Outlook, Farm Bill, and Crop Insurance

Extension and Outreach/Department of Economics

Outlook, Farm Bill, and Crop Insurance

Ag Credit SchoolAmes, Iowa

June 7, 2012

Chad HartAssistant Professor/Grain Markets Specialist

chart@iastate.edu515-294-9911

Extension and Outreach/Department of Economics

U.S. Corn Supply and Use2008 2009 2010 2011 2012

Area Planted (mil. acres) 86.0 86.4 88.2 91.9 95.9

Yield (bu./acre) 153.9 164.7 152.8 147.2 166.0

Production (mil. bu.) 12,092 13,092 12,447 12,358 14,790

Beg. Stocks (mil. bu.) 1,624 1,673 1,708 1,128 851

Imports (mil. bu.) 14 8 28 20 15

Total Supply (mil. bu.) 13,729 14,774 14,182 13,506 15,656

Feed & Residual (mil. bu.) 5,182 5,125 4,793 4,550 5,450

Ethanol (mil. bu.) 3,709 4,591 5,021 5,000 5,000

Food, Seed, & Other (mil. bu.) 1,316 1,370 1,407 1,405 1,425

Exports (mil. bu.) 1,849 1,980 1,835 1,700 1,900

Total Use (mil. bu.) 12,056 13,066 13,055 12,655 13,775

Ending Stocks (mil. bu.) 1,673 1,708 1,128 851 1,881

Season-Average Price ($/bu.) 4.06 3.55 5.18 6.10 4.60

Source: USDA-WAOB

Extension and Outreach/Department of Economics

U.S. Soybean Supply and Use2008 2009 2010 2011 2012

Area Planted (mil. acres) 75.7 77.5 77.4 75.0 73.9

Yield (bu./acre) 39.7 44.0 43.5 41.5 43.9

Production (mil. bu.) 2,967 3,359 3,329 3,056 3,205

Beg. Stocks (mil. bu.) 205 138 151 215 210

Imports (mil. bu.) 13 15 14 15 15

Total Supply (mil. bu.) 3,185 3,512 3,495 3,286 3,430

Crush (mil. bu.) 1,662 1,752 1,648 1,645 1,655

Seed & Residual (mil. bu.) 106 110 130 116 125

Exports (mil. bu.) 1,279 1,499 1,501 1,315 1,505

Total Use (mil. bu.) 3,047 3,361 3,280 3,076 3,285

Ending Stocks (mil. bu.) 138 151 215 210 145

Season-Average Price ($/bu.) 9.97 9.59 11.30 12.35 13.00

Source: USDA-WAOB

Extension and Outreach/Department of Economics

Corn Planting

Source: USDA-NASS

0

20

40

60

80

100

4/1 4/8 4/15 4/22 4/29 5/6 5/13 5/20 5/27 6/3 6/10

% P

lan

ted

Maximum since 1980 Minimum since 1980

2012 2011

5-yr Average (2007-11)

Extension and Outreach/Department of Economics

Soybean Planting

Source: USDA-NASS

0

20

40

60

80

100

4/22 4/29 5/6 5/13 5/20 5/27 6/3 6/10 6/17 6/24 7/1

% P

lan

ted

Maximum since 1980 Minimum since 1980

2012 2011

5-yr Average (2007-11)

Extension and Outreach/Department of Economics

World Corn Production

Source: USDA-WAOB

Extension and Outreach/Department of Economics

World Soybean Production

Source: USDA-WAOB

Extension and Outreach/Department of Economics

Hog Crush Margin

Source: Shane Ellis, ISU Extension

The Crush Margin is the return after the pig, corn and soybean meal costs.Carcass weight: 200 pounds Pig price: 50% of 5 mth out lean hog futuresCorn: 10 bushels per pig Soybean meal: 150 pounds per pig

Extension and Outreach/Department of Economics

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

9/1 9/22 10/13 11/3 11/2412/15 1/5 1/26 2/16 3/9 3/30 4/20 5/11

Corn Soy

Change of Export Pace

Extension and Outreach/Department of Economics

Corn Grind for Ethanol

Source: DOE-EIA

86

88

90

92

94

96

98

100

102

104

Sep-10

Nov-10

Jan-11

Mar-11

May-11

Jul-11

Sep-11

Nov-11

Jan-12

Mar-12

May-12

Mill

ion

bu

she

ls

Extension and Outreach/Department of Economics

4.50

5.00

5.50

6.00

6.50

7.00

$ p

er

bu

she

l

Futures USDA

Projected 2012 Season-Average Corn Price

Cost

Extension and Outreach/Department of Economics

10.50

11.00

11.50

12.00

12.50

13.00

13.50

14.00

$ p

er

bu

shel

Futures USDA

Projected 2012 Season-Average Soy Price

Cost

Extension and Outreach/Department of Economics

Budget Projections by TitleTitle 2013-2022 Budget Change ($ million)

Title I – Commodity -17,639

Title II – Conservation -6,374

Title III – Trade 0

Title IV – Nutrition -4,024

Title V – Credit 0

Title VI – Rural Development 0

Title VII – Research 645

Title VIII – Forestry 9

Title IX – Energy 0

Title X – Horticulture 359

Title XI – Crop Insurance 2,748

Title XII – Miscellaneous -466

Total -24,747

Extension and Outreach/Department of Economics

Budget Projections by CropCrop 2013-2022 Budget Change ($ million)

Corn -5,752

Soybean 1,459

Wheat -6,409

Cotton -6,077

Rice -2,842

Sorghum -505

Barley -615

Oats -11

Peanuts -314

Dairy -59

Extension and Outreach/Department of Economics

Commodity TitleChanges 2013-2022 Budget Change ($ million)

End Direct Payments -44,622

End Countercyclical Payments -1,008

End ACRE -4,615

Adding Popcorn 91

Ag. Risk Coverage 29,240

Marketing Loans 35

Sugar Program 0

Dairy Program -59

Disaster Assistance 3,297

AGI Limits -95

Implementation 100

Total -17,639

Extension and Outreach/Department of Economics

2012 Senate ProposalEliminates direct payments, countercyclical

payments, and the ACRE program

Keeps marketing loan program

Creates the Ag. Risk Coverage program

Extension and Outreach/Department of Economics

ARC instead of ACRERevenue-based support program

Farmer chooses county or farm-based guarantee

Choice determines the % of land covered by the program

Extension and Outreach/Department of Economics

ARC Set-up for Corn in 2013Yield per Planted Acre

Year Farm(bu./acre)

County(bu./acre)

Season-Average Price($/bu.)

2003 2.42

2004 2.06

2005 2.00

2006 3.04

2007 4.20

2008 160 160 4.06

2009 175 175 3.55

2010 164 164 5.18

2011 163 163 6.20

2012 165 165 5.00

Olympic Average 164 164 4.75

10-year average3.77

Extension and Outreach/Department of Economics

ARC Guarantees Benchmark Revenue =

$779.00/acre = 164 bu/acre * $4.75/bu. for county$618.28/acre = 164 bu/acre * $3.77/bu. for farm

In this case, the guarantee equals89% * $779.00/acre = $693.31/acre for

county89% * $618.28/acre = $550.27/acre for farm

Payments are triggered when actual revenues fall below these levels

Extension and Outreach/Department of Economics

ARC AcreageFor farm-based option, you get paid on 65%

of your planted acres and 45% of your prevented planting acres

For county-based option, you get paid on 80% of your planted acres and 45% of your prevented planting acres

Extension and Outreach/Department of Economics

ARC Payout Graph

0

50

100

150

200

250

300

350

2 3 4 5 6 7 8

Price ($ per bu.)

Yie

ld (

bu

./a

cre

)

ARC pays out

No ARC payments

Extension and Outreach/Department of Economics

Crop Insurance TitleChanges 2013-2022 Budget Change ($ million)

Supplemental Coverage Option 682

CAT Rerating -437

Enterprise Units 506

APH Adjustment 855

Stacked IP for Cotton 3,224

Peanut Rev. Insurance 239

Implementation 85

Index-Based Weather Ins. 50

Beginning Farmer Provisions 192

Ag. Mng. Assistance 6

Crop Prod. on Native Sod -167

Participation Effects from ARC -2,487

Total 2,748

Extension and Outreach/Department of Economics

Federal Crop Insurance

0

50

100

150

200

250

300

Mill

ion a

cres

0

2

4

6

8

10

12

$ B

illio

n

Insured Acres Total Premiums

Extension and Outreach/Department of Economics

Causes of Loss for Iowa Corn, 1948-2010

Drought40%

Excess Moisture

27%

Flood4%

Frost3%

Hail12%

Wind4%

Other6%Plant Disease

2%

Insects2%

Extension and Outreach/Department of Economics

Causes of Loss for Iowa Soy, 1955-2010

Drought28%

Excess Moisture

27%

Flood6%

Frost2%

Hail29%

Wind2%

Other5%

Plant Disease1%

Insects0%

Extension and Outreach/Department of Economics

Acres Insured in 2011 Corn and Soybeans--Iowa

RP88.0%

YP6.5%

RPHPE3.6%

GRIP1.4%

GRP0.5%

Extension and Outreach/Department of Economics

0

50

100

150

200

250

$3.00 $3.50 $4.00 $4.50 $5.00 $5.50 $6.00 $6.50 $7.00

Price ($ per bu.)

Yie

ld (

bu

. p

er

acr

e)

0

50

100

150

200

250

$3.00 $3.50 $4.00 $4.50 $5.00 $5.50 $6.00 $6.50 $7.00

Price ($ per bu.)

Yie

ld (

bu

. p

er

acr

e)

RPE Pays Neither Pay

Both Pay

YP Pays

RP Payout Graph

RP Pays

No Payment

Extension and Outreach/Department of Economics

$0

$1

$2

$3

$4

$5

$6

$7

2000 2002 2004 2006 2008 2010 2012

Pri

ce (

$ p

er

bu

.)

Planting Harvest

Corn Insurance Prices

Harvest prices have been higher 4 out of last 12 years

Extension and Outreach/Department of Economics

$0

$2

$4

$6

$8

$10

$12

$14

2000 2002 2004 2006 2008 2010 2012

Pri

ce (

$ p

er

bu

.)

Planting Harvest

Soy Insurance Prices

Harvest prices have been higher 6 out of last 12 years

Extension and Outreach/Department of Economics

Current Subsidy RatesCoverage

levelBasic Units

Optional Units

Enterprise Units

Whole Farm Units

60% 64% 80% not avail.

65% 59% 80% 80%

70% 59% 80% 80%

75% 55% 77% 80%

80% 48% 68% 71%

85% 38% 53% 56%

Extension and Outreach/Department of Economics

0%

5%

10%

15%

20%

25%

30%

35%

50% 55% 60% 65% 70% 75% 80% 85% 90%

Coverage Level

2008 2009 2010 2011

Coverage Level Choice

Extension and Outreach/Department of Economics

Crop InsuranceSupplemental Coverage Option

Can purchase area-based policy to cover deductible part of individual-based policy

Payments triggered when area suffers 10% lossIf you participate in ARC, you face a deductible

of 21% for this optionWhat is the deductible if you do not participate in

ARC?70% premium subsidy for actuarially fair

premium

Extension and Outreach/Department of Economics

Crop InsuranceEnterprise discounts are now permanentSeparate enterprise units for irrigated and

nonirrigated landChange t-yield percentage from 60% to 70%Any renegotiation of the Standard

Reinsurance Agreement shall be budget neutral

Extension and Outreach/Department of Economics

Crop InsuranceAllows private insurance company pilot of

index-based weather insuranceAllows premium subsidy of 60% or less

Waives CAT fee, adds 10% to premium subsidy rates, and sets yield bound at 80% of the t-yield for beginning farmers

Extension and Outreach/Department of Economics

Not the Last Word on the 2012 Farm Bill

Senate proposal is just the start of the process

There will likely be several changes/modificationsARC may or may not be in the final farm bill

But now we know the starting point for negotiations

Extension and Outreach/Department of Economics

Thank you for your time!

Any questions?

My web site:http://www.econ.iastate.edu/~chart/

Iowa Farm Outlook:http://www.econ.iastate.edu/ifo/

Ag Decision Maker:http://www.extension.iastate.edu/agdm/