April 19, 2015

An Argument for $4.25 New Crop Corn

University of Illinois ag economists Darrel Good and Scott Irwin have posted an article to the FarmDocDaily website making the case for $4.25 new crop corn. We've posted the accompanying supply and demand table along with one paragraph (Implications) from there case. 

Follow this link to read the whole article.


...from the FarmDocDaily Post


Our current projected 2015-16 corn balance sheet points to an ending stocks-to use ratio of 10.5 percent. That compares to ratios ranging from 12.0 to 14.3 percent implied by other balance sheet or price projections. Some of the difference with other projections lies in different balance sheet projections. Our projected yield and crop size is smaller than projected by others and probably smaller than expected by the market. In addition, our projection of 2015-16 marketing year consumption is 50 million bushels larger than the latest USDA projection and 150 million bushels larger than the FAPRI projection. Finally, others may draw different price implications from the same projections of production, consumption, and ending stocks. The USDA, for example, appears to be expecting a much weaker demand structure than what we forecast. That weaker demand would be expressed as a leftward shift in the relationship between the price of corn and ending stocks-to-use. Our analysis suggests there is potential for new crop corn prices to move higher if: i) this year's growing season points to a U.S. average yield at or below trend value of 164 bushels; and/or ii) demand is not as weak as some appear to be assuming. We maintain expectations for a 2015-16 marketing year average price near $4.25.

April 15, 2015

2014 Loss Experience for Revenue Protection Products

by Gary Schnitkey

Most of the 2014 insurance payments on COMBO products have been entered into Risk Management Agency’s Summary of Business, allowing us to calculate loss performance for individual products accurately. This article describes loss performance for Revenue Protection (RP), a revenue insurance plan used to insure most acres in the United States.

Corn, soybeans, and wheat had loss ratios of 1.04, .54, and 1.12, respectively. Loss ratios were above 1.0 in many counties of Iowa and Minnesota for corn and soybeans. Counties in the southern Great Plains had loss ratios above 1.0 for wheat. In Illinois, RP loss ratios were .40 for corn and .24 for soybeans.


In 2014, RP was used to insure 69.9 million acres of corn in the United States, representing 88% of total acres insured with crop insurance. Total premium on RP products was $3,350 million and total crop insurance payments were $3,484 million, giving a loss ratio of 1.04 ($3,484 in losses divided by $3,350 in total premium). A loss ratio above 1.0 means that insurance payments exceeded premiums. Over time, average loss ratios should equal near 1.0. On a per insured acre, insurance payments equaled $49.86 per acre (see Table 1).


Loss experience varied tremendously across states. For the eleven states with the most insured acres, RP’s loss rate was the highest for Minnesota at 3.01 and the lowest for Missouri at .11 (see Table 1). Iowa had a loss ratio of 2.21 while Illinois had a .40 loss ratio.

For Midwest states, the 2014 projected price was $4.62 per bushel while the harvest price was $3.49 per bushel. The harvest price was 75% of the projected price, meaning that coverage levels of 80% and 85% would have crop insurance prices if the actual yield did not exceed the guarantee yield. While much of the country had above average corn yields, there were areas of the country where yields were at or below guarantee yields. These areas included northern and central Iowa, Minnesota, and Wisconsin. As a result, RP products had high loss ratios in these areas, as illustrated in Figure 1 which shows RP loss ratio by county (see Figure 1). In most other areas of the country, loss ratios were well below 1.0. As one would expect, loss ratios were higher in areas with lower relative yields.



In 2014, RP was used to insure 65.2 million acres of soybeans in the United States, representing 88% of total acres insured with crop insurance. Total premiums were $2,092 million and total payments were $1,126 million (see Table 2). Total payments were far less than total premiums resulting in a loss ratio of .54. Since 2008, loss ratios for soybeans across all policies have not exceeded 1.00. On a per insured acre basis, insurance payments equaled $17.27 per acre.


Loss experience for soybeans had less range than those for corn. For the eleven states with the most insured acres, RP’s loss ratio was the highest for Minnesota at 1.25 and the lowest for South Dakota at .18. Iowa had a loss ratio of 1.07 while Illinois has a .24 loss ratio.

For Midwest states, the 2014 projected price was $11.36 per bushel while the harvest price was $9.65 per bushel. The harvest price was 85% of the projected price. Even at an 85% coverage level, farmers had to have actual yields below guarantee yields before insurance payments were made.
Most counties across the United States had loss ratios well below 1 (see Figure 2). Areas with loss ratios above 1.00 included counties in northern and central Iowa, Minnesota, northern Wisconsin, and some counties in Michigan, and New York.



In 2014, RP was used to insured 40.8 million acres of wheat, representing 85% of total acres insured with crop insurance. Total premiums were $1,330 million and total payments were $1,490. The loss ratio was 1.12 and payments averaged $36.60 per insured acre.


Figure 3 shows a map of county loss ratios for wheat RP polices. As can be seen, many counties in Texas, Oklahoma, and Kansas had loss ratios above 1.00. Many farms in this area had low yields. Other areas of payments occurred in Washington, Wisconsin, Illinois, and along the Mississippi Delta. Large areas with low loss ratios include Montana, North Dakota, South Dakota, Virginia, North Carolina, and South Carolina.



Lower prices for corn and soybeans resulted in RP payments for corn and soybeans. These payments were made in northern and central Iowa and Minnesota. Because of above average yields, loss ratios were low in most of Illinois, Indiana, and Ohio.

LINK to FarmDocDaily Article: 2014 Loss Experience for Revenue Protection on Corn, Soybeans, and Wheat

April 07, 2015

More Hogs than Expected

There is a mystery in the hog market and the USDA March Hogs and Pigs report did little to help explain it.

April 03, 2015

Post Report Day Briefing

During the Thursday Closing Market Report the April 1 USDA Grain Stocks and acreage reports briefing held by Darrel Good, Scott Irwin, and John Newton was mentioned. You may find this University of Illinois webinar and many others on the FarmDocDaily website. We have posted it here for your convenience.

March 31, 2015

Expected Corn and Soybean Returns and Shifts in Acres

Today at 11am central the United States Department of Agriculture will release the Prospective Plantings report. It is an estimate of how many acres of each crop U.S. farmers expect to sow for harvest this season. USDA sent out more than 80,000 surveys, aiming for an 80 percent response rate. Todd Gleason has more on how one University of Illinois ag economist sees the acreage laying out.

...read more from Gary Schnitkey on the FarmDocDaily website.

March 20, 2015

The March 31 Grain Stocks Report

The reports USDA releases March 31 will set the tone of agricultural trade for three months in Chicago.

Once every quarter the National Agricultural Statistics Service takes a census of the available bushels of corn, soybeans, and wheat. It is called the Grain Stocks report. It is not exactly a survey, but rather more of an actual accounting, in his case of what’s stored in Illinois, says NASS State Statistician Mark Schleusener, “…to measure the whole supply of grains and oilseeds USDA NASS does on farm surveys. Those are done with producers to find out what they have in their grain storage bins. Off farm storage tallies bushels in the mills and the elevators using a census as of March 1. All commercial storage facilities are contacted”.

Nationwide more than 9000 commercial storage facilities are contacted for the census side of the Grain Stocks report. The survey side - that done with farmers - is sent to more than 80,000 producers with an 80 percent response rate. The goal is to get a very accurate accounting of the bushels available for use.

Where the bushels are stored changes across the season. December 1 it is stored on farm. Through the winter months these bushels slowly move to the elevators and mills and eventually, in the case of corn, the bushels are shipped down the river for export, or fed to livestock, or turned into ethanol. The bushels are used.

If you add what’s used to what’s left - the Grain Stocks number - the sum should be the total available supply for the year. However, tracking the middle usage number for corn - bushels fed to livestock - isn’t possible. That’s why USDA calls this number Feed & Residual. This season it is supposed to be 5.3 billion bushels. The question is how much of that 5.3 billion has already been consumed. There in lies the guess says University of Illinois Ag Economist Darrel Good.

Quote Summary - If the most recent pattern is being followed this year and USDA’s 5.3 billion bushel usage for the year is correct, then use for the first half the year should total 3.9 billion bushels with 1.7 of that used in the second quarter. If that is the case, the total use during the second quarter would have been 3.75 billion bushel and leave March 1 stocks at 7.45 billion.

On-the-other-hand, if the usage pattern is more like it was prior to 2010, there could be another 200 or 300 million bushels of corn accounted for in the Grain Stocks figure because it hasn’t yet been consumed. It will still be consistent with a 5.3 billion bushel usage figure for the year.

The Grain Stocks report for corn has a wide range then of acceptable figures from around 7.4 to 7.7 billion bushels. It makes the Grain Stocks number not so important, and puts a great deal more weight on the Prospective Plantings report to be released on the same date, March 31.

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