department of economics where are we with today’s economics and crop insurance? chad hart...
DESCRIPTION
Department of Economics Purchased Inputs Source: USDA-ERSTRANSCRIPT
![Page 1: Department of Economics Where are we with today’s economics and crop insurance? Chad Hart 515-294-9911 2008 Fall Agronomy In-Service](https://reader035.vdocuments.us/reader035/viewer/2022062401/5a4d1b0f7f8b9ab05998dc9f/html5/thumbnails/1.jpg)
Department of EconomicsDepartment of Economics
Where are we with today’s economics and crop insurance?
Chad [email protected]
515-294-9911
2008 Fall Agronomy In-Service TrainingAmes, Iowa
September 18, 2008
![Page 2: Department of Economics Where are we with today’s economics and crop insurance? Chad Hart 515-294-9911 2008 Fall Agronomy In-Service](https://reader035.vdocuments.us/reader035/viewer/2022062401/5a4d1b0f7f8b9ab05998dc9f/html5/thumbnails/2.jpg)
Department of Economics
Production Value
40
60
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180
200$
Bill
ion
Crops Livestock
Source: USDA-ERS
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Department of Economics
Purchased Inputs
60
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100
120
140
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180
200
220$
Bill
ion
Source: USDA-ERS
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Department of Economics
Net Farm Income
0
50
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400$
Bill
ion
Value of agricultural sector production Purchased inputs Net farm income
Source: USDA-ERS
![Page 5: Department of Economics Where are we with today’s economics and crop insurance? Chad Hart 515-294-9911 2008 Fall Agronomy In-Service](https://reader035.vdocuments.us/reader035/viewer/2022062401/5a4d1b0f7f8b9ab05998dc9f/html5/thumbnails/5.jpg)
Department of Economics
Nominal vs. Real
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120$
Bill
ion
Net Farm Income Real Net Farm Income (in year 2000 $)
Source: USDA-ERS
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Department of Economics
Historical Iowa Corn Production Costs
Source: Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf
0
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$ pe
r acr
e
Machinery Seed, Chemicals, and Fertilizer Labor Land
![Page 7: Department of Economics Where are we with today’s economics and crop insurance? Chad Hart 515-294-9911 2008 Fall Agronomy In-Service](https://reader035.vdocuments.us/reader035/viewer/2022062401/5a4d1b0f7f8b9ab05998dc9f/html5/thumbnails/7.jpg)
Department of Economics
Historical Iowa Soybean Production Costs
Source: Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf
0
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$ pe
r acr
e
Machinery Seed, Chemicals, and Fertilizer Labor Land
![Page 8: Department of Economics Where are we with today’s economics and crop insurance? Chad Hart 515-294-9911 2008 Fall Agronomy In-Service](https://reader035.vdocuments.us/reader035/viewer/2022062401/5a4d1b0f7f8b9ab05998dc9f/html5/thumbnails/8.jpg)
Department of Economics
Iowa Corn Prices vs. Costs
Source: USDA-NASS and Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf
0.00
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$ pe
r Bus
hel
Season-average Price Cost
![Page 9: Department of Economics Where are we with today’s economics and crop insurance? Chad Hart 515-294-9911 2008 Fall Agronomy In-Service](https://reader035.vdocuments.us/reader035/viewer/2022062401/5a4d1b0f7f8b9ab05998dc9f/html5/thumbnails/9.jpg)
Department of Economics
Iowa Soybean Prices vs. Costs
Source: USDA-NASS and Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf
0.00
2.00
4.00
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12.00
1972
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1976
1978
1980
1982
1984
1986
1988
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1994
1996
1998
2000
2002
2004
2006
2008
$ pe
r Bus
hel
Season-average Price Cost
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Department of Economics
Iowa Corn after Soybeans Estimated Costs per Acre, Jan. 2008
Source: Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-20.pdf
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Department of Economics
Iowa Herbicide Tolerant Soybeans after Corn Estimated Costs per Acre, Jan. 2008
Source: Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-20.pdf
![Page 12: Department of Economics Where are we with today’s economics and crop insurance? Chad Hart 515-294-9911 2008 Fall Agronomy In-Service](https://reader035.vdocuments.us/reader035/viewer/2022062401/5a4d1b0f7f8b9ab05998dc9f/html5/thumbnails/12.jpg)
Department of Economics
Urea Prices
Source: http://www.fertilizerworks.com/html/market/TheMarket.pdf
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Department of Economics
DAP Prices
Source: http://www.fertilizerworks.com/html/market/TheMarket.pdf
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Department of Economics
Ammonia Prices
Source: http://www.fertilizerworks.com/html/market/TheMarket.pdf
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Department of Economics
Crude Oil Prices
Source: DOE – Energy Information Administration
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$ pe
r bar
rel
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Department of Economics
Crude Oil Prices
Source: DOE – Energy Information Administration
0
20
40
60
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120
140
160
$ pe
r bar
rel
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Department of Economics
Crop Costs for Central Illinois
Source: Schnitkey, July 2008
Corn Soybeans
2008 2009%
Change2008 2009
% Change
($/acre) ($/acre)
Fertilizer 118 215 82% Fertilizer 45 98 118%
Fuel and Oil 19 26 37% Crop Ins. 8 12 50%
Crop Ins. 20 27 35% Utilities 3 4 33%
Seed 62 78 26% Seed 42 53 26%
Utilities 4 5 25% Fuel and Oil
18 22 22%
Total Non-land Costs
388 529 36% Total Non-land Costs
239 321 34%
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Department of Economics
Rough Estimates for 2009 Iowa Corn
Non-landCost
Land Cost
Total Cost
Expected Yield
Cost per Bushel
($/acre) (bu/acre) ($/bu)
513.05 190.00 703.05 165 4.26
513.05 225.00 738.05 165 4.47
513.05 260.00 773.05 165 4.69
December 2009 Corn Futures = $5.855 (9/17/08)
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Department of Economics
Rough Estimates for 2009 Iowa Soybeans
Non-landCost
Land Cost
Total Cost
Expected Yield
Cost per Bushel
($/acre) (bu/acre) ($/bu)
268.10 190.00 458.10 49 9.35
268.10 225.00 493.10 49 10.06
268.10 260.00 528.10 49 10.78
November 2009 Soybean Futures = $11.12 (9/17/08)
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Department of Economics
Iowa Corn Prices vs. Costs
Source: USDA-NASS and Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
$ pe
r Bus
hel
Season-average Price Cost
Average Net Return per Bushel (1972-2007) -$0.07
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Department of Economics
Iowa Soybean Prices vs. Costs
Source: USDA-NASS and Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf
0.00
2.00
4.00
6.00
8.00
10.00
12.00
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
$ pe
r Bus
hel
Season-average Price Cost
Average Net Return per Bushel (1972-2007) $0.31
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Department of Economics
Net Return OutlookWith costs racing to catch to prices we’ve
seen over the past couple of years, net returns are tightening
So far, the outlook for 2009 looks better than the historical average
But with the volatility we’ve seen across many markets, things can change quickly
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Department of Economics
Crop InsuranceOne of many risk management strategies
Traditionally set up to protect farmers in times of low crop yields
Also offers coverage for low prices
Available on over 100 commodities
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Department of Economics
Historical Crop Insurance Participation
050
100150
200250
30019
87
1989
1991
1993
1995
1997
1999
2001
2003
2005
Mill
ion
Acr
es
Yield Revenue
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Department of Economics
Why Crops Fail
44%
4%22%
3%
6%
8%
13% DroughtHeatExcess MoistureCold Wet WeatherFreezeHailOther
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Department of Economics
Crop Insurance Subsidies
Coverage Level Subsidy %50% - 55% 67%55% - 65% 64%65% - 75% 59%75% - 80% 55%80% - 85% 48% 85% 38%
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Department of Economics
Types of Crop Insurance
Individual Yield (APH)
Area Yield (GRP)
Individual Revenue (CRC, IP, RA)
Area Yield - Individual Revenue Combination (GRIP)
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Department of Economics
Individual Yield Insurance (APH)
Farmer chooses percentage of expected yield to insure– Expected yield measured by average yield
Price at which the crop is valued is set up front and does not change
In 2008, 1.36 million acres of Iowa corn and 1.09 million acres of Iowa soybeans were covered with an APH policy
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Department of Economics
Individual Revenue Insurance(CRC, IP, RA)
Farmer chooses percentage of expected revenue to insure
– Expected revenue measured by average yield times initial crop price
Price at which the crop is valued can move with price changes in the market
Final value of the crop determined by average futures prices over harvest period
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Department of Economics
Individual Revenue Insurance(CRC, IP, RA)
CRC and RA have a “harvest price option”
If the harvest price is greater than the planting price, then the harvest price is used in all calculations
In 2008, 9.58 million acres of Iowa corn and 7.17 million acres of Iowa soybeans were covered with individual revenue policies
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Department of Economics
Iowa Crop Insurance Figures
Average producer-paid crop insurance premium in Iowa
- Corn $22.74/acre
- Soybeans $17.57/acre
Most typical coverage
- Both crops 75% RA
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Department of Economics
Iowa Crop Insurance Figures
Average crop insurance liability in Iowa
- Corn $640.14/acre
- Soybeans $459.77/acre
Total Iowa crop insurance producer-paid premiums
- 2007 $279 million
- 2008 $421 million
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Department of Economics
Iowa Crop Insurance Premiums & Prices
0
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$ m
illio
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$ pe
r bus
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Producer-Paid Premiums Corn RA Price Soy RA Price
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Department of Economics
Iowa Crop Insurance Premiums & Prices
0
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450
2000 2001 2002 2003 2004 2005 2006 2007 2008
$ m
illio
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$ pe
r bus
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Producer-Paid Premiums Soy RA Price 2.2*Corn Price
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Department of Economics
Average Producer-Paid Premiums
0
10
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65% 70% 75% 80% 85%
Coverage Level
$ pe
r acr
e
Corn Soybeans
For RA, APH and CRC graphs would look similar
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Department of Economics
Insurance Price Settings for 2009
For revenue products, usually set by the Feb. average on harvest-time futures (Nov. for soybeans, Dec. for corn)
For APH, price is based on USDA estimates for season-average price
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Department of Economics
Farm Bill Twist
Starting in 2009, farmers will need to participate fully in crop insurance and non-insured crop assistance programs to qualify for the federal government’s new disaster assistance program (SURE)
SURE guarantees and payments are tied to crop insurance decisions
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Department of Economics
Thanks for your time!
Any questions?