply level suggests a national cash average near $10 a bushel, significantly higher than the $8.75 a bushel USDA is estimating for the current season," he said. "Of course, China's economy is having a tough year with coronavirus, and lower U.S. soybean purchases are a bearish risk for prices in 2020."

Weather, 2020 soybean plantings and China's demand level all will be important factors in soybean prices in the year ahead.

"While soybeans have bullish possibilities, corn's possibilities lean bearish in 2020, especially if 92.0 million acres or more are planted," Hultman said. "A $3.88 average in 2020 puts 85% insurance coverage at $3.30 a bushel, assuming an average yield. If ending corn stocks do increase to 2.64 billion bushels as USDA projected in February, the $3.30 coverage could come into play."

Katie Dehlinger can be reached at katie.dehlinger@dtn.com

Follow her on Twitter @KatieD_DTN

(AG/CZ)

Katie Dehlinger