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2014 a good year to max out crop insurance -- economist
A critical piece of the farm income puzzle for 2014 -- one that isn't exactly inciting optimism among farmers as they look ahead this winter -- will be crop-insurance guarantee levels for the 2014 crop. And right now, it looks like your best bet is to max out your crop insurance dollars.
The grain markets aren't exactly whistling along right now; a generally bearish tone has cast over the marketplace, and that's now got some analysts saying there's essentially a 30- to 40-cent range, higher and lower, for corn futures in the next month or so, especially after USDA released essentially bearish world grain supply and demand numbers earlier this week.
If the time frame is stretched to February 1 -- the day federal crop insurance price guarantees are nailed down -- without much upward movement in the grains, the price comprising the baseline for what you receive in indemnity payments if there is need later on during the 2014 growing season won't be much to write home about. Now, one expert says even at fairly high levels, crop insurance may not be a way to climb beyond the break-even point for corn production.
"In most cases, premium levels across coverage levels will be slightly lower in 2014 as compared to 2013. Guarantee levels will be much lower, and losses will occur at per-acre guarantee levels offered by crop insurance," says University of Illinois Extension ag economist Gary Schnitkey. "Given guarantee levels, farmers who have not purchased at the highest coverage levels should consider higher coverage levels due to lower guarantee levels."
What exactly does "higher coverage levels" mean? Schnitkey took a look at 2013 crop insurance levels for the state of Illinois and found that the vast majority of farms had coverage between 80% and 85%. But considering the changing costs expected for the 2014 crop, even an 85% coverage level may not make ends meet.
"Famers who purchased 80% and 85% coverage levels in 2013 will not be able to get the same per-acre guarantee level in 2014. Guarantees will be lower. In 2013, 80% of the corn acres insured in Illinois were at 80% and 85% coverage levels. Hence, most acres will have lower guarantee levels in 2014 as compared to 2013," he says. "Nonland costs for corn contained in the 2014 Illinois Crop Budgets total $537 per acre. According to the National Agricultural Statistical Service, the average 2013 cash rent in Sangamon County (Illinois) is $371 per acre. Total cost for cash-rent farmland at average cash rents is $908 per acre. The 85% guarantee level of $731 per acre is below the total costs for cash-rent farmland. In 2014, guarantee levels are below total costs on farms with cash-rent farmland."
Looking deeper into the numbers, even a higher annual production history (APH) keeps a lid on potential payback from indemnity claims. In the same central Illinois county, APH and current prices add up to a triple-digit slide from 2013 coverage levels.
"Unless very unlikely events occur, the minimum guarantee in 2014 will be much lower than in 2013 because the 2014 projected price will be lower than the 2013 projected price. Using a 187 Trend Adjusted APH yield, and a $4.60 price, the minimum guarantee at an 85% coverage level equals $731 per acre (187 Trend Adjusted APH yield x $4.60 projected price x .85)," Schnitkey says. "The 2013 guarantee at an 85% coverage level using the same guarantee yield is $845 per acre. At an 85% coverage level, the 2014 guarantee is $114 per acre lower than the 2013 guarantee."