Price increases could impact crop insurance payments for 2014

Even with projected record U.S. production of both corn and soybeans in 2014, the market prices of both crops have risen during the month of October. The reasons for the price rise are a combination of a later than normal harvest in many areas of the Midwest, together with strong current demand for grain, and fairly tight grain supplies at the end of the 2013-14 grain marketing year on August 31. While the recent improvement in grain prices is generally good news to crop producers, it could be costly to farm operators that will likely qualify for 2014 crop insurance indemnity payments.

On Oct. 24, December corn futures on the Chicago Board of Trade (CBOT) closed at $3.53 per bushel, which was 30¢ per bushel higher than the closing December corn price on Oct. 3. Similarly, November CBOT soybean futures have risen 53¢ per bushel, from $9.24 per bushel on October 3 to $9.77 per bushel on Oct. 24. Local cash corn prices in Southern Minnesota have risen from near $2.70 per bushel in early October to over $3.00 per bushel at many locations on October 24. Similarly, local cash soybean prices in Southern Minnesota rose from near $8.50 per bushel in early October to near $9.25 per bushel by October 24.

A large majority of farm operators in the Midwest carry Revenue Protection (RP) crop insurance coverage on their corn and soybeans. RP policies provide insurance coverage for reduced crop yields, as well as in instances where the harvest price drops below initial base price. All potential RP insurance indemnity payments are based on how the final crop revenue (actual crop yield x the harvest price) compares to the crop revenue guarantee (actual production history (APH) x the base price x the level of insurance coverage). The established base prices for 2014 RP crop insurance policies were $4.62 per bushel for corn and $11.36 per bushel for soybeans

The CBOT average price for December corn futures during the month of October is used to calculate the value of the 2014 harvested corn bushels for all RP insurance policies. The average price of CBOT November soybean futures during October is used to as the soybean harvest price. As of October 27, the estimated RP harvest prices were $3.44 per bushel for corn and $9.48 per bushel for soybeans. These prices compare to near $3.20 per bushel for corn, and $9.20 per bushel for soybeans as we entered the month of October. The 2014 crop insurance RP harvest prices will be finalized at the end of October.  

If the higher RP harvest prices hold, it will lower the crop insurance indemnity payments for Minnesota corn and soybean producers with reduced yields and crop revenues in 2014. For example, a corn producer with a 180 bushel APH yield with an 80 percent RP policy in 2014 would have a crop insurance revenue guarantee of $665.28 per acre. If the producer only has a final corn yield of 160 bushels per acre in 2014, the estimated gross crop insurance indemnity payment would be $114.80, based on the October 27 harvest price estimate of $3.44 per bushel. However, the gross indemnity payment estimate would have been $153.28 at a RP harvest price of $3.20 per bushel. The reduction in estimated crop insurance indemnity payments in soybeans, resulting from the recent surge in CBOT November soybean futures, is not as dramatic as the estimated decrease in corn indemnity payments. 

An information sheet, “2014 Crop Insurance Analysis,” contains more details on potential 2014 crop insurance indemnity payments and calculations. To receive a copy of this information sheet, please send an e-mail to [email protected]

TAGS: Management
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