Hedging 2013 crops given crop insurance

As of this writing, downside revenue risk on the 2013 corn crop is small for those farmers who bought crop revenue products at high coverage levels, given that yields are expected to be at or below guarantee levels. For farmers in this situation, hedging corn will not increase protection against lower revenues. More downside revenue risks exist for soybeans.

Corn and hedging



Returns & land rents given lower grain prices

The U.S. Department of Agriculture recently updated its World Agricultural Supply and Demand Estimates (WASDE), with the midpoints of 2013/2014 price estimates at $4.80 per bushel for corn and $10.75 per bushel for soybeans. These prices are significantly below prices in recent years, suggesting that agricultural returns may be lower in 2013 and 2014. These lower returns then may lead to the need to reevaluate cash rents. Herein, returns at a $4.80 corn price and a $10.75 soybean price are examined by calculating operator and farmland returns for three different farmland productivities.


The 2013 ACRE decision

Farmers and landowners have until June 3 to enroll their Farm Service Agency (FSA) farms into the Average Crop Revenue Election (ACRE) program, an alternative within the 2008 Farm Bill to the Direct and Counter-Cyclical program (DCP). While ACRE likely will pay less than DCP, enrollment in ACRE may still be advisable since ACRE will make large payments if revenue is low. Hence, ACRE provides significant risk protection.

The Trade-off


Will ACRE pay in 2012?

ACRE, or the Average Crop Revenue Election, is a revenue-based program contained in the 2008 Farm Bill. In Illinois, 2012 ACRE payments for corn are possible if the market year average (MYA) price for corn averages below $7.00 per bushel. In Illinois, ACRE payments are unlikely for soybeans or wheat.

Corn ACRE Payments

ACRE makes payments when state revenue, as measured by the state yield times the national MYA price, is below benchmark revenue. The 2012 benchmark revenue for corn is $705.34 per acre.


Using crop insurance in 2012

In 2011, most corn and soybean acres in Illinois were insured using Revenue Protection (RP) at a 75% or higher coverage level. At these coverage levels, most acres where insured using enterprise units.