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Crop insurance clock ticking

Agriculture.com Staff 03/05/2009 @ 1:22pm

It's time to make the annual crop insurance decisions!

This year, the futures market may be influencing what farmers choose, simply because prices fell during February and have continued to be weak in March. The February average price for corn is $4.04 and the average price for beans is $8.80. Crop insurance products using the February prices therefore start functioning like in-the-money put options. This is especially true for soybeans since futures prices are 70 cents below the February average.

For soybeans, recent price weakness is based on many factors, including the dismal economic situation, rainfall in Argentina and the expected larger crop in the US that is about to be grown.

With the South American crops edging closer to harvest, the volatility in crop estimates is being reduced. But more knowledge about crop size, even if South American crops are smaller than initial expectations, reduces the amount of risk premium necessary in futures prices.

Bean prices will continue to be sensitive to any acreage estimates that are released before the USDA figures on March 31st. If the market perceives the need for more corn acres, bean prices will suffer as a result.

There is also a concern or mystery regarding total crop acres. Right now, it would appear farmers are going to plant less total acres than in 2008. That makes some sense given the reduced prices this year. Also, less winter wheat acres means less double-cropped beans. However, acres did come out of CRP last fall. It makes the most sense for any acres that are currently "missing" to be planted to soybeans, so many fear the market will have to deal with even more bean acres in the future.

The risk of loss in trading commodities can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial situation.

It's time to make the annual crop insurance decisions!

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