MT. JULIET, Tenn. (DTN) -- Some corn farmers won't need a yield loss to trigger a crop insurance payment this year, while many more are looking at a combination of yields and prices that will likely lead to an indemnity check.
"I wouldn't expect most farmers to have large payments, but some will have pretty good payments," University of Illinois agriculture economics professor Gary Schnitkey said.
It's a sharp reversal from the last three years when higher prices at harvest rendered most revenue protection insurance policies moot. Revenue protection insurance policies guarantee a level of revenue rather than just insure against yield loss. The revenue guarantee is calculated by using the higher of the spring projected price or the fall harvest price, multiplied by the farm's actual production history (APH) yield and the selected coverage level, which typically ranges from 70% to 85%.
Spring projected prices of $5.91 per bushel (bu) of corn and $13.76 bu of soybeans are higher than fall price calculations, which means they'll be used to compute revenue guarantees this season. Harvest price calculations, which are the average daily close of the new-crop futures contract during October, are averaging $4.91 bu for corn and $12.84 for beans as of Oct. 23, 2023.
"We're probably going to see quite a few payments on the corn side of the ledger, and probably not as much for soybeans this year, because relatively speaking, the soybean price just held up better," DTN lead analyst Todd Hultman said.
In a Farmdoc Daily blog earlier this month, Schnitkey and co-authors Nick Paulsen and Bruce Sherrick wrote that the harvest price for corn, which was $4.90 at the time, was 17.1% below spring's estimate. The average soybean price at the time was $12.72, slightly lower than currently and 7.6% less than the spring price. It's now 6.7% lower.
Growers that purchased revenue protection insurance with 85% coverage would need a yield lower than 102.5% of their actual production history (APH) yield to trigger an indemnity payment. A hypothetical farm with corn yields matching its 200-bpa APH and 85% coverage could expect a $24.70-per-acre payment, according to the Farmdoc team.
Schnitkey said the last time revenue protection policies paid without a yield loss was in 2014.
"We had pretty good yields that year, so that offset quite a bit of those payments," he told DTN in a telephone interview. This year is likely to be different, with more parts of the country seeing steep yield losses, and therefore indemnity payments, due to drought conditions.
If the same 200-bpa APH farm purchased 80% coverage, it would take corn yields at or below 193 bushels per acre (bpa) to trigger a payment. Yields would need to dip to 180.9 bpa to trigger a payment on a policy with 75% coverage and 168.9 bpa on 70% coverage.
For soybeans, it'll still take a below-APH yield to trigger a payment on 85% coverage policies.
A hypothetical farm with a 65 bpa APH yield and 85% coverage would trigger a payment if yields fell to 59.8 bpa. At 80% coverage, payments begin when yields fall below 56.3 bpa; 75% coverage, 52.7 bpa; and 70% coverage, 49.2 bpa.
You can read the full Farmdoc analysis here: https://farmdocdaily.illinois.edu/…
Farmers should work with their crop insurance agents to certify their yields and discuss potential payments.
"They also need to think about what that payment means from a tax planning perspective," Schnitkey said. Many farmers sold high-priced grain earlier this year and could be looking at a large Schedule F income, so they should discuss their grain sales and plans for prepaying expenses with their tax professional.
Hultman said crop insurance is going to help producers with their cash flow this year.
"Looking ahead, though, we're not going to have nearly as favorable a situation when we price corn and soybeans in February for 2024 crop insurance."
Katie Dehlinger can be reached at firstname.lastname@example.org
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