Many expect corn acres to decrease and soybean acres to increase.
Here are projected yield multipliers for calculating break-even yields. Actual yields below break-even yields will result in crop insurance payments.
Somewhat ironically, crop insurance payments likely will be lower in 2014 than in 2012 and 2013. At the same time, revenue and returns will be much lower in 2014 than in 2012 and 2013.
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
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.
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.