Steven D. Johnson. Presentation Objectives

Transcription

1 January 30, 2013 Steven D. Johnson Farm & Ag Business Management Specialist (515) Presentation Objectives Define Shallow Loss and How ARC and SCO would work with Crop Insurance Discuss What s New in Crop Insurance for 2013 Highlight the interaction of TA-Option and Unit Coverage on Final Premiums Discuss Pre-Harvest Marketing Strategies using Guaranteed Insurance Bushels Highlight Seasonal Trends and Crop Insurance Prices vs. Spring/Summer Highs Summarize 5 Crop Insurance Strategies & 5 Crop Insurance Related Web Sites 1

2 Next Farm Bill Proposed Commodity Program Marketing Loan Rates: $1.95/bu Corn $5.00/bu Soybeans What is Shallow Loss? Farmer Paid Crop Insurance Premium Shallow Loss Crop Insurance 175 bu/a APH 80% Level Market Receipts Actual Yield (Up to 200 bu/a) X Market Price Received ($6/bu) 2

3 Iowa Crop Insurance Coverage (2012) Revenue Protection (RP) = 91% to 92% of Insured Acres Source: USDA Risk Management Agency, September 2012 New in Crop Insurance for 2013 Lower premium ratings from most the Corn Belt New factors for Trend-Adjusted APH Yield Endorsement (aka TA-Option) High Risk Alternative Coverage Endorsement (HR-ACE) Destroying Cover Crops Don t forget these dates: report new insured sod busting/crp (March 15) acreage reporting deadline (July 15) crop insurance premiums due (October 1). Source: USDA Risk Management Agency, November

4 Comparing ARC & SCO Programs ARC SCO Coverage Revenue Revenue or Yield % Losses Covered 11% Farm or 21% of County Guarantee Prices 5-Year Olympic Nat l Average Cash Price Yields 5-Year Olympic Average Yield (Farm or County) Payment Rate 65% Farm or 80% County of Eligible Planted Acres 10% to 21% of Coverage Level Futures: Projected vs. Harvest Price County Expected Yield 100% of Planted Acres Payment Limitations $50,000 per Entity None Cost None 30% of Expected Cost (70% Subsidy) Administration Farm Service Agency RMA/Crop Insurance Provider Source: Schnitkey, U of IL Extension Economics, May Crop Insurance Corn Premiums Source: USDA Risk Management Agency, November

5 2013 Crop Insurance Soybean Premiums Source: USDA Risk Management Agency, November Crop Insurance Decisions Unit Coverage? (Basic, Optional or Enterprise) Deductible? TA Option? Additional Hail, Wind and/or Extra Harvest Expense Policies? Revenue Protection RP (65%-85% Levels) 5

6 Trend-Adjusted Yield Option Factors Source: National Crop Insurance Services, December 2012 Calculating Trend-Adjusted Yields Year Actual Yield Yield Adjustment Trend Adjusted Yield Avg. Yield Example of a Typical Central Iowa County Corn Trend Adjusted Factor = : 14 years X 2.4 = bu/a 2012: 1 year X 2.4 = 2.40 bu/a Actual Yield = bu/a or TA Yield Option = bu/a Source: Iowa Crop Insurance Industry, January

7 Corn Coverage Comparison: #1 (Assumes $6.00/bu Projected Price) Optional Units vs. Enterprise Units 80% Level of Coverage APH Bushel Coverage Level 80 % Guarantee Bushel APH Bushel Coverage Level 80 % Guarantee Bushel 2013 Actual APH 2013 Actual APH Projected Price $6.00 Projected Price $6.00 Guarantee $842 Guarantee $842 Premium $23.60 Premium $10.67 Source: Iowa Crop Insurance Industry, January 2013 Crop Insurance Premium Subsidies Coverage Level Optional Units (Fields in Section) Enterprise Units (Fields in County) 65% 59% 80% 70% 59% 80% 75% 55% 77% 80% 48% 68% 85% 38% 53% Source: USDA Risk Management Agency, October

8 Corn Coverage Comparison: #2 (Assumes $6.00/bu Projected Price) Actual APH vs. TA Yield Option Optional Units: 85% vs. 80% Level APH Bushel Coverage Level 85 % Guarantee Bushel APH Bushel Coverage Level 80% Guarantee Bushel 2013 Actual APH 2013 TA Option Projected Price $6.00 Projected Price $6.00 Guarantee $895 Guarantee $932 Premium $37.58 Premium $37.60 Source: Iowa Crop Insurance Industry, January 2013 Corn Coverage Comparison: #3 (Assumes $6.00/bu Projected Price) Actual APH vs. TA Yield Option Enterprise Units: 85% vs. 80% Level APH Bushel Coverage Level 85% Guarantee Bushel APH Bushel Coverage Level 80 % Guarantee Bushel 2013 Actual APH 2013 TA Option Projected Price $6.00 Projected Price $6.00 Guarantee $895 Guarantee $932 Premium $22.28 Premium $18.78 Source: Iowa Crop Insurance Industry, January

9 Crop Insurance Premium Strategies Use the TA Option to Increase Revenue Guarantee Compare Savings of Enterprise Units vs. Optional Units (use of TA Option) Consider Appropriate Coverage Level along with TA Option and Revenue Guarantee Consider Adding Hail, Wind/Greensnap and/or Delayed Harvest Expense Policies: especially when electing Enterprise Units considering committing Delivery Bushels. Source: Johnson, ISU Extension, February 2013 Persistent Drought, El Niño (ENSO) Neutral During winter months, El Niño Southern Oscillation (ENSO) Neutral forecast: 1) Good growing conditions in Argentina, more variable in Brazil. 2) Warm and dry winter conditions in much of the Corn Belt. 3) Likely March or April before Northern Hemisphere weather forecast for the ) Rare for Corn Belt droughts to occur in back to back years. Source: NOAA Climate Prediction Center, Jan. 17 th,

10 Elwynn Taylor s 2013 Risk Wheel La Niña Summer = 70% risk of below trend line corn yield Neutral Summer = 53% risk of above trend line corn yield El Niño Summer = 70% risk of above trend line corn yield Source: Taylor, ISU Extension Climatologist, January 2013 Marketing Revenue Protection (RP) Guaranteed Insurance Bushels 10

11 Delivery of Corn Bushels with Revenue Protection (RP) 180 Bu/A Actual Production History (APH) Deductible 20% = 36 Bu/A 80% Level of Coverage 144 Bu/A Guarantee X $6.00/bu Projected Price = $864/A Revenue Guarantee Marketing Strategy Pre-Harvest Sell for Delivery up to 144 Bu/A Price Guarantee is Higher of the Projected Price vs. Harvest Price Slight Basis Risk Must Plant the Crop (Prevented Planting = 60%) Separate Bushels: Delivery vs. Non-Delivery Revenue Protection = Insurance Bushels that can be committed to Delivery Insurance Bushels = APH X Level of Coverage X Higher of Projected vs. Harvest Price (ie. Acts like a subsidized Put Option) Combine Insurance Bushels sold for Delivery along with the use of Futures and Options Strategies for Non-Delivery bushels. 11

12 Comparing 2013 Revenue Guarantees APH= 180 bu/a Corn, 50 bu/a Soybeans Projected Prices = $6.25/bu Corn, $13/bu Soybeans Corn Revenue 80% Final Yield: 100 bu/a vs. 200 bu/a Yield Price: $6.25/bu Projected, $4.50/bu vs. $7.50/bu Harvest Pre-Harvest Sales 100 $6.00/bu Unpriced Bushels = Harvest Price - $.50/bu $1,300 $875 $930 $1,000 12

13 Corn Insurance Prices vs. Seasonal Highs Source: USDA Risk Management Agency & CME Group, Nov December Corn Futures Seasonals Average High $ Average High $5.90 Source: October

14 Soybean Revenue 80% Final Yield: 30 bu/a vs. 60 bu/a Price: $13/bu Projected, $11/bu vs. $14/bu Harvest Pre-Harvest Sales 30 $12.50/bu Unpriced Bushels = Harvest Price - $.50/bu $690 $780 $505 $515 Pre-Harvest Marketing Thoughts Revenue Protection preferred for sale of Crop Insurance Bushels = Delivery Bushels (Guaranteed Higher of Projected vs. Harvest Price) New Barometer on March 1 st : the Projected Price (February average) for Delivery Bushels Generate adequate Cash Flow Needs for Fall 2013 through the Winter of Use Futures and Options Strategies for Non- Delivery Bushels. 14

15 Soybean Insurance Prices vs. Seasonal Highs Source: USDA Risk Management Agency & CME Group, Nov November Soybean Futures Seasonals Average High $ Average High $13.10 Source: October

16 5 Crop Insurance Strategies Consider Pre- Harvest Marketing: Selling Portion of Insurance Bushels for Delivery Prove your APH yields annually by Farm Level (Optional Units) Lower 2013 Premium Understand Unit Ratings; but Coverage & Plan Higher to Take the TA- Revenue Option Risks Choose Revenue Protection (RP) (Consider Adding Hail, Wind and/or Extra Harvest) Source: Johnson, ISUE Farm Mgt., Sept Crop Insurance Web Sites Ag Decision Maker ISU Extension Econ (Decision Tools, Newsletters, Publications, Voiced Media, Monthly e- Newsletter) USDA Risk Management Agency (RMA) Farm Doc U. of Illinois Extension Econ Ag Manager K-State Extension Econ Crop Risk Management - ISU Polk County (Crop Marketing Newsletter & Crop Insurance Updates, Webcasts) 16